A further rule is that when a mood of excitement pervades a market or a surrounds an investment prospect, when there is a claim of unique opportunity based on special foresight, all sensible people should circle the wagons; it is the time for caution.Caution indeed. Galbraith's book has much wisdom and understanding.
Sunday, July 30, 2006
Galbraith on Speculative Episodes
In John Kenneth Galbraiths's book A Short History of Financial euphoria he writes:
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Ah yes,
ReplyDeleteThe old "water cooler" axiom. The writing has been on the wall for several years now. Big surprise.
Real estate is cyclical. Several on this board know when the exact bottom will occur - just as they knew to buy in 2000.
Anyone can call the peak AFTER it happens. Congrats to all. Such insight. Just let the rest of us know, OK?
Wait, real estate is cyclical? Omigod, I thought it never goes down.
ReplyDeletei knew when the top was last time, i know cause i bought during it and was upside down for 9 years.
ReplyDeletethat was about '90 so i'd say it's a pretty safe bet that '05 was the top this time, only this time much more of the country is involved and the dollar values are 10X larger.
i was shocked at how long this current run up has lasted and most people i talk to and read on blogs are as well.
that being said don't be shocked at how low it can and will go
i bet it shocks even me.
Well what is your "guess" anon? And why is this any different than 1990?
ReplyDeleteI gather that you haven't sold and run for cover. Why not?
guess what????
ReplyDeleteBTW sold in MAy '05.
my guess on how low?? that's easy, on average the last meltdown was about 40% devaluation so do the math.
yeah, scary huh. you paid 650K and it's now worth 390K but there are some variables that were not present last time:
1. the internet, good news spreads fast with it (read, my house went up 10K last month) and bad news even faster (read, my house loast 15K last month)
2. way to much sub prime lending with IO ARM and low fico scores. In the late 80's and very early 90's you HAD to get PMI and you HAD to put money down and you HAD to prove you could pay it back, none of this no-doc BS.
3. way to many people with more than one house, i hear over and over (especially on the blogs...again internet) how people have 2 and 3 homes.
4. and here's the kicker, baby boomers now entering retirement and needing to unload the vacation home the 2nd home or evern the primary residence that they bought for 25K.....so even if they get 250K in a firesale they make money.
my guess there will be homes that lose 80% of their value and those will be the ones with the angry x-owner who took out that second for home improvement only to have values crater and when he walks he's taking his new windows, counter tops, doors and flooring with him.
back in the 90's i saw more than one gutted house for that reason.
calling it after it happened? High interest rate, coupled with outragous home prices = no sale. nobody timed it, they just watched it happen. just as were watching sales plunge further and further right now.
ReplyDeleteanon 05 seller,
ReplyDeleteWrong on many counts. I obtained more than one "no-doc" loan in the late 80's. One-yr arms and neg. am. loans were quite common. I only saw 40% drops in some condo's, not in SFD.
Where did you see angry x-owner's trashing their homes. Virginia is a recourse state; people are sued for foreclosure deficiencies.
Boomer's are buying 2nd homes, not selling them.
The internet will only speed up the cycle. Instead of 8 yrs, it will be 4.
If prices drop 80%, we are in a 1929 situation. Doubtful.
btw - I had 10 or 12 properties at the last peak. Big deal. If you can't ride out cycles, you should be in CD's.
The difference between the 80's and 00's is the pace of constuction. Only DC comes close to meeting demand, the other metro counties have come close to meeting demand. Look at the Census data from the link posted by Redskins Fan. All of the inner counties have vacancy rates well below the national average, with little change between 2000 and 2004 (the dates available).
ReplyDeleteThis imbalance between demand and supply is what will support prices. Supporting prices does not mean prices will continue to rise. Supporting prices does not mean that they will not fall in real terms.
Supporting prices means that the "bubble" will not burst with the last purchasers underwater for nearly a decade.
va_investor,
ReplyDelete10-12 properities!!!
:lol:
bookmark my post, i stand by what i've said and nothing you posted will change my mind.
the pain is gonna be severe, and last time i didn't see people who couldn't even spell mortgage being brokers, 40% of the new jobs in the country RE related, and million dollar shacks.
but i'm sure you did.
oh and va_investor the internet sure didn't "speed" things along on the way up it's actually kept things going longer then should have so what's the reasoning on why on the way down it's gonna shorten the cycle??
splain it like i'm 12 K, TIA
p.s. i hope to see you here next year cause i wanna see how you are gonna explain how bad things have gotten so fast!!!
data miner said...
ReplyDelete"Supporting prices means that the "bubble" will not burst with the last purchasers underwater for nearly a decade".
show me the graph where homes prices just stayed the same, didn't rise and didn't fall for 5 years.
TIA
anon said:
ReplyDelete"3. way to many people with more than one house, i hear over and over (especially on the blogs...again internet) how people have 2 and 3 homes."
I guess you missed the thread where we talked about 80% of all secondary housing (i.e., second homes and rentals) being owned free and clear? And that for those owners who own a second homem, something like 45% of them own their first home free and clear also.
I guess you missed the thread where we talked about 80% of all secondary housing (i.e., second homes and rentals) being owned free and clear?
ReplyDeleteSo the market price will get set by the other 20%, the ones that need to sell.
Yes, and it (the market price) will not matter to the rest.
ReplyDeleteva._investor said...
ReplyDelete"Yes, and it (the market price) will not matter to the rest."
BUT, that new lower price WILL matter to the bubbleheads who are counting on swooping down and taking advantage of these individuals. The evil, predatory nature of bubbleheads is thus revealed!
lance,
ReplyDeleteHow are bubbleheads evil if they desire cheaper prices when they decide to buy?
anon said:
ReplyDeletedata miner said...
"Supporting prices means that the "bubble" will not burst with the last purchasers underwater for nearly a decade".
show me the graph where homes prices just stayed the same, didn't rise and didn't fall for 5 years.
TIA
......
http://www.housedata.info/DC/Washington.Arlington.Alexandria/
early to mid '90s is pretty flat
David said...
ReplyDelete"lance,
How are bubbleheads evil if they desire cheaper prices when they decide to buy?"
David, I'm just pointing out that the bubbleheads are really no different from the realtors, sellers, and all the other "evil" people that get demonized by bubbleheads whenever they look out for their own self best interests. You call it by the sinister "housing industrial complex" moniker. Do you see how the real estate market is really nothing more than each player within that market acting for his/her own self best interests ... including the bubbleheads? And if you are going to characterize one or more actors as evil, you really then would have to characterize them all as evil ... including the bubbleheads? Has my point been made?
All are evil...except Lance of course.
ReplyDeleteLance,
ReplyDeleteNo. This was a speculative episode. The boom was part of the speculative epsisodes. The decline in the housing market is what reverses the dangerous speculative episode.