You may have missed the biggest news of the 21st century straight from the pages of The Little Town Lyar:
Judge John J. Roberts, who was confirmed by a Senate vote of 78-22, said he felt the record should be set straight on the housing market today, and that the Supreme Court was set to hear the case, The People vs. The Real Estate Bubble. Roberts, a conservative, believes the 'bubble' to be a myth, and that high housing prices are in fact the creation of newspaper editors' overactive imagination and need to fill space with something.
David Lereah, chief economist of the National Association of Realtors, had this to say, "We have seen the air escaping the bubble very slowly in various markets. The housing market is clearly not Bubble Yum or Mr. Bubble."
Mr. Bubble, who was seen floating above Capitol Hill, said, "If I'm a myth, you would not be asking me for a quote, you dolt."
Mr. Balloon was also seen floating higher, on news that the real estate bubble would be ruled a myth by the highest court in the land.
The reality is the housing market has declined in most areas throughout the nation already (see Las Vegas' pre-construction projects where they cut prices 20 percent, for example), it is still mildly frothy in others, showing that if the Supreme Court ruled the real estate bubble to be a myth, they would be right in their judgement. Of course, this does bring us to the fact that we have given the Federal Reserve the right to create real estate recessions by artificially increasing interest rates to higher-than-market levels, and such rate increases hardly deflate inflation.
The reality of the inflation we're seeing is not due to a strong housing market. It is due to high oil and gasoline prices, combined with high deficits (national and trade), that create ever-increasing prices. Greenspan has no control over these, though, and Congress controls government spending. Higher interest rates, though, do make it increasingly hard to reduce national debt and deficits.
Article comments
— go to most recent comments1 - Maurice
When economists state their opinion that we are experiencing a bubble the media report that statement.
Are you are proposing to restrict the media?
Did you believe there was a bubble in the stock market in 2000?
2 - Mr. Real Estate
I never said restrict the media. I simply stated that the media should not create a housing panic, that is all. If you read the column you may hae noticed that I used satire to get your attention. Not all media out there are producing both sides to the real estate "bubble" argument, nor are they all (and most don't) stating that every community's housing market is different.
I understand the horse race approach to reporting, as I have done some in my time, but when reporting on something like real estate, more facts need to be laid on the table, such as:
(1) Bardmoor's real estate market is completely different from Tierra Verde's (these are two communities in my area), as they attract totally different buyers with very different incomes and purchase approaches. Real estate is not a national market. It's local, and it's not city-wide, it's block to block, community to community.
(2) We are experiencing inflation. Inflation is not a bubble. The media is not stating that. housing prices are driven based on supply and demand and costs to re-produce. When housing starts are high and costs to build is higher due to high gas and oil prices (which is why building materials are higher), housing prices are higher. I have yet to see this reported.
(3) The stock market is not something people buy to live in. Equities are bought purely for investment. Real estate is bought, in most cases, to live in. There is some flipping going on, but flipping has been going on for eons, and most new home and condo developers are even making flippers close, so the prices are not artificially increased per assignment contracts. You will find more first-time buyers in the modern real estate market due to low interest rates; when rates rise to 8 to 10 percent, this will likely begin to level off. High housing prices are already making the first-time buyer continue to rent.
Pharmaceutical prices are ever-increasing. Is this because of a pharmaceutical 'bubble'? Should I stop buying insulin and wait? Hmm? Media have had articles saying people should rent and wait, and prices have gone up since then, making it less likely that those folks who decided to rent will ever be able to buy.
All I am saying is that the media needs to be competent in their reporting. Housing has already slowed in numerous cities across the nation. It has not slowed much in Florida because we have 300,000 people moving here every year. Prices, however, are not going up like they were, and even here homes and condos are staying on the market longer than before, but that's normal for this time of year here.
Markets inflate, then they slow, for durable goods at least. Stocks and other equities are not durable goods. Comparing non-durable goods to durable goods is like comparing apples to oranges, and any economist knows that, but they may not share it so they can get their 15 minutes of fame looking like experts.
A Great Depression, a huge spike in inflation, a large spike in rates (i.e., 10% or more) are the only things that would create a bubble-like effect for durable goods, and that includes real estate. As I stated in the column, in Vegas, some new housing projects have already decreased prices 20 percent. That was the air being let out of the balloon. The bubble is a myth.
