The Housing Bubble Revisited

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“Buy Real Estate, They ain’t making any more of it.” Will Rogers

In the prediction business you will often question your work. It is only natural. When predicting something is a bubble that doubt is doubly so. Bubbles are once in a generation events, which are not to be taken lightly. When bubbles burst the results are very and a lot more serious than a line on a computer screen going down in value.

Housing is even more difficult to predict a bubble because there are so many dynamics. For example, while there is a bubble in places such as Florida, California and most of the major U.S. cities. Their certainly is not one in Omaha or Topeka. However, as the populous areas of the United States are where most people live and these areas have seen large increases in land we have to conclude that on the whole, the United States and Canada are seeing real estate bubbles.

Another method we use to judge bubbles are stock charts. Bubbles usually coincide with Parabolic (straight up) moves in the stocks which represent that industry. When looking at the charts of the Dow Jones Homebuilding Index or any of the major homebuilders in the states we can most definitely see that homebuilding is experiencing a bubble.

It has gotten even worse, when I was discussing the real estate bubble earlier this year the Dow Jones Homebuilding Index was trading at nearly 800, it has increased over 30% in just a few months and trades at 1,070 as I write!! It has doubled in the last year. This, of course, is not sustainable.

However, what really defines a bubble is Manic Mass Psychology. When the bubble becomes so crazy that the mass of the population is involved. We remember the story of Joe Kennedy selling all of his stocks in 1929 after a shoe shine boy gave him stock advice. Recently, I traveled to Miami Beach and then the Bahamas. You could tell the difference in psychology in each place. In Florida EVERYONE was talking about Real Estate.

Let me give you an example. I was taking my cab from the airport to the hotel. When driving down Collins Ave., (a road that runs right along the coast) we asked our cab driver about the prices of the houses on the ocean. He knew them all. “On this side they are 2-3 million, on this side 5-6 million dollars.” He also knew that his house had gone up from “66,000 to nearly 140,000” in the past 5 years. The funny thing about it; he could barely speak English! Yet he knew all about the prices of real estate in the area.

When getting a massage at the hotel my masseuse started to talk about how Real Estate was booming and how they were tearing down all the old motels and building condos in place of them.


I was also shocked to see that in Miami Beach, a very built up area, how many cranes their were. The only other city I can remember seeing more cranes was Beijing. Of the major difference is that China is transforming from a third world nation to an industrial power. Where as just stated South Florida is already built up. Due to land prices it makes more economic sense, at the moment, to build condos as you can make more off the condo prices than hotel rates. These are sure fire signs of a Real Estate mania.

In Nassau, there was a lot of building going on. However, it was more communities and individual homes rather than mega condos. In addition, no one was really talking about it. Housing in Nassau has gone up about 5-10% a year over the past few years 5-10 years. Whereas, much of Florida (such as West Palm Beach and Boca Raton) are up 30-40% year to date!!

What you could see is the difference in mass psychology of a bubble compared to that of a place that is probably not experiencing a bubble.

Anyhow, our warning remains the same. “Hot areas” of the United States are still looking like a real estate bubble. It is estimated that 11% of current sales are those who are speculating, this is nearly 60% above historical average of 7%. When the market turns speculators, who are usually the most heavily leveraged with debt, will be decimated.

For more information regarding the above property, please call Dean or Bonnie Isenberg at 305-936-2489 / 800-819-5466 or visit us on-line at A-Realtor.Com


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