I Think Sheldon Liber is one of those guys that rants about how great the market is long enough to save himself!

To Elliott, the hit and run artist. If you are going to comment add something tangible to the discussion. Most of what I stated is backed up by facts. If you disagree let us know why?

Idiot. Nobody repealed the laws of Supply and Demand for housing. And nobody said 80% is what it takes to be labelled a bubble. A 20% loss in value to America's largest (and most levered) asset will qualify. The real-estate market is subject to oversupply in reaction to the increased demand created by low interest rates, creative financing, and increased velocity of money. You support your argument with invective and anecdotal evidence. Oh, and the worst sin of all- you're talking your position.

Thanks for the rational, intelligent information on real estate nationwide. As it is real estate is a very local issue.

Since I have been invited to add so called tangable discussion, I will also add this: How is it housing sales all over phoenix are now taking months instead of days? How about the new condos in Chicago being converted to apartments for rent in fancy new highrises? Sheldon wake up and smell the coffee buddie!

I am sorry to say... but yes there was a housing bubble, and yes, that bubble has burst and has just about fizzled out, but i guess that is where you live.

Here are a couple of facts you may find interesting:
(from Paul Kasriel, of Northern Trust Global Economic Research)
- figures for July show that new family homes sold were down 22.2% from July a year ago
- New family homes for sale in July were up 22.4% from a year ago

hmmm... thats 44.6% spread, thats what i call scary. Kasriel went on to note that based on that, the supply/demand situation for new single-family homes was the worst since July 1972. 1972????

but what can we really take from that info?
1)falling prices for new single-family homes will put pressure on existing home prices

2)pressure on existing home prices will lead to a decline in residential home construction

3)pressure on existing home prices will lead to increased mortgage defaults as home-owners may find that the new payments on their variable-rate mortgages amount to more than the declining value of their homes

Maybe you missed the article in the New York Times this week??
and i quote:
"Already, the housing slowdown has begun damaging the job market. Builders, mortgage lenders, and real estate agencies have stopped adding to payrolls. . . Perhaps the biggest reason to be skeptical about a real estate crash is that the country has not really suffered through one before. Not since the Great Depression has the combined value of residential real estate fallen over the course of a full year."

Have you checked a chart on Toll Brothers (TOL) lately? It's not pretty.

Well, thats my rant. I wish you the best with your investments.

As a survivor of the 1990 to 1995 housing crash here in California I can tell you my home lost about 45% of its value before a bottom was found. It then took about 3 years of flat prices before things began to go up again.

This time prices went much higher and the loans are much more risky (I had to put 20% down back then)and I cannot see how the housing market can maintain anything near curent prices when less than 10% of the families can afford to buy a home in my area.

We need to see a huge increase in wages (ain't going to happen) or a huge decrease in home prices (more likely) before I would expect even a flat market - this market is going down for years and will be flat for sometime after that - even if you could find a cash flow positive property (does not exist in my area) you would be holding a dead money asset for years - perhaps a decade.

I started selling my real estate in late 2004 when a 4 day a week waitress - single with 3 kids bought a $550,000 home - that was enough for me to see this was getting out of hand - I sold my last property in Dec 2005 and glad of it as we have already seen 20 to 25 % reductions in selling prices and no one is showing up to buy - yep we are going down for a while and anyone who doesn't see that is not looking at the facts - period. Monterey County, California

I agree with Sheldon Liber. True, speculators probably got burned as well as some of those who got too creative with loans such as interest-only and no doc loans. Flipping homes in a hot market that truly was overheated was real easy money because home prices in some areas were increasing at an annual rate of over 25%.

Those days are over but there is still a market for home buyers and sellers. Most people do not buy and sell homes like stocks nor is the real estate market in any way like the volatile DotCom era when the sky was the limit.

Call it irrational exuberance or whatever but I believe the real estate market is still pretty healthy. Even interest rates have remained stable with average rates at around 6.5% -- about where they were five years ago. So, they're still historically low.

There is a lot of hype about markets collapsing in prime coastal areas in Southern California but when you consider the demand that people want to live near the beaches and enjoy the all-year-round great climate, that market is still strong even though it has slowed down. Over two-thirds of California's entire population of 36 million people live on or near the coastal areas.

One statistic that stands out and should put in perspective is the average home price in some of these prime areas. DataQuick, a nationally quoted real estate watch agency puts the median price of a home in all of Southern California during the month of July, 2006 at $492,000.

Considering the fact that includes some of the cheapest prices inland, San Diego's median home price of $487,000 is a bargain that has not gone unnoticed by many seeking to live near the ocean. The housing market is alive and well.

Speculators and quick turnover agents are the only ones crying for the good old days of double-digit increases.

