Here are some Anti-Bubble articles to form a counterpoint to the Pro-Bubble articles I posted yesterday:
- Jim Jubak of MSN Money writes an article title “Why there is no housing bubble”, where he argues that high housing prices are a direct result of cheap money and low interest rates, and that even a modest rise in those interest rates will not cause a drop in housing prices. What about all that consumer debt? He suggests a full recession would be needed to put the squeeze on consumers such that housing prices would drop significantly. In addition, it would be unlikely that a raises would rise significantly if such a recession were to occur, keeping monthly payments stable.
- William Bernstein of Efficient Frontier (also author of The Four Pillars of Investing, a book I reviewed and liked) writes a more balanced article titled “Why You Can?t Afford a House in San Francisco” looking to the data (as he always does) to help find the underpinnings of this real estate market. He states something similar to Jim – it’s all about what people can afford based on their incomes. Low rates may lead to higher prices, but people still pay about the same per month. Looking at the historical data, he concludes “there certainly is no bubble at the national level.”
- Finally, I’ll end on a more entertaining, if not much more biased opinion from real estate mogul Barbara Corcoran in a BusinessWeek article title “Of Course, There’s No Bubble“. On being asked about bubbles, she answered “I think the bubble theory is nothing more than an intellectual expression of people’s typical worry that good times can’t last forever. When your marriage is going well, you worry there’s a problem on the horizon. I think it’s more psychological than fact.” Hey, she’s a billionaire (albeit with an agenda). I’m not.