David Bernstein over at the Volokh Conspiracy is seeing potential signs of pressure on the housing bubble.
(1) I rent a townhouse in Arlington, VA. When I rented it in June 2000, the management company held a two-hour open house, and within two days had received thirteen contracts. Five years later, with local housing prices have almost tripled, the house is back on the rental market at an 18% higher rent. It's been on the market for a week, but only five people have come to look at it. If the bubble is not a bubble, but is purely driven by increased demand for housing, I don't see how one can explain this anomaly.(2) The local Arlington newspaper reported this week that condo sales last month were down 33%. Condo sales is the most speculative, and overpriced, part of the local market. A very large percentage of condo buyers have no intention of occupying the condos, but instead plan to rent for a short time (or not at all) and then "flip" their condo. The severe decline in condo sales suggests that flipping is becoming increasingly difficult, which means that the most speculative part of the market seems to be cooling down.
UPDATE: (3) Just heard on the radio that last month housing inventories (number of houses for sale) in the D.C. area rose last month from 23,000 to 35,000.
This worries me a bit, since there's a good chance I could end up buying a house or a condominium soon for a period of either six months or two years, an an attempt to recover money that would be spent on rent during that period. If I do this, and the bottom drops out of housing prices before I move, I could find myself in serious trouble.
Don't do it
Keep renting until the bottom drops out of this thing. Any rent you pay now will be recovered many times over by the lower purchase price you will pay later when the proverbial cow manure hits the rotating blades.
People "in the know" will tell you that that will never happen. But they will be wrong. We've, never in our history, had such a large amount of real estate leverage (interest-only loans, negative amort. loans, speculative buyers) not to mention (but I will) unprecedented government and personal debt levels as well as (just reported yesterday 8/2/05) an absolute zero (zilch, nada, zip) savings rate as a collective population which happens to include 77 million baby boomers who all think they are going to sell their houses at premium prices and retire easily. Who are all the buyers going to be?
This house of cards ... this speculative bubble ... this over-inflated, totally disconnected from the fundamentals real estate market is going to crash down hard. I don't think we'll make it to Xmas. But, even if my timing is off, the outcome is certain. There's no one left to sell to at a higher price. By this time next year, I will be buying properties at 30 cents on the dollar (today's dollar). With what? With all the cash I'm saving by not buying now.
"Debt" is a 4-letter word.
Bill W.
"Go ahead, use that line of credit to vacation in the Bahamas. I'd love to own your home"
Housing Bubble
Dear Bill,
It has already started here in Southern California. Large housing projects that were supposed to have now starting second phases are being canceled! This is just the beginning.
Also, do not forget with $4.00 per gallon gas fast approaching there will have to be a major pull back in other purchases and realistic commute distances will have to be recognized!
Tom