The Business Press Maven, who owns an obscenely overvalued home, wanted nothing more than for the loft in real estate prices to, uh, loft forever. Or at least until I die. You see, while planning to take it all with me, I do understand that no crypt could fit my three-floor beauty. But The Business Press Maven is alive and -- as always -- kicking. And the real estate party is over. If you don't believe me, just look at your favorite struggling homebuilder stock or bedraggled REIT or check the vast majority of increasingly grim housing numbers. So where does that leave you, the investor? At high risk of being goaded into a mistake. Let me explain. From the conglomerates of the 1960s on to the Internet of the 1990s and real estate of the current decade, overvalued markets are always justified by the business media with constant story lines about how different things are this time. Once it starts to become apparent (like now) that there is such a thing as gravity, we enter the classic second state of business media delusion. And it's potentially more dangerous. The Business Press Maven refers to this as the "'Tis Only a Flesh Wound" stage. Having justified the bubble for so long, the business media never simply walks away. What always comes, instead, are a series of articles about how the worst of the damage has already been done and that it's no big deal, just part of the natural course of things -- a flesh wound. Moreover, that there are safe havens amid the carnage or that there are actual bargains! The reasoning is formulaic and often heavy on buzzwords, jargon and quotes from people who have a reason to tout the lunacy back into existence.
Examples have been chronic in print and on television so let me touch upon a few so you'll know what to recognize. After all, this is not a market to jump back into. The demographic push of baby boomers buying homes coinciding with the taming of inflation (and thus interest rates) over the past generation has been enormous. With baby boomers starting to downsize and inflation and interest rates trends, at best, in flux, this is a market that could very well not perform better than inflation over the next generation. A key element to making the argument that there has been no true shift in the market is to deny the very fact that prices are starting to drop. This was done recently, in all its vacuous glory, by Samuel Lieber, the president of Alpine Mutual Funds, while speaking on CNBC. He sounded like a local real estate agent, trying to convince a young couple that they were not buying into a "down" market but an "adjusting" one. "We are," he said, "transitioning from a period where people had to pay the offer price or above to a period where they are looking at a more normalized bid/offer spread. It's just they don't know ... where that proper pricing will be." Sounds like prices are plummeting, buddy. The key step to assessing whether a market has hit bottom is to read and listen. When you hear people honestly assessing the damage and professing no hope -- that's a bottom. When people are in denial and are slinging jargon -- well, we ain't there yet. Lieber continued, calling it a "unique time to be a buyer" (inventories rising, prices falling, demographics turning from help to horror -- I'll say it's unique) and adding that the current numbers are not an indication of confidence but "a reaction to houses staying on the market longer."
This bit of pretzel logic earns The Business Press Maven's dreaded "Back of the Hand" award. Pick up even the best business publications and they can sound the same way, like enablers. The Wall Street Journal went a common route, writing in an A2 headline, "Softer Housing Sector Is Seen, But Data Don't Point to Collapse." Of course goodness knows, and so does The Business Press Maven, that for investors, utter collapse is better. Think of the Internet tumble. It was bad, but with nearly every stock in the sector at or near zero, bargains could soon be had. A long slow burn, caused by slowly unfolding demographic and inflation shifts leaves less room for opportunity. Opportunity, the Journal pointed out in the first section of that same issue, might be big. An article called "Building a Case for KB Home" had a sub-headline that was flagrantly too positive: "Stock Could Be a Steal Amid Housing Slump." That sounds like the hot stock tip spam I get so much of. Remember, loyal Business Press Maveniettes, how in the wake of the Internet collapse, we saw legions of articles about stocks that were steals because though they had started getting hit, they would offer safe haven because of their strengths. That's why, for the first time, I'm going to grant a TheStreet.com staffer -- Nick Yulico -- the coveted Business Press Maven "Nod of Approval." It's for a story called
Builders Still No Bargain and centers on the hairy fact that builder's profits are being hit by lower home prices and higher land costs that will be expensed in coming years which -- and this is key -- they haven't acknowledged openly yet. Until such troubles are spoken about openly, a bottom is not in sight. By the way, before we continue this "adjustment" any further, are any of you gullibles out there interested in a three-floor beauty? Good schools and the neighbors are usually tolerant. Since I can't take it with me, I figure I'm better off with immediate cash.