NO HOUSING BUST THIS YEAR
tHERE ARE TWO CONFLICTING SCHOOLS OF THOUGHT REGARDING THE HOUSING MARKET. tHE FIRST SPECIFIES A BUBBLE IN PLACE. bUT SINCE EVERYONE “KNOWS” IT’S A BUBBLE, IT CAN’T BURST. iN OUR VIEW, THIS LOGIC IS FLAWLESS SINCE THE COMMON WISDOM IS ALMOST NEVER CORRECT. aS THE VERY SAVVY OBSERVER JIM bIANCO OF bIANCORESEARCH, ll¢, (WWW.BIANCORESEARCH.COM) RECENTLY SAID, "mANY RATIONAL INDICATORS ARE STRETCHED INTO TERRITORY THAT WOULD BE CONSIDERED OVERVALUED. bUT, EVEN IF IT IS A BUBBLE, IT MEANS IT'S AN "IRRATIONAL" MOVE. rATIONAL INDICATORS ARE OF LITTLE USE IN CALLING FOR THE END OF AN IRRATIONAL MOVE. fWHAT WE NEED IS SOMETHING THAT MEASURES THE IRRATIONAL (SEE CHART, WHICH MEASURES ARTICLES THAT CONTAIN THE WORDS “HOUSING BUBBLE” FROM FACTIVA’S “ALL PUBLICATIONS” LIST WITH NO EXCLUSIONS)…. WHEN THE PRESS BECOMES TIRED OR EMBARRASSED OF CALLING HOUSING A BUBBLE, THE RED LINES DROP BELOW THE BLUE LINES (DIVIDING GREENSPAN'S FROTHY SPEECH IN mAY 2005), THEN WE CAN LOOK FOR A PEAK IN HOUSING…
tHE SECOND VIEW IS THAT THERE IS NO NATIONWIDE BUBBLE, ONLY A BOOM. WE HAVE LONG MAINTAINED THAT THERE IS NO NATIONWIDE BUBBLE, ALTHOUGH PRICES IN CERTAIN LOCALES ARE CLEARLY BONKERS. mUCH OF CALIFORNIA SEEMS TO BE RESIDING IN A STATE OF DELUSION, PINNING HALF-MILLION DOLLAR PRICES ON COTTAGES THAT WOULD BE HARD PRESSED TO FETCH ONE-HALF THE AMOUNT ANYWHERE ELSE IN THE COUNTRY. mANY APARTMENTS IN mANHATTAN ARE SKY HIGH AND SOME AREAS OF FLORIDA ARE WITNESS TO BUBBLE LIKE ACTIVITY AS WELL. HOWEVER, IN MUCH OF THE COUNTRY, PRICES ARE STILL AFFORDABLE. a dECEMBER 29TH NY tIMES ARTICLE BY dAVID lEONHART AND mOTOKO rICH ("tWENTY YEARS lATER, bUYING A HOUSE iS lESS OF A BITE") POINTS OUT THAT "dESPITE A WIDESPREAD SENSE THAT REAL ESTATE HAS NEVER BEEN MORE EXPENSIVE, FAMILIES IN THE VAST MAJORITY OF THE COUNTRY CAN STILL BUY A HOUSE FOR A SMALLER SHARE OF THEIR INCOME THAN THEY COULD HAVE A GENERATION AGO," CITING HUGE DECLINES IN MORTGAGE RATES AND AN ACCOMPANYING RISE IN INCOMES SINCE THE EARLY 1980S. tHE ARTICLE FURTHER CITES STATISTICS FROM mOODY'S eCONOMY.COM THAT A FAMILY WITH THE MEDIAN INCOME SPENT 22% OF PRETAX INCOME ON MORTGAGE PAYMENTS THIS YEAR. tHE LOW WAS ACHIEVED IN 1998 AT 17% AND IS NOW AT ITS HIGHEST SINCE 1989, BUT IS STILL FAR BELOW THE 30% LEVEL ACHIEVED IN THE EARLY 1980S (REMEMBER DOUBLE DIGIT MORTGAGE RATES?!).
WE HAVE NO DOUBT THAT PRICES ARE DESTINED TO EVENTUALLY CORRECT IN THE MOST OVERVALUED AREAS, BUT THE HOUSING MARKET IS NOT THE STOCK MARKET AND THE ODDS FOR A COLLAPSE SEEM
EXTREMELY LOW. tHE KEY TO OUR VIEW OF COURSE, IS THAT IT IS EASY TO PART WITH STOCKS, SINCE THEY ARE NOT INSTRUMENTAL TO ONE'S SURVIVAL. HOUSES ARE. iF YOUR HOUSE DECLINES IN PRICE BY
20%, WHAT ARE THE ODDS YOU WILL SELL? WHERE WOULD YOU LIVE? aT THE VERY LEAST, AS LONG AS CLAIMS OF A BUBBLE PROLIFERATE IN THE MEDIA, A BUST IS NOT GOING TO OCCUR.
(Alan Newman writing in Crosscurrents)