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Minyan Mailbag - Local vs. National Housing Bubble


Did someone say pie?


Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next article with that very intent.

Fil -

Housing supply is exceeding demand in the greater Palm Springs California region. Example-in November 2004, the Sun City complex had a 45 day shortfall in inventory vs sales. However, I noticed many "unlived in" homes for resale. In January, Sun City reduced their prices by approximately 8%. Today, Sun City has an inventory of over 50 completed homes. There are approximately 50 resale "flippers" on the market with an asking price 5-10% BELOW the Sun City published price. This is a current BUBBLE.

Minyan Roland

Hi Roland -

Anecdotal evidence of a housing bubble like what you are observing is growing fairly pervasively across the country. Nonetheless, the mantra goes on that there cannot be a nationwide housing bubble because housing is an animal of local markets.

I believe this argument completely misses the point of what is at the heart of this housing bubble: valuation and debt leverage.

The fact that a 4-unit building in Terre Haute, IN (an area I am somewhat familiar with) can still be had for $39,000 does not make it a bargain if that building was selling for $14,000 five years ago (this is an actual example by the way). The price increase there was not due to land constraints, demand/supply imbalances or any of the other reasons given for "why this time is different." The price jumped because low interest rates and loose credit terms allowed sellers to increase prices to buyers focused on the "monthly payment", rather than the value of the real estate. That, in my opinion, constitutes as much of a bubble as the new condos being snapped up at $550/sq. ft. in a gang infested area of Capitol Hill.

The debt leverage being used to juice home prices to where they currently are is also a national problem, because the paper is redistributed in virtually every sector of our finance-centric economy. When Las Vegas turns into "foreclosure valley" and bad debts start getting written off, everyone from Maine to Southern California will likely eat a piece of "desert pie." And with debt levels relative to "realizable valuations" completely outside the realm of reason, the inevitable unraveling will taste pretty nasty.



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