Saturday, March 22, 2008

Who benefits from a real-estate boom?

I hate real-estate booms. I lived through one in the northeast in my early twenties. In 3 years, condo prices declined 30% from their peak. By another 3 years, they were down close to 50% from peak. Beth and I were happy to escape to the inexpensive and dull Indiana real-estate market.

We lived in Indiana for a decade. There, prices increased between 0-3% per year. Housing was very affordable, even in the best suburbs of Indianapolis. We sold our house there for almost no gain, and moved to Minnesota in late 2002, well into the real-estate boom. We bought a slightly nicer house here for way more money, I would say 30-35% more.

I cursed the boom even then, but there wasn't anything to be done for it. With school-age kids, renting wasn't an appealing option. At least we bought a couple of years before the peak, so it could have been worse. But it reminded me of the boom from the late 80s. People were saying all the same things:
  • "they aren't making any more land"
  • "when is the last time real estate went down in value??"
  • "stretch to buy as much as you can afford, it is a great investment"
  • "what other kind of investment can you live in while it goes up in value?"
I knew it was a boom, and wouldn't go on for ever. I won't pretend I knew how big the bust would be. I was hoping for the idealized "soft landing"--no outright price crash, maybe just years of stagnation, as incomes catch up to inflated housing prices.

The rest is history, of course.

So as I think about the real-estate boom and subsequent bust, I wonder who has benefited, and who has lost out. I don't think a full boom-bust cycle is a zero-sum game, with a winner for every loser. That might be true of a modest boomlet, when there are a few really strong years, followed by a return to normalcy. But a real bust also involves huge waste of economic opportunity.

So this is my quick analysis of who benefits versus who loses in a real-estate boom.

Farmers and other landowners. They clearly benefit, if they sell during the boom. That's an easy one.

Builders. It would seem like builders boom. They do lots of business, and their unsold inventory keeps increasing in value. Except. The longer the boom goes on, the more a builder is likely to expand. So when the bubble bursts, the builder is likely to have lots and lots of inventory, that sits un-sold for months. So I think builders may be more likely to get hurt, in the end, than to benefit.

Existing homeowners. We need to sub-divide this group. First, let's consider exisiting homeowners who bought before the boom, and continued to own their house through the bust. They never realized their paper gains, so they are clearly not big winners. But it might be worse than that. They might have been suckered into thinking that their house was their retirement plan, so they may have under-saved and/or over-extended. So in a sense, they may well have been hurt by the boom, even if all the fallout was based on decisions under their control.

Then there are existing homeowners who bought before the boom, and sold during the boom. Although it would appear that these people are winners, not necessarily. Most people sell and trade up, in which case they would be worse off. Even retirees often don't really trade down. So it would only be a small subset of homeowners who sell, who come out ahead. Those who sell and rent, or sell and leave for a less-booming real estate market. There will be a small number of people who have lucky timing: were planning to sell and trade up, but saw the market sliding after they sold, but before they bought; or sold because they were getting a 2-year expatriate assignment, for example.

First-time or out-of-town buyers who bought during the boom. They are losers--they paid more than they would have in a calm, orderly market.

Would-be homeowners. People who would like to become first-time homeowners, but either can't afford to in the hot market, or are just afraid of buying in a hot market. They are losers, though maybe not as bad as the above group, because although they would prefer owning to renting in reasonable market conditions, the frenetic market keeps them out.

Parents of young adult children. Even if you are thrilled to see the value of your own house go up, is it really so great if your adult children can't afford to but their first house?

Plastic Bag Bans Over-Rated

A classic environmentalist distraction.

Tuesday, March 18, 2008

Bailouts

This guy makes a lot of sense. WAY more sense than those in business clamoring for government intervention and bailout. I have seen a large number of articles, where executives in the mortgage and related industries are urging some form of government intervention. Appalling.
Like their counterparts in Japan in the 1990s, American authorities may be deluding themselves into believing they can forestall the endgame of post-bubble adjustments. Government aid is being aimed, mistakenly, at maintaining unsustainably high rates of personal consumption. Yet that's precisely what got the United States into this mess in the first place — pushing down the savings rate, fostering a huge trade deficit and stretching consumers to take on an untenable amount of debt.

