Sunday, April 30, 2017

Housing: Part 223 - The Housing Bubble Granger Caused Its Own Villains

Public sentiment is pro-cyclical.  I think this creates a weird bias in our conception of cause and effect.  For instance, when public consensus coalesced around the idea that we had to flagellate ourselves for the sin of overindulgence, we were really focused on what was going on in the housing market.  But, by then, the things that were going on were as much a product of our self-flagellating public policies than they were of any excess.  So, things that were really lagging factors in the housing bubble - private securitizations, CDOs, synthetic CDOs, loans bound to default - are universally accepted as the causes of the bubble.  They pop up everywhere.  I find that in articles with many citations, these assertions are frequently not cited.  They aren't cited because (1) there is no empirical backing for them and (2) they are so universally accepted that no citation is demanded by the reader.

Even as I have become cynical about public perceptions, I find that I am still occasionally surprised.  Today, I was surprised when I saw a Google Trends chart of searches for "House flipping".  I had assumed that this was something that happened as prices were rising.  (Caveat - maybe Google Trends isn't an accurate reflection of what was happening in the markets.)  But, "house flipping" turns out to also be a lagging factor.  Here is a chart of the S&P/Case-Shiller national home price index and Google Trends measure for "house flipping".  There weren't many searches for house flipping when home prices were rising in 2004 and 2005.  Prices topped out in early 2006, and the burst in house flipping searches happened from summer 2005 to early 2008.


  1. Any way to replace google trend (house flipping), with actual short term real estate transactions subject to short term capital gains, or to capture the sophisticated flippers, transactions between 12 and 14 months ownership, which will have a lower capital gains rate?

    1. There probably is. Let me know if you know of any.