Housing Bubble?

More of my recent conversations center on the real estate market. I have three exposures: personal, anecdotes of friends and publications.

Personally, I purchased a lot in March of 2005 and sold it in early 2006 for an increase in price of over 30%. I sold it to a person who had planned to build. Since then, he sold it to a developer who is building a spec house. In addition, I have looked at the partial purchase and potential development of a lot next door to me. I asked a realtor friend to help me evaluate it. She forwarded to me an enormous list of unsold properties in the area. From this list, the market looks overbuilt.

Further, friends tell me that their houses are no longer appraising at higher values. In addition, the sold numbers of builders are dropping.

Finally, publications report that foreclosures are 18% higher than last July. In addition, Toll Brothers has reported horrible financial results.

It appears that Americans have been building bigger and more expensive houses for smaller families. It also appears that more of their net worth is tied up in these houses and more of their discretionary income is dedicated to maintaining and improving these houses. Psychologically, Americans have been comfortable as they viewed the value of their properties going up. This could change dramatically if houses decline in value.

Development is still hot. However, it appears that a saturation level has been reached and that those likely to be more affected are those who attempt to sell older properties while competing with those recently developed. This would be particularly damaging for the "no down payment" properties.