Investment Real Estate Bubble

We're in the process of getting our rental condo ready for our winter guests. Things are not so bad for people such as us who bought investment property early in the speculative cycle and hold thick equities. But there is little doubt that we are in the middle of a sea change as regards to real estate investment property. In Scottsdale, I see good property that isn't selling and other property that is going into foreclosure. Accordingly, it may be helpful to try to figure out what is going on.

Like any commodity, real estate is subject to the laws of supply and demand. However, the interaction of government policy, social trends, media promotion, and greed can act on real estate in such a way so as to create a bubble-- a momentary explosion in price relative to value that then implodes. We are now seeing such an implosion and the negatrive psychology is such that we haven't seen the bottom. Depending on the market, as much as 80 percent of property values may be wiped out, causing a rippling effect in related industries including home building and mortgage banking. You are seeing the first signs of the recession of 2008.

Here is a summary of the causes of the housing bubble in the United States.

http://en.wikipedia.org/wiki/United_States_housing_bubble