Since Seinfeld went off the air and the housing bubble started inflating a few years back, water cooler chats have switched to real estate almost exclusively. Now that everyone is a real estate expert sitting on untold equity riches, you get to hear a lot of “wisdom”. But is it? Let’s see:
“I made $400K on my house over the past 3 years!”
Did you actually sell your house? If so, great. If not, your equity is nothing more than paper profit. How many paper millionaires have disappeared in NYSE crashes?
“House prices can only go up! They’re not making any more land!”
Unless all you care about is single-family residences, building a multi-story condo tower is essentially the same as making more land, and you can’t go anywhere in San Francisco these days without seeing a huge tower construction site. And more land does get built!
“House prices never decline nationwide!”
1) they are declining now: mean existing home sales price dropped from $275K in 6/05 to $266K in 3/06 (source: Nat’l Assn of Realtors).
2) they have in the past (1930s in the US; extreme circumstances, to be sure, but today’s conditions are extreme as well: wartime, oil prices, “the biggest bubble in history“, nonexistent personal savings, and an impending tidal wave of toxic ARM resets, among other factors)
3) there is simply no law in economics that says housing prices don’t drop. Just ask the Japanese.
I guess wisdom is in the eye of the beholder.
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