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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: jrhana who wrote (2798)	6/27/2003 7:19:05 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 4907

they may not be the same financially, but they can be very similar psychologically, don't you think? otherwise, we could never say we have a housing bubble. and are they really so different financially? depends how you slice the apple... Buting a stock for a split adjusted almost $3,000 when it is really worth less than $20 is not the same as buying a house for $200,000 when it should really only be worth say $120,000 and you are data mining a bit here. really we are talking about stocks that were, say, at least 50% overvalued at the time (they justifiably went down more than 50% in the course of time as it became apparent that their bullish sales and margins were artificially inflated by the bubble....hmmm, kind of like how home prices are artificially inflated today by the bond bubble); so it is data mining to pick a stock that loses more than 99% of its value. in retrospect, we can see that tech stocks had a "perfect storm" of value destruction--first the valuations cratered, then the fundamentals fell apart. thus they remained overvalued even as they fell, due to worsening business prospects. likewise, this sort of "downward moving target" progression could happen in housing. thus what may seem 20% overvalued today, based on today's standards (incomes, interest rates, etc.) may be 30% overvalued two years from now, even after falling 30% in the interim, due to worsening fundamentals. likewise, you are moving the goalposts to talk about a 200K house which is only worth 120K. we can easily find instances where, over the course of time, a 120K-value house is selling for 650K. just take, for example, the 100K earning household with a 650K house (yes, believe it or not such incomes may qualify for 650K nowadays, otherwise there would not be so many 650K houses). well, with 50K down (who would put more down nowadays?) that is a 600K note, for a "loan to income" ratio of 6:1; well above the traditional 3:1 rule of thumb. now let's say the 100K income gets chopped down to 50K thanks to jobs moving overseas. now the 50K income gets a 100K note (a more conservative 2:1 ratio in the post-housing-bubble era) with a healthier 20K down and you've got a 120K house. and that's before peak oil destroys the suburbs! i am convinced that even if the bond bubble doesn't end, much US real estate will fall to pennies on the dollar, a la your INSP example, once peak oil hits and the "normality" of a 45-minute commute comes into question. i believe this will occur in the next decade or two, but i really doubt the bond bubble can hold up that long.