No Housing Bubble Burst?
Amidst all the warnings of a housing bubble, at least we have one person telling us not to panic. Mark Vitner, senior economist with Wachovia Corp., spoke soothing words to a gathering in the Hampton Roads area of Virginia.
Mr. Vitner says the recent slowdown in home sales is due only to supply and demand levels returning to equilibrium, rather than the doomsday scenario of a bubble burst forecasted by some.
In fact, Mr. Vitner's forecast is in line with most expert predictions. I think when people hear the term "bubble", it is a forgone conclusion in their minds that a bubble must be followed by a burst. What goes up must come down and when there is a bubble, it must be followed by a burst. But really, bubble just means an anomalous inflation of demand caused by speculation-fueled speculation. The 'my brother-in-law is making a killing buying up properties so I will too' mentality.
Yes, that type of demand can come to a sudden and screeching halt, a burst. But it can also slowly deflate until demand and supply are again living in perfect harmony. So if by burst you mean the days of double and triple digit rates of return in a short period of time are over, then yes, you could say there will be a burst. But if by burst you mean the bottom falling out of the market with prices returning overnight to levels of 3 and 4 years ago the way it did with the tech stocks bubble then, no, most experts disagree.
Evidence abound if you do a search on Google News for "real estate bubble."You won't find many articles from experts who come right out and say there will be a real estate bubble burst. Most use terms like slowdown, decline, or cooling. Definitely not the time to tie all your cash up in one market but, then again, is there ever a good time to do that? No. But if you're worried about buying your first home or holding on to that one investment property in your portfolio, you're worrying needlessly.
I don't have to remind you that I'm no expert, I'm sure that's clear from my ramblings.
Mr. Vitner says the recent slowdown in home sales is due only to supply and demand levels returning to equilibrium, rather than the doomsday scenario of a bubble burst forecasted by some.
In fact, Mr. Vitner's forecast is in line with most expert predictions. I think when people hear the term "bubble", it is a forgone conclusion in their minds that a bubble must be followed by a burst. What goes up must come down and when there is a bubble, it must be followed by a burst. But really, bubble just means an anomalous inflation of demand caused by speculation-fueled speculation. The 'my brother-in-law is making a killing buying up properties so I will too' mentality.
Yes, that type of demand can come to a sudden and screeching halt, a burst. But it can also slowly deflate until demand and supply are again living in perfect harmony. So if by burst you mean the days of double and triple digit rates of return in a short period of time are over, then yes, you could say there will be a burst. But if by burst you mean the bottom falling out of the market with prices returning overnight to levels of 3 and 4 years ago the way it did with the tech stocks bubble then, no, most experts disagree.
Evidence abound if you do a search on Google News for "real estate bubble."You won't find many articles from experts who come right out and say there will be a real estate bubble burst. Most use terms like slowdown, decline, or cooling. Definitely not the time to tie all your cash up in one market but, then again, is there ever a good time to do that? No. But if you're worried about buying your first home or holding on to that one investment property in your portfolio, you're worrying needlessly.
I don't have to remind you that I'm no expert, I'm sure that's clear from my ramblings.
posted by VA Real at 12:54 PM
1 Comments:
The final comment in your piece, "if you're worried about buying your first home or holding on to that one investment property in your portfolio, you're worrying needlessly", is a very dangerous remark in this market.
Increasing inventory is exposing underlying financial stresses.
“High Prices” are not the issue, as price is a relative concept and what is expensive to one person is inexpensive to another. What is at issue is the fact that individuals who cannot afford to purchase properties at current prices have used exotic financing to make a short-term acquisition into a market that is turning into a long-term problem.
As inventory increases, properties will sell for less and take longer to sell.
Individuals with short-term financing are going to face three major dilemmas:
1. They will not be able to rent the property for what it is costing them.
2. They will not be able to refinance into a more traditional mortgage because they have no “real” equity in the property.
3. They will not be able to afford the property and it will bankrupt them.
Who are these individuals?
According to a recent article from the Washington Post, 54.3 percent of all D.C. home purchasers used interest-only loans. So turn to the person next to you and give them your condolences...
And don’t forget the difficulties the country is going to face as the financial institutions that currently service the above loans are dissolved and the government is required to bail them out. Not to mention the 800,000 jobs that will be disappearing in the near term as the construction industry scales back…and woe to the real estate agents.
A whole generation is about to wake-up with a bad hangover and very serious financial troubles…
Rob
dcrealestatemarket.com
Licensed DC Agent
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