Different Opinions on the BUBBLE

April 20, 2006

An interesting article on "Fuzzy Math for the Housing Bubble" in the Washington Post this morning:

Open-Ended Equations

How Stable Is Washington's Housing Market? It All Depends on How You Do the Math.

By Tomoeh Murakami Tse
Washington Post Staff Writer
Thursday, April 20, 2006; Page D01 [Business]

Home buyers beware: The Washington region is now one of the most precarious real estate markets in the nation, according to reports by economists, banks and industry analysts.

But wait a minute. Maybe it's one of the safest, according to reports by other economists, banks and industry analysts.

... more.

Some are predicting housing prices to fall 25% or more. Others are thinking it will just level off to let the economy catch up. Nobody knows the real answer to the bubble question for the DC Metro area. Here's my thinking:

• Market drops 25%: A disaster? NO. It just means that we go back to early 2005 prices. Most longer term owners (2-3+ years) still have significant appreciation. Buyers in 2005 will have a longer time to start realizing appreciation again which doesn't matter much if they bought for the right reasons (like community, lifestyle and long term).
• Market is flat: Obviously good. For one thing, everyone agrees the market was overheated, attracted speculators and too many "easy money" real estate agents. Getting these out of the system is a good thing.

So, let's not panic. All the press about the BUBBLE is feeding consumer fear and trepidation. Housing has always been one of the best places to put your money for other reasons (like lifestyle, community and tax deductions) besides appreciation. Markets will go up. Markets will go down. It's part of our economic life. Trying to time it is a foolish way to spend your time. Get over it.

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