Indeed, the stagnation of wages for middle-America can partially explain how people desperately looked outside of real income increases to accumulate wealth. Thus the first tech bubble, and since then, the real estate housing speculation. And of course, add the debts that people had become increasingly reliant upon to fund their lifestyles, we are in this mess today.

You say that you're expecting more housing cycles in California, really? I am skeptical as to whether people will return to housing as an outlet from speculative activities going forward.

Thanks for stopping by, really great to have you here.

As a native of California, I have seen the bust and boom cycle in housing three times in the past 30 years. And, I have no doubt that I will see it three or four more times in my lifetime.

The bottom line with housing is that it is tied to income and more specifically affordability. So, whenever I see tract houses selling for over $500K, I know the crash is coming soon. No matter how low the interest rates go, young couples can't afford $500K houses, so the prices will have to come down. And, the longer the industry and Government meddle with it, the worse the correction will be.

The biggest problem I see with real estate as a long term investment is that real wages aren't going up. Maybe the wages of CEOs and politicians are going up. But, wages for most working Americans really aren't. If that doesn't change, the prices for real estate and many other items will stagnate.

Indeed, the stagnation of wages for middle-America can partially explain how people desperately looked outside of real income increases to accumulate wealth. Thus the first tech bubble, and since then, the real estate housing speculation. And of course, add the debts that people had become increasingly reliant upon to fund their lifestyles, we are in this mess today.

You say that you're expecting more housing cycles in California, really? I am skeptical as to whether people will return to housing as an outlet from speculative activities going forward.

Thanks for stopping by, really great to have you here.

As a native of California, I have seen the bust and boom cycle in housing three times in the past 30 years. And, I have no doubt that I will see it three or four more times in my lifetime.

The bottom line with housing is that it is tied to income and more specifically affordability. So, whenever I see tract houses selling for over $500K, I know the crash is coming soon. No matter how low the interest rates go, young couples can't afford $500K houses, so the prices will have to come down. And, the longer the industry and Government meddle with it, the worse the correction will be.

The biggest problem I see with real estate as a long term investment is that real wages aren't going up. Maybe the wages of CEOs and politicians are going up. But, wages for most working Americans really aren't. If that doesn't change, the prices for real estate and many other items will stagnate.

Thanks for the comment. I think similar to what we talked about last week with instilling self-esteem into my generation which subsequently turned a lot into affirmation-seeking narcissists, a similar case of good intentions turned sour happened here.

I have actually thought of the issue of immigration in the US. In recent years, the flow has steadied considerably. Or should I say, the flow of legal immigrants that actually have the money to upgrade into home vacated by baby-boomers have leveled off, if dropped. The current fiasco enfolded precisely because the educated and potentially well-off immigrants that had money could not access the dwellings. Yet the legislation passed by the governments mainly resulted in the poor, many Latinos and blacks hooked on programs and loans they cannot afford.

Here’s the article cited in the blog, scroll to mid to bottom of the page, to see difference between the Canadian and the American immigration programs.

Great points there. I think the lesson to be learned – as always, is don’t lever up! A house is meant for staying in – and the whole stigma attached to someone who rents is just ridiculous. Home ownership really got stuffed down everyone’s throat. And now the results have come to bear.

I don’t say buying a house is wrong, mind you. Home ownership is a good thing, and I can’t argue otherwise. But what makes sense (atleast to me) is to buy a home when you can put a good amount down, finance only a small piece of it, and stay away from exotic option ARMS and other such shenanigans. And ultimately buy a home that is nice and comfortable, not a sprawling McMansion (the other lesson that I think just hasn’t been emphasized enough) that makes you live paycheck to paycheck.

I will disagree with you though on a couple of things. Atleast in the states, you’re not factoring in the effects of immigration. It may have slowed down recently, but immigration will certainly provide the floor in demand. Will it be uniform though? Maybe not. Maybe the supply of homes in suburbia will remain elevated relative to urban homes.

And the bubble will come back – as 2008 goes further into the rearview mirror, risk taking will return, and asset bubbles will reappear. Nothing fundamental has changed in policy, so all it needs once again is cheap rates and continued reliance on the dollar as a global currency.