Saturday, May 21, 2005

House for sale

Over the last five years, the bubble has shifted from tech stocks to real estate.

When it comes to warning signals, I am fascinated by a comparison between the two asset classes. Alan Greenspan’s prescient December 1996
comment on irrational exuberance preceded by about three years the collapse of tech stocks. But warnings about a real estate bubble have preceded Greenspan’s most recent one – here’s one from 2002 and another I made this April.

Is Alan Greenspan three years ahead of the bubble on real estate? My hunch is that he was wary of using his bully pulpit to take the air out of the US economy’s biggest growth driver in a presidential election year. Now that the end of his term in office is less than a year away, he is getting more conscious of his legacy. And realizing that he can’t do much to stop a real estate bubble from popping, he wants to at least go on the record as having warned about it just as he did with
hedge funds a few weeks ago.

But housing industry insiders have no such concerns about their public legacies. According to my analysis of insider selling by executives in 17 publicly-traded housing construction firms, over the last year insiders have been selling shares at 11 times the rate at which they have been buying them, taking advantage of the industry’s 53% average 12-month stock market appreciation.

As Barron’s Alan Abelson has suggested, there are many reasons why insiders might sell company stock – none of which is because they believe its price is going up.

For those who own real estate as an investment, now might not be a bad time to sell.


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