This post is by way of an appetizer. Twist is sleeping in a bit and preparing for her customary response to the new NAR numbers (and spin) expected later this morning. UPDATE: G sends the link to this cartoon (from The Big Picture blog) …
Meanwhile, Doomers should brew a second cup of coffee, sit back and enjoy this gem from late 2004 [1] written by Alex Markels. It was actually his piece from yesterday [2] that first caught our eye here at Doom Castle, but then we found the earlier article and its extraordinary forecasts about things that have since come to pass.
Here’s a selection of Mr. Markel’s hits from over two and a half years ago.
Convinced there is more money to be made, last summer the two formed a real-estate-investment club with another friend and purchased a pair of condominiums in Las Vegas–their favorite gambling spot–for about $125,000 each. The rent they receive doesn’t quite cover the mortgage payments. But they figure their real-estate gamble has already paid off "because the market there is just exploding," says Koder, who estimates that the condos have already increased in value by as much as $30,000 each. "We were figuring on about 8 percent appreciation a year, but I bet it’ll be more."
Such outsize expectations hardly seem out of line these days. After one of the broadest and longest run-ups in housing prices ever, most homeowners are sitting pretty. But there is a growing angst about how much longer the party can go on. Those who believe housing is now the new "bubble," much like the ’90s stock market, point to slowing sales and rising interest rates amid nosebleed prices that have far outpaced growth in personal income. Take Las Vegas, for example, where the median home price has increased an eye-popping 54 percent in the past 12 months alone. ..
… And while prices continue their upward spiral, it’s little wonder a growing number of acquisitive home buyers, including speculative investors like Wu and Koder, expect prices in places like Southern California to continue their surge. In a recent Yale University survey of home buyers in Los Angeles, for example, respondents said they expected their homes to increase by an average of 22 percent annually over the next decade, while more than two thirds said they feared being left out of the boom if they didn’t buy now. …
Yet it is precisely that combination of greed and fear of being left behind that could pop what some experts believe is a dangerously inflated housing bubble in some parts of the country. …
…In cocktail party chatter reminiscent of the days when housewives and taxi drivers confidently traded stock tips, many have oversimplified the real-estate market’s underlying fundamentals, Shiller believes. "The typical simplistic view is that it’s just supply and demand," he says. "That where they live is such a wonderful place and that since there isn’t enough land for everyone, prices have nowhere to go but up."
…Far scarier, however, would be an oil price shock, a rapid decline in the U.S. dollar, or ever mounting budget deficits (or all three), which could force the Fed to aggressively raise interest rates to stave off inflation. That could quickly bring the real-estate market to a standstill. As higher rates begin to affect homeowners’ ability to pay their adjustable-rate mortgages, some will be forced into foreclosure while others who have put little money down will simply walk away. …
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Notes and References
[1]: "Bubble trouble? The red-hot housing market reminds some of the latter days of the 1990s stock market. How will it end?", by Alex Markels, US News & World Report, December 6, 2004.
[2]: "Yes, Housing Will Get Worse. But How Bad? Two ways the mortgage mess might play out", Alex Markels, US News & World Report, August 26, 2007.
UK House Bubble
Mish's Global Economic Analysis
Bubble Meter
Ohio Fraudclosure
Northern Virginia Housing Bubble Fallout
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“Surprised Analysts” is always my favorite way to wake up in the morning (Marketwatch – “housing sales down again, and prices down”) hmmmm. . .as this 2004 article points out, “anyone who is suprised by “surprising and unexpected developments” is a congenital idiot. . .I guess most of Wall Street is a group of congenital idiots. . .As a former business librarian at Columbia (the university not the studio) and then Berkeley, I trained many of these “analysts”. . .80% of the MBA students just wanted “quick information” and did little research – just run in, grab some data and write a paper. . . .likely they aren’t doing much more research at Goldman Sachs!!
Mark -
You should be a big fan of Aaron at Implode-O-Meter. Here’s his professional page at Atlanta GA’s Emory University where he’s a research librarian.
Ahh, leverage. It definitely has it’s ups and downs. Spending a couple thousand to get a couple hundred thousand to play with is great..
When the market is playing along too
Ditech- people are smart….