I believe, if anything, the potential real estate bubble is understated. I feel that we are in for the greatest decline in real estate since the 1930's. And it will be NATIONAL.True, R.E. markets are local,and some markets are going to be hit worse than others, but the tremendous overspending and extension of credit with dubious mortgage products is a national phenomena, not just local. So-called undervalued markets such as Rochester, Syracuse,and Cleveland are already showing early signs of decline, although overvalued markets such as California, Southern Florida,the New Jersey shore Boston and Washington are really starting to get hammered. With a sharp increase of rising inventories, increased mortgage payments to due adjustable rate instruments, and job instability in many well paying job segments, only one conslusion can be drawn-Prices will fall. My guess, as a rough average, is 20-25% overall drop ,with as much as a 40% decline in such places as I noted above. I also feel that this time equilibrium is going to take a while to be attained, especially considering the huge national debt with runaway credit and spending, and the need in many areas to up property taxes to support basic services. People will have to live somewhere, but incomes,jobs and loose credit greatly limit choices and force prices down.

Wow, Elliot. I had no idea "a fews days on the market" is a rational expectation for the Phoenix housing market or any market for that matter. Before the market went nuts, what was the average days on market for a home in the Phoenix metro area? A little research indicates 60 to 120 days was normal. Why is it that the local market reversion to a normal sales pattern is all doom and gloom? Housing is not a liquid market like NYSE or NASDAQ. Try not to forget that.

What is all this talk of a 20% loss? Over the past 5 years, the cumulative return in the Phoenix market is at or over 100%. Is that rational? Did someone buy in thinking that this fantastic, but utterly ridiculous, growth rate would continue forever? This expectation smacks of Alan Greenspan's once famous description of the dot com days - Irrational Exuberance. Back to the horrific 20% loss. The loss is only on paper and the loss is from the astronomical valuations from one year ago, not the result of continuing decline over the past 5 or 10 years. If you are a real investor, taking a 20% loss on a position is something you need to be prepared for. I'm not sure what you set your trailing stop-losses at, but 10% to 20% is a fair number for an informed investor. What happended to evaluating risk in an investment anyway?

Most people stay in a home for 7 to 10 years, so if you bought in at the wrong time, you need to be prepared to be an average American....stay in the house for 7 to 10 years or more. Suck it up, you gambled and lost.

Before the advent of the home/ATM combo, a reduction in the capital gains didn't have a significant impact on the financial well-being of most Americans. Most Americans didn't use thier primary residence as their primary investment vehicle or source of cash. Playing with a mortgage is like playing with a margin account. If you can't come up with the cash to cover your loss, maybe you shouldn't have been playing in the first place. If someone was dumb enough to buy their primary home with one of the more corrupt morgage packages created in the recent past, and then expect to continue to flip from home to home until they retire RICH, I guess they will have a great lesson to share with their family about making uniformed and stupid investment decisions.

Unless you are comfortable living under a bridge in a cardboard box, don't gamble with your primary shelter.

Even though I am in the "bubble" crowd, I do think this article puts forward some good facts. Most markets will not crash and burn. I live in San Diego, and we will likely be in the 20% down category, especially the downtown condos. That is a bubble bursting, but it was fueled by speculators who bought 3 and 4 condos. There is still a strong market for fair priced homes and condos in SD, and when prices get back to 2004 levels (before the runup) people will return to buy.

Bought Fl. condo in April,2002.Sold Boston area home in July2004.Think about it,then listen to this----The market WILL get worse for another year+/- THEN it WILL rebound from it's 20%/avg.loss to two+years of flatness.My ball gets foggy here because INFLATION at this point(Oct. 2009)will be causing other problems.

Sheldon, please, please, please give me the names and locations of the 4 different housing projects you are investing in so I can pick them up for 20 cents on the dollar in 2 years.

The article raised a question for me:
1. The article implies that an 80% decline in stocks is worse than a 20% decline in home prices. On surface, that makes sense, but the two cannot be correlated directly since the stock decline was in something owned outright (i.e. at 100%) vs. the home which is purchased with 3-20% down, if anything at all. Consequently, a 20% decline in an asset where you have say a 5% stake is not a 20% loss but a 400% loss. True, if one rides it out for several years the loss will be recovered but so many of the mortgages (67% in some regions of the country) written in the last couple years were interest only ARMS. Many of these home "investors" will not be able to ride it out. They will be foreclosed on.

Say whatever you want. There's already in a 5-10% [month to month] discount the location in live in. Only time can tell if it's going to go down even more.

Lauren,
You do pose a good question. Your reasoning is interesting and makes some good points however there are many false assumptions.

