Kilroy Was Here
December 15, 2004
Trouble, Trouble, Boil, and Bubble
Matthew Yglesias examines the housing market.

Shifts in the fundamentals that increase home prices should increase rental prices proportionally, but buy prices have increased faster. If demand for home purchases is rising faster than demand for home rentals, it seems to me that that can only mean that people are buying houses as speculative commodities -- spending more than the house is really worth to them in the expectation that it's value will only increase in the future.

I agree completely. The Rent to Equity ratio of houses has rarely, if ever, been higher. Furthermore, the advent of ARM, interest-only, and no money down mortgages is significantly increasing speculation in the market. I have heard that as many as 15% of mortgages are risky and a spike in interest rates could result in significant sell off.

Furthermore, human bias's are fueling this binge. People tend to invest based upon the recent past, rather than the long term past. If you look at housing markets over the last 30 years, rather than the last 5-7 years, housing prices have rarely appreciated at a rate greater than inflation (California is CPI +2%, Oklahoma is CPI - 1.0%). However, in the hot markets (SF, NY, San Diego, etc.), the last 5-10 years have seen much higher returns. People tend to extrapolate from 5 rather than 30 years, and it gets them in trouble.

Second, as was brought up in MY's comments, real estate is really multiple markets, not one big market. Unfortunately, many people are taking the results in very land-restricted areas (SF, San Diego, Seattle, NYC) and applying those returns to places where land is cheap and development is easy (Henderson, NV, Phoenix, AZ, El Paso, TX, etc.) So a lot of folks are investing in real estate in places where the fundamentals are far worse than they're assuming.

I could go on and on. In summary, if you're looking to buy a place to live, real estate might be a good investment, but if you're looking at real estate as a speculative short term investment, or an investment who's income will cover the leverage you've placed yourself under, you're playing with fire.

I love your site.

I can help people who plan to move to San Diego save $5,000 to $25,000 on the purchase of their next home by negotiating with the seller. orlando real estate orlando real estate

Come and check my website out if you get time :-)
This is a good post. I have a site about commercial real estate please look at it if you can.
If you are looking to change the look of your emails from plain white with black text to a colorful, eye-catching, attention grabbing email, OnLetterhead is the product for you. Go from "White" to "Wow" with one click!

With "OnLetterhead's "Ease of Send & Setup" (EOSS) technology, all the work is done before you type your message! Just click and send and see the results a branded difference can make.
**Marketing Strategies for the Future**
Nice Site. We have Free Houses on my site. Please take a look victorian house plan
I'd like to comment you on a great blog! The information on jacksonville real estate is great!
I'd like to invite anyone reading this comment to visit my jacksonville real estate blog and give my their opinion.

Classifieds for our community. Buy, sell, trade, date, events... post anything. Adquity Classifieds.
foreclosed free home listing

Classifieds for our community. Buy, sell, trade, date, events... post anything. Adquity Classifieds.
ad personals

Classifieds for our community. Buy, sell, trade, date, events... post anything. Adquity Classifieds.
Post a Comment

Powered by Blogger