I’ve been fond of saying that nobody has ever successfully reblown the last bubble, but I should be more careful to point out that it doesn’t make it impossible. I imagine the unintended consequences would be disastrous, but enough magic money can accomplish quite a lot.

I bring this up because Robert Shiller, of the Case-Shiller Index, claimed that many areas are beginning to look like a new housing bubble. If this is the case, then we should expect another leg down in housing. This is subject to one of my favorite caveats: bubbles go on longer than most expect.

I thought I’d look at an alternate explanation.

With the new house tax credit (which can be used as a down payment) and low interest rates, first time home buyers are putting a floor in for low end homes in many areas (at least temporarily). If you predict big inflation hitting soon and lasting a while, a home with a 30 year fixed mortgage is still one of the best investments for the vast majority of people. The purchase is heavily leveraged with a nominal debt and a low interest rate. If inflation takes over, the home can make money in real terms even if the value of the home drops in real terms (yay leverage!). Most people can’t make heavily leveraged investments in anything else. For example, my margin rate with one of my brokers is 6.5%, and I’m subject to a margin call if I am too early on a bet. The average 30-year fixed mortgage is 5.18% today according to Bankrate. My leverage ratio for a new home is much higher than my leverage ratio for stocks, thanks in part to the tax credit and in part to the FHA (there isn’t a bank around that wouldn’t give me $200k for a home). When you throw in rent and interest deductions, this gets better and better for the average person.

Unfortunately, I think we’ve got a bit to go before big inflation hits, and there are no $200k homes near me. If you disagree on the inflation outlook, are not yet a homeowner, and live in an area where $200k homes exist as entry-level homes, there’s actually very little long term risk in buying a home. Yes, that’s a lot of qualifiers.