Housing Bubble?

This morning, the New York Times ran an article about the surge in housing prices and asked if there was, in fact, a housing bubble. The answer: not really. Because in many towns, rental rates have been rising, this partly justifies the soaring cost of homes. In fact, when converted into a rental ratio (price of home/annual rent), this is much less of a bubble than the stock market was in 1999.

The article went on to indicate that some of the hottest markets have rental ratios between 20 and 35; much lower than price-to-earnings ratios on stocks in 1999.

I find this kind of weak analysis very amusing. The reason? Try to sell your home into a declining market and you will quickly find out. Stocks have (and must have for that matter) higher valuation metrics because of their liquidity. Furthermore, rents are ostensibly based upon personal income, which is probably a much more prudent measuring tool since rental rates fluctuate as much as housing prices. And, if you look at home values relative to median income figures, the statistics are much more telling.

Homes should sell at something like 3 X an area's median income. Of course, this is a rough estimate, but it should be based upon an individual's ability to service his mortgage debt. The above ratio, of course, assumes average interest rates. It also assumes that people aren't constantly cashing equity out of their homes (which is a significant problem, as families are relying upon this tool to fund consumption).

If you want to know what the average home in your part of town should be valued, look for the area's median income and median home price. In Portland, the median family income is $50,000. Therefore, the median home price should be about $150,000. In reality, the median home price in Portland as of about 6 months ago was about $185,000. This equates to approximately 25% overvalued. When this corrects (and it will), the decline generally overshoots the target. In short, when housing prices begin to fall, the decline will likely go to below $150,000. Maybe $140,000 or $130,000, causing value buyers to enter the market.

For some people, this will not be a problem. They don't need to move, have a fixed rate mortgage and aren't pulling equity out of their home. For some others, this could be devastating.

Abu Musaab al-Zarqawi

As some of you may know, since September the 11th, I have attempted to get my hands on as much data about terrorism and terrorism networks as I could possilby read. This has led me to some interesting information about what is going on out there.

Abu Musaab al-Zarqawi is alleged by some to be injured, by some to be dead, and by some to be doing well and planning additional insurgent attacks.

Right now, a disinformation campaign is occurring (probably by our CIA in conjunction with the Iraqi ruling parties). We are betting that by claiming Zarqawi is injured or dead (and leaking intelligence as such), that the insurgent networks that support him will do three things: scramble to verify his health, claim he is healthy, and those who cannot confirm this will struggle for power. So far, this is exactly what is happening. When there is a power vacuum, bad things happen to those in the vacuum.

The New Yorker Magazine

About 18 months ago, one of my clients proffered a complimentary subuscription of the New Yorker magazine to me. The New Yorker is not exactly a bastion of libertarianism, but nontheless, each month, the magazine publishes one really good, in-depth, well-researched article. The May 16th issue is no different.

The title of the article is, "A Hard Faith; How the New Pope and His Predecessor Redefined Vatican II." While I can't say that I know that much about Vatican II (other than it allowed Catholics to eat meat on most Fridays and Latin was no longer the language of Mass), I would guess most of the synopsis is rubbish. Having said that, there is a great sidestory about the bishops appointed under John Paul II and how the more orthodox sects of the faith are growing like the evangelicals, while the more "mainstream, liberal" sects are losing vast followings.

There are also some great quotes about doctrine I had never heard, but found fascinating, such as:

"We're at a time for the Church in our country when some Catholics - too many - are discovering that they've gradually become non-Catholics who happen to go to Mass. That's sad and difficult, and a judgment on a generation of Catholic leadership. But it may be exactly the moment of truth the Church needs." Archbishop Charles Chaput, Denver, Colorado

If you have an interest in reading the article online, you can access it via the following link: http://www.ctaww.org/articles/boyer_ahardfaith.htm

Sorry there is no hyperlink above, but I haven't yet figured out how to do that, or post pictures for that matter. Just copy and paste.

Enjoy!

Today's Agenda

Today is the Pug Crawl. The sun is shining and hopefully, we will be heading out to Northwest Portland to join dozens of other pug lovers. It is a great Oregon Humane Society event, and a good way to get our girls out of the house. It should be lots of fun. The website to the event is www.pugcrawl.org (sorry no hyperlink; I am still learning).

Political Parties: Root, Root, Root for the Home Team

I have an operating thesis about mainstream political parties: Ideology is lacking. Mainstream political parties want you to support their parties/candidates regardless of what their views are. There are no longer real platforms that people support, only home teams. Let me give you an example.

I became a Republican in 1994 (when I turned 18) because I believed in the party of limited government & limited taxes. I believed in firebrand idealogues like Newt Gingrich and Joe Scarborough. I didn't believe in all of their social policies, but I certainly didn't believe in the unlimited governement policies of the Clinton administration.

However, power corrupts and absolute power corrupts absolutely. It started rather benignly. Republican congressmen went back on their word about how many terms they would pursue in office. I first noticed it with George Nethercutt (R-Washington). I found it unsettling, but in my "home-team" mentality I speculated that it was better than the alternative.

George W Bush ran and became President on a ticket of limited government and more personal responsibility; fiscal discipline and tax cuts. As his term proceeded and more and more expansive government was created (ostensibly under the rubrick of national security), I began to think about what the conservative party was all about. I started reading writings of "Reagan Republicans" and one of President Reagan's lines stood out markedly to me. I don't have the exact quote, but it went something like, "some people believe that government is the answer to the problem; I believe government is the problem."

I started reading writings from our founders. I read the Declaration of Independence. I purchased a copy of the pocket Constitution. I started understanding the reasons for our declaration of independence from England and I noticed that while many of the reasons we seceded from the English empire were contained within the Democrats platform, they were also being adopted by the Republicans. This is when my radicalization occurred. I decided it was better to be an ideologue than a party to the destruction of our founding principles. I began to listen to the rhetoric of the political parties, such as, "a vote for Nader is a wasted vote."

Now, don't get me wrong. I wouldn't vote for Ralph Nader as I am diametrically opposed to most of what he believes. However, I do respect the man as he is certainly a crusader against the status quo. I also began to ask, "was a vote for Al Gore in 2000 a wasted vote?" After all, he did lose. If you voted for him, was your vote irrelevant? Of course not. Nor is a vote for someone in whom you believe. So I became a Libertarian. Now, there are certainly some interesting characters in the Libertarian party, and I may not be a Libertarian for life, but I did realize that I supported many more of the policies of Michael Badnarik for president than I did for George Bush.

So that was my change. The political parties decry the partisianship, but they love it. They know that the more activist their base, the greater they are to contribute to their causes. Why do you think that politicians make such enormous issues out of things like the tragic life and death of Terri Schiavo. After all, while what happened to her was tragic, it was certainly an issue that families conflict with every day. There is simply no reason that our Federal government should take up the issue and pass legislation upon the outcome of one person. That is expansive government. In the same way, why do you think the Democrats are so loud about the filibuster. These causes rally their bases, create more activists and attract capital. The activites serve to entrench the dividing lines between the parties and establish the permanance of the parties.

Well, enough of my soapbox for now. More later.

B

Great Movie!

Just saw Hotel Rwanda last weekend. This was a great movie. Too many of these scenarios play out each year around the globe. It is time we began to understand them and try to learn from our mistakes.

Despite the violence, this is a film that should be shown in classrooms around the country.

New Book again

After my most recent read, I picked up "The Big Picture" by Edward Jay Epstein. This is about the genesis of the movie industry, including the major developers and how movies are financed.

Here is a hint: it is more complex than ticket sales. I'll give the Cliff Notes version once I finish it.