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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 (28261)	3/17/2005 12:30:44 PM
From: John Vosilla	Read Replies (1) \| Respond to of 306849

You can also see the reverse, Jim, in areas that have not appreciated and also do not attract people of great wealth either from the bubble markets or foreign countries. Perhaps much of Florida's economy will be a lot like northern Ohio is today five years after the bubble bursts?

To: Jim McMannis who wrote (28261)	3/17/2005 5:17:01 PM
From: Elroy Jetson	Read Replies (2) \| Respond to of 306849

A tax-free gain of up to $500k on the back-end of the transaction may incentive-ize the public to apply the maxiumum amount of their income to real estate purchases - but it does not give a buyer more income with which to support their initial purchase and debt. You could say in a round about way it provides them more "income" on their next purchase, but to the extent this is true this affects #1 below, not #1. ___________________________________________ We all know, or should, that real estate prices correlate to income. #1 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". #2 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 part which determine the maximum extent of the possible bubble. 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.