Whatever the market can bear
Back in the 80’s I heard an often-used phrase that I didn’t really comprehend. It was “Whatever the market can bear”. I didn’t know what the term meant until one day when it became painfully clear.
The Discussion
It happened while I was working for Con Edison. I was on the train going into work. Standing nearby were two well-dressed men on their way to Wall Street. They were discussing the housing market and speculating on how much to charge for a rental. As they went back and forth on hypothetical rates one man turned to the other and said. “ I think the rate should be based on whatever the market can stand.”
After some thought his associate agreed. It was at that point I realized that men such as these would push the rents as high as they could go. As long as someone, anyone was willing to pay the rate it was okay. Screw the little guy. Hell, screw me, I am the little guy. I work for a living and I needed rent to be reasonable. But these guys could care less.
It was at the moment that I realized how bad such thinking was. I wanted to tell them that they were insane. That such thinking was selfish and dangerous.
But then reality kicked in. I was a black man on a crowded train about to approach two well dressed white men. I was going to get in their faces and their conversation. No, it didn’t seem like a good idea. So off they went and me, I began to re-evaluate my financial situation.
The effect on real estate
Decades later the real estate market collapsed. It fell under the weight of stupidity and greed. We all paid, some of us more than others. For some, it was too much to bear. Faced with ruination some went home killed themselves and family. Others lost their homes and tried to start over. And then there were those that didn’t feel a thing.
Warning Signs
Before the fall, I remember thinking that the market was going crazy. There was no way that certain people should be getting the loans they were offered. Some of the loans were meant for contractors and are complicated to use. Nonetheless, the broker and I saw more and more customers with loans they should not have qualified for. It was then that the incident on the train came back to me. I could hear those words again, “Whatever the market can bear.”
I could not help but think that this type of thinking was spurring the artificial rise in housing sales. The market was being pushed to its limits. Prediction of a market collapse came too late.
Had the men on the train and others of the same mindset caused the market collapse? Maybe, maybe not but for the sake of argument let’s say they did. If so could they have avoided the crash? What if the “market people” cared more about people and less about what the market could bear? Again for the sake of argument let’s just say they didn’t care.
Can it happen again?
It can never be proven that the concept of “What the market can bear” caused any crashes, real estate or financial. Mainly because no one has ever looked at greed as a factor in these crashes. What is known is that some experts predict another is on the way.
I agree but I believe the next crash will be in the rental market. This crash will have a ripple effect on the housing market. It will be subtle but devastating because no one will see it coming until it’s too late.
Analysist, however, see the problem once again in the housing sales market. In either case, it seems that once again we can expect to see the market pushed to its limits. And once again the affect will be crushing.
Articles on the real estate bubble
Below are two articles on the real estate bubble phenomenon. More can be found by searching for “Real Estate Crashes” I don’t know how long these articles will be online so I suggest you view them now.
See A bubble larger than 2006 for CNBC report on the latest bubble prediction.
Paragon Real Estate Group produced an excellent article on housing cycles in San Francisco. The article touches on cause and effect as it pertains to the market. Even though it is about San Francisco I found many similarities in the New York housing situation.
Paragon Real Estate Group article: 30 Years Of San Francisco Real Estate
What the real estate market cannot bear
The real estate market cannot bear stupidity and arrogance. It cannot bear greed or political corruption. It cannot bear the misunderstanding of its purpose.
The real estate market was created for the sale and acquisition of real property. The rental market was created to supply rental housing to those that need it. But when greed and criminal acts corrupt that purpose the market will fall.
The gentlemen on the train were wrong. “Whatever the market can bear”, is a concept whose time never should have been. And it’s time to end its usage once and for all.
You just read: Whatever the market can bear
Next: Unfair Market Rents from Bloomberg to De Blasio
Disclaimer: I am not a lawyer and nothing stated here is legal advice. This article applies to the five boroughs of New York. All information deemed accurate but not guaranteed. Always check the real estate laws in your part of the country.
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