Reply #63: Anyone seen this article? [View All]

http://www.progress.org/2004/fold364.htm

The Real Estate Bubble

by Fred E. Foldvary, Senior Editor

A soap bubble is a ball made of a thin film of soap dissolved in water. Soap bubbles are ephemeral, lasting a short time before bursting. There are also bubbles in the economy, classes of assets whose prices inflate like air in an expanding balloon and then collapse.

The expansion of asset-price bubbles is unsustainable, as the prices rise above what is warranted by normal returns and demands. The asset prices crash. A recent bubble was the technology boom of the late 1990s, when Internet and other stocks rose to levels that could not be justified from the likely profits of the firms.

The most important bubble in the economy is that of real estate. There has been a real estate cycle with a duration of 18 years since the early 1800s. Real estate booms have often become a bubble. It happened during the 1920s in the US, especially in Florida. It happened in Japan during the 1980s. And it is happening again now in the US.

The last bottom of the real estate cycle in the US was in 1990, when there was a recession. Real estate prices have been rising since then, and were not at all deterred by the downturn of 2001. Real estate speculation has carried real estate prices in some parts of the US, such as California, to heights that cannot be sustained when interest rates rise as the Federal Reserve reverses its low-interest policy. Another crash is coming.


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Any comments? How accurate is this article or is it just hysteria? I want to buy a place, but this article says that it would not be wise until after 2008 according to the real estate cycle. I find it interesting that both of these articles were on Yahoos site today, too:

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http://story.news.yahoo.com/news?tmpl=story&cid=568&ncid=749&e=4&u=/nm/20041130/bs_nm/economy_homes_dc

Fannie, Freddie Loan Cap to Rise in 2005

WASHINGTON (Reuters) - Federal regulators on Tuesday allowed U.S. mortgage finance giants Fannie Mae and Freddie Mac to buy larger individual mortgages next year following a jump in home prices, a move that would lower borrowing costs for buyers of more expensive homes.

And

http://story.news.yahoo.com/news?tmpl=story&cid=509&ncid=749&e=9&u=/ap/20041130/ap_on_bi_ge/fannie_mae_fraudulent_loans

Feds Order Fannie to Forfeit Gains

WASHINGTON - Fannie Mae, eager to unload a batch of fraudulent loans it bought from one of its authorized lenders, turned a blind eye as independent lender James McLean resold the bogus notes to Ginnie Mae in one of the nation's largest mortgage schemes, according to the Justice Department (news - web sites) and federal housing officials.