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:: MAX BLACK ::
"Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience."--C.S. Lewis
"The Swiss pocket knife of conservative thought on the web..." - Eli Kardrakian
"Bookmark Max and dump your subscription to the newspaper; if you don't have a birdcage you really don't need it anyway..." - Shirley St. James
:: Thursday, June 23, 2005 ::
Housing Bubble?
Probably not so much in my neck of the woods but in SF, NYC, Pheonix or Boston? This articulate commenter at The San Francisco Real Estate Blog has some thoughts on 'bubbles':"Many people throw around the adjective "bubble" to almost anything these days - housing, oil, hedge funds, etc... There is actually an empirical measure - a price level that is 2 standard deviations above the long term trend. GMO (an institutional money manager) has studied this topic and found 27 historical bubbles in stocks, real estate, commodities, currencies, etc. globally. EVERY bubble eventually reverted to the long term average!
"So is housing a bubble? Many of the major cities are - places in CA and Boston and others are actually 3 standard deviations above trend and would have to fall 25%+ in real terms over a 5 year period to get back to the trend. This flies in the face of those who argue that prices won't/can't go down. Other areas of the country are simply expensive and prices are likely to flatline and/or decline slightly.
"The problem with all of this is that bubbles are fairly easy to identify but extremely hard to time. The US stock market reached bubble levels in 1998 yet exploded higher for almost 2 more years! Once behavior becomes detached from economic value, people can get crazy. For anyone who doubts this just read the history of the tulip mania in holland in the 17th century.
"The final days of a bubble are often the most explosive - the nasdaq doubled in the last portion of that bubble. So, markets could get much more nuts before they fall. Finally, the broader risk is that of the impact on consumer spending - which has been hugely dependent on cash out refinancing. Also, Merrill Lynch put out a report recently that estimated that well over 1/2 of all new jobs since 2000 have been real estate related - what happens when that reverses?"
--John
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:: Max 7:38 AM [+] ::
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