Is Housing Inherently Bubbly?


Mike Konczal on how to spot a bubble:

In my personal opinion, in the same way middle-class people turned amateur stock analysts was the sign of a tech bubble, or middle-class people turned amateur realtors was the sign of a housing bubble, middle-class people turned amateur credit risk analysts and credit channel intermediaries was the surest sign of a credit bubble.

Adam Ozimek calls this the Beware of Amateurs rule. It strikes me as a particular problem with real estate. Most of the time the vast majority of stock trading is being done by professionals. And you can imagine a world in which average middle class people all wise up and have their money in index funds or we revive defined benefit pensions or the like. But housing, as currently done in the United States, is more or less necessarily a market of amateur investors.

You could imagine a future world in which the vast majority of people rented homes from one of a dozen large nationwide real estate management firms and thus most buying and selling of real estate was conducted by professionals. But that would be a very different world from the one we live in, and getting there would require a large number of changes to tax law, various regulations, and a sweeping transformation of social mores. Until then, you’re looking at tons and tons and tons of amateurs making highly leveraged investments. It strikes me as an inherently dicey situation.