After the financial collapse of 2007, I readily consumed information on how the economy blew up; how half the stock market was wiped out; how new subdivisions were abandoned and left for dead.
A lot has changed in six years. A lot hasn’t.
Here, it appears we experienced a necessary dose of cautiousness. Elsewhere, not so much.
I read with interest last week Tristan Scott’s story on home appraisals in the Flathead Valley. Last year, according to area realtors, many appraisals were coming in lower than the listing price. Thus, lending institutions wouldn’t write mortgages that would cover the cost.
Appraisers were understandably guarded as the housing market improved – although, it now appears their figures are lining up with asking prices and more homes are selling.
Still, the median price of a home in Flathead County has hovered around $187,500, well below 2007’s peak of $250,000. And that’s probably a good thing, especially when you consider the pace at which housing values are increasing in other regions as the “B” word has crept back into economists’ vernaculars.
In Las Vegas, where real estate crashed harder than just about anywhere else in the country, the market is going gangbusters again. Some homes and land have doubled in price in just a few months. In May, overall prices there had increased 23 percent from a year earlier. The same story is playing out in Phoenix.
“They’re clearly bubbles,” Karl Case, one of the creators of the S&P/Case Shiller property-value index, told Bloomberg. “What can go up can go down – real quick.”
No one is panicking yet, and economists point out that many busts are regional. But it’s also true that President Barack Obama has recently focused on the risk of “artificial bubbles,” mentioning them at least four times in the last month. And for their part, Republicans have expressed concerns that the Fed is fueling bubbles by keeping interest rates so low.
So, here we are – about six years removed from the worst recession since the Great Depression – talking about bubbles again. And the discussion is far broader than whether real estate prices in some areas of the country are rising too fast.
Stocks are at a near record high, and so is the amount of borrowed money investors have used to buy them. Meanwhile, earnings can’t keep up with prices, which could signal an end to the bull market.
Democrats and Republicans have argued recently over how to keep interest rates low for student loans, but both sides have mostly ignored a more pressing problem – the actual amount of money it now costs to pay for college and, more importantly, the number of graduates who can’t pay back the money they borrow. In essence, another potential bubble.
The Consumer Financial Protection Bureau says students nationwide owe upwards of $1 trillion in federal loans and the Wall Street Journal reported earlier this month “just four in 10 borrowers with direct federal student loans are paying them back.” That’s too bad, since taxpayers are on the hook when those graduates start defaulting.
This isn’t to say a crisis comparable to 2007 is imminent. Few economists think that it is. But it is also smart to discuss market swings in real time rather than ignore them, as was largely the case preceding the banking and real estate crises. The fallout from that locally was an unemployment rate that eclipsed double digits for several months.
In July, Flathead County’s jobless rate fell to 6.1 percent, the lowest in nearly five years. It was a rough, slow road to get here, but it was also likely the safer route.