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Originally Posted by osirisboy
Thank you for posting that, couldnt agree more... people confuse a softening market with a "bubble" bursting. I swear theres certain people that have a bubble fetish.. everything is this big bubble thats going to burst, ugh
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Those are purely marketing terms... which essentially mean the same thing. In the real estate business they call it a "major correction" or a "softening market" because they are in the business of maintaining stability. In the media, they call it a bubble, because they get more eyeballs that way. They equate to the same thing. Prices going down and returning to fundamental levels. The faster it climbed, the longer the fall lasts.
Real estate bubbles don't pop like stock markets, they spring a leak until the pressure is equalized... and you end up with a deflated market with people who are afraid to buy. No one wants to buy a losing asset... and people naturally tend to buy high and sell low.
Remember that the ones who are in for a world of pain are recent first-time buyers who are overleveraged. The banks giving away 0-down 40-year mortgages, for example. Even those that signed 30-year mortgages can't renew for longer than 25-years as of this year. That effectively has the same result on your monthly payment as a rise in the interest rate, but is realized later when the "softening" is in full force.
Although losses aren't realized until people sell, there is a large section of people set to retire in the next 5 to 10 years who may have had a lot of their retirement money vaporized. These are people who were likely planning on selling. They'll either work longer (not freeing up jobs for younger ones) or they'll take the cut and sell.
IN any case, the banks will be fine. They've been diversifying into Rental properties and commercial for the last 5 years. Average Joe will suffer, just like he did in 1981 (different market and reasons, but same result).