Housing Rant Part II

june 21, 2004

On April 13, 2004 I posted an entry titled Housing Rant. This was at the height of Eileen and my house buying frustrations. We were bidding on houses only to be outbid by people walking in with outrageous offers. Offers that made no sense at all -- going $50 to $100 thousand dollars over the asking price. I got a few comments from the posting, one reader wrote with a startling lack of foresight: "just let people do what they want to do..that’s the way free economy works. don’t like it, move to mexico." Not only was the comment shortsighted, but also very self-centered. The people that overbid with outrageous offers are not doing our economy any favors, and in the end they will be the ones that are responsible for the housing market bubble and the deflation of the bubble -- whether the bubble deflates slowly (good thing) or if it pops (very bad thing). If the housing market bubble pops quickly, we are in for a very bad recession. So to that shortsighted reader, who I know personally to be a very intelligent guy, I ask him to rethink his comments with the following information. We are now seeing the housing market turn into a bubble just like the days of the dot-bomb bubble. People are putting more money into houses than they are actually worth -- whether it is shortsightedness or just panic that interest rates are going up, it is not going to end up pretty for a lot of people. There is an interesting article on sfgate.com titled Alarm over price of homes. Much like the P/E (price to earnings) ratio for stocks, housing has the same sort of outlook based on rent and house cost. The article goes into details about how this is worked out. The results of the current housing market, or bubble, is astonishing. I guess humans have a very short term memory. Remember when people were dumping money into stocks at way more than the were worth? Come on, you have to remember all the money lost to Cisco, Pets.com, and other dot-com stocks. The housing market looks like that disaster all over again as an interest rate hike comes this June 30th. In the previous housing posting I wrote and asked: "These people are seriously outbidding each other and going over the appraisal value of the house. What does this mean?" Dan Gilmor of the San Jose Mercury has it right when he writes, "What we'll see eventually, if we don't find a way to slowly deflate this bubble, is a massive collapse of the housing market that will in turn spark a severe recession. The truly scary scenario, still not the most likely but growing in probability every day, comes when falling prices for housing lead to massive collapses in the financial industry." See how self-centered and shortsighted the commenter on the previous post was? Just because the overbidding does not directly affect him, it doesn't mean that it will not ever affect him. I am not complaining too much about the housing market nowadays since Eileen and I have gotten our house (at asking price, no more than that). But, I am sure that all those people who have been overbidding will have some hard times ahead when their houses do not appreciate and they have to either eat the loss as the bubble deflates or do something much worse. I again plead to those who are out there in a panic to buy a house: Take it easy, screw your head correctly and you'll eventually get the right house at the right price.