I will continue to point out the bubble myth, as it is an oversimplification to a very complex real estate market. the media should report on housing markets regionally, as they differ from housing subdivision to housing subdivision.
The stock market drop in 2001 I believe was caused by Sept. 11th and a national recession. Sept. 11th created a national mindset where no one bought real estate for 6 months in certain markets. Stocks are more widely affected in recessions than real estate, although there are times when stocks and equities do just fine and there are real estate recessions. More money goes into real estate and gold when people are not feeling secure about the economy, which is why we have seen more real estate investing throughout the last few years, and more gold investing.
Cheers.
3 - Rob
Mr. Real Estate,
Do you know what inflation is? It appears you are arguing that inflation is an increase in prices. The increases in oil and housing prices are not inflation; they are the result of inflation. Inflation, by definition, is an increase in the volume of money and credit. To say that the increase in credit (option arms, zero down, interest only, etc.) and money ($2B a day) aren't responsible for the increase in housing prices is misguided. Tightening of lending standards will likely take place soon which might prevent a financial collapse in the U.S. and result in only a leveling off of housing prices.
4 - Mr. Real Estate
Sorry I didn't define inflation, however, developer prices are higher due to higher construction costs, which are caused by higher material costs, which are caused by higher raw material costs, which include gas and oil. Housing starts typically signal whether or not the housing market is slowing. In California housing starts were rather low recently. Here we still have a backlog of building permits and housing starts are high. Inflation caused raw material costs to be higher. Oil and gas are raw materials in regard to new construction starts. New construction starts indicate a hot or slow housing market.
Tightening of lending standards will decrease the number of first-time buyers, however, many builders still require 20% down, so it won't affect them. I don't expect 100% financing to disappear, but it would not surprise me if they eliminated interest-only and option-arms. However, prices, as I stated in this column, have already leveled off or dropped (see my Vegas reference for details). Here they have not been increasing as much due to buyers simply not being able to buy at prices that high. Lenders are already foreclosing (a foreclosure specialist I know had 15 inquiries last month about listing foreclosures).
Hello, the market's adjusting, and it started earlier this year. The bubble is a myth.
5 - demabloggery
You should never ask a barber if you need a haircut, nor a real estate broker whether you need to buy a house. There is an inherent bias in this business, coupled with a reckless disregard for the truth, that is going to get a lot of people bankrupt and a lot of brokers sued for their predatory lending practices.
When there is such a disconnect between incomes and housing prices, when rents remain stable while prices inflate in the double digits, the market simply cannot sustain this, and people cannot explain it away. The "irrational exuberance" of the stock bubble operates here as well; people convince themselves houses are worth it, other people drink the kool-aid, and then once enough people are suckered by the bucks they see coming in, it doesn't end until things get crazy like they are.
The east and west coast are in this situation. The midwest and south probably not. In California one in four homes are bought for reasons of speculation, home owners with equity who believe the real estate people. Then there is the interest-only people who, governed by the fear created by the real estate industry who scream at them "buy now or you will NEVER own" who are going to end up upside-down when rates rise.
We are looking at the biggest bail-out since the S and L crisis.
6 - Mr. Real Estate
Wallace, you don't need to buy a house, you can rent if you want to, however, the desire for homeownership in this country is strong, without anyone telling them to buy.
You are free to state your opinions here on the real estate industry and housing market, and lending industry
7 - Mr. Real Estate
Texas is, for the most part, an undervalued real estate market. You can go to Dallas and buy a luxury home on 3 acres for around $300K. You could never do that here.
Tampa Bay is 12% to 14% overvalued, lower than the Miami, Ft. Lauderdale, Boca Raton areas, which are 56% to 58% overvalued last time I looked.
I think San Diego was something like 78% or so overvalued, last time I saw the report on it, and I think Hawaii was around 71% overvalued, but I may be off a little bit.
It's like I was saying, real estate markets are local, and they vary from block to block. Prices are leveling off, though, as I stated in the post. I think putting people into a panic about the market is just plain stupid and totally incompetent, as it's impossible for anyone to completely predict what it's going to do, and it will level off without scare tactics from bubble proponents, and it has been leveling off, already. Adam Smith called it the invisible hand. Call it what you want to, it's how the free market economy works. If the Fed is too aggressive, though, the invisible hand can be detrimental to the economy. That's all I was saying.
If/when prices go down I will be glad because it will make my job a whole lot easier.
