WHY THE WSJ GETS IT WRONG, AGAIN

Housing Bubble: Toil and Trouble Follows Predictable Pattern
from The WSJ, reports that "seven years after the stock-market crash, the troubles in the real-estate market look strikingly familiar. It isn't too early to wonder why, so shortly after the 2000 bust, a bubble cycle repeated itself.

The speculation eventually runs its course and in the ensuing downturn, swindles come to light. That leads to "revulsion." Lines of credit dry up and regulators, Sarbanes-Oxley style, rush to shut the door of the empty cow barn. In the worst cases, selling panics follow."


MY RESPONSE:

1. They use the word "real estate" to mean housing, instead of correctly referring to the housing sector of the real estate market as the one experiencing problems. Actually, the other 4 sectors of real estate remain healthy and in high demand and short supply.
2. Most investment properties have real earnings/dividends in the form of rent, cash flow, net operating income, and a positive debt-service coverage ratio; unlike internet stocks that went to zero.
3. Houses are not liquid, like stocks, and therefore do not experience a sudden drop in value and are not marked to market each day.
4. One's own home derives pleasure and provides a substitute dividend in the form of rent (paid to mortgage) not paid to a landlord.
5. There is NO SUCH THING as a NATIONAL HOUSING MARKET and therefore individual markets do not behave in lock step with other regional, municipal or neighborhood markets.
6. Houses are not primarily for speculating, but living and investing. Always have been and most likely always will be. The value of shelter has a lot to do with human nature! And as a very wise and successful business leader once advised.....to successfully sell a product or idea, never mess with human nature.
7. The new home market (15%) has suffered more than existing home market due to overbuilding and declining demand in many markets.
8. Subprime borrowers (and lenders) have suffered because they borrowed more than they could afford when they were qualified to the Option-Arm minimum payment only, rather than to the more proper fully amortizing 30-year loan payment. And, now they can't get access to credit to refinance just when they need it the most.

SEE THE Changes in Home Prices, by Region - From the NY Times:
Floyd Norris’ article When It Comes to House Prices, the Bloom Is Off the Cactus illustrates quite clearly how much housing price patterns varied by sub-market but also how much houseing spiked in some markets and how some markets were unaffected by the recent boom.

Also, according to the latest issue of the Arizona Blue Chip Economic Forecast, "worries about a bursting housing bubble have not become reality." It cites information from the Office of Federal Housing Enterprise Oversight that shows Arizona home prices were up 10 percent during the fourth quarter of 2006 compared with the fourth quarter of 2005. Helping Arizona home prices are cities like Yuma, Prescott and Flagstaff, which posted double-digit gains in 2006.

And, in San Francisco, the housing market is slow due to a lack of inventory. Because there is strong demand and low mortgage rates multiple offers are common and prices are firm. They have been waiting for more inventory but it has been slow and there is pent-up demand. There are few income properties for sale and the ones that come on the market sell at high gross rent multiples and low capitalization rates.

Housing Bubble and Real Estate Market Tracker from SA for 3/6