Monday, December 19, 2005

Pricking the Bubble

With all the talk of wiretapping, there was little attention paid to a couple of important news items about real estate that should have gotten people's attention. One was the Housing Market Index, a measure of US homebuilder sentiment, which fell to its lowest level since April 2003! Yikes!!

The other was a news piece that indicated that the value of unsold homes amounted to $500 billion, up 33% since last year!

In fact, I was listening to a local station while driving through Louden County, one of the high-priced areas of northern Virginia, and heard a caller complain of their inability to sell their house in the last 5 months, despite cutting costs twice already. The host (or one of his guests?) chimed in that the median home price in Louden County had falled in the last few months had dropped from $506,000 to $480,000.

These are just early signs of trouble. It is sad that people fail to recognize irrational exuberance, especially so soon after a decade of similar exuberance about stocks. If and when there is a collapse, it gives none of us much joy, because families are going to be crushed, our monetary system affected, the economy may take a knock ... so obviously I hope that all the gloomies and I are wrong, those optimists are right, and things go on. But history tells us that the track record of "soft landings" is rather suspect, and a correction is imminent.

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