8 - demabloggery
If you would like a brief legal education on the subject of libel, and be entertained, watch "The People V. Larry Flynt". It's highly entertaining, you get to watch Courtney Love play a drug addict, which is a stretch for her, and at the end you will know why sarcasm, satire, and other such things are carefully protected by the first amendment. the facts?
Flynt Publishes an ad in his magazine claiming that Falwell lost his virginity to his mother in an outhouse. The court ruled that since no one could reasonably believe it to be true, then it wasn't libel and that furthermore, there was an important interest in protecting political satire for first amendment purposes.
Was the offhand remark at the end of a post on the internet intended to inform you and others that you were actually being sued or that you had committed a tort, or would the reasonable person regard it as a facetious remark related to the critical commentary?
9 - Mr. Real Estate
The First Amendment protects my opinion columns, too, last time I checked with my attorney.
I still do not believe it is healthy for the economy or for consumers for anyone to go around saying the sky is going to fall when they don't know whether it will or not.
Can the sky fall? Sure. Can a recession occur? Sure. Can a real estate recession occur? Sure. Can another Great Depression occur? Sure. Will prices of durable goods decrease as the dollar becomes more valuable? Probably, or they will at least remain stable I would think, but I could be wrong. However, stating these things as fact is incompetent, as we cannot accurately predict their occurrence in a factual manner. I think I said something like that in my column.
If you're going to continue to make comments on legal terms (i.e., torts, etc.) here I would suggest showing your credentials of legal expertise (i.e., Esquire, Attorney at Law, etc.), or I'm going to have to ask the editors to omit those portions of your comments. Blogcritics is not a court of law, or a place where readers seek legal advice, as it is not a virtual law firm. It is a Web magazine, though, and we do write lots of opinion columns here. If you don't like my opinion or disagree with it, that's fine (in fact, I encourage it). Debate is good. It brings us more traffic. =)
Cheers. ;)
10 - demabloggery
This is an odd comment. I could turn that logic back on you; if you are going to give expert advice on real estate, then shouldn't you give your credentials as well? As it happens, I'm a law student in his last year and a law librarian, so I know what I'm talking about, but it shouldn't matter; I'm offering my opinion in the same way that you are. I have offered no advice here, simply commented. I like debate as much as you do, and if someone tells you that you don't know what you are talking about, the proper, mature response isn't making allegations of libel. It's making the other comments you made.
cheers ;)
11 - demabloggery
However, stating these things as fact is incompetent, as we cannot accurately predict their occurrence in a factual manner. I think I said something like that in my column.
==================
Back to the debate (you might be interested in visiting patrick.net for a lengthy discussion). My main problem with your column is that you point to the media as being irresponsible in hyping what you do not view as a bubble, despite a wide variety of information out there, including comments by Greenspan, that this is not the case. I would say the media has done a bad job by just picking this story up lately; it's been going on for years, actually, and the real estate industry has done it's best to pretend everything is hunky dory.
12 - demabloggery
Here's an interesting article from Money:"NEW YORK (MONEY Magazine) - Yale University economist Robert Shiller made one of the great calls in stock market history. His book "Irrational Exuberance" hit the shelves in March 2000, the same month the tech-stock bubble struck a sharp pin.
Timing helped turn "Irrational Exuberance" into a bestseller, but Shiller had been predicting for several years that excessive speculation would prove a disaster for many investors.
A few days before Alan Greenspan famously used the phrase "irrational exuberance" in a December 1996 speech, Shiller had been at lunch with the Fed chairman, arguing that the stock market was irrational and suggesting that Greenspan might have something to say about how overvalued it had become.
Shiller's first tome focused exclusively on the stock market. A substantially revised edition of "Irrational Exuberance", to be published in April, includes a new chapter on what Shiller believes is the bubble in residential real estate.
===============
I can provide the link if you like.
13 - demabloggery
PS, my parents have a condo down in Naples that is just fantastic....love Florida...
14 - Dave Nalle
When real estate prices grow faster than the economy in general then you have a real estate bubble. That's pretty simple. Now the fact is that as a nationside average home prices are up, but so is the economy. In some parts of the country home prices are up more than the economy as a whole. In others they are up less.
Nationwide real estate prices are up about 16% at a time when personal income is up about 7% over the past year. That means that real estate prices are growing at more than double the rate that income is. That certainly looks like a bubble if the trend continues long enough for price increases to outstrip the ability of consumers to pay for houses.
