When A Bubble Isn't A Bubble--Maybe

The last contrarian topic for this week is the REAL ESTATE BUBBLE.  As my investment advisor points out, correctly, a bubble is not a bubble if everyone recognizes it as a bubble.  The real estate bubble has been the most reported bubble, before the bubble burst anyway, on the planet.  Historical bubbles were seen as the new way of doing things, the new paridigm, and seen as bubbles only after they burst.  For historical reference please see The South Sea Bubble, the Tulip Bubble and the Dot.com Bubble.  All were viewed as bubbles ONLY after they burst.

So the real estate bubble is not a bubble.  It may be overpriced real estate and the prices will probably come down some but a collapse to zero, taking the rest of the economy with it, is not likely. 

Here is why the real estate market may decline some but not burst downwards.

--the economy is doing well.  The biggest drag on real estate prices is a bum economy.

--interest rates drive prices.  Higher rates mean lower prices and vice versa.  Rates have gone up some but not much.  (It is unfortunate that people buy what they can afford.  That is not as stupid as it sounds as the car industry is based on the concept.  Basically, the car salesman is trying to figure out how much car can you afford.  The same goes for houses--the interest rate goes down so you can afford more house.  Unfortunately, the price goes up taking away the advantage of the lower rate.  Finance can be cruel as well as easy.)

--supply is not going up.  Not sure I buy that one.  Here in Texas they are building houses like crazy.  Because we have more supply, the prices have not gotten totally out of whack.  Now in San Francisco, they aren't adding any more land so there are no more houses being built.  Same in New York or the north shore of Chicago.  But the invisible hand works and it works this way--people are moving.  The state of California and the northeast have negative migration meaning more people moving out than moving in.  That should impact supply and demand.  The supply stays the same but the demand (new buyers) goes down.

But one big caveat here--I have been totally wrong on California real estate for going on 30 years.  I thought my sister was nuts when she bought a house--she has made a fortune. 

But, so what, you say?  As newbies in the career world you have to live some place.  To figure out how to buy a house for 30% off anytime or anyplace, go see category 9 and figure out your strategy.

But you may want to reconsider that move to San Francisco after looking at this stuff. 

http://www.ziprealty.com/buy_a_home/logged_in/search/home_detail.jsp?listing_num=653672&mls=mls_ca_ba&cKey=p33kpq63&source=CAREIL

http://www.ziprealty.com/buy_a_home/logged_in/search/home_detail.jsp?listing_num=652096&mls=mls_ca_ba&cKey=371r355f&source=CAREIL

http://www.ziprealty.com/buy_a_home/logged_in/search/home_detail.jsp?listing_num=650110&mls=mls_ca_ba&cKey=14wjtrcn&source=CAREIL

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[prlinkbiz]

Agreed- I am sick of hearing about the "bubble". The market is definitely correcting itself, and flushing out the speculators.

[AmDollar]

I agree with your views on the "bubble" issue that there isnt a bubble. Real estate markets in certain areas will adjust slower or downward but they certainly will not have a "burst" or "pop" to where the market is so oversaturated with cheap properties. There will always be a buyer or seller at the right price.