Here's why the market goes down - these trends can't keep going forever:

• We've heard the National Association of Realtors reported that most homes sales of the past year or two have been 2nd homes and investments.
• 20-30% price appreciation cannot continue.
• People are using creative financing, 100% financing for example. As taxes and insurance go up each year, and if there is a real estate price decline, and/or rates tick up and people have adjustable rates-- people will owe more than the house is worth.
• People that are new to real estate are buying, the same way they bought Internet stocks in 1999-2000. There are more carrying costs to real estate, and prices DO NOT always go up in real estate. Contrary to popular belief, a balanced stock portfolio - held over the long term - have better returns than real estate.

ADVICE - buy a home because that's where you want to live for a long time! Rates are indeed good. Do not bet on price appreciation or a quick flip. You will loose!

NEW YORK TIMES ARTICLE:

August 28, 2005
Greenspan Says Housing Boom Is Nearly Over

By EDMUND L. ANDREWS

JACKSON HOLE, Wyo., Aug. 27 - Looking forward to the time after he steps down as chairman of the Federal Reserve, Alan Greenspan predicted here on Saturday that the nation's frenzied housing boom - and the consumer spending that it has spurred - is near an end.

In a generally sanguine outlook at a Fed symposium here this weekend, Mr. Greenspan said both the excesses of the housing market and the nation's unprecedented dependence on foreign borrowing were likely to correct themselves through the normal function of market forces.
He also acknowledged more strongly than before that the housing boom, which has been fueled in large part by the Fed's own decision to prop up the economy with low interest rates, is closely tied to the nation's soaring trade deficit and its record level of foreign indebtedness.

But Mr. Greenspan also seemed intent on defending his legacy against critics who say his policies contributed to the United States' imbalances, which could lead to higher interest rates and potentially wrenching declines in housing prices and consumer spending.

"We have a problem. We have a policy that is adding to, adding to the systemic risk by subsidizing investors to take greater risks," said Michael Mussa, a senior fellow at the Institute for International Economics and a former director of research at the International Monetary Fund.

In Mr. Greenspan's view, the housing market will inevitably "simmer down," and sales and prices are all but certain to slow. "House turnover will decline from currently historic levels, while home price increases will slow and prices could even decrease," he said.

Mr. Greenspan's prediction that prices could actually decline dovetailed with other recent warnings that people have become too confident that the market value of assets will remain high for the foreseeable future.

But he went further, saying that the end of the housing boom would also help correct other major imbalances. It would lead to weaker consumer spending, a recovery from today's nearly nonexistent rate of household savings and a reduction in the nation's huge trade deficit.

"An end to the housing boom could induce a significant rise in the personal saving rate, a decline in imports and a corresponding improvement in the current account deficit," he said. Whether those changes are "wrenching," he said, will depend on whether the United States remains flexible and avoids over-regulation and barriers to trade.

Mr. Greenspan was gloomier about the nation's long-term budget deficits, which skyrocketed after President Bush took office. He said today's budget deficits were likely to get far worse as the nation's baby boomers begin to retire and drive up the costs of Medicare, Social Security and other entitlement programs.

Regardless of how the deficit is reined in, Mr. Greenspan said, rising federal deficits and overall government debt will, if not reduced, force the Federal Reserve to raise interest rates to prevent future inflation.

"We had too much experience with the dangers of inflation in the 1970's to tolerate going through another bout of dispiriting stagflation," he said. "The consequences for future workers and retirees could be daunting."