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University of North Carolina Assistant Professor of Economics Karl Smith on the potential risks of a bubble in the housing market.
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I think run next -- is warning of another housing bubble Carl Smith assistant professor of economics at the university.
Carolina joins a company now I'm not sure how much of the conversation you heard callable why are you concerned about a housing bubble.
I'm well I think because I think -- bubbles as being primarily liquidity events.
And there's a lot of liquidity in the system you talk a little bit about quantity of quantitative easing I think.
And the way the traditionally and liquid assets like housing work is when they get hit by a lot of liquidity.
Asset prices spike when people get scared that liquidity retreat -- that prices fall that looks exactly like the pattern we had.
And it looks exactly like the pattern might start again is still -- lot of liquidity out there right now housing is extremely illiquid it's more liquid than it is normally.
And so once -- liquidity starts to move into the housing market.
It's likely to prompt another bubble that looks like our stories -- levels that we've seen across time brought -- -- -- we're we're not in the bubble yet but the bubble is is the bubbles is situated in other words were ready to go into -- bubble.
Want some of that 85 billion starts the -- -- to the general economy.
In a lot of -- when housing that was -- thing.
That's more or less right I think that the reason if you think about it we if I think about housing from an asset perspective.
The reason why a lot of people are afraid to get in housing is because your money is stuck your money's locked up in the house and it's hard to sell.
As it becomes easier and easier to sell us more money gets in the housing that is actually safer for -- to buy a house is even safer for -- to put a down payment on -- house.
As -- more people do as more people do housing prices start to rise as housing prices start to rise becomes an even safer investment over the short term.
Banks elect -- lending standards more money goes in the housing and it's a self reinforcing liquidity cycle that pushes lots of money in asset prices up.
Yeah yeah that's good -- other words Obama in other words it's if -- good the more people that seem to do while more people jump in and we saw that by the way every while watching.
Kind of lived through that but we've got to how real estate bull long after the doesn't quite.
Think that you understand what you're talking about is gonna tell you one.
You know every time there's a -- a dip in the financial market people -- bubble.
We need to stop with this bubble market first -- there is -- national real estate market and talk about a national real estate market all the time.
There are little tiny pockets of good and that there's a lot of markets that still need to got -- a lot of foreclosures and there are a lot of people buying in a lot of markets I would like -- That there is a legitimate rise in prices through this catastrophe that we just went through.
Well -- good.
I don't I.
I don't necessarily mean bubble is a scary word for a lot of people as a financial.
S economists I don't necessarily use bubble pejorative Li I mean we think that.
You know we think lots of things are.
I'm we think money is a natural bubble we think you know -- -- a natural bubble and so we don't use that Jordan would not all bubbles pop.
But we're just mean that you you -- seeing a decline in liquidity premium you're seeing the fact that.
What the rent to price ratio is you're gonna see that fall over time and that's gonna drive up housing prices well -- that's that's what I knew that -- -- -- That means initially we're all gonna feel good until.
Those little bitty bubbles -- talk about start diverse but we appreciate it you educated us and we we'll see again soon.
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