Quote Originally Posted by topspeed

Case in Point: Las Vegas
April '04; Vegas has an inventory of 1,500 homes with an absorbtion ratio (how fast properties are selling/month) of around 70%.
April '05; Vegas has an inventory of 15,000+ homes (that's not a typo kids) with an absorbtion ratio of 20% and dropping like a rock. Builders, faced with mounting inventories and crushing burdens from their construction loans, slash prices by $150,000 PER HOUSE. Investors, most from California that have pulled their equity trying to do in Vegas what others are now attempting in Central Cal, watch helplessly as their entire portfolio evaporates into the desert air. Sounds fun, eh?

The bubble will burst. It isn't if, it's when. Our estimates are within the next 8-12 months, tops. Greenspan has already stated many times over that he will keep increasing the prime throughout the year. Thankfully, most of the investors have taken this into account which is why when he raised the rate last time, the long-term yields held steady. They've buffered for it. This too will come to an end. Real estate is cyclical. It always has been, it always will be. For those old enough, all you have to do is remember the boom of the late '80's and the crash of the '90's. This millenium has been boom for Cali so far, but there are already many areas (Texas, Michigan) that are in a slide. It's coming, just wait for it.
I work in investment management. Our agency unloaded US real estate investments long ago, and I know many other financial institutions are getting out. Much of the bubble can be attributed to the low interst rates. Real estate investments tend to behave like bonds. These low rates cannot last forever. Herd mentality is driving the masses to real-estate right now. This is dangerous - the supply/demand issues notwithstanding, when rates increase values will decline, and people run the risk of increased financing on over-valued properties. There's real potential for a massive collapse in the entire US real-estate market. Places like California look like they'll take the worst of it.

The joke I hear now (which isn't that funny) from the analysts that cover real-estate is to wait for the spike in bankruptcies and buy homes at pennies on the dollar.

Since moving to Canada last year I've learned that essentially the same thing is going on here as well. This doesn't bode well for North America, especially with Asian markets starting to take off.