Here is where I am going to start to see if we have any basis of a common understanding of economic markets.
Lets assume there is a residential property with a fair market rental value of $1500 per month. After expenses (taxes, insurance, maint., etc) the net cash flow is $1,000 per month, assuming no inflation or other variables, and that cashflow held constant for 30 years. What would you be willing to pay for that cash flow?
Discounting the cash flow using 5%, I would pay about $186,000.
Next lets assume the property has a residual value at the end of that 30 years, simply the value of the land and lets i say it is going to be $50,000. How much would you pay today for a lump sum of $50,000 in 30 years?
I would pay about $11,000, discounting at 5%.
If you found such a property that was selling a lot less than $197,000 would you buy it?
I would.
You could argue that there is no guarantee in the rental value being $1,500 per month. That is a good questions and that is the fundamental issue that begs an answer in regard to any real estate bubble bursting. There is a demand for housing. The demand is not getting smaller, it is getting bigger. In most cases supply growth lags demand growth. In none of your posts have you cited a source linking a drop in housing demand and the "crash" or whatever you want to call it. to me it it is obvious that housing demand will not materially change in the overall market, hence there is a floor to the "crash". We know what it is. Property values will drop to their intrinsic values, if that far - because speculator will never completely leave the market.
In the above example if the property is selling for $250,000, it is clearly over valued. But when it drops to $197,000, that is not a "crash", is it? If it dropped to $150,000 smart money will quickly come in, and over a short period of time the value will go back to $197,000
You ask the question where is $800 billion going to come from to replace funds that where taken out of the real-estate market? I know we have discussed this in the past, i.e. in the early '90's money flowed into stocks, then started shifting into real-estate, and will shift into something else. And remember we are really only talking about speculative money.
But the driver of our economy is productivity growth. that combined with job growth will keep our economy going strong. Here is a link from GWB, just so you have something to say is not credible.
Quote:
Job Creation Continues - More Than 7.4 Million Jobs Created Since August 2003
On February 2, 2007, The Government Released New Jobs Figures – 111,000 Jobs Created In January. Since August 2003, more than 7.4 million jobs have been created - more jobs than the European Union and Japan combined. Over half a million jobs (513,000) have been added in the past three months alone. Our economy has now added jobs for 41 straight months, and the unemployment rate remains low at 4.6 percent.
American Workers Are Finding Jobs And Taking Home More Pay
* Real Wages Rose 1.7 Percent In The Past 12 Months. This means an extra $1,030 in the past 12 months for the typical family of four with two wage earners.
* Real After-Tax Income Per Person Has Risen By 9.8 Percent – More Than $2,800 – Since The President Took Office.
* The Economy Grew A Strong 3.5 Percent In The Fourth Quarter Of 2006. The economy grew 3.4 percent last year, up from 3.1 percent in 2005.
* Since The First Quarter Of 2001, Productivity Had Strong Average Annual Growth Of 3.1 Percent. This is well ahead of the average productivity growth in the 1990s, 1980s, and 1970s.
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http://www.whitehouse.gov/infocus/economy/