Bubble?

Lot’s of people are talking about a housing crash.I think it’s safe to say there was a bubble. It’s probably safe to say that it is no longer growing. No, SAFE is not the word I’m looking for...

I’ve noticed that when conducting a search and perusing other blogs on the subject, the horror stories seem to come from the same areas of the country over and over again. Upon polling individuals I know from some of these areas personally I don’t seem to get the same sense of urgency about their local markets, but this is only my personal experience. I think it’s safe to say, it’s hard to get the whole picture or any hard statistics. I do however get the impression that the crashing sound is still a bit more localized at the moment than some would have us believe.

I do have some personal experiences to share though.I currently reside in Northern Europe and travel around a bit. After leaving a Hawaii housing bubble in 2004 I found myself in a parallel bubble here in Euro land, probably driven by the same economic fundamentals. I was in Spain six months ago and found what can probably best be called a monumental housing bubble. I read that an estimated 3 million units were held by speculators and most of them were empty. That’s a lot of speculation! Though I can not verify these numbers, I can say that even in small fishing villages that I passed through I saw building cranes in abundance. Prices were high and by my best estimate, disconnected from all reality. In fact by US standards, I found housing prices in Spain very high. Again apparently driven by the same fundamentals as the US market: low interest rates and creative financing.

I think it is safe to say housing around the world has disconnected from basic fundamentals. Something has to give and will probably do so sooner than later. In the US we have numbers from the BLS that can’t be verified because they won’t disclose how they come up with their business birth and death statistics. Best guess is that it’s computer modeled, you know, theory, but they aren’t saying. What other government reporting agencies are getting creative with the numbers? Your guess is as good as mine. This further muddies the waters of information gathering and dissemination making it harder for an average guy to know if the sky really is falling.
I can tell you though, it’s a slam dunk safe bet that consumer spending is screeching to a halt as you read this, but who’s interest will it serve to release that information? After all, things could turn around right? Probably not…

If they don’t turn around soon, a few bad housing markets in the US will surely spread to areas that didn’t experience rapid price rises. They have to as the economy contracts. Of course as housing prices decline further the economy will most probably follow. You can see where this is going…

Anyway, you can do some simple arithmetic and come up with your own conclusion. If the kid who stocks the shelves at you local grocery store can’t afford a roof over his head, he will be forced to move to an area where he can. Who will stock the shelves? Who will check you out? Does anyone else see a chock point coming? Housing prices can't rise in perpetuity. Whether now or tomorrow, prices must come down, how far is the question.

Vern