You hear things like, “home prices are increasing at a rate faster than the sotck market during the dot com bubble”, “people are buying and selling houses in a day”.
Historically, have there been housing bubbles that burst dramatically like the stock market has done a couple times?
What is the nature of these bursts? Have there been a prolonged periods of time when houses were selling for LESS than they had been selling in previous years?
I does seem “bubblish” to me. There is a LOT of money loaned out right now on real estate. It just doesn’t FEEL like the economy is strong enough to back it.
Could a sharp rise in unemployment cause many many people to default on their loans, flooding the market with real estate that banks have to unload dirt cheap?
Have banks assumed too much risk?
(this is maybe for GD or IMHO. Feel free to move it)
There are a lot of examples of real estate market watchers giving their 2 cents out there. I recently bought a house despite the ‘bubble,’ but also think that there probably is one- at least a little. Of course, it depends on where you live. Also, there are a number of speculators who buy new houses and resell quickly. (In CA, prices have been rising at or above 1% per month for a while now, so you can make a tidy profit buying a house before it’s built and reselling it without waiting very long.)
There was also a report on NPR recently that showed that renting is financially better in some markets now.
YMMV
PC
I think historically, when housing bubbles burst, prices don’t drop dramatically (maybe a few percent). They just stop going up (c.f. the Boston area in the late 80’s). However, if there’s a corresponding downward plunge in the economy so that people can’t afford the houses and have to dump them – well then, things go to hell in a handbasket pretty fast.
I would guess that real housing plunges occur when the local economy goes downhill when a large local employer shuts its doors or does massive layoffs (e.g. Poughkeepsie whenever IBM dumps a few thousand employees). So if you want to be on the (relatively) safe side, avoid buying a pricey house in a single-employer town.
