[imported_bingobazza]

Cheap money (low interest rates) have the effect of inflating the prices of the assets of choice...in this case....real estate. This ploy has commonly been used by central banks with monotonour regularity to depreciate debt....mostly with the same outcome...a bust with a credit crunch, or a deflationary boom. The point we are at now is a game of 'greater fool' where everyone tries to find a bigger fool to pay more than he paid for the inflated asset...we're getting close to the end now.

I read recently that the real estate bubble is currently hndreds of times bigger than the dot com bubble and that the world has never seen a bubble so large when measured in USD. It isnt just in the US, but almost every major financial centre in the world has ridiculously overvalued property, fuelled by cheap money...(but its different this time...is the cry of the masses).

How about this scenario....the property market starts to level off, people have made a lot of money and are starting to take some profits, then interest rates creep up, smart money leaves inflated areas and find new investment themes that arent on the publics radar yet (Nikkei anyone?)(Donald Trump has starting to sell), fewer buyers for houses as they are too expensive, prices slip, a few inexperienced developers go bust very publically, more sellers in the market, prices fall, interest rates continue upwards, people liquidate stocks to pay mortgages on investment property, the stock market also slips, people feel less wealthy, decide to cash in property investments and retire, prices fall faster now. No one is buying, interest rates go up again...landlords feel the pain, liquidate more stock, stock markets fall heavily, new saving money is diverted from stocks to mortgage payments as higher interest rates bite...no one can sell. Prices are in freefall.....people start handing the property keys back to the banks, and accepting credit blacklisting as they slip into negative equity (the mortgage is larger than the property value) and cannot pay.

Things calm down after a year or two and smart money sells Nikkei stocks and picks up the bargains you left behind, as interest rates begin to fall again.

Heres another scenario...property will continue to increase and cheap money is here to stay. The boom and bust in property is dead, thanks to Alan Greenspan printing money, and everyone grows wealthy as interest rates stay around their 35 year lows for ever....the 'new era' in interest rates. New average university graduates get jobs that pay 3 times more than normal and are able to afford to buy a home to get then onto the housing ladder. Because of this shift, the housing market is fuelled with a new stream of endless buyers each year, enabling the market to keep going up.

You cannot fix one bubble (dotcom) with another (realestate), and they generally all look the same. Be careful if you get involved at this point.

Good luck.

Bingo