Bubble Talk
Dustin on 08 21, 2005
[photopress:flying.jpg,thumb,alignright]This might sound strange coming from a real estate blogger, but I just don’t find all the hype about a real estate bubble all that interesting. None the less, it seems that about once a week a new blog starts up with the mission to highlight all the “evidence” that there is a nationwide real estate bubble that is about to pop. The most popular site is the Housing Bubble 2, although there are many others.
In reality, I think I’d be way out of my league discussing a real estate bubble with the type of certainty the pervades the “anti-bubble” crowd. Most real estate agents simply do not have a great understanding of macro-economics and don’t follow the issue that closely. The real estate agents that I know do their best to prepare/market/sell homes for sellers and find homes for buyers, and spend very little time researching housing price trends over long time periods. Along those lines, I’d be VERY weary of any agent who said they had some inside knowledge on the long-term value of any property.
Besides, it seems to me that most of the people with the “sky is falling” approach to the bubble are not all that educated in macro-economics while many of the macro-economists I enjoy reading seem to have a much more nuanced view of the situation.
So I began this discussion on real estate bubbles because I was a bit surprised to find Rain City Guide listed as a “local anti-bubble site” on a new blog dedicated to highlighting issues related to the Seattle housing bubble . Apparently Timothy Ellis (author of the blog) sees the real estate world as pretty darn black-and-white, if he is going to call all realtor sites as “anti-bubble”. Nonetheless, Timothy has posted some interesting observations, and I look forward to reading more of what he has to say.
Since I’ve now gone down the road of discussing the concept of a real estate bubble in Seattle, I’d be interested to hear the response of people to the bubble-related issues that David raised over on the City Comforts Blog:
What I would like to hear is a “pro-bubble” argument which takes into account two secular, local Seattle conditions which both tend to limit the supply of urban land:
1. A firm political consensus for “growth management” which will not change & hence unleash a lot of land for at least the next generation or so. (Even if there is land to be found.)
2. Total inability to deal with traffic congestion which is having a centralizing force, making “in city” properties (where one can minimize travel) more and more valuable.
When you take into account these trends — both firmly rooted in our local culture — do you still get a bubble?
Please feel free to comment either here or on David’s site. I’ll check them both!
About the Author: Dustin Luther
- Author's website: http://www.raincityguide.com/
- More posts by Dustin
- email the author
14 Responses to “Bubble Talk”
Leave a Reply
Live Comment Preview
Popular Posts
Recent Posts
Recent Comments
- Chris Cliff: I am glad to see the
- Leanne Finlay: Tim, eventually I'll
- ARDELL: Craig, Proof of t
- Chris: Just making a test c
- ARDELL: Craig...off to an 11
Hi there. I just wanted to clarify a couple of things. 1 – I definitely don’t consider myself to be any sort of expert, nor do I make any claims to having any sort of authority on the issue of a possible real estate bubble. As I stated in my “About the Blogger” page, I’m just a local guy that is interested in the subject. 2 – The “anti-bubble” title is really tongue-in-cheek. That’s why I clarified “aka realtors” beneath. It’s just a list of links to sites that discuss Seattle real estate and don’t really mention a possible bubble.
In any case, I appreciate the kind words, and I’m glad you find my site at least a little interesting.
In re-reading what I wrote, I would say that I came across as a little more rough on your site that I meant to… I do enjoy your posts, and the beauty of blogs is that none of us have to be experts to have a reasoned option!
No worries, I didn’t take your comments as rough on my site. I’m pretty easy going, not out to offend or take offense. As I said, I appreciated the kind words. Also, I agree with you comment about the beauty of blogs.
Blog on.
Just a thought on this issue–okay, two thoughts. One is, to me a “bubble” signifies a rise in prices that is brought about by outside forces and which is not sustainable over a long period. The behavior of housing prices in places like Las Vegas is a good example, where you see a lot of outside investors coming in and driving up prices beyond what the area might normally be able to sustain. This is not the case here in Seattle because the forces driving up prices are inherent to our market. The little usable space and unhospitable topography combined with growth restrictions result in a lack of supply, and a relatively healthy employment base and low mortgage rates results in lots of demand, therefore, prices go up. Even when rates go up and we go through challenges with the local economy, the long term trend will still be upwards…barring any sort of economic or natural disaster.
