I like Gerald Celente. He has been talking about the commercial real estate decline and the collapse of '09 for a year or more...
A private equity deal just closed.....Hotel in Miami Retailed at 20mil.....sold to investor (Reit) for 9.2 million including 1.2 million in takedown for the transaction. Should give you an idea. This isn't the only transaction of its kind. I'm seeing dozens. Good buying opportunity right now!
Maybe, maybe not. Bob Hoye of Institutional Advisers relates the story of how in 1930 some high profile property in New York was "a good buying opportunity"... only to default. New owners bought it cheaper and they too defaulted. As did a couple more. Property price didn't turn positive for good until early 1950s. Japanese RE market after their credit bubble pop... some lost 90% of their value. I suspect those "getting a bargain" today may wish they'd waited...
This can be be said of any asset in any market. The ones buying now should be the ones that can afford to lose. You avg. down a real-estate portfolio the same way you do with equities and derivatives. People can relate now to the 30s all they want, the difference is before and during this correction we had the 30s to look back on: even the buyers could draw the parallels. The people buying now are not the ones that just quit their day job and are leveraged to the hilt just to flip something. The buyers now are the 50-100 million USD + net people that think it's a good time to start getting back in, even though there is likely another leg down.
This is interesting actually because interest rates are so low that your payments are not very high. But if you wait longer, when interest rates rise, property would go down in value and you get to buy for cheaper, but finance at a cost that would be the same monthly payment as a higher price with low interest. So you look at other factors that might or might not come into play. Inflation for one. If inflation gets high, then the property value does not go down and you are better off buying now as interest rates will rise and with inflation so you see a flat commerical real estate price for years to come, even though the value of the dollar starts dropping. (the good news is that as that happens you get to charge higher rents and cash flow more) So it seems buying now is a good idea as long as you dont put all your eggs in one basket and dont leverage to the hilt in 1 place.
I think you hit the nail on the head here. People will have a finite amount of money to spend on a house payment per month regardless if it is in taxes, interest, or the actual house. On the other hand it will be difficult to forecast interest rates. Also, higher interests will likely push more overextended people to the brink. Low interest rates is the crack cocaine for the spending masses.
Soon, 30% of all res mortgages in the US will be underwater. Income levels would have to rise dramatically to makeup for the deficit. That is not happening soon. If the Fed keeps pumping more paper money to the system, the only possible consequence is higher inflation. Only buying at today's 70% of market value, would seem reasonable and safe to me. Not a penny more. See: http://www.elitetrader.com/vb/showthread.php?s=&threadid=175023