Monday, September 05, 2005

Pop! So Go The Weasels?

The Associated Press, in a crack piece of investigative journalism, has discovered this:

WASHINGTON - The nation's red-hot housing market may finally be nearing its peak, meaning the end of double-digit annual percentage price gains for homeowners and potential trouble for more recent purchasers who stretched to buy.

This news comes as no surprise to those of us in California, as well as residents of Florida, Arizona, Southern Nevada, Boston... Speculation, enabled by questionable financing instruments, have led to 20-40% per year appreciation in many markets in the last few years. No asset in human history has sustained those returns and this isn't a recent revelation. For reasons that surpass understanding many people have ignored the lessons of the Internet speculative bubble and forgotten George Santayana's dictum that those who cannot remember the past are doomed to repeat it. The only difference this time will be the bubble, if it exists and deflates, will be much worse than the Internet craze due to the illiquidity of real estate versus stocks and bonds.

It will be interesting to observe the manner in which a housing contraction will be covered by the media. President Clinton was given a lion's share of the credit for the growth of the economy in the late 1990's but none of the blame for fostering the conditions that led to the implosion of the NASDAQ and technology related businesses. Both cannot be correct. Therefore, since Bush has gotten virtually no credit for either the economic expansion (Real G.D.P. grew 1.6% in 2002, 2.7% in 2003, and 4.2% in 2004. In Clinton's first three full years real G.D.P. grew 2.6% in 1993, 4.0% in 1994, and 2.5% in 1995. These numbers clearly cannot take into account the attacks of 9/11.) or the wealth effect from appreciation in the housing market, I would imagine that the media will not blame Bush if the housing prices experience a regression to the mean.

Yeah, right.


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