The Definition Of Insanity, Real Estate Edition
Despite the fact that the housing market has not fully recovered from the collapse of the last speculative bubble, and notwithstanding the fact that thousands of home still go unsold for months at a time, there are signs that people are getting to make the same dumb mistakes all over again:
LAS VEGAS — In a plastic tent under a glorious desert sky, Richard Lee preached the gospel of the second chance.
The chance to make money on the next housing boom “is like it’s never been,” Mr. Lee, a real estate promoter, assured a crowd of agents, investors and bankers. “We’re going to come back like you’ve never seen us before.”
Home prices in Las Vegas are down by 60 percent from 2006 in one of the steepest descents in modern times. There are 9,517 spanking new houses sitting empty. An additional 5,600 homes were repossessed by lenders in the first three months of this year and could soon be for sale.
Yet builders here are putting up 1,100 homes, and they are frantically buying lots for even more.
Las Vegas is trying to recover by building what it does not need. It is an unlikely pattern being repeated in many of the areas where the housing crash was most severe.
“There’s a surprising rebound in the hardest-hit markets,” said Brad Hunter, chief economist with the consultant Metrostudy. “People are buying again.” From the recession’s lows, construction has nearly doubled in Las Vegas, Phoenix and Tucson. It is up 74 percent in inland Southern California and soaring in Florida.
Some of the demand is coming from families that are getting shut out of the bidding for foreclosures by syndicates that pay in cash, and some is from investors who are back on the prowl.
Land and labor costs have fallen significantly, so the newest homes are competitively priced. Some of the boom-era homes, meanwhile, are in developments that feel like ghost towns. And many Americans will always believe the latest model of something is their only option, an attitude builders are doing their utmost to reinforce.
It seems insane to add supply to a market that is still clearly over-supplied to begin with, but at least part of the factor driving the new building boom seems to be that buyers would rather buy a new home than a 15 or 20 year-old foreclosed home. Understandable, but one wonders what that means for the still growing supply over foreclosed homes that have yet to actually hit the market, and how the new homes can possibly maintain their value in the face of low-ball foreclosure sale prices in the next neighborhood.
It was more than just the actions of home builders that contributed to the last housing bubble, of course. Government policy, irresponsibility on the part of lenders and borrowers, and, most importantly, a loose monetary policy all played a role in creating a perfect financial storm from which we have yet to fully recover. But, increasing supply where it clearly doesn’t appear warranted and promising people that they can profit from the next housing boom don’t exactly sound like a good idea to me.
Benjamin Franklin once said that the definition of insanity is doing the same thing over and over again and expecting a different result. We appear intent on proving Mr. Franklin right.