The World's Largest and most Robust Economy is nothing but One Gigantic Housing Bubble.

Is The Housing Bubble Fuelling GDP Growth? *** THIS GRAPH IS THE HOUSING BUBBLE *** << Back Home Created : Dec 21, 2005 **** Last Update : Mar 12, 2009 Does this graph look eerily similar to the First Half of NASDAQ graph? MyRealEstate The above graph depicts the exponential growth of GDP and also the US Housing Valuation, both in Trillions of USD. Source : Federal Reserve : Flow Of Funds A... [more]

Is The Housing Bubble Fuelling GDP Growth? *** THIS GRAPH IS THE HOUSING BUBBLE *** << Back Home Created : Dec 21, 2005 **** Last Update : Mar 12, 2009 Does this graph look eerily similar to the First Half of NASDAQ graph? MyRealEstate The above graph depicts the exponential growth of GDP and also the US Housing Valuation, both in Trillions of USD. Source : Federal Reserve : Flow Of Funds A larger scale graph below, shows that the linear growth started turning exponential in 1965 for GDP, and a year later in 1966 for Housing Valuation. Such a close relationship between the two is not just a coincidence. Rising home values have made Americans feel wealthy. And tapping into the Home Equity has been the source of purchasing power. Fuelling consumption and GDP growth. Since 1980 the Housing Valuation has exceeded GDP. Since 2000, it also appears that The Housing Bubble has not been pushing up the GDP as much, and the Gap between the two has been rising. May be the Housing Bubble is no longer effective in pushing up the GDP as much. This may well be it's final sprint before busting after a 40 year expansion. Why do I call this the Housing Bubble? Propping up this Bubble has been the most lucrative investment the US could have ever made. A small percentage of all homes are sold every year. In the year 2004, about 6.78M houses were sold per NAR. Census Bureau puts the estimate of Housing Units in the country at 122.6M for 2004. That is just about 5.5% of all the homes. This is a record, for an average year this would be much less. Say 5%, just for the sake of this discussion. Now if the sale prices of these 5% homes could be inflated by X percent. Then the market value of the remaining 95% homes also rises by X%. You get a 1900% (95/5=19) return on your investment in just one year. This is The Best Investment Ever. How did this get started? It was in the mid sixties that the US started creating more dollars than it had the gold to back them up. To fight the Vietnam War and also support the massive welfare programs at home. Now the Fed could print as much money they wanted, as they were practically off the gold standard. M3 exploded. Officially, the dollar was delinked from gold only on Aug 15, 1971. Why stop with just Govt. spending. If this newly created money could be handed directly over to the consumers, they would spend it and fuel economic growth. This along with the low interest rates of the Mid sixties, gave birth to the Biggest Asset Bubble ever. Home Equity extraction began, and has continued as of today. For Americans, their home was not just a shelter any more. It became a way to create wealth. The Fed also makes insane amount of money available to home buyers. Who keep bidding higher and higher to get into a home, further inflating home values. This has been happening year over year for nearly four decades. The 1945-1980 graph also puts the birth of this bubble pretty much around 1965. So how much Home Equity have Americans extracted from their homes since 1945? Graph Of Home Owners Equity vs Mortgage This phenomenon has gotten out of control since the Fed started lowering the interest rates after the 2001 recession. The results, the graph speaks volumes. This is no different than Milton Friedman's infamous "helicopter drop" of money. Except, you just need to apply for a home equity loan. This Giant Bubble has transformed the US into an Economic Power House. The World's Largest and most Robust Economy is nothing but One Gigantic Housing Bubble. The last real estate boom of late eighties and the resulting recession, merely look like a small bump on the graph. Those who think that was a bad recession, we are yet to see an actual decline in the Housing Valuation. What will that be like? I think what we have seen in the last five years, is the blow-off top of a bubble, which has been expanding for nearly 40 years. When this bubble pops, so will end the US dominance of the world. That begs the question, Is Depression Next? GDP and Housing Valuation In Billions USD( Table B.100, Line 3) Year GDP Hsg 1945 NA 116 1946 222.0 133.4 1947 244.1 158.9 1948 269.2 180.0 1949 267.3 196.9 1950 293.8 222.4 1951 339.3 249.1 1952 358.3 272.7 1953 379.4 293.1 1954 380.3 315.4 1955 414.7 344.7 1956 437.5 371.4 1957 461.1 394.4 1958 467.2 415.9 1959 506.6 441.1 1960 526.4 464.4 1961 544.7 488.6 1962 585.6 510.7 1963 617.7 531.3 1964 663.5 557 Year GDP Hsg 1965 719.2 582.2 1966 787.9 624.5 1967 832.6 660.2 1968 910.0 740.8 1969 984.5 804.3 1970 1038.6 845.6 1971 1127.1 925.8 1972 1238.3 1064.7 1973 1382.7 1213.9 1974 1500.0 1219.3 1975 1638.3 1369.1 1976 1825.3 1541.6 1977 2031.0 1831.9 1978 2294.7 2149.4 1979 2563.4 2534.1 1980 2789.5 2867.2 1981 3128.4 3213.9 1982 3255.0 3367.2 1983 3536.7 3522.0 1984 3933.1 4027.4 Year GDP Hsg 1985 4220.3 4574.0 1986 4462.9 5001.0 1987 4739.5 5501.1 1988 5103.8 5976.2 1989 5484.3 6473.6 1990 5803.1 6576.0 1991 5995.9 6809.6 1992 6337.7 7122.1 1993 6657.5 7357.7 1994 7072.2 7523.2 1995 7397.6 7990.1 1996 7816.8 8320.6 1997 8304.3 8779.8 1998 8747.0 9545.6 1999 9268.5 10395.6 2000 9817.0 11401.1 2001 10127.9 12491.5 2002 10469.6 13679.8 2003 10971.3 15084.8 2004 11734.3 17243.3 Year GDP Hsg 2005 12455.8 19402.8 2006 13244.6 20620.8 2007 - - 2008 - - 2009 - - 2010 - - 2011 - - 2012 - - 2013 - - 2014 - - 2015 - - 2016 - - 2017 - - 2018 - - 2019 - - 2020 - - 2021 - - 2022 - - 2023 - - 2024 - - ______________________________________________________________________________ Copyright © 2005 by Author. 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