The housing bubble has already started to deflate – but we have a long way to go until we hit bottom. Housing prices are so out of line with their investment values that we’re due for one of the hardest and biggest financial corrections in the history of the world. We could go into more detail here, but these two sites do a good job at explaining exactly what is going on with the housing bubble.
It’s not a question of IF we’re going to have a correction, but whether it’s going to be a sudden plunge or a prolonged correction as there was in Japan:
Prices were highest in Tokyo’s Ginza district in 1989, with some fetching over US$1.5 million per square meter ($139,000 per square foot), and only slightly less in other areas of Tokyo. By 2004, prime “A” property in Tokyo’s financial districts were less than 1/100th of their peak, and Tokyo’s residential homes were 1/10th of their peak, but still managed to be listed as the most expensive real estate in the world. Some US$20 trillion (1999 dollars) was wiped out with the combined collapse of the real estate market and the Tokyo stock market.’
The time after the bubble’s collapse, which occurred gradually rather than catastrophically, is known as the “lost decade” in Japan.
I recently had a chat with someone where I (hopefully) convinced him not to buy a house. He’s looking to put $80,000 down on a $400,000 house with mortgage and tax payments of $2500 per month. He can rent an identical home for $1650 per month. That means that instead of risking his $80k investment on Real Estate at bubble prices he could:
Put that $80k into a savings account
Earn 5% ($333 per month in interest).
Protect the principle
If he applies that interest towards his rent, his monthly payments will be $1316 ($1650 - $333) vs. $2500. Clearly, it makes no sense to buy right now.
Now is the time to unload those investment properties. Now is the time to take a cash position. Now is the time to be a property renter rather than an owner. If you are leveraged, it’s time to sell before you really get hurt.
The reason I’m even posting about this is because primarily we deal with making money on SEO Black Hat. The last thing I want is for you to work your ass off and make tons of money, only to squander it at the peak a bubble.