New Column up at Real Money (05/26/05)


My latest Real Money column, Don’t Buy Housing Bubble Propaganda, looks at some of the numbers driving the real estate boom.  While anecdotal evidence of regional excesses are always interesting, that doesn’t mean we are about to see home prices get cut in half (or worse) over the next 6 months.

While its interesting to note that a Playboy bunny gave up her modeling career to go into real estate speculation (mentioned previously here), it doesn’t mean the end is nigh. Also, for those of you missed the weekend’s round up of interesting Real Estate factoids, you can see them here.

Here’s an excerpt:

The second factor is demographic trends. Here’s a little-known fact: The U.S.
has the fastest population-growth rate of any industrialized nation. According
to NPG, the U.S. average fertility rate is currently 2.1335 births per woman —
the highest fertility rate since 1971. For comparison, the U.K.’s fertility rate
is 1.7, Canada’s 1.4 and Germany’s 1.3. If this rate is maintained, the U.S.
population will double every 35 years.

Further, the kids of the baby boomers — the echo generation — are now at
home-buying age. Thanks to the intergenerational wealth transfers, they can buy
bigger and more expensive homes than their parents could at the same age. Their
purchases also have been impacting the housing market. (Some analysts believe
that the life cycle of the boomers has been a key driver in equities also — so
on this point, there may be some parallels between the two asset classes.)

Take this organic increase in U.S. population, add to it a healthy supply of
legal immigration, and that’s a formula for a rising demand for housing. And,
there are no warehouses stocked with homes awaiting more births and naturalized

There’s more data points worth reviewing.

UPDATE May 30, 2005 9:43pm: 

The full column is available on Yahoo:


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What's been said:

Discussions found on the web:
  1. bondfund commented on May 26

    Instead of the last paragraph, how about this:

    “Take this increase in baby boomers investing for retirement, add to it a healthy supply of liquidity feeding both stock speculation and a capital spending boom, and that’s a formula for a virtuous cycle of ever-increasing stock returns.”

    From circa 1999

  2. judyo commented on May 26

    It’s the cockamamey financing schemes that bother me. We aren’t exactly on solid financial footing in this country.
    What ever happen to “buy what you can afford” or, reasonable quals for acquiring a mortgage?

  3. bhaim commented on May 27

    Here’s what happened after the last real estate
    bubble popped in Massachusetts:

    “Thirteen of 64 areas in Massachusetts experienced
    declines of more than 20% since the peak virtually
    wiping out all equity for first time buyers…”

    Source: Case Shiller – Table 1.

  4. Don commented on May 27

    Regarding the comment:

    “And, there are no warehouses stocked with homes awaiting more births and naturalized citizens.”

    May I suggest that you’re off your damn rocker? Here’s your warehouse of housing:

    “The national vacancy rate reached 10.2 percent during the fourth quarter of 2003, its highest level since the Census Bureau began tracking it in 1960.”

    That article is referencing data from Q4 03. Vacancies are even worse now. In my area of San Deigo rental vacancies are in the 15-20% range and that’s after the mad rush to convert entire complexes to condos (at least 500 units converted in the last year within a 1 mile radius of my house)

  5. Barry Ritholtz commented on May 27

    Sounds just like the semi-conductor cycle: robust demand creates additional chip fabs being built until the market is flooded with cheap chips; prices drop — until the next chip comes out, and it all starts over again.

    Sounds like San Diego has a surplus of housing; Unless your population grows rapidly, prices may (horror!) come down.

    Lots of demand leads high prices leads to cyclical overbuilding leads to excess supply leads to prices dropping.

    But thats not a bubble — its a cyclical phenomenom — prices are extended — but willthey drop 80%? I doubt it . . .

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