March 9, 2005
By Bill Fleckenstein
MSN Mondey Central
This week, I thought I might bloviate about the bubble in real estate -- the catalyst being a spectacular article in the March 2 edition of the New York Times titled "Speculators See Gold in a Boom in Home Prices."
About two years ago, I began writing on my Web site about the lunacy in the financing of housing, something I called the "housing hot potato." The evolution of this has allowed folks to use their homes as ATMs to live beyond their means. Now, as always happens near the end of bubbles, madness (in real estate) is on display nearly everywhere.
You needn't get far into the article to realize how magical real estate is perceived to be these days. (Remember, they're not making more of it.) To quote one of its subjects, Carlos Lidsky, who with his wife has been wheeling and dealing by trading real estate, "It is much better than the stock market. This is an extraordinary, phenomenally good result."
The writer has filled the story with psychological insights and anecdotes that could have been lifted from the peak of the stock-market mania. For example:
"Like the day traders of the 1990's dot-com boom, people are investing in a market that seems to just go up. Promoters use Web sites to attract investors, promising quick profits. One site, GetPreConstructionProfits.com, is run by a pair of investors who offer online training for $197. On their home page, they say people can earn over $100,000 in six months investing in 'un-built real estate.'"
SWEPT OFF THEIR (SQUARE) FEET
An intrepid friend told me that a friend of his knew the location of one of the site's listed "properties." From him, my friend learned of a sign posted there. It advised people that if they put down a deposit now, it would give them the right to buy whatever happens to be developed on this land. There's no mention of what type of property will be developed.
This is the functional equivalent of a blind pool: You put your money up, and you have no idea what it's going to be invested in. Take my word for it. You only see that mindset at the height of a craze, after it's gone on quite some time. That doesn't necessarily mean this is the last minute of it, but it's certainly very late in the game of real-estate speculation.
Other bubble-like symptoms are present as well, as the writer discusses what sounds like pre-IPO jockeying: "In Miami, the speculative craze is promoted in part by developers and brokers who help buyers to resell quickly. Brokers in Miami work overtime to get their clients into V.I.P. sales events before developers start pitching buildings to the public." So, there are flippers in real estate who get in on the ground floor and then sell to the public. It is very reminiscent of the IPO mania.
WELCOME TO AVARICE ESTATES
Of course, what's powering this psychology is the fact that real estate has appreciated mightily. (As one speculator is quoted: "It seems that real estate always goes up.") According to the story, the national median home price has increased by 33% since 2000. I'm sure that virtually everyone reading this has firsthand knowledge of even bigger gains.
http://moneycentral.msn.com/content/P108402.asp?Printer