A slowdown is not the same as the bubble "bursting".

I hope it doesn't happen here, because we are about to put our place on the market. It would suck if our anticipated 100% profit in 3 years doesn't come about.

We have seen a bit of a slowdown here over the past 6 months or so, but there are signs that prices have started to climb again very recently (past two or three weeks). It could be that your slowdown is just a bit of a natural adjustment dictated by supply and demand. Once prices start to drop, the supply dries up gradually until, suddenly, the demand is greater than supply and prices skyrocket again. In the long term, real estate prices never go down, so now is usually the best time to buy if the alternative is waiting anything more than about six months.

The housing market will calm down once mortgage rates go back up. Between decreased spending power, and increased foreclosures sanity should eventually prevail.

In the long term, real estate prices never go down, so now is usually the best time to buy if the alternative is waiting anything more than about six months.

This is deeply flawed advice on almost every single level.

To be less succinct about my criticism:

Lots of real estate prices go down. Crime could increase, freeways and Wal-Marts could be built, the town's major employers could move, there could be a hurricane that spares your house but destroys all the others... Lots of ways this can and does happen.

Beyond that, there have been extremely long lulls where the housing market did not directly lose, but did become stagnant. In terms of investments, this is the same as losing.

The housing price does not just needs to increase, it needs to cover the property taxes and maintainance expenses that will be incurred. Beyond that, it also needs to match the gains that could have been provided by an alternative investment.

Even if the house was guaranteed to go up by enough to cover tax and maintainance, and matched the alternative investment gains, it's still not neccessarily going to provide the correct risk/utility value for every investor.

An extremely aggressive investor might prefer something far riskier, and the risk-averse investor might want to shy away from the real estate market at the moment, or invest in it in a more diverse fashion.

Keep in mind, the housing "crunch" and the reason for high-prices are self-reinforcing. There's a crunch because vast numbers of people believe they can still either make a profit, or at least "earn" their way out of a risky mortgage.

100% profit in three years ... used to be unheard of. At least before hte first California boom.

I will say it isn't true that RE prices never go down. There are plenty of places in the country where people are house-poor and trapped in upside-down mortgages. Not common, necessarily, but it happens. Still, it's usually a good investment if you can pull it off.

Pulling it off may require some compromises -- like buying a two-flat and renting half. Or not getting your favorite school district.

It's not a bad investment (I just sold a house and got a little over 130% of the 2001 purchase price) but it's far riskier than most people realize.

As an investor and a gambler, I just find it amazing how many people:
a) won't play a hand of poker for $100 (they don't gamble, they "invest"!)
b) won't invest outside of indexes and mutual funds for more than $10,000
c) but will happily invest (effectively) $1,000,000 in real estate, on margin

It just seems like there's some sort of magic "home ownership" switch, that destroys the financial logic that rules the rest of their life.

Nationally, there really isn't a housing bubble, or at least not a large one. Certainly it's true that in vast regions of the country, housing hasn't been rising and has been staying flat or declining.

However, in certain regions of the country, San Diego is a good example, there very much is a housing bubble and it will certainly burst or deflate eventually.

Who was it who said that if something can't go on forever, it won't? What's happening with housing in these markets is very reminiscent of tech stocks in the late 90s. It's becoming more and more obvious that something is out of whack, but the trend has continued longer than people expect. I would have thought that as soon as the Fed started raising rates, the collapse would begin, but it mostly hasn't worked that way. So, as with the tech stocks in the 90s, take anyone's prediction of an imminent bust with a grain of salt, but also know that it (or a softer equivalent) will happen sooner or later.

In my opinion, when speculation starts being the dominant force in a market, that's when you know there's a bubble. That's sort of a tautology, I admit. But when the housing market in an area is dominated by real estate investors who buy large numbers of newly built houses and flip them for a profit, you know that something's out of whack.

So, anyway, your first and most important step is evaluating your specific market. There may be a housing bubble where you are. Or housing may even be undervalued. Find that out first.

I guess I forgot to hit post after composing my preview last night. Anyway, the crux of my comment was that if you look at the most overpriced market box in the article, it appears to be largely a California-Florida thing. I bet there will be very little notice of any bursting bubble in the heartland... unless the economy goes to hell.

See the second highest overvalued market in the report? That place is my home, where my heart is, and why I can't live there. The bubble better damn well burst there in Santa Barbara at least, coz as soon as it does I'm so out of Houston and back to Cali.

Haven't people been saying this for years?

won't play a hand of poker for $100 (they don't gamble, they "invest"!)

Playing poker hand to hand is like playing chess move to move.

I am not so sure anymore that we have a bubble, and if we do, the one number, among others, that keeps it inflating is the high number of immigrants flowing into this country -- the people who, by the way, will also be propping up social security.

Thanks for the comments, everyone! I'm in L.A. where the prices seem just totally insane, and it's felt (depressingly) like I'd never, ever be able to own a house... but now i'm trying to shift my attitude to start gathering the info so that I can start to think about a sensible plan to get into the market eventually (say, in the next 3 years or so).

mosch, I guess my comment was a bit unrealistic and glib. What I should have said was that, as long as you buy smart, the value of your property won't go down in the long term (barring freak events of nature etc) - if you are buying as an investment and renting the property out, the rent will cover your mortgage, maintenance etc (if not, this is not buying smart - negative gearing is for delusional fools) and, if you are buying a home, you should factor in what would be the cost of renting similar accommodation when working out your projections.

If you do your homework, it is almost impossible to lose money in real estate. Those who do have generally not done adequate research (and there are plenty of emotional house buyers out there). You may be able to get better returns elsewhere, of course, but as long as you can hang on to property for long enough, you should be able to show a profit.

scody, the very best advice I can give you is to research, research, research - read the real estate ads in the weekend paper every weekend, go to open homes and auctions, get the free real estate magazines and keep them (if you have such animals there), check real estate ads on the 'net regularly. The more time you spend researching before you even decide to buy, the better you will do. You need to be in a position to recognise, the instant you see it, a bargain and be prepared to jump on it before someone else does. When we bought the block of land that our current house is on, we quite literally outraced two other couples to the sales office (by foot, car then foot again) and plonked down our deposit. We knew that the block was a bargain, but there is never time to think about bargains in real estate because, if they are still there after you think about it, they weren't bargains in the first place. But this was after two years of research and slowly narrowing down our search to a specific suburb, then spending every Saturday morning scouring the area for for sale signs.