One thing I do not get is the tone many bubble callers have. What is up with that. Were home owners stupid in recognizing that homes were going up every month and that better get one while they can. When did we see the first stupid buyer vs. the last smart buyer. Homes are different. Many people buy a home and rationally consider that it cost of lot of money. And rationally say, even it goes down I will still live here. So far I have not met a single person who has taken out an arm that would take them apart if interest rates when up less than a lot. Some of my friends a few years ago who bought big homes in California took out arms instead of 30 years because they figure they could always lock in a 30 later. He said hey if the housing market falls apart, the whole country will be in the shitter and it will not really matter anyway I wont have a job so I wont have the house with a 30 year or an arm. Assuming everyone taking out arms is barely hanging on is and unfounded assumption.
When I think of a bubble I think of tech stocks like CMGI, YHOO, PMCS, etc going up several 100% in a few months... in many cases days. I just don't see that in real estate. Yes prices are getting out of hand in many places but I don't think that 20% year over year increases amounts to a bubble.... In any case the biggest difference that I see between real estate today and tech stocks in the 90's is few people called the stock run up a bubble (while it was going on), and it seems like every newscaster and next door neighbor is calling real estate a bubble.....
jem; the buyers who bought before...and have now sold....no, they weren't dumb...they were smart. i.e., the ones who SOLD were smart. What you're missing is that this is a classic example of a game of "last one standing". So long as your name is on the title, your "profit" is a PAPER profit ONLY. To convert it to a REAL profit, you must SELL. To sell, you must have a willing buyer at YOUR PRICE...i.e. the price that produce that profit...or at least prevents a loss! So long as the lending standards remain disgustingly lax, the credit remains incredibly cheap, the market stays full of speculators/flippers; you're golden.... ....IF you SELL, and do it WHILE those conditions remain true. It's the -combination- of all those conditions which is making the market what it is right now. The moment any one of those conditions disappear; you're looking at an instant cliff-dive in prices. And at that moment, those whose names are still on titles are "the last man standing". They're stuck. No buyers at a price level which would translate that PAPER profit into a REAL profit. At the first HINT of market-flattening; the specs and flippers will evaporate like dew. However, at the very same time, the -supply- will increase; because the flippers who happen to be holding at that time will ALL put their properties on the market at the same time. That ALONE will hammer prices. That's your first giant red candle on the downside of the space-needle chart. Couple that with our failing economy, social disintegration, increasing layoffs, rapidly rising taxes and energy costs, tightening lending-standards (already announced), etc.; and I shudder to think of what RE is going to be like 1-2 yrs from now. Consider a "blowoff top" chart....one of those parabolic space-needle things....they come down the other side as fast as they went up, and as far too. It's a wipe-out experience for those who bought at the top. And anyone buying today is buying at the top.....Cisco at $70...that kind of top... Also, the "walking away" routine is about to become impossible. Please read the text of the new Bankruptcy Act just passed.... Midas: you say that 20%/year is reasonable. That's an astounding statement. We aren't talking about something "optional", like a penny-stock bought solely for speculative gains...we're talking about HOUSING....a basic NEED of all people. In an environment where real incomes have been FALLING for several years; the result of your "reasonable" 20%/year has been to price over 80% of the buying public OUT of the market. (Kali as example) 80% !! That factor ALONE should be screaming "unsustainable trend!" to you. Since that number is growing every day, and since there IS a hard limit, at 100%, it is OBVIOUS that there IS an end-point to this RE space-needle. And we are getting very close to that end....very close indeed... My only advice is: do NOT be "the last man standing"....
I agree with your post. Unfortunately, I get the feeling many others have just adjusted to "asset inflation creep". Senor Zen
Churchill said "It is better to remain silent and thought a fool, than to speak and remove all doubt". SteveD
The thing that has driven up housing prices is greed, pure and simple. Greed by those speculating and fear by the ill informed who think that if they don't buy now they will never be able to own a home. Once they exchange chairs, where the greedy get afraid they can't sell and the ones with fear get greedy in seeing how cheap they can get a house then it will be over. John