Is the bubble coming to an end?
August 30th, 2005 | by mbhunter |Bill Fleckenstein weighs in with the Contrarian Chronicles on MSN Money:
He thinks that this summer is the end — finito, kaputt, arrivederci — for the housing boom.
For every prediction, there’s always someone willing to take the other side. Presumably that’s the “Contrarian” part of these Chronicles.
Despite the WSJ using “new demographics” to explain the rise in condo prices, and despite thousands of people lining up to bid for property that most of them know nothing about from questionable companies, he thinks this madness is going to end this summer.
Man, I wish that I had a crystal ball. (Or maybe not — who wants to know the future?) But at the point when an investment seems the safest, it’s probably actually the most risky. When everyone and their brother thinks that real estate is the place to be, the smart money is already mostly out of real estate.
The frustrating thing about bubbles, manias, irrational exuberance, etc., is that they always seems to go on much longer than they “should.” The “curmudgeonly … sourpuss” doom-and-gloomers (like those that often frequent The Daily Reckoning) are the contrarians today, and on the face of it, they’re taking the “wrong” side of real estate right now, because they’re not making any money in it. (Granted, they’re not losing money in it, either.)
Their opinions are dismissed by most people, until they’re right, in which case everyone else is a fool and they were right all along. But, the real estate bulls could argue that the bears will be right, eventually, because markets don’t go up forever, and that “eventually” being right takes no real skill.
This might be true, but how long do you want to go with the pack and bet against the bears, and, if so, can you unload your skyrocketing, probably highly-leveraged properties in time? Just like an infant making its way to the edge of the bed for the first time at the exact moment when you step out of the room, the real-estate party can — and probably will — end when a lot of people are counting on home appreciation to continue just sitting in the middle of double digits right where it belongs.
I certainly don’t know. I just know that real estate now makes me really nervous. It’s not a good idea to be paddling furiously to avoid missing the boat.
