Would you invest one million dollars (if you had it!) in a New Orleans apartment sure to be destroyed by a hurricane in the next five years? Would you plunk down about the same on a condo in Memphis sure to crumble in the earthquake predicted to occur along the New Madrid Fault in the same next five years? Or would you, by any chance, get yourself in hock for about twice that much (two million) for a modest dwelling in San Francisco atop the San Andreas Fault, which is sure to come alive very soon? Given these certainties it is no surprise that the average price of a New York apartment, according to The Week magazine, is $1,214,379. That's about a million and one third for those who (like me) have a hard time reading dollar numbers that big. By this reckoning, a New York apartment is at least one-third more pricey than one in New Orleans and Memphis and just slightly less than one in San Francisco. It's not a bad deal, considering that the only threat to New York is terrorism, which is a lot less damaging than the natural disasters mentioned above. Unless it's a nuclear bomb, of course.
I knew all these cities when you could buy whole houses for peanuts, so forgive my multiple astonishments, the most basic of which is why would anyone live now in any of these cities in the first place? Don't get me wrong: I love all of them, but I loved them more when they were cheap because they had more life in them. The more expensive they got, the more boring they became. People willing to spend money they usually don't have (yet) in order to live in these cities are all of the same kind: overworked, worried, harassed, mostly white-collar (and 90 percent white). These people are also very bad gamblers. What serious gambler would put all his chips on such bad odds? Oh, hurricanes and earthquakes imminent? Raise that bet, honey!
The real estate boom is driven by an incredible number of bad gamblers (i.e., suckers) who are hoping to cash in before the inevitable happens. Unfortunately, they won't, because most people are greedy and they still see only their paper profits even as the roof blows off the house. Another reason why they won't is because most of them are mortgaged to the hilt and if they miss one day of work it's goodbye to all they own. (Which is a kitchen full of Ramen noodles in a traffic-choked alley). Some people, very few, made money when they pulled out of the high-tech market when it was only down 10 percent. Real estate is following suit. When you see prices dropping, that's your cue. Unless you're waiting for the real cue, which is falling timber and drowning rats.