bbtoc: Housing Bubble:
There are two paramount reasons that I disagree - with all due respect.
1) Unlike any period in the past, this time there are HUGE numbers of people who have overextended themselves in housing. The way they have done that is to buy far more house then they can typically afford purely because of the availability of easy credit - and easier credit than any time in history in the sense that ARM's are so popular now. Not IF, but WHEN, rates start rising a lot (and there is no way around that IMO), huge numbers of people will suddenly be forced into selling. In the past, when there was a peak, it just meant new buyers had to buy smaller - as you say. However, this time, a flood of new inventory comes onto the market at any price - just sell, sell, sell!!
2) Unlike any period in the past, there are HUGE numbers of people who have fed this bubble by virtue of the fact that they own second homes. I believe one of the biggest drivers of this boom has been the number of second homes built. There are two theorums in the real-estate bible for bulls. 1) They aren't making any more land. 2) Everyone has to live somewhere... In the past when you reached a peak, everyone still had to live somewhere and that meant all houses were filled. No big glut of excess homes. Just not a lot of upward movement. So, house prices stagnated, but did not collapse. That is much less true now. When those second homes go on the market and you have less households than you have houses, there is no end to the amount of damage that can be done. Look what just the slightest shortage of oil can do to the price? The reverse will be true in housing IMO.
IN MY OPINION. I COULD BE WRONG.
Len
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