Is there a Bubble? (And for that matter, what is a Bubble?)

Where did it all go so wrong? Last Friday as I traveled back from business and Chicago it was more obvious than usual that the topic "du jour" was Real Estate. "We are okay because we bought last year"; "I am not sure how we can afford the property taxes, the insurance AND the mortgage payment now that we refinanced". Just a few months back, everyone had an opinion and some were even "experts". People are worried about their home, more correctly their single-most important investment; and rightly so.

I am a 33-year veteran of real estate market analysis, feasibility, market studies and appraisal. I have seen many market corrections, especially as a native Floridian working and living in high growth markets. I am always amazed at how people abandon all reason at times especially where money and investments are concerned. Is it conceivable to believe that "markets" only move in one direction? That they do not correct themselves?

It is still fundamentally true that as a "market" real estate is by comparison to the NYSE a highly unorganized market. Like the late Tip O'Neill was fond of saying, "all politics is local"; real estate has classically been regarded as a "local" concept. However, things have changed; now more than ever there is more information, the internet, television, newsletters, informercials and so on. To some extent it is fair to hypothesize that real estate in some instances, in some types has become more of a commodity than ever before. So called "investment grade" commercial/income producing properties have always had some element of that, but now it is not uncommon for other formerly less desirable real estate to be traded from afar (even without an inspection!).

Let's bring it to a consumer level for a moment. The small chunks of the sky that seem to be falling are the early warning signs of a more profound change in market conditions. We have, to borrow the movie title, just seen "The Perfect Storm" in real estate terms. Perhaps unprecedented in my lifetime has been the convergence of the residual cadre of 1990's tech "day-traders" buying and flipping real estate, low and sustained interest rates on home mortgages that are reminiscent of the "1950's", more information, more buyers (yes, the "Boomers" and the second home buyers and the growth in population along with a lateral arabesque of population shift).

As an economics and finance major in college I remember like it was yesterday the interaction of supply and demand on the inevitable graph. As demand increases, prices increase and soon thereafter supply increases. In those commodities and markets where supply is limited, the "next best" product assumes the same or nearly the same cachet. In some ways it is just that simple. In coming weeks I will discuss how we got here in more detail, cite warning signs that can be applied to other markets that my Florida experiences have taught me (although I practice nationwide), and advice on when and how to get the information you need to make an informed decision about your own investment. Stay tuned, it is going to be an interesting ride.

Robert W. Dunham is a 33-year real estate analysis practicioner located in the Tampa Bay area of the west coast of Florida. For more details visit Southeastmarketanalysts.com