The Battle of the Bubbles continued last week…with the housing bubble firing the loudest shot on Friday.
As you recall, we’re watching a gigantic struggle between two bubbles – one in residential real estate in the United States…the other in worldwide liquidity. One is losing air; the other is gaining it.
The big question is: Which bubble will win? The one that is deflating, or the one that is still inflating?
So far, since 2002, the inflating bubble has dominated world financial markets. More and more liquidity – money and credit in a variety of forms – has boosted prices all over the planet, not the least in U.S. housing. But now, the housing industry zeppelin is losing gas, and may be losing altitude.
On Friday, it seemed to drop down a couple of feet.
“Investors unsettled as home starts declined,” the Financial Times headlined the story. Housing starts in January fell to their lowest level in 10 years. The ‘soft landing’ everyone thought was a done deal appeared less sure than it had the week before. Work on houses dropped 14% in the month.
And did you know, that more houses are generally sold between Superbowl Sunday and the middle of April than in any other period? We didn’t either. But that’s what the Financial Times says. Actually, two thirds of the sales for the entire year normally happen during this period. And if they don’t pick up a bit, the whole year’s housing revenues are in jeopardy.
Of course, the housing industry could stabilize, just like everyone says it will. But what we wonder is what will happen to the other bubble…if housing blows up?
We don’t know. Right now, one bubble is pulling the economy up. The other is tugging it down. Either one of them could blow up at any time.
We watch…we just want to see what happens next.
The Daily Reckoning Australia