Weeeeee!!!!!! Everything is perfect!!!!!!!! Milk and honey. Soft landing. Greatest story ever sold. Yada yada yada.
Ok..Ok...I can see that for the areas that are oversaturated with condos. But those areas are the exception rather than the rule. SM
In Los Angeles, the market didn't even peak until mid 2006. An average home in jan 2004 was around 210k, that same home was about 598k in mid 2006. The area I'm watching went from 405k to 996k in that same period. Today it looks like the average home has really only dropped by at most 10k and the area I'm watching maybe 50k. (Which would support the idea that higher end homes drop faster). But it seems like this isn't much of a drop considering where it started. I'm on the fence though. Because I also know that there are a LOT of people waiting for a chance to get into a home still.
Please explain to me any fundamental, rational reason why a home would appreciate that much in value. Tulip bulbs in Amsterdam, internet stocks, Tokyo Real estate and other such "investments" have also defied such scepticism.
There are no rational reasons in san diego. The population has gone DOWN, as supply has hit record levels. So that aint it. Wages are flat or down if you consider inflation. So why the boom? Insanely low interest rates with non-existent lending standards. which allowed a huge number of people to finally buy what they couldnt afford. Now weve gone thru 17 rate hikes, and lending standards are starting to tighten. This move is 3X the magnitude of the last move up which caused a 7 year down turn/crash in SD real estate. Lets see what happens this time. If you believe in mean reversion, prices need to come down another 30% or more.
All I can think of is that during the stock boom, everyone's money was focused there. When money came out of the market (and the market sagged), it coincided with the low interest rates and so money rushed into real estate. But the only time in recent Los Angeles history that I can see where the market dropped significantly was after the Northridge earthquakes. Seems like there can't be a crash until there are no buyers. But everyone who missed the run-up while renting still wants to be a buyer - maybe even more now than ever. So while there is no real fundamental cause for the run-up and despite the fact that people will start foreclosing - I think buyers will rush in at every opportunity. The rates today are still better than they were in 2003.
TheDudeoLife: I am totally thinking the same thing. I live in San Francisco, and a tiny and ok-looking condo in my neighborhood is easily over $500k. Even though people tell me that houses are almost always going up in SF, I just cannot logically feel that paying that much money for such a tiny place is a right thing for me ! When I went to Tokyo last November, condos in good neighborhoods (not the most expensive areas) of Tokyo was about the same price as here, or even cheaper, which is very surprising to me for knowing how expensive housing used to be in Tokyo. While I don't know much about real estate neither in U.S. or Japan, when the bubble burst in Japan in 1988, I believe the general public did not feel much of the pain (investors did, of course) or took it seriously until at least 1993 or so. Since then the real estate market there has kept declining over 10 years until only recently value in some areas in Tokyo start going up. Through the while time, there are many people saying in each year that the market hit the bottom and purchased their house only to see their house value going down. Again, I'm not familiar with real estate markets, and U.S markets are definitely different from Japanese, I am inclined to think that the initial process of going up and down in the real estate market is relatively slow, but that does not mean that the trend will stop and rebound to the other direction. Since speculations might have been big part of driving the prices and value up for this recent bubble, it would also depend on how the speculators would feel over the course of next few years or several years....
This is an interesting picture: http://en.wikipedia.org/wiki/Image:Barrons_shiller_06-20-2005.gif related to Japan: http://en.wikipedia.org/wiki/Image:EconomistHomePrices20050615.jpg I actually often feel Japan is about 10 years ahead of us in their economics. In 1990 I was working as a designer for an American based company that worked with Japan and we were reviewing one project where some of our co-workers were deciding that Japan was trailing our design trends by about 10 years - but I disagreed and proved to tthem that they were actually doing the retro design long before we would even get there. I took this concept a little further and decided it was around a 10 year advancement of our own sense of design. (There's always an exchange of concepts - but this was my rule of thumb.) Then the Japan economy crashed and there was a bit of time back then which I thought "I wonder if our economy will crash in 10 years." See, they'd had a huge tech boom run up. Well, unfortunately by the time it hit 2000, that realization was not at the forefront of my mind. But now thinking back on all of that and looking at the housing market figures for japan. It certainly makes me wonder a little bit.
11:28 BONDX Bernanke is concerned over delinquencies in exotic mortgages Warns that lenders need to be more transparent offering "full disclosure" on los (Bloomberg) 11:26 Bernanke says foreclosures in subprime market is a concern for Fed, watching closely - Reuters
Please explain to me how a home tripling in price approaches the speculative mania akin to the examples you provided. I'm not particularly bullish on RE but it's stupid statements like yours that cause me to rethink my position. Where was the SPX in 1989? I'll give you a clue. The S&P was one eighth today's value. Compared to stocks housing prices are hardly a PUMPED asset class. Even in this decades huge price run-up, most homes have lagged gold since '02. In 90% of U.S. metro's the average SFH can be purchased for under 250k. If you think that's tulip mania then you're a piker.