Things are Getting Interesting

Over the past few weeks there have been a number of indications that the real estate market is finally starting to falter. Interest rates have moved up steadily since August, inventories are growing in hot markets, and the press coverage of the bubble has picked up again. Although prices have yet to show a meaningful turn to the downside, I get the impression that real estate buyers and sellers have entered into a “Mexican stand off” phase, where sellers are reluctant to lower their asking prices and buyers are reluctant to step in with a bid knowing that prices are likely to go lower.

As the bid and ask spread widen, sales activity will continue to slow down and inventory seems likely to continue to build. Prospective buyers seem to have the advantage, especially over investors, many of which have negative carrying costs. Back when the bubble talk really got going this past spring, many on the various bubble blogs said that October would where the data would finally start to reveal that the leaking of air in the real estate bubble actually began mid summer.