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Bubble Day
by Stephen Roach @ Morgan Stanley
See: link

Today's Real Estate
by Henry S. Harrison @ Real Estate Magazine Online (site)
(Free with registration)
Ten More Years of Housing Boom See: link
Early Warning Signs: Is the Housing Boom Nearly Over? See: link
The Future of Residential Appraising See: link
Take Two: Fannie Mae Test Form Update -- Problems Still Not Corrected See: link
Revised URAR Test Form 11/04 See: link
Our previous 4Rs on Henry S. Harrison: Opening Up Pandora's Box

EDITOR'S COMMENTS
by Ole Bear

Roach and Harrison Get It! in Parallel Universes

Victorian American Dream Home
Washington, Franklin County, Missouri

The real estate market is a conglomeration of many local markets where local conditions dominate. Thus, any bubbles that might emerge would tend to be local, not national, in scope. -- Sir Alan Greenspan, c. 2004

I don't think we have a bubble in house prices. First, let's remember it's very difficult to get one. Unlike stocks, where you have a single market, low transaction costs and an ability of people to pile on nationally and cumulatively, residential housing markets are all local. -- Sir Alan Greenspan, c. 2002

Yeah, right, Alan! I suppose all economic depressions are local as well and only happen in Japan

We previously featured the venerable Sir Henry of Harrison in one of our September 4Rs here at Realty Reality. He's one of my ultimate residential valuation gurus who's probably learned more and forgotten more in the realty valuation area than any of my compadres -- which in fact is a great compliment -- since he still knows more than the rest of us! Featuring editorials from the latest version of www.revmag.com alongside Bubble Day penned by the Morgan Stanley guru, Stephen Roach, is a nice treat. We have two parallel universes here. Both authors get it about real estate. Ask any Realtor about how good their market is and they will probably tell you: "Hot, dynamic, just great!" -- obviously they are not located in Denver or Las Vegas? -- and can't read the foreclosure section of their local newspaper! Back to Reading Basics 101: See Spot. See Jane. See Dick. See Spot Run. See Jane Run. See Dick Run. Fun with Spot, Dick, and Jane! Dear Reader, you get the picture.

The chief economist for the National Association of Realtors predicts another 10-year housing boom. We suggest he find a copy of the McGuffey's Readers and go back to school. Harrison was somewhat more polite in saying I don't think so. In Early Warning Signs, Harrison lays out some concrete arguments which tie in nicely with Roach's essay. In the essays on the new and improved Fannie Mae test form essays, Harrison says basically: Nice try, Fannie Mae, it still ain't right! In our opinion, the new versions of the forms for realty valuation are a ploy to weaken the valuation reporting process, so they can bundle loans easier on properties they probably shouldn't be buying the loans on in the first place. If the truth be really known, Fannie Mae could care less about property flipping just as long as they can grow their shareholder value, get the extra bennies and perks for the bigwigs, and bundle all this worthless paper to the global investors. Coming out with a new 6 page form is ludicrous in the first place, since they are going to all want the new form for the same realty valuation fee -- more work for less pay! The new forms are also designed for further centralization and control of the realty valuation industry -- when I say jump, Boy! I mean jump high, Boy!

From Roach's Bubble Day:

• December 1, 2004 could well go down in history as yet another important milestone for America’s bubble-prone economy. No, I am not referring to the 162-point surge in the Dow Jones Industrial average that occurred on that day. Instead, my focus is on two widely overlooked statistical reports put out by US government statisticians -- the latest tallies on home prices and personal income. Collectively, these reports paint a worrisome picture of an asset economy that has now truly gone to excess. As was the case in early 2000 when Nasdaq was lurching toward 5000, denial is deep over the potential downside of yet another post-bubble shakeout. That’s what worries me the most.
• The just-released report on US house prices for the third quarter of 2004 was a shocker -- an 18.5% annualized surge from the second quarter and a 13.0% increase from year-earlier levels, according to the tabulation of the Office of Federal Housing Enterprise Oversight (OFHEO). That represents a stunning acceleration from the 9.8% Y-o-Y increase of the second quarter and pushes nationwide house price appreciation to a 25-year high. It’s an even larger rise in real, or inflation-adjusted, terms. The surge over the past year is now running nearly five times the 2.7% annualized increase of the non-housing components of the CPI.

Just read Roach's essay. Real estate always goes up, right? Neither Harrison nor Roach seem to think so. I agree with them.

Ole Bear, Editor

[Note: www.revmag.com is free to all. However, if you go to the homepage, there is a registration for access to the contents. Registration will provide the reader of email notification of new issues.]

© 2004 Ole Bear, Realty Reality