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June 20, 2005

The Bubble Bubble

Economistbrick300

Maybe it’s supposed to be a brick –  but a brick is solid.

Maybe it’s supposed to be a concrete block  — but a concrete block has a two hollow cells in the middle.

Maybe it’s supposed to be a basement extruded from the ground with the house removed — but a basement wouldn’t have sloping interior sides.

Or, maybe it’s something else.  Maybe a trough.  Yes, a real estate trough!

If there is no way to tell what this thing is, it could be because the
event everyone is predicting has been granted substance without a form.
At this point, it seems there isn’t a major news publication that hasn’t
gone on record as predicting a housing meltdown. In a funny way,
however, the media obsession only exemplifies a reverse version of the
same group think that took hold during the dot com mania. Only in this
case, the only thing certain is that the sky will fall.

If this brick-like thing indicates confusion about the nature of the
catastrophe, its altitude suggest just as much ambiguity about its
timing.

Consider the height of this object. Because the viewer is
situated at eye level with the clouds, and the thing is even higher
than that, this object is pretty high. (It’s like you were sitting in
the window seat of a large passenger jet and this was your view out of
the window.) The suggestion is that the meltdown might still be far
from hitting the ground.

As much as there is concern for the housing market, however, what these
incessant predictions are really about is fear. But not fear for the
housing market specifically, so much as the fear that yet another blow
might befall America that would once again catch people "out of the
know."

What I think TE really should have put on this cover
was not a building material-like object, but an actual bubble. Because
that is what people are expecting to burst. As a general defense, the
country has embraced the fantasy that nothing bad can happen — just as
long as we name the threat in advance, and then expect it to arrive.

(image: The Economist Magazine. June 18, 2005)

  • Rogie

    Looks like a sarcophagus to me.

  • http://www.wonkspot.com/wire Hubris Sonic

    who is the artist? maybe its a thing of this artist. strange.

  • http://www.wonkspot.com/wire Hubris Sonic

    and why doesnt it say housing prices, not the oddly sounding “house prices”

  • ad

    That’s a British brick, they look like that. And surely the height is perfect? House prices are in the stratosphere, while people wander around below on earth unaware that this speeding brick is going to hurtle from the clouds and clonk them on the head.

  • ad

    (House prices is the british phrasing)

  • Quentin

    ‘The incessant predictions are about [...] fear.’ No, they are about a wish by the part of the population which does read The Economist that the housing market collapses. More than half the people could not today afford to finance the house they live in, I read somewhere. Even couples with two, above-average salaries find it hard to pay for a house at the current prices, whereas their parents were able to buy houses, however modest, on the average salary of a single wage earner — that’s right, only one person had to go to work everyday from 9-5 to pay for a decent house. So what is going on? Where will poor people live in the future. I realize that the conversation is not about poor people. They don’t exist anymore. The Economist cover is not very convincing because I don’t think The Economist thinks – insofar as it does that – housing prices will fall precipitously. The Economist knows that the banks, insurance companies, real estate agents and speculators will not let that happen. So we come back to the central question: where will poor people live in the future. The answer: it doesn’t matter. On the street, in a shanty town, under a bridge. Good, captitalism is nifty, as they used to say in the heyday of Communism. Maybe The Economist decided it could sell more copies buy preying on peoples fear, but then, most people who read The Economist have nothing to fear.

  • http://blog.thought-mesh.net Annoying Old Guy

    Quentin;
    Where I live (small town, Midwest USA), I know many families personally who have a single parent working 9-5 and own a decent house. When my wife and I bought our house, the loan officer told us we could easily afford it on just one of our salaries.
    Now, there are certainly housing price bubbles but they’re regional phenomenon, not every where in the USA. Perhaps that best image would have been a map of bubbles in various sizes and readiness to burst.
    I have to agree with TheBAG, though, that one should expect housing prices to continue to rise if there’s such uniformity of opinion among the chatterati that they’ll fall. The dot com analogy immediately sprang to mind even before I read it in the post.

  • DHM

    It’s a standard British brick.
    The indent or depression on the topside is known as a ‘frog’ and is there to reduce weight and increase strength. Bricks are laid with the frog uppermost.

  • Matthew

    While I do appreciate what Quentin said about anyone who reads the Economist having nothing to fear, I can’t help but notice the biblical allusion, which, combined with the brick falling from the sky, register in me the feeling of impending doom and destruction.

