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A Housing Bubble Expert

October 11, 2008 – Comments (1)

I found a gem of an opinion from 2005, Neil Barsay...

 If you want to be scared out of your wits these days, you basically have two choices: go watch Steven Spielberg's latest, or listen to the hysterical warnings of economists and journalists about the imminent popping of our so-called housing bubble. Robert Shiller, the ubiquitous Yale economist, says home prices could fall 50% from their peak. Taking things a step further, The Economist recently went so far as to call the global housing boom "the biggest bubble in history."

 In a free country, it is fair game for the media and economists to scare homeowners with words of gloom and doom, however knee-jerk, consensual and misguided they may be. But housing is a serious business; for most of us, it is our most valuable asset. For generations of immigrants, home ownership has represented the realization of the American dream.

 The reality is this: There is no housing bubble in this country. Our strong housing market is a function of myriad factors with real economic underpinnings: low interest rates, local job growth, the emotional attachment one has for one's home, one's view of one's future earning- power, and parental contributions, all have done their part to contribute to rising home prices. Over the past quarter-century, there has been an explosion of second-home purchases, a continued influx of immigrants, and a significant reduction in existing housing inventory through tear-downs. Not all of these trends are accurately reflected in the unending stream of data published daily. Home prices on average have risen at a 6% annual pace since 1999, and 13% over the past year.

 What we do have is a serious housing shortage and housing affordability crisis. Despite robust construction, unsold inventory stands at four months, well below its 25-year average. Private builders complain they can't get land permitted to meet demand. Low-income housing advocates complain housing prices are out of reach for many Americans, and that government subsidies have been slashed.

 I am not an economist, though if you keep reading, you'll find I can use selective data points to my advantage with the best of them. I was a real estate reporter for this newspaper through several real estate crises, as well as a Wall Street REIT analyst; I am now a money manager. I currently own stocks in several homebuilders; so I am putting my money where my mouth is.

 Of course, over the past 25 years we have seen numerous real estate busts. However, steep price declines have typically been driven by local economic factors -- oil woes lead to weakness in Texas in the '80s; aerospace and defense layoffs soften up prices in LA in the '90s; a contraction on Wall Street hurts New York co-op prices.

 What we have never seen in this country is a collapse of home prices without also seeing local economic weakness or significant capacity growth. Absent those factors, housing markets just don't collapse under their own weight. Herewith are some of the myths put forth by the housing bubble Chicken Littles.

So now we can watch the latest Steven Spielberg to calm those fears..