How big is the real estate bubble?

[gemsergio]

I think the price will come down around 50 to 60 % within the next 7 years in the hotmarkets like San Diego LA or new york what is your prediction?

 

[Andrew Shaw]

If anything it will increase by 50-60% within the next 7 years. You cant make land, we get only what we started out with 200+ years ago. Its all about supply and demand...There will never be a lack of demand for real estate, despite what people say, there certainly arnt less of us and people will always want the biggest and best.

 

[jdk]

I think the price will come down around 50 to 60 % within the next 7 years in the hotmarkets like San Diego LA or new york what is your prediction?

Maybe like 20% - 30%. We are on top of the bubble and prices have already started to drop a little. Just look how many houses are for sale. It is apparent they are not selling like they used to.

In the next 2 years I think you will see a major drop in the prices. People are uncertain about the economy and tend to save during these times.

Ashaw is correct, you can't make more land; however you can develop on undeveloped land. I don't see the price coming down 40% to 50% though.

 

[acronym007]

Not as big as the media predicts besides it's all about location. One area may see 10% another area 50% but that will most likely will be due to the local ecomony or loss of jobs, no bubble as the media likes to predict. Not only cannot not make more land, but if your in the USA you have the most desirable land on the planet. In my local area, Chinese are buying property like it's going out of style. You'll never catch me buying a piece of land in communist China. Love the people hate the government. Cheers,

Acro

 

[whydna]

I heard some interesting insight regarding the "oil peak" - in about 4 years.

They say the value for suburban type housing will fall drastically, due to the nature of housing in suburban areas (very spaced out, in terms of housing, mall access, getting to work, etc).

When the oil peak does occur (if it does), society will need to make drastic changes in order to cut back on gas usage, and keep everything closer together.

 

[VioxxLawyers]

The oil peak issue worries me a lot more than real estate prices.

 

[acronym007]

The oil peak issue worries me a lot more than real estate prices.

I'm with you on that one. There is no hype there, only serious concerns.

 

[WhoDatDog]

Any asset that increases more than the underlying fundamentals over a period of time will always come down. How many people in March of 2000 would ever predict that the Nasdaq would drop from over 5,000 to almost 1,000? They were telling you that the gains might not continue, but none of the experts would dare say it would go down to 1,000 in its lifetime, let alone within two years.

In the summer of 2000 the NYSE was at almost 12,000...check it out today. So much for the long run and 9 percent per year.

All assets where the idiot public and cab drivers become experts on are bound to crash. This goes for stocks, beanie babys, baseball cards, houses, and everything else. There has never been an exception...when people who don't know what they are talking about are making money the downside is ALWAYS nasty and more than expected.

That is why I will be selling my domains when I start overhearing people on the street talking about them....probably many years down the road.

Comments like "They don't make any more land", and "Real Estate doesn't crash", are exactly the type of comments you hear right before the dagger.

It used to be that people would have to save for years in order to put a down-payment on a house....now they don't even need good credit.

In the late 90's stocks were the "greatest investment of all-time", and then real estate took it's place. When stocks are sexy it is time to sell, and when real-estate is sexy it is time to sell and rent an apartment.

Remember CNBC a few years ago....all the hype...all the "profit from it" talk? It's not even the same show anymore.

If you put zero dollars down on a $500,000 house and that house loses just five percent you are out $25,000, and your payments will likely be going up since the odds are that you have an adjustable rate mortgage. Bankruptcy will be happening soon.

The beautiful thing about the coming housing crash is that no one will take responsibilty for their actions. Everyone will claim that they knew it was happening. The big problem is that houses are harder to sell than stocks. In stocks you can wake one day and say "I've had enough" and sell everything. Most people don't have the guts to sell houses that have appreciated the last few years. If anything, they will blow that equity by buying a bigger house. They will be in for some Chinese Water Torture in the next 5-10 years or so as they wait for the values to come back.

Good luck. When it comes to markets and investing most everyone gets what they deserve...eventually. I bet 99 percent of the Enron investors couldn't even articulate how that company made money. I am certain that most real-estate investors of the last few years have little historical understanding of real-estate cycles. All they know is what their monthly payment is right now, and that values have increased in the last few years.

I look forward to watching it unravel. I will be buying in California in about six years....when real-estate is the kiss of death.

A house is a place to live; NOT an investment. When it is considered a great investment then BAD things will happen. Every time.

 

[BostonDomainer]

If anything it will increase by 50-60% within the next 7 years. You cant make land, we get only what we started out with 200+ years ago. Its all about supply and demand...There will never be a lack of demand for real estate, despite what people say, there certainly arnt less of us and people will always want the biggest and best.

Uhm.... do you pay attention to the news or have any economics background? Shall I remind you of a certain "irrational exuberance" speech and a certain Allan Greenspan that used the same phrase to describe the tech bubble in describing the RealEstate bubble? The fact of the matter is that the market is in transition and about to undergo a "correcting" phase.... land as a scarce resource has nothing to do with the current realestate market as homes are not scarce as it is.... besides, we're talking short term here... realestate increasing 50%-60% in 7 years is simply laughable. Its a bell curve and we were at the top this time last year.


