A reporter from Inman News wanted me to answer these questions, but I figured I'd turn it over to the HP'ers to answer which should be wildly more entertaining. If you want to be quoted, use a user name.
Answer any one of 'em, or all of 'em. Be funny or be serious. Make us proud.
1) What makes you a real estate bubble believer, a bubble debunker, or bubble neutral?
2) How do you define a housing bubble?
3) How does this definition fit (or not fit) the national housing market?
4) Which regional or local housing markets have exhibited the most bubble characteristics?Which bubbles burst? Which ones have deflated? Which ones are inflating?Which are about to pop?
5) Are there any common traits among the bubble markets?
6) What is your best evidence for or against a housing bubble?
7) Is it possible to accurately identify the existence of a bubble before it is gone? Explain.
8) How are bubbles born and how do they die?
9) Why do people get so fired up about the concept of a housing bubble?
10) Will there ever be an explanation for bubbles that we can all agree upon?
11) Will there ever be a time when the discussion about bubbles goes away?Is this just a passing fancy?
12) What has motivated you to participate in the bubble discussion and what have you learned?
February 08, 2007
Another real estate reporter wanted an interview. Figured HP'ers could have at it...
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27 comments:
1) What makes you a real estate bubble believer, a bubble debunker, or bubble neutral?
When I found out I was priced out of buying even a modest house when my family income is well above the median in my area.
2) How do you define a housing bubble?
It is when the price of the median priced house is unattainable for the median earner.
3) How does this definition fit (or not fit) the national housing market?
There are local areas that have not experienced a bubble. Paul Krugman has a nice take on it. Where zoning and regulations have created a scarcity of building permits there tends to be a bubble. Dallas TX is a place where that has not happened.
4) Which regional or local housing markets have exhibited the most bubble characteristics?Which bubbles burst? Which ones have deflated? Which ones are inflating?Which are about to pop?
I don't see any still inflating. None have popped. House bubbles in general do not do that they slowly deflate. Phoenix wins the overnight sensation award for its rapid appreciation. San Diego wins most inflated.
5) Are there any common traits among the bubble markets?
They tend to be coastal in the US.
6) What is your best evidence for or against a housing bubble?
The speculators holding the bag in many markets, and how they are pushing lease to own from the owners.
7) Is it possible to accurately identify the existence of a bubble before it is gone? Explain.
Yes, affordability is key. especially for first time buyers. How else do you trade up if there is noone to buy your starter house.
8) How are bubbles born and how do they die?
Born with cheap money or money looking for a better return on investment.
9) Why do people get so fired up about the concept of a housing bubble?
Because from the bubble watcher perspective the NAR consistently says it is a good time to buy, even when it is financial suicide.
From the REIC side it is heresy to say that it is a bad time to buy due to overinflated prices.
10) Will there ever be an explanation for bubbles that we can all agree upon?
When the dust settles in a couple of years, the REIC will have had to answer for the excesses in the market created in part by them. At that time I believe an official reckoning will be made. Remember Dodd is looking into the bad paper from the subprime market but the cash back at closings and fraudulent appraisals will haunt the industry when hearings are convened on that topic. This will probably be interesting political theater in the runup to the 2008 presidential and congressional elections. Congress will ask where the oversight of the banking industry was and this administration will once again be blaming someone else.
11) Will there ever be a time when the discussion about bubbles goes away?Is this just a passing fancy?
The last bubble in the 80's sort of went away until this bubble rose and people were emerging from being upside down from the last go 'round.
12) What has motivated you to participate in the bubble discussion and what have you learned?
The incredible lack of media coverage and the fact that so much fraudulent activity that has been done. Avoid any kind of loan that is not traditional 30 year fixed.
Start with The Mess That Alan Greenspan made. To do this you need to go back to the Asian Financial Crisis in 1997 and the failure of hedge fund LCTM. The Fed began flooding the system. Stocks became the most visible beneficiary. Then the Nasdaq blew up in 2000, Easy Al got back on the go. 9/11 happened and The Fed cut rates down to 1% and Easy Al said everyone should get an ARM. Wall St. obliged and came up with creative mortgage products to fuel the boom. Risky mortgages were incentivized as they carried the largest payout for the brokers. So, what's the real story? When you put a lot of money out there as the Fed has, the dollar falls. Never more evident than in the price of gold over the past few years. In fact, Ben Bernanke has said he watches the price of gold everyday on his desk computer, which shouldn't be surprising and this is ultimately what he's flirting with.
