The Volokh Conspiracy

As a renter (and future owner), I'm glad to see the bubble bursting, but as a citizen, I've grown very concerned that the longer the bubble continues, the uglier the economic fallout. Let's hope for a "soft landing."

Heh, Cheburashka, I wish I could feel the same (renter in Brooklyn, here). Of course, a hard, hard crash would probably tank my business, and I wouldn't be able to buy anyway.

If someone collects enough bobbleheads, when the crash comes that person could exchange them for some nice real estate.

It seems like things will fall here in SF; the rents are mortgages are so far out of whack. But, like the commenter above, I know a dozen people who say "It'll be nice to be able to buy a real house in San Francisco proper in 5 years or so."

So, there's definitely a limit to how far things will fall: There's a whole lot of demand at somewhat lower prices.

At what point does the behavior of lenders and realtors hit unconscionable? "Creative financing" can likely get people into trouble even if the housing prices remained constant or rose slightly if outpaced by rising interest rates, and I have never seen a single representative of the realtor groups even acknowledge the remote possibility of a bubble. The market is always "as strong as ever" and "rising", even when it obviously isn't.

What check does a buyer's agent have in order to make him loyal to his customer?

David Sucher: Home prices are already down 15% in London and Sydney. And, if you read the earlier post I linked to, you'll see that at least locally, prices declined over 30% in the early 90s.

I wouldn't necessarily recommend shorting builders, because new housing can still sell in some of the worst housing markets. They may have to drop their prices in crash, but chances are that the properties will still move. Maybe if they specialize in Condos. Condos get hit really hard in crashes, because now the buyers figure they can afford the houses, why get a condo.

And a housing crash is far from guaranteed. Think about it, how many people do you know that are speculating in real estate? Compare that to how many people you knew who were day trading tech stocks.

Actually, I know several people speculating in real estate, more than I knew who traded tech stocks. And much of the homebuilder profits comes from fortuitously rising land values, not selling homes per se. Finally, I wouldn't short these stocks because stocks can behave oddly in the short term, but long term puts provide a nice comfort margin for the inevitable decline.

The housing bubble has not yet burst in England. Prices are beginning to falter in some counties near London. Search the BBC News website at to keep abreast of developments. Many commentators doubt that prices will crash. I think it somewhat likely but it hasn't come to pass yet.

I'm not sure you can extrapolate from national statistics for local markets. My expectation is that on average there is more speculative behavior than there should be and that there will be a plateau effect nationally with some downturns in local markets, on a neighborhood by neighborhood basis. What does this mean for D.C.? Its hard to tell.

In D.C., my feeling is that condos--especially those in established neighborhoods that haven't changed much in the last few years (Adams Moran and DuPont, for example)--and suburban property in Arlington and parts of Baltimore are probably the most overpriced. However, some price increases in D.C. are the result of a real recovery in D.C., which was in very bad shape 10 years ago. Much housing stock is behing rehabilitated and large neighborhoods w/ great architecture and housing stock near downtown that were once off limits have completely changed in the last 5 years. At the same time, infastructure problems with D.C. have made living centrally in the District more desirable. Its hard to disaggregate these effects from actual speculative behavior. But the bottom line is that some of the price movement in D.C. reflects a real change in the health of the city.

My view is that there is a bubble in some markets in this country, but not in most. In a recent Fortune article on speculation, Texas, for example, was mentioned as a potential boom market. But, then again, much of that state has the problem that land is not really all that scarce there. Not like, for example, San Francisco.

How would you identify a bubble market? I would look at two related things. First, the proportion of income being spent on a purchased house, and secondly the relationship between buying and renting. Add in whether or not there are serious barriers to future expansion. If there aren't, then I think that ultimately supply is going to catch up to demand, and those who paid too much are going to crash.

So, I got somewhere around a 25% appreciation in my house in Phoenix last year between the time I started to get it back, and when I finally resold it, a period of maybe 5 months. But what is driving prices there is that true demand is outrunning supply, esp. of new housing. In short, the builders just can't build houses fast enough. But as prices keep increasing, demand will slacken at some point, and the builders will be able to catch up. And then I think it likely that there will be at least a minor crash, or at least, retrenchment. But all those people who have bought multiple houses on speculation, and aren't covering their mortgages through rent, are the ones who will really get hurt.

Contrast this though is the situation in, for example, San Francisco or New York City. They can't really build new houses in either location. And, thus, I suspect, you are less likely to get a crash.

If you listen to Zwicky, the lenders are doing us all a favor, and it is those silly borrowers who are screwing everything up. Only corporations should be able to declare bankruptcy. Let them eat negative interest!

Am I the only one who finds fault with the statement "I remember Boston in 1982 to 1989, when [prices] went up 25 percent a year for six years, and then in one year [they] fell 87 percent." (Emphasis mine) So a house that listed in 1989 for $1 million the next year sold for $130,000? That seems very unlikely to me.

I noticed that, too, chitrader. Typical press innumeracy.

Bubble deflation will vary widely from geographic region to geographic region, even within DC. The infrastructure for the DC area is such that there's always going to be huge demand for the more desireable central locations. The government's not getting any smaller, and only so many people want to commute for an hour each way. When interest rates rise, prices will go down to reflect what people can afford, but that indicates something gentler than an "87% decrease" and probably no worse than 15%.

The 30% number in DC is about right, but the bottom was mid 90s. At the worst of that dip, I saw townhouses in my Falls Church neighborhood go from 200K to 150K in a handful of years.

I think that people wishing for a BIG crash in places like S.F., Boston, etc. will permanently be out of luck. Desirable locations will always be desirable regardless of the market condition. S.F. will always have those views, etc. It seems that those places have a built in cushion for catastrophic falls.

Am I the only one here who thinks that Terrence's comment, above, was the most urgent question yet asked in this thread?

Terrence Berres wrote:
Does this bode well or ill for the Supreme Court Justice bobblehead market?