You'll be familiar w/ Carleton Sheets if you've watched any late-night television.  In promoting his new online venture, www.HomeForum.com, Carelton Sheets today released a press release in which he comments on the “real estate bubble”, or lack thereof.

“There has never been a national real estate bubble."  Sheets comments.  "Even in the markets that are correcting, there are sub-markets that present incredible investment opportunities for the investor. With interest rates at historical lows and an ample inventory of properties, there has never been a better time to invest."

Ok this sounds a bit shrill, and the purpose of his comments obviously is to sooth jittery nerves of the aspiring millionaires who buy his late-night courses; presumably all this gloomy news about overpriced markets makes his product a bit tougher to sell.  And it doesn’t help that he goes on to quote David Lereah, the Chief Economist for the National Association of Realtors ®, another guy who has a lot to benefit from promoting a sunny view of the real estate markets. 

But – motives aside – Sheets is right.  Certainly there have been real estate bubbles, but his statement that there has never been a national real estate bubble is defendable.  The last round of market collapses which occurred in the ‘80’s were fueled by oil and occurred in now stodgy markets like Austin TX, Houston TX, Casper WY and Lafayette LA.   Unambiguously there were bubbles, but in the period that Austin dropped by 27% some markets in California – San Francisco and Los Angeles – soared by 80%. 

So regional markets don’t always move in tandem, and there are some attractive markets out there. 

But – we’d caution against taking the argument too far.  First, a casual reading of Sheets’ statements might lead a reader (especially an optimistic one that’s spent some money sitting through a weekend motivational seminar) to conclude that no national bubble means no bubble at all.  Wrong conclusion in our book – there are some overheated markets out there.  Best to run the numbers and check your assumptions. 

Second: this run-up is different from that of the eighties.  It’s been longer, stronger and broader.  From ’86 to ’96 the national median home price went up by 40%, an average annual increase of 3.4% - a rate generally comparable to inflation.  From ’96 to ’06, by comparison, the median home price increased by 99%, an average annual increase of 7.1%.  So when (not if) the super heated markets go through a period of correction there’s the potential for a broader national impact. 

The key for investors now:  understand your risks, understand your cashflow, run your numbers.  Investors who get into positive cashflow investments are posed to capture the upside and their also poised to weather a downturn.