In fact, I'm inclined to think there's a good chance that the return on real estate will be negative, substantially negative, over the next 10 years because all booms reverse in the end.

From 1890 through 1990, the return on residential real estate was just about zero after inflation.

It can't be true that homes rise 10 percent a year. If they did, in the long run no one would be able to afford a house.

What you're trying to do is to invest in skills that somebody else will want to pay you for. Let's say you want to work at Bethlehem Steel. That would have been a good idea in the 1950s, not so good by the 1970s. The world went the wrong way on you.

http://money.cnn.com/2007/04/09/real_es ... 2007070615
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(Money Magaine) -- Robert Shiller is worried about your home's value, and that's not good. A finance and economics professor at Yale, Shiller proved he could see a crash coming with his book "Irrational Exuberance," which forecast the end of the 1990s stock bubble and hit bookstores in March 2000 - almost to the day the Nasdaq started to collapse.
Today, Shiller believes homes are roughly as overvalued as stocks were then and, once again, he's worth listening to.

A research company he co-founded, Case Shiller Weiss, created the definitive index of housing prices. A newer venture, MacroMarkets, designs ways to hedge against risks like falling home values.
In short, no one else knows the history - and perhaps the future - of U.S. real estate prices better. Shiller spoke recently with Money's Jason Zweig.
Question: What caused the stock bubble, and why did it end as it did?
Answer: Some sociologists talk about collective consciousness. We humans evolved to be very closely linked, and our minds focus on the same ideas. Those [ideas] get reinforced because we hear them all the time.
Back in the late 1990s, you kept hearing that you had to stake your claim on the Internet or you'd miss out on the future. No one cared about the present. Then something happened around March 2000. There was an acceleration of public talk about doubts. You could no longer declare at a cocktail party that Internet stocks were going up. Such statements had become embarrassing - and just like that, word of mouth changed.
Embarrassment is a powerful emotion.
Question: Is that about to happen in real estate?
Answer: It doesn't seem like we're there quite yet. But this is the biggest boom in housing prices since, well, ever. Nothing seems to explain it, and nobody forecast it. It seems to me...wait a minute. Please don't quote me as forecasting the markets.
Question: Okay. What you're about to say is not a forecast.
Answer: Well, human thinking is built around stories, and the story that has sustained the housing boom is that homes are like stocks. Buy one anywhere and it'll go up. It's the easiest way to get rich.
Question: So how rich can you get on real estate?
Answer: From 1890 through 1990, the return on residential real estate was just about zero after inflation.
Question: Excuse me? That's all? Hasn't it been higher lately?
Answer: Since 1987 it's been 6 percent [or about 3 percent a year after inflation].
Question: So real estate doesn't go up roughly 10 percent a year?
Answer: It can't be true that homes rise 10 percent a year. If they did, in the long run no one would be able to afford a house.
Question: Let me grab a calculator. If real estate really rose 10 percent a year, a $25,000 home in 1957 should be worth roughly $3 million now.
Answer: And that flies in the face of common sense. In fact, I'm inclined to think there's a good chance that the return on real estate will be negative, substantially negative, over the next 10 years because all booms reverse in the end.
Question: All right. We won't call that a forecast either. So how should people think about their home as an asset?
Answer: Avoid concentration of risks. You need a house, but I would avoid a second one - or at least avoid an outsize house. Over-investing in real estate now would be a recipe for disaster.
Question: You also write about the risk to human capital. What's that?
Answer: What you're trying to do is to invest in skills that somebody else will want to pay you for. Let's say you want to work at Bethlehem Steel. That would have been a good idea in the 1950s, not so good by the 1970s. The world went the wrong way on you.
Question: How can you manage that risk?
Answer: I used to coach children's soccer, and I would tell my players, "Stand away from the pack, and sooner or later the ball will come to you."
In your career choices too: Get away from the pack. Also, you associate your home country with safety. But the rest of the world is pretty peaceful too, on average, and the average is all that matters.
I think relatively few [Americans] are getting away from the pack, investing more outside the U.S. than in.
Question: How are you investing now?
Answer: I'm probably a little over 60 percent in stocks, almost all of it outside the U.S. I have a lot of cash. And I've been reducing my exposure to real estate. It may be at the end of a cycle.

Hmm, certainly been negative for some including, now, the banks. Little bit by little bit, debt is being unraveled.

http://smh.domain.com.au/real-estate-ne ... 1nsj7.html

$1 billion in distressed property on the market
Michael Pascoe
November 22, 2011

Banks are tightening the screws on development sites that have breached borrowing covenants, pushing more into receivership with “at least” $1 billion worth of distressed property currently for sale.

And that flow of receivership property is expected to continue for at least the next two to three years, according to CBRE, one of the Australia's major recovery real estate agencies.

CBRE's recovery and restructuring division's newsletter says there is a slowing of investment grade distressed assets coming onto the market as there is a shift in focus from corporate collapses to banks losing patience with development sites.
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“We're seeing the beginning of the next wave involving development sites and assets previously controlled by 'mum and dad' investors who used property as collateral to underpin their business interests,” says Scott Gray-Spencer of CBRE's private client group.

“The banks have - and rightly so - taken a conservative view on development sites in certain sectors, particularly in Queensland, some regional areas of NSW and certain coastal markets.

More.....

.... As outgoing Commonwealth Bank chief Ralph Norris has told BusinessDay, the sovereign debt crisis in Europe is threatening to descend into a fully-fledged credit crisis where banks stop lending to each other.

The implications of another meltdown in credit markets are dire. Roughly a third of the funding for Australian mortgages comes from overseas bond markets. Were a third of the big banks' sources of capital to suddenly dry up so would credit for housing markets here. Ergo, price drops.

This is the government's greatest fear, that the great Aussie dream becomes a nightmare. Hence the favours to the banks, the recent fillip to funding from “covered bond” legislation and so forth.

This credit market squeeze is, as they say, the worst case scenario - and one which was narrowly averted in 2008 at the time of the Lehman Brothers collapse and the Wall Street bailout.

Then, the US banks were way over-geared. Now it is the European banks; with their leverage of 25-times only a modest fall in asset prices renders them technically insolvent. Many say a large swathe of them are already insolvent.

Most are not in a position to lend - especially since their sovereign governments are battling to raise money themselves on bond markets. What chance does an Australian bank have of selling bits of paper (bonds) to investors if the government of Germany itself failed to get a bond issue away this week?

Read more: http://www.smh.com.au/business/house-pr ... z1efpKquJ1

- refinancing for commercial properties = a continual challenge
- residential property only 'saved' by low unemployment


And their survey:

How will house prices change over the next 12 months?

Fall by 10% + ..... 43%
Fall by 0-10% ..... 28%
Little changed .... 21%
Rise by 0-10% ..... 4%
Rise by 10% + ..... 4%

Total votes: 3232. Disclaimer: These polls are not scientific and reflect the opinion only of visitors who have chosen to participate.