After the bursting of the U.S. real estate bubble, I was convinced that it would not happen again, or at least not any time soon. It is fresh in people's minds. It is so fresh that there are still tens of millions of people who own houses that they could not sell for at least what they paid. And many of these people are underwater, with their mortgages exceeding the assessed value of their house. This is a consequence of not only the sharp downturn in prices since 2006 or 2007, but also because of the low down payments that were being required by the banks and government agencies.
Since so many people were hurt by the bursting of the housing bubble, it would be hard to imagine that it would happen again. As long as the Federal Reserve keeps inflating the money supply and causing boom-bust cycles, then bubbles will happen. But they don't have to happen with housing.
In addition, there are still a lot of foreclosures out there being held off the market by banks (probably at the direction of the government). This is another factor that would make it difficult to see another housing bubble that is anywhere near the last one.
With all of that said, I am no longer completely convinced that another housing/ real estate bubble is not possible. As long as the Fed keeps up with its quantitative easing (money creation) programs to prop up the economy, then almost anything is possible.
All of this monetary inflation has to go somewhere eventually. The adjusted monetary base will rise to over 4 times what it was in early 2008, assuming the Fed follows through in 2013 with its latest plan to buy $85 billion per month in assets.
In addition to this explosive growth in the monetary base, the Fed is also directing its actions toward the housing market. 40 billion dollars of its monthly purchases are supposed to be in mortgage-backed securities. And its other purchases are geared towards longer-term government debt. This is all setting up the possibility of even lower mortgage rates on top of the already historically low rates.
It would not surprise me now if a good portion of this new money flows into real estate. There are cheap rates, low prices compared to 5 years ago, and it is a hard asset. If the money supply keeps going up at high rates and velocity starts to pick up, then people will be turning to hard assets. This could be gold, silver, oil, other commodities, baseball cards, antiques, or stocks. It could be some combination of these things. Of course, real estate is also a hard asset and a good rental property can also pay a fairly consistent "dividend" in the form of rent.
So whether or not we see another real estate bubble will be determined by the Fed, just as the last one was. If people start to sense that there will be no end to the new money creation, then we could see people flocking into hard assets. It would no longer surprise me if real estate is one of those things. The only question will be if it gets as bad as it did just a few short years ago.