the economist and the housing bubble, page-9

Whilst I accept that there are average growth rates over many years of holding property, they are very poor and only reflect the real loss of value of the dollar due to inflation.

The same house on the same land is actually in real terms, worth less due to depreciation of the structure. Loss of purchasing power in the dollar gives the illusion of house price growth.

But more important now is the high level of debt.

There are many new home owners who have no savings and no capacity to make payments. They are living beyond their means and they are already falling over.

The RE industry encouraged these people along with the investors and the greedy, to bid up the prices of houses and land beyond their normal (growth for inflation) pattern. (Double, in fact)

There being no support in the market by way of more cheap money in the hands of foolish buyers, the market is now returning back to predictable levels.

A fall of 10 % each year for 5 years will do this, or a period of 10 years with no price increases, but more likely there will be severe falls as the weak holders are forced to sell and investors loose money.

Evidence of this has already started by way of Mortgagee sales and John Symonds, seeing this, has advised weak holders to recognise their position and organise an orderly sale before they too are in the hands of the Banks.

MT.