Leap,
We are in basic agreement that the price increases can't continue. But you ask "Where is this demand going to come from?"
When the bubble bursts, the effects will be quite uneven. Partly because the demand is very uneven. Here in Pinellas County, I don't see any slowdown in net new population. If housing prices rise enough, perhaps it will slow down the rate of new citizens. Part of the problem though, is that prices in the Northeast are even higher, and that is the source of many of our new residents. They can sell their home in New York or Massachusetts, buy a nice house here and have a nice cash balance to live on. Other places are losing population, demand there, is negative.
Supply is plentiful in many areas. Again, here in Pinellas County, there are virtually no homes being added to supply in the under 250k range. We are adding quite a few luxury condos. In areas with undeveloped land, affordable housing can be created, providing some restraint on prices. In areas such as here or in coastal California, where there is no land to build on, affordable housing cannot be created.
So, again, I expect housing prices to fall. Will that cause the economy to collapse? If not, I see lower end houses in high demand areas holding their prices. If we go into a severe recession, all home prices may fall sharply.
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