Bubble-backer changes tune..

A few days ago, I posted up a piece titled “Debunking another real estate puff piece”. It was a pretty harsh criticism of a piece by Warren Boroson, especially critical of those he quoted. I sent an email to Mr. Boroson inviting him to the blog, and he did respond to my email with a few questions. I sent a rather lengthy reply to him, but had not yet heard back.

This afternoon, lo and behold, I came across a new piece by Mr. Boroson:

Housing bubble may be deflating just a bit, experts say

I wonder if we have actually gotten through to someone? I’d like to think that we had some role in changing his outlook. The tone of this article is signficantly different from his last piece. Thanks Mr. Boroson, this piece is much more neutral, and does carry some warnings..

Here are some notable paragraphs..

Maybe house prices finally are coming down.

Jean Gascoigne, an agent for 40 years and a broker for 38, reports that she has never seen as many price reductions as she has seen recently.

And it isn’t just the highest-price houses that are taking a hit, she reports.

Might the price stabilization just be seasonal?

“The big offices don’t want to admit that prices are leveling off and maybe going south,” she said.

Some have made good money, he granted. Everything will be fine until the music stops and someone is left standing.

I’d like to send out special thanks to Jean Gascoigne, the broker quoted above, for her honesty in reporting the truth behind the current market.

Caveat Emptor,

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19 Responses to Bubble-backer changes tune..

  1. Grim Ghost says:

    The cited price ($599 K) for Mountain Lakes (one of the wealthiest towns in NJ) isn’t bad at all unless the house is really small.

    Incidentally, the West Orange realtor could use some Math lessons. He mentions a house that sold for $288000 in 1986, worth $425K now. That is only a 2% increase over 19 years, well below the rate of inflation. And that is touted as an example of rising housing prices.

    Incidentally, he also doesn’t think that prices in West Orange will fall 10%. Newsflash — West Orange is now becoming a buyers market. There is a huge amount of inventory on the market, houses aren’t selling.

  2. Good Job Grim.

    But I have this nagging concern about helicopter Ben.

    He really doesn’t believe in inflation.

    So my feeling is that Bubble might last much longer than expected.

    Talking to a few real estate agents, they believe that housing price is going down now but will pick up once Ben is in a driver’s seat.

    What do you think about that?

  3. grim says:

    I admit, I originally thought the same. However, I don’t think so. Why? Greenspans conundrum. The fact that outside buyers were keeping the 10Y yield and mortgage low, irrespective of how much Al cranked up the short term rate. If those same buyers feel that Ben won’t protect the currency (keeping short term rates high), they’ll dump those securities, sending yields up, forcing mortgage rates very high.

    So, there you have it. It’s going to go from Greenspans conundrum to Bernankes Mexican Standoff. Ben is going to have to keep the scales balanced to keep our economy together. If he thinks all it takes is a tweak of a rate or an inflation target to keep the economy together, he’s going to be in for a shock.

    Lastly, should he manage to keep the balance, if the housing market does crash, he’ll be unable to drop short term rates immediately. Why? He stated that it’s not their place to deflate or protect asset prices, only the currency and economy. Thus, he’ll be unable to drop rates until we see a real drop in consumer spending, etc etc. Which, IMHO, will be much too late to protect the bubble. I’m sure he’ll quickly learn that dropping short term rates will only scare off the foreign buyers, further exacerbating the fall.

    Ben didn’t get a promotion, he got pushed into the line of fire.


  4. Anonymous says:

    Good job Mr. Boronson and Grim.

    I congratulate you both for trying to inform/help those that are getting RIPPED OFF by the Real Estate Industry.

  5. Jay says:

    I like this RE agent’s spin on increasing inventory.

    “A good time to buy?…These days, prices are evening out and real estate supply is up more than 17% over this time last year. This means there’s plenty of property to go around.”


    Thanks grim for starting this page and to all the users that post informative blogs. Seeing raw data and trends are a real eye opener and are a lot harder to spin than the word “bubble”.

  6. “Newsflash — West Orange is now becoming a buyers market. There is a huge amount of inventory on the market, houses aren’t selling.”

    who would want to live in West Orange period?

    Mountain Lakes is definitely a choice town (great schools too), but any home selling for 599K (in todays $’s) is probably reflecting the value of the land. it’s a safe bet the house is either tiny or a dump or both.

  7. “But I have this nagging concern about helicopter Ben.

    He really doesn’t believe in inflation.”

    personally, I still have a strong belief we’re in the tail-end of the “real” inflation cycle.

    the CPI has been rigged for years (hedonics/core/substitutions/RENT equivalents etc.) understating inflation.

    the ironic thing is, CPI moving foward won’t even detect the deflationary forces from the RE fallout, since rent equivalents is all thats calculated.

    so rising energy & food costs should give Bennie his 2 to 3% inflation target without any problems.

    i’m convinced the FED will protect our world reserve status & let our economy take its much needed medicine.

    I wouldn’t bet on rate cuts anytime soon IMHO.

  8. Richie says:

    There is no need for any more rate cuts; the reason rates were cut so many times was to boost spending. Well, that worked. Cars were going for 0% financing. That’s outrageous. 30yr mortgages dropped to around 5%. That’s unreal.

    I personally think it’s very unhealthy to have such low rates. People’s savings accounts are making pennies these days; it does not promote saving for the future in any way.

    First time home buyers are completely squeezed out of most competitive markets. They are forced farther away from the metropolitan areas, and have to live with 1-2 hour commutes to & from work. This puts an extreme challenge on family life.


  9. Gravitymatters,

    “personally, I still have a strong belief we’re in the tail-end of the “real” inflation cycle. ”

    I personally think that we are at the Beginning of the Inflation Cycle.

    It’s going to get worse.

  10. Richard says:

    west orange isn’t a nice place. i have no idea why someone would want to live there. anyone ever see those 2-3 bedroom circa 1980’s townhouses with the dark brown wood siding going in the hi-$500’s, $11k in taxes with $400 a month maint? people must be on crack.

  11. grim says:


    This link is for you..


    Seems that there are many other people that think Bernanke is in a world of trouble. No matter how he cranks the rate, it won’t matter, because the foreign bond market has got us by the..


  12. grim,

    an interesting article.

    I read somewhere that Uncle Ben might raise the interest rate higher than expected to let the world know that he is tough on inflation to allay the fear.

  13. “I personally think that we are at the Beginning of the Inflation Cycle.”

    maybe from joe & jane sixpack’s perspective? but like everything else, they’re way behind the curve.
    the government has been cooking the CPI #’s for 20+ years.

    I still don’t see how it will show up in the CPI (other than healthcare which is a small % and food). if the RE bust creates a recession, that will temporarily cool commodity prices, do to less worldwide demand. JMO.

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