Saturday, May 14, 2005

Continued Price Increases Proof Of Bubble

Every new release of higher prices for RE is now greeted with fear, reflecting the change in psychology. "Economist Joe Keating said, 'Personally, I do believe there is a chance of a bubble. When you start building rationales for why it can go only higher, it gets a little bit scary.'"

"State economist Tom Potiowsky told legislators Friday at the (Oregon) Capitol, particularly in areas such as Bend..'we're concerned there could be a major correction in the housing market in the near future.'"

"With home prices in Bradenton and Sarasota appreciating faster than anywhere else in the nation, you'd think residents and Realtors would be cheering. But they're not. In fact, many are finding the trend downright unsettling. 'It's upsetting people,' said Tracy Seider, a realtor."

"'Is this a bubble, or a ramping up in prices that will continue?' asks Craig Smith, a Sarasota property appraiser and real estate investor. 'All I know is that we've never been through a run-up in Florida that has been this extreme. The farther up we go, the greater the risk that we'll be subject to a correction.'"

11 Comments:

At 10:33 AM, Anonymous guynoir said...

I've been hearing a new spin on why there probably isn't a housing bubble.

Now that there is a tidal wave of coverage on the housing mania, some housing bulls are saying that there can't be a bubble if everyone is talking about it. In other words, now that the consensus believes there is a bubble, the contrary stance must be that there isn't a bubble.

Absurd, of course.

First of all, just because there is all of a sudden tons of coverage doesn't mean that most people believe there is a bubble.

Second, when you look back at the dotcom bubble, there was no shortage of reporting about how insane things were getting and no undersupply of analysis about why it would end badly.

Yet even with so much negative coverage, the dotcom boom imploded anyway.

I think the housing bulls are going to have to come up with another argument. This one doesn't hold water.

 
At 11:41 AM, Anonymous Anonymous said...

Great news! Now they starting taking bullish news as cautious news. A definite change in crowd psychology.

I wish Charles Mackay is still alive to add a new chapter to his book: Extraordinary Popular Delusions and the Madness of Crowds.

 
At 11:43 AM, Blogger deb said...

I am more and more amazed everyday to see all of the press about the insanity that is our RE market in the nation and especially here in So Cal. Respected economists, investors and advisors, and even the pres of NAR saying prices will fall. I can't begin to fathom how these buyers are moving forward with these purchases and in such risky ways. IO, neg am (excuse me, option), ARMs seem to be over half the loans that are being made in CA from what I read. How can someone put themselves and their family at that kind of risk.

If people were buying with 15 or 30 yr fixed loans with the intention of staying for a long time, then, God Bless, enjoy the house.

Don't these buyers ever read anything, or think for a minute about the possible downside?

I do like the Prechter quote:
"Near the end of a major expansion, few creditors expect default, which is why they lend freely to weak borrowers. Few borrowers expect their fortunes to change, which is why they borrow freely."

I guess that sums it up.

 
At 11:51 AM, Anonymous Anonymous said...

Really, after the bursts, perhaps we should use our collective efforts to create a public domain addition to Charles Mackay's book.

This is definitely bigger than the Tulip Mania and the South Sea Bubble.

I think Ben can call victory already. We all know how this is going to end.

 
At 1:35 PM, Anonymous Anonymous said...

Speaking of collective efforts, why not form our own investment club to buy pools of foreclosed properties.

 
At 1:54 PM, Blogger goleta said...

Speaking of collective efforts, why not form our own investment club to buy pools of foreclosed properties.


Problem is even foreclosed properties can still be way over-priced in a few years and no one knows where the true bottom is till years after we pass it.

 
At 2:03 PM, Anonymous Anonymous said...

Historically real estate declines have lasted around 5 years. This time it'll depend on how the unknown of 0% down interest only loans plays out.

 
At 3:08 PM, Blogger Ben Jones said...

I know a gentleman who made a fortune buying stressed timeshares in one building on S. Padre Island after the Texas bust. Lots of strategies. Choose your game plan carefully.

 
At 3:28 PM, Anonymous Anonymous said...

Thanks Ben for a great site. Until prices fall, where do we park our cash?

I've already got a small house and an acre on the Big Island. The marketprice on the acre doubled between mid-February and mid-April. Seems like enough RE exposure for me.

What does anyone know about the FDIC net banks ING and Emigrant? Are they safe?

 
At 3:40 PM, Anonymous Anonymous said...

How about a Swiss Postal Account? It is run by the Swiss federal government, which has no fiat currency.

I am highly doubltful of the FDIC. If you still have faith in USD, 90-day T-Bill may not be a bad idea.

I am not sure if "money market" funds are still save. Does anyone know if they have MBS exposure?

 
At 4:51 PM, Anonymous Anonymous said...

[What does anyone know about the FDIC net banks ING and Emigrant? Are they safe? ]

Right now you can get the best interest in a general savings account through INGDirect.com (3.0%) or Emigrant-Direct.com (3.25%) in their FDIC 'savings' accounts.

They both appear to be using the savings deposits to fund their mortgage businesses cheaper than they could buy funding on the open market.

FDIC insurance buys a little peace of mind, but they seem highly dependent on housing. Of course, I'm not sure of the risk associated with their particular portfolios.

 

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