Check out this article
http://www.bankrate.com/brm/news/real-estate/20060121a1.asp
Here is the deal... Real Estate is a renewable resource. i.e. All those people that say that land is scarce and there is, "nowhere else to build, so property values have to increase", are uneducated, ignorant fools. The price of a renewable resource is dependant upon it's demand - and the quanitity is inelastic and independant of that of the price. However, the quantity as described in the example above is the amount of homes actually for sale. As real estate prices become to come down, more and more people will be either trying to sell their homes in order to keep their gains, some will have to sell because they are upside down on their mortgages, and some will be foreclosed on. I believe the two latter will be the worst of this cycle and anyone buying into real estate from now and for the next 4-5 years will experience a horrible financial burden.
Here's the problem. Real Estate will not crash. It will be a slow leak that will not prove to be a problem until a home owner goes to sell. When they believe that the $500,000 home that they now have for sale is worth that much, but they can't get it, they'll wait for months to get that price, and only lower it in small increments. All the while, home prices will be falling and they will not see the pain until it comes time to sell - Be it having incentives such as paying the closing costs to even paying for people's moving expenses... Worst yet, those that have no equity, and are upside down are going to experience the biggest pain of all.
If Real Estate even corrects a mere 10%, which I believe it will be more than that, the price of the average Los Angeles home being about $500,000 will decline to $50,000 - Now, for those that have interest only loans that come due in a 5 year period now need to refinance, but aren't able to because they don't have enough equity. So, they'll either have to take a higher interest rate to do over 100% financing, not to mention the title insurance needed for it, or face selling at a loss, and now OWING the bank $50,000 for nothing more than trying to buy a house, and now in debt $50,000. As seen with the example above with the article - It is happening...
Welcome to the reality... Real Estate is dropping... Those that are trying to get in the game are too late... Those that have bought in the past year are screwed... Those that have bought over a year ago can kiss their equity goodbye. If you want to buy house now - I highly don't recommend it...
Good luck to all who like Real Estate.
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