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The Housing Pundits Make No Sense

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November 29, 2006 – Comments (1)

Greenspan said that the worst effects of the housing bubble on the economy are already done. That sales will stabilize and that the price drops will only be 10% or so.

Now having lived though a bad housing market in the 85-90 timeframe, I am extremely dubious about this. The reason is that the housing market is like a super-tanker: slow, ponderous and hard to turn. I don't know about the rest of the nation, but the Denver area has REALLY a lot of houses that have been built in the last few years. There are whole new towns east of I-25 that were cow pasture two years ago. Late in the summer I rode my bike through a whole development that was pretty much empty. Even with the vigorous inflow to the area that we have it will still take a while to fill all those houses up. I don't think we have hit the panic part of the housing bubble bursting yet. That happens when the funny mortgages start to rachet up.

The metric for housing price I like is 200 times the monthly rent you could get for it. We haven't been anywhere near that for a long time and prices will have to fall much more than 10% to get down there. I think it will take 5 years or so for the effects of the bubble to fully dissapate. We still have four and a half years to go.

I respect Greenspan a lot, but on this I think he has a lot of wishful thinking going right now. I personally am going to be trying to figure out a way to profit from the low prices I think we are going to see in the next couple of years.

Chris - wonder if there is an REIT for homes in the area?

1 Comments – Post Your Own

#1) On December 13, 2006 at 2:09 AM, TMFSpiffyPop (99.33) wrote:

Chris, real estate is one of the financial topics I should be about the LAST to speak about. So rather than comment directly on your insightful blog (good to see you blogging), I just wanted to congratulate you on being the single hottest 1-day player in CAPS on 12/12. Your rating was up 50 points, as you may have noticed, with the signaling (rather non-descript) charm to boot! Fool on. --David G.

P.S. On the subject of real estate, though, I would like to point out that I'm score leader for CHCI & BHS, though. :)

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