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Let's say the market value of your house is up 50% over the last five years and then we have a 10% correction (which hasn't happened yet) you are still up a net 35%.
Let's say you bought recently and experience an immediate 10% drop, then over the next five years the value goes up 25% (less than 5%/yr.) you would be up a net 12.5%.
Now let's assume you put down 20% and financed the rest and assume your after tax costs are equal to market rents - your return on investment in the first situation is 175%, the return on the second is 62.5%. And if you financed with a fixed rate mortgage your principle and interest payments are fixed not subject to year to year increases like rent would be. There ain't many investments the average person can make to beat those numbers.
A bursting bubble would suggest big losses and negative returns on investment that can nver be recovered. If you define the real estate bubble bursting as a short term decline in prices of less than 5%, I'll take it.
Increases in inventory occured because the market was too hot in some markets. Builders got too aggressive, now they are selling off thier excess inventory, which is a normal and short-term correction.
People have to live somewhere, land is limitied, government gives favorable tax treatment to property owners, our population is growing and youcan highly leverage real estate investments. Overtime the real estate market will go up, as it has always done. Long live the real-estate boom.
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"Democracy is two wolves and a sheep voting on lunch."
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