Greenwich Real Estate Market Explained

Basic Instinct

from The Wall Street Journal

By LIONEL TIGER

They have an irrational enthusiasm for a rational model of human economic behavior, and therefore economists can coolly confuse apples with prickly pears and conclude that all asset classes are the same. Owning a house in which one lives and owning a thousand shares of last season's aerated dot-com are supposed to involve comparable economic decisions. If dot-com shares plummet because their companies do nothing anyone is willing to pay for, then that is fairly a bubble. But it's supposed to be a bubble, too, if housing prices rise persistently.

There are good reasons. The world is ever more efficient and produces more assets nearly everywhere which people want to use. Immigrants come to countries like this and want a deck and a rec room and work like a Dickens character to acquire them -- and house their relatives, too. There are now relatively few straightforward ways to earn generous interest and profits because current enterprise is more efficiently low-cost than ever and pricing is global. Some places like New York are discernibly more fun and intricate, and people like inhaling them whatever the ruckus and cost. Finally, people have to live somewhere -- it's a philosophically existential veterinarian obligation. They develop primitively firm affections about where they store their slippers and where the kids whoop when they surprise Dad.

Terms such as "housing bubble" are so self-evidently admonitory, and commentators so secure in their Deep Concern, that owners of modest castles of sheetrock now endure the fear that their prized irreplaceable haven is a birchbark canoe careening down a rocky rapids.

In his lively study, "The Mystery of Capital," Hernando De Soto shows how seemingly disorganized slums in poor countries maintain a precisely gauged metric of rights and obligations. People know their ground, stand their ground, and enjoy their ground. Mr. De Soto also advises to listen "for where the dogs bark," because that's where the boundaries are. Basic territoriality and allegiance thrive. The cumbersome legalism involved in securing a search warrant to ruffle through your bedroom reflects the severity of a home's importance.

The emotionality of a dwelling is primordial, economically wholly different from ownership of a stash in a Bermuda hedge fund or a tranche of a leveraged buyout or an ormolu desk at which Napoleon or de Villepin wrote poetry. The most popular recreation in America is gardening. People surround their houses with frilly plants and especially with lawns -- an astonishingly costly national extravagance. To an anthropologist's eye, lawns suggest a Paleolithic savannah-dweller eager to see fierce beasts and bad guys before they reach the front porch. And what else but emotionally nutritious satisfaction could induce an indolent and sanitized population to grub in mud for weeds and grin with pride at their perky thorny roses and their copious specimens of zucchini, the world's worst vegetable?

All assets are not the same.

Of course there are real issues in the housing market. The entrepreneurs who've problems placing their funds into profitable adventures have now created a host of new "products" (what a degraded use of the word) which permit marginal or intrepid borrowers to pay little or no principal on mortgages, adjust their interest rates, or put off a grown-up reckoning by postponing for years when they must repay principal at a higher rate of interest than they bought into. This may become a disaster about which neither borrower nor lender should have been so cavalier. But in a sense, no more a setback than paying rent and having to show for it only a notice about next year's 6% increase. Of course their income could rise too, as well as fall. There's always the real estate industry's Old Best Friend -- inflation. And to top or bottom it all off, the government subsidizes interest with a tax deduction. Housebubblers are using OPM -- Other People's Money.

However, there is no question many individual owners will be pained, evicted, wiped out, or in extended fiscal conniption. So may be their unduly experimental lenders who will have to mine for bread in a pile of stones. Some vain vendors have already had to reduce their colorful prices -- Jack Welch, Ozzy Osbourne, pick your starlet -- because buyers aren't wholly feckless. But again this is at the margins and in gossip columns. The broad flow of housing transactions offers countless people a decisively advantageous accomplishment of their life cycle. They root themselves in a place which is theirs and is illuminated with the clarity of genuine autonomy. The accidents are always too many and too poignant, especially among the buyers for investment (not shelter) -- who have made uncoerced adult choices.

Meanwhile the center holds. The national housing situation is a triumph overall. If other societies blow similar bubbles, too, it's not because they're foolish but because they have the itch for homes and the scratch for them as well.

Mr. Tiger, professor of anthropology at Rutgers, is author of "The Decline of Males" (St. Martin's, 2000).