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I Want My Bubble Back!
http://www.fool.com/news/commentary/2006/commentary06060918.htm ^ | 6-9-06 | Seth Jayson

Posted on 06/12/2006 8:31:04 AM PDT by Hydroshock

The housing spin There's nothing funnier or more satisfying (for me, at least) than watching the National Association of Realtors (NAR) change its tune these days. The latest news release from this sunny-Jim industry group finally fesses up to its past fiction, but even when it admits the bubble's going to pop, it can't muster the courage to just come out and say it.

Nope, according to the news template the NAR released to the press on June 6, "The housing boom has ended, but sales at historically healthy levels will continue."

Wow, sounds great! What about all those poor HGTV-addled suckers -- oops, I mean investors -- who've been buying property on interest-only ARMs with the hopes of flipping it for an easy profit?

Not to worry, folks -- a flop in prices is good! Here's why, according to the NAR. "Experiencing a slowing from a hot market is a good thing because we need a solid housing sector to provide an underlying base to the economy, and slower appreciation will help to preserve long-term affordability."

I hope all those people out there who leveraged themselves up to their eyeballs with risky loans to get into the market are going to be greatly comforted by the "long-term affordability" their homes may offer the buyers of the future.

Who moved my bubble? So, yeah, the NAR is full of it and will spin the numbers any way it can to keep up the pleasant fiction that all is well. But the cracks began to show in subsequent remarks from NAR "Chief Economist" David Lereah. The head outfit that ridiculed the idea of a housing bubble for years is now crying for Ben Bernanke to bring it back.

"But this is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable," Lereah said.

Allow me to translate:

Interest-sensitive housing markets = "Bubbles" Vulnerable = "Ready to pop" A more honest version of what I think he really means to say is: "Come on, Bennie! We need that cheap money! How else are we going to keep skinning 6% off all those marks out there? It's not like they can really afford these prices without the easy credit and ARM gimmicks!"

And lest you think I'm being too harsh, that the NAR is a group that cares about things like homes and families, take a close look at the terms it uses to describe the current situation: "For most of the nation, this means future home price gains will be much closer to the normal returns we expect from housing," said NAR President Thomas M. Stevens, who hails from one of the country's most ridiculously bloated markets, Vienna, Va.

Price gains. Returns. These are people who want us all to believe in housing as an investment, and they just happen to take a cut on the deals. Of course, housing, over the long run, is not a good investment, except for a very savvy few. It's a roof over your head that tends to keep pace with inflation, but not in a straight line. But if you can't afford your place because you made a bad deal based on reports of the never-ending happy housing story, that cozy home could be a personal finance time-bomb waiting to explode.

Don't be hatin' The real problem here isn't the NAR, of course. You have to expect these people to spin the facts for their industry, even if that means they're putting their checkbook concerns ahead of yours, and even if it leaves them begging the Fed for an adherence to shortsighted economic policies that could send inflation spiking.

No, the real problem here is the uncritical press out there, which is all too happy to pepper every contrary indicator or bearish remark with an NAR official's informed-sounding bubble denial. Never mind if what the NAR folks are saying doesnt seem to make sense (or contradicts what they said just a few months back). Hey, opposing viewpoints give the appearance of objectivity, and they're an easy way of pretending to have looked for truth. It keeps your editor off your back, and if people out there get burned on account of your waffling reportage, no one can say they weren't warned. Look, here's the quote from the other guy!

It should have been completely obvious to anyone with a loan calculator and a glance at wage increases that those months of industry bubble denials were just wishful thinking.

The simple fact is that no one wants the party to end -- not the Realtors, not the companies who make a mint on loans, like H&R Block (NYSE: HRB) or Freddie Mac (NYSE: FRE), and certainly not the home builders like Pulte (NYSE: PLT) or Toll Brothers (NYSE: TOL). But at least the homebuilders, who have shareholders to face, had the guts to come clean.

And let's face it. I don't think the average retailer out there, from Wal-Mart (NYSE: WMT) to Best Buy (NYSE: BBY), relishes the thought of a consumer who can't tap marshmallow equity to keep buying iPods and PowerAde. Nor will you see a celebration from a company like GM (NYSE: GM), which made a lot off mortgages and also benefited from the illusory equity wealth by selling high-ticket SUVs until a predictable spike in oil prices took the fun out of that party.

