If demand starts diminishing rapidly he'll have to sell to avoid being stuck to repay interests on an asset crashing in value.
I have been bearish on housing for a while and sold all my RE in the last 2 years and am renting in Boston right now (3M property for 6K a month, doesn't make sense not to rent) but I think that prices are not coming down until people in 30 year mort.s realize that they won't be able to afford them as they hit retirement and will have to sell. Once that 1st wave starts it will spiral in to a panic selling frenzy as those who are 10 years out and are counting on their home equity to retire get scared. Could take 10 years to get to that point and it will start very slow. Those with CASH ready at the bottom will be able to make legacy RE purchases at that time. It will take more than demand drying up to bring down prices (people will just stop selling and try and wait it out), it will take a catalyst to get people to have to start selling like the above described scenario.
Housing doesn't crash in the classic sense since people still live in the asset: its not a stock or future. My take is that gains will stall even though people are not selling ..... we will see a situation in the most overheated markets akin to the bay area where for a period of time nobody was selling and nobody was buying and prices were stagnating. This will preceed any price declines, and all of this could take a while ..... The best thing you can do in manage a portfolio of real estate and take your biggest gains on your most worrisome properties: Now if you only have one property you do face a conundrum ....
cramer is negitive on housing today. wonder if he is a contrary indicator in housing too. Hope the Fed Sees Housing's Cooled By James J. Cramer RealMoney.com Columnist 9/19/2005 8:36 AM EDT Click here for more stories by James J. Cramer Stuff's not moving. Especially second-home stuff. It's like the spigot just shut off. And prices are now coming down, maybe dramatically. There, that's my take on what's happening right now in the housing market, a market that has suddenly gone from great to just plain awful, particularly on the high end. The combination of raw materials costs vaulting dramatically higher and the expense of the longer commute or the drive to the second home has simply taken the wind out of the sails -- or sales -- of one of the great engines of the last five years. Will the Federal Reserve see it? Does the Fed have the contacts to see it? Is the Fed too focused on its agenda of raising rates to realize that it doesn't need to raise rates? That's what makes this such an important week. First, how good is my information? Pretty good, given that I am not allowed to own individual stocks, except for my charitable trust, ActionAlertsPLUS. That has, over the last few years, forced me to move into real estate in a major way. I look at numbers across a wide series of portfolios and I can tell you that, without a doubt, this market peaked in January and has had a real notch down this summer. In fact, the only place where it is still rising is in Mexico, and the negative piece in Barron's this weekend quoting Doug Kass -- which you could have read about in his musings on our sister site, Street Insight, well in advance -- might even kibosh those investments.
bye bye $HGX bye bye all those shows on TV named "Flip this House" bye bye everyone who quit their job to get into flipping condos and buying homes they can't afford..... woooooshhh
I dont know if somebody already expressed these opinions. I am glad to see people are actually giving a serious thought to see if real estate is overvalued. I am sure real estate agents still will try to sell saying "Its a conspiracy.. wall street guys are jealous because they are not making profits like us on the street" Mortage/Rent ratio is ridiculously high for certain areas and these areas will be hit hard. Lets see what really means by this. If M/R = 2, its 50% cheaper to find a nice place to rent in the neighborhood. Now thats a very scary number if the neighborhood has corporate offices or a lot of businesses because people want to rent often close to work. If M/R < 1, then buyers want to actually live in their houses rather than renting them out. Now that means those buyers bought for a legitimate need (to live in them) not for flipping them. Now, such a neighborhood is even safer if there are no work places and offices close by. Because that means the buyers are WILLING to live in their houses although they have to commute far for their work daily. Now thats a real value. I know M/R number is not very exact especially if there is a low occupancy of apartments in the neighborhood... but assuming occupancy of apts stays fairly constant, M/R number is still a good indicator. For better prediction as to house valuation in a neighborhood, one should consider proximity to work and relative occupancy rates of apartments. I know there are a lot of economists saying people shouldn't worry about valuation during home buying if they are planning it as a long term investment. GET REAL. The whole concept of 'long term' is an excuse for these economists. We all heard that term during stock market crash. Analysts said "Dont worry about decline in the stock, if you are holding that for long term like 4-5 years". Now, real estate gurus are saying "Dont worry about house valuation if you are planning for long term like 30-40 years". Seriously, its just another heavily abused English term... "Long Term": noun., An excuse for sellers to lure suckers into buying overpriced items. Just 1 year alone is enough to turn things around and nobody knows what will happen in that period. Forget 4-5 yrs or 30-40 yrs. In real estate, these gurus are cashing out big time on the American Dream. (Nothing wrong in dreaming; but lazy dreaming is bad. Lazy dreamers want to buy their dream item at whatever price without thinking if its worth the money)
www.nypost.com -September 20, 2005 -- In the first poll of its kind, MBAs say they'd rather buy stocks than residential houses because housing prices aren't based on realities the way office buildings are.- -The booming residential housing market also faces a big tumble, said the survey of more than 1,400 MBA graduates of Dartmouth University's Tuck School of Business.- -MBAs overwhelmingly said they'd avoid buying houses as a growth investment over the next five years, with 76 percent giving it a thumbs down.- -Instead, 94 percent said they'd prefer to buy stocks for growth over the next five years.-