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

To: Lhn5 who wrote (36111)	7/24/2005 2:01:05 PM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 306849

no, it's not ridiculous. if you think it's ridiculous, that is proof that you have not studied past bubbles. they always revert to trend, and usually overshoot on the downside. when you say in real terms you must mean the relative valuation of real estate against gold, wheat, eggs, oil. Well, perhaps that could be true. "real terms" simply means the inflation rate. it is a no-brainer that RE in bubblezones will put in a real high which will not be exceeded for generations. before that happens, bubble RE will probably hit a ridiculous low point in 10-20 years, i would guess. But in nominal terms...prices will probably end up much higher as the number of dollars falling out of the sky continues to skyrocker over time. the historical record does not agree with you. i agree that the nominal highs will eventually (e.g., 100-200 years from now, assuming civilization still exists) be taken out, but it could be a long, long time from now--certainly longer than the lifetimes of many hopeful RE speculators in bubblezones. consider that the Nasdaq is not in danger of taking out its March 2000 high anytime soon. Japanese RE is not in danger of taking out its 1980s highs anytime soon. and those are nominal highs, in countries where the governments have printed trillions of dollars and quadrillions of yen (such that Japan has a worse debt rating than Botswana). meanwhile, the inflation "skyrocker" is no guarantee of a nominal price rise in a given market. look at the Dow: it printed 1000 in 1966, after which the US experienced its greatest experience of inflation in the entire century. despite the raging inflation of the 1970s, the Dow did not take out its 1966 high until 1981. by that time, it had lost 90% of its value in real terms due to inflation. the scary thing is, the Nasdaq in 2000 and today's bubble RE markets are more overvalued than the Dow in 1966 by several measures such as standard deviations from trend (read Grantham and Schiller for detailed analyses). so, it would not be surprising to see a much longer fall. also, if one considers that today's inflation rates are much lower than in the 1970s, then an increasing amount of price damage will have to be inflicted nominally rather than via inflation. that is a scary thought when you think about all the leverage out there today in RE.