However, generous financing and low interest rates are making it easier to buy a house with less money. The cost of this is an increase in consumer debt, which is generally bad for the economy, but potentially good for Real Estate, up to the point where income growth starts to lag too far behind and people start getting foreclosed on - remember 1985?
And as Mr. Real Estate pointed out, the market isn't the same everywhere. In some parts of the country - Texas, for example - real estate prices are up less than the national average and personal income is up more than the national average, so there really isn't a bubble in Texas. But in other areas - like California - real estate prices are up more than the national average and income is not up as much as the national average. They have more of a bubble.
Here's the key thing. The fed is raising interest rates. This will make credit more expensive and harder to get and result in a gradual decline in new home sales. This bubble appears small enough and early enough in its development that rising interest rates alone should deflate it before it gets to the point of dangerous bursting.
Dave
15 - DrPat
"Chill out, Francis!"
[grin]
16 - Mr. Real Estate
If you click to the link where my name is in the post you will see my credentials. If you click on my pseudonym you will also find my credentials. My identity is hardly secret on here, and I have revealed that I am my pseudonym in numerous media reports. I'm a pretty open, sometimes overly blunt guy.
I think Dave's comments are right on the money. Prices are already leveling off here, and have even dropped in some markets across the nation.
17 - Mr. Promotion
Well, you guys wanted PR, and you got it. We're in Inman News via this post. By the way, there are a lot of media folks who got a link to this.
Cheers.
18 - demabloggery
If you click to the link where my name is in the post you will see my credentials. If you click on my pseudonym you will also find my credentials.
======================
I guess you didn't bother to do the same for me. Aren't you glad you at least have people responding to your article?
19 - demabloggery
"Chill out, Francis!"
=================
Whoooooshaaaaahhhhh!!!
20 - arcticblueice
There is plenty of irrefutable evidence on the residential real estate bubble that has come to light. The facts, the greed, the real estate fraud, the indictments, the fines, the convictions the incarcerations, the record consumer debt, the shattered dreams, the bankruptcies and the foreclosures continue to climb. Millions of citizens of this great nation have chosen to become slaves to debt stemming from "artificial equity" being spent on things that people just cannot afford. Real estate appraisal & mortgage fraud along with poor judgement influenced by media propaganda and driven by historic low interest rates are responsible for a destructive economic downward spiral by creating an insatiable housing "frenzy". This housing bubble could not exist if the rules in mortgage lending were kept in place. For decades, the house pricing standard for qualified homebuyers was limited to 2.5 times your annual income. Today, I have read about folks who qualify for up to 12 times their annual income for an interest only "no doc" home loan. In some states this practice is unlawful and is referred to as predatory lending.
The residential real estate bubble will be bursting soon. A good indicator is the growing inventory of houses that continue to pile up throughout the nation. Abundant news is available for real estate fraud, predatory lending, the residential real estate bubble, communist China, our nations porous borders, the U.S. deficit, American consumer debt, the failed "two" party political system, and American poverty increasing for the fourth straight year. My personal four favorite journalists that accurately write great articles are Danielle DiMartino, Broderick Perkins, Paul Krugman and Bill Fleckenstein. Thanks to everyone who is actively fighting the real estate propaganda, the political greed of the federal, state and local governments, corporate irresponsibility and avidity, the felonious behavior of real estate agents, brokers, home builders, appraisers, lenders, and other guilty parties that I have failed to mention.
The evidence is alarming and shocking in how many trillions of dollars are made by predatory lending that is currently resulting in a 25% default rate. People that could not have qualified for a house prior to the terrorist attack our great nation suffered on September 11, 2001, now qualify for a $300,000 & $400,000 house that is really worth substantially less. It has been documented that the market grew at a healthy rate of .4% from 1975-1995. But in places such as in San Diego, California real estate has gone up more then double! Are you getting the picture yet? Are you with me? It appears that the Federal governments answer to our failing economy after 9-11 was to keep the economy moving through a real estate bubble by lowering the federal interest rate to a record low federal reserve interest rate of just 1%. Almost everything is made in China and outsourcing continues to grow from corporate greed. American consumers are giving China over 50 billion dollars a month which they are using to strengthen their military like the world has not ever seen.
