Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : News Links and Chart Links -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (6945)	4/7/2003 3:31:19 AM
From: Jon Khymn	Respond to of 29601

Will Housing Go Bust? Fool writer Mathew Emmert may find a decent house yet. In his column, Mathew laments the extreme prices being demanded even for dilapidated, ramshackle ramblers in today's hot housing market. He and his wife have decided to wait on the sidelines to see if housing prices cool off. Why? Partly because the last thing a new home buyer wants to do is end up "upside down" on a mortgage, which occurs when the value of a home declines below the mortgage obtained for it. This very situation caused many people to essentially become "bankrupted by their homes" when regional prices tanked about a decade ago. Back then, tens of thousands of people abandoned their California homes and mortgages rather than continuing to pay. Could something like that happen again? As reported by today's Wall Street Journal, an IMF World Economic Outlook study concluded, "Housing booms are more likely than stock booms to end in a bust," and when they do, the economic damage is more severe than stock market declines. The study showed that U.S. housing prices are up 28% (after inflation) since the mid-1990s. This is the largest short-term increase ever recorded, but records only go back to 1970. The U.S. price increase pales next to the 103% gain in Ireland, 70% rise in the U.K., and 43% hop in Australia, but IMF's research director said a 28% rise still easily meets their statistical measure of a boom, and implies perhaps a 40% chance of a later bust. Not all agree. Even IMF's deputy research director wasn't ready to call this housing market a bubble, according to the Wall Street Journal. He argues that prices are up for valid reasons, including higher immigration rates and increased demand, as low-income families qualify for mortgages more than ever before. It's all about supply and demand, and lately, demand still remains at least in-step with supply. The study suggests that when the housing market does go bust, prices fall an average of 30%, which means that homes lose about 60% of their recent runup in price. Housing price booms occur once every 20 years, on average, and 40% of recorded booms have ended in busts. That sounds like pretty even odds for this time around. If it does happen, though, some markets will hold up better than others. It's always about location, location and, uh, location.