Chuck Ponzi June 12th, 2005

For those who have checked back, waiting for my next post, I thank you for your patience. I have been on quite a trip, and currently am in Ireland. During my travelling, I have continued to read as much as possible about the ongoing bubble in Southern California and the rest of the US. Reflection on my experiences reminds me of a quote by Douglas Adams:

“Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so.”

As I read, I find that the discussion of of a real estate bubble becomes more and more divided. Those on the “boom” camp, nearly almost always point to history (recent history only, the old stuff is boring to them), saying that the old rules are not important, and simply not worth looking at. Those on the “bust” camp nearly always rely on the “fundamentals” argument, citing examples of rents, wages, and interest rates. I find myself solidly in the “bust” side, thank you.

A great article came out recently highlighting something that surprised me before my travels to Europe: many of the world’s industrialized nations are experience extensive real estate price increases. What’s surprising is that the numbers are so much higher than their historical averages. The US has averaged 1.3% per year since 1971, but 13% in 2004, ten times the lst 35 years! Anecdotally, an acquaintance told me that his house in rural Ireland was worth 80K Euro when he bought it 8 years ago, but that it would now fetch a price of 700K Euro! He doesn’t plan on selling. Ireland has averaged 3.4% the last 35 years with 10.8% last year.

What we’re seeing is that real estate is a global obsession. The article from the New York times points out an interesting, but dangerous phenomenon. When the US cut interest rates, this did not only have an affect on the US economy, it affected the entire world by providing cheap money. Being in an increasingly global economy means we will not only affect our own asset prices, but those across the world. While this doesn’t mean I will be changing the blog to a global real estate bubble site, it would be useful to keep an eye on what is happening across the pond as well.

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