Real Estate - Is It a Top?
Three weeks -- three magazine covers. First, Fortune magazine has a cover article on America's real estate mania. The next week, TIME magazine. This week, the Economist reports on the worldwide housing boom.
Anyone familiar with the financial markets knows that popular press magazine covers are famously contrarian indicators. When something becomes so-well "known" that it warrants cover-stories in the popular press, usually the trend has reached its end.
However, the odd thing is that all three magazines struck a skeptical tone. In fact, the Economist's cover story was entirely negative, with the cover reading: "House Prices: After the Fall", and the first two sentences read: "The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops."
Fortune and TIME both dutifully reported on the mania and excitement (e.g. people buying a condo for $425,000 and then turning and reselling it for $525,000 literally an hour later. No joke.) But both wondered if things might not be getting a bit too 'crazy', and if there might be any similarity to the Nasdaq bubble and subsequent burst.
So here's the question: if the popular magazine covers are still skeptical, then, by contrarian logic does this mean that the housing boom still has a ways to run?
One interesting fact: An increase in real estate bank loans account for about 2/3rds of the increase in overall bank credit over the last 12 months. Real estate bank loans have increased an astounding 15% year-over-year. Meanwhile, the median house price in the US has risen a record 15% over the past year. Coincidence? Well, there's no necessity for the numbers to be identical, but it makes sense that they would be somewhat proportional -- and both at record levels.
It's a classic credit boom in progress, exhibiting all the characteristics that Austrian business cycle theory describes. (See Ludwig von Mises, "Human Action" and "Theory of Money and Credit"; and Friedrich Hayek, "Prices and Production")