First there is not 100% cash position in the stock market, there is a tremendous amount of leverage in margin acounts, options like puts, calls shorts and more. Hedge funds leverage all the time. In 1998 if not for the Federal Reserve and major financial institutions doing a "workout" for a bunch of Nobel genius' running a hedge fund named Long Term Capital Management, world financial markets might have collapsed due specifically to their extreme leverage.

Next you assume incorrectly that a downturn relates only to newly purchased homes but it affects all homes. Since people live in their homes an average of five years than one might assume only 20% could have the leverage you describe and the rest have something less. By the way Given the rapid rise in home prices people in their homes for four or five years in many cases have a majority interest in their homes and the 20% reduction would be from their escalated prices. Your example would only hold true in some cases, not most.

As I state in my post, the people that extended themselves the most taking on undue risk will be the ones that feel the most pain. Here you are correct, but that would be the same for leverage in the stock market...but there they feel the pain much faster!

Sheldon,

True, there is leverage in Equities but nothing approaching the level found in home ownership. The example given was intended only to clarify a common misconception about percentage declines to partially owned assets and to highlight the precarious position of the millions of homeowners who did purchase since 2004. Many more trillions of dollars are held in homes than were held in equities in 2000. Perhaps only a small percentage will lose homes as ARMs escalate and people scramble to cover the difference between the loan balance and the assessed value in addition to handling a larger mortgage payment. Many who will not lose their homes will still have their lifestyles contracting to make ends meet. It has been estimated that 40% of the private sector job growth since 2002 is related to homes (building, selling, improving, etc.). The pain of an economic contraction will be felt well beyond those who lose homes. The concern of a housing bubble is not merely for those who will lose their homes, many of whom were not reckless by intention but rather from a lack of sophistication, but also for the businesses (and their employees) who will suffer from a contracting economy. The rest of the world is increasingly nervous about the bubble because it has been the US deficit-based economy which has fueled much of their growth, allowing them to purchase US treasuries to fund our deficit to buy their goods, and round and round. The decline in home values, even if only 20% will have a significant long-term affect on the economy.
Regards.

Sheldon, I'm very serious. Please don't ignore me, and please, please, please give me the names and locations of the the 4 different housing projects you are investing in so I can pick them up much more cheaply in a couple of years.

We currently live (rent) in Naples Florida, and last year sold our real estate holdings at huge profits. The buyers have lost big time.

We pay atttention to major economic factors (as described by others on this site), but also have many friends in the local real estate industry. They, not some real estate industry organization or government agency, describe the real estate market as collapsing, among other equally bad terms.

We will be moving west, quite possibly to Southern California, and would love to pick up properties at bargain prices in a couple of years. You could save us a good deal of time by letting us know where you're currently investing.

Thanks.

Steve,
I will humor you even though I can't imagine why you would display such immaturity for all the world to see. All of the projects are value-added propositions. Property one is an infill project surrounded by other homes of established value in Santa Clarita, CA. It is under contract to be sold in the next three months at a substantial profit. So, in two years you will have to buy from someone else. Property two, the mixed use property is in the Los Feliz neigborhood of Los Angeles. We purchased a retail property for land value, will have it entitled and sell it late next year, and not do the development ourselves. However we have already been offered 100% return without the entitlements based on it's location. Property three is in Lake Elsinore, CA. Our proforma was for 150 homes when we bought the land but we have been able to plan out about 190 homes so we are likely to outperform even with a downswing. The Phoenix property is being built on land we aquired with a headquarters property on Central Ave. The land was in essence free, hard to lose there. This is likely the only property we will have in our hands in two years but given your childish display of bravado it is most likely way out of your league.
Peace to all.

hmmm interesting
I think you have talked yourself into this scenario. We have already seen prices drop 15- 20% and you don't think an additional 20-30% would be considered a bubble. I think you will find yourself with bright pink gum all over your face. Look at income levels in the southwest and you will see that the money just isn't there to support this housing scenario. People are overextended and teetering on the edge of financial ruin. 70% of the homes sold in the last 5 years in southern california were bought with adjustable rate mortgages and less than 10% down. They were not bought as primary residences but by people like yourself trying to turn a quick buck on the backs of.... well ...probably other people trying to make a quick buck. Well it appears the buck stops here. (Oh yeah and we can't forget the people who will loose their homes after their health insurance fails them and they can't get their pills from Merck) Numbers I have ssen suggest people are moving away from the big metroplolitan areas rather moving to them these days because they just can't afford to pay you developers any more money. I think you have sucked your well dry. But I wish you all the best in your endeavors. Remember when all homes were unique and everyone didn't live in a box that looked just like their neighbors? oH Yeah... when real communities were formed over time instead of groups of 150 houses with no heart. That was nice... ahhh that would be nice in the future too. Talk about Soviet Monica how about Soviet housing projects in phoenix etc.... find your own irony.