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"There are no bubbles. Not in my neck of the woods. The National Realtors Ass. says home prices are rising again. Nothing to see here. Time to move on." If you actually believe that kind of NAR crapola, I have some suggestions for you: Go out tomorrow and refinace your home on an ARM loan. If you move rapidly, you might get a 2.5% rate. If might get an interest only loan at 6.8% (7.2% APR). Pay cash for new furniture, remodel your house and pay off all your credit cards. Oh, and buy two luxury automobiles. After all, it's only money. [/ sarcasm] Right?

"The economy is growing smartly, more Americans are working, wages are rising, capital spending is robust and federal tax revenues are rising at a double-digit-year-over-year pace. This must mean it’s time for everyone to worry about the trade deficit as the latest sign that all this prosperity is an illusion."

(http://www.thomaspmbarnett.com/weblog/archives2/003085.html)

Yeah, it sounds like the sky is falling to me.

I've read extensively on this issue and lean more to the "bubble" camp, but I'm not here to make that argument. The selected quoting of statistics can and will be used to to make whatever argument one wants to make. Endlessly. Real estate as an investment or as shelter either makes sense or it doesn't. Long term, it has generally worked out. Short term, it may well rip out some folks' internal organs.

IMO folks need to de-focus on the macro and do what's right for them and them only. The last round of speculators, who made up roughly 25% of the past few years runup, will be trashed, and that is entirely normal. It's unfortunate that those homeowner/occupants who bought in at "it can only go higher" prices will likely see paltry returns for a while. But they buying housing, not speculative investments. They may be disappointed in home valuations in their Sunday paper, but disappointment is part of life. It's normal to lose one's job and get crunched on one's housing costs. It's normal to get a new job and buy a bigger house. These things ebb and flow back and forth.

My view is that housing will soften primarily due to rising rates and the exit of the specs. Still, the only thing that really matters to occupant type homeowners is their monthly nut, relative to renting and relative to their desire to reproduce and maintain a more supportive family situation. If they can't afford that, they will get kicked out. Nothing bubbly about that, in good times or bad.

I have an ARM, and will have it for another year and a half at a ridiculously cheap rate. After that, it will still be below the current 30 year rate.

Yeah, yeah, rates are going to go up...but maybe they are not. Not many people predicted that rates would fall over the past 5-10 years. yet they did. Now all we hear is that rates are going up, up, up..... I tend to think rates will stabilize.

Ben Bernanke has commented on the "global savings glut". Too much idle money sitting around doing...nothing. Excess money tends to lower interest rates and even leads to deflation. So, I ain't buying the bunker just yet.

"Many people [who put no money down when buying their homes] will have no choice other than to walk away from their property and mail the unwanted keys to their lender."

People who put no money down or take out an interest-only mortgage are essentially leasing their house with an option to receive any appreciation in its value. If the house appreciates in value, the option is "in the money." If it doesn't, the option is worthless. In the meantime, the mortgagee enjoys the service flow from living in the house. In many communities, including mine, the net-of-tax cost of owning, say, a three-bedroom, two-bath house is equal to or less than the cost of renting it because the expected price appreciation is small or even negative in real terms.

We just aren't used to thinking about houses as a depreciating asset, like an automobile is. If you buy a new car with only a couple of thousand dollars down, you are "upside down" as soon as you drive it off the lot. But we don't see many people mailing the car keys to the finance company; the depreciation is just an added cost of ownership. If housing prices fell in many areas over an extended period of time, I would expect see to more, not fewer, interest-only and no-money-down mortgages chosen by buyers, just as we see people choose to lease, rather than buy, automobiles with historically high depreciation rates.

Having said all of this, the last paragraph of the article gives sound advice, and simply reflects principles of prudent personal finance for most people.