A bone to pick with today's Miami Herald by gimleteye

We have a bone to pick with the Miami Herald’s “March home sales weaken; prices remain flat.”

“South Florida homes sales stayed sluggish in March, as buyers and sellers waited to see whether the Florida Legislature will lower property taxes,” the Herald reports. Really?

We don’t agree with this opinion. We think the housing market cycle is poised like a theme park ride at the top of the plunge.

Richard Barkett, CEO of Realtor Association of Greater Fort Lauderdale, puts the same thought with real estate diplomacy, “Sales are soft. I think the next thing will be a softening in home prices. That would be a very good sign, part of the healing process in our real estate market.”

We don't believe that crashing home markets correlate directly with property taxes, at least in a way strong enough to warrant the contention in the opening paragraph of the Herald article.

There is no question that property taxes have created massive inequities, and the problems are actually going to be vastly compounded when recent buyers of property in the last years of the housing boom find themselves with assessed values that the market won’t support.

But if the story is about taxes, then the Herald should report that none of the remedies proposed are dealing with the fundamental problem: the absence of a state income tax to deal with the massive imbalances and infrastructure deficits that piled up during years of easy growth and lax oversight.

But the story isn't about taxes.

In other words, there is something else going on. We like what Robert Shiller has to say about that.

A finance and economics professor at Yale, Shiller proved he could see a crash coming with his book "Irrational Exuberance," which forecast the end of the 1990s stock bubble and hit bookstores in March 2000 - almost to the day the Nasdaq started to collapse.

Money Magazine reports that, today, Shiller believes homes are roughly as overvalued as stocks were then and, once again, he's worth listening to.

Shiller: “Back in the late 1990s, you kept hearing that you had to stake your claim on the Internet or you'd miss out on the future. No one cared about the present. Then something happened around March 2000. There was an acceleration of public talk about doubts. You could no longer declare at a cocktail party that Internet stocks were going up. Such statements had become embarrassing - and just like that, word of mouth changed.”

Question: Is that about to happen in real estate?

Answer: It doesn't seem like we're there quite yet. But this is the biggest boom in housing prices since, well, ever. Nothing seems to explain it, and nobody forecast it. It seems to me...wait a minute. Please don't quote me as forecasting the markets.

Question: Okay. What you're about to say is not a forecast.

Answer: Well, human thinking is built around stories, and the story that has sustained the housing boom is that homes are like stocks. Buy one anywhere and it'll go up. It's the easiest way to get rich.

Question: So how rich can you get on real estate?

Answer: From 1890 through 1990, the return on residential real estate was just about zero after inflation.

Question: Excuse me? That's all? Hasn't it been higher lately?

Answer: Since 1987 it's been 6 percent [or about 3 percent a year after inflation].

Question: So real estate doesn't go up roughly 10 percent a year?

Answer: It can't be true that homes rise 10 percent a year. If they did, in the long run no one would be able to afford a house.

Question: Let me grab a calculator. If real estate really rose 10 percent a year, a $25,000 home in 1957 should be worth roughly $3 million now.

Answer: And that flies in the face of common sense. In fact, I'm inclined to think there's a good chance that the return on real estate will be negative, substantially negative, over the next 10 years because all booms reverse in the end.

Today’s Miami Herald article ends, “Some buyers are saying, ‘I would hate to buy today and not get the benefit of any new program… but the legislators don’t even know what the outcome of the plan will be. Until everything (ie. tax reform) is put to rest, there is a tendency to say, ‘Let’s wait a month.’”

We think the wait is going to be a lot, lot longer than a month.

Nothing the Florida legislature does on property tax reform will matter a whit to bolster housing markets. Ain't gonna happen.

The market cycle for housing was probably over, several years ago, had it been allowed to collapse under its own weight—without the intervention of politics and the Federal Reserve and the "ownership society".

The fact that liar loans, mortgage fraud, and an incestuous relationship between lenders and developers was allowed to go on, unchecked, is going to make the damage to the economy much more severe (unless, of course, you manufacture aircraft in Seattle, Washington.)

But that's another story.