The day Bush gave Greenspan The Presidential Medal of Freedom will live in Infamy.
metro - good comments.
last anon - good point - I just put up a post on greenie. bleech!
"1) What makes you a real estate bubble believer, a bubble debunker, or bubble neutral?"
I became a bubble "knower" as I grew aware of the fact that my cookie-cutter, suburban Phoenix house was "worth" 2 1/2 times more in Summer 2005 than I purchased it for in Fall 2002. I started investigating the insane Arizona price gains, the loose lending practices nationwide, and the California equity locust phenomenon. When I saw on OCRenter's site that Phoenix inventory was rapidly rising from almost none in early 2005 to "normal" and beyond, I concluded that Phoenix prices had peaked and sold in Fall 2005 to a California "investor." My old house model is now selling for 20% less.
Another lazy reporter...
"Please fill out this questionaire so I don't have to do any legwork..."
Send the reporter to iamfacingforeclosure.com to get the inside word.
If they have to ask, they are too stupid and unqualified to be working in any segment of this industry, much less writing about it.
Posing these questions was just their veiled way of getting HP'ers to do job of those at Inman. What a bunch of morons they are over there!
How bad are their research skills in the industry they are supposed to be experts in, if they have to ask others. This says all you need to know about the REIC and their cheerleading trade publications.
Keith, has Lereah called yet to pose some questions to us as well?
ROTFLMAO!
1) What makes you a real estate bubble believer, a bubble debunker, or bubble neutral?
I am a believer because despite my spouse and I making a mid-6 figure income and not having any credit card debt or being big spenders, we would be financially strapped if we bought an average starter house in our area. If I would be strapped, what about my friends who don't make as much? Plus, it would cost me over 5K a month to own my apartment that I rent for 2200.
2) How do you define a housing bubble?
It's defined by the speculative nature of buying - people buy on the expectation of future appreciation and not based on the fundamental value.
3) How does this definition fit (or not fit) the national housing market?
I think it's a phenomenon that it's so widespread, although it's clearly not completely nationwide (although the effects could be).
4) Which regional or local housing markets have exhibited the most bubble characteristics?Which bubbles burst? Which ones have deflated? Which ones are inflating?Which are about to pop?
FL, CA, AZ, DC and the Northeast. All are bursting and deflating but will take a while.
5) Are there any common traits among the bubble markets?
Yes, the speculative aspect - this doesn't mean real estate "investors" but the attitude that everyone makes money in real estate and it can't go down.
6) What is your best evidence for or against a housing bubble?
See my rent, above.
7) Is it possible to accurately identify the existence of a bubble before it is gone? Explain.
Yes, but not before it's gotten further along than you expect.
8) How are bubbles born and how do they die?
This one came from easy credit, liquidity and lax lending. It will die due to sheer unaffordability.
9) Why do people get so fired up about the concept of a housing bubble?
Because homes are people's biggest purchase - you wouldn't want to think it's decreasing in value.
10) Will there ever be an explanation for bubbles that we can all agree upon?
Nope.
11) Will there ever be a time when the discussion about bubbles goes away?Is this just a passing fancy?
Until the next one!
12) What has motivated you to participate in the bubble discussion and what have you learned?
I have learned that it was smart not to buy a house in 2004, I'll tell you that much!
1) What makes you a real estate bubble believer, a bubble debunker, or bubble neutral?
--I moved to Pasadena, California for work after I finished grad school back in 2003. I though prices seemed high then, only to watch them almost double again by the end of 2005. My wife and I were making really good salaries and coudn't understand how anyone could pay these prices for a home. I decided to do some research since I was comfortable with math and economics.
Right now the PE ratio for a median priced home in East Pasadena is 14 times median household income of $50,000. At 14 times income, for a family earning the median income, mortgage and property taxes would consume 100% of their household income IF they put 20% down. If not, its more like 120% of income.
