do not buy into the real estate bubble! - comments welcomed!

[T2T III]

Like vi_edit said, it really depends on the market that you're in. I read an article on my area - Washington, DC metro area about two weeks ago that said the bubble would not burst. The author felt that prices would remain high, but the growth amounts over the next several years would be small: 1 to 4% - but no burst in the price bubble. Since I've owned my place for 11 years (and have well over 100% equity) - I hope that the prices don't drop at all - in the event I needed to sell within the next 5 years.

I guess I don't understand the attraction to home equity loans. Sure, they seem good and valid when you are putting on an addition to your home - or, making an appropriate renovation. However, people go nuts with their equity lines of credit: jet skis, SUVs, etc. Actually, we have friends who are employed on a near commission-only basis. The use the home equity line of credit to pay their mortgage for a few months until the commission checks start to roll in. They also buy their bigger items on free credit: e.g. - Maytag Neptune washer and dryer ($1,700 for both items) and their 53" Mitsubishi HDTV on one year's worth of interest-free payments. Then, there's the new Altima that is put onto the home equity line of credit also. Seems kind of risky to me.

 

[manly]

The L.A. Times analyzed the SoCal housing market maybe 6 months ago.

They showed that with historically low mortgage rates, the inflation-adjusted monthly payments new homeowners were making was still MUCH LOWER than the payments being made when the real estate bubble burst in 1989 (or 1990, somewhere around there). It was something like $1300 vs $1800.

So even in one of the most overheated housing markets in the country, in simple monthly cost terms that affect most homeowners, purchasing a home was still affordable. It's not a bubble market yet, and there aren't any signs that prices are peeling back. In other words, if you need a home to live in, and are comfortable with your income level and job security, by all means buy rather than rent.

However, if the economy continues to putter and joblessness rises (which I foresee happening), the housing market will shift dramatically. Some buyers will wake up overnight realizing they overpaid by tens of thousands of dollars enticed mainly by low mortgage rates. I think jasonjm's foreclosure numbers (if true) are an early signal of this problem.

 

[T2T III]

However, if the economy continues to putter and joblessness rises (which I foresee happening), the housing market will shift dramatically. Some buyers will wake up overnight realizing they overpaid by tens of thousands of dollars enticed mainly by low mortgage rates. I think jasonjm's foreclosure numbers (if true) are an early signal of this problem.

Unfortunately, the unemployment rate is projected to hit 6.5% before 2003 is over.