“The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops.” ~ The Economist

“Ben S. Bernanke does not think the national housing market is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve,” says the Washington Post.

Horacio Márquez, from http://www.investmentu.com , disagrees.

“The housing boom has been propelled by widespread availability of highly speculative mortgages. Historically, when lending expands dramatically, it is always followed by a marked increase in bad loans. And, baby boomers whose savings are tied to their homes will have to sell them in order to fund their retirement.”

Consider the facts…

House prices are going up: The price of an average house – in real terms – has increased 44% in the last decade. That’s almost double…

Income is declining: According to the Economic Policy Institute’s 2004 report, the median household income for all households is down $1,669 (or 3.6%) since 2000. The real income of the typical household has fallen five years in a row. Although people feel richer because of rising home prices, they’re actually earning less.

Spending is increasing: Since 1990, average household spending has jumped 30%. In addition, consumers and speculators are now being squeezed by high short-term interest rates and escalating energy costs. By mid-2005, one in five new homebuyers spent half their disposable income on housing.

Few Americans are saving: In fact, the national savings rate hit ZERO in September 2005. If prices go higher, homeowners have no emergency cash to fall back on. Learn more on this story here: http://www.investmentu.com/tradersu/2005/20050928.html

The net result is that homeowners will find it increasingly difficult to pay off their loans.

“There’s no question there is a housing bubble and that it will burst. I’m so sure of this, I don’t even own my primary residence,” says Marquez.

And he’s not alone in his thinking. Tom Barrack, one of the world’s best real estate investors, who has made billions in the U.S. market, is cashing out and buying overseas, says Fortune.

On the U.S. real estate market, Barrack says: “There’s too much money chasing too few good deals, with too much debt and too few brains.”

In fact, the first cracks in the housing bubble are already forming. Follow this link to learn more: http://www.investmentu.com/IUEL/2005/20050825.html

Horacio Márquez is an expert in emerging markets, and is an Investment Advisory Panelist for Investment U, a free educational financial e-letter. He has served as Global Vice President for Merrill Lynch Asset Management, Research Director for Swiss Bank Corp., Director of Sales and Operations for Barclays Bank Latin America and Caribbean, and Director of Trading for Latin American Financial Services Corp., for which he generated an astonishing 68% total return on his portfolio in less than two years. For more information about our editors, or to set up an interview, please contact Juan Muñoz at 410.223.2693 or jmunoz@oxfordclub.com, or visit http://www.investmentu.com.