Re: real estate questions....
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Most real estate investors as well as home buyers are leveraged up to their eyeballs. Between short term ARM mortgages and interest-only loans, the monthly payments can explode higher when interest rates return to the typical levels. These higher monthly payments are going to lead to a rash of property owners going into default which will result in a large number of foreclosures which will result in a glut of homes on the market etc. etc. etc. The end result will be the collapse of the real estate bubble just like the collapse of the dot com bubble.
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There is a great article in Fortune this month about the real estate bubble. It quotes one "investor" who owns a bunch of houses, but is only renting a few of them since he's planning to flip. He's already got major negative cash flow (something like $5,000 per month), and says if prices go down he's just going to hold on to them and wait until the rebound (he figures a year or two!).
This guy seems to have relatively deep pockets from some big wins but most real estate investors don't. They can only hold on so long before they or the bank dumps their properties at cut rate prices. And if the market takes five years to recover (late 80's, early 90's California), even Mr. Deep Pockets is up a brown creek with no paddle.
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