Wednesday, July 13, 2005

Sure Looks Like A Property Bubble

Q: How much would you pay for this lovely piece of property:
  • It has an attached car park, a small patio, marble floors and a pantry.
  • Two bedrooms and two bathrooms.
  • Located in lovely Malibu, CA with an ocean view on one side and a view of the mountains on the other side.
  • Located in a gated and guarded community.
  • Caveat: It's a trailer. You don't own the land but hey, it has wheels and so you could move it to some other yuppie town, say, oh, I don't know, maybe...Marin?
A: It's a bargain at only $1.4 million!

This is insanity. How can otherwise intelligent, reasonable people with straight faces actually deny the existence of a real estate bubble in California?

Well, at least this article ends with sane words:
"The main worry simply is that prices have climbed too fast for too long in both countries [Canada being the other country]. Real estate executives say the market tends to go in seven-year cycles. If so, we're three years overdue for a correction. All real estate pros will deny the market is overheated -- there's never a bad time to buy. Privately, though, some admit they would rent rather than buy if they were first-time buyers. [Emphasis is mine.]

In the end, the market will live or die on interest rates. In the United States, with so many owners holding so little equity, a spike in mortgage rates could clobber the market. In Britain and in Australia, house prices have flattened and are starting to fall. A downturn in the United States could easily trigger a downturn in Canada. It's coming and if you don't believe it, go shop for a trailer home in California."


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