A Stitch in Haste

Yesterday I blogged about the (possible) housing bubble that is drawing increasing attention by, um, everybody.

Today, we get some unhelpful noise from TCS Overlord James "Always Wrong" Glassman. (Remember "Dow 36,000"? The only thing dumber than the book was his half-hearted non-apology for it.)

Now he's fanning the flames of "What, us worry?" for the housing market:

Since 1950, according to data gathered by Freddie Mac, which provides financing for mortgage lenders, U.S. home prices overall have never declined over the course of any year.

Of course, they never went up 20%, 30% or even 50% in a single year either.

Skipping in and out of a house in a day or two isn't particularly feasible, and the vast majority of home buyers, unlike stock buyers, are in for the long haul.

Yet that's exactly what more and more people are doing: buying only for the sake of "flipping" in the anything but "long haul."

The house you live in is not an investment.

As I blogged yesterday, that's 100% wrong: an owned primary residence generates the cash flow of saved rent and therefore is an investment. But anyway, the concern is not over speculation in primary residences (although actually we're seeing that too, through maxing out home equity loans, second mortgages, etc.), but rather the fear of people purchasing multiple properties not to live in, not to generate rental income, but simply to "flip" for a quick profit. As I said yesterday, that's speculation of the worst kind (i.e., "up and only up" speculation).

And don't forget the consumer's best friend: the glorious 30-year fixed-rate mortgage. You can get a loan that's only slightly above the rate at which the U.S. government borrows.

But again, people are increasingly abandoning the traditional 30-year, 15% down model. They're instead leveraging up the wazoo with "innovative" interest-only, no-down-payment mortgages. The "stabilizing element" that Glassman invokes in real estate is the equity within the property. But the speculators have no equity in the properties, and no equity means no stability. The fact that lenders are increasingly relaxing credit standards doesn't help matters either.

Glassman tries to calm us with statistics from the past, while failing to see that the reason some of us are worrying is precisely because the past no longer applies the way it once did.

In any case, a very good rule of thumb is that whenever Glassman says "zig," you should immediately start zagging.