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Thank You Ben, Patrick, and Keith, uber-Bubblistsas, For Helping My Clients Tremendously

Kevin Boer, Broker Owner, 3 Oceans Real Estate, Inc. ()

March 14th, 2007 · 15 Comments

Ben, Patrick, and Keith — authors of this, this, and this housing bubble blog, respectively — have been valiantly — and successfully — helping people avoid the inevitable financial doom of homeownership since about 1998. (For your convenience, I’ve marked that year with a nice big red star in the below graph of average housing prices in Palo Alto, CA.) In exchange for that valuable public service, they have collectively made — I’m just guessing here — a few dozen to a few hundred dollars in advertising on their sites.

Bubblistas began predicting the imminent demise of the housing market in about 1998

Other bloggers — most notoriously and successfully, the boys from Bloodhound — have taken these bubblistas to task. Greg Swann, for instance, has called Keith an “idiot” — and that was one of the more flattering phrases he used. A fairly entertaining, but somewhat unproductive, flame war developed when Greg made insinuations about what sort of pleasure Keith as the poster-child of bubblistas might take in constantly dreaming about the impending housing crash.
I, however, have a different take. I am truly grateful to these far-sighted pundits, for without their insight, many thousands more would have bought properties here in Silicon Valley over the last decade, pushing prices even further up, and making it more difficult for my buy-side clients to get into the market.

Being a math-ey type of person, I ran a series of Monte Carlo simulation multi-inverse-hyperbolic-regression models* to estimate what housing prices would have been in Palo Alto without the influence of Ben, Keith, and Patrick. Here are my results:

What would have happened to home prices in Palo Alto if not for the influence of the bubblistas

Gentlemen, on behalf of my buyer clients, thank you.

* Footnote — Actually, I pulled the projected numbers out of thin air. In consulting, we would have cited the “WAGNER Institute.”

Tags: Ben, Bubblistas, , , Keith, Patrick,
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15 responses so far ↓

  • 1 Fred // Mar 17, 2007 at 7:39 am

    Has this analysis motivated you to buy a home in the bay area or do you still rent a home. Just curious.

  • 2 Kevin Boer, Realtor, 3 Oceans Real Estate // Mar 17, 2007 at 12:12 pm

    Hi Fred,

    Thanks for dropping by.

    For a variety of reasons, it has made more sense for my wife and I to rent our home, while building up our real estate equity through investing in a number of rental properties.

    Home ownership is not necessarily the best option at all times for all people in all circumstances.

  • 3 I Heard It Through the Grapevine: Carnival of Real Estate #35 at miOaklandCounty - The Scoop on Michigan Real Estate // Mar 26, 2007 at 5:02 am

    [...] Kevin Boer convinced me that the bubble bloggers have done his market a big favor in Thank You Ben, Patrick, and Keith, uber-Bubblistsas, For Helping My Clients Tremendously posted at 3 Oceans — San Francisco Bay Area Real Estate. Very creative use of charts and graphs, Kevin. Your consulting background shines through. I can get away with that as a fellow former consultant. [...]

  • 4 Randy H // Mar 26, 2007 at 1:43 pm

    Funny thing is, we sold in 2005 (not for bubble reasons), and decided to hold off buying again. Since then our quite substantial equity has outpaced house prices — when factoring in inflation — by over 4%. Last I saw Marin real estate is “rising” slower than inflation now.

    Or does that qualify as calling you an “idiot”, even as you mock anyone who might dare hold a dissenting opinion.

  • 5 Randy H // Mar 26, 2007 at 1:47 pm

    Being a math-ey type of person, I ran a series of Monte Carlo simulation multi-inverse-hyperbolic-regression models* to estimate what housing prices would have been in Palo Alto without the influence of Ben, Keith, and Patrick. Here are my results:

    And any “math-ey type of person” can recognize you should have used a Bayesian approach if you wanted to “wag”. Or, you could have just applied the well understood stochastic mechanism, which really drives the march of prices, bounded by inflation net of demand.

  • 6 Kevin Boer, Realtor, 3 Oceans Real Estate // Mar 26, 2007 at 2:07 pm

    Hi Randy,

    Thanks for dropping by. Re. your first comment, congratulations on outperforming the real estate market with your post-sale investments. Wondering if your calculations took leverage into consideration? ie. if inflation is 3%, and Marin prices have risen 2%, and your equity in the home was 10%, wouldn’t that have translated into a 20% return on your equity?

