A Quote for the Day

Part of what has fueled this housing bubble has been the allure of "easy money" by speculators hoping to flip or buy, hold, then sell properties to cash in on the appreciation. While I have no qualms about capitalism, or buying an asset at one price and selling it at a higher one, too often the reasons one pursues real estate is the dream of "passive income." To make money while you sleep, to earn your keep doing nothing, so to speak. And it's to those "investors" this quote is dedicated to:

The darkest hour of a man's life is when he sits down to plan how to get money without earning it.
-- Horace Greeley

People with the "passive income" mentality are simply trying to get rich quick without any work, sweat, or effort. And those are the people who put in the least amount of research, time, or forethought into their endeavors. And they will be the ones who get squashed first and most furiously as the housing bubble unravels. Those who seek easy riches usually find poverty instead.

Economics Roundtable: The California Economy -- Housing Boom or Bubble?

First off, sorry for the looooooooooooong absence in posting, work has been incredibly time consuming and, unfortunately, I don't see much of a letup until mid-summer at the earliest. But enough bellyaching, what I'd rather share is a very interesting (and free!) video you can watch over at Google Video - Economics Roundtable: The California Economy -- Housing Boom or Bubble?

The video is a talk presented by Christopher Thornburg, a senior economist at the UCLA Anderson School of Management. Christopher is a great presenter and provides an entertaining and informative one hour talk on the state of the economy and the housing bubble, especially as it related to California. The talk is packed full of alarming statistics and charts, showing how California's real estate market has defied rational logic.

Christopher also looks at the changing landscape in California's workforce. Since the recession in the early 90s, California has had a net loss of managerial and "decision maker"-type jobs. The employment sectors that have enjoyed the largest gains have been, in this order:

1. Construction
2. Financial services (mortgage brokers, banks, creditors, etc.)
3. Retail

It's a workforce that's ready to build your house, help you finance it, and help you fill it with assorted crap. Problem is, what's going to happen to these jobs as the housing bubble shakes out? And what effect will rising unemployment have on an already perilous housing market? (Historically, housing prices track employment levels much more closely than any other metric.)

Christopher also dispels the myth that housing is an investment. While it has been a great investment in the past decade due to this irrational runup in real estate, historically, when adjusting for inflation, a house doesn't exhibit any appreciation. It's sole economic benefit is the fact that you have a place to live. In this vein, Christopher showed a chart that showed the average national housing price since the 1960s, adjusted for inflation. It's ranged between $90,000 and $110,000 in a fairly cyclic pattern over the years until 2000. Today the average national housing price exceeds $160,000. Eep.

Also examined is the ratio of houses to families, which is at a historical all-time high (if I recall correctly, there's 2.6 houses per family in the US). Clearly, there's no housing shortage. Just look at the San Diego skyline and its mass of empty condo highrises for further proof. Near the end of the talk, Christopher shares his housing bubble prediction - at least another year of stagnant prices and then... who knows? Historically, housing price declines follow after a year of the increase in inventory and decrease in sales volume... patterns we've been seeing for several months now.

For more great commentary from Christopher Thornburg, see this interview: Housing Boom or Bubble?, from August 2005.