Any time I see a "new economy", "paradigm shift" or other reason why it should "be different this time" my alerts go off
Housing Rolling Along 2
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Any time I see a "new economy", "paradigm shift" or other reason why it should "be different this time" my alerts go off
Quote from kiwi_trader:
Any time I see a "new economy", "paradigm shift" or other reason why it should "be different this time" my alerts go off
You don't think it's easier now than in 1985 for the average American to afford $2,000 per month in rent ?
Ever hear of something called inflation. You don't think things ever change? You'll be waiting a long time for the opportunity to buy a new Carrera for 30k or catch the DJIA under 1000.
You mention "investors" which in RE is akin to "speculators". Everyone else is merely a "home owner" and those folks don't really care a heck of a lot what their place is worth. Sure everyone would rather say their house is worth a mil than say $670,000 but at the end of the day it's meaningless unless you're planning on downsizing.
We may certainly see an early 1990's type market. My guess is this will be worse. In the 89-93 bear only coastal cities were hit hard. Chicago for instance traded higher during that period. IMO everywhere, even places not seemingly "overheated" will see depreciation in this climate.
You mention rates. I've heard many ARM's holder's have "locked in" over the past month. With an inverted curve they must.
We may certainly see an early 1990's type market. My guess is this will be worse. In the 89-93 bear only coastal cities were hit hard. Chicago for instance traded higher during that period. IMO everywhere, even places not seemingly "overheated" will see depreciation in this climate.
You mention rates. I've heard many ARM's holder's have "locked in" over the past month. With an inverted curve they must.
Touchy. But the warning bells for new economies and paradigm shifts are well worth listening for in case the logic is weak or the hidden assumptions don't hold up.
An interesting one with QQBall's real estate tanking followed by reduced employment: in my area much of the employment is tourist and service industry related but a surprising amount is developer / re agents / builders / subcontractors. If it goes down any harder the past experience has been that the builders and subbies had to sell up and move elsewhere to search for steady work, which had a significant snowballing effect on prices.
The rat that deserts the ship first gets the nicest spot in the life boat.
I know the thing that IS different this time is homeowners have used their house as an ATM. That really wasn't the case in the 90's blow up. Now they do care what it's worth because they can't finance their lifestyle on employment income alone.
$2,000/month would have bought you a nice place very close if not on the beach in Newport Beach, CA in 1985. Now it buys you a row rot box 100 miles inland.
The point I'm making is this kiwi. Let's say I sell my home in Florida for a hypothetical one million. At a 5% return that same million (and I'd be subject to capital gains if I don't repurchase) is worth 50k a year. Post tax it's only 30k a year or 2500 per month. Can I rent a million dollar home for $2500 a month? No way. I'd have to spend around 4k a month to find a comparable home. Even figuring in the property tax savings (1k a month) it would be no better than break even. On the other hand I see condo's down here that sell at RIDICULOUS P/E's. I'm talking you can rent a 600k condo for 1600 a month. Those places could fall 50% before they're in-line. It's really a tale of different markets. Some condo's are JNPR. Some homes are XOM.
As long as there's some semblance of full employment it'll be hard to bust rents wide open. And if rents don't bust wide open re-sales won't bust wide open.
I agree with your argument even though there are a bunch of ifs in there that could change the equations again. I spent many years in a prior job forecasting markets (high tech not real estate) and there are about 5 classic mistakes in forecasting that seem to keep on repeating. Most people learn little from history when it counts.
A damned interesting situation as long as you are not amongst the damned.
A damned interesting situation as long as you are not amongst the damned.
ARMS loans will almost certainly rise.
investor = speculator, maybe, but why bother to argue semantics? i think buying good properties (preferably coastal) at "right prices" with FR debt is investing, pure & simple. supply is constrained, demand is steady-to-increasing and in fully developed markets (nearer the beach), new development requires razing of existing structures. in my mind, its much more speculative to owe 95% LTV on massive home with ARM. this goes back to my passive income thingy (non-work income). people will come to realize that it is safer (less speculative) to have less home and a more diversified real estate investment port - maybe thats a simple as REITs? a home is an expense, and investment property produces income. id rather have a smaller home & more passive income. BTW, im F/C on residence, but i only keep it because i want at least 1 casa in Socal, otherwise it would be sold. i also have my biz office here too. i dont think its different this time, when GIMs on coastal props were 20x-30x POTENTIAL GROSS you sell and/or exchange. when they are 8.5-12x PGI, you buy. selling house is a great tax shelter, problem is the sheeple will suck the equity out, blow the dough and end up with their homes owning them. honestly, i just talked to a buddy that has a $1M home in san juan capostrano, but he is basically living month-to-month... so many people here live in homes that they couldnt afford to buy at today's prices. homes in Socal used to be a forced-savings plan, now they are source of spending money.