And yes... I agree with the others that the gas prices is a more immediate problem which will only have adverse affect on the realestate market.

 

[Duckinla]

Ashaw is correct, you can't make more land; however you can develop on undeveloped land. I don't see the price coming down 40% to 50% though.

Right there is your answer.

The cost of building a new home is pretty similar in any part of the states/Canada. The selling price is being driven by the cost of the land, not the cost of the home construction. In places where plenty of land is availabe, you could see a big drop. In places with no more available land, demand should keep prices from falling more than 10%-15% in the near term. Long term, the exponential growth of population seems to always push land prices up. How many people do you ever hear talk about Grandpa being so wise in deciding to sell off all that land he owned?

In places where there is still land for new homes (Phoenix, Las Vegas, etc.) There could be a serious dropoff.

In places where there is no more land to build on, people will probably jump in at a 10-15 percent correction.

The main question is what will happen to credit? As long as mortgage loans are cheap and loose, that should prop up the market. If mortgage loans get expensive and tighten the rules, the market will be forced to correct...particularly for homes in the $200K to $400K range.
If this happens, cash will be king. People who can buy without financing at high rates will be in great shape.

 

[WhoDatDog]

Cash is always king.

 

[BostonDomainer]

Excess excess excess.... it happened to the Japanese in '89 and took them 13 years to receover. In the U.S I think it will take at least a decade to recover precisely because of the problem with the interweaving home equity loans, line of credits, and mortgage rates. This is precisely what occurred after 1988 as the then U.S housing boom ended. National housing prices finally reached previous 1988 levels in 1997. I expect this bubble to bring things back to ~2004 levels even in places like San Diego. San Fran, and L.A..... and it has little to do with scarcity of land as it does with game thory reaction. Prices for land and homes have been bidded usuriously high because of future expectation and not current market conditions. To me it's all game theory application along with economic principles. Wish I had more time to get in depth- perhaps later.

 

[Duckinla]

My instincts are that there has to be a correction. The numbers are too far out of whack and don't make sense.
The thing that's difficult to resolve is how much counter-effect will the increase in population have? Los Angeles county's true population is maybe 20% bigger than it was in 1985. If the county was already crowded in 1985, 20% more people doesn't just increase current housing demand by 20%, it increases it by maybe 200%.

 

[labrocca]

10-20% correction in the next 18 months and then slower growth for 5-10 years before we boom again

 

[WhoDatDog]

A small correction and slower growth would mean that the crowd wouldn't have to pay for their unwise decision to buy at the top of the market.

Ain't gonna happen. All idiots have to pay the price....period. There has never been an asset where idiots have made money and not had to pay in the end.....ever!

Many idiots made money in the late 90's with tech stocks and many idiots have made money in hot real estate markets. When the dust settles they will all take a bath.

It is quite common to under-estimate the downside when bubbles burst. You have to remember that most people are borderline retarded when it comes to any investment. I would guess that less than 5 percent of people who own stocks in this country could even tell you how much debt their number one holding had.

I love it....makes it so easy.

 

[dvestors]

You have to remember that most people are borderline retarded when it comes to any investment. .

borderline? you're givin too much credit :lol:

 

[JuniperPark]

Already down 15% in San Diego. A 7 year rollback would be a 70% drop in prices.

 

[Duckinla]

Don't forget how low a house payment can be at todays interest rates. If the national average home price is around say $370,000 then an 80% mortgage would be $300,000. At 6 percent interest this will work out to about a $1,500 monthly payment when you factor in taxes and tax deductions. A lot of 2 bedroom apartments rent for over $1,000 and plenty of houses rent for over $1,500. A one or two-income family earning $75,000 per year will easily qualify for this loan and be able to make this payment.

If rates go up to 8%, a 20% drop in the mortage (to 240,000) would keep the monthly payment the same, probably slightly lower. I think the scenario of 8% interest and 20% drop in the next 24 months is realistic.

I have a friend who bought a condo in Phoenix maybe 15 years ago. Just last year the value finally returned to the price he originally paid.

 

[Rarethings]

If anything it will increase by 50-60% within the next 7 years. You cant make land, we get only what we started out with 200+ years ago. Its all about supply and demand...There will never be a lack of demand for real estate, despite what people say, there certainly arnt less of us and people will always want the biggest and best.

Your estimates are a little high, but what you are saying is on the money.

...As for the oil peak, oh boy.... Wait until it hits $15 a gallon....

 

[Duckinla]

Interesting thing about oil. The U.S. used to control a significant portion of the demand for oil. If we could conserve and cut demand by 15%, we could cause the cost per barrell to fall. Those days are over. Countries like China and India will buy up anything that the U.S. conserve. The U.S. alone could no longer cause the price or demand for oil to fall, only our own consumption of it. I am pretty convinced that the price will conitinue to rise until it becomes clear that a breakthrough technology is truly on the horizon.