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Brier Dudley's blog

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

June 6, 2007 at 3:04 PM

Comparing bubbles: The dotcom and real estate

Blogs usually aren’t chilling, but that’s how it felt reading a post today by Henry Blodget, the former Merrill Lynch analyst accused of hyping Internet stocks in the last boom.

Blodget said he “can’t help but note the similarities between the dotcom-crash rhetoric/predictions back in 2000 and the housing-crash rhetoric/predictions in the last 12 months.”

All the way down, we kept revising forecasts (read: cutting estimates) to previously inconceivable levels, and each time we cut them, we reiterated our expectation that the inevitable trough and upturn was about six months away. It wasn’t until two years after the shakeout began, when half of online advertising revenue had evaporated and more than 75% of the companies in the sector had keeled over that the downturn finally ended…. And by that time, most of us were so demoralized that we’d stopped predicting that there would ever be an upturn.

Housing obviously won’t experience as deep a correction as the dotcoms did, but I haven’t heard a single persuasive argument explaining why this downturn won’t look like every previous housing downturn: i.e., will last a lot longer and drop much farther than most people think — until price/rent and price/income ratios return to or below their long-term trend.”

Blodget ran into trouble in part because he was publicly upbeat about companies like InfoSpace that he criticized in private, internal Merrill e-mails.

I hope real estate market analysts keep Blodget in mind.

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