In aggregate you are correct but it doesn't mean that it is going to happen in the next 3-5 years. In Boston in 89 prices fell over 50% and it looks like we are in for another haircut here too in the next few years. Will prices be higher here in Boston in 10 years time, 20, or 30? Who knows but you are surely correct that some point in the future prices will be higher just the question is how low will they go first and how long will they stay low? We sold all our RE in the last 2 years and are renting a place that it would cost us almost 6 times as much to pay a mortgage (with 20% down mind you) and propety tax on. Instead landlord pays for landcsaping and snow removal and was thrilled to have us write a 5 year lease.
I really dont htink that you need to do too much analysis beyond overlaying housing price and interest rate charts. Add the additional parameter of speculative money flow into the market and its pretty easy to explain where things are today and where things will be tomorrow if interest rates rise: housing markets have a lot of inertia to the downside and typically never "crash" they just slowly sell off .... If you are playing the physical market - i.e. buying and selling real proeprties - then they should be treated like any other portfolio with some profits taken at regular intervals. If you are playing the housing stocks then just watching the building permit and transaction numbers is a decent strategy .....
Look at the financial statement from KHOV yesterday. The way they word thier releases "The number of net contracts for the third quarter in the Northeast declined while the dollar value of contracts rose. This is indicative of a moderate shift in the mix of communities in the Northeast over the past 12 months to higher priced but lower volume communities" but look at the finer details .. Net Contracts (1) Three Months Ended 31-Jul 2005 2004 % Change NorthEast Region Homes 725 855 (15.2%) Contract Backlog 31-Jul 2005 2004 % Change NorthEast Region Homes 2,181 2,522 (13.5%) July %Change July %Change 2005 From 2005 From Net Contracts(1) July 2004 Net Contracts(1) July 2004 ($ in millions) Northeast 211 -37.4% $90.7 -16.8% (NJ, NY, PA, OH, MI, MN, DE) Lets see if this is the start of the downhill phase ...... !!!!!
Look into my watch as it swings back and forth. You are getting sleepy. Now repeat after me: "There can't be a national bubble in housing." "Real estate prices can't decline." "People will ride out any storm. After all, you can't live in a stock but you live in a house."
I saw a CNBC RE forum during the Memorial Day weekend and one of the guests was Robert Shiller. Like all economists and bears, he pointed out that LA suffered something like a 50% decline during the 90's. What one guest had to point out was that decline was due to the aerospace industry leaving the area. Now I look at last week's job report and the unemployment rate over the past year and the employment has expanded along with wages. Now how does the RE market suffer post bubble effect (50%+) decline if the economy expands and wages increase?
I wouldn't expect anyone to put a great deal of work in responding to you. Doing so most always elicits personal comments about the posters "mental illness", etc. As far as the aerospace "leaving" comment...the facts as I see them go something like this. Although many did blame aerospace as being the cause of the last serious downturn in California real estate, I believe it was only the "trigger" or the blame. California had enjoyed a huge real estate boom the previous five years or more and was ripe for a fall. There was another huge runup in California real estate in the 70's that led to a crash from 1980-84. I am sure the "blame game" was in full swing for that one too, coming up with soundbites to describe what was basically a parabolic chart, far diverging from population and wage growth, collapsing onto itself. Fact is...people always need a "cause" or blame in any investment upturn or downturn. It's not "different this time". Real estate has a huge divergence from population and wage growth. Wages, after factoring inflation, are flat. Population is up only modestly and predictably. People are chasing an asset class with kinky mortgages that will bite them on the ass. It cannot keep diverging from the mean forever. There will be a correction. A few other posters on another board had it just right.... "occasionally a market gets things really wrong, as in a mania, or fails to distinguish between fundamental price factors and those driven by transient psychology. In which case price may not lie, but it can change its mind pretty damn fast." "A real market bottom will occur when people have the same attitude towards housing as they do towards, for example, a roto-tiller. Cheaper to buy than rent, assuming the price is reasonable and you'll be using it frequently, but you don't fall in the love with the damn thing and you certainly don't think of buying one as an investment, even though it will probably have some resale value. " Coming to a theater near you soon.
RE is basically a function of employment. If the employment market is good, people have the funds to buy a house because no one wants to live in an apartment, thats flushing money down the toilet.
I think buying a house, condo, or townhouse right now in parts of CA, FL, NY, or NJ, would be flushing money down the toilet. The only reason to buy into this market right now is if you plan to stay in the property for at least another 10+ years AND have sufficient funds set aside for an unforeseen event.