    Re your second comment, you’re clearly more of a “math-ey” person than I am. Perhaps you can expound on the “well-understood stochastic mechanism”?

    Feel free to call me an idiot — I’ve been called far worse and I may take myself less seriously than you seem to. If the post came across as mocking, I apologize for that. It certainly wasn’t intended to be anything more than a tongue-in-cheek perspective on the constant doomsday scenarios we hear from the Bubblistas.

    Then again, if the post was mocking, you’ll have to acknowledge it was pretty tame compared to what the Bubblistas dish out to those who dare to disagree with them.

    I like your blog, btw. I’ll download and tinker with the Excel model you’ve put together. I have a pretty robust buy vs. rent model that I put together over the past few years.

  • 7 Randy H // Mar 26, 2007 at 4:54 pm

    Thanks for the reply Kevin. Let me know if you want the password to the model. I welcome all feedback and suggestions, regardless of their source.

    I am not a doomster like many who see the RE Bubble as some sort of looming Armageddon. I’ve been an author at Patrick for over 2 years now, and I’ve taken quite a bit of abuse for my positions there.

    However, what I am is a stickler for quantitative details. I base my opinions on data, logical argumentation and experience. This formula has proven very successful for me, though it’s probably not for everyone.

    I evaluate real estate on fundamentals. The data clearly shows that inflation adjusted returns for property, over the long run, equals inflation factored net demand growth 1% secular regional premium. And that isn’t 20% year on year, let alone the 75%-125% we’ve witnessed in Marin. Such a spike is a historical anomaly, and I still await any fundamental explanation which would justify its permanence.

    As to my return calculation; it is a total return calculation, and considers everything including leverage. Seeing as I had closer to 70% equity, the discount rate applied to the “leverage factor”, along with the diminished income tax benefit plus the massive increase in property taxes would have offset nearly all of the leverage benefit. And that assumes there is zero risk to that leverage, which we both know is not true. “Mailing in the keys”, as it were, is not a free option, it costs in terms of future penalties to one’s credit.

    And I remind you that it wasn’t I who was running around calling people names. What exactly is a “bubblista” anyway? It’s been my experience that clever name calling hides weak arguments. So excuse me if I “take myself too seriously”, but if I’m to be a “bubblista”, then please by all means elucidate my madness for your readers.

  • 8 Kevin Boer, Realtor, 3 Oceans Real Estate // Mar 26, 2007 at 6:00 pm

    Hi Randy,

    I mistook you for a Bubblista, which I roughly define as somebody who spends way too much time and effort predicting the imminent collapse of the housing market, and referring to those with different opinions as “idiots,” which is how you at least alluded to me in your first comment.

    (The opposite of a Bubblista, I suppose, would be a Permabull, who believes that the natural annual appreciation rate of real estate is in the double digits, and anybody who believes otherwise is an idiot.)

    As for the accusation of taking yourself too seriously, I’ll have to apologize for my grammar apparently being as errant as my math. I said I may take myself less seriously than you seem to but what I meant was I may take myself less seriously than you seem to take me.

    At any rate, you’re clearly not a Bubblista, but a clear-minded, thorough-thinking, analytical person, and that certainly makes for a potentially very intriguing discussion, since I, in turn, am not a Permabull. (When Bubblistas and Permabulls interact, it’s kind of like the Jerry Springer show.)

    With 70% equity in the game, and of course that equity not being risk-free, then certainly you did the right thing to pull out and put your money elsewhere. I made the — again incorrect — assumption that you hadn’t factored in leverage, something a lot of folks don’t think about.

    As for why Bay Area real estate prices have defied gravity, economics, and logic over the next decade…darned if I know. A touch of irrational exuberance, certainly. (Here in the mid-Peninsula we’re back to 2004-era multiple offers, sales 20% above list, etc.) A supply scarcity brought about by geography and zoning laws. An abundance of demand brought on by net immigration from all over the world. All of these are just guesses, and it’s anybody’s guess what will happen to real estate prices in the long run here. 15% appreciation per year ad infinitum? I doubt it. 40% drop? I equally doubt it.

    If you’re game, would love to have you do a guest post on my blog. Would be an opportunity for you to get your views in front of a completely different audience. Interested?

