This board was created because I believe the Real Estate bubble is massive and growing more massive everyday - at least as of June 1, 2005.
This economy has grown and continues to grow despite the horrendous debt issues we face purely because of one reason - the astronomical wealth effect created by inflated home prices. The refinancing boom has given millions of people extra money - not only because they usually skip a payment, but also because they have lower monthly payments.
But, the biggest issue is that when people THINK they have more net worth than they had last year, they spend like it. The overall debt situation in the US is staggering beyond anything any of us has ever seen. That is never going away in our lifetimes.
Many negatives face the prospects for further home appreciation - not the least of which is rising rates. But, the appreciation level for several years now has been unprecedented. It is eerily similar to the tech bubble that blew out in March, 2000.
Here are two important truisms on real estate. Every realtor knows them and spouts them.
Land: "They are not making more of it." Sounds good, but incredibly misguided! The perfect example - and there could never be a better example of anything. Anyone who doesn't recognize this example is a fool! There is nowhere on earth where land is more important than Japan. You have half the population of the US squeezed into a country the size of one of our states! Even worse, a big percentage of the country is mountainous! Despite that (and listen up), Real Estate values in Japan have DECLINED for 13 consecutive years! This is not a 3rd world country. This is the 2nd largest economy in the world!
What happened in Japan is identical to what is happening here. Their stock market went wild for quite a while. When it popped and began a many year down cycle, all that money had to go somewhere. It went into real estate and Japan's real estate market went wild for several years afterwards. Finally, that popped and it has declined 13 consecutive years.
The US equity market peaked in 2000. People sold. People had to do something with their money. And, new investors weren't too keen on putting it in stocks. So, where did it go? Real Estate. And, the market has been rocketing up for 5 years. It is now at levels where only the bravest (and stupidest) people are buying. The bigger fool theory works only so long.
"Everyone has to live somewhere." True, but also incredibly misleading. Nobody has to live in MORE THAN one place! What has driven this market more than any other single issue is the construction of second and third homes. Approximately 26% of all homes built in the last year were second or third homes. What people fail to realize is that if things start to go downhill, people will try to unload these things. That will set the dominoes in motion - and forget about it! It takes very little oversupply to obliterate prices - especially when they have rocketed up so long so fast.
There has never been a time when so many people were speculating on land and property. If they don't have equity, they will bail when things start going down. If they HAVE equity, they will bail because they want out with their profits. Just wait until you see huge numbers of for sale signs on "extra" properties that people own. It will be bloody IMO.
I estimate that the market will average -25% over the next 3 years - specifically in those areas around the coasts. That is really bad, if true. If you take 25% off the value of the biggest asset most people have, that is a horrible drain on the economy. Nobody is going to be spending like a drunken sailor under those conditions.
No bubble in history looked like it when it was at the peak! Everything looked fantastic! Everyone figured they could sell before the crash. At least in stocks, you, theoretically, can. You can find a buyer in 2 minutes. In housing, good luck.