Seeing that prices were completely out of line with rents and historical fundamentals told me something was going on and made me an absolute bubble believer. I rarely go a day without my bubble news.
My wife and I put our extra money into starting a business instead of wasting it on an overpriced house. We rent and feel alot more safe and secure about our future than our friends who own.
2) How do you define a housing bubble?
Generally, when prices are substantially out of line with long term fundamentals and there is no logical reason. Sometimes faster increases in prices make sense such as when long term interest rates go down. That did happen since 2000 but cannot explain the enormity of the increase in prices.
3) How does this definition fit (or not fit) the national housing market?
This squarely fits the definition of a national housing market bubble. Bubble prices exist in nearly all the major cities of economic activity in the US. Inflated prices don't have to exist literally everywhere for there to be a national housing bubble, just in the areas of major economic activity. Just because prices haven't gone completely bubble in every single city doesn't mean there isn't a national housing bubble. Because when it pops where it counts, the smaller cities and towns will feel the effect indirectly through employment and through smaller housing price depreciation.
4) Which regional or local housing markets have exhibited the most bubble characteristics?Which bubbles burst? Which ones have deflated? Which ones are inflating?Which are about to pop?
Most bubble characteristics:
-Florida
-Arizona
-California
-Las Vegas
-Boston and DC to a lesser degree
No housing bubbles have really burst as the drop in prices are small relative to the endgame - with the possible exception of areas of Florida. Land prices and condo prices are just starting to fall significantly. This is just the 2nd inning of a 9 inning game.
About to pop. The ones with the most bubble characteristics listed above.
5) Are there any common traits among the bubble markets?
Yes. Most are more desireable places to live and have a good economy.
6) What is your best evidence for or against a housing bubble?
Price to housing ratios are unsustainable in many bubble markets. Not to mention salaries have barely budged in the last 6 years while housing prices have skyrockted with a solid economic reason. Also the high number of risky loans, increasing default rates, falling land prices and 2 million uninhabited homes bought by speculators (50% above the all time high) all point to the early stages of a signficant correction.
As land prices drop, builders can just keep building as long as the cost of land and materials to build a house don't exceed the selling price. And they will. Major homebuilders are major corporations whose sole business is homebuilding homes. They are not like a small homebuilder that can switch to, say home repairs or pouring concrete when the market softens. They only build houses and will continue to do so as long as there is any profit to be made. That creates substantial long term supply and should actually drive down prices over time.
7) Is it possible to accurately identify the existence of a bubble before it is gone? Explain.
It depends on how two things. First how big the bubble is and second if there are other factors that could help explain away the bubble.
For example, in the case of our current housing bubble, the drop in long term interest rates is a factor. But given the magnitude of the bubble, there is no way to explain it with interest rates or any other smaller factors. So yes, it is possible and yes we are in a housing bubble.
8) How are bubbles born and how do they die?
Bubbles can start when there is an acceleration in prices but can only be fueled by cheap and easy credit and further expectations that prices will only continue to go up.
They die like any other fire....when the fuel runs out.
9) Why do people get so fired up about the concept of a housing bubble?
Cause everyone is status oriented and owning a home is "the american dream".
10) Will there ever be an explanation for bubbles that we can all agree upon?
No. It could be defined pretty clearly economically but most people don't care about economics. They just care about their status and their homes.
11) Will there ever be a time when the discussion about bubbles goes away?Is this just a passing fancy?
Author Harry Dent has some great theories on bubbles. Basically they are just a normal part of economic cycles and human behavior. They cycle through different parts of the economy over time. This just happens to be a bubble that is coinciding with the fall in the value of the dollar and the loss of confidence in the US worldwide. It will be a particuarly ugly bubble that could take a long time to recover from.
12) What has motivated you to participate in the bubble discussion and what have you learned?
My motivation is my own financial future. I've learned that the mainstream media lacks the courage and wisdom to report independently of business and the government. I've also learned that bubbles are just a part of life and the best way to avoid them or take advantage of them is to be aware the exist and not get caught up in them, especially when you are late to the party.
