'while i agree with the whole "amateurs" are going to get trampled -- that is true in the stock market too -- i think banks providing high risk mortgages (100% financing, interest only loans, ARMs that they know the buyer won't be able to afford in 3 years, etc.) are much more the root cause of any current problems than "too much money chasing too few good deals". "
Nicely put. I've been reading several RE sources watching this unfold (for example, http://thehousingbubble2.blogspot.com/ - ultra RE bears, but good reading nonetheless), and there's a stink in the air, and it's hard if not impossible to trust ANYONE with a stake in RE right now, bear or bull.
Inventories are rising past seasonal norms, prices are dropping and properties are sitting on the market longer, the refi market is maxed out and teh lenders are looking at more "creative" deals to lure in customers (and focusing on illegal immigrants, which makes my blood boil), and the lenders are talking about tightening up lending standards in the next years, which screws the ARM I/O people right in the pooch. In 2-3 years, when those people find themselves with monthly payments they can't match, they can't sell their property for a profit, and can't refi...it's going to get UGLY. The new bankruptcy laws don't help, or the results of Bush's so-called tax reform committee.
I think we may possibly see a bigger bailout than the S&L's, which ticks me off. This has been all about greed, pure and simple. RE has been run up to mind-boggingly high prices, and while some have gotten rich, the downside will be devestating for the rest - and for us who are'nt in the game at all.
From what I've read this is mostly psychological, and the sheep are getting nervous. More media reports are focusing on the negative, a flip from 6 months ago with the "You're crazy not to get in on the game!" nonsense. It's all exactly like the .com boom - nobody thought the ride would end, and all the nice stories on the TV of teenagers making millions from websites drove everyone to try the game - and we don't need to rehash the result.
If you made money off this boom, good for you. You were lucky. If you bought in the last year in any of the big markets with "creative" financing...my prayers are with you.
"the bursting bubbles will be somewhat isolated... around here you can still go to the sheriff's sale and pick up a house for $30k. when the bubbles do burst (a) banks are going to be the losers and will happily take short sales versus loosing it all and (b) you're going to have a lot of people needing someplace to live."
I'm hoping it'll be regional. I'm really, really, really hoping. If it hits the worst case scenario, we're all screwed. Hopefully it'll just work itself out nationally, but regionally, it will probably be painful. Very painful. I have relatives that foolishly refied and used their houses as ATMs to pay off debts and buy toys - they're at retirement age, if they can't refi, their kids will be supporting them when they lose their houses.
Right now it's cheaper to rent, it just makes more sense, here in CA. Investors are practically giving rent away, hoping to flip the property down the road and getting their current losses back. Properties selling for 700K - to one mill can be rented for 2K a month. Single and one bedroom rentals are returning to pre-.com boom prices, which is much more attractive than the insane prices on 600 sq, ft. condos we're still seeing. 2-bedroom apartments are a steal right now.
I won't gamble on a 5-700K I/O mortgage for a property worth 2-300K - and at the top of the property tax bracket, either. My Dad did'nt raise a fool. I saw what happened in the late 80's to the RE market here in NorCal, and it was ugly.
Here's hoping that we get through this okay!
One other factor here that hasn't been mentioned very much is the series of recommendations by the presidential commission on tax returns regarding tax deductions on mortgage interest and property taxes. If those tax deductions are eliminated or substantially changed, the impact on the residential real estate market would likely be devastating.
Investment Outlook
by Bill Gross, October 2005
http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2005/IO+October+2005.htm