Our country transformed from standing as a nation of industry to a nation of providing 'service' and now the service industry has been out-sourced to India along with other jobs such as information and technology (IT). But that is a separate issue. The bottom line is that there are very, very few high paying jobs created every month in the United States. How will Americans remain decent consumers if they do not have a decent job? The nation was deceived into believing that homeowners got rich almost overnight. Take a look at Imperial County California for example. Homes in Heber, Calif (92249) had a 'comp' average of around 45,000 before 9-11. Now check on house prices for Heber, Calif with new homes from Centex and DR Horton producing houses with a price tag of more then $250,000 and climbing. Please keep in mind that Imperial County is infamous for having the highest unemployment in the state of California. If the housing bubble can come to Heber, then it can happen anywhere. Title information is public so please take a look for yourself. People who have no knowledge of real estate have dove into a market and and bought into mess much worse then the infamous internet bubble. Face it folks, we have become a nation of debt ridden consumption junkies. America has nothing saved up and a mountain of debt.
The governments idea to correct a failing economy was by offering a record low interest rate in order to have a record number of homeowners that could have never qualified for that new house without some "creative financing" and "rule bending" for some mortgage lenders. Several appraisers chose to break the law by inflating house prices with the 'drive-by' appraisals in many cities throughout the nation. Our largest lenders Fannie Mae and Freddie Mac are nearly out of the game with their debt to loan ratio being so high. Alan Greenspan, (Federal Reserve Chairman) has
raised and is raising interest slow and steady to trim down the house buying
frenzy. Is it working? Somewhat, now instead of a month supply of houses
nationwide, the United States have just over a seven-month supply of houses and
the inventory continues to grow every month. New house prices have been slashed by more then 100,000 to attract buyers in some areas of Las Vegas not to mention the market crises looming in Florida and other parts of our country. That my friends is just the beginning. The market has peaked and now has begun to valley but the inevitable economic collapse is coming. I do not believe that people who suffered through the horrible depression of 1929 are the ones rolling around in
a SUV that they cannot afford pulling up in a driveway of a recently purchased $700,000 house that was $265,000 three years ago. People who have chose to use the artificial equity in their home as an "ATM card" are going to be in a world of hurt if they are not already. The FBI has received thousands upon thousands of complaints of
real estate fraud. There are an increasing amount of reports surfacing for new home builders refunding consumers without admitting guilt for their contribution of real estate fraud. Then there are the poor real estate appraisers that are getting fired for not being a team player for the good old boy network. What agency is defending the appraisers who are actually reporting the lenders twisting
their arm for inflated appraisals? Lenders in many areas are writing loans based on fictitious and artificially inflated prices for this
real estate bubble. The appraisers that
lack the courage to resist the pressure of evil and destructive lenders should be fined and prosecuted on a much larger scale everywhere that this is taking place. At least some of the real estate appraisers "playing the bubble game" are getting fined and imprisoned for their part in contributing to the residential real estate bubble. Appraisal fraud is a serious and prosecutable crime. This bubble was created from greed and fueled by a combination of fear and ignorance. One day this predatory lending will catch up with the people responsible for creating a nation of slaves to debt.
I have to believe that the administration of justice will come to everyone who has willfully committed real estate fraud. If you would like to read more on this growing crises, you may read on the cause and effect of the housing bubble fraud at the following website http://www.mossback.net/bubble.htm
21 - Mr. Real Estate
You know, you tell the kids to lay off the sweets, they eat more. You tell your ex to lay off the coffee, she drinks more. Combine coffee and sugar in excess and you get some really interesting comments.
22 - P. Anderson
Say, is this bubble thing gonna burst my bubbles? I mean, I wouldn't wanna bust a good thing, ya know.
23 - demabloggery
Well....if he turns out to be right you are going to owe him and I an apology...if we turn out to be right, can we expect to hear from you, Mr. Real Estate? I say let's have a gentlemens' bet and see how it all turns out. I can eat crow with the best of them...
24 - Mr. Real Estate
All I owe you is a bad reference to whoever you interview with when you get out of school. Your comments are childish at best and Blogcritics' editor should be deleting your insults any time now. Most of the comments in this thread violate the Blogcritics comment policy. Anymore nonsense and I will issue a press release on why I'm no longer doing PR for Blogcritics.
25 - Mr. Real Estate
Did anyone read this article at Inman News?
Rising rates and lower consumer confidence combined don't make good bedfellows, but they'll get Hillary elected in '08. Interesting legacy for Greenspan, a libertarian. Mark my words, if a recession comes, housing prices will drop even more.