Concerns about the bursting of the housing market "bubble" might be mitigated by Katrina, as thousands of dislocated Gulf Coast residents deplete an already low housing inventory. Rebuilding efforts, which could cost anywhere from $100 billion to $200 billion, will likewise put a strain on construction labor and materials... perhaps to the point of accelerating wage and price inflation.
Construction of single-family homes are expected to hit 2.04 million units this year -- the highest level since 1973, a period when young Baby Boomer families were flooding the housing market. In 2004, housing prices rose by a whopping 12.5% -- four times the rate of inflation. In some states, home prices were up by more than 30%!
Any increased value in the housing market is only sure to exacerbate fears among New Orleans' poorer residents that a conspiracy exists to dislocate them and confiscate their homes, and validate accusations of racial discrimination. To help those displaced by Katrina find new places to live, however, several Internet tools have appeared to help match people to available housing.
RELATED: An article in MSNBC.com takes the opposite, more pessimistic approach to Katrina's effect on the housing market. Under this theory, inflation caused by post-Katrina economic disruption could cause interest rates to rise. This, combined with related job losses, would erode homebuyers' buying power, effectively bursting the real estate bubble.
Source: CNN Money
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