Where is real estate headed from here?

The real estate market is stabilizing. But some analytical models are showing some signs of total collapse in the next few years that can real scary.

There was no doubt that the residential real estate market saw the bubble burst last year. The analytical models tracking the bubble syndrome are now predicating something bad. Every bubble burst has five distinct waves on unfolding events. First is the phase of disbelief. That happened last year. Then come the ten to twenty percent drops in prices shocking every asset owner. This is the first wave. The first wave ends when almost all are convinced that the total collapse is evident.

The second wave is actually counter trend. The prices recover silently and the market tries to convince all that the bad stuffs are allover. The market players try to look into scenarios where there can be some bargain for quick profit.

In the mean time fundamentals get weak. Alert investors and asset owners recognize the problem areas. That is actually happening now after the second wave is about to be completed. The mortgage default rates and risk assessments in banks have spread the real fears. The third wave is devastating. The fundamentals force investors and asset owners to sell. The buyers disappear. Prices go into a free fall.

That is exactly what is going to happen now. The foreclosures will skyrocket as investors start handing over the property keys and walk away.

The thirst wave is always devastating. There is one silver lining to all this gloom and doom. If for some reason third wave fails, it means the fundamentals overall are in great shape. That will create a new bull market.

Only time will say what will happen.