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Originally Posted by fuzebox
My uneducated guess would be because the value or housing costs have skyrocketed at such a ridiculous rate that no one can actually afford to buy a house anymore... I know in Vancouver 70 year old houses in shitty areas are $500k+.
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Yeah, as Webby said that is really it. Bubbles tend to burst though occasionally one just grinds around until prices catch up with their long-term expected values. Over the past 100 years housing values have generally increased at about the rate of inflation. This varies greatly with location. Schiller's book on the subject is a great read as it was written during the bubble.
Real estate became the hot area of investment at roughly the same time the stock market was peaking. Money was moving from the markets to real estate. New money was going into real estate and not the stock market. Condo building projects, REITs, flipping houses and so on. It was a pile of cards with people selling one thing to the next person who wanted to sell it to the next person at a higher price and so on. Profits from one project were piled into two more and so on creating massive inventories.
I was in a trendy Fort Lauderdale restaurant in 1999 and around me I heard multiple conversations about the stock market. People who didn't sound like they knew much at all were talking about how much they or their friends were making in the markets. "This guy on CNBC said to buy this stock". There were all kinds of schemes. I knew brokers who were alloted a certain number of shares of IPOs at the pre-market price and they sold them to friends and big accounts.
Then about 2004/2005 or so I was in an Orlando restaurant and the same thing happened but with real estate. I kept meeting people telling me they were "getting their real estate license". I told them they were crazy. Oh, and plenty of friends were suddenly making $200k+/year "doing mortgages". Hell, there were even people on GFY looking for links to their websites selling mortgages.
More recently their has been a huge run-up in commodities. It is difficult to tell if this is truly a speculative bubble or how much is fundamentals as China's demand is soaring. You don't and maybe won't hear people in a restaurant talking about their latest commodity gains. Though you might hear some bitching about gas prices. I sold my mining stocks a few months ago though but have kept some energy stocks.
These were all great opportunities for those who recognized the situation early. If you got in the stock market in 1995 you made a killing. If you bought tech stocks (specifically most of NASDAQ) in late 1999 you got killed. If you bought real estate in 1996 you did great. If you bought in 2006 you are hurting. Same with commodities. Timing changing depending on the commodity.
Today's finance community is making it easier than ever to make profits from whatever the hottest area is. You just can't jump in once the warning signs are out. The warning signs being "everyone is getting rich", the cover of Time Magazine showing instand new $10M+ millionaires, claims of a "new economy" and "this time it's different" and statements like "Real estate ALWAYS goes up".