Tuesday, November 28, 2006

>Housing prices start cooling off

Although I have no interest in Indian real estate market I do track it due its strong macroeconomic linkages. I'm seeing disquieting news from US shores on housing market. The prices are down, new house sales are down even more. The forecasts are even more bleak.

Though it may not be directly linked to Indian market, you shouldn't forget that the boom in Indian real markets was not a local phenomenon. The property prices went up all over the world and the prices are now cooling off. In India I have seen many people stretching beyond their means to buy expensive houses. More often than not they aren't aware of the risk they are taking because

1. They presume that the prices would keep going higher irrespective of current price level

2. They are blissfully unaware of the huge leverage. A person taking a 30 year loan on floating interest rates to invest in equity market would be considered highly risk taking individual. But in real estate people think they are quite conservative.

3. People are unable to differentiate between consumption demand and investment demand(a large portion of it may be speculative)

I should forewarn you that I'm just a layman when it comes to real estate. But I feel I should give you a `heads up' when I smell some trouble. It may well be a false alarm.

From Kamlesh Pandey (La Warren Buffett, yahoo group)


Housing prices expected to drop more

It may take the California housing market three years to recover from its downturn because homes have simply gotten too expensive for most buyers, whose salaries haven't risen nearly as fast as housing prices, an economist said.


Housing market gets ugly

Why the sudden crackup? When prices were rising rapidly, some people bought houses purely as investments, betting that prices would keep going up. Other people rushed to buy houses, or stretched themselves to buy houses they couldn't really afford, because they feared that prices would rise out of reach if they waited. And all this speculative demand pushed prices even higher. In other words, there was a market bubble.

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