[extropy-chat] Housing bubble looking good

Hal Finney hal at finney.org
Thu Mar 9 04:51:23 UTC 2006

Apologies for the U.S.-centric nature of this post, but here is some
interesting data on the so-called "housing bubble" which has been much
discussed in this country.  Is the housing bubble bursting?  Is it about
to burst?  There are many websites tracking this phenomenon and mostly
predicting bad things, from what I have read.

So what about the people whose business it is to know: homeowners, and
home buyers?  The Los Angeles times published a poll today reflecting
what people expect with regard to housing prices:


According to the data, housing prices nationwide have risen 36% over
the past three years.  The poll asked what respondents (75% of whom were
homeowners) what they expected over the next three years (question 35).
Interestingly, the results for the whole sample and for just homeowners
were the same to a percentage point:

No appreciation		 5%
Less than 5%		12%
5% to 15%		49%
16% to 30%		19%
31% to 45%		 3%
More than 45%		 3%
Don't know		 9%

So half of homeowners expect 5 to 15% over the next three years,
less than the 36% over the previous three, but still a solid gain.
Another 25% foresee a more than 15% rise.

Another question where the respondents seemed to differ from the
conventional wisdom was Q16: 'Which of the following statements comes
closest to your view: "The Federal Reserve will continue to increase
interest rates throughout the year," or "The Federal Reserve will soon
stop raising interest rates and keep them at the current level," or"The
Federal Reserve will start cutting interest rates this year"?'  I think
most economists forecast that the Fed will soon stop raising rates, but
the most popular answer was the first.  48% said they expected the Fed
to keep raising rates; 30% said they would soon stop raising them and
keep them level, and 9% said they thought they would start cutting rates.

While I would not always credit polls, since people often have no
particular incentive to inform themselves of the issues, in this case
I think the answers are credible.  Every homeowner I know thinks about
what their house is worth.  It is a frequent topic of conversation.  To a
significant degree, people plan their lives around their expectations for
the housing market.  While we can't be sure that they were completely
honest with the pollster (many of the questions were really hard and
this was the 3nd to last), I don't see much reason they would lie.
Same with interest rates, everybody wants and needs to know what is
happening with those, for financial planning.

Then of course there is the still-controversial notion that people do in
fact do a pretty good job of running their lives, and that when things
matter, they are able to come up with good estimations and predictions.
Many people cling to a comfortable sense of superiority and scorn towards
the average person.  The cypherpunks used to love to derive the public as
"sheeple".  My studies suggest that in fact these kinds of consensus
opinions are actually a very strong and reliable method of forecasting.

There is also a futures market which can be used to predict what the Fed
will do, but it only goes out a couple of months.  Every Monday you can
read the latest market forecast at:


So far it is predicting the Fed will continue to raise rates at least
through May, and it's on the fence about June.

The overall message from the Times poll was very encouraging, if we
believe in this methodology.  Contrary to the doomsayers who get so
much publicity, the consensus opinion among homeowners and potential
homebuyers is that housing prices will continue to rise, probably at a
more moderate rate.  Good news.


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