Perspective on Real Estate

September 18, 2002

September 25, 2002

October 2, 2002

Desperately searching for a greater fool

Thought: "Remind me to tell them what I really think about the economy and un-real estate."

After intense and lengthy attention to what appears to be happening -- including presentations at various conferences and listening to the many experts invited to these conferences -- I've concluded the following: The economy is wearing out and the fundamentals are no longer sound.

California real estate has reached its apex, especially in the apartment market. Prices are proving "the greater fool theory," while lenders all too willing to add their liquidity to the crowded extraordinary delusions and the power of the madding crowd. If people can get something financed, they will either buy or build. Common sense has no liquidity in this culture.

The stock market has lost it moorings -- if indeed it ever had them -- every time "the bottom" is announced, it is breached. This is no cycle. Rather, it is reaction to poor profitability, consumer and business debt, mistrust, mismanagement, real war-talk and investment bankers' short-term mentality, which affects everything long-term.

The Bush administration has no apparent practical experience in finance, just a philosophic conservatism that knows no policy except to trust government only when "I am speaking" -- a major miscalculation when trust will prove to be everything.

Thought: "The greater-fool-theory has entered the apartment buying sector."

In this theory, too many speculators feel they can pay any price because there is a greater fool in the wings waiting to pay even more. When you have the confluence of brokers, lenders and buyers all agreeing in a marketplace, you have the greater-fool theory in action. This is taking place now, especially in Southern California, which knows no bounds or limitations -- most impressed with its own strength. That is the Achilles heel defined.

Thought: "Uncertainty will haunt the marketplace."

There may appear to be consensus that "next year will be better," but I believe it is simply a redundancy of shared repetitive faulty thinking -- like a standing audience applauding itself.

As prices begin to fall, that redundancy will appear as an opposite chorus, as people realize how much things have changed from the good old days. There is an upper to every downer and certainly a downer to every hyped height.

Thought: "Now the flaws of the super-smart CEO's, who expanded beyond thoughtfulness, will prevail in the economy."

Their accompanists on the street-with-the-wall will suffer fines, some jail-time and a rare taste of humility, but that will not last long enough for the lessons to be learned. This group's culture is to unlearn history and make money faster and bigger. That is not a value-system, it's more of a disease which needs a brain-scan followed by lobotomy.

Thought: "Bubbles are the deflation of tomorrow?"

I ask myself, can this be true? I tried talking myself out of the bubble theory in housing, but I have noted to my readers that when speculation is fueled by overly liquid competitive lenders who are willing to lend the weakest links -- plus huge re-financing, then the bubble gains the ballast it needs to create illusion. The consumers tell themselves: "I can get my home re-financed and keep spending on stuff I think I need or want, so why not?" This is part stupidity and part blinding self-indulgence -- the American past-time. It is not the infrastructure upon which we can construct excellent economies any longer. It will end; that end approaches. The only thing I haven't concluded is: Who are the ventriloquists and who are the dummies?

Goodkin is president of Ackman-Ziff-Goodkin, an international real estate adviser and strategist, and has been a housing analyst since 1956. He can be reached at

September 18, 2002

September 25, 2002

October 2, 2002