Don't Buy Housing Bubble Propaganda

The old saw is true: Every general fights the previous battle. And after missing the tech and telecom bubbles, the generals of the financial media are now battling more bubbles than we can count:

There are bubbles in debt, credit and interest rates. There is the oil bubble, the import bubble, the China bubble and the current account deficit bubble. In short, we have a veritable bubble in bubbles. Indeed, it is astonishing how many people who failed to either acknowledge the tech bubble in the 90s -- or at least failed to act on it -- now have no hesitation to declare real estate to be a bubble. This despite their lack of expertise or past track record in spotting bubbles on a timely fashion.

The bubble du jour though is the housing bubble. From Greenspan's testimony to CNBC's Housing special to (uh-oh) this month's Fortune magazine cover, it seems to be all anyone wants to talk about.

My position is that housing is not in a bubble -- yet. But it is an increasingly extended asset class that may be subject to a significant correction in the future. But a 25%-35% retracement is a very different situation than a bubble (recall that the Nasdaq dropped 80%), primarily because there are very different consequences for both homeowners and investors.

Not Your Grandson's Bubble

That said, comparing real estate with other true bubbles -- most especially the tech/telecom/dotcom bubble of the 1990s -- is imperfect, due to several factors.

Homes are illiquid assets that take several months to sell; stock can be liquidated instantly.

The housing market is regional, with an uneven distribution of asset appreciation: Equities are national, and even global.

Lastly, there is an intrinsic value of a house as a place where you can live; Compare this with a company whose only asset was a sock puppet -- the tulip bulb of its day -- and it's clear why a profitless, assetless, publicly traded company can go to zero. Barring an external disaster like Love Canal, houses will not.

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Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries, and is a member of the board of directors of Burst.com, a streaming media software company. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback; click here to send him an email.