Thursday, April 4, 2013

Whence the next bubble: Housing market (again)? Bond market?

With a hat tip to Robert Tracinski, here's a link to a Washington Post article discussing how the Obama Administration is encouraging banks and mortgage lenders to provide funds to low quality home purchasing candidates.  Say, wasn't that a major factor in the first bubble? (The answer is "yes"; see this previous OLS post).  From the article:
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
Admittedly, it's a far cry from there to another housing bubble.  But what about the bond market? The lower interest rates = higher bond prices relationship has made a lot of bond holders happy over the last several years.  But there seems to be a growing concern among financial analysts that we maybe moving into "bubbleland":
These days focus is squarely on the bond market as the flashpoint where a bubble could burst. Junk bonds, investment grade corporates and even U.S. Treasuries – the classic “no risk” investment option — all seem to be reaching new heights and drawing suspicion.
That quote is from a Forbes article yesterday (here).  It's detailed and financial in nature, but worth the effort if you're financially inclined.