Collapse of bubble inevitable, could cause recession

Various factors are consipring to burst the real estate bubble, most notably, the Fed raising interest rates. This piece from the Center for Economic and Policy Research highlights concerns with the current state of the US economy and the potential for recession caused by a collapse in house prices.

Fed Treading on Thin Ice as U.S. Housing Bubble Weakens

"Since the mid-90s the country has accumulated an enormous housing bubble, as house prices nationally have risen nearly 70 percent after adjusting for inflation. In some bubble areas, mostly the east and west coast, the real increase has been over 100 percent. Since house prices have historically increased at about the same rate as inflation, this means that more than $5 trillion of excess paper wealth – similar to the stock market bubble of the late 1990s – has been created. Just as bursting of the stock market bubble caused a recession in 2001, the collapse of the housing bubble will almost certainly do so."

"Rising mortgage interest rates will finish off the housing bubble if oversupply and a psychological reversal of the speculative mania don’t do it first. This party is about over, most unfortunately for the majority of Americans who never got to join in the festivities."