  • Asta

    Perhaps if we shared some regional information to this impending real estate collapse (not the first time in our economic history) we might better understand the question of “where will poor families live”.
    I live in Pittsburgh and in my neighborhood, there is an 80 year old “farm house style” home for sale on 1.5 acres. What a steal at $160,000 for 2 BR, 1 bath, no hookups for a washer/dryer, oil heat/radiators, a 5′x6′ kitchen with no fridge/stove/oven (no cabinetry), well water, septic tank…you get the picture, maybe. This house could not comfortably accomodate a young family and yet, look at the price tag! Yikes!
    This is just one of the Handy Man’s Nightmares for sale out here for godawful prices. The prices here are so bad, the new owner would have to borrow a second mortgage to just update the home to somewhat modern standards. (Don’t ask me about my house…at least it’s paid for, that’s all I can say. I own the 60 year old twin farm house. Such a rustic joy.)
    Here contractors are now building what are basically double-wides and asking $160+ on 1/8 acres.
    Where are the poorer families going to live? Good question.
    Maybe if I were more enterprising, I would design and build some kind of structure to fit under highway overpasses to serve as a home, maybe portable built-to-last cardboard shelters to sit over sidewalk vents for warmth, maybe solar-powered tents to stretch across alley pathways…and donate the “homes” to the future homeless. Oh, and who are the future homeless?
    The educated and degreed who thought that interest-only loans were smart but turned out to be a fiscal catastrophe. They are so screwed. Their jobs got sent overseas. Who knew?
    Oh, and AOG, guess what, not everyone lives in Smalltown, Midwest, USA. In fact, not very many people live there at all anymore. They’re drifting away for jobs other than farming, so, yeah, there’s a buyer’s market in Kansas.
    So don’t get smug.
    There is a crisis on the horizon for the BoomTowns in this country and all us taxpayers will somehow end up paying for it.
    That includes you, AOG, whether you like it or not.

  • http://www.dailysandwich.blogspot.com/ Matt Sandwich

    I couldn’t tell you what that’s supposed to be, but I’m going to get myself some Pez. Haven’t had any in a while, and it doesn’t sound half bad…

  • 4Fold

    Assuming that the brick is rectangular, then the perspective is warped. I understand that the sides are sloped inwards, towards the bottom of the object as depicted. Even so, viewed from either directly above or directly below, a proper brick would appear rectangular. Not so in this case. No vantage point of perspective (in an airplane flying alongside, to use BAG’s example) could produce a view such as this. Similarly, with the lettering “House Prices”, there is a very slight warping of the planes of perspective, like a rippling effect. Also, there is indeterminate feature to the front face of the brick (the area directly under “Prices”) which I can’t figure out. Finally, the title “After the Fall” conflicts with the image (which clearly depicts a “fall” still in progress) and, I would imagine, with the article itself. I have not read the article but I would assume that it is all about the evidence for an impending burst of a real-estate bubble, thus the beginning of the fall, not the aftermath. All of these things generate some kind of subliminal tension in the image and I would presume that they are intentional. But why? I dont know.

  • http://www.portifex.com/BSPages/WhatsLove.htm R J Keefe

    The Economist is a very expensive must-read. I do wish that it would fire its illustrators and start afresh.
    The housing bubble would be rough if its bursting were nothing but a fall in prices. But it will be a disaster for owners who have been borrowing on their equity (or refinancing) and who have variable-rate mortgages.
    When you throw in rising oil prices, it’s not hard to imagine a scenario in which middle-class suburbanites can no longer afford to live where they do because of transportation costs, but cannot sell, either.
    And lawns!

  • Asta

    “Unbuilt Homes Sell Like Crazy”
    Saw this article this morning in the USAToday and it should give everyone a better idea of how crazy the real estate market has gotten.
    Some excerpts (without violating copyright laws):
    “The number of houses for sale even before they’re built has jumped 47% the past 12 months, adding to worries that overbuilding and speculation could bring the housing boom to a bust.
    The Census Bureau says that 88,000 houses were for sale but not yet started in April, the latest data available, vs. 60,000 a year earlier and 40,000 five years ago. The numbers track houses scheduled to be built in developments where buyers can view plans or models. April’s number is the highest since the government began tracking it in 1973.
    The appetite for new homes is strong: There is about a 4.1-month supply of new houses for sale, up just 0.1% from 12 months earlier. That’s low.
    But a glut of new houses could end the housing boom — and, possibly, stick builders and speculators with undeveloped property if the boom goes bust. “Builders have a long pipeline for development that will be difficult for them to shut down, even when demand begins to weaken,” says Mark Zandi, chief economist for Economy.com. “They are geared for growth, and it will be hard for them to pull back.”
    Another worry: Unbuilt homes for sale could be used for flipping, buying in hopes of selling for a quick profit. In pre-construction flipping, a speculator puts a deposit down on an unbuilt home and sells it on completion — or even before.
    …………
    So far, the increase in unsold, unbuilt houses hasn’t translated into a glut of homes for sale. But Zandi and others worry that unsold homes eventually will weigh on the market. “Builders are incredibly optimistic about long-term demographic fundamentals,” he says. “It suggests they won’t turn cautious when demand does begin to weaken.”
    Others see the rise as one more sign of a housing bubble, along with the sharp climb in interest-only and adjustable-rate mortgages. “It shows that we are where we’ve never been before,” says James Grant, editor of Grant’s Interest Rate Observer.”
    Actually, I think we have been here before — remember when the tech stock bubble burst?
    http://www.usatoday.com/money/perfi/housing/2005-06-20-unbuilt-usat_x.htm

