WHAT housing bubble?
by Steven K. Wagner
 Gary Smith ’67, has emerged as the guru of housing bubbles or, it appears, the lack thereof. He’s much sought after for his theories and opinions, which have appeared recently in a number of high-profile publications, and his financial planning service, Smith Financial Place, is reaping the benefits. In fact, the New York Times and Newsweek recently directed readers to his website, www.smithfinancialplace.com, while Business Week commended his approach to estimating the value of a house.
“Throughout the heartland, housing prices are low—there’s no bubble,” Smith said. “Over the past 10 years, mortgage rates have dropped, housing prices have only gone up a little, and you’re much better off buying than renting. Los Angeles used to be like that—now it’s close, but over the last 30 years housing values appear to have gone up within reason.”
Born and reared in La Habra, Calif., Smith enrolled at Harvey Mudd College, where he participated in debate, lettered in swimming and water polo (he was team most valuable player and named to the all-conference squad) and earned a B.S. degree in mathematics in 1967. He earned an M.Phil. degree in economics at Yale University two years later, then a Ph.D. in economics, also from Yale, in 1971.
After serving as an assistant professor at Yale, the University of Houston and Rice University, Smith returned to Claremont as the Fletcher Jones Professor of Economics at Pomona College, where he has worked since 1981.
“It was serendipity,” he said of his return to Claremont. “The college needed someone in finance, I was poking around for something new, and Claremont was a nice place to be. I had fond memories of Claremont from my HMC days.”
Smith enjoyed math in high school, and when he entered HMC, he found that he also was good at economics.
“Economics is very mathematical,” he said, adding that the mathematics he studied at HMC has proven essential to his overall success as an economist.
Smith’s interest in housing emerged after he married Margaret, also a Pomona College professor as well as a partner in Smith Financial Place and a certified financial planner. As the news media began floating what appeared to be arbitrary notions of a housing bubble, the question that clients kept asking was, “Is now a good time to buy a house?”
By comparing the cost of buying a house with that of renting, then adding to the mix interest rates, the length of time one plans to live in an area, and other variables, the couple have devised a formula that they use to advise clients about buying a home. That formula also tells them whether a housing bubble exists at any given time, or not.
“The news media tells us that housing prices are higher than they used to be, therefore they must be too high,” Smith said. “But, who’s to say they weren’t too low in the past or that things haven’t changed, such as a big drop in mortgage rates—which means housing prices should be higher than they are?”
Smith Financial is more than a financial planning service. An unusual aspect of the company is its “coaching” component, whereby clients are empowered to change their lives—not just their financial well-being.
“People come to us with money problems, but they aren’t really money problems—they’re life problems. Margaret helps them get back on track.”
As for himself, Smith appears to be on track. He has a newborn girl and three young boys at home, a successful business, and plans to continue teaching at Pomona for some time. And, he’ll continue to spread the good news about home buying vs. renting, although housing bubbles come and go. He concedes that his own theories will subside as talk of the housing bubble recoils.
“This is sort of my 15 minutes of fame,” he said, laughing.” 
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Alumni returned April 1 to celebrate the 30th Anniversary of the 
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