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  • From: Gene GeRue <genegerue AT ruralize.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: Re: [Homestead] Housing bubble
  • Date: Tue, 31 May 2005 16:37:56 -0700


After the recent discussion on house prices, I thought you would be interesting in the following blog.

http://www.calculatedrisk.blogspot.com/

I have here the Money magazine Real Estate Guide 2005. In addition to articles about and on both sides of the real estate bubble question are some solid facts about the 100 major markets. That long chart is prefaced with a subhead: "Home prices across the country will keep rising over the next year. While many hot markets on both coasts could see a dramatic slowdown in their growth rates, the forecasters at housing research firm Case Shiller Weiss aren't predicting outright losers anywhere."

I heard this morning on The Diane Rehm Show two experts, David Lereah, chief economist, National Association of Realtors, and
William Wheaton, professor, MIT Department of Economics and director of research at the Center for Real Estate.

Lereah says that Las Vegas growth and high appreciation rate is sustainable because Californians, where the median home prices are double that of Las Vegas, are moving out of California and, as before, to Oregon, Washington, Colorado and to Nevada and Arizona. Florida is another hot spot. He says that growth, too is sustainable because of the large numbers of upper East Coast people moving to Florida.

As I have said before, lots of journalists with minimal knowledge are using the sensationalistic sounding term "real estate bubble" when they can't think of anything else to fill their writing commitments.

Real estate economics are well established. People need a place to live. The laws of supply and demand prevail. There is currently a shortage of housing across the country. Read National Association of Home Builders facts. Builders are having a helluva time keeping up with demand. As Will Rogers famously noted, they ain't making any more land. Single-digit interest rates have allowed and continue to allow more people to buy homes who would otherwise be renting. My personal prediction is that the shortage of renters will cool the heat of speculators who will have trouble covering the payments due to long vacancies. But the foundation of the real estate market, young couples buying their first homes, will continue for years. If you would know for how many years, study the U.S. Census demographics. When a young couple buys a starter home, the sellers move up to the next tier. This continues throughout the price strata. Think of a huge pyramid. The bottom is composed of starter homes, the top is the multi-million-dollar mansions. Low interest rates and growing populations--think Hispanic and Asian immigration into California--make the foundation solid.

What most hurts local real estate markets are massive job losses due to big employers leaving town. This includes military installation shut downs as well as firms moving their production facilities to Mexico and other countries where labor and rules are more favorable. If the local employment scene is steady, so, too, will be the real estate market.




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