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  • From: Gene GeRue <genegerue AT ruralize.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: Re: [Homestead] Housing bubble
  • Date: Thu, 09 Dec 2004 07:48:05 -0700


But, Gene, what about the statistic that we are building one house for every rise in the adult population of one person (from the article)? If that is true, it is certainly an oversupply of housing and hence a bubble.

I missed that statistic. Builders have become smart the hard way and while some, typically upscale, build on spec, most build to sales contracts. It may have been somewhere else, but I seem to recall that the UCLA forecast article contained a statement by someone high in the NAHB that there is not an oversupply.

Around here there is virtually NO construction of modest homes. All the new construction is for very large and expensive homes.

Lots of modest homes being built on the fringes of The Valley of the Sun. Wide price range among new homes, from well below a hundred to over several million. I know of one spec house priced at twelve million. Hard to figure.

The people living in the houses were perfectly capable of furnishing them if they chose, and many of them had paid cash for the houses. They were living a lifestyle where they were mostly at work, bought an expensive house in a rising market, and if they lived in it 18 months, they could sell it without paying captial gains.

Many people who have read a book or two or lots of newspaper or magazine articles consider themselves experts. The poor stock market has indeed caused many people to invest in real estate rather than the market. As for capital gains, the IRS rule is the seller must have lived in the house as primary residence for two of the last five years. If that condition is met, there is no tax due on the profit, up to 250k for a single and 500k for a couple.

Homes have replaced the stockmarket for many as an arena of speculation.

That is correct.


That along with another article I read:

I couldn't get that to open.

which tells how values of homes are inflated because people are borrowing the equity and playing the stock market with it, together they emphasize that homes are not just being assessed for their value as housing, but there's speculation component to it as well.

I don't follow that. Home values do not go up because people borrow on the equity or refinance. Appraisers tend to be conservative, knowing their tits are in the wringer if foreclosure patterns show over-appraisals.

You can always get another beer out of the biggest barrel, right until the time you can't get any more beer from it.

The only tragedy is if another barrel has not been made.

There was just that sort of logic afoot in the mid 90's during the rise of the tech stocks. The thinking was that technology was here to stay, it would only increase, so how could money be safer than to invest it in technology? And they were right, techonoly is still with us, even more than ever, and yet poeple lost their shirts on that logic. Now they are losing their jobs over it.

As any technology becomes essential, as housing is, then it will be here to stay. It's value will be determined by economic factors, in the case of technology, international factors. My impression of the so-called dot-com bust is that greed drove technology owners and investors to make bad decisions.

Housing is unique in that everyone needs a place to live and there is a finite amount of land. Yes, some people exhibit ignorance, impatience and greed in their real estate buying decisions. As they do in other aspects of life.









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