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

Published on Thursday December 17, 2009 at 10:32 am

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.

Mortgage Calculator: It seems both the housing bubble and its bursting have been characterized by important regional disparities, so it’s not really meaningful to make generalizations on a national basis. Do you think that the recovery, whenever it cements itself, will also adhere to this pattern. Based on the data that you diligently display on your website, are their some markets that you would avoid, but other areas that you would gravitate to?

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.

Mortgage Calculator: You recently alluded to the “shadow inventory,” whereby lenders are hoarding houses to avoid dumping them onto a depressed market. Is its fair to say that you think the offloading of this inventory will cause housing prices to resume their downward path?

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.

Mortgage Calculator: What do you think it will take for people to accept the notion that home prices don’t appreciate much faster than the rate of inflation, over a long-term period of time?
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.

Mortgage Calculator: Do you generally believe that renting is more economical (and more sensible!) than buying, even when the ratio of rent to home prices is more in line with long-term averages?

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.

Mortgage Calculator: How would you reconcile government and seller incentives and low interest rates with the possibility that home prices could fall further, when advising someone thinking about buying their first home? Would you advise them to buy, wait for a while, or wait forever?
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.
Posted by Adam | in Interviews | No Comments »


Homeowners May Want to Refinance While Rates Are Low

US 10-year Treasury rates have recently fallen to all-time record lows due to the spread of coronavirus driving a risk off sentiment, with other financial rates falling in tandem. Homeowners who buy or refinance at today's low rates may benefit from recent rate volatility.

The following table shows current 30-year mortgage refinance rates available in . You can use the menus to select other loan durations, alter the loan amount. or change your location.


Leave a Reply

Free Mortgage Calculator for Your Website!

Would your customers benefit from a free mortgage calculator on your website? Learn how to add a calculator to your website in less than a minute - FREE!