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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (28249)	3/16/2005 10:03:10 PM
From: Crony	Respond to of 306849

You will run out of buyers because everyone and his uncle have bought already. Anyone can buy a house now. You won't be able to buy a used car if you don't have $5K, buy you sure can buy a house worth $500K. The rates are going up. If someone wanted to buy, they have bought already. The other side of this disbalance between buyers and sellers is the lack of sellers. Most of the potential sellers are waiting for even higher prices. When the prices start going down, they will stomp one over another to put their house on sale. And they will compete with speculators who bought this 'greater fool' theory. And there will be builders trying to unload. And those APR will kick in just in time.

To: Jim McMannis who wrote (28249)	3/17/2005 12:58:57 AM
From: Elroy Jetson	Read Replies (2) \| Respond to of 306849

We all know, or should, that real estate prices correlate to income. In the short-run, real estate can run up faster or slower than income based on changes in interest rates and government tax subsidies. This is simple economics based on "effective income". Real estate can run up faster, or slower, than incomes: _ when people direct more of their income to real estate purchase than they normally do; _ when people who previously did not participate in the market begin to; _ when the Federal Reserve instructs the banking system to abandon normal credit standards and lend to anyone breathing. This is the bubble part. None of these factors affect real estate prices in the long-term. Eventually interested buyers run out of income to apply toward real estate purchases and the excess price inflation above income growth has nowhere to go but down. This will occur long before the theoretical maximum because not everyone will apply every possible portion of their income to real estate investment, although more will than you might expect. Even Sir Isaac Newton finally invested and lost in the South Sea Bubble, even though he knew it was a bubble and advised everyone he knew not to invest. So when does the end come? It depends on herd behaviour. What spooks the herd and sends them thundering in another direction? Hard to predict but you know it when you see it, and I doubt that is very far away. In Los Angeles I think there is a possibility that we will look back and see that the real peak in prices occurred last April 2004 - in spite of the fact that "average sales prices" may seem to infer otherwise. Some people will say what about demographics etc? These factors help determine income but not the relationship between available income and real estate prices. The relationship between income and real estate price is valid whether the market consists of 1,000 people with a lot of income or the same income divided between one million people. .

To: Jim McMannis who wrote (28249)	3/18/2005 5:34:06 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

Yeah, obviously the prices are too high and/or the supply is too great...<G> but what happens to make it that way? Don't make me ask Grace. Nice to know I can provide an effective threat. Elroy is right, bubbles don't need a trigger to collapse. RE bubbles are like pyramid schemes, they are fed from the bottom, supported by the base, the entry level buyer. The base runs into the mathematical impossibility of expanding further because you run out of people who are willing or able to take the chance of getting left holding the bag. The entry level buyer is always weighing buying vs. renting, these two things get too far away from each other in price, they'll opt to stay renters. This deprives the move up buyers of someone to sell their house to and so forth. Sooner or later somebody does the math and they figure out their chances of being better off buying are next to nil.