Understanding Real Estate Bubbles

I wondering were all the attention in the real estate market is heading. I know any real estate agent will tell you “things are starting to pick up. It’s a great to buy and new home. We’re at the bottom.” I have to say I disagree. I read a few interesting articles and would like to argue I think the real estate market will only get worse.

Too many people became home owners in the last 10 years. Just as too many people became stock traders in the 90s. Remember the 90s? People bought on margin, shorted, long, options everything they could to catch the wave. But most of them had no idea what they were buying and didn’t understand long term versus short term gains and my favorite AMT would change their gains. When the market hit, it hit hard. I suspect we will see the same in real estate. People who bought houses with Interest only, ARMs, low first year rates, ballon loans, etc have no idea what’s happening and there are more seller then buyer now. Add to that a correcting mortgage industry that is taking a lot of heat. This is one of the factors that will lead to an even bigger crash in the real estate market.

Now add the simple economic fact of supply and demand. Our baby boomers are just starting to retire. And most of them are looking to their homes as retirement nest eggs to sell off and move south. In my area a boomer who bought their house 25 years ago for $150,000 can easily sell it in our down market today for $500,000. But as more and more continue to flood the market with homes, you should know there are more sellers/boomers then buyers/Gen Xers.

Put these two factors together and it’s the beginning of a crash that will probably go longer and deeper then we want to admit.

Ironically, I own two rentals and I’m buying a new house soon. Am I crazy? No, I’m educated on real estate and just like the crash of stocks in 2000. More money can be made buy fewer in down markets then many make in up markets.

Be smart and research for yourself.