The Housing Bubble Dichotomy

It seems that nearly everyday in the media, from CNN to the local newspapers, someone is talking about the Housing Bubble. If you are interested, like me, in trying to figure it all out, you'll notice a din of voices all clamoring for attention and claiming that they have the answer. The most curious thing (perhaps I'm just naive) is that the majority of information is of the self-serving variety. If one stands to benefit from there being a bubble, then it's "of course, by all means, watch out and run, she's gonna blow!" If another stands to gain from a bubble being a myth, then it's "ahh, c'mon, there's not a bubble so don't you worry about a thing!". It's a bit overwhelming to say the least, and I admit I'm still not convinced one way or the other (and truth be told, imagine this, I think we can benefit from a look at what both sides are saying).

I read today a quirky article entitled Bubbles Are, Like, So Transparent by Broderick Perkins in which I found a relatively common angle of the whole thing being a chimera. Mr. Perkins' article is very light, at times grammatically faulty, but does offer a nice realistic view of the issue. He makes a good point at how many things in the housing industry are similar to the weather and unpredictable at best. That being said, he is quick to offer some sound advice that I think really rings true, "The best real estate consumers can do to reduce their risk for the future and improve their odds today -- in any market -- is to stick to sound financial and investment principles when buying shelter as a home or as an investment." Good advice, though a bit soft and incomplete on what those "principles" are exactly.

I then reviewed a scholarly piece by Dean Baker called The Housing Bubble Fact Sheet. Erudite to the core, and not a little convincing that what we are witnessing in many markets today could in fact be a bubble, Mr. Baker points out in no uncertain terms the implicit dangers of a problem such as this. I personally get the same feel from the paper that I did from the weather forecasters before Hurrican Rita. Katrina was still fresh in everyone's mind, so nobody wanted to downplay at all the next big threat in any fashion. In many respects, Rita wasn't nearly as horrific as Katrina, but perhaps that was a result of better preparation, but I digress. Even so, what may be a worst-case scenario prediction can provide a good amount of assistance in making real estate choices today.

Overall the truth remains, every market is different and each transaction deserves the dual benefit of a common-sense and a well-versed approach. The best thing I've learned from my study of the subject is that it's wise to consider who's offering the information, and how it impacts them. Boom or bust, bubble or not, real estate is typically a person's largest investment and needs to be entered into advisedly.

This post was written by Jeremy and appeared here originally.