Friday, August 25, 2006

Put A Sock In It, Chicken Little

I don't want to hear a word about any housing bubble. Not one more word.

I've been forced to listen to people that have no idea what they're talking about talk about a housing bubble for... well...

There never was a boom, according to the Bubblers. Their switch only has two positions: Bust and Bubble. Well, people who work on Wall Street know that advice that has no basis in time is worthless. I'll trump that and say it's not worthless; it's actively bad.

I'm not going to bother to direct you to an article about the "Housing Bubble.
Google it. 8.4 million hits. Help yourself. For balance, you could Google "Housing Boom." You'd get 15 million hits for that. Of course, the most cursory inspection of those reveals that every damn one of them covers the topic of why the boom that never existed is now going bust.

I lied. They do, why shouldn't I? I am going to direct you to an article outlining an opinion about The Housing Bubble, from one year ago. I wrote it. And in it, I mentioned that one Fed chief ago, I had been listening to years of housing bubble talk ad naseum and no one had any idea what they are talking about. And they still don't. They're a busted clock, and they seem to think that since they've been telling you for ten years that houses will become next to worthless overnight, they're right now. And please notice, my only advice to avoid losing all your money in real estate overnight was to never buy any in a place where corrupt or incompetent local governance could make your house worthless overnight. Paging Ray Nagin. And I wrote that before Katrina. What did those soothsayers at CBS say back then, I wonder?

Well, I read CBS Marketwatch --oops I lied again-- as they had the most gratifying end-of-the-world-overmortgaged-smoking hole headline. CBS Marketwatch.

They mention all sorts of things that are meaningless things, if you're talking about a "bubble" instead of the normal workings of supply and demand:
"Sales of new homes dropped 4.3% in July "- There is not an everlasting supply of persons that do not have a house. If home builders keep building units for imaginary persons, they will indeed go out of business. I think that would apply in any business, though. Maybe they'll build or do something else when they get these signals. Just a hunch.

"The July sales pace was the lowest since February's 1.038 million."
Like I said, I've been in this business for a long time. I remember the fervent prayers of the building industry to crawl over the million unit threshold, just once in their lifetime. I distinctly remember Builder magazine discussing 900,000 units as a sort of "happy days are here again."

"New-home sales are down 21.6% in the past year, the biggest drop since late 1994. "
How exactly does comparing this year to last year have anything to do with 1994? I was in the business in 1994, (and 1984 too, by the way) and I can tell you lots of capital was fixing to run down a rathole in 1994, and it wasn't a housing rathole.

Housing was in the toilet in 1994, and every day since I've been warned to stay out of the housing market. FYI geniuses: If I had listened to you, and rented in the interim, I would have had to come up with the 497.75% of extra appreciation my property would cost since then. Read that number again after I tell you I'm not joking or exaggerating, that's exactly the appreciation in the value of my property, including what I've "lost" in this bubble. I lived in it while it appreciated, too. Try that with your Exxon stock. The chairs in Exxon's lobby are uncomfortable to sleep on, anyway. CBS Marketwatch says home sales in my neck of the woods are down 43%. I'm sure they can point me to lots of investments that return 497% in 12 years. Is my house overvalued now, or was it undervalued then because people read the newspapers back then too, and listened to people like you? Try building one down the street like mine for less than mine would sell for. Good luck getting a building permit for your non-existent lot. Hint: this isn't Holland, and we're not making additional land here to compete with mine.

You'll have to come up with every penny I mentioned to get me to sell. Even then I wouldn't, come to think of it. It's my home, you schmucks. And if it loses 10% of its value I'm not going to move in the swamp out back and leave it for the bank because it only appreciated 487.75%, not 497.75%. The horror! Please, continue reading while I knit myself a noose.

Don't invest in Pulte, Centex or Toll Brothers if you're afraid there are no more housing customers. Seems prudent, as it appears the boom that never happened is now over before it starts, or something. I wouldn't open a Real Estate office this week either, unless you like to work real hard for your dough. Like the rest of us.

But I'd invest in every single one of them, before I'd invest in CBS or the New York Times.


Patrick Martin said...

Is the lesson not that houses are a fine vehicle for personal investment when you purchase one, for yourself and your family to live in, but much more speculative and risky when you start buying others, strictly as investments?

Fern said...

Well, I still have my fingers crossed that a big earthquake will come along and scare all the non-Californians out of California a and back to where they came from (la the Northridge Earthquake). Because regardless of whether there is or isn't a boom, is or isn't a bubble and is or isn't a bubble about to burst, a gigantic earthquake scaring away a large portion of the population is about the only way I'm ever going to be able to afford a house here in my beloved state.

Pastor_Jeff said...


I feel your pain. When my wife and I were first married a decade and half ago we were living 90 minutes north of NYC in Westchester, in the only affordable area we could find.

At that time we were childless, both working, and pulling down quite healthy professional salaries. We realized that if we wanted to stay on the East Coast and own a house, that would mean either living in a cracker box or moving another 90 minutes farther north.

We solved the problem by moving back to the Midwest where there are good jobs, afforadable homes, and nice people -- making housing more affordable for the natives.

I can only imagine what those 'impossibly unaffordable' homes in Westchester are going for now.

SippicanCottage said...

patrick-I can't think of another investment that appreciates in value while you use it.

Speculating in Real Estate is for professionals and fools, often the same persons.

Fern- I am very sympathetic to the difficulty faced by a first time home buyer.

I lived in CA. 25 years ago, and still have a soft spot for it. Mortgage Interest rates were 16% back then, so I rented. So you've got me beat there. Now if you can just come up with a half mil for a down payment...

Pastor Jeff- Westchester? Are you spying on the midwest now? They should keep an eye on you.

Fern said...

Jeff--California weather is like a highly addictive drug. I live within walking distance of the beach, it is always sunny and between 60-80 degrees. I don't even own a jacket. If it weren't for the weather and the lack of an ocean, I would gladly move somewhere in the midwest.

SC--Yeah...500K shouldn't be too hard to come up with. ;-) A house around the corner from me just sold for $500,000. It was 720 sq ft, 2BR 1 bath on a lot just barely larger than the house. I could almost fit the whole property inside my 2BR 2BA apartment. ;-) Here's to hoping for something that causes a short term dip in prices so I can get into the market.

Pastor_Jeff said...


Yes, well there is the beautiful setting and gorgeous weather thing.

We have friends who moved here from LA a few years ago. They had bought a decent house and then sold it after 10 years or so, reaping a very nice profit. Because of some issues with the timing of the move, they needed to rent their house back from the new owners for a month.

They couldn't afford it.

They moved to St. Louis and bought a small mansion for cash -- with money left over.

But we're noticably short on ocean.

SippicanCottage said...

The desert is an ocean into which no oar is dipped...