"I could think of effervescence"

The general purpose of this blog is to post only stories relating specifically to the Seattle real estate / housing bubble, but Ben Jones pointed out an article on Bankrate.com that was just too good to pass up. It highlights people who have sold their homes and are renting while they wait out the bubble.

The American Dream comes with a twist for Dean Baker. Convinced that he lived in a housing bubble and that property values would crash, the economist sold his condominium and rented a similar condo two blocks away. Now he waits for prices to plunge so he can scoop up a new place at a bargain price.

Call Baker a bubble sitter. He and others have taken themselves out of the homeownership game. Now they sit on the sidelines, renting and waiting for a housing bubble pop.
…
Amid their diversity, bubble sitters have something in common: They think home values have risen too high, that they will fall, and that homeowners will get burned. So they sell their homes and become renters.

The article goes on to quote various economists on both sides of the bubble debate, but my favorite quote is by far this one (emphasis mine):

High home prices… worry Alan Greenspan, chairman of the Federal Reserve. In his June testimony before the congressional Joint Economic Committee, Greenspan said: “Although a bubble in home prices for the nation, as a whole, does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.”

Froth. Not a bubble. A bunch of cute, tiny bubbles.

Harmless little bubbles, enthuses David Lereah, chief economist for the National Association of Realtors: “Yes, there’s froth in the markets, but froth can be healthy,” he says. “It’s not necessarily a bad word. When I think of froth, I could think of effervescence rather than some popping of bubbles.“

I actually laughed out loud at that one. Yes, Alan Greenspan’s “froth” comment wasn’t warning us about bubbles, it was pointing out the fabulous “effervescence” of today’s market! That’s the ticket. I don’t know if I’ve ever seen a more amusing example of someone in denial. Of course, the “economist” portion of his title is not quite as important as the “Realtors” portion, so it’s pretty much expected that he’s going to twist things in that direction.

Also be sure to check out their interactive map, where you can compare the price increase in houses over the last five years to the price increase in rent for various cities across the country. You can see on the map that Seattle is actually one of the saner markets in the country, where prices have increased “just” 38.7%, vs. rent’s increase of 9%. Compared to many other markets, like the Bay Area’s 66.8%/16.3% or Honolulu’s 71.8%/9.6%, our market looks positively pedestrian. I think it is still a bubble of course, just not as big of a bubble.

There, see? I guess I did relate this post to Seattle after all. *wink*

(Holden Lewis, Bankrate.com, 08.25.2005)