BB
I knew it was a bubble when I realized I could rent for 33% of what it would cost to own. Owners/specuvestors didn't mind taking on negative cash flow; this is fundamentally flawed. The specuvestors assumed any monthly loss would be offset by an increase in the sales price. This believe held true for a while, but it doesn't any more...
Keith's energy is interesting, but check out thehousingbubbleblog.com for a more level-headed analysis.
Sounds like the reporter is trying to question if there is a bubble or not.
Is the sky blue?
Is Earth a planet?
How many toes are on your foot?
2) How do you define a housing bubble?
When speculative buying leads to the ratio of median home price/median income more than two standard deviations above the norm. Case and Schiller describe this situation well.
3) How does this definition fit (or not fit) the national housing market?
Look at the data and you will see there is a bubble in 15 or more states. In California, this ratio is nearly 4 standard deviations above the norm. It's not just house prices, but price RELATIVE to income. This is clearly the biggest housing bubble in history and the biggest economic story of my lifetime (far bigger than the dot com meltdown) and the mainstream media has participated in the denial and spin. Yes, people must turn to the blogosphere now to discuss reality.
5) Are there any common traits among the bubble markets?
Fraud, collusion, and corruption
9) Why do people get so fired up about the concept of a housing bubble?
where is 9b)?
9b) Why do people get so fired up about the concept of a soft landing?
it's the money, stupid!
the only difference is we dont live in denial.
1) What makes you a real estate bubble believer, a bubble debunker, or bubble neutral?
I believe in the bubble because I travel a lot, and just can't believe that Americans can actually afford the prices I'm seeing for housing.
2) How do you define a housing bubble?
Looking around today would be a good start. When people are flipping houses the way they traded Beanie Babies, look out below.
3) How does this definition fit (or not fit) the national housing market?
What scares me most about the current situation is how widespread it is. I'm old enough to have observed regional boom-and-bust cycles, but the national, and even global scale of this one is horrifying.
4) Which regional or local housing markets have exhibited the most bubble characteristics?Which bubbles burst? Which ones have deflated? Which ones are inflating?Which are about to pop?
Really, there are too many to list. East Coast, West Coast, Colorado, Minnesota--all are in some stage of deflation. Dallas/Fort Worth (I live in Fort Worth) seems to be holding on, but never really hyperinflated to begin with.
5) Are there any common traits among the bubble markets?
Too many people thinking they can get rich without understanding the downside.
6) What is your best evidence for or against a housing bubble?
Evidence for: Wild price escalation coupled with insane financing; this is now buckling under the weight of its own foolishness.
7) Is it possible to accurately identify the existence of a bubble before it is gone? Explain.
Of course it is. There have been two recent examples: Internet stocks and housing. When prices skyrocket for no real reason, and people are taking severe risks to "get in on it", it's a bubble.
8) How are bubbles born and how do they die?
Bubbles are born out of greed, and they always die ugly. Specific triggers to the collapse may be event-driven (a natural catastrophe) or seemingly innocent. I think the global economy will unravel one day because of a fairly innocuous event, such as a guy walking into a bank in Argentina and trying to cash $1,000,000 in bonds, which causes a global run on banks.
9) Why do people get so fired up about the concept of a housing bubble?
I think it's because housing is tied to a fundamental human need for shelter. Also, housing, unlike stocks or bonds, is tangible, and people have always needed a place to live. Finally, the dollar amounts are mind-boggling. It's "easy" to make a million dollars by buying just a couple of the "right" properties. Greed overtakes common sense.
10) Will there ever be an explanation for bubbles that we can all agree upon?
If we can't even agree that we're now in the deflation of a housing bubble right now, we won't ever be able to agree on bubbles.
11) Will there ever be a time when the discussion about bubbles goes away?Is this just a passing fancy?
Not as long as reporters need to sell stories.
12) What has motivated you to participate in the bubble discussion and what have you learned?
I got interested because I was in the market for a new home. I've learned that maybe I'll wait a while. I bought my current house during a real estate slump, and got a nice place dirt-cheap. In a few months I may be able to do the same thing again.
Thanks for the opportunity to reply.
I had planned to respond but I believe the previous posters have done a more than admirable (if not stellar) job of presenting our viewpoints extremely well.
