Monday, August 29, 2005

Yearning for Dust-Bowl Days--Updated!

Well, not quite. But even though I'm into the real estate market up to my eyeballs, articles such as this one make me long to see the housing bubble burst--suddenly and mercilessly:
Such thriftiness has gone out of fashion. What was once considered undesirable — taking on large debt — is now seen as smart. And what used to be smart — becoming debt-free — is described as imprudent.

"If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years," said David Lereah, chief economist of the National Association of Realtors and author of "Are You Missing the Real Estate Boom?" "It's as if you had 500,000 dollar bills stuffed in your mattress."

He called it "very unsophisticated."

Anthony Hsieh, chief executive of LendingTree Loans, an Internet-based mortgage company, used a more disparaging term. "If you own your own home free and clear, people will often refer to you as a fool. All that money sitting there, doing nothing."

Really, whatever financial harm comes my way when the bubble bursts will be totally out-balanced by the satisfaction of seeing prats like these two get beached.

Galley Friend C.L. adds:
Because in the New Economy, the laws of supply and demand are irrelevant!

Honestly, in five years these guys are going to be looking at the same kind of jail time that Merrill equity analysts are doing today.

Amen.

Update, 1:15 p.m.: A commenter says:
No offense, but the laws of supply and demand are very much at the source of the real-estate boom. Look at the areas that are experiencing the biggest booms: dense urban areas and the surrounding suburbs. The supply of homes is in limited quantities due to strict zoning regulations that keep builders from erecting more homes. At the same time those areas are seeing huge influxes of immigration. Increased demand, capped supply, higher costs. It's the same reason why you can check out real estate in Raleigh, NC and notice that it's barely moved over the past 5 years. There is basically an unlimited supply of land to build on and homes are going up incredibly fast. Same with Salt Lake City, UT. The market is overpriced, but it's hardly a bubble that will lead to any sort of serious crash.

If only that was true! Look down the list of red-hot, out-of-control markets and you'll see cities such as Phoenix, and Bakersfield, and Naples--medium-sized, diffuse metropolitan and suburban areas with no space constraints.

And at the top of the list of percentage price increases over the last several years is . . . Nevada, lead by the insane market in Las Vegas. You know what they've got in Las Vegas? Land! They're not bumping up against rivers or oceans or 200-year-old suburbs in Sin City.

Look at this list of the top markets for 2004: Las Vegas real estate increased by 47.3 percent in one year. 47.3 percent! And it isn't because there's not enough sand to build on.

Look down the complete list and you'll find only 6 markets that could even charitably be described as dense and urban in the top 30. San Francisco and New York City--the archetypes of the incredibly expensive, densely-packed urban market--don't even make the top 40!

You tell me how any of this makes sense.

9 comments:

bob said...

Peace of mind is a great equalizer

Anonymous said...

No offense, but the laws of supply and demand are very much at the source of the real-estate boom. Look at the areas that are experiencing the biggest booms: dense urban areas and the surrounding suburbs. The supply of homes is in limited quantities due to strict zoning regulations that keep builders from erecting more homes. At the same time those areas are seeing huge influxes of immigration. Increased demand, capped supply, higher costs. It's the same reason why you can check out real estate in Raleigh, NC and notice that it's barely moved over the past 5 years. There is basically an unlimited supply of land to build on and homes are going up incredibly fast. Same with Salt Lake City, UT. The market is overpriced, but it's hardly a bubble that will lead to any sort of serious crash.

Jay D. Homnick said...

The self-serving smart-mouthiness of those two analysts struck me too when I read that article yesterday. But in fairness to the reporter who wrote it, he framed their remarks very effectively in the context.

As it happens, my mortgage is only for about 22 percent of the current value of my home, while I make a just-living ghost-writing and free-lancing. All that equity beckons like one the Sirens: it is undeniable.

Anonymous said...

To take issue with what anonymous said above, living in the Phoenix area we are seeing a major spike in housing prices and I guarantee you that houses are going up incredibly fast here.

No capped supply here- there are some unique regional factors which may be responsible for driving the boom but that just makes it more bubblish

D. Carter said...

I think it's ok to have a manageable equity line of credit for emergencies, but it strikes me as incredibly imprudent to use your home equity as a checking account for all kinds of consumer purchases. Home equity is a moving target, and I've known people who have seen their equity vanish due to changes in market conditions, and have actually been out of pocket on the sale of their homes.

Anonymous said...

It is supply and demand and I think that I can give some insight.
Most of the "hot" markets are places in which people are moving to and the supply of housing is not equal to the number of people who want to move there.
Take Las Vegas. Big numbers of California people desiring to move there for it's lower taxes. They are flush with cash since their houses in Cal have appreciated due to the restrictions in building, etc.
In Florida, it is European money (majority of it from Germany), looking for a place to invest since who the heck wants to invest in Germany (or any of the "old Europe" countries).
It takes time to build no matter how much land is available. And, if you are a smart builder, you do not want to build unless you can be sure that you have a reasonable probability of selling out.
Now, I am not saying that things will not equal out - they will when that last high rise in Las Vegas is the one that cannot be filled since everyone who wants to move there has done so already - but there is some logic to the increase in house pricing.
Would I treat my house like a piece of commercial real estate by taking out all of the equity to distibute to my partners? No. It's not my idea of the best use for my money.

Bill Walsh said...

I'm voting for "bubble," since bizarro markets (yes, it's vaguely proximate to NoCal & Portland/Seattle money, but please) like Boise are hot. See Clayton Cramer's blog for details on Boise:

http://www.claytoncramer.com/weblog/blogger.html

Terry J said...

A friend tried to buy a house in Green Valley, AZ. The price went up and the construction time went from 3 months to a year, because the labor went to Las Vegas where wages were higher. No labor, no house. Lowered supply, but still high demand.

There can be many factors affecting the price. Just because a given property sold new for $25,000 in 1960 says nothing about the cost pressures or desireability issues in the ensuing 45 years. Land may be plentiful but the regulatory requirements can drive costs, and prices, to absurd levels.

Chris Byrne said...

You have obviously never been to Phoenix.

4 million people, and not enough water to expand any more (though they keep trying).