last four messages have looked at whether or not there
is a real
estate bubble and have examined reasons why some people do not think
there is a real estate bubble.
Others feel that there is a bulge perhaps, but not a serious bubble as
evidenced by the July 2005 Atlantic magazine article "Pffffttt The
U.S. real-estate bubble is likely to leak, not pop".
However there are many who feel that there is a bubble and that there
are serious economic dangers.
For example the special report "In come the waves" in the June 18,
2005 Economist. "The worldwide rise in house prices is the biggest bubble in history.
Prepare for the economic pain when it pops.
"NEVER before have real house prices risen so fast, for so long, in so
many countries. Property markets have been frothing from America,
Britain and Australia to France, Spain and China. Rising property
prices helped to prop up the world economy after the stock market
bubble burst in 2000. What if the housing boom now turns to bust?"
According to estimates by The Economist, the value of residential
property rose an equivalent of 100% of these countries combined GNPs
and is bigger than the stock market bubble of the 90s which rose 80%
of the nation’s GNP.
The house price index shows that from 1997 to 2005 prices are up
244% in South Africa
192% in Ireland
154% in Britain
145% in Spain
114% in Australia
87% in France
84% in Sweden
76% in the Netherlands
73% in the U.S.
This article predicts that there will not be an overnight collapse but
a slow puncture that sees prices fall for the next five years.
There are many other warnings. The Executive Intelligence Review:
Are 'Fannie and Freddie Were Lenders': U.S. Real Estate Bubble Nears
Its End by Richard Freeman says:
"The U.S. financial system is now dependent to an unprecedented degree
upon one prop: the greatest housing-real estate bubble in human
history. A hyperinflationary spiral has sent home prices shooting up
by 10-40% annually in recent years—depending on the region of the
country—and artificially pushed the price of millions of homes into
the $400,000 to $1 million range or above. Already in 2001, one out of
every ten homes for sale in the United States was priced at $1,000,000
Yet this article appeared in June 2002.
Money wrote an article Bubble trouble
This article said:
"Real estate will make you rich, eh? If everyone thinks so, how can it
"NEW YORK (Money Magazine) - Forget book clubs and poker nights.
America's property craze has spawned a new social network: The real
estate investment club.
"Hmm. Substitute the words tech stocks for real estate, margin loan
for interest-only mortgage, and the housing boom takes on an ominously
"The question isn't whether home values across the country will
vaporize all at once, as the Nasdaq did. (They won't.) It's whether
too many people are acting as if nothing bad could happen.
Let's be clear: No one knows when home prices will top out in your
area. History suggests, however, that it'll happen not long after
homeowners and buyers reach maximum certainty that they've discovered
the fail-safe key to riches. Considerable anecdotal evidence suggests
that fateful time may be near."
Yet this article was written September 20, 2004 and since that time,
according to the Economist, real estate has risen nearly 12.5%.
Perhaps the strongest suggestions that there is a bubble can be seen
by looking at comparisons of house prices versus income and rents.
According to the Economist article mentioned earlier, the most
compelling evidence that home prices are overvalued is the diverging
relationship between house prices and rents. They claim that in
relationship to rents house prices are at record highs in America,
Britain, Spain, the Netherlands, Ireland and Belgium.
A July 13 article in the Washington Post, "Home Prices Put Squeeze On
Families" by Anjali Athavaley focuses on this as well. ARTICLE
This article says:
"Rising home prices are putting pressure on families to move to
lower-priced areas, commute more than an hour to work and worry about
meeting mortgage costs, according to the results of a national poll
released yesterday by the Homeownership Alliance, a Washington-based
"In the Washington area, high prices in the District and nearby
suburbs are pushing home buyers farther out. Rising costs are
affecting lower- and middle-income families, said Terry Lynch,
executive director of Downtown Cluster of Congregations, a D.C.
nonprofit group that focuses on community service and housing issues.
"The poll also shows that 45% of respondents are concerned about
whether they will be able to meet mortgage or rent payments.
"Even if they are worried, low-income home buyers should watch out for
enticing payment plans such as interest-only mortgages, which offer
low initial payments but can be risky if interest rates go up, said
Sheila Crowley, president of the National Low Income Housing
The concerns of rising mortgage rates may be well funded as another
July 13, 2005 article in Businessweek “Fannie Mae Sees Mortgage Risks” by Peter Coy points out at:
This article says that the head of Fannie Mae is worried about people
with shaky finances when adjustable-rate mortgages do adjust. The
article says that nearly 20% of Alt-A mortgages will reset within the
next two years, rising to more than 40% within five years. Even worse
nearly 60% of sub prime loans will reset within the next couple of
years, rising to around 70% within the next three years."
So there are many reasons why we can expect real estate values to
either slow, down, stall or even fall.
Tomorrow’s message concludes this series by looking at what we can
about the current state of real estate markets and how to react in
either direction. Until then good may all your estates be real.
P.S. Whether boom or bust, there will be opportunity. Those who look
for it and know how to process information correctly can gain. This is
why we are conducting a special course "Super Thinking - Super
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One of the biggest challenges of this decade is overcoming the
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In 1980 Superlearning sold over two million copies and showed how the
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Lozanov helped build such a powerful educational system in his poor
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This book exposed this fact and made the system so popular that Dr.
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Spanish is the second most spoken language in the world. Chances are a
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Here are the hundreds of Spanish words to use instantly:
All words in Spanish and English that end in ION are almost identical,
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For details, or to enroll