Tuesday, May 31, 2005

Bubble Stages

Here are the likely stages of the housing bubble:
  1. Huge Price Gains (already happening)
  2. Public Awareness of the Bubble ( we are in this stage)
  3. Price Stagnation (almost there (maybe happening in certain markets))
  4. Lenders tighten up lending practices
  5. Price Declines
The longest stage of the bubble is stage 1. Going between stage 2 to stage 5 will be fast. Get ready for the torrent of change that is coming to the housing market.


  1. Price stagnation is already happening in Las Vegas and San Diego.

    Stage 4 and 5 are pending still AFAIK.

  2. Can we antcipate market (DOW, NSDAQ) declines when the housing price declines occur? I am asking because I may want to exercise options before their value drops so that I have the cash for a down payment when prices drop to a level I consider fair.

    I think it will chake up the markets because the consumer spending that has kept the markets going has IMHO been generated from house price increases and refinancing.

    Thanks in advance

    OC renter too

  3. Robert Campbell of San Diego is talking about extreme caution now - and so is Professor Robert Shiller, of Yale University. These are two smart folks. Google them - and then RUN from investing in the market now. The bubble is extreme here in Vancouver, as well.

  4. Actually, I think we'll get more than price stagnation, we'll get a decline in prices based on interest rate increases alone! I've recently written an article about this recently at: http://www.followsteph.com/News/Howinterestratescandrasti.html
    which shows the graph of how interest rates can greatly affect the affordability mortgage prices.

    So for example, if you want to keep a monthly payment of $1000/mth, and if interest rates climb up 2-3%, you are looking at a 20-30% drop in mortgage affordability! In detail, if you have an interest rate of 5% and you can only afford $1000/mth mortgage payments, then you can afford a mortgage of up to $186,281.62. If interest rates climb to 7%, then this number drastically drops to $150,307.57, a $36k difference, or about 20% drop in price!