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Monday, March 07, 2005

US Housing Valuation Now 140% of GDP

"The peak of nearly 140% of GDP was reached by the equity market in the early months of 2000. That, happens to be where the current ratio of housing (aka household real-estate assets) is now, after an extended and almost vertical ascent."

It’s totally different in the real estate market than it is in the stock market.”
- Thomas Kuntz, CEO, Century 21, February 25, 2005

To the seasoned investor, four of the most dangerous words in the English language are “It’s different this time.” Five years ago, this country experienced the mania to end all manias for anything tech-related.

Manias share four common characteristics:

A feeding frenzy sends prices parabolic.

The public jumps in with both feet.

Valuations detach from economic reality.

Rationalizations abound for why valuations are reasonable and the trend will continue.

We are seeing all of these signs in todays housing market. Talk of a “New Economy” has been replaced by the politically-sanctioned euphemism “Ownership Society.” Then, as now, favorable demographics and an accommodative Fed were expected to keep the party going. "Bubbles and baths usually go together." And so, we might add, do burst bubbles and tears.

The Big Picture - 140% of GDP
Financial Sense Network: Honey I Shrunk The Net Worth


1 Comments:

At Wed Mar 16, 03:34:00 AM PST, Blogger Barry Ritholtz said...

This is a very astutue observation:

Manias share four common characteristics:

• A feeding frenzy sends prices parabolic.

• The public jumps in with both feet.

• Valuations detach from economic reality.

• Rationalizations abound for why valuations are reasonable and the trend will continue.


Problem with the so-called Real Estate bubble is that the market is so regional and illiquid, the impact will be felt very differently across the country. I expect the hottest areas to fall as much as 30% --

Is that a bubble popping or a retracement of outsized gains?

 

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