Foolish bottom line Unfortunately, we live in an imperfect world. The information you get on housing is confusing, often inconclusive, and sometimes, I'd argue, downright crooked, woven into a complete fairy tale by people who want to convince you that no harm could ever come from partaking of transactions in which they have a financial interest. That's why you need to be a Fool and do the math yourself.

Those home industry advertisements might feature kitties and puppies, blue skies and little girls with dimples frolicking in the home of your dreams, but the people putting together those ads measure their success by how many greenbacks they can extract from your wallet. The only person out there who's really looking out for your financial well-being is you.

For related Foolishness:

Behind the Bubble Babble Bad-Mouthing the Bubble Don't Get Crushed by Your Home Do the math yourself with our online calculators.


TOPICS: Business/Economy; Miscellaneous; News/Current Events
KEYWORDS: andagonyonme; anguish; bubbleboy; depression; despair; despondent; doom; doublebubble; dustbowl; eeyore; envy; gloom; grapesofwrath; helpme; ilikebubbles; iluvwilliegreen; imreallytxbsafh; joebtfsplk; misery; popthebubble; runawayrunaway; sallyrand; schadenfreude; skyisfalling; williegreenismyhero; woeisme
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1 posted on 06/12/2006 8:31:09 AM PDT by Hydroshock
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To: Hydroshock
I hate bubbles.

Little packing-container bubbles, soap-bubbles, bubbles on the Lawrence Welk show, price bubbles, Don Ho singing 'Tiny Bubbles', the stripper chick down at the Pink Pony called Bubbles....

I hate bubbles.

2 posted on 06/12/2006 8:33:49 AM PDT by Lazamataz (First we beat the Soviet Union. Then we became them.)
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To: Lazamataz

Everyone will hate this bubble before it is all over.


3 posted on 06/12/2006 8:35:33 AM PDT by Hydroshock ( (Proverbs 22:7). The rich ruleth over the poor, and the borrower is servant to the lender.)
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To: Lazamataz
Remember that troll we had that kept posting "bubblin, bubblin?"

Second-greatest FR troll after Toiletman. They just don't make 'em like that any more.

4 posted on 06/12/2006 8:36:53 AM PDT by dirtboy (When Bush is on the same side as Ted the Swimmer on an issue, you know he's up to no good...)
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To: Lazamataz

5 posted on 06/12/2006 8:37:21 AM PDT by OB1kNOb (This is no time for bleeding hearts, pacifists, and appeasers to prevail in free world opinion.)
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To: dirtboy
Remember that troll we had that kept posting "bubblin, bubblin?"

Your problem be, you ain't been bubblin' and glistenin' on em. YOU GOT TO BE BOVINE BUBBLIN'! You got to be bovine bubbling and glistening on em till you be doublin' platinum. Platinum be doubling on cadmium. Platinum be bubblin' and glistenin' on em. Youe problem be, you ain't been pushin' no Bently's like Steve Forbes be pushin. You pushing Mercedes. Pat Buchanan be pushin' Mercedes, and he bubblin' and glistenin' on em. He doublin' platinum by bubblin' and glistenin' on em. He doublin' platinum by pushin' Mercedes. Steve Forbes ain't doubling platinum, he pushing Bently's on em.

6 posted on 06/12/2006 8:40:29 AM PDT by Lazamataz (First we beat the Soviet Union. Then we became them.)
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To: Hydroshock

Housing is not at all inflated in South Bend, IN, nor in most parts of the country. People who talk about a "national housing bubble" of some kind don't understand the issue.

The bubble only exists in certain markets, and in many places the current slowdown will only moderate buying conditions.

And in others, it will actually ruin people who bought at the top of the market.


7 posted on 06/12/2006 8:40:53 AM PDT by The Old Hoosier (Right makes might.)
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To: Lazamataz
This guy likes 'em...
8 posted on 06/12/2006 8:41:35 AM PDT by VictoryGal (Never give up, never surrender!)
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To: Lazamataz

I love bubble gum. Especially Bubble Yum and Double Bubble.


