I Beg to Differ Mr. Buffett

by Karen Briscoe
June 8, 2010

This past week Warren Buffett, the legendary investor affectionately known as the Oracle of Omaha, addressed the Financial Crisis Inquiry Commission appointed by Congress.  Buffett stated:  “I was wrong on it too, I called it a bubble-ette.  That was the wrong term to use.  It was a four-star bubble.  It really was the granddaddy of all bubbles.”  How could you not have seen the housing bubble Mr. Buffett?

In Northern Virginia where I am a Realtor, the Sun Gazette newspaper publishes annually the history of home sales in the area since 1975.  This data comes from the Metropolitan Regional Information Systems, Inc. and the Northern Virginia Association of Realtors.  According to this data the only years that have experienced double digit price increases in the average sales price were:  1979-1981, 1987-1988, 1991, and 2001-2005.  That means from 1975 to 2000 for that 25 year period there were only 6 years of double digit price increases, but from 2001 to 2005 we had 5 years straight of double digit price increases in the average home price in Northern Virginia.  How could you NOT see that a bubble was forming?

After the 5 years of double digit appreciation increases from 2001-2005, then we had 2 years which were flat, 2006 and 2007 each experienced 0.1% increase.  I like to say that in 2006 we were living off the fumes of 2005 and in 2007 off the fumes of 2006.  But in 2008 and 2009 there weren’t any more fumes, thus the local residential real estate market experienced negative 14.4% and negative 6.5% appreciation respectively.

I first felt that our real estate market was experiencing a bubble around Labor Day of 2005.  It hit me that what was going on in the real estate market was like the technology boom of earlier in that decade.  The factor of large numbers comes in to play, essentially that as the numbers get larger, the harder it is to continue to sustain greater increases in value.  At the time I was working with clients selling their home in Great Falls, Virginia.  I explained to them that their home would more than likely not be worth more in the spring of 2006, and very well could sell for less.  I reminded them of the tech boom and what happened after the extreme run up in value, how it all came crashing down.   Those clients understood the correlation and listened to my message.  They sold their home and were very glad they did.

Warren Buffett said that he didn’t see this granddaddy of all bubbles and likened it to what happened to Sir Isaac Newton, the scientific genius who also lost his common sense and fell victim to the notorious South Sea stock bubble of 1720.   Buffett stated to the Commission:  “Rising prices are a narcotic that affects reasoning power up and down the line.”

The best way to be in tune with the current real estate market dynamics is to counsel with an experienced Realtor.  The Huckaby Briscoe Group would be delighted to be of assistance in providing that market consultation.  Please visit our website for more information at: www.HuckabyBriscoe.com or contact Karen Briscoe at 703-734-0192 or Homes@HBGroup.us.

Karen Briscoe is Principal of the Huckaby Briscoe Conroy Group (HBC) and author of "Real Estate Success in 5 Minutes a Day". She is an Associate Broker in Virginia, a Certified Luxury Home Market Specialist, and a member of the Women’s Council of Realtors. Karen began her real estate career developing residential lots with the Trammel Crow Company in Dallas, and in commercial real estate with The Staubach Company in the Washington, DC Metro area. Karen has a Masters Degree from Southern Methodist University and her BA from Stephens College in Columbia, Missouri – her hometown.


Real Estate.

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