Real estate: Michael Kinsley vs. Mark Twain
On Tuesday's Op-Ed page, Michael Kinsley argues persuasively that rising home prices are not a good thing.
I probably shouldn't tell you this, but in his next column, Kinsley will argue persuasively that being rich is not a good thing. Nor is being good-looking or having all your hair.
In Tuesday's article, Kinsley brushes aside capitalism and the law of supply and demand to visualize a new era of real estate.
For those with short attention spans, here's his premise:
In very general terms (with plenty of exceptions and variations) the housing market affects three different groups. There are those trying to break in -- generally young people searching for their first home. There are those in the middle, who want to trade up from a smaller house to a bigger one. And there are longtime homeowners, "empty nesters" who are approaching or already enjoying retirement and want to downsize or get out of the market completely.
Of those groups, he says, only the last benefits from rising prices, and even they don't benefit that much.
Or, if I may paraphrase: My hovel is worth less now, and it'll never go back up, and that's a good thing, so don't worry, be happy.
But Kinsley's not finished. He then introduces the "greater-fool theory."
There is no physical reason why a house should become more valuable at all. It is not growing like a crop.... It becomes more valuable because people believe that it will become more valuable. Worse, since the general assumption that it will become more valuable is already reflected in the price you paid, you need a buyer who believes that it will become more valuable even faster than the general consensus.
I'll bet that house-hunting is fun in the Kinsley family:
"Look, honey, it's our new place!"
"Uh, dear, that's a cornfield."
"I know! Just look at all the room we have. And we'll make a profit every year, because it's more than a place to live, it's a crop. Our room is over there under the tree. We'll put the kids by the pond; it'll make bath time easier."
Personally, I just don't subscribe to the "greater-fool theory."
In fact, I prefer "the Mark Twain theory": "Buy land, they're not making it anymore."
-- Paul Whitefield
Photo: Great Park in Irvine. Credit: Mark Boster / Los Angeles Times