Are there indexes which track profitability of real estate investment nationwide over a period of time? The most basic index should just reflect average price. Ideal index should correlate price and interest rates. Tax law influences would have to be omitted. Seems to be a basic thing, but I have yet to find it. Everybody says some thing like "real estate prices tend to rise X% per year on the average, there is a chance of 20-30% correction".... I am pretty sure that given such chart we all would have a much better certainty of what is really going on.
I don't have first hand experience of the US market but here in the UK ( this housing bubble IS global ) there has predominately been rampant entry into the buy-to-let market (rental) in the last year or two. Coupled with a multi year low in the number of first time buyers who now rent instead. As someone sitting on the sidelines (except for my own home) I am also waiting for the better value around the corner. I have been waiting since 2001 though ! ! What I fear now is the growing number sitting on the sidelines renting their own homes. These first time buyers are also waiting for the "crash" to get in. I personally think that because of this, and also because too many people remember how the 1980s/90s played out (ie. well) that, if we do get a downturn, it will not be a quick crash but a sustained mutli year move down. Reinforcement will come at many levels as various people decide it is now "cheap" enough to get in the market. Perhaps this will last as long or longer than Hong Kong's property decline which is still going on now from the early 1990s, so I hear. The bottom line is, of course, why is a property an appreciating asset anyway? If you just put money into a bank account that pays exactly the rate of inflation in 100 years you will have your original asset. If you buy a house and leave it for 100 years it will probably be a wreck worth just the value of the land (especially if it is a new build!). All FWIW of course !
Unless you have a special need for a nationwide index, a local indicator of your area would probably serve you better. The local trend of real estate, say in South Dakota, would be very different than the trends in Austin, Los Angeles, or Boston. Local real estate markets vary in beta, and have slightly different timing. I keep mentioning the book "Timing the Real Estate Market" by Robert Campbell http://www.realestatetiming.com/index.html (I swear I am not connected to him at all). He came up with exactly what you suggested, an "index" that he calls "Vital Sign" index made of five local indicators as follows... 1.Existing home sales. 2.New home building permits. 3.Mortgage loan defaults. 4.Foreclosure sales. 5.Interest rates. He describes how to get this information for local areas, and he created a moving average combining these together in an Excel graph. I think he now gives this Excel program away free with the book purchase. At the time I bought the book this was not the case, so I don't have it myself. The book is really an interesting read about how he came up with the indicator, his personal experiences, pains and triumphs as a small developer, and the disaster that led him to search for the something that would signal him to exit real estate short term so never to bring home the pain again.
I am 29 and rented since college, until last year. When I got married my wife and I looked to keep our mortgage around the same amount that we were acustomed to paying in rent. So we went from living in one and two bedroom apartments in West Palm Beach Fl, to a 4 bedroom house with a loft in a gated community because of low interest rates. My point is, not everyone is buying a house in order to speculate. They are buying a house to live in. If prices go up or down before it is payed off over 20 years at least we will have an asset. Renters pay for other peoples assets.
I strongly disagree with that. In my area, suburban Los Angeles, if a couple bought a home in the last peak (1989), it would have taken them almost 10 years to break even. That is because real estate right after 1989 rolled over and died for half a dozen years. At one point around 1993, real esate was down about 25% or so from the peak. Real estate is always two steps forward, one step back for as long as time. If you look at any chart that is parabolic, like real estate is now, what do you always see later on in the chart? If you think things can stay parabolic forever, you are mistaken. It will revert to the mean. It will correct. Since 1989 set all time sales records up to that point, tons of people bought in. Some were able to hold on. But many people have life changing events like divorce, sickness, job transfers out of their control. Can you guarantee you can stay put "for the long run"? If you have to sell at a big loss due to something unexpected, you may not recover financially.....ever. People that bought real estate in 1993, when no one else wanted real estate or even wanted to talk about it have done fine and have never been "underwater" in their investment. In real estate and stocks, entry is critical. It is important to eventually be a homeowner, but don't knock being a renter in certain parts of the cycle.
keep all the information coming. I have $5000 down on a home to be built by a builder in lakewood ranch. I have til Jan 5 to withdraw and get my money back. The builders in the area have since about a month ago raised the price of the land 20thou and the house about 10 thou. If I commit I going to be a 630, 000. home in an area with many 1.2 million dollar homes to be built. (Not much differnce on the outside but there is on the inside and they get premium for golf couse lots etc.) If the bubble does not burst I will make great money. If it does I will be the owner of two houses leveraged and screwed. Losing my equity and most of my saving. Not to mention that in Florida the banks could go for deficiency judgments. Roll the dice be in the game with 2 houses or sit on the sidelines with cash in the bank and reasonable house with a very low mortage.
Yes, But building equity for you is not enough to make a decision to become a landlord.....believe me the lost cash flow due to vacancies, damage, and time.......negates this benefit in the first few years. Michael B.
Everyone has opinions...in my opinion this is gambling. This is like pushing all the chips up to the line and letting it ride. The problem is real estate is often not a liquid asset and it is hard to unload if things turn against you. Been there, done that. Things can turn fast. You could either look like someone with the Midas touch, or bring home pain that lasts many years. Every man who truely lives has regret in his life, and this will throw another giant log onto the pile. IMHO, much of the gain in the last couple of years in real estate has been through people buying more house than they normally would and extending themselves like this. Musical chairs, where and when does the music stop. People of late are being attracted to the real estate market by greed and potential returns. They thing nothing of paying twice as much for a house as it was selling just five years ago. What was wrong with buying it five years ago? Why buy now? My posts on this thread of late about real estate are very negative. I am not a sour negative person. I have owned a dozen homes, and own three right now. I have done well on most, lost quite a lot on one. I have plans to personally move up to another bigger house. But not right now, I will know when the time is right. I think.
I did not mean to sound like I am knocking renters, I just think that over the long run it is better to be paying down a mortgage, if you can get a mortgage that is comparable to what you would be paying in rent. Even if the value goes down you are paying off something (whatever that value of that asset may be). Would you rather rent a car for 500 per month, or finance a car for 500 per month, even though its value is depreciating? The market is much different in LA, but you can have a pretty nice house here in FL for 200k. At 5.5 % a interest rate that is a mortgage payment of 1100 before taxes and insurance.