  • http://asterism.blogspot.com Adil

    I won’t repeat what was said above about British bricks – but there is a cultural issue here. I live in London, UK and have about 50 of these things loose in my garden – everybody in London (home of the Economist) either lives in or next to a house made of these things and will immediately recognise that the picture is a brick. America – not so. In fact your misunderstanding of the picure shows a deeper division – a social one. The average house in London is 80 years old, in California a 30-year old house is considered ready for demolition. In London these bricks are appreciated – people will pay extra for good quality reclaimed Victorian bricks – America has moved on – this brick has long since become obsolete no longer socially recognised. There is also a political issue here – but maybe I’ll leave that to my own blog.

  • Asta

    Adil, it occurred to me this morning after reviewing the brick that such a brick would be structurally superior to the bricks we use here. The hollow would accept an amount of mortar and create an interlocking relationship between the bricks. It’s probably why England has so many beautiful estates hundreds of years old and still standing. The oldest building here is (someone correct me if I’m wrong) but a house in St. Augustine that was built in 1704.
    I don’t think we really appreciate our antiquities in this country. But it may be that a lot of our dwellings weren’t built very well in the first place (in the eastern US, there are a lot of mill houses, housing built by the industries to accomodate their workers for not necessarily altruistic reasons). I don’t think the new houses here are built very well either.
    I hope you return to share the political aspects, but if not, I will visit your blog in hopes you will reveal your thoughts there.

  • http://dearauntnettie.com/museum dancinfool

    Looks like a coffin to me….

  • mad

    Goldbrick: noun- a worthless brick that appears to be of gold; something that appears to be valuable but is actually worthless
    Goldbrick: verb- swindle
    This is what speculation and bubbles are all about, and sooner or later they pop, fall, whatever.

  • http://asterism.blogspot.com Adil

    Asta: I’ll will post the political aspects on my (now I know that at least one person will read it!). If you look at how the old London bricks were made – you will find that any old rubbish was put into the mix. Shells, stones , pottery. The Victorians really did not care that much for quality either. Living in a London house you realise why they are still standing. It is because the people maintain them. Leave my house empty for 20 years and it will collapse. And the reason people maintain these old houses is that the modern British society has not created anything better.

  • marcaurelius

    Most of what is going up in America today can
    be described as a ‘plastic bag over sticks.’
    A windstorm will pull a lot of vinyl siding off
    new houses.
    And people are incurring over $200,000 mortgages
    for these things.
    And, in my opinion, they are ugly too. Very
    ugly.

  • alex

    Asta, there’s stuff in the US that’s over four hundred years old and still occupied. Newburyport, MA has fisherman’s cottages that predate the Puritans’ arrival. The rest of New England and New York are covered with houses that were built before 1700.
    If you go much further south, only the masonry structures have survived–termites.
    Getting back to the housing bubble, the thing that worried me was the little statistic that 40% of the jobs created since 2001 have been connected to the housing industry. What happens to them?

  • aretino

    I thought the financial press was all over the overheated tech stock story in the late nineties. It is was the run of the mill investors who kept deluding themselves. Pretty much like now.

  • http://www.siliconinvestor.com/subject.aspx?subjectid=51347 ralph-emerson

    The Residential Real Estate Crash Index
    http://www.siliconinvestor.com/subject.aspx?subjectid=51347
    Join the Debate Daily

  • Ronzoni Rigatoni

    In ‘99, I was actually a subscriber to the Economist, and recall the dire predictions re the tech bubble. I “bailed” in November; the bubble burst the following March. People, amazed at my market-timing acuity, do not know the facts. Frankly and simply, The Economist scared the shit out of me. So what am I into these days? You got it—Real Estate.

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