A few weeks ago, BuzzCharts came across this headline: “80% Believe Housing Bubble.” Now, we don’t claim to know everything about the housing market, but we do know this: If 80 percent of people believe that an asset is grossly overvalued, it’s not. By definition, there’s no way the crowd can believe the crowd is wrong and be right in believing it.

 

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For a couple of years now the received wisdom has been that the Federal Reserve will have to raise interest rates, and that those hikes will “burst the bubble” in the housing market. But recent data have supported what Larry Kudlow, Brian Wesbury, Steve Forbes, and BuzzCharts have been saying all along: A housing slowdown will take place, and it will be orderly. No bubbles. No pops.

 

The received wisdom is always a target-rich environment if you’re hunting for economic fallacies. But here’s the economic truth: The Fed doesn’t set mortgage rates. When it “raises rates,” that just means it is removing money from the economic pipeline. Not only doesn’t this procedure increase mortgage rates, but over the long run it reduces inflation and permits the markets to lower mortgage rates.

 

Yes, the housing market has cooled in 2006. But think of this: The Fed has hiked its overnight interest rate 17 times in a row and we’re still selling almost 7 million houses per year. Meanwhile, median home prices are almost exactly where they were one year ago. All this is because the economic fundamentals that have been driving housing are still driving it.

 

This year, America will pass the 300 million population mark. That’s 9 million higher than the last census. Income tax receipts are up 13 percent year over year, according to the latest Treasury report. Mortgage rates are still low.

 

More people with more money and relatively cheap mortgages is translating to an orderly slowdown in a cyclical market. Remember, if it didn’t burst, it wasn’t a bubble.

 

— Jerry Bowyer is the author of The Bush Boom and an economic advisor to Independence Portfolio Partners. He can be reached through www.BowyerMedia.com.