After reading Rich’s population story where he quoted Gary London and his spin, I was intrigued about what this guy is all about. He is quoted often in the newspaper. What does he know about this bubble? From his article in July 05:

1. Median home price/income ratio is hgih, but no worries here. People are still buying homes, so they haven’t hit a wall yet.

2. Population is growing, so home demand will stay high.

3. Home price/rent ratio is very high at 30, but no worries here. “The problem with this test is that simply because home values have risen more than rents does not mean there is a bubble waiting to burst. Rising home prices have come about for many reasons.”

He goes on to say that housing prices fell only 7% in the 90’s and fully recovered. If prices fall again, homeowners will simply wait it out and not sell, as they did in the 90’s downturn (sales were much lower). But he doesn’t address the inventory problem: although sales were much lower because of the recession, why is he attributing that to homeowners not selling. Couldn’t it also be due to very high inventory but low demand? We cannot conclude from low sales that homeowners were just waiting out the period of declining prices. It’s a very faulty assumption, and I would wager the opposite. It’s more likely that sales were down in the 90’s because of the population exodus, high job loss, foreclosures. My guess is that inventory was swelling.

He concludes with saying you should buy now, get something you can afford and stay in. If prices go down, don’t worry because if you move up, the house you would buy will be cheaper as well.

Nowhere in this article did he talk about low affordability, our reliance on housing to boost our economy, exotic loans and the danger of foreclosures…

While Alan Gin is now a straight shooter, this guy London has a long way to go….