Irrational Exuberance, the Real Estate Bubble and the Weakening of the US Economy
Author: Joshua Dorkin • URL: http://www.biggerpockets.com/August 30th, 2006 •
I found this chart at both the Northern Virginia Real Estate Guide and at HousingPanic, but felt that it was important enough that we also show it to you.
Click on the image to see it LARGER:
There are a few parts of the chart I find interesting. First, the run up in prices in the current decade is TWICE as large as the previous largest spike during the post WWII housing boom. That alone tells you how out of whack this build up is.
In addition, “new data also suggests that the market might be at the end of a cycle”, claims Robert J. Shiller, the economist who published the chart in his book, Irrational Exuberance.
The two lesser housing booms, which occurred during the 70’s and 80’s, are dwarfed by this “brobdingnagian housing bubble.” It seems like a really long way back down towards status quo pricing. I don’t want to sound like chicken little here, but I see no way that this market can sustain itself. I know too many people who are in homes they can’t afford because they fell into the frenzy of the market. I just worry that the collapse of housing can take the rest of the economy with it.
This is a very sobering economic picture that we face, and I hope that the we don’t end up like Japan of the late 80’s/early 90’s. The scary part is that their economy prior to the crash looks like ours does now. There was a period of high land and stock prices. . . the markets collapsed and the banks became riddled with bad debts. Many of their manufacturers moved overseas and unemployment jumped.
The thing that scares me most is that on top of the bubble, we’re faced with an $8.5 Trillion National Debt (was only $3.6 Trillion in 1999), we’re pouring somewhere between $5 billion and $10 billion a month into Iraq, and no one seems to know what to do with any of these problems . . . and then there is Social Security.
Try and ponder all of that for a while . . . I’m getting some Advil!
Joshua Dorkin
Charles Feldman
Ted Karsch.
Troy Schuricht
Richard Warren
Jim Watkins
[...] Now, all of a sudden, everyone is talking about it. Where were the publications and the politicians back when this all started? Busy, I guess. The market has topped after years of irrational exuberance, and as you can read from either the Business Week article, or from one of the many housing bubble blogs, things aren’t looking good. Many of the option ARMs taken out in 2004 and 2005 are resetting at much higher payment schedules — often to the astonishment of people who thought the low installments were fixed for at least five years. And because home prices have leveled off, borrowers can’t count on rising equity to bail them out. What’s more, steep penalties prevent them from refinancing. The most diligent home buyers asked enough questions to know that option ARMs can be fraught with risk. But others, caught up in real estate mania, ignored or failed to appreciate the risk. [...]
[...] Sharing information is what makes the internet a beautiful place. So with that in mind, I like to share a great blog for real estate agents. BiggerPockets.com is a great blog for those who love to crunch numbers or at least like to see the aftermath of number crunching. Click away and enjoy. Filed under: Real Estate Agents, Realty News | [...]
[...] I’m glad they are looking into the situation, but as I’ve said in the past, our politicians usually look at these situations too late. After housing prices have climbed in a market of irrational exuberance for the past five years, the bubble looks four to five times greater then the booms of the 70’s and 80’s. [...]
[...] For those looking to buy a home, this is nothing but good news. The irrational exuberance that has been plaguing our housing market has finally really started to dissipate. With builders quickly dropping prices on their new homes, and previously owned homes staying on market for longer and longer, it is finally starting to look like a buyers market once again. Don’t get too excited yet, though. With thousands, if not millions of people in homes they can’t afford thanks to risky loans, it looks like the market will only continue to decline until foreclosed homes have truly hit a feverish pace. We need to see everything balance out before we’re close to the bottom of this giant real estate bubble. Buyers will likely be rewarded if they can continue to show patience. PermaLink | | | | | | | | | More » [...]
[...] Exhuberance - Take a look at the image in my previous post about irrational exuberance from back in August 2006. It doesn’t take a brain surgeon to see that the market was WAY [...]
[...] historical housing chart has been making the rounds of the net. I have seen it at Bigger Pockets and Get Rich [...]