Sunday, July 17, 2005

Industry Describes it as a 'Megabubble'

It looks like most folks in the industry think there is a global real estate "megabubble".

Some choice quotes:

I gave you a 20-question quiz on June 26, focused on 20 smaller bubbles, asking you to score each from 1 to 5 in terms of risk. A score over 50 put you in the megabubble camp. See previous Paul B. Farrell.

It turns out this is a real hot-button issue. I received 1,249 e-mails, three times more than on any column I've written in eight years. I read every response.

Eighty-six percent of you scored the bubble risks at 50 or more. And 39% of you scored between 75 and 100. Only 14% scored under 50.

Many of those who e-mailed identified themselves as officers in banks, securities and brokerage firms, professional financial advisers, corporate executives, federal and state government professionals, mortgage bankers, building contractors and real estate professionals. They scored the bubble risks as high.

Comments by real estate pros stood out because the housing bubble is likely to be the lead domino triggering a global economic meltdown. Real estate respondents expressed virtually unanimous concerns about this bubble.

"This bubble is no myth," wrote one California builder who said he had "been around for decades." "Real estate will go back to the Agricultural Age. Get ready for deflation."

"Warning signs [are] everywhere," said a New York mortgage banker. "Rates went through the floor, prices to the moon. I sold everything a year ago, paid off debt. The Great Depression will look like a cakewalk."

If you believe a global megabubble is near, what's your best strategy? Cash out now, at the top? Sell real estate, stocks too, rent, pay off debt? Then patiently wait until prices drop and buy bargains? Yes, that may be the best strategy for some.

But timing is critical. So is courage!

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