Paul Meisel

Why There's No Such Thing As a Housing Bubble

I have been reading newspapers since 1962, sometimes two or three a day, and I have a graduate degree from a top school and studied under outstanding faculty.

I agree with C Meng, and think the issue here is having some long term understanding, rather than getting your information from the present day's media. They are not necessarily stupid, but few have long term perspective. Their typical idea of news would be to confirm global warming every May and to decide that trends have changed every October.

Geoff, I am agreement with your observation of the long-term return on real estate. The folks who are upset by their current situation bought high in hopes of selling higher soon..... values in real estate can fluctuate like everything else.

Disclosure: I own a house. I think I'll be here for awhile. My wife is a realtor. I have an MBA concentrating in corporate finance, accounting, and operations research from Carnegie Mellon. I appreciate debate but I am really tired of people who think that this is the first time that we have been through a price cycle in housing or anything else. They don't need newspapers. They should go to the library and read some old books. Also, I am tired and grouchy.

Why There's No Such Thing As a Housing Bubble

I think your comment "My house is just as useful to me as it was two years ago" is at the heart of the matter for 75% of homeowners. If you paid a little too much, or got a great deal, will not be particularly significant if you live in the home for 10 or 20 years.

The people who are concerned and upset fall into several different categories:
- Those whose employment circumstances require frequent relocation and depend on being able to sell with some appreciation (sorry for your luck)
- Those who have been buying and flipping as an investment strategy (sorry for your bad judgment)
- Those who got trapped in a financing bind (bad judgment? unscrupulous advisors? how does one tell?)
- Those who depend upon appreciation and a fluid real estate market for their income (developers, some realtors -- hazard of the profession, and the strong will survive)

My house has appreciated about 25% in ten years of ownership. Not great, but I bought it to live in. I have no immediate plan to sell, either -- who knows what the market will be then. One house I looked at then has doubled, but it took a large (50% of the homes value) investment to improve it, and then it sat on the market for over a year, so the return doesn't look that good.

All real estate is local, and each local situation reflects its own realities. Sometimes those realities include speculation, which will always bring some of the speculators to a bad ending. I sympathize with those who are "forced" into it by career situations -- for most others it is self-inflicted.

Why There's No Such Thing As a Housing Bubble

Boy, there sure is a lot of excitement about this. The biggest takeaway should be, it depends on where you are and what you are looking at.

I had dinner last Friday with the principal of a fairly large regional builder. While we ate, two local realtors came by to chat, separately.

One told me how great things are. Another told me that its slow, slow, slow. They work for the same agency.

The builder told me he is down 75% from last year, and he has no reason to lie to me (I am not in the business, but could probably check his facts easy enough). I have heard brokers quote 30%-50% down.

If you are buying primarily for investment purposes, it is a good time to steal something from a desperate seller. If you want a particular property or type of property, it depends how motivated the sellers are. And if you just need a suitable place to live, it depends on whether that property can be purchased at a price that represents value to YOU.

Or if you already have a place to live and don't need anything, then its all academic -- about projecting the direction of the economy and the stock prices in related industries. You don't have to read a lot of blogs to realize that macroeconomic forecasting may be more reputable than fortune telling and weather forecasting but is fraught with many of the same difficulties.

Perhaps the greatest benefit of this forum is the opportunity to express diversity of opinion.

Why There's No Such Thing As a Housing Bubble

Interesting article -- for me the takeaway is this:

"With half of the homes remaining unsold and new properties being offered in the market, inventories quickly grew over and above the newly diminished absorption rate. Average “days-on-market” which had been measured in days or a few weeks, suddenly jumped over the “month” mark and has steadily grown to an average today of 3+months.

Seller’s expectations of holding out for a further appreciated price was no match for buyer’s inability to pay and prices had to begin to come down to “market-level.” But actual “asking (list) prices” continued to increase through the third quarter of 2006 (Q3-06) by nearly 20%. However, after price reductions and closing cost incentives, the actual net sales prices declined by about 24% from the increased list prices.

It was not until the current quarter (Q4-06) that average list prices began to decline to meet buyer’s affordability. From Q3-05 through Q3-06 we witnessed nearly half of the available properties were either withdrawn from the market, or converted into rental properties. This pattern has begun to ease the large inventories of competing homes and re-direct the trend toward balance of supply and demand."

However, I think a couple additional items need to be considered:
1) Real estate is a localized market. I assure you based on my own knowledge that conditions in Northern Ohio are considerably worse, and will take longer to recover.
2) The hangover of withdrawn properties will still exert downward pressure on the market for some time to come -- they will gradually re-emerge as the owners re-develop hope of a sale or change their expectations on price.

I am skeptical about macro-economic statistics generally, but they are significantly more difficult to apply in a market where the product has significant differentiation between competing products.

The Real Reason to Avoid Homebuilders

All is not right with the industry -- but I have yet to hear of a realtor or appraiser losing their license for unethical behavior, much less prosecuted. Anybody have any examples?

The NAR Tries to Sell the Lack of Home Sales

"When you can't find data to support the story that you want people to believe, just omit the data and be more assertive - that almost always works. Can you imagine the meeting where the ad was changed?"

I don't need to imagine, I have a wife and a daughter that use this technique regularly. For 90% of the people reading this ad, logic and evidence have nothing to do with it. They have mixed feelings but for reasons entirely their own are leaning one way or another, and will eventually respond emotionally.

Next I expect to see a brokerage ad that says "Its a great time to buy or sell stocks"..... Oh wait, there are Chuck and Roger, and Sam Waterston now........