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The Truth Starts Here

Posted on : 20-07-2010 | By : Truth | In : Uncategorized

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The housing market will drop 30% in the next 3-5 years. Welcome to the start of the bubble.

There is a lot of speculation about the housing market right now, and a lot of political will to reinflate the bubble, but this bubble has holes in it large enough to hold an Olympic-sized pool.

There are many reasons politicians want to propagate this bubble, at least until the next election. An unfortunate large percentage of homeowners are already underwater, and if house prices drop further, there will be more underwater homeowners. These unfortunate mortgage holders will open their mortgage statements and will run to the polls in November to bring in the next guy that promises hope and change.

Unfortunately, despite the billions of dollars Washington is throwing at the problem, the current real estate model is deeply flawed and the prices are nowhere near sustainable in the long-term. A factual look at the trends in the real estate market in the last decade and the last century can result in only one logical conclusion – that real estate will drop 30% in the next 3-5 years (at least in the NY Metro area).

There are those who believe that real estate is currently extremely overvalued. Others believe that it is currently fairly-valued. Whatever you think about the current state of the housing market (or even if you haven’t yet formed an opinion), a serious look at the facts will show you that a 30% drop is the only realistic possibility. Houses are currently unaffordable, and will become more so if prices so much as stabilize. The appreciation in the market in the last decade is also completely out of line with that over the past century, fueled in large part by the worst bubble in our lifetime.

The 30 percent solution will resolve both of these anomalies and will usher in a return to a simpler era in personal finance, when buyers can use more of their dollars to improve their quality of life, not to take on more regrettable debt and support the next guy up the ponzi ladder.

Better quality-of-life and lower house prices are a noble goal that benefits everyone, except those who purchased in the last 5 years. These unfortunate buyers – many through no fault of their own – will be the sacrifices in the decimation of the bubble. Even long-term owners – those who bought, say, before 2003 – will be left with some net gains from this bubble, just not the triple-digit percentage gains they currently enjoy today in a time when there’s nothing real about real estate valuations.

Fundamentals will eventually restore order to every market. It may not happen next month. We may even see a rise in RE in the next year or two, but in the long-term, bubble fads will fade and fundamentals valuations will once again be the norm.

Join us in our trip through the crystal ball, as we explore the undeniable facts pointing to the 30 percent solution.

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