Saturday, May 21, 2005

Housing Bubble Debate On The Air

Finally, a real housing bubble debate. This link to 'To The Point' has an audio interview with Chris Thornberg of UCLA and a NAR economist, among others. Mr. Thornberg demolishes the flimsy associations 'vague comments.' The RE segment starts just under 8 minutes into the file and is 36 minutes long.

The UCLA Anderson School deserves some credit for challenging the status quo and pointing out the terrible risks the various organizations have created in the economy.


At 2:08 PM, Anonymous Anonymous said...


The link isn't coming up for me. Can you double check it.


At 2:50 PM, Anonymous Anonymous said...

Very intersting debate ...

At 4:14 PM, Blogger Ben Jones said...

I just tried it again and I got through. Try right clicking, copy and paste into googles search bar.
If that doesn't work, do a search for It really is worth listening to.

At 4:22 PM, Anonymous Anonymous said...


There is also a segment in today's Fox's 'Cash In' program. Here are the guest:
• Wayne Rogers of Wayne Rogers & Co.
• Jonathan Hoenig of Capitalistpig Asset Management
• Dagen McDowell of FOX Business News
• Jonas Max Ferris of
• Stuart Varney of FOX Business News
• Tom Adkins of Re/Max Property Centers

This Guy(Tom Adkins) said something I'll never forget:

If you believe capitalism, economy will never stop expansion, RE will never stop going up.

I'll try to find the script but without success.

At 4:29 PM, Anonymous Anonymous said...

What software did you use to listen?

WMA player doesn't work, nor does itunes.

At 4:33 PM, Anonymous Anonymous said...

Realplayer. You can download a basic version for free.

At 5:59 PM, Anonymous Anonymous said...

Any chance someone can post a synopsis of what was said and, if important, by whom?

At 9:02 PM, Blogger John Law said...

this interview is good, and adkins is a complete hack.

At 9:57 PM, Anonymous Anonymous said...

Fox News trots out Adkins every time they need a real estate bufoon. Entertaining, but ultimately he's a clown.

At 8:26 AM, Anonymous jl said...

From memory (and listening while I was surfing on the web).

In the interview, Thornberg is quite bearish on real estate and thinks it's a risk for the US economy. All participants except for the NAR guy, advice to buy only if you can weather a downturn and not to expect the current rate of appreciation to continue.

Basically, the NAR guy says two interesting things.
1. Prices in San Francisco were already overvalued compared to rents 20 years ago, and you would have missed on appreciation if you hadn't bought.
2. If you consider housing supply versus household formation growth, there is an undersupply.

Thornberg counters his argument. He mentions that new households are poor and can't afford the new houses (new immigrants). Rents have not gone up, suggesting there is no shortage of housing services. He also makes a difference on house versus housing services. In the south east (Florida and neighbouring states) he mentions the rate of new homes is outpacing the rate of new household formation by a factor 2.

Overall it's a very insteresting piece.

At 8:47 AM, Blogger John Law said...

the NAR guys says housing has been in a deficit for 10 years. ha!

At 9:27 AM, Anonymous Anonymous said...

Senior UCLA Economist Thornberg say we're in "a world class real estate bubble" which "won't last". "Where we are is ... off the charts." There's been an "amazingly long run of prices." "Growth in prices ... is off the chart."

Nationwide, "real appreciation is running at 6-7% per year", much higher than "the national average of 1% per year". "Every number is way off the charts."

Stressed the connection between rents and housing prices. Many states ... including most of the southeast ... are building 1-2 new homes for every new person ... I don't see how that's sustainable." "Way, massive amounts of overbuilding..." "There's no way you can say that we have an undersupply of housing in the US, that's not logical." He's says that housing deficit proponents attribute too much demand to low-income immigrants.

Recent mortgage lending report is "...exactly indicative of a bubble". Thornberg says in California, in late 1980s bubble the ratio of home prices to income rose from 7.5 to 9.0. Over the last six years , it's gone from 8 to 12.

"How? ... It's a pyramid scheme." "Everybody's taking the massive appreciation on their current home and they're rolling it into the next big home. It's like any good pyramid scheme. It will work so long as you have new people entering the bottom of the pyramid. You've got have those new people entering in (at the bottom), to allow the pyramid to grow, to allow people to roll up."

