Bye-Bye, Bubble?

This article in the The Atlantic Monthly (you need to be a subscriber to read the article) argues that mainstream media reporting on the housing bubble is fading away because it is not popping with the rapidity of the .com bubble. True enough. But the writer is (probably knowingly) committing a grave fallacy: the time scale of a housing market is much different than that of a stock market if for no other reason than it takes a lot of time to sell a house as compared to a stock. Compound that difference in time scales with the fact that it takes numerous transactions spread over time to define a trend and it is easy to understand this difference in the two markets. Although the investor psychology during any speculative mania is the same, in the stock market a bubble pop is measured in days and weeks or months; in real estate it is measured in years. Expecting the housing market to bust over a few days or a few months is ridiculous. So this article makes a straw man argument and then tears it down.

Some choice quotes:

Something terrible is happening in the media...The real estate bubble is fading away.

Yes, the story of soaring home values that has lit up our lives for the last several years, and produced an incalculable number of breathless headlines and anecdotal leads about Joe and Jane Homeowner; the epic journalistic narrative that lent so much tension and drama to everyday existence (Is there really a bubble? Is it in my ZIP code? Can I make money from it?); the pop-culture phenomenon that launched a zillion identical kitchen renovations with stainless-steel appliances and granite countertops; the boom that filled the Friday lifestyle sections of The Wall Street Journal and The New York Times with display ads for swank "estate properties" that you might actually be able to afford next year if prices on your street keep rising insanely—is dying.

For a bubble story to stay alive, it must either be expanding rapidly, or bursting suddenly and wreaking havoc across the landscape. The tech bubble was a classic of the genre: It grew and grew in the late '90s, sucking in more and more gullible people, and then in a very short time, beginning in March 2000, it just blew, and countless investors lost their shirts. By bursting spectacularly, the tech bubble confirmed itself as a true bubble and became legend.

The media turned real estate into a new kind of socially acceptable pornography.

The problem with the housing bubble is, it's not expanding wildly any more, yet it's not exactly bursting, either. It's being unpredictable and confusing.

But the article ends on a good note [ ;) ]:

This week, I was cruising the real estate blogs (yes, there are scads) when I came across a good one called Marin Real Estate Bubble, "A Place for Residents of Marin County, Calif., and Others to Express Their Views Regarding the Real Estate Bubble." The blog had a new posting about a survey in which 67 percent of Americans said they "believe there really is a real estate bubble," as if it were Santa Claus. And so it was.

I'm pleased that a classy journal like the The Atlantic Monthly would mention this humble blog. But I am sorry that they equate this housing bubble with a mythical character.