Is real estate real?

Is real estate real?

: Over at On The Media, Bob Garfield interviewed Daniel Gross about the purported real-state bubble. I have two quibbles:

First, Gross says (and Romenesko quotes) that real-estate editors won’t say bad things about real estate as if this is new:

Garfield: … At the risk of tossing you a softball, Dan, gee, why aren’t these stories on the real estate pages?

GROSS: Whether it’s subconscious or conscious on the part of the editors who run those sections, it doesn’t behoove you to speak ill of the product that your section is there to sell….

Uh, except, guys, in most newspapers the real estate “editor” isn’t an editor at all. Most real-estate sections — like most jobs and autos sections — are pure advertising sections not run by the newsroom or the paper’s editor and the content them is bought fluff. One can argue whether that’s right or wrong…. and come to a conclusion about the time print classifieds die anyway.

Second, in a show in which Garfield talks abouut the observer’s paradox — the observer having an impact on the observed — isn’t that true of bubble blather? Market prices are all about confidence and even mood and if you keep reporting that the mood is exhuberant and wrong and soon to burst, don’t you think that has an impact on that mood? Isn’t the cliched bubble-soon-to-burst story self-fulfilling reporting?

  • Chris Stephens

    My experience is the opposite. Talking about “bubbles” or any other possible peril for a financial market does not become a self fulfilling prophecy; it tends rather to innoculate the market against any immediate trouble. There is an old saying, “Markets climb a wall of worry.” It is only when all the worriers have finally capitulated, mortified by all the profits they didn’t make because they were being cautious while everyone else was climbing on the gravy train, that bubbles burst. The real problem for the housing market will be when commentators on cable shows start explaining how there really never was a housing bubble. At that moment there will suddenly be a complete absence of buyers for condos in Florida.

  • http://www.tyndallreport.com Andrew Tyndall

    I agree with Chris Stephens. Instead of theorizing that reporting on a soon-to-burst bubble might amount to a self-fulfilling prophecy, as they say on CNBC’s Squawk Box, “a watched bubble never bursts.”
    Rather than inspecting real-estate journalism as an indicator of speculative excess (or lack of it), it may be more instructive to note that in the past few years real estate has become TV entertainment (Trading Places, Extreme Makeover Home Edition).
    Often the media hype that surrounds a financial bubble is indirect rather than literal. That was certainly the case in 1999 as the hi-tech bubble was inflating. The big news story back then was the looming threat of the Y2K bug, which served (intentionally or not) as a compelling marketing tool for accelerated investment in IT resulting in vast overcapacity once the Millennium arrived.
    Turning home improvement shows from the staid old This Old House to self-help personal transformation metaphors may also serve to inflate a property bubble.

  • Patricia

    Yes, Chris, it alerts people to a danger and that’s about it.
    In CA they say “bubble” because no real estate page talks about what’s driving up prices: an influx of immigrants from Asia and south of our border who are willing to live with extended families. I’m in an county in transition, mostly people over 60 done with raising kids and moving on. The buyers are inevitably extended families (or a new phenomenon, a single owner and a de facto boarding house) because middle class people of all races prefer their own place. So before they start their families, they leave the area.
    If immigration is curtailed, the prices will collapse–or return to a level that allows one paycheck to move up.

  • Brian H

    Most of these prognosticators are, I strongly suspect, trying to cause the result they are predicting. Partly that’s the powerful human drive to be proven right and your opponents wrong, but it’s also a need to affect the way the world runs — whether the means are disguised, covert, and destructive, or witlessly hopeful, or a balanced effort to avoid or mitigate potential problems.
    Eventually, all predictions about market movement come true. That’s why they’re generally useless without fairly accurate timing, and very, very, few achieve that.

  • http://www.dlorenzo.blogs.com Dave L

    Talking about the bubble will not make it burst. The real estate bubble is being driven by economics. Interest rates are still relatively low so people can afford more house today than they could say three years ago.
    Saying that the bubble will burst soon draws attention to the real estate market and helps fuel further investment. People donít want to miss out on a good thing. Most people read bubble bursting comments and they figure it wonít happen to them.
    Check out: http://dlorenzo.blogs.com/daves_blog/2005/06/bubble_trouble_.html
    for a description of what the ìbursting bubbleî will look like. Itís not that scary if you have a good plan.

  • HA

    The answer is emphatically NO! Nyet! Non!
    It isn’t real if we don’t OWN it. And we don’t own it, we rent it from government. Try not paying your property taxes, Jeff, and see how long it takes to get evicted and see your “property” seized.
    Heck, even if you pay your property taxes, some government entity may still seize your “property” under eminent doman and give it to some other private (presumably well-connected) party that they think will bring more money into government coffers. All for the greater good, of course. From each according to his ability and all that.
    If we want real estate to really be real, we should eliminate ALL property taxes. We also need to eliminate gross abuses of eminent domain and restrict it to uses for public infrastructure.

  • ronbo

    Why would commentators want to talk down the real estate market? Possibly, of course, to spare their inferiors the consequences of reckless investing. Also, perhaps, to demonstrate the unsustainability of the administration’s monetary policies.
    But those who are talking down the market have several hurdles to overcome. First, it’s very difficult to ask people to disregard what is happening right in front of them. And what is happening is a real estate market that doesn’t look like a bubble – at least not everywhere, and at least not yet.
    Second, it’s generally unproductive to be condescending toward other adults. People who are participating in the real estate market are making rational (if not ideal) choices; they aren’t children running with scissors.
    Finally, your comment that “[m]arket prices are all about confidence and even mood” overlooks the many factors, such as the cost of capital, that probably have little to do with emotional drivers. Obviously, other important factors, such as perceptions of and tolerance for risk, are largely emotionally driven.
    Please don’t misunderstand my position: I happen to believe that real estate is over-bought in many areas and I look forward to a correction. I also think that there are fundamental reasons, such as rent controls and high incomes, that account for much of the price inflation in places like NYC. But I also think that politically motivated jaw-jaw is as ineffective as it is irresponsible.

  • HA

    Ronbo,
    Why would commentators want to talk down the real estate market?
    Maybe because they want to BUY real estate?
    Debating the price of real estate is not irresponsible. Its called a market. And in markets, people haggle over price.
    Smearing the men and women serving our nation at Gitmo by equating them to the Nazis, Soviets and Khmer Rouge as number 2 Senate Democrat Dick Durbin did? Now THAT is irresponsible.

  • Aluvius

    On the other hand, hijacking a real estate thread to quote the latest right wing talking point smear is the height of responsibility.

  • http://marginalizingmorons.blogspot.com/ CaptiousNut

    Hey aluvious, that wasn’t a “hijack”, it was merely a non sequitur. Ratchet down YOUR rhetoric.
    On real estate, who cares what pundits, your neighbors, or anyone else “thinks” about real estate prices? Caveat emptor.
    Trust your own instincts. Are your dumbest friends buying their first homes, like mine? If so…..
    Also, for a pretty good thread on real estate, the glaring omission is the prevalance (50%) of adjustable-rate mortgage products.
    I don’t care if mythical “immigrants”, speculators, or yuppies are buying homes. Borrowing at adjustable rates is like buying bulletin board stocks on your credit card, especially at today’s (or last year’s) prices.
    http://marginalizingmorons.blogspot.com/2005/06/real-estate-hot-potatobuy-versus-rent.html