Housing Bubble Overblown?
Housing Bubble (WSJ) over the past 12 months or so. These theories try to draw conclusions based on the technology bubble bust of 1999-2000.
However, there are some key differences between assets. People, on a whole, treat their homes better than some vogue tech stock would ever treat an investor’s dollar.
During the period of the Internet Boom (1996-2000), people threw their extra, disposable income into mutual funds and the latest, hottest “IPO of the Week” tech stock. Some put more than just their “extra” income, and their pain was proportionally worse due to the level of risk they
assumed. Things seem as they should. Basically, people who grew up with Apple, Microsoft and Cisco tried to become them.
Alas, few did.
At first glance, the “housing bubble” seems to have a lot of similarities with the Internet Boom and bust. As the article referenced above states:
all assets are not alike.
People’s homes do not equal vaporware or vapor economics. When someone invested in a tech company, that money was spent on human resources, capital equipment and, yes, marketing. Common sense dictates that human resources only stay around as long as they are paid. Capital equipment depreciates, some very quickly. (Especially Sun servers.. Check EBay). And, Marketing…
Something I rarely hear people mention in the same breath as “Internet Boom” is the “Marketing Boom”.
During the latter part of the boom, I spent about 12 months in Seattle. Everyone seemed busy and bustling with ideas. It was fun and a rush.
As a consultant for various start-ups involving technology, we hustled from investor meeting to client pitch. A few of these shotgun meetings were with some top tier marketing firms around the Seattle area. These were the folks that, if they were savvy, cashing the checks from a wide choice of naive Internet start-ups.
Bottom line is, the so-called assets of technology companies were always based on the hope of valuable intellectual property and were a house of cards.
However, people spend hours working around the house, paying attention to the minutest of details. As anyone who has tried to avoid the SUV’s in a Lowe’s parking lot on a Saturday afternoon can attest, American’s love to spend money on their homes.
Taking a glance at the stock tickers of Home Depot, Lowes and other big-box home improvement big box stores confirms this trend. People aren’t investing in risky, vaporous services or products…but they are investing in their homes.. Spending money to improve their living space, in the case they don’t have the money later to spend on such luxuries.
At least, that’s my hope. My hope is that when interest rates do rise, and they will have to rise at some point, people will reduce the money they spend on frivolous house upgrades and be able continue to make their now considerably higher mortgage payments. Time will tell.
As someone who was in the thick of the Internet boom/bust period, does all of this alleviate my concerns that the real estate market will suffer the same fate as technology did in late 2000? Somewhat, but with the recent oil price spikes and volatility on the stock market, other factors are at play here that weren’t around in 1996-2000.
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