In response to my note about shorting the Los Angeles housing market, Peter Cohan points me to a more analytic take on the “bubble” issue by investment adviser Darren Pollock. Pollack points out that:
— Almost a quarter of housing sales are now to investors rather than owner-occupants.
— The CEO of one of the big housing producers dumped a quarter of a billion dollars’ worth of his company’s stock while going on TV to tout it.
— U.S. housing is now a haven for flight capital.
— The foreclosure rate is already rising, and hitting new highs.
There’s one commonality between the stock-market bubble and the housing bubble that hasn’t, to my knowledge, attracted much comment: the real estate section of a newspaper, like the financial section, is mostly supported by advertisers whose businesses are part of the sector being reported on. That’s likely to create a substantially bullish bias in both cases.
Pollack quotes John Templeton as saying that a 50% drop in housing prices overall is a real possibility. The transition would, of course, be an extremely painful one, and not only for those who are still long on housing.
But the end-state would, in my view, be an improvement over the current situation, in which too many life decisions are driven by housing-market considerations., and where heritable housing-market wealth is contributing to the hardening of social-class rigidities.
The high cost of housing near Westwood (combined with the rotten school system) is the biggest problem UCLA now has in attracting and keeping talent: a bigger problem than der Gropenfuehrer, which is saying a lot. Moreover, since housing is the dominant expense for most faculty families, the salary gap between art-history professors and law professors means that the art historians can’t afford to live in the same neighborhood as the lawyers.
So (now that I’m safely out of the market) I’m all in favor of returning the housing-price-to-income ratio to its pre-1970 level.