Friday, May 27, 2005

The Public Perception of the Bubble

Recently, the media has been giving significant attention to the housing bubble. The coverage of this important issue should have started many months ago. As usual the mainstream media are behind the curve.

In a slightly dated poll released May 5th, Experian and Gallup Organization found that the less then half on the population had heard about the "housing bubble."

From an article in on the Direct Marketing Association website:
"In addition to rising interest rates, there has been a lot of talk about a housing bubble," said Jacobe in the release. "Our latest survey showed that few consumers are aware of a possible housing bubble. This is troubling because if there is a housing bubble some consumers with mortgages could end up upside down, meaning they will owe more on their mortgage than their home is worth."

Only about a quarter of all consumers have heard of a potential "housing bubble," with 65 percent saying they have heard nothing about it, and another 12 percent saying "only a little." However, when told that a housing bubble is when the prices of houses have increased so quickly and gone so high that it's like a bubble that could burst and suddenly there could be a big drop in the price of houses, about four in 10 consumers say it is very or somewhat likely that such a situation could occur in their area in the next three years.

Lower income consumers (under $40,000 annual household income) are most likely to say a housing bubble could occur in their area - 46 percent express that view, compared with about 30 to 33 percent among consumers with higher incomes.

So what does this all mean? The public as of May 5th is under informed about the housing bubble. Since then there has been a rash of articles in the mainstream media. In the next few months, Joe and Jane public will be hearing much more about the bubble. The demand curve for housing will shift downwards.


  1. I think I finally hit a housinghead hard enough with information that was easy enough to understand to make a dent in their confused thinking! Talking to a new,interest only/stated income mortgage holder, she told me that appreciation will make up for her short term struggle to pay. I asked what she thought the appreciation rate will be looking forward, and she said her realtor told her around 15-30% going forward year over year for the next 3-5years. I explained that her new 300k home will be a million dollar home in about 5 years time at that rate, and I could see her really get confused. I showed her the math, even at 10% and what that will be in 5 years and she told me no one could pay that mortgage! Its the law of big numbers folks, homes cant all be 1million dollars!

  2. Very good point, its become a matter of public ignorance (or denial?) that a housing bubble exists.

    Most people seem to believe that they are the only ones "investing" in real estate, when such an overcrowding in the market happens, it is just a matter of time for that market to crash.

    And by the way, how many people do you know are able to afford mortgages on houses above the 1/2 mil mark in FL.

    At least not me nor my coworkers.

  3. It is no secret that most Americans are mathematically challenged. People prey on mathematically challenged people. It is true but sad.

  4. david
    good to see another nice blog and people who interact talk logically.

    Is it possible to change the background (it appears black on my firefox browser) of your blog.

    It is a big strain on the eyes in general.

    thank you

  5. hey, if you guys are wondering about ben jones's blog - go to

    The server is having problems.

    This is a great blog too, by the way.

  6. sorry -

  7. Thank you David.

    I like the colors now!

  8. David, we need a way to reach out to the public. Most people never see a site like this.

    Is there a way we can expand our reach?

  9. Anon 10:12 . Reaching the public? I think the media is starting to catch up with the story and reach the public. There has been a bunch of articles about the bubble in the past week.

    The public is getting informed. :-)