You know what SteveD ... you're right. I was acting as if investors and single family homeowners participate in the same real estate market. But that's dumb, obviously they pay a completely different price for the same property. That's why you see all those ads in the paper, "3 br house for sale to moneyed slum lords only, no hispanic wives need apply." Sorry for wasting all of your time. Martin
'Envy' fuels real estate bubble talk There is no evidence whatever that home prices are unsustainable, nor any evidence of widespread default. The bubble is in commentary coming from the financial markets, and the gas inside is envy. After foolish lending and borrowing, the market types' critique of housing: too many investment and second-home purchases. Must be dangerous speculation. Prices are unsupported by buyer income or market rents. Tisk, tisk. The Fed should put a stop to this. Call in the regulators. That line of argument sets a record for hypocrisy. You stock-market guys, the ones who gave us the biggest bubble in financial history, are suddenly the Bubble Cops? High prices versus lower incomes and rents? That's what you call a "healthy price-earnings ratio." Riding prices up is a crime? In your market, you call the same thing a skill, "momentum investing," and "market timing." Millions of American families are taking advantage of an epic demographic mis-match of land versus 3 million new Americans every year; you call them irresponsible Bubbleheads, while the exact same behavior among yourselves is called "value investing." Financial-market people have a fit when clients announce they are withdrawing capital to put it in real estate: "Uh-oh. Bubble!" Say the same thing to them about their products and they will hang up on you. Stocks have staggered in their tracks since 1999; it is the soul of prudence to re-allocate some assets to a better market. The truth hated most by stock-jockeys: invest in a home, and even if you're wrong about prices, you get to live in it. Try that with an Enron stock certificate. http://www.inman.com/inmannews.aspx?ID=46298
Martin: You are making my point. The owner/occupant and the investor DO NOT buy the same property at the same price. No two pieces of real estate are the same!! Impossible as they occupy physical space. Unlike stock certificates. Real OldTrader's outline of how to buy single family homes for rent. The approach is completely different with a complete set of different financial projections My experience has been that good rental housing is actually hard to find. The difference between buying an IPO to hold for the day and buying a 10 year bond to hold to maturity. I may or may not make money on the IPO but I know that I will get my principal and my interest on the 10 year bond!! I know that if I buy a home and live there for the life of the mortgage I will own the home free and clear. No matter what!! If I rent it for the same period, what do I have??? Nothing. In all of my 35 years in real estate this is the first time (last 6 mo) that I have ever heard of anyone trying to compare housing to some sort of Nasdaq chart pattern. And, please, I don't mean to offend but you are trying to put a square peg in a round hole. It just won't go. SteveD
Who says you have to throw away all your disposable income on rent? You can rent out some nice places for a relatively cheap price and have a lot of disposable income that can be invested all over, all while having the opportunity to be mobile and switch areas whenever the opportunities arise. If your rent is 1200 a month it is not the same as a 1200 a month mortgage. With owning a home, you have additional expenses of insurance, maintenance and property taxes. You're tied to the property, what if all of the sudden times get worse, you cannot downgrade at the drop of a dime and move to a cheap place without incurring significant inconvenience and expenses. Just keep hoping that the value keeps going up forever? LOL. People think that just cause they can turn their 500 rent payment into a 500 mortgage payment that they are saving money and building an investment. That's how they get stuck in debt way over their head and next thing you know, they are losing the house. There is no simple answer of course, to each his own. All I know is that a couple acquiantences of mine were sooo happy & cocky after buying their own apartment until they realized that even though they own their place, they still pay the same in monthly bills every month in the fees & costs that come with owning a place. Go figure.
Then you weren't paying very much attention. In 1973 Burt Malkiel wrote the following in A Random Walk Down Wall Street: There's nothing new under the sun. Martin
Yes but those returns are just starting in real estate. 1.5 to 4 million in one year. When I see that I will agree with you. Last year the number one market in the county's median home only went up 41%. (according the wall street journal about a week ago.
So you do agree that there is a bubble, but you think it still has room to run? An entire market went up 41% in one year? And this is a sign of health? Are you listening to yourself? Martin
With all due respect some would be taken much more seriously if they stopped using highly innacurate ,anti-capitalist words like ''bubble'' And better change spelling to inaccurate. Just recently read an appraiser mentioning RE prices dropprd 70% in 1973-74, his area; severe, yes, but hardly a worthless soap bubble. ====================== Wisdom is the principal thing; interest only loans dont pay any principal.
All I am trying to say is that real estate is and always has been " a local situation". There have always been "booms" like the Florida land scam you speak of. But no one was running around with charts to show a nation wide panic of land sellers based on the NYSE stock prices??? Look at the famous "gold rush". You can buy a nice home in Houston for under $100/SF. But, if you job is in Chicago, what differences does it make? I had a good client based in NY and they had made a lot of money investing in water front property in Maine and other Eastern Seaboard land. All on the water or close to it. He called me and said they wanted to start purchasing land along the Gulf Coast of Texas in a big way. I instructed him to get his Texas map laid out on the conference table and study it very close and tell me how many MILES he wanted to purchase, LOL. It is on the water, you can buy it but the highest and best use is for cattle grazing. As for as purchase vs. rent, well there is no comparison. Someone has to pay the expenses, the owner or the landlord, which are then passed on to the tenants. If you really want to be mobile one can buy a small trailer and hook it up to your car and move all over the country staying at KOA's. One is always going to have some living expenses. This is a major reason people move out in the country. Lower taxes, no civic fees, no maintenance fees, no association fees, no neighbors etc etc. And, believe me, there are millions of people that do just that!! But, that is a lifestyle choice. Not my choice, but some like it. SteveD