Reply #74: it is definately a speculative bubble in certain areas... [View All]

[trekbiker]

mostly on the coasts and select interior cities like Phoenix and Las Vegas. Here in Sacramento the bubble has topped out. Inventories of unsold homes are way higher than a year ago and new subdivisions are discounting $30K to $50K to move homes in just the last month. How this bubble pops (or deflates) will depend on location and the rate at which interest rates rise. Will is simply flatten or slightly decrease like the last one in 1990?? I doubt it. Percentage of home ownership is far higher this time and the number of very risky loans is huge. The rate of defaults will be much higher this time as those 100% L/V ARM's start kicking in during the next couple years as interest rates rise. All those homes will pile into the unsold inventory and crash prices in certain areas. Also, the interest rate picture 18 months ago was a lot different than it is now and the Fed will likely keep raising or foreign interests will increasingly decide they dont want dollars which will drive rates higher.

I can see California interior valley prices going down significantly as mortgage interest rates head past 7%. Interior city bubbles created by speculators may also see big declines. Coast area bubbles like Boston or the CA Bay Area and LA might be different though and may simply flatten out because their demand and supply situation is different. How this plays out depends on location, interest rates, what happens to long term bonds, what China and other foreign interests who've been financing our bubble do..., etc. It looks bad for the future. Not like 1990 at all.