The Coming of the 2nd great real estate bubble - (price comparison and other interesting facts)

The coming of the 2nd great real estate bubble

Beginning in 2007, real estate prices plunged 2-5 times to hit the absolute rock bottom. The market was dead. Selling a house was next to impossible. Properties valued at $250k during the bubble heyday went for $30-$40k.

Nobody would believe you if you told them in 2005 this would happen. Some people knew it would go down at some point, but very few, certainly not those investing, expected a drop of that magnitude. Furthermore, nobody would believe you in 2009 that only four short years later, the situation would repeat itself! Amazingly, in 2013, the situation again is almost identical to 2005 - prices of sub-100k properties nearly doubling in a year and continuing the trend.

Sampling a few properties sold in 2004 in High Desert - an area in Southern California known as a hotbed for real estate investment activity - we can see that the price per square foot hovered somewhere in the range of $75 - $95, the average being around $85. However, some sold for much more:

http://www.redfin.com/CA/Victorville/12812-Yellowstone-Ave-92395/home/3774688

bought in 2004 for 175 (145/sq foot), sold in 2005 for 278 (an amazing $231/sq foot)

As of March 2013, the prices are close to $85/sq foot as well:

http://www.zillow.com/homedetails/16476-Sycamore-St-Hesperia-CA-92345/17450093_zpid/ - $80

http://www.zillow.com/homedetails/19091-Goleta-St-Hesperia-CA-92345/17446951_zpid/ - $87

Many properties are above 90/sq foot.

What does this mean? This means that as of March 2013 - the prices (unadjusted for inflation) are close to the 2004 levels!

This means that just 6 years after the worst real estate crash in the US history, we are back in the same situation. 

This also means that a crash is coming. The question is, when. If we look back, we can say that the bubble went mainly from 2002 - 2007, a span of 5 years. This current bubble started June 2011. We are now about 2 years into it. Will this bubble also last 5 years? If so, the crash should occur in summer 2018. 

The problem is, bubbles are not on a timer and don't last the same amount of time every time. This current crash can occur at ANY TIME. So, anyone currently buying a home is putting themselves at a severe risk of getting caught up in the bubble. Crashes happen fast. Houses are not stocks - they take time to sell. Once you are in a crash, you, most likely, will not have time to unload the real estate you own. 

Is the risk of buying real estate now worth it? That is up to you, the investor, to decide.

Serge Bronstein

March 2013