Though I anticipated the end of the NASDAQ bubble - I really should have - I still wonder what was the cause of the end. Was it interest rates? Was a final Fed tightening of 50 basis point in May 2000 the end? After all, NASDAQ stocks were not supposed to be tied to the bond market.
What ends this run in real estate prices? Interest rates? Can the end be gentle, since homes are stickier assets?
Well then, we are reasonably sure housing prices are inflated. We may even be reasonably sure there is a bubble in housing. What are we to do? The bubble in 1999 was no problem, for there were broad market sectors such as health care and REITs that were well valued. There was also the bond market. The Fed was finishing a tightening sequence early in 2000, and bonds were a perfect alternative to stocks. What now? Real estate is expensive, bonds are expensive. My guess is stock this time as a defense.
Anne, thanks for the comments. I doubt we will see a rapid decrease in housing prices like the Nasdaq since (as you noted) housing prices are sticky. Instead we will probably see a significant decrease in volume. But that is important since housing is a large part of our economy. A slowdown in housing volumes could impact the overall economy.
I'm not sure what the trigger event could be (I didn't know on the Nasdaq either). It could be interest rates. It might be oil prices. It might be some unexpected exogenous event.
Housing definitely appears vulnerable to some event.
Many, many moons ago, I learned a couple of rules of thumb about what you can afford. A car should not cost more than three months wages and your house should not cost more than three years wages. My brother in Long Beach reports the average house in his neighborhood (1000 square feet, three bedroom, one or two bath, attached garage) goes for six times average household income. How is this sustainable?
Yes, I am worried.
Though I anticipated the end of the NASDAQ bubble - I really should have - I still wonder what was the cause of the end. Was it interest rates? Was a final Fed tightening of 50 basis point in May 2000 the end? After all, NASDAQ stocks were not supposed to be tied to the bond market.
What ends this run in real estate prices? Interest rates? Can the end be gentle, since homes are stickier assets?
By the way, I never understood the 50 basis point Fed tightening in May 2000.
Well then, we are reasonably sure housing prices are inflated. We may even be reasonably sure there is a bubble in housing. What are we to do? The bubble in 1999 was no problem, for there were broad market sectors such as health care and REITs that were well valued. There was also the bond market. The Fed was finishing a tightening sequence early in 2000, and bonds were a perfect alternative to stocks. What now? Real estate is expensive, bonds are expensive. My guess is stock this time as a defense.
Anne, thanks for the comments. I doubt we will see a rapid decrease in housing prices like the Nasdaq since (as you noted) housing prices are sticky. Instead we will probably see a significant decrease in volume. But that is important since housing is a large part of our economy. A slowdown in housing volumes could impact the overall economy.
I'm not sure what the trigger event could be (I didn't know on the Nasdaq either). It could be interest rates. It might be oil prices. It might be some unexpected exogenous event.
Housing definitely appears vulnerable to some event.
Thanks again for your comments!
Many, many moons ago, I learned a couple of rules of thumb about what you can afford. A car should not cost more than three months wages and your house should not cost more than three years wages. My brother in Long Beach reports the average house in his neighborhood (1000 square feet, three bedroom, one or two bath, attached garage) goes for six times average household income. How is this sustainable?