And might I say, kudos to the poster from Miami (via Japan). Your post was extremely well written and lucid. I think you itemized with near perfection all the specific elements of the current housing situation.
1) What makes you a real estate bubble believer, a bubble debunker, or bubble neutral?
Comparing my experience of buying a house 1995 to the experiences of friends who bought in 2004 and 2005.
In '95 I HAD to put 20% down, provide all kinds of proof of income assets etc... This to buy a 250K house that is valued on Zillow (I know its crap but..) at over 750K. HAHAHAHAHAHA.
No way in hell I could possibly afford to buy my house today. Yet I could walk in, state an income, put no money down, and buy it anyway.
This is madness.
5) Are there any common traits among the bubble markets?
Fraud, collusion, and corruption
+++++++++
All the answers written above are excellent, IMHO. But I wanted to reiterate that the reason this housing bubble grew so big was not just because interest rates declined. What really caused the housing bubble to mushroom was because lending practices went out the window. Predatory lending and outright fraud has involved thousands of parties so corrupt, I would classify them as evil. And we will all pay the price for their greed....
I think HP'ers are setting the standard for bloggers. The MSM will continue to troll our board to get the inside scoop!!!
Keep up the great work Keith and HP'ers!!! We have a long way to go!!!
1) What makes you a real estate bubble believer, a bubble debunker, or bubble neutral?
The real value of a house is for living. It's a lousy investment as evidenced by the simple fact that the government has to give you a tax break to get you to buy a house. QED.
If the ratio of rent / monthly mortgage+tax+insurance is low, it means it's cheaper to rent. Housing much more expensive than rent is a bubble, driven purely by speculation. Of course owning a house is nicer for many reasons so the traditional rent/mortgage ratio which factors in that fact is a better guide to what a good rent/home ratio is (not merely a 1/1 ratio). We are way of out sync with that.
2) How do you define a housing bubble?
A price rise which is guaranteed by the laws of physics and economics to come down to the mean.
3) How does this definition fit (or not fit) the national housing market?
If fits just fine. Look at a graph of house prices both nationally and in particular regions.
4) Which regional or local housing markets have exhibited the most bubble characteristics? Which bubbles burst? Which ones have deflated? Which ones are inflating? Which are about to pop?
California is the worst. Where I live house prices are 3.5 times above 1995. That's a 350% increase in prices yet salaries haven't changed virtually at all. It's just starting to pop and when all is said and done I'm predicting a 70% loss in house prices from the peak.
5) Are there any common traits among the bubble markets?
Easy mortgage and rising prices which fuels speculation.
6) What is your best evidence for or against a housing bubble?
See above.
7) Is it possible to accurately identify the existence of a bubble before it is gone? Explain.
Sure. If the utility value (how much using it benefits you) of something is much less than it's price, speculators are at work.
8) How are bubbles born and how do they die?
Bubbles are born when speculators enter the game. They are only interested in the price of the commodity, not its value as a tool.
9) Why do people get so fired up about the concept of a housing bubble?
Because it impedes MY ability to upgrade to a better house. I'm not stupid enough to buy a 200,000 dollar house for 800,000. In several years, whoever paid 800,000 will lose 600,000 as the house value reverts to 200,000. So now because everyone else was greedy and stupid and will end up in financial ruin, I have to put my plans on hold.
10) Will there ever be an explanation for bubbles that we can all agree upon?
Speculative price rise. That's all it is.
11) Will there ever be a time when the discussion about bubbles goes away? Is this just a passing fancy?
Ha! No way. It's going to eclipse Iraq and everything else by this summer. In about 6 years when we are in a depression we might even get a new constitution.
12) What has motivated you to participate in the bubble discussion and what have you learned
I'm looking for the right time to upgrade to a bigger house and to stay on top of the situation so I can short sell on the stock market.
I live in the Mid Hudson Valley NY
And have been following Real Estate in my area very closely since ‘97
RE in this area received a blow in ’93 due to the large amount of local residents impacted by IBM layoffs, by ’97 ’98 property values were back to normal compare to the rest of the country.
Housing in this area grew at a healthy rate till 2001.
By end of 01 beginning 2002 something unexplainable happened.
