Herd About the Housing Bubble?
Yesterday econ/real estate guru Robert Schiller penned an article for the Times examining why Greenspan, market experts and individual investors didn’t see warning signs of the disastrous housing bubble: The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United…
Yesterday econ/real estate guru Robert Schiller penned an article for the Times examining why Greenspan, market experts and individual investors didn’t see warning signs of the disastrous housing bubble:
The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks. Were all these people stupid? It can’t be. We have to consider the possibility that perfectly rational people can get caught up in a bubble.
Schiller concludes that the lack of foresight about the bubble has to do with “herd behavior” and “information cascade,” whereby rational investors’ individual decisions add up based on incomplete info. The phenomenon helps explain why an entire nation would be under the thrall of the notion that housing=a great investment. A cascade is possible when a whole country buys into the same belief despite individual analysis that refutes prevailing wisdom. The result? Rising prices and a big bad bubble. So what’s next? “It is now possible that a downward cascade will develop — in which rational individuals become excessively pessimistic as they see others bidding down home prices to abnormally low levels,” writes Schiller.
How a Bubble Stayed Under the Radar [NY Times]
Collage by Amy Jaz.
Interesting how some folks can’t seem to make a point without using profanity or is it that perhaps they believe it gives more weight to their meager thoughts?
“Problem for the rest of the country, but not so much for Manhattan and Brownstone Brooklyn.”
Uhhh…brownstoner seems to be preoccupied with it. It’s a problem for Brownstone Brooklyn. If our market was not influenced by a global credit OD, then why didn’t it take off sooner than 2001?
I know several people who have sold recently in Brooklyn prime and Manhattan and have bought places in NY suburbs in NJ or NY.
They were able to get much more for their money as the NYC RE sold at top price, and the suburban properties were softer.
In each case, these people were able to buy a suburban property that was significantly nicer than they were able to buy over the past several years.
Naysayers like The What only cry that the sky is falling, while others see opportunity and are making great deals on prime properties.
Just like the stock market, there are those who make money on the way up, but there are also those who make ALOT of money on the way down.
10:34,
I’m gonna rat you out to the REBNY. That’s plagiarism.
Interesting that not one article has been written about the opportunity created by the fact that some markets are tanking and others are not.
For example, an owner of multiple Manhattan properties could sell one property at market rates which have not yet dipped, and then use the proceeds of that sale to shop for deals in markets which have tanked.
There is a lot of opportunity in RE now for those who dont need financing. For example, you can buy a home in Florida or Vegas now for $1.4 to $1.5 that last year listed for over $2 million.
There is opporunity in any market that is going through desparate changes.
“And it is now possible that a downward cascade will develop — in which rational individuals become excessively pessimistic as they see others bidding down home prices to abnormally low levels.”
Market overshot at the top and will most certainly overshoot on the way down. Irrational exuberance/herd mentality works both ways. A day will come when The What calls you a fucknozzle for not scooping up Bed Stuy brownstones for $250K.
Master of the Obvious award goes to Brownstoner!!!!! Yay, Woo Hoo!!!
http://home.satx.rr.com/jm1/master/index.htm
Yeah fucking right. I find it funny people and MSM are saying “I knew it was a bubble” or putting out stories about it. This is so fucking disingenuous!!
Sad that the assfucks are behind the curve. We are in credit crunch mode and major institutions are insolvent (Citi, WaMU, Wacovia and UBS).
For the fucking clueless: We are in crash mode, Yes in crash mode! It might happen today of 9 months from now but, mark my words it’s going to be real bad.
The What
Someday this war is gonna end…
Schiller — like a stopped clock — has to be right once in a while.
I mean, if you write a zillion columns, surely something will be true at some time.
Problem for the rest of the country, but not so much for Manhattan and Brownstone Brooklyn. Too many rich people, too much pent up demand, not enough new supply.
Only may become an issue if people begin to realize that a Million Dollar beach front home in Miami is nicer than a Million Dollar home in Sunset Park.