FORTUNE: A tale of two markets - Feb. 13, 2006
Please read this article. I think it shows the major divide in thinking about the real estate market. I think the two quotes that are perhaps the most scary are the following:
"Fifteen percent is pretty much in the bag for Orange County in 2006," he says. "It's impossible for prices to go down this year." Gary Watts, Orange County Association of Realtors spokesman
"Yale's Shiller surveyed Orange County residents last year on what they expected home prices to do over the next ten years. The average expectation was a 23 percent return -- per year! That kind of unbridled optimism has caused buyers to stretch beyond their limits. Southern California has become a hotbed for "exotic" mortgages, such as interest-only loans."
The most dangerous phrase in the world uses the word "impossible" as its pretext. To say something is impossible is just plain stupid, regardless of who you are. I don't know where O.C. or national housing prices are going, they could go up or down 15% this year, but I don't know- nobody does. I think the probabilities would not be in favor of a 15% rise, of course history shows us that assets don't always adhere to fundamentals (NASDAQ 2000 anybody).
I really don't know what will happen with Real Estate, but I do know that you should be cautious when buying it and understand all the risks in advance before doing so and I also know never to utter the words "impossible" as they just may come back to bite me......
Scott Dauenhauer, CFP, MSFP