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Berkeley Professor DeLong: Prepare for Housing Boom

Wednesday, 25 May 2011 01:15 PM

The housing slump could roar into an unexpected housing boom in short order, thanks to too little building now and a dramatic misplacement of homes built in the recent past, says University of California economics professor Brad DeLong.

The residential boom during the middle of the 2000s was large, yes, but the slump that has followed is four times the size of that boom. And, frankly, too many homes were built in the wrong places, DeLong said in a presentation Urban Land Institute, at a recent conference in Phoenix, Arizona.

“We built a lot of single-family houses in the swamps of Florida and in the deserts between Los Angeles and Albuquerque when we probably would rather have had more multifamily units in — say — close in Atlanta or in Venice Beach, California where people could actually commute to jobs,” DeLong said.

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“But the fact that we build some of our boom houses in the wrong place should strengthen rather than weaken post-crash demand for housing,” he continued.

In addition, a long-term increase in oil prices adds to the problem, since demand will be for “infill” housing and increased density near jobs.

The unpredictability of global warming will play a role, DeLong said.

Drought conditions might make it impossible for some desert towns to support any more housing — or the opposite, they could see flooding.

“We just don’t know,” he said. “But things are going to change. Our current location distribution will turn out to be non-optimal. That too should boost demand for construction. All these factors really should be pulling housing construction out of its depression right now. And I think they will pull us into a housing boom.”

Any boom in housing will be on hold, however, until job growth recovers, DeLong said. People will need to feel confident, first, that their jobs are relatively safe and must tire of “doubling up” with in-laws enough to take mortgages again.

“I keep thinking that we are now so under-built relative to trend that the next housing boom should be coming any day now,” DeLong admits.

“But I thought that back in May of 2009. And I have thought that ‘any day now’ every month since.”

That feeling is shared by none other than John Paulson, the hedge fund billionaire who made his money shorting housing before the crash and then went long gold ahead of its meteoric climb.

In late September 2010, he flatly told investors at a conference to buy homes now, while they still could. The logic was to lock in debt and interest payments at record lows while home prices were still cheap.

“If you don’t own a home, buy one,” Paulson said, according to Forbes. “If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.”

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The housing slump could roar into an unexpected housing boom in short order, thanks to too little building now and a dramatic misplacement of homes built in the recent past, says University of California economics professor Brad DeLong. The residential boom during the...
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2011-15-25
Wednesday, 25 May 2011 01:15 PM
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