Wall Of Worry Is A Good Sign For Prices In A Bubble
Timing the real estate downturnFrankly, there will be no collapse until nobody at all is predicting a collapse. Remember people warning of imminent disaster back in 1996 and 1997 during the dot.com boom? Remember Irrational Exuberance? On the December, 1996 evening when Alan Greenspan issued that warning, and all the gray-beards nodded knowingly, the Nasdaq 100 was about 4300 points, or about eighty percent, below its eventual peak four years later.Those of us graybeards who can remember the days before Al Gore invented the Internet know what happened after 1987. But how it played out is worth reviewing, especially with regards to housing, whose imminent collapse has suddenly become the next "sure thing" according to the financial media and the market elite. See David Callaway.
Comments
The rapid and persistant rise in real estate prices is troubling.
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Posted by: Michael | June 29, 2005 03:35 AM
The argument that “because many people are predicting a real estate crash then it will not happen” is historically incorrect. Read about the October 1929 stock market crash and you will see many people were exiting the market during February 1929 because they saw the crash coming. In 1987 many exited the market in August of that year including myself. I personally bought puts on the Japanese market in January 1990 and was happy I did. I live in Boston and the two people that work in the cubicles next to me are buying real estate in Boston and Naples, FL at incredible high prices. Holding some and flipping others. We work in financial services not real estate. All the signs are here that this market is a bubble just like during the dot com boom. Not once did I read about the NASDAQ crashing while it was making a retreat from 5,000 to under 2,000. Only now do we call it a crash. You just need to look at it objectively. I think the market has already peaked in Boston but many don't see it yet. I am putting my money on the fact that the market has peaked, will level out and begin to decline in the early part of 2007. There are financial instruments that can be used to short the real estate market. You may want to hedge your real estate portfolio. I do not think the question is will the real estate market decline. I think the question is when.
Posted by: wayne | August 20, 2005 07:50 AM
Hi,
Actually a good predictor of real estate prices is interest rates. If they continue to climb it's fairly easy to see how prices need to be adjusted to keep housing affordable. I recently wrote an article entitled: "How interest rates can drastically affect real estateprices" which clearly shows the relationship.
Regards,
Stephane Grenier
Follow Steph through his real estate and business journeys
Founder of LandlordMax Property Management Software
Posted by: Stephane Grenier | September 20, 2005 08:01 PM