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June 13, 2005
Watch out for complacent journalists
I wrote a story recently that revisited what happened during past housing bubbles (See, "Getting Crushed in a Housing Collapse"). I received a flurry of emails from readers who worried that articles like mine would actually spark a downturn in real estate because it would make people rush to sell their homes.
Well, bubbles don't work that way. The dozens of recent articles about the potential for a burst real estate bubble are indicators -- not of a pending collapse -- but that the real estate bubble is unlikely to burst anytime soon. As any contrarian will tell you, articles such as mine show that there are still lots of skeptics out there unwilling to buy new houses because they are worried about a market top. It is only when those skeptics evaporate and people start talking about a "new paradigm" for real estate, that you really have to worry.
That's when the backlog of buyers will get used up. And, after that, there may not be enough new buyers coming into the market to keep prices on the rise.
I've covered the real estate market for the last three years -- ever since it started to really heat up. I would judge my own track record as pretty accurate so far. Three years ago I wrote that prices were rising at an unsustainable pace, but that there were no signs of speculative excesses. Two years ago I started pointing to signs of speculation in the housing market. And a year ago I started worrying that there could be a sharp downturn in the real estate market if (if!) mortgage rates spiked.
Well, mortgage rates haven't risen, I don't expect them to rise anytime soon, and thus I'm less worried about the real estate market crashing than I was six months ago. Last weekend I found myself looking in the newspaper at the listings of homes for sale. That in itself is reason for contrarian thinkers to start getting worried.
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Amey, great article! The contrarian view of the market is very interesting.
However, your theory relies on the assumption that most doubtful people will end up buying before the market crashes. I am not sure whether this is a solid assumption.
Posted by: P at June 14, 2005 02:20 AM
The housing bubble is topping out right now. Buy 5 homes if you think it's still going up.
Posted by: greg at June 14, 2005 10:49 AM
Posted by: Craven Moorehead at June 14, 2005 08:45 PM
Nice, but WHO are the buyers of today's buyers mortgages? Who's buying those interest-only mortgages & why? Who's lending to buyers who have no income and little cash aside from marginable equity in inflated properties? These are questions that will determine when & how the market will turn. R.E. speculation may be interest-rate driven, but there's little question this bubble's been spurred by loostened lending practices. Greenspan has announced new lending criteria for his banks that will go into effect in early 2006.
Posted by: bailey at June 15, 2005 10:27 AM
Interesting perspective. Tough to think of yourself as a foil for the articles you write professionally!
I was recently inspired to write down some thoughts on my blog about the real estate "bubble" right now.
Take a look:
Posted by: Ed at July 25, 2005 07:00 PM
The BLOG below should be of great interest to you.
I have recently contributed an article where I am able to see a 16% decrease in Commercial Real Estate in 2006. You have my permission to extract the article or quote from it for your BLOG.
Chairman of the Board
Winner-Baird Real Estate Inc.
212 E. Grand Blvd., Suite E
Corona, CA 92879-1532
Posted by: Robert R. Baird at July 26, 2005 05:50 PM
Maybe that will be interesting
Posted by: Corona real estate at August 24, 2005 07:58 PM