News Flash RealtyVille USA-The Real Estate Bubble has burst. Just like it did in 2003 & 2005. wink wink
In a book by ex Presidential Economic advisor and now Author and teacher. Paul Zane Pilzer tells the story of President FDR.
FDR asked his top economic advisor the prognosis on the economy.
As the story goes, his advisor answered, "well on the one hand..."
FDR replied, "what we need is less two handed economists!"
Now it seems that the real estate economists, many whom have predicted doom for real estate are "on the other hand".
Economist Mark Schniepp says there is a housing bubble, but maybe a better description is a balloon. "We believe there is a bubble, but not all bubbles have to burst," Schniepp said. .....On the One Hand
"Prices rose with buyers' inflated expectations of future prices, and now the air is leaking out slowly as the market comes back to an equilibrium of incomes and home prices."
The director of the California Economic Forecast is presenting his annual Real Estate and Economic Outlook this week. When discussing his report he said that the Ventura County's housing market has become disconnected from the fundamental economic principles that should underlie prices.
Other economists counter that the short supply of houses is enough to explain the price run-up. The county's median sales price for existing homes was $612,460 in December, up 25.3% from December 2003 but only 1.8% from November, according to the California Association of Realtors.
Schniepp said that best-case scenario is that home prices continue to be flat and there continues to be job creation.
"It will probably stay buoyant through 2005," Schniepp said.
And on the Other Hand.....If prices do start to fall, he expects the slide would be over the course of six to nine months, or even a year.
Enough of having it both ways.....
Schniepp did offer some data to support his if>then scenarios. He estimates 90% of Ventura County, CA residents could not afford to buy a house in the county if they didn't have built-up equity to spend. "You have to have more than 10% of people who can purchase," he said.
Sorry to poke holes in this pessimism, but has it ever been much better than 90%? Otherwise every apartment dweller in the country would no longer be renting.
The only economics worth a damn is the notion of supply and demand.
But this market has been driven to a large extent by the first time homeowners jumping into homeownership. When homeownership is the higherst ever in the U.S. the market demand will soften only because everyone who can own a home owns one. But as demand has softened so has supply in many sectors.
So prices stay flat or slightly rise.
Real Estate is not a short term or long term play. It isn't a play at all. It is a home.
Real Estate commentators seem to always talk about home buying in the same tone as day trading. And it seems the public buy into these get rich quick notions.
But at the end of the day the vast majority want to own the roof over their head. That is a pretty good demand.
One thing is for sure. I wish I would have bought back in 1993. I wish I would have bought in 1994 and so and so on.
Notes on the Bubble:
Bradley Inman has interesting comments in his blog. Worth visiting.
I found this useful:
"Incomes rising, interest rates falling and price gains not strong enough to offset the other two variables. Basic economics.
What could unwind this incredible boom: Simple math gang, rising rates, flat incomes and ballooning home prices.
But for now, the levers are perfectly synchronized."
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