Miat’s comment: I print out the following OFHEO data for LA region as a study material. We can see that over the past 3 decades, LA region averaged annual growth rate in home price is about 8% a year. However, if a short sighted Electrical engineer (and the most unlucky one) bought his house in 1990 and couldn’t put up with the pain of home ownership, he sold it in 1996, he lost lots of money. However, another patient Medical doctor bought in late 70s, and still own his house till today, he has seen his house rose about 10 multiples in value. Historical pattern is simple, but to a unprepared soul, its effect can become relentlessly brutal. Where are we now? Pattern matching tells us that we are at 1991 or 1992, +/- one year. So, when you decide to buy a house today, first decide who you want to be: The short-sighted EE or a patient MD?

The factor you missed to consider is that all investors are greedy. They will always try to rent the house using market rent. They will not base rent on their mortgage payment. For example, if their P.I.T.I (Principla, Interest, Tax and Insurance) is $1400/month, they will not rent out at $1400/month. They will always check with MRIS to get the market rental rate, currently $1700/month. They are happy to retain the profit of $300/month. In some cases, in order to increase competitiveness, the investors can reduce rent by 50-100 to rent out. However, not everybody will do so.

Boom #1: You were too young to even see it. Even if you see it, you will shrug it off and say “these people are lucky…, I won’t have that luck and money”.

Boom #2: That was 10-12 years after boom #1, you had some money. You bought your first house. But the timing was not that good. You bought right before the collapse. Then you got side-tracked by all the “end of world” talk about real estate. You felt very good at mocking these dummy investors: “How dummy are they! still buying when nobody is buying…”. You took pleasure by cursing them.

because Rich men can get access to powerful information that poor men can’t. Information is power, richmen understand this very clearly. Poormen lose for lack of information. Poormen is even more unfortunate to believe in the fake ‘true’ that richman’s controlled Wall Street or governments are spreading, therefore make them even poorer. Richmen enjoy so much when they created and spread fake true to scare poormen. So that scareful poormen can sell when they can buy, and buy when they can sell. Richmen and poormen share the same market. But poormen serve as the feeders to richmen’s pocket.

Banks are skewing the price structure. If this situations go on for long time, then, the whole region’s pricing structure may get pulled down. Bank’s 50% price cut is definitely a biggest enemy to regular sellers, causing regular sellers impossible to compete.

However, in inner suburbs, i.e., the wealth belt, the pricing should stay relatively stable. I would expect some 20% drop, that’s about it. However, in outer suburbs where most lower middle class lives or where hispanics and poorer immigrants live, things are getting worse and worse.

I agree with Mr. Xie in that inflation is a very power factor to push up housing price. Housing or land asset itself doesn’t create value other than acting as a powerful manifestation for the effect of inflation over the long term. In reality, housing or land is a long-term mirror for inflation. For the short term, they don’t necessarily act in synchronization. Whatever Fed Reserve is doing today, if they can stir up long term inflation, no matter how bad it would be for everything else, it’s going to be very good for real property holders at the expense of everybody else. By reducing the rate, it will contribute to stir up long-term inflation. The other half is being contributed by a natural reduction of price currently going on regardless how painful that’s going to be. Simply speaking, we are in the process of reducing the ratio from 170% to 100%, Half of that reduction is from reducing the interest rate, another half is from price reduction directly. However, Fed’s rate reduction is not going to turn around the housing market immediately. Eventually, it’s going to contribute to inflation, setting the stage for a new cycle, the lagging effect will be powerful.

Tons of millionaires or billionaires in Texas, Georgia, Michigan or even Missouri got rich from real estate because investment in real estate is not exclusively from capital gain alone. In fact, if treating real estate as a long term business, more gain may come from INCOME aspect of the equition. If managed well, the rental income and its inflation-adjusted gain will eventually create great income if you are able to use cheap loan to operate a significant amount of rental properties with good cash flow. Therefore, in spite of slow growth in these lower priced states, long term investors were able to make themselves very rich. They often bought much more properties than fast growth-high-price regions, yet all under great leverage. The secret weapon for slow growth low price states is their good cash flow, better leveraging capability and eventually translating to ultra-efficiency in building INCOME. Shh…, just don’t tell these secrets to Californians or New Yorkers, let them keep the pride. Ha, ha, ha…

I did some research on Texas and Atlanta. 
 
At that time, I did some research on Atlanta and Texas.

Atlanta has lots of similarity to Texas. I dug out the real reason why Texas’ price didn’t enjoy the growth as other regions. I remember the reason is not really because of lack of growth or too abundance of land supply. The real reason is that Texas’ local planning and development office are very pro-business, granting easy permits for zoning to encourage residential home building industries. The research report by Texas AM University pointed out that this easy government policy created abundant supplies of new land and new development that always meet the supplies of new demand, therefore, even if the demand has been growing over the years due to population growth, it never have been translated into high home price. Atlanta has similar issues.