As an aside, it cracks me up that folks are freaking out about bubbles when we are sitting right in the middle of one of the most seismologically active regions of the world, less than 100 miles from one of the worlds most dangerous volcanoes… It seems like if you want to worry about something, Mt. Rainier blowing up or a 7-9 richter-scale earthquake might be just as valid a concern.
The other is, the rise in prices is not limited just to within the Seattle city limits–we’re seeing it across the eastside and Snohomish county as well. I think one of the things we are going to see over time if Seattle can’t get this traffic situation figured out and as gas prices keep going up, is a real solidification of the neighborhoods and suburbs, with folks making more of an effort to keep their commute distances as short as possible. People will be trying to live and work in the same place. We’re already seeing this to some extent as what used to be bedroom communities (Bellevue, Redmond, Kirkland, etc.) have grown to become commercial centers, and as gas prices continue to rise people will be forced to make choices about where they are going to work and live. Which, frankly, is why I don’t particularly mind that gas prices are now topping $3 a gallon. The sooner we get to the point where people stop thinking it’s okay to drive their cars 100 miles a day roundtrip, the better for the environment and for people’s sanity too!
Great post!
Bubble Talk is all the rage down here in the Bay Area as well. While holding an open house yesterday, I estimate half the people asked me my views on the bubble.
Like you mentioned, as a agent, my primary job is to prepare/market/sell homes for sellers and find homes for buyers. But as a full time real estate professional in one of the “bubble” markets, I feel that I should be keeping up with the latest news and feel comfortable discussing the subject should it arise.
Those are some great comments Sandy and Andy.
And Sandy, I had never made the connection between the “bubble talk” and the potential for a major natural catastrophe. It is so true that a major earthquake or an active volcano could do so much more damage than a housing drop! I would say that this is related to the fact that we only seem to worry about the problems that our minds can deal with.
In my day job as a transportation planner, I spent today talking about homeland security issues with some staff from the City of Seattle. And yet, I would never think to bring those issues into the equation of whether or not to buy a home. Such is life in Seattle.
“One is, to me a “bubble” signifies a rise in prices that is brought about by outside forces and which is not sustainable over a long period…This is not the case here in Seattle because the forces driving up prices are inherent to our market.”
That might be true, if there was no speculation in the Seattle area–and no extenuating factors. However, if prices are rising much faster than the historical norm, that should indicate something is awry. People typically assume their neighborhood is unique (especially w/large equity gains), and assume “value” spikes are permanent. The various RE booms/crashes along the coastal states/provinces suggest history repeats itself.
The National Association of Realtors in Washington, D.C., released survey results in March indicating that 23 percent of all residential real-estate transactions in the U.S. last year went to investors, rather than to buyers looking for a place to live.
Source: Seattle Times
http://tinyurl.com/8w2tj
[...] definitely interested in hearing about more of these technologies. (I find this topic much more interesting than bubble talk ) If you know of another interesting home search site available for Seatt [...]
Making up the news
For a number of months now I have been following the popular press reporting of what many had come to refer as the “housing bubble”. I have had a number of e-mail exchanges with the some of the reporters as well as some of the people who have housing bubble blog sites. While I don’t expect much in the way of professional integrity from blog site people, I have believed in the mainstream press. Given my experience following this topic, however, I have come to the conclusion that there are biased writers and reporters in the print media who are working at portraying a “housing bubble burst” story when, according to top academic institutions, none exists.
An example is a story that appeared in the San Diego Union this week. In actuality, it was more fair in it’s representation than other examples I can cite but it still focused on the negative over the positive aspects of the data.
The headline for this story was “Other indicators point to housing market that has weakened somewhat after boom”.
http://www.signonsandiego.com/news/business/20060614-9999-1b14prices.html
Buried in the article was a paragraph that pointed out that an all-time new high sales price for resale housing was reached for the month of May in San Diego.
The article stated, “By contrast, DataQuick said resale house prices actually rose to a new record of $569,500 last month, up $14,500 from April and up $19,500 from May 2005. Resale condos rose $2,000 from April to $397,000, just shy of the all-time record of $400,000 set in March.”
While new home sales figures have been followed these past months and years, most of the previous “scare” talk has centered around the average Joe’s home and how they were going to be ruined in resale transactions. In addition, San Diego has been talked about for months as a prime example of an area with high possibilities of a housing bust.
So here we have news that the San Diego housing market was showing strength and the headline plus the text belabors the negative side of the data by focusing on new home sales. The real story would appear to be that resale prices have in fact increased in San Diego when many have said they would drop.
