I saw a post entitled Home Prices Up 15%. Is there a Bubble? over at The Real Estate Bloggers. It seems that even the most optimistic fans of the market are beginning to realize that the market is cooling. While there is great debate of how massive the fallout will be, few are denying that there will be one in the very near future. What many people are not taking into consideration is the aggressive financing techniques that were used over the past few years. These will have a cascading negative effect as prices cool and houses stay on the market longer.

Many real estate investors have been waiting for this 'bubble' to burst. While the current real estate market may not experience a drastic crash, there is about to be some significant declines and opportunities. I knew over a year ago that this was coming when a mortgage banker told me that for the first time in the history of their bank (over 70+ years) they had an almost 0% foreclosure rate on their mortgage portfolio. If people fell on hard times they could just put their house on the market and sell it within 30 days and make a profit, this has been an unheard of market.

We are finally beginning to see the first signs of the coming disturbance in the market. I will report back with specific statistic soon, essentially, houses are beginning to stay on the market significantly longer than forecasted. This causes the prices to drop. This begins to erode the high prices in the market and eventually causes foreclosures (particularly since the emergent popularity of interest only mortgages). Couple these factors with the high likelihood of an overall rise in interest rates (which will cause some ARM mortgages to default) and we see the possibility for a correction in the market. This will only lead to numerous opportunities for the smart RE investor.