There has been a great debate over the past couple of years regarding the residential real estate market and whether it is, in fact, a “bubble.” For reasons I have exhaustively detailed here, I believe it is.
But amidst all the talk of a housing bubble and, more recently, signs of a significant real estate slowdown, it seems to me many people have lost the point to the debate.
Everyone has their own reason for discussing the issue I guess, most likely because they are financially involved. For these people I suggest some research on “cognitive dissonance.” But what about those of us that are not financially involved (i.e. renters).
For me, it has never been simply about being able to say, at the end of the day, “I told you so!” It comes solely from a desire to help prevent people from getting hurt.
With housing affordability now at the lowest level ever recorded nationwide, more people than ever before are stretching financially to become homeowners. In addition, many people are stretching even further to become real estate “investors.”
All the zero-down-payment, option-ARM, home equity cash-out and impossibly low, teaser-rate loans have made this possible. But they’ve also introduced greater risk to the industry than ever before.
There is no way around it; bubbles always end badly. For those of us that firmly believe today’s real estate market is, indeed, a bubble, we loathe to think about the end game. All we can do is try to inform people so that they can make informed decisions.
The bottom line is this: if you can easily afford to carry the costs of owning a home and plan to live there for a long time, don’t worry about what prices do. In the long run you’ll be fine. But if you’re stretching financially to own something that you can’t easily afford you should ask yourself, “what’s my worst case scenario?” Because when this bubble bursts, trust me, you can’t even imagine.
LIV