There is also a negative connotation given to data which may be generated by building industry people. In the San Diego Union story the writer says, “Industry leaders are grasping for ways to give a positive spin to the trends.” No such commentary is made when book writing/bookselling Robert Shiller is quoted. The fact that he has been prognosticating – “spinning” if you will — a housing bust story for years now is frequently not mentioned.
The respected LA Times covered this information in a story by Annette Haddad. Early in the article she said, “The air is finally coming out of San Diego County’s housing bubble.” as if to set the theme for her story. Nowhere in her article does she point out that resale homes in San Diego set a new all-time high. She mixes and matches the data to make her case and conveniently makes no mention of this important information. http://www.latimes.com/business/printedition/la-fi-sandiego15jun15,1,4781005.story?coll=la-headlines-pe-business
Other studies have also been under-reported such as Pomona College’s analysis which indicated that “fears of a real estate bubble are overblown, and homes remain undervalued in many markets.” Their findings question the implicit assumption that market prices previously matched fundamental values but now have exceeded them. The Pomona College researchers question the methodology by which some others have concluded that the housing market is “bubbly.” The report notes that “housing-bubble discussions generally rely on indirect barometers such as rapidly increasing prices, unrealistic expectations of future price increases, and rising ratios of housing price indexes to household income indexes. These indirect measures cannot answer the key question of whether housing prices are justified by the anticipated cash flow.”
http://www.collegenews.org/x5508.xml
The Harvard study released this week was finally given some press coverage as they pointed out – as they also did in their 2005 study – that the “housing bubble” issue was overblown.
http://www.jchs.harvard.edu/publications/markets/son2006/son2006_executive_summary.pdf
One news source that immediately reported on the Harvard study was London’s Financial Times. They pointed out that, “After the slump of the early 1990s and the surge of the past five years, the housing market might prove an anti-climax to all concerned. The long period of stagnation forecast by the survey would disappoint home-owners who expect big price rises but also those who missed the boat and have been hoping for a crash.” (Emphasis added)
Another under-reported study was international and global and was done by the highly respected Organization for Economic Co-operation and Development. In this study of 30 countries the researchers concluded that the United States was not susceptible to a housing bubble. This important study received very little press in the United States.
http://www.oecd.org/dataoecd/41/56/35756053.pdf
A welcome press exception was the recent Bloomberg story entitled, “What to Do If the Home Bubble Is an Inflated Idea” by John Wasik on May 30th. That story quoted from a working paper titled “Assessing High House Prices, Bubbles, Fundamentals and Misperceptions” cited in the April edition of the National Bureau of Economic Research Digest. Written by Charles Himmelberg, a senior economist at the Federal Reserve Bank of New York; Christopher Mayer of the Columbia University Business School; and Todd Sinai of the Wharton School of the University of Pennsylvania, the paper takes issue with traditional measures of housing growth and casts doubt on a theory that a bubble is inflating even in the most stratospheric markets.
http://www.nber.org/digest/apr06/w11643.html
I believe that publishers and press media management officials need to pay attention to what is being sent out under their banner. Credibility is a well-known problem for the press these days and I believe it is seriously in question for a large segment of the American populace. The reputation of the media at least partially hinges on perceptions and many perceptions are that the “news” is highly “spun”.
In an exchange I recently had with a writer for Forbes, he said, “Journalists love bad news” when I pointed out the disparity and basic inaccuracy in reporting on housing. I guess I am to learn from that comment that I can always expect the negative analysis when I read the popular press? I have to question the wisdom of maintaining that behavior and philosophy if the industry is to survive.
Frank
Ventura,CA
There’s another Timothy with another site about the alleged Seattle Housing Bubble, called SeattleBubble? It’s at http://www.seattlemetrorealestate.blogspot.com. It focuses on facts and figures, not hype and hysteria. I focus primarily on local rather than national facts and figures.
Tim,
I’ve definitely noticed your blog and I think you’re making a valiant effort! I’m shocked that any realtor would spend as much time as you have on disputing the “bubble”, but it can make for an lively conversation… and being interesting is half the battle, so I say “keep up the good work!”.
Realy? That’s 56452 crazy!!
10% drop
http://seattlepi.nwsource.com/local/334420_housing06.html
I always find it interesting to talk about the real estate bubble whether the local bubble, state bubble, or national bubble. Its a way to get a different prospective on the markets. I find it very important to listen to others, to open up my mind.
Walt