THE NEXT BUBBLE - HOUSING?
Last year the Internet bubble burst in America. Now, the NASDAQ stock exchange is about 50% down from it's all time high. (NASDAQ is the second most important stock exchange after the New York stock exchange. Most high-tech stocks are sold on NASDAQ) Some stocks are even farther down.
High tech companies are laying off workers everyday. The newspapers have story after story of companies downsizing. America is now very close to a recession, although it hasn't actually entered a recession yet. One of the reasons is that the real estate market is still strong.
Real estate means the business of investment in land, houses, and commercial property such as office buildings. Residential property (places where people live - houses, apartments, condominiums) is still very strong now. In fact, it is booming.
During the last year, California has seen some of the largest increases in property values anywhere in America. The cheapest house you can buy in San Francisco is about $500,000 (60,000,000 yen). There are people in the Silicon Valley who earn $50,000 a year (6,000,000 yen) who are homeless because the housing prices are so great.
On average, housing prices are up by about 30% this year. Why are prices going up, even with all the layoffs in California?
There are several reasons. Even though many people lost their jobs, and have lost a great deal of money in the stock market, the unemployment rate in California is still low. It is easy for most people to find new jobs.
Also, the interest rates are now very low. (Interest rates are the amount the banks charge when they loan money to a customer. A home loan, called a mortgage, is usually a 30 year loan. Now the rate is about 6.75%. For America, this is very low. Usually, the rates are 8% or more.)
And since the stock market is down, Californians are not buying stock. Rather than invest in the stock market, they are investing in real estate.
Many economists, however, are worried. If America does go into a recession, then more people will lose their jobs. They will not be able to pay off their mortgages, and the current real estate bubble might burst.
There are areas in the Silicon Valley where housing prices have actually dropped 20% in the last 6 months. This might be the start of a drop in real estate values.
We all know that when the bubble burst in Japan in the late 1980's, the stock market and real estate markets have continued to decline. Will this happen in America too? Only time will tell.
