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Here in Park City, there is an influx of out-of-state buyers. Most homes are 2nd or 3rd residences, and are of course being purchased without a mortgage. It is a simple portfolio asset class rebalance from one asset type (say, investment in stocks & bonds) into the real property asset class (a vacation house or two).
At least here, I don't see the potential blow-up you describe of people who must return to elsewhere for work.
In my Las Vegas neighborhood, I live in a development of about 33 homes. My entire block has turned over to out-of-state buyers, all buying via asset class transfers. My neighbors now include the founder of MySpace, a just-now-retired member of the board of directors of Tesla, the owner of a NASCAR team, the founder of Halo Top ice cream. No one bothers with a mortgage.
Same here, though in my area people are actually moving here full time, so not a 2nd or 3rd house. The realtor down the street from me has been taking prospective buyers on tours of the 2/3rds finished house they're building across the street from me, and said he had a client recently that finally closed on a house after making 6 offers on other houses and being outbid each time.
Bubbles are exceedingly difficult to see except in hindsight. Indeed, it is not even clear if bubbles even exist in the first place. Gene Fama won the Nobel Prize in Economics in 2013 (and was my grad school advisor). He's known as the Father of modern empirical finance. Gene's view is bubbles do not exist.
When people see patterns in asset prices - including real estate prices - and say "it must be a bubble" it is much like seeing familiar objects in the sky when you look at clouds.
What term did Gene Fama use to describe the over-inflated house prices of 2004-2008, and subsequent crash to 2011?
If he doesn't use the term bubble, what does he use? Or is he denying that over enthusiasm, speculation and the "greater fool" concept had no role in the inflated house prices of 2008? Does he think they were based on sound fundamental market forces and that market forces caused the crash?
We use the term bubble colloquially.
If Fama says there are no bubbles, what is his explanation/description for house prices 2004 to 2011?
Well here in Los Angeles nothing is falling. Last week I was measuring a house for a broker who just wanted to make sure they had the right square footage for the listing. This house was 1,900 sf house with NO remodeling. When I called the broker I asked how he expected to sell this piece of cr@p for the listed price of $ 1,695,000. He replied that he wasn't. He just accepted an offer for $ 1,925,000.
That's Los Angeles right now.
Those of us who watched the prior crash know it took some time. In late 2006, the first stories began to appear of warehouse lines being cut to mortgage lenders. Specific markets started topping out during 2007, and by mid 2008 it was plainly evident everywhere - even Charlotte which was one of the final dominoes.
I don't think prices will fall until we see some proper inventory growth and days-on-market lengthening. But it'll overshoot somewhere, and then everyone will say it was obvious in hindsight.
Case-Schiller's price index is a bit of a laggard based on it's design, IMO. But if it's leveling off - then it's probably a good idea for sellers on the fence to not gamble any further on waiting.
I have no idea. I can't predict future any more than anyone else, nor do I try to. That's why I don't short sell.
I do, however, know that nothing goes up forever.....and bubbles often pop/begin based on trigger(s) no one sees coming.
It seems one can only say if something is a bubble is in hindsight. It is exceedingly difficult to ascertain if we are ever in a bubble until after the fact. Sometimes there is no bubble; it is just an escalation in the price of the asset.
Last edited by RationalExpectations; 06-27-2021 at 08:21 PM..
What term did Gene Fama use to describe the over-inflated house prices of 2004-2008, and subsequent crash to 2011?
If he doesn't use the term bubble, what does he use? Or is he denying that over enthusiasm, speculation and the "greater fool" concept had no role in the inflated house prices of 2008? Does he think they were based on sound fundamental market forces and that market forces caused the crash?
We use the term bubble colloquially.
If Fama says there are no bubbles, what is his explanation/description for house prices 2004 to 2011?
He isn't sure bubbles even exist in the first place. In economics, at the national accounts level Savings = Investment. In fact, S ≡ I (recall ≡ is the sign for identically equal).
Thus, to say people are somehow over-paying for an asset class (real estate) thereby bidding up prices is ≡ (identically equal) to saying people are saving too much. Would we ever say people are saving too much?
In order for a bubble to exist, you have to be able to fairly reliably and repeatably be able to test for it, and so far he hasn't seen researchers actually do that.
It gets tied into the Efficient Markets Hypothesis (EMH) which says that information is rapidly diffused in the marketplace so that prices incorporate all publicly available information. When prices are going up, the EMH indicates people are in aggregate acting rationally, even though some people are indeed acting irrationally and emotionally.
Of course, his view is pretty much the opposite of fellow Nobel Laureate Robert Shiller.
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Quote:
Originally Posted by RationalExpectations
It seems one can only say if something is a bubble is in hindsight. It is exceedingly difficult to ascertain if we are ever in a bubble until after the fact. Sometimes there is no bubble; it is just an escalation in the price of the asset.
Again, i ask, what asset kept going up-significantly, into perpetuity?
And bubbles are easily ascertained, they all follow the same pattern and carry similar variables, what we can't predict is the timing of the burst, or the run-up if it's the other way around, because the trigger is not known until after the fact.
What term did Gene Fama use to describe the over-inflated house prices of 2004-2008, and subsequent crash to 2011?
If he doesn't use the term bubble, what does he use? Or is he denying that over enthusiasm, speculation and the "greater fool" concept had no role in the inflated house prices of 2008? Does he think they were based on sound fundamental market forces and that market forces caused the crash?
We use the term bubble colloquially.
If Fama says there are no bubbles, what is his explanation/description for house prices 2004 to 2011?
Sounds like Gene Fama makes money talking/teaching and not doing. It's a helluva gig when you can get it.
No risk, guaranteed reward (salary).
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