Housing Bubble - Will it burst?
Please forgive my sarcasm on the "Real Estate Bubble"
Since the post depression era real estate has remained stable!
So Is it full speed ahead?
Are we headed for a crash?
The housing bubble may burst!
It might inflate!
Rates might skyrocket!
Housing prices may plummet!
Two-thirds of Americans own their homes!
American's spend just under 40% of their income on housing and housing related expenses!
Approach home buying with the attitude of a savvy stock investor. We've long preached the benefits of buy-and-hold investing. The same approach translates well to the home-buying market.
The Office of Federal Housing Oversight recently released its house price data for the first quarter of 2004. U.S. home prices rose 7.7% over the first quarter of 2003.
The median price for an existing home rose to $170,000 in 2003, up 15 percent from just two years earlier. Yet housing actually grew more affordable during that period as the typical mortgage rate fell to 5.74 percent from over 7 percent. The average monthly payment on a median-priced home was 17.8 percent of median family income in 2003, down from 18.4 percent in 2001, according to the National Association of Realtors.
“Our own sense is there will be a slowing of price appreciation but no widespread price corrections,” said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies.
A government report issued last month startled many analysts, showing that home prices rose in the fourth quarter at an annualized rate of more than 14 percent, the biggest one-quarter jump in nearly 25 years.
David Seiders, chief economist for the National Association of HomeBuilders, predicts sales will drop only 2 percent this year from last year’s 7.2 million, which was a third straight record year.
How exactly should you play this one?
I say on your mark. Get set. Buy, sell, hold, build, borrow, or refinance.
I have been dealing with real estate for a long time and I use a simply approach in good times and bad times "KNOW YOUR MARKET"
Yes, of course. Opportunity is always there. I've adopted as my creed the words I heard from an RE investor who picked me up in his Corvette years ago while I was hitchhiking across Texas. He told me "you buy from people who really need to sell, and you sell to people who really want to buy. And there will always be plenty of both."
1. Price Bubbles generally occur in the expensive, supply-constrained markets, such as California and the Northeast. Builders in these markets can't meet demand, so surges in demand tend to result in years of rapid price acceleration. The price acceleration often becomes too rapid because home buyers and investors incorrectly *****ume that what happened last year will happen in perpetuity. Price bubbles can be fueled by declining mortgage rates, which is what The Wall Street Journal and others have been warning about for years.
2. Supply Bubbles generally occur in the inexpensive, supply-plentiful markets, such as Arizona, Atlanta and parts of Texas. In the past, builders in these markets have grown their businesses too fast during strong economic times, eventually resulting in oversupply.
An examination of the ratio of daily recorded Grant Deeds to other recorded instruments shows a 4% reduction over the last two months, in Los Angeles County. Not enough to establish a trend but enough to notate that the High Spike is beginning to slow on sale and the offers instead of meeting the listed price are attempting to buy at reduced amount. Still an active market and sales will be generated among those willing to come down a bit from the listed price.
Also of course speculators and experienced buyers are offering exotic instruments of purchase. Few in number as most do not know the method but in Calif. the PMTD taken back by the seller for say 95% of the purchase price is just now being used. The note is written for 40 years or 35 years. The listed price is met and a small downpayment made. The balance bearing no interest is divided by the payments for period of time. This reduces the price to a normal say 6% interest note and thus the true price paid for the property is about 60 % of what it should be. Greed motivates the seller.
In raw land the offer to lease for say 99 years is made that is 1188 monthly payments of the inflated price of the land. Of course subordination is arranged so that ordinary bank financing can be obtained for construction and development of the land. The property is then sold the new owner takes over the existing loan and pays a monthly lease payment for the land. There is generaly a small mark up on the leasehold amount. There is of course an option to purchase the land for the designated value price of the land. In case of a run a way inflation you can bargain to reduce the price of the land.
Also just now becoming active is the buying of small houses on R-1 zoned lots where the property consists of two or more numbered lots already subdivided. The game plan is merely to build another house on the other lot and then sell and refinance splitting at time of sale the two properties.
Times such as these create interesting changes in the Buy and Sell methods. The advent of really cheap housing now getting started will also have an effect on the market. When advanced housing structures are erected and the cost factor is about 20 to 24 dollars a sq. foot. Why would one not pass a purchase of an existing obsolete dwelling for something very new, very advanced and super Modernistic. I am trying.
Lucius
Sounds interesting but makes me wonder, what kind of modernistic structure can be erected at the humble price off "about 20 to 24 dollars a sq. foot in So. California"?
REAL ESTATE Is the Housing Boom Over?
Fortune (subscription) - USA
Maybe this is the most ominous sign of trouble ahead in the real estate
market: The Kiwanians have gotten into condos. When real ...
http://www.fortune.com/fortune/investing/articles/0,15114,693864,00.html