[deathtoau]

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My first question has to do with inflation in real estate prices and this so-called bubble.

Has there previously been a real estate crash that we can study?

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Japan in the past couple of decades. The real estate bubble there destroyed their whole economy and created one of the longest prolonged recessions since the Great Depression. They still haven't fully recovered.

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How exactly are real estate prices set, similar to stocks, that a house is worth as much as someone will pay for it, so for there to be a crash, several people would have to lower the price of the house they are selling.

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It is a matter of supply and demand. People can set their property value at what ever they want to, but it only sells if there is a buyer willing to meet the seller’s price. If there is a vast oversupply of houses on the market, then the prices would fall because buyers have more options and can hold out for a better deal.

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Why would these investors decide to sell at a lower price, as opposed to just holding their appreciating asset and renting it out?

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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.

The real bet now is figuring out when not if the crash will come.