Market Correction

[Flavia84]

The economy is cyclical. The housing market is cyclical. Current economy is not healthy, being based on cheap money rather than productivity. I am seeing people making not that much getting loans for very expensive houses and brand-new cars, living paycheck to paycheck. Banks require little to zero (!) downpayment so it's easy to walk away if something happens. How is this normal or healthy?!

Do you have a secure job? Are you buying a house for yourself to live, and not as a cash machine or banking on future appreciation? Will you be able to pay your mortgage off and do you have an emergency fund if something happens to your job? Do you work in a solid industry which is resilient to downturns? Do you have a support network/family who can help you out ride out a downturn? If so, go ahead and buy and don't look back. Otherwise, I'd wait. There will be a correction. Not to be pessimistic but I think it will be worse than the previous bubble. The recovery has been artificial. The issues that caused the previous crisis have only compounded. The levels of debt are astronomical.

[BoBromhal]

fortunes are made and lost by predicting the top and bottom of markets.

[TimtheGuy]

Originally Posted by Flavia84

The economy is cyclical. The housing market is cyclical. Current economy is not healthy, being based on cheap money rather than productivity. I am seeing people making not that much getting loans for very expensive houses and brand-new cars, living paycheck to paycheck. Banks require little to zero (!) downpayment so it's easy to walk away if something happens. How is this normal or healthy?!

Do you have a secure job? Are you buying a house for yourself to live, and not as a cash machine or banking on future appreciation? Will you be able to pay your mortgage off and do you have an emergency fund if something happens to your job? Do you work in a solid industry which is resilient to downturns? Do you have a support network/family who can help you out ride out a downturn? If so, go ahead and buy and don't look back. Otherwise, I'd wait. There will be a correction. Not to be pessimistic but I think it will be worse than the previous bubble. The recovery has been artificial. The issues that caused the previous crisis have only compounded. The levels of debt are astronomical.

"The issues that caused the previous crisis have only compounded." ...can you be more specific on what issues caused the previous crisis?

low and no down payment mortgages have been available for a long long time, so I think one could conclude that this is normal.

[Flavia84]

The premise that most people hold that it's ok to live paycheck to paycheck and take on copious amounts of debt.

[evilcart]

Originally Posted by luv4horses

We keep hearing this term relative to the housing market, that within the next 2 yrs there will probably be a "market correction" and prices will go down. But how can this happen? Will there be fewer people needing homes? Will there be more new homes available than people seeking them out? Will people be dumping their homes for cheap because they are moving overseas? Will homeowners be losing their jobs and moving back home with mum and dad? It is hard for me to imagine that with such high demand today houses will become cheaper in a couple of years, unless there is something major that happens that throws existing homeowners out in the street.

Or is this idea of market correction just wishful thinking on the part of people who cannot today afford the home they want. Any insight?

With interest rates so low for so long investors were both pushed and pulled into Real estate. The push comes from the negative return in real terms if you stay in cash type investments. your money purchasing power decreases faster than your returns offset it.

And of course low interest rates mean mortgage rates thus making money very cheap to borrow.

This was intended in order to reflate housing and did it's job long ago.
Those who understood the policy and its intent or just from seeing a "good deal" borrowed early and often while the dollars purchasing power was still strong. trillions went into RE, early and now the guy on the street is following along not even aware that RE rose on the back of dirt cheap money to those who already had money and were willing to jump in.


purchasing power is now low, even with dirt cheap money property is not pencilling out unless you are speculating on a greater fool to follow. That does not mean it implodes tomorrow but at some point it either gets back in line with rental returns or you run out of fools. to get back in line with rental returns requires a massive hike in rents that is just not realistic.
I have some anecdotes but they prove nothing other than i am starting to either see or look for reasons to sell .
It is my view that unless we are in a "new normal" then we are in an asset bubble and maybe the biggest ever.


I have no solution as what to do about it, other than to own some of everything and hope some things do OK...