I have to disagree that with those that say we are not in a real estate bubble. By "bubble" I mean that valuations have gotten too high.
If you look at the buliders you will see a significant increase in margins. That tells me that prices have moved up faster than competitors have been able to keep up with demand. Thus, the builders cost structure remains much the same but they have been able to demand more at retail increasing their margin. Since homebuilding has a low barrier to entry this situation will not last long before market forces will correct it.
As real estate valuation is based on three approaches to valuation - market, replacement cost and income. Once you get to a point where replacement cost and income are far exceeded by market valuation you have a "bubble".
What should folks do? If a house was like a stock, now would be time to sell. Of course our residenses are not stocks and we do need a place to live so treating it like a stock investment is not practical in most cases because of the government interest subsidy and other factors such as capital gains.
However, if you do not own a home at this time I would wait to buy or find a lot and build your own home. Rental property I would wait.
Of course I am speaking in general terms and there will be exceptions. When FNM lowered their criteria for lending qualifications it brought many new buyers into the market thus help creating the bubble. But this is also going to have a downside at some point as many of these buyers will not be able to service those loans or become disenchanted as they find they owe more than what there home is worth.
I remember back in 1987 I owned several commercial pieces of property. By 1989 they were worth 20% less than they were in 1987. I see the same type "bubble" valutions now. Of course the bubble doesn't take on the proportions as the stock's bubble, but a "bubble" none the less in my opinion.
Joe
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