From several of my friends, I’ve heard that people are bidding the homes again like crazy for the last four months. Many properties sold at the asking prices or above, receiving multiple bids. Home prices actually have gone up by up to 10% versus prices from last year. People just never learn (especially about history). Human greed and fear is always with us, and therefore there will always be bubbles.

Frankly I am totally disgusted by the “get-rick-quick” crowd and their mentality. Nobody wants to work & save diligently. Instead people are afraid of missing the next stratospheric real estate boom, afraid of missing the bottom in stock markets, and afraid of missing the next generational boom in emerging & BRIC markets. Just sit down and think a little bit. If all of these people will get rich, retiring with more than a million in net worth in inflation-adjusted dollars at the age of 55, who is going to serve the table when you go to restaurant? Who is going to be nurse taking care of elders? Who is going to be the hotel cleaning lady when you go and travel? Robots or imported cheap labor from African countries? I don’t mean to disparage the above jobs at all. For the society to function at all, everyone needs to perform their duty and job function. Everyone is indispensible (at least in a collective sense). And so, it just happens that NOT everyone is going to retire on the beach, enjoying the sunshine. That is just a fact, until robots can replace all human labor.

The recent bubble in (international) real estate has been the biggest ever in size in human history, driven by massive credit liquidity multiplication. There was a paradigm change and the credit liquidity is not going to be the same possibly for decades to come. Just remember that if real estate in Japan of just four main islands can go down in prices for 20+ years, then there are more reasons for real estate to go down in prices in bigger continents.

I’m not saying that home prices cannot go up. There are two main drivers for home prices:
1. Persistent increase in wages: I seriously doubt that it’s going to happen anytime soon. The unemployment rates are going up. There is no pressure to increase wages. Furthermore, in order to reverse outsourcing trends, either US wages go down, or US dollar goes down.
2. Long term interest rate drops more: I have doubts that the condition of low long term interest rate in US dollar can persist. Due to all the Wallstreet bailouts and fiscal deficit at Washington, at some point, the liquidity crisis will hit US bond markets again. Foreign central banks are shunning away from US bonds now. I believe long term interest rates will trend up rather than trend down. That does not bode well for home prices.

Of course, if the above two factors change to favoring home price increase, then my opinion will change. Until then, I wish those home buyers and real estate “investors” good luck. Our generation doesn’t really understand the word investing anymore. Calling speculation as investing does not reduce the risk of speculation by any tiny bit. Rather it just pampers your own greed.