  • 9 Randy H // Mar 26, 2007 at 7:45 pm


    I also apologize for my poor choice of words in the “idiot” reference. What I meant was “does that make *me* and idiot”, in line with the bubblista debunking statement in the original article.

    I’d be honored to do a guest article on your blog. I’m sure I would find it an interesting and educational experience.

    I’m glad to hear you’re not a “perma-bull” and you recognize that the common mantra of “prices never go down” and “it’s always a good time to buy” are no more true than the prophetic predictions of the fall of western civilization. I’m myself not a _believer_ in any particular ideology when it comes to things like real estate economics. And I know that despite my best intuitions and deductions, I could always be wrong.

    I also work very hard (when I’m engaged at least) to counter the ridiculous “buy gold dig a hole and hide” doom that comes across on Patrick.net. I’ve authored many optimistic articles positing ideas such as “Why I’m not a Doomster” and “The Case for a Soft Landing”. I’ve also taken a lot of heat for insisting that real estate prices are extremely sticky downwards. Two years later there are still occasional people there arguing with me that it’s “just not not sticky yet”.

    I’d like to make one thing clear regarding my situation. My wife and I sold our home on the Peninsula and moved to Marin because we had to for quality of life reasons, ie. commute. Not because of the bubble. We’d still be in our old house otherwise. Rather, our decision was one of *not buying another house yet*. I try to make that point painfully clear on Patrick.net because I don’t now and never would advocate that anyone sell purely to try to time the market. I do advocate people making forward looking decisions like “let’s wait to buy that vacation home”, or “let’s rent for a year before we settle into a house here in Newtown” or even “let’s think about selling that 2nd home in Tahoe we never could quite afford”. Anyway, if we’d bought again right away in Marin we’d probably be stuck in some oversized McMansion in the fog belt — but two years on we know precisely where the fog is all summer.

  • 10 Kevin Boer, Realtor, 3 Oceans Real Estate // Mar 26, 2007 at 8:00 pm


    Awesome! Looking forward to your post. I’ll give you a login name and password tomorrow and then you can have at it at your convenience. Just give me a few hours notice so I can introduce you as a guest contributor.

    You’ll get your ideas in front of a new audience, and, equally importantly, my audience will get a fresh perspective as well.

    When it comes down to it, you and I probably agree on much more than we disagree. David Lareah and my membership in NAR notwithstanding, home ownership is not the right decision for every person in every situation at every time.

    I usually recommend to newcomers to the area to rent for the first year before deciding where to live, and to only buy if they have at least a five year horizon. It’s lost me a few deals, but it’s also helped me sleep at night.



  • 11 Ken // Mar 27, 2007 at 10:14 am

    Predicting the collapse since 1998? I guess I’m new to the game then. To my knowledge Ben’s & Patrick’s sites have only been arounf since 2004/2005. Who exactly was predicting it in 1998?

  • 12 Kevin Boer, Realtor, 3 Oceans Real Estate // Mar 27, 2007 at 2:28 pm


    You know what? I could be wrong about when Patrick.net started. A whois request shows the domain was registered in 1995. I personally have only known about patrick.net for a couple of years. A friend of mine says he’s been reading Patrick since the late 90’s, but he could also be mistaken.

    If so, mea culpa.

    Regardless, the above post was intended to be a tongue-in-cheek look at the bubble theory, not to be taken over seriously. The projected numbers in the graph are a complete fabrication, so perhaps the dates were too.

  • 13 RE Agent in CT » I Win The Carnival Eh // Mar 27, 2007 at 7:31 pm

    [...] Kevin Boer  Thank You Ben, Patrick, and Keith, uber-Bubblistsas, For Helping My Clients Tremendously [...]

  • 14 Searching the SF bay area blogs at Real Estate Logic // Apr 1, 2007 at 2:18 pm

    [...] While your there read this one too, I got a laugh looking at his graph too. [...]

  • 15 Watch Out Zillow…Here Comes…PatZillow | 3 Oceans -- The San Francisco Bay Area Real Estate Blog // Jun 17, 2007 at 8:52 pm

    [...] Here’s the issue, however…with Patrick.net being so decidedly bearish on real estate, why would any seller expect to meet anybody other than bottom-feeding buyers who’ve been on the troll for that “30% under market value property” since the waning years of the Clinton presidency? [...]

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