Is The Energy Bubble In, But The Real Estate Bubble Out?
The word out is that many investors are giving up the real estate bubble and moving on to feast on the rewards of the energy price bubble. From a macro-economic viewpoint, this strategy may seem paradoxical, because if energy prices keep going up, the expense of keeping up necessary economic activity in nations may become so expensive, that some sort of collapse is assured. Of course, there is so much money stuck in the real estate bubble that even if that bubble has to go, the pain and agony in that deflation is considerable. The majority of investors seem to be holding on to their equity positions. Even if the stock market as a whole only goes up an average of 5%, there have to be some winners, and anyway, that is better than nothing. It might not reach the real level of inflation, but these are tough times.
This still leaves lots of questions unanswered. Is the best way to invest in the energy sector to speculate on oil price or gasoline futures, or is it to invest in the stocks and bonds of large or small energy companies? If housing prices collapse, or go down, does that necessarily mean that home building companies, real estate companies and Banks that sell mortgages must go down too? With the complicated way the U.S. real estate sector is financially structured the investors that may be caught holding the bag may not be the banks selling mortgages, or even Fannie Mae, Freddie Mac, and Ginnie Mae. They have already sold off their mortgages packaged as Mortgage Backed Securities (MBS). These do go often to U.S. institutional buyers, but just as much if not more to overseas investors.
It is true that there is real evidence of a going down of the real estate bubble. In Northern New Jersey, in Bridgewater, a house that had been listed for $670,000 is now going for $483,000. While in the working class New York suburb of Haledon, NJ, a listing that was a $300,000 is now at $230,000, which is a 23% reduction. Some of this is blamed on "downsizing", people who bought their homes in the '50s and '60s, and now don't need the space now that the children have grown; unless they came back when they couldn't pay rent elsewhere.