Yes, investors are now, once again, wary of the real estate market.

Investors should be wary of all markets, all the time. That's what prudent investing is all about.

Why weren't investors wary from 2003-2006?

B. U. B. B. L. E.

Blaming a burst investment bubble on negative psychology is ridiculous. Unless of course by psychology you mean some basic awareness of recent history and the world around you. Then sure, it's all about investor psychology.

Mr. Leonard you and so many others went out of your way to denounce the "inflated" real estate market and now you are saying that you don't understand why a real estate professional would talk about the "psychological reasons" behind the downturn in Real Estate sales? Are you kidding me? It would be nice if people like you would present the entire picture of what's happening in Real Estate. Yes, many places in the US have falling real estate values, and some of the fault can be laid on your and other doom and glomm naysayers about the Real Estate Market. If the same type of gloom and doom had been splashed across the front pages of all national newpapsers about the the stock market, or the war in Iraq I'm certain as you should be as well that the so-called "pyschological reasons" for a down-turn in national support would not have escaped the vision of those charged with reporting on such issues!

You are not blameless...accept it and deal with it as people lose their homes because the investment marketplace has become wary of the real estate investment market!

Whose fault is it?

Let’s see – how about homebuilders, home buyers, investors, real estate agents, appraisers, the Federal government, the media and I guess just about everyone. If you accept the premise that everyone to a degree is at fault, then the real question is why? The short answer is that our culture today is motivated toward the pursuit of material goods. Capitalism, the great purveyor of materialism, thrives in our free democratic society. Capitalism indirectly promotes greed and arrogance. We have moved completely from our earliest days of needs to a modern day full blown pursuit of wants and desires. More is better, bigger is better, fancier is better, faster is better. There no longer is appreciation or even satisfaction for simply having our needs met.

Home ownership was intended to be a lifestyle choice given each individual’s circumstances and needs. But America, the Land of Opportunity, has turned home ownership into a symbol of our success and barometer of our investing strength. This was all helped along by banks granting credit, sales people, advertising, media articles, and government programs. After WWII, homebuilders threw up subdivisions as our economy exploded. Most of these developments sprung up outside of the city and in time based on demand they grew grander while homes became bigger and fancier

Demographics also played a major role in creating housing demand. Shifting economies spurred more economic development in the up and coming areas in the south and along the coasts. Rapidly evolving metropolitan areas offered unprecedented opportunities for greater wealth and choices in lifestyle. In addition, coastal areas became havens for retirees and many would-be retirees who wanted to live the “good life.” Builders kept building more and more homes and condominiums. For years there was greater demand than supply but eventually the demand slowed yet builders kept building. For the last 10 years or so demand was sufficient enough to fuel excessive homebuilding. If there was land cheap enough to create a subdivision, developers rushed in, bought it, and started building. Build it and they shall come. For awhile it worked but eventually, we got to where we are today, where the supply far outweighs the demand. It is possible given the stupidity or I should say greed of homebuilders (who are still building), the housing recession could go on for many years to come. We will probably witness an unprecedented decline (correction) in housing values. That would be bad enough but the spike in foreclosures and upturn in bankruptcies does not bode well for the greater economy.

It is possible that we are seeing the beginning of a major depression as a direct result of this housing bust. It seems certain that the supply of housing will continue to increase and housing prices will decline for the foreseeable future. The market will be saturated with foreclosed homes selling at pennies on the dollar which in turn will further weaken prices. An imploding real estate market unlike any experienced before is certainly possible. The dynamics of increasing supply and decreasing demand in one of the largest sectors of our economy could easily feed upon itself to the point of collapsing the entire economy.

Credit, a key element in helping to turn this all around, has already started to dry up. We all know about the sub-prime implosion and the difficulty of obtaining long term financing because of stiffened credit underwriting. However what is not being widely reported are the short-term lenders and revolving credit card companies who are jacking up rates enormously as they too begin to recognize increasing risk factors starting to surface. Less we forget, this eminent disaster will be heightened as a direct result of our elected officials quietly passing laws in recent years to fully protect credit card companies and banks while doing nothing to protect the consumer.

I, for one have not ruled out the possibility that our economy may collapse precipitated by this housing bust. Given the national debt including the billions we owe China because of the Iraq war, given the weakness of the dollar against foreign currencies, given the historical highs of the stock market relative to underlying share value, given the ostentatious greed that pervades corporate America, brokerage houses, and hedge fund operators, the conditions are ripe for a possible meltdown. I hope I am wrong.

There are some that deserve more or even most of the blame (of course, they will be hurt the least) but most of us (this writer included) share in the blame for being arrogant enough to believe that somehow we are entitled to have all the material goods we can obtain. At the end of the day, it is the allure of capitalism operating unchecked in a free and open democracy that is at the root of the housing “bubble” and any collateral damage that may ensue. It is a tough pill to swallow after most of us have worked all these years to get ahead, only to see our nest egg disappear.