Don't Count on a Real Estate Crash Commentator Lou Barnes, a mortgage banker in Colorado, says that the self-appointed bubble police who point to interest rates and creative mortgages have it all wrong. It's location, location, location. And if you're waiting for the real estate crash, Barnes says, don't hold your breath.

Don't Count on a Real Estate Crash

Don't Count on a Real Estate Crash

  • Download
  • <iframe src="https://www.npr.org/player/embed/4755364/4755365" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

Commentator Lou Barnes, a mortgage banker in Colorado, says that the self-appointed bubble police who point to interest rates and creative mortgages have it all wrong. It's location, location, location. And if you're waiting for the real estate crash, Barnes says, don't hold your breath.

RENEE MONTAGNE, host:

Commentator Lou Barnes thinks all the recent talk in the media about a real estate bubble is just that, talk.

LOU BARNES:

I work in Boulder, Colorado, which is a test case for all the bubble theories. We had a huge home price boom in the late 1990s until the tech boom ended. People borrowed on interest only and adjustable rate mortgages and didn't have to prove their incomes. People bought with nothing down. Five years after the boom, anyone waiting for a real estate crash is still waiting. True, we've had some foreclosures, some due to bad lending, more to job losses. Prices have been flat for five years, just as they should be after a boom.

But even though Boulder has been on the lists of the overpriced housing markets, there's no blown bubble here. But bubbleologists shout that low interest rates and crazy mortgages have fueled even crazier speculation that easy money has doubled home prices and overextended buyers. That's not what I've observed. I've never seen a family buy a home they knew they couldn't afford just because they thought the price would go up.

The second thing the bubbleologists don't understand is land. It's no accident that the bubble zones are on the coasts, where there's no more beach now than there ever was and in job rich and land scarce places like Las Vegas. The population of the US is growing by three million people each year, elbowing for the fixed supply of good land. Bubble criers say that home prices have soared beyond the purchasing power of people with median incomes and renters. Of course they have. It's top income-earning families who compete for the best land, not median or lower earners.

The newest bubble accusation is runaway speculation in second homes and investment properties. I think here we find the real bubble, envy in the financial markets. The stock market is stuck where it was six years ago. Stockbrokers get a call a day from clients redeploying wealth from securities to real estate, so they shout, `Bubble,' and they say the Fed should put a stop to it. The guys who gave us the biggest bubble in financial history are now self-appointed bubble cops. Wall Streeters love to talk of investment principles: momentum, market timing, asset allocation and value. Millions of Americans are now using those same principles to take advantage of an epic mismatch between the huge growth in wealth and population vs. a fixed supply of good land, and the Wall Streeters call them irresponsible bubble-heads. The truth hated most on the Street: invest in a home, and even if you're wrong about prices, you get to live in it. Try that with an Enron stock certificate.

MONTAGNE: Lou Barnes is a mortgage banker in Colorado. He writes a weekly newsletter called Mortgage Credit News.

From NPR News, this is MORNING EDITION.

(Credits)

MONTAGNE: I'm Renee Montagne.

Copyright © 2005 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.