Get a piece of chewing gum - no make that two or three pieces. I want to effectively demonstrate what a bubble implosion is. OK - chew, chew, chew. Blow the biggest bubble until it explodes. OK, good: that is what the media is describing in regards to "overheated, overvalued" markets - a bubble EXPLOSION.
Now don't spit out that chewing gum just yet...................
Blow a large bubble that doesn't pop, stick your finger in the middle of that bubble (disclaimer: have peanut butter handy and tie your hair just in case something goes wrong). Don't stick your finger in so hard that it pops but look at what happens: The middle deflates and the outer edges get wider.
And this relates to real estate how?
The bubble implosion! I have been saying this for years since Chicken Little, Henny Penny, Cocky Locky and Goosey Poosey got suckered into the fox's den by foxy woxy (the media).
The real future of real estate trends (prices to desirable housing styles) matters when you look at little things like migration trends (census release today!) and job growth. Undervalued reports look at things like real wages vs housing costs. Real wages DO NOT apply to ALL markets - see my blog about this!
What is happening is that the midwest and northeast are losing their population and they are moving to many of these "overvalued markets set to burst".
I still don't get it..............
Many of the markets that are losing population or have stagnant growth will find themselves with an oversupply of homes which has a direct (long term) effect on pricing and appreciation and in fact can cause depreciation. Many of these markets did NOT experience sharp appreciation during the boom years.
Why depreciation in the midwest?
Let's profile the buyers of 2004-2005. First time buyers found their dream, Foreigners took advantage of the deflated dollar, Investors took advantage of the flip, Buyers of Second Homes/Vacation properties, Boomers took advantage of LOW RATES to buy their retirement homes. Boomers are eventually going to sell their primaries and there is more than likely going to be an oversupply of inventory in the midwest. Thus, the implosion.
Now I would like to explain that I am not an alarmist, I am a realist. The boomers will be leaving in small increments, here and there over the next decade - UNLESS - we see a quick strengthening to the economy and a bubble in the stock market that grows their retirement portfolios quickly. Then - I would be worried about the mass exodus.
The economic implications:
- Too much housing inventory all at once can cause housing depreciation and in return could bankrupt many in the related industries
- Little job growth because large employers need to go where the skilled and trained people are
- Smaller local tax base which could result in an increased burden (ie tax increases)
- Political shifts in power - loss of electoral votes, loss of congressional seats
- Don't believe me? It's already happening - even though congressional seats and electoral votes will not readjust until 2010 - Pay attention on what states are receiving 2008 election political attention - not mega states - not New Hampshire but the states that are growing quickly in the census data released today. Politicians are all of a sudden caring about states that they never gave a rat's patootie about before.
We need slow stabilization of all real estate markets, the economy and stock markets so the implosion does not occur as I describe. The midwest needs to attract good, quality businesses to attract a younger generation to replace the retiring boomers.
We also need the king's dogs (us) to distract Foxy Woxy (the media) and set the record straight about the truth of the current real estate market.
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