"In this case, the pyramid is being built upon so-called marginal buyers, people who shouldn't be in the market, who don't have the wherewithall to be in the market, yet they're being enticed in by all these crazy type loans. The sad thing is ... those entering the market now are going to be hurt most ... new buyers, the ones who are getting sucked in with interest-only or variable rates loans, who are just squeezing by, when this thing cools off."

"...exactly the same kind of fervor and overselling that was going on in the NASDAQ. In fact the analogy is ... remarkable similar, and the ill-logic that people are trying to justify this run-up in real estate prices is very, very similar ... glossing over the facts."

"For prices to go up, rents have to go up. Rents aren't going up anywhere in the US right now."

"These high risk loans are fueling the pyramid. As soon as (that ends), that's when the pyramid collapses in on itself and this real estate market is going to cool off."

"Irrational exuberance? I'd make it even stronger. It's a crazy exuberance, it's not even irrational at this time ... a feeding frenzy. It just keeps building on itself."

"Prices have been going up everywhere (though) it's been more dramatic on the coasts."

At 9:33 AM, Anonymous Anonymous said...

PS Thornberg ends saying that the housing bubble is the "single largest risk for the overall economy" which "could push us into a recession".

At 10:46 AM, Anonymous lee said...

(Basically, the NAR guy says two interesting things.
1. Prices in San Francisco were already overvalued compared to rents 20 years ago, and you would have missed on appreciation if you hadn't bought.)

That's true. But there's a difference b/w overvalued and wildly, hysterically, unfathomably overvalued.

Rents here in SF fluctuate with the fundamentals. Our apt bldgs had nearly 100% rent increases from 1995-2000 when the apt vacancy rate fell from 7% to 0%. Thank you, dotcom boom. We didn't fully benefit because SF has rent control. So most of our units were frozen pricewise.

Today, with the dotcom boom a distant memory, the vacancy rate is back to about 7-8% and rents are back at the 96-97 level.

So rents go up and down with the local economy. There is no connection to interest rates and such because people pay rent in cash.

At 10:50 AM, Anonymous Anonymous said...

Rent is flat across the country ... So when is CA the country? lol

At 11:58 AM, Anonymous Anonymous said...

I got through ... great article.

Thornberg gives very convincing arguments as opposed the the general sound-bytes the NAR economist does.

I too see the housing industry could be painful to the economy when it turns down. One guy I know w/properties things the gov't won't let that happen -- i.e. they'll continue to prop up the housing industry. I think that's part of the mentality that could keep this cycle going for awhile longer (at least in the PHX area where there aren't any significant signs of slowing yet) ... the lack of fear that you could lose.


At 12:20 PM, Anonymous Anonymous said...

Thornberg was wrong about one thing though. He said rents are falling everywhere. Rents in Los Angeles have been steadily increasing here and vacancy rates here in the San Fernando Valley are about 3% from what I read. When vacancies fall below 5%, landlords start to push rents up. Starting in 1996, I rented a 2bd/2ba condo in Northridge for $900 a month. The rent never increased until 2002. It went to $1100. Then earlier this year it went to $1300. This wasn't a rent controlled unit. Most comparable units in that area were probably fetching $1500-1700. So that was still considered a good deal. I just moved to Sherman Oaks and now my 2bd/2ba condo is $1650 a month.

So Thornberg, while 100% right on everything else was wrong when he said rents aren't going up anywhere in California. They may have dropped dramatically in San Fran, but they've gone up sharply in L.A>

At 12:42 PM, Blogger deb said...

I think higher end rents in LA haven't risen much. A home in my neighborhood rented in '01 for $2800. It just rented again a couple weeks ago for $2950 (after being reduced from $3300 and sitting on the mkt for over 3 months). The prior tenant at the home we currently rent was paying $2200 eight years ago. We pay $2800. Not much of an increase when you consider the house has gone from about $300k to 1.2M.

Apartments and condos seem to be tighter though.

When the market softens there will be more homes for rent. If it goes down anything like the early 90's. Lots of people thought they would ride the correction out by renting the home when they were unable to get enough to pay the loans.


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