The Housing Market Crash

The Housing Market Crash

Author: Al Zan

In my family the topic of the housing market crash gets daily attention. It all really started when I read Sell Now!: The End of the Housing Bubble by John R Talbott last September. We had lived in our house for 8 years and had become quite comfortable. We lived in one of the big US cities where the real estate market run up had been most pronounced. As a result, we felt very lucky. This was influencing our purchasing decisions as the equity in our house was making us feel wealthier than we had before the run up in prices.

That all changed the day I read Sell Now! and started to think of the housing market crash possibilities. Up to this point, the idea of prices falling a little bit had crossed our minds. But in most social circles, the consensus was that things would flatten out, but not drop. Dr Talbott changed that viewpoint for us by systematically refuting the arguments that could possibly explain the extreme run up in prices we´d seen. Additionally, he outlined very credible data from Japan showing that a very similar phenomenon had happened 15 years ago.

The graphs were startling. They literally took the breath out of me. When you looked at the raw data, it didn´t look so bad. Just as the cocktail party conversations had suggested, the prices seemed to flatten out after previous run ups. However, the graphs showing real prices after adjusting for inflation were really bad. They looked like a bell curve. A steep UP and then a steep DOWN. And the implication was that we were sitting at the very top of the biggest curve in the last 100 years right then, in the 3rd quarter of 2006, poised for a dramatic ride down. Not good.

Dr Talbott brought me two new perspectives that we hadn´t had previously.

1. He helped me see the equity in our house as possibly more risky than the investments we had in the stock market. This viewpoint was generally contrary to the traditional view that building equity in your house was the safest possible way to grow a nest egg for retirement.
2. He opened our eyes to the possibility of renting a house rather than owning. This was something so remote in our minds that it was never even considered. However, upon a few weeks of data collection (looking at rentals online and in person) we came to the conclusion that we could get a BETTER house by renting for the same money, while reducing any risk as the equity would be out of our house and in the bank. What a strange situation.

Based on all of the above, we cleaned the house, got a Realtor and put up the sign. We sold our house in December, 2006 after 4 weeks of open houses.

So is the housing market crash really here now? Did we make the right move? It seems there is data to suggest that it´s actually starting. It began with permits falling. Permits for new construction are often seen as a leading indicator of future sales. Then the number of properties changing hands started to fall in late 2006. Prices have stayed relatively stable, which is somewhat surprising. However, there is wide speculation that people can´t change prices that easily given how leveraged many people are.

In the last few weeks it´s really started to hit the fan. We´ve seen some incredible press on the problems in the subprime lending markets. These are mortgages and other lending instruments that were granted to people with higher risk profiles. No surprise these are the first to default. My worry is that, like permits, this is another leading indicator of what´s to come. My bigger worry: Dr Talbott is being proved correct.

For our family, the housing market crash is a happy ending. However, we are not too happy as we know it has the potential to hurt many people we care about as well as do serious harm to the economy at large.

Al blogs on Internet business strategies and the psychology of being an Internet business person at http://www.bigblogmonkey.com/blog

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