The Housing bubble may have already burst

Paul Krugman discusses the housing bubble. Yes there is one. It is on the two coasts in cities which have no room to expand. It is based on the anticipation that even if the buyer overpays for the house, they will be able to make a profit in capital gains by reselling to someone else at a higher price later. The middle states don't have this problem because they still have room to sprawl, and so the price of homes is based on the cost of construction.

However, in San Diego and a few other cities houses that are currently coming on the market are no longer selling overnight. Instead, an inventory is building up. So the housing bubble may have burst. It will simply be a slow process as it happens because real estate prices move a lot more slowly than stock or bond prices do.

So what?

the U.S. economy has become deeply dependent on the housing bubble. The economic recovery since 2001 has been disappointing in many ways, but it wouldn't have happened at all without soaring spending on residential construction, plus a surge in consumer spending largely based on mortgage refinancing. Did I mention that the personal savings rate has fallen to zero?

So with the Housing bubble providing much of the underlying economic strength of the economy, its loss will be felt across the nation.