Quote:
Originally Posted by Sylvanfan
So you being a financial planner....would like to see like 75% of the population go broke and basically be left with no money? I mean if the real estate market crashes big time chances are there are other things like stock market crashes, money market crashes, and commodity market crashes that drive it. In short if the real estate market does crash so hard.....chances are everyone is going to be screwed one way or another.
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First of all, a serious correction won't bankrupt 75% of the population. Even if the RE market fell by 40%, which is extremely unlikely but that's close to what the stock market tumbled in 2000-02, your fear would not materialize.
Fact is, RE isn't as volatile as are stocks. I don't know their standard deviation, but I'd guess it's about half to two-thirds of that of stocks. If the 40% market decline I mentioned is about as big as it gets, then a RE freefall might be 20-28% of so.
Even if he market fell by 30% of more, why is that a bad thing? It wouldn't be.
Right now we have a whole generation of young people who are going to really stuggle to own a house. I'm older than most of the people here. This is my children's generation. Unless they're innovative and buy a house with parents or a friend, no way my kids and others of their generation can own a house. At least not without taking on huge, (maybe) lifelong, crippling debt. A RE freefall, which I define as a long, difficult decline of at least two to three years from start to finish, would enable many young people to get into the market. I want my kids to be able to own a house without relying heavily on the Bank of Dad, and right now it's verfy difficult.
What else would this accomplish? This would bring some sanity to rents. Right now owners are able to charge almost anything they want and renters don't have a lot of choice. A big correction would create enable many of these renters to get into their own homes.
This is a selfish reason, but I have clients who believe that RE is easily their best investment, despite the fact that stocks have historically blown RE away over the long term. They've witnessed a serious stock correction and highly volatile markets, but they've never seen a big RE correction.
I kinow a young fellow who is 26 and owns five houses. It matters not to me if he ever buys stocks, but I wouldn't mind if these guys learn how the markets really work. I've told him that there is risk in RE, that he's not diversified and long term stocks do better. He doesn't see the risk. I remember a person on this very site once writing something like, "Risk, what risk? How is it risky to buy RE when it only goes up?"
Market corrections deliver short-term pain for long-term gain. It would bring sanity to the RE market, which has some pretty compelling benefits, I feel. I'd love to see a 25-30% correction. Yes, I am a homeowner.
In short, I think your fears are unfounded.