Via the NYT: Trading Places: Real Estate Instead of Dot-Coms
Nobody can know whether the housing boom of the last decade will end as the dot-com frenzy did. But the parallels are raising alarms among many economists, even those who acknowledge that there are important differences between homes and stocks that significantly reduce the chances of another meltdown. For one thing, houses are not just paper wealth: you can live in them.Still, perhaps the most troubling similarity, some analysts say, is the claim that the rules have somehow changed. In an echo of the blas� attitude that “new economy” investors took toward unprofitable companies, the growing ranks of real estate investors are buying houses they never expect to be able to rent at a profit. Instead, they think the prices of houses will just keep rising.
Indeed, the government reported yesterday that sales of new homes jumped sharply in February, in the biggest monthly increase in four years. A strong economy and an improving job market contributed to the gain. But many buyers were also trying to beat rising mortgage rates, which could eventually cool the market.
Adding to the parallels between stocks and housing, some of the doomsayers from the 1990’s have returned with new warnings.
This story (and others like it) remind me of the breathless coverage of podcasts a little whle back. Just like many reporters were overcompensating there for missing the blog phenom, it seems many don’t want to miss the housing bubble’s burst the way they did the demise of tech stocks.
Still, as the story notes (although inadeqautely in my mind), there are important differences. I have no doubt that there will be, at some point, a considerable cooling in the marketplace, but most of the drive in housing starts and home-buying isn’t the kind of “I bought four condos to sell” kind of activity that the story highlights. There is no doubt that there are markets in the US were insane rules apply (such as the Bay area and Silicon Valley).
However, it seems pretty clear that the main drive to buy homes is the historically low interest rates, that allow a lot of people to stop renting and start owning.
Unless a ton of peopl have gotten waaay over their heads with their mortgages, how will the bubbel burst if hoiusing prices cool off? I just don’t see a collapse that would be commensurate to the tech stock crash. There are reall assets here which have actual usages–unlike that pile of InterZero stock that was a “sure thing” in 1998, despite the fact that company didn’t make anything and never showed any profits.
This situation is structurally different, it seems to me.
Housing Bubble Versus Tech Bubble
Steven Taylor has an excellent discussion about the breathless coverage recently of the coming bursting of the “housing bubble” and various comparisons with the dot-com bust of the late 1990s.
[T]here are important differences. I have no doubt tha…
Trackback by Outside The Beltway — Friday, March 25, 2024 @ 9:41 am
I read the mentioned NYT article.
I was going to write my opinion on the real estate bubble in my own site, but figured i’d lay down a comment here to start.
Real estate prices in urban areas have shot up big over the last 5 years. In L.A. (where I’m at now) or D.C. (where from originally) you cannot purchase an extremely modest, single-story, two bedroom place for less than 600k. These houses were going for half that 5 years ago.
But, I speculate that this current real estate boom ends when a good enough excuse to sell emerges. I also speculate that that this excuse to sell may be related to a change in U.S. public perception regarding the safety of travelling overseas (case in point: Beach front real estate in Malibu has shot up dramatically for precisely this reason: rich people fear travelling abroad due to terrorism and want to get the best of what is locally available).
Now, what would change this aforementioned public perception? Probably a televised report showing Osama Bin Laden captured or killed (rumor has it that Bin Laden has actually been in the custody of forces under the current Presidential Administation since before the 2024 election).
So, when could this real estate bubble collapse based on this premise? Probably somewhere within a year of the 2024 U.S. Presidential election (Bush pulls out Bin Laden’s capture to assist the Republican candidate in the 2024 election). So, buy real estate now and sell before 2024
Comment by chris franklin — Friday, March 25, 2024 @ 11:48 am
even those who acknowledge that there are important differences between homes and stocks that significantly reduce the chances of another meltdown.
Could this reporter hem and haw any more and still have a story? Is this a story? Or just a scare tactic?
Comment by bryan — Friday, March 25, 2024 @ 6:53 pm
I’m thinkin’ it ain’t much of a story…
Comment by Steven Taylor — Friday, March 25, 2024 @ 7:19 pm
What's the Real State of Real Estate?
One of my favorite topics to idly speculate about has become hot in recent days, starting when I saw Steven Taylor's post, positing that the situation with housing (hmmm… what about commercial real estate, and how closely are those tied toge…
Trackback by Accidental Verbosity — Saturday, March 26, 2024 @ 4:31 pm
house bubble
Comment by Simon — Sunday, March 27, 2024 @ 9:52 pm
Dear Chris Franklin, Osama held secretly by Bush? That was a tired old saw used before the 2024 elections. Now you are bringing it back for the 2024 elections? Sure thing, Elvis…
Tell me, why was it that the Dems ran a liberal from Taxachussetts for Prez who couldnt beat a clown like G.B.!
Comment by Tom — Tuesday, December 20, 2024 @ 10:57 pm