Today in the New York Sun, there is an article titled Real Estate Recession Coming by Robert Z. Aliber. The article is not bad, but it is misguided and wants to be the calling card for this professor if the market does fall apart, and probably hopefully forgotten in the dustbin of history if he is wrong. Which I feel strongly is the case.

It is one thing to read the person on Craigslist Housing Forum scream about the coming real estate recession and that every homeowner will take a haircut (translation: huge loss) of 40 percent on their home (These folks are called Bubble Heads). Or that housing prices have never been better and that we are looking at the greatest opportunity since the end of the Roman Empire (These folks are called Housing Heads). The conversations are extreme, but you would be surprised that they can be very well thought out.

And often the perception of the housing market does reflect the issues that are present in the micro-market that the writer see’s on a daily basis. Face it, if you lived in a condo that had a third of the units for sale because speculators bought them up, you probably would think the that the world was going to end. Sure looks like it coming out of your condo every day.

Conversely, if you owned 10 rental properties for a number of years, your perception of the real estate market would be completely different. You have a good deal of equity and have seen the market dip and know that it will come back. You also have a cost basis much lower than the person who bought in our condo example. So, riding the wave is no big deal.

That brings me to the point of this post (a day later). The New York Sun has published an article by Robert Z. Aliber, a professor at Chicago School of Business, that is so riddled with angst that Woody Allen would seem downright placid. His Chicken Little article that the sky is falling, the country is going to fall into a recession, and that we all are going to be miserable is exhausting. Typically I would quote the article extensively, but today I want you to just go read it.

Have you read it? Good.

Now, lets remember one thing. Most people live in housing that has a very low cost basis compared to the market. As opposed to the stock market, housing has a function. You live there. You consume housing on a daily basis and it maintains its value. You also need a place to live so if you liquidate your housing, you still need to find other housing to use and pay for.

Now his comparison to the stock market recession is flawed as owning stock that is going down motivates a seller to liquidate the asset as quickly as possible. The only motivation for owning the stock is to derive income from it. If there is a better vehicle for deriving income, you go to it.

Also, the barrier to selling a stock in this age of discount brokers is $8.00. So when the market turns south like it did with the tech bubble, everyone raced to the door and sold. Once the downward pressure hit the tech market, there really was no bottom.

Meanwhile, housing does have a bottom. Where are you going to live and how much will it cost? Those are real questions that everyone needs to answer. Unless you are going from homeowner status to the Salvation Army, you will need to find shelter. So housing will have a bottom that is not very far from the top.

Rental markets will see to that.

So when a professor goes out and claims that the country is going to have a recession because of the real estate industry, take it with a big grain of salt. Especially a professor who has appeared publicly just last year stating that America is not overstretched and carrying a proper debt on a public radio show.

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