Friday, June 30, 2006

If You Read Nothing Else

There is an absolutely fantastic article over at Professor Piggington's that should be read by anyone interested in the housing bubble. If you read nothing else, then you should read this.

Basically, the article makes an excellent case for why the meteoric rise in prices in the housing markets of SoCal has been due to a classic speculative "bubble" and nothing else. The same argument can easily be made for the Bay Area in general and Marin in particular -- over the months I have produced many of the same graphs for Marin that you will find in the Professor's article and they all tell the same story (please check out the Marin Real Estate Data blog). Every argument to the contrary that you might have heard is debunked.
In the past five years, it can easily be seen, people have been willing to pay more and more for an owned home as compared to a rented home. Why? Because now, much moreso than in 2000, an owned home is now considered far more than just a roof over one's head. A home is seen as a way to get rich, and people are accordingly willing to pay that much more to buy a home. Given that there is no fundamental underpinning for the price increases of recent years, it is clearly this "speculative premium" that has driven home prices to their current levels.

When prices are high only because market participants expect prices to go even higher, that's called a bubble. And Californians have bought into this bubble with great enthusiasm.

And most importantly, as anyone who has read a newspaper or gone to a party knows, it has become a widely accepted fact both in the media and among the Southern California populace that real estate A) never goes down and B) is the place to be if you want to get wealthy. This entrenched expectation of huge, risk-free equity gains has become priced into the housing market.

Home prices have been driven to current levels not by fundamentals, but by ubiquitous optimism, a complete lack of risk avoidance, a staggering amount of debt accrual, low lending standards, an enormous increase in market participation, widespread misconceptions about what drives home prices, and an utter dependency on continued price gains. Southern California is experiencing a classic speculative bubble.

9 Comments:

Blogger surfer-x said...

Same shit we've been sayin' for the last five fuckin' years man. How do get yourself to even act like another warmed over serving of that is even remotely interesting?

Jun 30, 2006, 10:00:00 PM  
Blogger Marinite said...

I've only been saying it for the last fuckin' 11 months. If you have been saying it for the last fuckin' five years then that is your prematurity problem so take it elsewhere. Oh, but I forgot, you are one of those disgruntled 40-somethings who are waiting to buy a house and so have a financial stake in the time-course of all this; I don't share that sense of urgency.

Besides, the article I am referring to is one of the best written ones I've read and so is worth the attention if for no other reason, doesn't wax so boringly philosophical like you Patrick.net geeks, and there are visitors to this site for whom the whole housing bubble thing is still new and/or remain unconvinced.

Jul 1, 2006, 10:06:00 AM  
Blogger sf jack said...

"doesn't wax so boringly philosophical like you Patrick.net geeks"

Wow... fightin' words.

Five years ago, surfer? Paying attention to housing were you?

I would instead guess you and your buddies were still hoping your useless dotcom stocks and grants would come into the money.

Sheesh.

Jul 1, 2006, 1:12:00 PM  
Blogger surfer-x said...

Yes I'm an old fucking renter who hears the clock ticking in my sleep and my wife bitching every day, and premature bubbleheading is the least of my premie failings, if you get my drift. I'm giving you that. But that article is still a lame warmed over treatise that was started 5 years ago and gets tossed out on the front porch every 6 months or so just to see who licks it up. I aint licking it up any more.

Also, there's only maybe 6 or 8 of us scociopaths who actualy post on Patricks, doing so under numerous user names. So there.

And Jack, I wish you were right but I never HAD and fucking dot.bomb options to begin with, and the stocks I did buy with beer money ended up worthless.

I think now I'll blow dry my hair and slit my wrists.

Jul 1, 2006, 1:34:00 PM  
Blogger Marinite said...

I aint licking it up any more.

Then why do you still hang around housing bubble sites?

Jul 1, 2006, 1:52:00 PM  
Blogger marin_explorer said...

@#$%&?! for the last five fuckin' years.

Right. Pissing matches get old in much less time. If this blog were just more warmed over BS, I wouldn't be here.
Have a chillin' 4th of July.

Jul 1, 2006, 2:17:00 PM  
Blogger Nozferatu said...

I don't quite understand...Surfer X...are you saying you don't believe the article or are you saying you were saying this would be the case 5 years ago??

That article is actually a good one because it shows real numbers that are not related to Mr. Lereah and his crooked band of bastards.

I hope the market crashes bigtime. Alot of people got rich for nothing and a functional societu doesn't work on that premise.

Let's keep in on subject guys...have a dicussion not an argument...we can learn alot more by debating than lashing out.

Jul 1, 2006, 4:27:00 PM  
Blogger Marinite said...

I don't quite understand...

I think he is objecting to the fact that many of the graphs shown in the referenced article were originally posted separately. These are many of his most telling graphs and it is the first time that I have seen them all in one place, in one article, making the entire argument all at once instead of piecemeal. Anyway, I thought it is more than just a worthwhile article especially for folks who might not be as up to speed on the facts as they might be.

Yes, everyone have a great 4th of July holiday. I know I will. This blog will be on vacation for the next three days.

Jul 1, 2006, 7:05:00 PM  
Blogger john67elco said...

http://forsakencraft.com/proof.htm

Jul 2, 2006, 6:43:00 PM  

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