> The last stage also isn't a necessary part of a bubble bursting,
> since all that's needed is a shift from everyone delaying selling
> until right before the peak to everyone deciding that the Market
> has peaked. The music stops and everyone rushes to sit down, but
> there aren't enough chairs.
When the music stops, in a housing market, it's not the same as it stopping in an equity market: the dot bombs were never worth anything in the first place, so when everyone realized it, the price went down and all holders lost, even those that bought in when it was cheap. When this happens in the housing market, not everyone loses; in fact, I bet there are only small, specialized groups who will lose
+ People who bought at the end and are forced to sell during
the downturn (real estate transactions are costly [average 8%], so
if you have to sell fairly soon after a purchase, you probably lose
even in a rising market -- I bought a house in 2002 and it wasn't
until sometime last year that I figure I could sell it and break even
due to comissions, taxes, closing costs, etc. + Speculators who bought income-generating houses if rents go down
The large number of people who stand to lose in Doug's view are those who stretched beyond what they could afford and interest rates go up. I think there are some of those people in this market, but I bet this group is smaller than the other two groups above. Afterall: for many, the worst that happens is that you come to the realization that you "paid too much" for a house that you wanted to live in when you bought it and likely still do.
NB: If you bought at the last peak in LA (1992?) and still live there, you're likely to be quite comfortable with wht you have. I bet that's a realistic characterization of most of the people who bought that year.
-=-=-=
Doug wrote:
>> [...] it takes a lot of money to enter.
>
> Not these days - all you need to get a mortgage these days
> in the US is a pulse.
Well, it takes more than that. You need a decent credit score; a down payment helps your rate, as does documenting your income. But sure, it's a lot easier to get mortgages than it used to be. As well it should be!
> No down payment required, special low teaser rates, etc.
Leigh responded:
> Tease? As in tease people who can barely afford one(or not) to
> go for it?
>
> Do tell?
Presuming you're not kidding, a "teaser rate" is one that starts out (for 6 months or a year, depending on the details of the program) at a lower rate than usual. Sometimes this is done purely for marketing reasons (the difference gets made up over the lifetime of the loan, watch your APR!) -- in which case the 'benefit' is that your cash-flow is lower immediately after moving in (i.e., the time when you need it most!); other times it's an actual incentive, worth every penny. I got a mortgage in 1994 with a teaser rate and by the time I got rid of it in 2001 the later increases never added up to beat the other plans I rejected at the time. That is: what was offered, a lower rate, did in fact turn out to be a lower rate. Yes, my payments went up in future years, and yes at some point my loan looked not as good as what else was out there, but if you added it all up (and I did), you'd find that it was a good deal -- in addition to being cheap at the start.
/jordan