d9d, re:That factor ALONE should be screaming "unsustainable trend!" to you. I did not say that it is a sustainable trend, nor do I believe that real estate is not overvalued in many areas. I was only making a point that calling the current real estate market a "bubble" is the wrong choice of words. Furthermore, painting the real estate market with one large broad brush is a mistake. Many area markets are overvalued but many others are not (example Salt Lake City, Charlotte NC, Columbia SC, and just about every other middle American state). Sure the market will cool off and some areas will see price decreases (California, Florida, the North East being the likely overvalued areas) but a "bubble" is not what we are experiencing.... Nor will it be the end of the world when things cool off..........
ok midas, I hear ya, and hope you survive it ok. btw; just saw a new report today from Kali....affordability-index dropped from 20% to 17% in past year... ....and dropped from 18% to 17% in just the past -month- alone. think about the acceleration in the -rate- of decrease that that implies... in only 12 months, only -5- % of households will still be buyers. :eek: I do think you misunderstand the effect that a "little slowdown" is going to have on the economy as a whole. Look up what percentage of economic activity is now purely RE-speculation driven. What % of jobs are construction or mtg-finance related...stuff like that. I believe it's going to be much more serious than you believe. Look for even major coastal-area lenders like WAMU to hit the wall... When we have housewives buying 19 homes in a schlock Las Vegas development, purely on spec/margin, without a penny of income to qualify, it's a BUBBLE dude!
Your bankruptcy argument -- seems to argue for the intelligence of the home buyers. California - Guess where there are non-deficiency statutes. You do not need bankruptcy to walk away from your home. In almost all cases. Florida has a homestead law. Now I am just studying in for the bar here. But I think this is true. You own a home with big equity and speculate on another. If you can't make payments on the second one. You creditors can't get to your first one if it is homesteaded. I think many of the states that have had the big moves at least in the west have similar home owner protection laws. By the way I just talked my book again and erased it. Just suffice it to sell that there is so much demand here almost all the speculators homes have been snapped up. Demand from familes to get into good school districts is astonishing. Brand new schools are packed the day they open. The people calling this Florida bubble from a far need to gets their boots on the ground. The builders do not have enough subs to build homes fast enough. The speculators have no homes to buy. Believe me when I tell you I have friends flush with cash from speculative sales and no place to put it. They are considering buying waterfront multimillion dollar condos in a 1031 exchange even though there is a strong supply of multi million dollar condos. It seemed a lot easier to put 10% down and then flip near completion. That game is over here around here because there is no supply. And taht seems to be over everywhere nearby. Families are camping out on line as builders release homes in new projects in the outskirts of other areas like orlando from what my builder friends tell me. By the way if that game ever comes back - i will be ready for every speculator as I have done the research on how to buy real estate in your retirement account. Being that I have a law license and I have have a 7 from prop trading I am allowed to advise people on investments and set up a trusts to help investors buy new homes or invest in income properties as long as they do not live in them. That was becoming a very hot new field. Unfortunately I have no product to sell them.
The fact is Real Estate has been the place to be for 5 years. For 3 of those 5 years I have heard bubble predictions. In the mean time I have bought or built and sold several properties and started a mortgage broker business to sell "picks and shovels" to the modern day gold rush. When sentiment changes, and it will at some point, then so will I. Until then I prefer to be in the game an not on the sidelines trying to pick tops....
By the way, if you believe the bubble is nationwide do a search on most Southern and Midwestern states on Realtor.com or Loopnet.com for multifamily. You can still debt service in much of the country and even get a little cash flow. Real Estate is not one market, rather 100's of different markets throughout the country. These markets are all driven by local and regional factors. Prices are obscene in many areas like San Diego, Manhattan, South FL, etc. but remember these are only individual markets that have to be analyzed separately.
Well, not in argument here concerning whether or not there is a housing bubble.. but just wanted to commented on something that just happened last month here for you guys to ponder. Last month in Queens, NY (1 of the 5 boroughs of NYC)... someone bought a $925,000 2 story home that's on something like 50 by 50. They tored the house apart to a point only the basement is being exposed and is now rebuilding a brand new house from ground up... The future price... 925k + cost of building the new home + other misc stuff. (maybe there rezone it to build a multiplex) In fact, I see A LOT of these going on in where I live and in some parts of Queens/Nassau County border. (Nassau is on Long Island, adjacent to queens)
Big differences between crash in late 80s and today Late 80's TRA 86 - killed real estate investors Interest rates on underlying RE were much higher, so debt service was bigger Mortgages less flexible - Fixed rates and 1yr ARM's Bottom line - if you experienced trouble you had much less safety net Now - No comparable TRA 86 event to set it off Nobody has underlying rates above 8-9% (if they did they would have refinanced), so it takes a lot more economics to kill your cash flow Mortgages much more flexible than in the past with 5/1's and Option ARM's, etc, and it is much easier to Refi now if you need to. Bottom line is the underlying mortgages are more difficult to default on now than before, so it would take an extreme problem to take it to a bubble bursting scenario. But, tax reform could be on the horizon thanks to Capitol Hill, so keep your eyes open.
Man every few years I get reminded about tra 86. That was the trigger. If I rember there were all sorts of real estate tax shelters that got nailed. And left a lot of people with a tax bill and property they did not want at the same time. Thanks for reminding me. I remember back in 91 or 92 asking a real estate attorney what happened to San Diegos economy and the real estate market and law firms. He said it was very dependent on Military spending and the law firms all revolved around real estate and tax shelters. TRA 86 and the restructuring and decrese of the military budget caused a a recession about two years after the rest of the country felt it. Good point. Thanks.
In Greenspan's testimony last week he did admit to the need to raise taxes to get the current deficit under control. I don't think the current administration will do that, but I wouldn't be surprised if there was some type of taxation change that affected RE. Only because so much of this country's wealth is currently held in RE. If they need money that is where to go. Let's just hope that our legislators remember the late 80's before they go messing around with the RE market. But I think it would need to be an extreme change to affect the market because the economics are so different today.