Is the real estate bubble about to burst?

> Dien,

> In my opinion one should not be too worried
> about what the Economist has to say. I mean
> did the Economist actually predict the dot
> com burst or before that the dot com rise?

> When I say predict I mean express an opinion
> long before there was any evidence of its
> truth.

The Economist may not have said anything about the DotCom bust before it happened without evidence. And that being the case, I would take this message from them a little more seriously. Because based on their past actions they don't write about stuff unless they have evidence of it. Thus, if they are writing about a busted real estate bubble, it is because they have evidence that suggests that.

> The real estate rise is not comparative to
> the dot com rise. The dot com
> "bubble" was based on a addictive
> assumption of future profits that led to
> manic demand.

That is what excesive real estate price rises are also based on.

> Real estate interest rates are greatly
> related to at least in the US to treasury
> bonds. Very stable.

> People are not buying houses or refinancing
> based on future expectations of lower rates.
> People are buying and refinancing because
> rates are low right NOW. They receive an
> immediate benefit.

They are also doing so because the value of their house has risen due to inflated demand. Together with a lower interest rate they can borrow more money for the same loan payments. But it also means IF rates rise a fraction their payments rise accordingly and they will be left with no income safety net.

> If rates rise then yes things might slow
> down but that is the normal ups and down of
> any normal market. A normal market is one
> based on real demand. Real demand is based
> on a benefit received at the moment of it's
> transaction. Economist call it Present Value
> theory.

> A bubble and its subsequent burst are based
> on an artifical rise in demand then a huge
> correction back to reality.

In Australia, the ratio of home-buyership to renting has, for the last thirty years, roughly been 75% buying and 25% renting. Even with the Government giving money to people who wanted to buy their first home. Even with rises and falls in the interest rate.

In my neck of the woods I personally know people whose house was valued at $200,000 a few years ago and it is now valued at $600,000. That is manic demand in action.

Interest rates are just one aspect. How about income? $600k for a three bedroom home? WHO can afford that for any length of time? The repayments are HUGE. One tiny glitch in the income and those buyers are sunk, real quick.

For about six months I've "reckoned" it was time to "get out" of real estate because of the downturn. I got Robert Campbell's book, "Timing The Real Estate Market" and am now doubley sure that NOW is the time to get out.

In a few months here we will have a dozen or so "developments" all completed. Instant over-supply. Rents have ceased going up by 20% and 25% and are now back to the usual $5 or $10 a week rise. Real estate agents don't have waiting lists any more. And more and more articles are appearing which say or hint at the end of the real estate bubble.

The appearance of articles should be enough to scare most people because of the reality the media creates. Even if nothing was wrong, the media saying it is all tumbling down is enough to begin the collapse. The fact we have crazy-high prices makes it worse. My observations - while not scientific - coupled with the analysed data (thanks to Robert Campbell's book) tell me the articles are right, but slow. That is, the bubble has already burst it's just that most people do not realize it just yet.

Frankly I would rather believe what my eyes tell me. The data doesn't fib. It just reports what's happening. And what's happening is not good right now.

But hey. Don't take my word for it. Get Robert's book and go through the data. And if you don't believe what those numbers tell you, pay close attention to rent increases and the like. We've now started getting stories about how hard it is for people to buy at these inflated prices; how hard it is to even move because the inflated prices suck most of your money out of you; how hard it is to pay the taxes in these inflated prices. In other words... how tough it is for people financially. Again, not scientific, just observation. More fuel to the fire.

I guess in a year or so we will know who is right when it becomes obvious to everyone.

Michael Ross