This thread reminds me of the purchase of my second house in New Jersey. My Dad warned me I was overpaying and that basically the sky was going to fall due to the crises of that time (Early 70s) being runaway inflation and the recent resignation of Nixon and oil prices rising out of control, etc, etc, etc. I paid about 50K for it, sold it a two years later for 85+, and it currently sold for over 400K. So, maybe it will be different this time, but history taught me that what appears overpriced may not be to others and as long as someone steps up to the plate and pays a higher price, the fear of bubbles bursting remain just that - fear. Sure, they'll be local markets, like S. Florida, that are slumping. I own a condo there, and its market price fell a shocking 10% from the highest price ever paid for a unit in the complex. But even that horrific fall in price leaves me with more than a double in just over 4 years of owning it. Seneca
Seneca "So, maybe it will be different this time, but history taught me that what appears overpriced may not be to others and as long as someone steps up to the plate and pays a higher price, the fear of bubbles bursting remain just that - fear. " No, Were OVERPRICED. The slowdown is coming.
Consumer Spending makes up approx 70% of the GDP, most of the consumer spending that fueled this economy for the last 5-7 years was all the money people were borrowing against their houses which they most likely took and only interest loan and put no money down on. Also, the housing bubble is an est. $10 Trillion dollar equity BALLOON. What happens when the $1 TRILLION no down payment, no interest and ARMs reset???????????? This will devalue houses dramtically causing unemployment and foreclosures not seen in many years. This will lead to a Recession in 2007.
"as long as someone steps up to the plate and pays a higher price..." Thats the rub. The prices in Western MT have been inflated by out of state investment from areas such as Cali. where they could sell their house for 500k to a Mil. and turn around and buy a lot more in MT for half the price. If the market in areas such as Cali., Arizona, and wherever else stagnate and decline the money spicket for the Western MT market will be severely reduced, and the buyers will be nowhere to be found...
I'm bearish on RE prices. IMO prices exceed the income available to sustain these valuations. That being said, IMO the systematic economic damage of lower home prices as expressed by opinions like yours is WAY overstated. I'm hardly an old guy although older than most on ET (44). Most everyone I know has been a home owner for a decade or two. That means in most cases they have about half or more of their home paid off and their place has doubled or tripled since purchase. I live in a beachfront community north of Miami. Without doubt prices have already declined 10-20% around here. Yet I don't know a single homeowner who's effected. This place is littered with 40yo's who bought in 1998 for 500k with a hundo down from either the proceeds of a starter home, an inheritance, some stock sales or a gift from their parents/inlaws. If anything, vis a vis lower rates they've decreased their borrowing costs this decade. Bubble prices? Fer sure. Will the bubble breaking put them on the street? Hardly. Certainly there's "poster boys" in any speculative environment. Flippers, NASD daytraders, ect. Are they the majority of activity. Nope.
Like an internet stock during the bubble, though, it's not a realized profit til you actually sell your Florida home at that inflated price.
Not at all analogous. Tech prices were expensive to other equity classes. My home here is no more or less expensive than like properties throughout the developed world. If Florida is a bubble then so is San Diego, Charleston, London, Sydney, ect. I only want balance in my portfolio. I trade for income. I own a home for both shelter and lifestyle. I only care about appreciation/depreciation as it relates to the Dollar. i.e. if someday currencies are in a global meltdown I want a hard asset. A house is like gold or silver. Plus you can live in it. If we assume a world where all homes have the same beta, then it doesn't matter what our home price does. IOW if my place here breaks 50% (who knows, it could) then a. I'd STILL be up money but more importantly, b. I could just as easily move somewhere else on an equivalency basis or buy the same amount of goods and services on an equivalency basis. No one knows the future. Five years from now cash may be king. Or five years from now cash could be worthless. Why guess? Just try to have equal amounts of assets and money.
US housing is still a great value compared to equivalent cities/areas in other first world countries.