what's going on with real estate?

Discussion in 'Economics' started by lasner, Feb 16, 2006.

  1. lasner


    I didn't know where to post this thread so I thought I would put it in the economy forum.

    I was wondering what anyone's thoughts were about real estate. Now that the fed is jacking up interest rates do you think real estate will implode?

    It doesn't sound like the Fed has any intentions of stopping with rate hikes. Real estate for the past couple of years has been out of control in my neck of the woods prices have doubled.

    The government has claimed that inflation is under control, but when you look at how high the CRB index is you have to wonder. Commodities like energies and precious metals are way out of control.

    I think real estate will implode just like the stock market did in 2000. Was wondering what anyone's thoughts were
  2. Interest rates won't "implode" the housing market. But high interest rates plus a recession will. Last happened 91-92 timeframe. Many communities saw 2 years of 10% losses in property values.

    No worry at present with high employment and population growth.
  3. lasner


    But what's going on with the market? How will these inflated prices be sustained? When mortgage rates return to normal and the selling frenzy is over with don't you think the prices will return to normal.

    I think this may be a possiblitly: The fed will have to keep bumping rates up in return for the damage they created by lowering rates as low as they did. We may see the opposite happen. Instead of supere low interest rates we may see super high interest rates to counter act the damage the fed did.

    Look at precious metas, energies, the CRB index everyting is inflated. The government claims inflation is under control, but is it really.
  4. Arnie


    Real estate is unlike other asset classes. It a way, real estate forces you to be long, which is good for an asset that has historically risen. And besides, what difference does it make to MOST owners if the value should level out or even decline? It's still your home, a place to live. If you sell, you still have to live somewhere. Sure, you will have markets where prices will drop 20%, but that won't happen on a national scale. Another point, when prices fall, many would be sellers take their homes off the market, thus correcting the supply/demand. Rates will rise, affordability will decline, invenories will rise, the market will correct, but you won't see a "bubble" burst on a national scale.
  5. There will be local drops of 5-30% (I think we are seeing early effects of some of those now) and then housing will stagnate for a protracted period of time as the market readjusts to current excesses. I think that in a few years, when the shakeout has occured, is your best bet to go long again real estate in anticipation of appreciation.

    Super high interest rates? Not on your life... while the fed would love to do everything they can to get 30 year corporates up to 8%, it just isn't happening. Too many deflationary influences in the economy. However, that doesn't mean that long yields won't rise from current levels. Super high interest rates = currency crisis, either way ($ currency collapse or EUR/USD at .5 and JPY/USD at 180 or 200. Not likely)
  6. Chagi


    You are forgetting two important factors - rising interest rates, and debt.

    I think you are correct only if people owned their own property without any debt on it, because the reality is that many home owners have had to take on enormous mortgages in order to be able to afford their properties. If we start seeing long periods before properties sell, what happens to the people that are distressed sellers, need to sell their property because they are relocating to another city, etc?

    Also, how much incentive does someone with a $250,000 mortgage on a property now worth $180,000 have to pay their mortgage? Statistics show that mortgagors with insured mortgages are much more likely to default than mortgagors with conventional mortgages. Why? Because they have less to lose.
  7. inventories are surging, but people aren't yet willing to lower their prices. they will though.

    good thing i'm buying a house soon :(

    (no state income taxes in the area though, so that should give me a nice buffer)
  8. lasner


    But the stock market is similar to real estate in that it also historically has risen and also forces people to be long. I don't think real estate will implode the way the stock market, I think it will take more time.
  9. The difference however is that RE is a significantly less liquid market than the stock market, where you can usually find a buyer at *some* price, whereas in RE you may not be able to find a buyer at *any* price (hyperbole, but at least at any price that you would be willing to sell at).

    It does take more time for RE to implode, and therefore takes longer for it to come out of implosion. How long did it take for people burned in 2000 to come back into the market? 2002-2003?

    Illiquidity is the major issue here.
  10. danoXP