9 posted on 06/12/2006 8:42:11 AM PDT by Sensei Ern (http://www.myspace.com/reconcomedy/ "I'M YOUR WORST NIGHTMARE...AN AMERICAN...and I am voting!")
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To: Hydroshock
Interest-sensitive housing markets = "Bubbles" Vulnerable = "Ready to pop"

The U.S. real estate experience over the last thirty years offers plenty of evidence that the interest-rate/property-price correlations are overrated. For one, each of the three property bear markets during that time (1974-75, 1980-82, 1990-92) occurred amidst falling rates, while the last great U.S. real estate market (1976-1980) occurred as the prime rate raced into the double digits. As a matter of fact, the prime-lending rate rose from the single digits in 1976 all the way to 19 percent in 1979 while real estate values took off. By 1979, the value of individually owned dwellings reached $1.3 trillion dollars, twice the worth of individually owned corporate stock. Half of all the new multimillionaires in 1978 earned their fortunes in real estate.

10 posted on 06/12/2006 8:43:05 AM PDT by Mase
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To: Lazamataz

11 posted on 06/12/2006 8:43:40 AM PDT by Larry Lucido
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To: Hydroshock
It should have been completely obvious to anyone with a loan calculator and a glance at wage increases that those months of industry bubble denials were just wishful thinking.

I remember when a house price should be equivalent to a years salary. Then, when I wnr house shopping, I was told that a house price should be about 2 years salary. And lately, I've hear that a home price should be 5 times yearlt salary. The plain and simple truth is that house prices have gone up much, much faster than wages and I blame the exotic loan industry. By offering "cheap" money, it increased demand which pushed housing prices into the stratosphere. I'm in the tampa Bay area and it is ridiculus to think that median housing prices have 'risen' to the level of median household income. Median prices are in the mid $200K range, but household income is in the $35-40K range. And rents are going up just as fast so I don't see this as a big bubble in this area.

12 posted on 06/12/2006 8:44:00 AM PDT by doc30 (Democrats are to morals what and Etch-A-Sketch is to Art.)
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To: Lazamataz

13 posted on 06/12/2006 8:44:09 AM PDT by Larry Lucido
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To: OB1kNOb

Based on that pic, I think I want to be a bubble.


14 posted on 06/12/2006 8:45:18 AM PDT by lesser_satan (EKTHELTHIOR!!!)
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To: Hydroshock; ex-Texan

ping


15 posted on 06/12/2006 8:49:37 AM PDT by Hydroshock ( (Proverbs 22:7). The rich ruleth over the poor, and the borrower is servant to the lender.)
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To: Hydroshock
What about all those poor HGTV-addled suckers -- oops, I mean investors -- who've been buying property on interest-only ARMs with the hopes of flipping it for an easy profit?

I have a question for you and others who gloat over "the bubble".

Why do you have so much scorn for and glee at the prospect of financial ruin for enterprising Americans who plunge into real estate investment? (and who make up a rather small segment of real estate purchasers, BTW)

During the dot.com era I do not remember seeing this extent of high-fiving the end of irrational exuberance and gloating over losses of investors who were only trying to make a buck....some perhaps for your retirement funds that affect large numbers of us. Real estate has transformed many a landless and poor person into someone with wealth. Yet you smack your lips over the prospect of investors, ordinary people with big dreams, losing everything.

So what gives?
Envy? Feeling self-righteous over your own caution and more prudent investment efforts? Just a thought.
16 posted on 06/12/2006 8:49:39 AM PDT by silverleaf (Fasten your seat belts- it's going to be a BUMPY ride.)
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To: Hydroshock
"Of course, housing, over the long run, is not a good investment, except for a very savvy few. It's a roof over your head that tends to keep pace with inflation, but not in a straight line."


Obvious, like the nose on your face, except to those folks buying those "get rich in real estate" plans, hawked to morons, by people who make a living (and not in real estate) shearing sheeple.

As long as there are bridges, there will be bridge buyers.



17 posted on 06/12/2006 8:50:15 AM PDT by G.Mason (I wouldn't have wanted to live without having disturbed someone)
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To: silverleaf

Morbid curiousity.


18 posted on 06/12/2006 8:51:21 AM PDT by Hydroshock ( (Proverbs 22:7). The rich ruleth over the poor, and the borrower is servant to the lender.)
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To: G.Mason

That ans trying to warn people to beware.


19 posted on 06/12/2006 8:52:01 AM PDT by Hydroshock ( (Proverbs 22:7). The rich ruleth over the poor, and the borrower is servant to the lender.)
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To: Hydroshock

PING myself to read later.


20 posted on 06/12/2006 8:52:20 AM PDT by Paperdoll (.........on the cutting edge)
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