IMO, that only works where location is not an issue. In Chicago, I just rented an apartment for $1050/M. If you took that same building, and put it in Lincoln Park, the rent would be $1750 for the same apartment. If you took the building and put it in Ukranian Village, the same apartment would go for $850. Only insurance companies, and probably a bank, value a piece of property this way. We bought a six flat in an area where there was little developement being done. We paid a premium for the space because of the _location_. We turned it condo and made a VERY nice profit. Many looked at the property and passed on it. After we did the conversion and people saw the succees, the hyenas came in and scrounged up every building in sight for even a more premium than we payed( comparitively.) If we had had the money, we would have bought everything in sight ourselves. Two doors down from my current single family, the house was on the market for $425,000. It was a perfectly good house, but more importantly, it is in one of the hostest locations in Chicago and is on a Chicago double lot, 50 x 150. Now, lots in this area go for about $300,000. Well these people bought it, and two days after they closed there was a wrecking crew in. Essentially, they valued the lot at $425,000, a huge premium over anything else in the area. They were right. They build a gorgeous brand new home there, and could easily sell it for $350,000 profit. They are living in it for two years so they can take the tax break when they sell it. Real Estate, like hitting in baseball, is all about eye and attracting would be buyers or renters. If you have location, you have everything in RealEstate. I am more and more convinced that the real value of Real Estate is the Land it is on and the rest, unless it is relatively new, or old gorgeous and a landmark, is nearly worthless predictor of value over time. nitro
realestate is as good as the land it is on..........the land.... So when the 9to5 yuppies buy their 425 thousand dollar condo in a building that has 100 units with a condo board...>BYE BYE, they are the first ones to get a rude awaking. However, you land, a nice lot in a good location, with say house or a 2 or even 6 flat on it....ur doing ok......when the meltdown comes. LAND is the number one scarce resource in most urban and suburban areas.....there is only so much of LAND out there.
Yes, I agree to a point. But, what some people are overlooking in real estate prices of the last 10-20 years is that it has also been a HUGE beneficiary/play of the monster decline in interest rates. In fact, I would say that the substantially lower rate factor outweighs the "scarce resource, they ain't makin' any more land" argument. Lower rates FORCED prices up, rather than so much "demand", hence the large 4000sq ft./2 person house nowadays. It'd be interesting to look at the median home price of the early seventies vs the hourly wage back then with today's figures.
I found this book to be very interesting: The Coming Crash In the Housing Market by John Talbot. His main reasons/points: 1. House prices relative to income are way up. Coupled with the poor employment situation - not sustainable 2. House prices have increased far more than potential rental income. (known as housing PE) - not sustainable 3. Household debt at all time highs. More people putting less down payment. --- Foreclosure and personal bankruptcies increasing. 4. Irrational exuberance. Everyone is talking about how much their house value has increased. People at the supermarket lines talking about flipping properties. (sounds like a typical bubble scenario) 5. False sense of security. Most people believe that real estate values never decline. The book came out last year. So far the bubble has not burst. But I think as soon as interest rates go up this author will be right on the money. Only time will tell.
May be "buy rumor/sell news" approach fits here as well. It seems like everyone "knows" the rates are going to get higher as election gets closer. Most of the chasers would buy several month earlier , thus demand may dry up even before rates go up. Just a speculation....
You say Rental vacancies are at an all time low. That means that rental properties are at near capacity. Not sure I understand what you mean. The markets for rentals and homes is great in the Las Vegas area...as we all know, the California markets are obviously topping (no can justify paying the high taxes plus ridiculous housing prices, even to live in California (which I love, and grew up in). Don
this is a strange way of looking at realestate but i'm going to throw it out there: a mortgage is a monthly margin call; the property is equity, can go up and can go down. We have a country full of people making huge margin trades, a contrarian indicator signalling the top of economic cycle. -m.o.
IMHO SFH markets are not sustainable in many major urban areas - here I am primarily thinking about prime properties and locations but even the lowest price segments are overheated in many locations. This phenommena is not limited to California markets. As others have said, people are in many cases bidding the values up on properties that are already negative in the hope that future short term - 2- 3 years - appreciation will continue and thus bring the properties well positive. Even the Las Vegas market is getting a bit long in the tooth and the risks there for SFH and multi-units has increased substantially. Right now the only attractive segment is commercial and only very select properties.
We in Las Vegas had "too many good years" where we could buy SFH for extremely low prices. Last year, brand new 5 bedroom with pool for under $200K. We have seen a 20-30% rise in the last few months. A couple of reasons, not the least of which is that we are reaching the physical limits of development (BLM land is not as available as before). So, I agree, we have started to catch up with the price level somewhat...still a bit more to go....We see the Californian's selling their 3 bedroom houses for $600K and up, and running the prices of our houses....(which is fine by me, LOL). Rental property is still relatively cheap, compared to rental elsewhere...but not relative to mortgage payments at these low interest rates. Still like the Zero State tax rate....it would cost at several thousand$/month to pay Arnold in CA....but don't get me wrong, I still love my home state of CA. Don
definately not here in nyc... and ppl are paying in my neighborhood twelve-hundred to fourteen-hundred for a studio... and there is no shortage on filling apartments... brooklyn, various parts of queens either...