Booms

As mortgage lenders imploded and stock prices swooned last summer, a light bulb went off for Tim Houlne, chief executive of a Texas call-agent provider: "Bubbles always burst."

Mr. Houlne's realization attests to how, far from Wall Street, executives in other industries and their advisers are finding management lessons in the subprime-loan meltdown.

Among the key insights: Don't chase a boom without planning for the bust. Make sure subordinates feel safe delivering bad news. Ensure that incentive systems don't encourage excessive risk. And don't gloss over complicated details.

They ought to teach this stuff in schools. Seriously. I think the only possible cure for booms would be widespread consciousness-raising. Nobody wants to hear that during the boom.

Mark Inconsistent Formatting: A Very Annoying New MS-Word Feature

I have used MS Word for Windows for years, almost decades. Just recently, I started very consistently encountering entire documents with wavy blue lines under all the text. Similar to the very-familiar wavy red ones that highlight spelling problems (a brilliant feature), and the wavy green ones that denote possible grammar problems (an okay feature). When I would right-click, the top menu choice was "return formatting to match original" (or something like that).

After a few weeks of being very annoyed by that (I read lots of Word docs online at work) I finally rooted around the Options tabbed mega-dialog, and found where to turn it off. Put that innovation right up there with "Open in Reading Layout".

Now--More Mis-Spellings of Juneau

I live on Juneau drive. It is already enough of a problem getting people to spell it right. Many simply have no idea how to spell "Juneau, like in Alaska". Many others may have once known, but default to Juno because of the old free email pioneer. Now Juno the movie will just exacerbate that problem.

Things Parents Should Deny Their Kids Even If They Can Afford Them

This article talks about how bad it is to have a TV in the bedroom. Also on my personal list: cell phones. That one eventually becomes hard to resist, but at least, for goodness' sake, don't go out of your way to hurry and get your kid a phone, just because it hardly adds anything to your monthly bill. The cell phone is very disruptive, in that you no longer know who is calling your kids. I know, email and IM is similar, but at least a lot of that takes place in the house (and you can always install spyware).

That's one of the challenges living in an affluent community--for so many parents, the only calculation is "is it affordable?"

How Is Ortho Insurance Like Rebates and Gift Cards?

My daughter got orthodontia last year. We had ortho insurance, which hardly covers the cost, but it does help defray it some. The bill for the ortho is very front-loaded, however, whereas the ortho insurance only pays out 1/3 of its total each year. But as far as I can tell, there is nothing to get the insurer to automatically pay the next year's installment (assuming you are still covered). I had to work pretty hard to get it re-submitted and paid. Which makes me wonder--how many $ or legitimate ortho claims never get paid, because the insured doesn't remember (or even know) that they have to re-submit in years 2 and 3?

Photo Forgery Detection

I've thought this would be a cool field to specialize in.

Wii Fitness--why can't MS and Sony retrofit Wii sensors?

It still seems to me like the Wii-style motion-sensors could be retro-fitted into XBox and PS/3.

Tuesday, March 11, 2008

Oh Thank Goodness

I don't pay a lot of attention to college sports. But I turned on ESPN while stretching, and Butler was playing Cleveland State. The announcers kept talking about how it was an important matchup in the Verizon League. I had never heard of the Verizon League, but my first reaction was "this is just taking naming rights way too far". So I looked it up on the web. Fortunately, it is the Horizon League. Whew.

Sunday, March 02, 2008

A Matter of Trust: Bigger Volume = Savings

I consider it a breach of trust when the unit price for a larger size of a product is higher than for a smaller size. As a consumer, I want to be able to take the mental shortcut of assuming that there will be some savings by buying in volume. So if I need the larger volume anyway, I shouldn't have to bother comparing the price to the smaller size(s). Sales or promotions are an exception, but in those cases, at least I have the signage to alert me to the fact that I might want to take the time to compare.

It doesn't happen too often that this rule if violated, but it does happen. Today at Wal-Mart the 8.5-oz size of Jet Dry was less than half the cost of the 16 oz size, no promotions involved. I personally view that as unethical behavior on the part of the retailer, and it does make me think less favorably of them (for what that is worth!).