Interview with Somesh Gaur of Housing Bubble Bust: “Every market runs into exhaustion”

Today, we bring you an interview with Somesh Gaur, editor of Housing Bubble Bust, which takes a quantitative approach to understanding housing prices. The site also offers an excellent “Anatomy of the Housing Bubble” and data feeds on everything related to the housing market.

Mortgage Calculator: I’d like to begin by asking you about your background. What made you decide to join the ranks of housing bloggers? How would you summarize your approach to the (current) housing market, and how has your background informed this approach?

My professional training is in computer programming. Having survived the dot com bubble, when I started hearing about the housing market showing 20% appreciation, I was just drawn to investigate what looked like yet another bubble in the making. Applying abstract modelling as known in the programming field and mathematics, is how I have approached in analysing the housing bubble. And blogging became the way to publish my take on the issue.

The American psyche of  “home values always appreciate” is definitely a national phenomenon. It has played out in different degrees in different local markets, but they are built on the same underlying belief.

There is at least one market where the bubble has burst enough where it makes sense to buy, Fort Myers – Cape Coral in Florida. Cost of owning there is now significantly less than than renting an equivalent housing unit.

If I had to generalize, if in a given market the loss of home value is gonna be less than the cost of equivalent renting, one might buy if he really really wants to own a home. It would still be advisable to wait a couple years and rent for the time being.

As the bubble continues to burst the regional disparities will shrink.

Absolutely! It is not just the banks, but also home owners who are holding out for better market conditions. But it is primarily the banks that are in “pretend and extend” lying tactics ( and the regulators are enabling it) are holding off on selling distressed properties. Even now distressed sales are disproportionately high. As these distressed properties are unloaded, they will have to be continually discounted to sell, to a shrinking pool of qualified buyers.

Hope is a very powerful instinct. It has gotten us through tough times collectively as a human race, a nation, a society. Also in our own personal lives.  It is hard to say how or how long will it prevail in the housing market.

I think the real question should be how will the housing market react in a deflation? For decades the housing values have outpaced rate of inflation. Will they outpace the rate of deflation in the next decade? The housing depreciation of the last couple of years gives us a clue.

The historical average of the last couple decades was based in an inflationary environment. The same cannot be used when we are in a deflationary environment, when  [outstanding credit + money supply] continue to shrink.

Govt and seller incentives do not increase the housing demand. All they do is pull the demand forward. And after sometime you will start running out of buyers. Every market runs into exhaustion. The housing market was finding an equilibrium, but then the Govt tried to refuel it, creating further distortions. But every successive incentive has lesser and lesser effect. And soon the Govt will be (or already is ) out of bullets.