The same properties that were up for sale in 01 for $150k were now up for $250k
Remember nothing extraordinary happened here, no income growth no increase in population etc.
This insane growth continued till the beginning of ‘06
By 2004 there was not 1 house listed in the area for less that approx. $370k
New huge single family homes and Town house development were popping up everywhere, it looked like the amount of new housing structures going up were more than all the homes built in this areas history.
Properties were sold within hours for incredible profits to owners who bought prior to 01.
So what can explain this ?
The easy answer is “Alan Greenspan lowering Fed rates to 1%”
But, you see 30 year fixed rates never went down below 51/4% approx. 2% less then the average rates in 01.
This is what Mr., Alan called the great conundrum.
So, the first answer to INMAN is, to ask better questions.
I would ask, what really caused this Housing bubble?
The answer cannot possibly be “Alan Greenspan lowering Fed rates to 1%”
Remember the ‘conundrum’.
I think the answer is
1) Human herd mentality
2) Banks lowering lending standards
3) REIC industry evolved into a sophisticated lying machine with the help of the internet.
1) What makes you a real estate bubble believer, a bubble debunker, or bubble neutral?
- Being privy to a front row seat for the dot com boom and subsequent bust, the secondary housing bubble was easier to spot. At least, from my perspective. Once that debacle unfolded, I became far more versed on the nuiances of P/E ratios. It only took a simple calculation to ascertain that my area (northern california) had deviated enormously from the norm. Concurrently, the mentality and justification for the bubble that permeated the media and general conversations was strikingly similar to the same arguments I heard during the dot com runup. The 'new economy' paradigm.
2) How do you define a housing bubble?
- A substantial deviation from historical norms without any economic or fundamental justification where speculation is rampant.
3) How does this definition fit (or not fit) the national housing market?
- The massive discrepancy between cost of owning versus cost of renting clearly demonstrates the bubble nature of the market. Also, the preponderance of property flipping and a massive surge in the real estate profession clearly demonstrated that many individuals had entered the fray looking for quick millions. (See: Casey Serin)
4) Which regional or local housing markets have exhibited the most bubble characteristics?Which bubbles burst? Which ones have deflated? Which ones are inflating?Which are about to pop?
- Areas primed for large corrections are the same areas where exotic loan instruments and speculation were rampant. Florida. California. Phoenix and Las Vegas. The greater Boston area are the prime candidates.
5) Are there any common traits among the bubble markets?
- Deviation from historical norms without economic fundamental justification is a common element. Large scale speculation is a contributor. (Usually towards the latter stage of a bubble)
6) What is your best evidence for or against a housing bubble?
- Surge in inventory levels. Large scale foreclosures. Complete inaffordability in certain areas of the country even when low interest rates and exotic loan instruments are available.
7) Is it possible to accurately identify the existence of a bubble before it is gone? Explain.
- Absolutely. Many of these blogs have existed for several years when the bubble nature of the housing market became readily apparent. Ultimately, lax standards and herd mentality are easy to identify and quantify.
8) How are bubbles born and how do they die?
- A demographic shift in common thinking making a particular asset seem more favorable than others. Often fueled by hype and access to easy money.
9) Why do people get so fired up about the concept of a housing bubble?
- Because it has the potential for having a devastating effect on the country's economy. Homes are often the largest purchases of any family and a large portion of a family's net worth will reside in their primary residence. So naturally, there is a personal bias to not want one's largest asset to depreciate in value.
10) Will there ever be an explanation for bubbles that we can all agree upon?
- Highly unlikely. Much like the Great Depression, the dot com bubble, many theories will abound. There will likely be a great deal of overlap amongst the theories not unlike varying opinions on other booms and subsequent busts that have occurred in history.
11) Will there ever be a time when the discussion about bubbles goes away?Is this just a passing fancy?
- This will likely be a topic of conversation for many years to come. In a way, this could not have come at a worst time for the country. With baby boomers nearing retirement age, a great many of those individuals lack the necessary retirement savings to maintain their lifestyle. A great majority have a large stake in multiple properties. The need to liquidate these assets will create large oversupplies of housing for many years to come. Furthermore, builders who need to continue to generate profits will exacerbate the situation by continually producing new homes and in many cases, underpricing previous home purchasers.
