Our obvious interest on this site is to see everyone survive any slide, property prices or otherwise, and be on top on the other side and ready to roll on the Great Re-building...
Now, it is widely pointed out that property is being driven in part by cheap loans. And it is more discretely pointed out that the party to our national equation keeping interest rates low is.... China. And that if China moves out of the bond market, interest rates will spike to keep the incoming $$$ incoming.
From my post on property bubbles a month ago: "Capital that could in fact be doing something USEFUL such as powering worldwide growth beyond the quicksand we are all sinking in... is instead going into STUFF. And if things play out, as they remorselessly (and repeatedly) have in the past, when the wrong things are given the wrong valuation, what might we all soon be looking forward to? "
Steep Rise in Prices for Homes Adds to Worry About a Bubble in today's NY Times ignores the China dimension and that possibility - but is plenty of food for thought anyway.
Home prices rose more quickly over the last year than at any point since 1980, a national group of Realtors reported yesterday, raising new questions about whether some local housing markets may be turning into bubbles destined to burst.
With mortgage rates still low and job growth accelerating, the real estate market is defying yet another round of predictions that it was on the verge of cooling. The number of homes sold also jumped in April, after having been flat for almost a year.
Nationwide, the median price for sales of existing homes, which does not factor in newly built ones, rose to $206,000 last month, up 15.1 percent over the last year and breaking the $200,000 level for the first time..... Adjusted for inflation, the median price - the point at which half cost more and half cost less - has increased more than a third since 2000.......
The History Of Property Bubbles
Even before this surge, housing prices had risen more steeply over the last 10 years than during any such period since World War II. A growing number of economists worry that real estate is to this decade what technology stocks were to the 1990's, with many people assuming that home values will rise forever.
Over all, home prices have never fallen by a significant amount, and Alan Greenspan, the chairman of the Federal Reserve, said on Friday that a national drop in price remained unlikely. But they have sometimes fallen sharply in certain locations, including New York and Los Angeles, and Mr. Greenspan, in his strongest warning to date, stated that some metropolitan areas were clearly showing signs of "froth."
Specific Geographical Areas
Prices continue to rise most rapidly in the places where they are already highest, including Florida, the Boston-Washington corridor and along the West Coast. In the late 1980's, a typical house in San Diego cost about as much as two typical houses in Syracuse, according to the Realtors' association; today, someone could buy six Syracuse houses for the price of one in San Diego.
Prices have jumped most sharply over the last year in the West - up 21 percent in April from a year earlier, compared with an increase of 14 percent in the calendar year 2004. Price increases also accelerated in the Midwest, to almost 13 percent, while they remained roughly similar in the Northeast at 16 percent, and the South, where they are up about 8 percent compared with a year earlier.
In a separate report, the Census Bureau said Tuesday that the percentage of homes worth at least a million dollars had almost doubled from 2000 to 2003. California had the highest share of million-dollar homes in 2003, with more than 4 percent valued above that amount. It was followed by Connecticut; Washington, D.C.; Massachusetts; and New York, where an estimated 2.1 percent of the homes were valued at more than $1 million. Nationally, 1 percent are worth more than that.
The Speculative Risks
"There's clearly speculative excess going on," said Joshua Shapiro, the chief United States economist at MFR Inc., an economic research group in New York. "A lot of people view real estate as a can't lose.".......
To economists worried about a bubble, the growing gap between house prices and almost everything else - rents, incomes, population growth - is the surest sign of trouble.......
Mr. Shapiro of MFR said that even a moderate rise in mortgage rates now had the potential to cause a price decline in some expensive markets. A rate increase would change the calculation for people buying residential real estate as an investment, he said, and could make other buyers realize that the recent price jumps could not continue.
Possible Counter Balances
But other economists predict that powerful demographic forces will keep prices increasing in most of the country. Many baby boomers are buying second homes, and their children - like many immigrants who have arrived in the last generation - are destined, in this view, to buy their first, continuing to stoke demand.
Construction companies have also avoided the kind of overbuilding that plagued some regions during the real estate downturn of the early 1990's. Fewer than 2.5 million homes remained on the market in April, equal to only about four months' worth of home sales, and that is near a record low.
Yeah. Well. Tell THAT to China and the bond market if they go funny on us.....
How to hedge? Some smart people are already on fixed rate mortgages, not over-leveraging generally, using value principles to boost their personal value equation, and joining the renting classes for the next period! Usual disclaimers....