Thread: Real Estate Bubble

Maybe in some areas that went way up way fast. But how much of a drop would be considered a bubble burst? 10%? 20% or 50%? 10% drop has easily happened in many areas but ultimately things will adjust and in a few years climb at a slower pace. Some areas really did not see a rise and have not seen much of a slow down.

Originally Posted by HomeSurfer

Bubble is an inaccurate term...

Indeed. My definition of a real estate bubble is a market in which people are willing to pay prices that can ONLY be recovered by speculating on continuation of rapid price inflation. That is, the price does not allow for a reasonable rate of return from ANY of the intrinsic values offered by various uses of property (i.e., rental; to produce other goods and services, etc.).

I went looking for investment property in coastal areas of Florida in early 2005. I came away shaking my head in disbelief; refusing to become caught up in the "frenzy". My alternative investment in S&P 500 index funds is looking pretty good at this point, relative to what I might have done with a rental condo in Sarasota over that same time period. I'm still hopeful that enough air will eventually leak out of the bubble to make real estate investing profitable again, but there clearly are times when you just have to walk away from hopeless deals.

This may be an old post but look at the graph on the link below and then tell me if you think we are seeing a bubble or a paradigm shift.

I would argue neither and what we will see over the next 5-10 years is the same correction we saw in Japan in the early 90's and Hong Kong between 1998-2002. Granted that although the market correction of 50% in each market had different issues creating the change, this graph is scary. I believe that if the theories of Adam Smith are sound, we will see a correction of tremendous magnitude.

Home Values adjusted for Inflation from 1890 to 2006

that is a very interesting graph Martin! Thanks for posting that up for us...definitely sparks some debate as to what is in store for the economy...It could be interesting

That is some scary stuff. Hopefully we come down slowly and its fairly un noticable because of inflation and other economic factors but for some reason I doubt it will be.

That is a pretty crazy graph. Puts things in perspective. We will see what happens.