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Originally Posted by gwilks98
At the rate housing prices have risen, I assume it's because there are more buyers out there due to low rates. Assuming rates go back up next year, like many are predicting, what do you think the chances are that we're experiencing another investment bubble on the verge of collapsing?
And does anyone know if personal real estate follows the same principles as commercial, detailed in the 4 quadrant model?
Link: http://ocw.mit.edu/NR/rdonlyres/Urba...431_GMch02.pdf |
I am not quite sure if personal real estate would follow that model. Commercial is tied much more directly to actual movements in the economy, while residential has been shown to be counter-cyclical, historically. It is rare that houses LOSE value, even during normalized times for the economy.
As for a collapse of an investment bubble, as I said before, the lowering of housing value is VERY rare in most markets. Houses are tangible, people like them, love them, live in them. They are not like stocks, which are intangible and are subject to less confidence due to this and the fact that companies are lead by people investors do not trust, thus they are punished. Houses are led by the owner, inspected by YOUR inspector, you have more confidence and thus, offer the price demanded.
As far as rates, it is going to take a LONG while for them to come back up to pre-bust rates. The Fed isn't going to jack them up 3-4% within the next year, or probably even two. It will raise them gradually to ease fears, just like it lowered them.
Cheaper financing will be around for a good while.
LK