12) What has motivated you to participate in the bubble discussion and what have you learned?
- For myself, it was satisfying to discover I was not alone in realizing this housing ponzi scheme. Thanks to the internet, many individuals such as myself can find a medium to discuss this situation with kindred spirits. And in essence, I have always attempted to be the voice of reason for friends and colleagues who are current over-stretched with their homes purchases. Having sites to reference with access to unbiased data assists in getting the message across.
Just let me say this :
The Housing Bubble started with the cheap money of 2001 onward .
Coupled with the tax change of a exclusion of up to 500k on capital gains with savings rates being low ,it became attractive to invest in real estate .
As the bubble/mania progressed into 2003 the prices had already exceeded local income caps ,but at that point the lenders lowered the lending standards and anyone could get a loan .And thats when the hyped up market went into overdrive .
The speculators/flippers jumped on the bandwagon and builders continued building for the speculator demand as prices rose beyond reason .People who could not really qualify for a loan were able to buy pursuant the sub-prime lending which raised the demand and prices .
The market continued to soar, hyped up by the realtors/lenders as a investment you couldn't lose at causing more speculation and fear buying ,
The media never questioned the hyped up ,low down unqualified buyers going on loans and speculator driven markets (false market ).
A housing bubble is when you have inflated prices that are not
stable .
The places that have the most unstable bubble prices are one in which there was excess building and the prices were driven by high speculation demand as well as unqualified low down payment buyer demand .Forclosures will reult in these areas as inventory increases driving the prices down .
Also the real estate industry started selling real estate as more of a investment (like stock) rather than a place to live ,which drove up the demand .
You can always spot a bubble by how much the prices exceed the rent ratios .Also a bubble is easy to spot by a low affordability index for the area .
Bubbles stop almost as quickly as they come on because sooner or later the market runs out of greater fool buyers that can afford to keep it going .
I am in on bubble discussions because this bubble could break the back of America and the sooner its corrected the better .The Lenders have to change the loans and make sure people qualify . Bad loan underwriting/bad appraisals , that are passed off to the secondary markets (MBS's)is the biggest contributor to creating a bubble .It's called easy money .
Had the bad lending not been present ,right now we would of capped out at 2001 or 2002 prices.
Houses should keep pace with inflation/incomes only and that is another way you can tell when your in a bubble .
The reporter is right for asking questions of this board since, in my opinion, there is more intelligence and sophistication on this board than in the whole collective covering economic issues for the traditional media. One day, the traditional media people will understand that while getting on your knees in front of the boss is good for job advancement, it's a terrible way to actually inform people about the world.
That's why the traditional media will be vastly different in a few years time, or they will become even more irrelevant than they are now.
7) Is it possible to accurately identify the existence of a bubble before it is gone?
YES
Explain.
When I compared renting to buying, I found out that renting was 1/4th to 1/5th the cost of buying something which was "just as nice." Additionally, renting gives me no ulcers since I don't have to worry about the responsibilities of a mortgage, insurance, high taxes, HOA, assessments, depreciation etc...
I suppose that during a "non-bubble" period, the anxiety of becoming "economically enslaved" isn't the biggest worry.
8) How are bubbles born and how do they die?
They're born when short term capitol gains dominate the financial choice and die when only long term financial gain is expected or the cost of owning is close to renting.
9) Why do people get so fired up about the concept of a housing bubble?
Because you feel "taken advantage" of. The position of "debt slave" isn't very fun.
10) Will there ever be an explanation for bubbles that we can all agree upon?
No. People's values differ. I'm satisfied with delayed gratification and bargin hunting while others aren't. So, in general, a "bubble," in my mind, suggests that people are wasting their money. Apartments and condos both offer shelter, freedom, mobility and peace of mind in different ways.
11) Will there ever be a time when the discussion about bubbles goes away? Is this just a passing fancy?
No. Bubbles will always come and go.
12) What has motivated you to participate in the bubble discussion and what have you learned?
It offers me a chance to reflect on what I value. I don't really want a house but it's a societal norm. I've learned a lot about the economic reality of owning a home and I've become a lot more comfortable with the "default choices" I've made.
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