My neighbor talking about investing in a Condo Unit Donald Trump on Howard Stern braging that real estate prices in New York have gone up 60% in 6 months.... CNBC talking more about real estate stocks than ever before... Man have we been here before???
I AGREE!!!!!! As soon as the PUNDITS get on CNBC and crow about how there ISN'T a housing bubble...... You know what is coming. Can't wait to pick up one of these overpriced 500K homes in So Cal for 200-250K. Just have to be patient.
I'd wait till prices hit about 50 K myself I think this whole bubble phenomenon is a funciton of the unique psychological makeup of the Boomers ... Check this out : http://www.fourthturning.com IMHO : Understand this book and you understand what will happen to the markets and the USA in general over the next few decades.
A few facts: a.. First-time homebuyers made an average down payment of 3% in 1999, down from 10% a decade earlier. b.. As a percentage of disposable personal income, mortgage payments have reached the highest level since the Federal Reserve began following the data -- a 45% increase since 1980. c.. The percentage of people choosing adjustable-rate mortgages -- which can increase the size of mortgage payments as interest rates rise -- has virtually doubled in the past year, to 30%. It gets scarier. A new type of home loan is apparently becoming popular, known as the "interest only" mortgage. The borrower gets a reduced interest rate, but none of the monthly payments go to principle for as long as 15 years. A perky quote from one lender says that borrowers can "take the money they would have used to pay down principle and pay down higher interest consumer debt, invest, or pay for remodeling." In other words, trade debt for debt or better yet -- "invest" what would become home equity in a bearish stock market.
It gets even scarier. Nearly all of the items in your post are based on one thing - continued home appreciation. As long as the home is worth more in 5-7 years, everybody wins. Since folks in my area (metro DC) have seen home values double in some places over the last 5 years and interest rates are still low, the frenzy continues. The result (IMO) is now overbuilding, will soon be rising interest rates and a tremendous oversupply, not to mention all the refinancings that occurred (at artificially high assessments) while rates were low. If unemployments gets an upspike and they do anything to close the borders, this housing market is in big trouble. Of course, I called the top in '98, and it's doubled since then - so what do I know.
If they don't invest in real estate, where are they going to put their miney -- In stocks? Ha. Real Estate will continue to grow as long as interest rates remain low to reasonable. The growth may slow down, but it won't depreciate. If you live in a big city and there is another terrorist attack in a big city then prices there will drop and the surrounding suburban prices will increase as people flee the target rich environments. Look at the San Fran area. Even with the tech collapse, prices in Marin, the Penninsula and San Jose/Palo Alto area have not collapsed. They may have stopped appreciating at the outrageous levels, but...
That's one of the problems causing the bubble, no one wants to put money in the stock market and interest rates are low, so the natural progression is to put that money in a house. While I live in the Bay Area now, I grew up in Texas in the 80's, and during that time we had a huge bubble economy caused by the oil boom of the late 70's and 80's. Interestingly real estate did not slide in 1986 when the price of oil dropped in the toilet. It actually didn't happen until 2.5 years later, and let me tell you once real estate starts to fall, look out below. Everything in Texas went to 60% of its value in the snap of a finger. If there is anything that has prolonged the real estate bubble it is the events of 9/11. Pretty soon I think the US is going to experience some major inflation and Greenspan will have to turn off the faucet. When that happens look for real estate to fall and fall fast. BTW: Capital is moving to Europe at an enormous speed, watch the Dollar vs. the Euro, Euro's are going to get very valuable.
Calling a top is very, very, very difficult. How many incredible smart and experienced people called the market top in 98? I agree that the real estate market is forming a bubble but you just never know how far Greenspan will go to defend and prolong it.
Greenspan has said specifically (and recently) that the housing market is NOT a bubble. I have nowhere near the knowledge or experience of the honorable chairman and I can only speak for my part of the country, but I must respectfully disagree with him.
Greenspan and W. will protect the housing market like a lioness protects its cubs. Re-election is only two years away. After that...