RD,
Thanks for the link. Very sobering. I'm afraid that I'm still split down the middle. Yes, the market is IMHO overheated, but at the same time I'd like to ride the train for awhile longer.
There are many other factors to consider here also. I don't know what real estate values are doing where you live, but in Los Angeles and neighboring Orange County they are spiraling back to and beyond the lofty levels of 1989. You may recall that this was the peak of So. Cal. real estate prices before the big crash that contributed greatly to our national S&L crisis. True, we do finally have an influx of new jobs into the area that will help support these values, but as one who lived through the crash (actually bought my first house in 1989, "buy high, sell low" - that's my motto) I am concerned.
Consider the upward inflationary pressure of rising home prices. Demand exceeds supply. New homes mean new appliances, new furniture, new TVs. In sunny Southern California, those that didn't quite have the down payment after being priced out of the market, simply gave up - and bought new cars instead of a house! (Yes, this was a real trend.) And certainly financial institutions don't like the fact that they are clogging up their portfolios with 30-year fixed rate loans at 7% or lower. Once the old-timers sitting on a potful of equity decide "Hey, it's time to sell", then the inventory will catch up real quick. Don't forget that we have some favorable new tax laws regarding capital gains on the sale of your residence.
We could easily see another drop once the panic buying stops. The new homeowners will find themselves underwater and some or many will get foreclosed upon. Could be deja vu for the banks when they have to reserve for these losses...
At least we have already gone through our defense industry downsizing and consolidation. So without this huge destabilizing factor, maybe SoCal will be OK, but I can easily see it happening all over again...
MK |
