NYT on the Real Estate craze

[edhopper]

Can anyone seriously say this is not a bubble about to burst?

http://www.nytimes.com/2005/03/25/business/25boom.html?ei=5094&en=a7317cf9a6c619c6&hp=&ex=1111813200&adxnnl=1&partner=homepage&adxnnlx=1111762878-LYn0/ZboYUVQOMGxDeL8kw

[newportdadde]

1. Pay no attention to the man behind the curtain.

Now go buy yourself a nice house you can't afford with NO MONEY DOWN and an ARM or better yet once of those nice interest only loans.

[AP]

2. The NYT can't seriously say it's about to burst.

The Washington Post has a story about the real estate market almost every day. They're very sober stories quoting facts, expersts, and using logic to say something isn't quite right.

This is one of the NYT's first forays into reporting on the real estate bubble.

Their version of the story goes back and forth between saying, on the one hand, some experts are worried (Robet Shiller gets exactly one quote) and, on the other hand, they have evidence from experts and civilians (Swonk, Cullert, Mathews, Paul, 26 Harvard Business School graduates, Trump, Ross, Lareah) that you can still make a lot of money off real estate, so don't exit the market just yet

This article gives you maybe 2 reasons to think there might be a bubble and then a dozen reasons to think that a lot of people think there's still money to be made. They even plug a few websites they know, if you visit, will convince you the bubble still has room to inflate.

Obviously, the Times can't deny that there's a bubble at this point. But their game seems to be to convince people that you can still make a lot of money before it pops.

And I think the way the story ends betrays that agenda: the reporter uses the anecdotal evidence of anonymous people saying their making a lot of money even though they're complaining about house prices at a Manhattan dinner party attended by very wealthy people.

Look, wealthy people always make it out OK. Those people aren't the people after which the rest of America should be patterning their financial strategies.

[tinrobot]

3. Maybe....

I do think there's a bubble, but comparing it to the dot com boom is not a fair comparison. The one fundamental difference with the real estate market is that that land is a fixed commodity. You can't make more of it.

Another difference is that real estate is comprised of hundreds of local markets. Each market is slightly different and driven by local forces and the local economy as much as they are by interest rates and other national forces.

Real estate is also a much slower beast. It takes 60-90 days to sell most houses. You can sell a stock in minutes. If you look at the chart in the article, you'll see that the market can rise and fall very quickly, while the housing market is much slower to respond. The article is profiling people who are buying and selling houses like stocks, but they are the rare exception. From what I can tell, the vast majority of the people in this country don't buy and sell houses nearly as quickly as they do with stocks. The buy houses, live in them for a few years, then sell. Personally, I think the market will plateu and then drop a bit over the next few years.

[AP]

5. On the other hand...

....stock isn't just paper. It represents a percentage of the assets of a corporation which includes a lot of tangible property, intellectual property, sweat equity, know-how, human capital, which all translates into an ability to generate revenue.

That's not completely different from a house. You can overvalue both. IIUC, during the Great Depression, real esate shot up in value and then that value evaporated.

I think the Washington Post has reported in separate articles that a lot of people who buy homes now (up to 25%) are buying them for investment/rental purposes and that a lot of people are buying second/vacation homes as investments. So there are a lot of people out there right now who aren't buying homes that are not their primary residences and if they seem them as money losers they might dump them on the marketplace pretty quickly when they see prices go down. In fact, I think thats what the 36 year old Harvard MBA says his exit plan is. If over 1/4 of the this years home buyers feel the same way, there's going to be huge downward pressure on house prices.

[LSK]

4. ive been hearing that the bubble will burst for 3 years now

Still nothing....

I kinda hope it does, so then I can buy some rental properties for cheap.