Those who had been riding the upward wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destoyed abruptly, and they, also, respond to the newly revelaed reality by selling or trying to sell. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang.A soft landing will NOT happen. There will be a bang. A hard landing scenario is inevitable.
Tuesday, July 05, 2005
No Soft Landing
It is a given that housing prices have skyrocketed in the bubble markets across the country. There are three basic opinions with what happens to these housing markets in the next few years; a hard landing ( price declines / bust), a soft landing ( price stagnation or very mild price appreciation), or continued rapid price appreciation. This blog has argued that the hard landing scenario will happen. There is certainly a solid speculative nature to the housing market in the bubble cities. As famous economist John Kenneth Galbraith writes in his book "A Short History of Financial Euphoria":
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I will have to argue that a hard landing is unlikely.
ReplyDeleteIt will be a controlled flight into terrain.
With this much speculation- and soaring prices in the most important regions of the nation- and with job growth almost totally in the RE sector- I see a hard landing.
ReplyDeletePrices in Connecticut are rising too high- with no job growth here. This will end only in one way- with tears.
It seems that not a day goes by anymore without some story in the news about prices being pushed sky high in places that no one wanted to live in 5 years ago. Investment money is chasing RE farther afield into cheaper areas of the country with the warcry of "Real Estate Never Goes Down!"
ReplyDeleteSome of the bubble cities mentioned didn't have a very strong local economies to begin with. Take away the speculation, housing related jobs and spending in these places and what's left?
Not much for trying to cushion a crash.
I don't understand why Greenie won't say the word...When you read stories of bus loads of speculators going into the inner cities and seeing "potential" it really is akin to buyig Pets.com in May 2000. How can and why should any item, house , stock or tulip appreciate 2-3 generations worth of steady increases in 4-5 years. What seems to be lost in all this is the question of how the next generation(s) will be able to buy into this giant Ponsci scheme if the bubble doesn't break.
ReplyDelete"What seems to be lost in all this is the question of how the next generation(s) will be able to buy into this giant Ponsci scheme if the bubble doesn't break."
ReplyDeleteJapan had a great financing product to help out with just that problem during their RE run-up. It was a 100 year mortgage that would also pass on one's indebtedness to his yet unborn descendants. I'm sure the mortgage industry will come up with even more innovative and creative solutions if matters drag on long enough. :)
As for me, I'm doing my part to help starve off the liquidity needed at the bottom to keep the real estate Ponzi machine going. I refuse to buy into this bubble.
I have a new idea for a "great financing product to help out with just that problem during their RE run-up"
ReplyDeleteIO, ARM, 100 year loan, negative amortization, Bank gets 50% of appreciation value.
How is that? Maybe I should not give the lenders any new ideas. ;-)
David,
ReplyDeleteSweeeet idea! After all, real estate only goes up, right?
What's a little generational servitude compared to owning your own tiny piece of property?
Sign me up.
Welcome to the new Ownership Society:
ReplyDeleteOwnership Society - where you think you own something very valuable, but in fact where the very few own the society.
ok, when should I sell? now? next year? what would you do?
ReplyDeleteIt depends on your situation. :-)
ReplyDeleteThis blog has argued that there will be significant price (greater then 20% over 3 years (inflation adjusted)) declines in bubbble markets ( i.e. the price might only fall 15% over 3 years in real terms, but inflation adjusted that could be 25%).