Hello Everyone, I just pulled this article from the Kiplinger News Letter and wanted to give you some food for thought.
Kiplinger’s Personal Finance list:
“Soaring prices and the emergence of a generation of wet-behind-the-ears real estate investors stoke fears that the boom is turning into a bubble that will burst,” says the report, released this afternoon. “Another reason for concern: the growing number of houses bought as investments: nearly one-fourth of purchases over the past year were investments, and they’re concentrated in a few markets.”
Here’s the list, with the probability of a decline in prices over the next two years rated as a percentage:
Boston, 53 percent (the area has lost 200,000 jobs since 2000 and home prices remain high);
Los Angeles, 40 percent;
San Francisco, 40 percent;
Sacramento, Calif., 40 percent; (that’s me)
Providence, R.I., 39 percent (no population or job growth);
Detroit, 38 percent (auto sales are awful);
New York City, 31 percent;
Minneapolis-St. Paul, 25 percent;
Fort Lauderdale, 23 percent;
Denver, 21 percent;
Washington, D.C., 19 percent;
Miami, 18 percent;
Tampa-St. Petersburg, 14 percent.
The problem in the Florida markets, says Kiplinger’s, is that investors are jacking up prices to the point retirees can’t afford them.
ATTENTION Home shoppers, if the prices are too high, DON’T BUY! It’s that simple. If you can rent a nice condo for 1500 a month why buy it for 400K? It makes no sense! Let the flippers flip to each other and sit on the side line and watch.
Why do you think it would be better to pay $1500 a month toward rent
than it would be to pay $2500 toward owning a fast appreciating property ($2200 if interest only).
The renter saves $1000 per month ($12,000) and the owner would have the interest deduction and over $100,000 in appreciation.
The math goes on and on but the result is the renter loses everytime.
Only problem with that is you are assuming it would be a “fast appreciating” property. You also have taxes, HOA fees, insurance you have to facter in. What happens when that 400K condo is now worth 200K, you now owe more than what it is worth! So you are stuck paying 2500 a month plus taxes hoa and insurance, when you could have been paying 1500 a month and not even have to worry about the taxes, hoa or insurance.
What if you can’t afford $2500 a month lol. Then renting is the way to go.
Forgive my ignorance, but I am still trying to figure out how investors control the market. I am sure investors add some to the demand but they act like that is the sole and largest reason why costs go up.
How about the fact that loans are so easy to get now? How about the fact that more people are learning out Real Estate and the benefits of owning verses just renting? How about the fact that many like to live above their means and that regular people are buying just to get into something? How do you explain sharp price increases in a city where sales numbers remained about the same as they have been for months or years before said increase?
It must be nice to look through tunnel vision glasses.
I don’t think I have ever seen such poor reporting in all my life and it is not just in the RE world either. News agencies and report givers usually have little in the way of credibility and experience and fail to verify sources and data. RE, war, left, right, et al.
Real news has exited stage left and the era of sensationalism is upon us.
I’m an agent in Maryland and we do 50% of transactions in DC. There are a lot of areas which still need to be turned around so the prices will most likley not go down. I’ve worked with an Investor friend of mine who purchased a house in DC and fixed it and ended up makin 100000 profit in 2 years.
He has a house in Farifax, Va (it is one of those Florida hurican metal house). His house is part of a community of 12 similar homes. He purchased this for $200,000 2.5 years ago.
They are building more and more 700k to 1mil homes around his house and the builder went to him offering 400K+ for his home so they can tear it down and build a mansion (he has a nice chunk of land). They made the same offer to the 11 other home owners.
Buyers control the market, you should know that. If all the buyers decided to not buy Real Estate, it would go down until they decide to buy. That is just like anything else. Do investors solely control the market? Nope. But they are part of it.
News is bunch of hogwash, it is more about celeberties and their stupid antics. Do I really care what Paris Hilton is doing? No, but they are going to broadcast it anyways. News jumped the shark in the late 90’s.
So-called “Reports” are like butts, everyone’s got one and it usually has a hole in it.
Remember, these are the same people who told you to buy stock in Internet-based companies that were being run by CEO’s who used AOL now and again.
The same people who will tell you that rates are at their lowest point in 12 months and it is a good time to buy and then turn around and say not too because a magical bubble will burst and your home will lose value.
Ever been caught in a “bubble”? I have – and it wasn’t pretty. Eighteen years ago we ended up with four townhomes not worth the mortgages on them and three nightmare tenants. Taxes, insurance, HOA, and mortgages don’t go away – they need to be paid regardless of the value of the property. We were ROOKIES and thought we’d found a good deal. We lost our shirts and almost our primary residence. Our approach has changed significantly. To this day, I still wish there was a way we could have rode out that mess, those townhomes are worth a fortune now
No one has a crystal ball, therefore, no one can predict what exactly will happened. Past performance is not an indicator of future returns, it should be taken into account with all of your research. Buying high and suffering through negative cash flow because you are banking on future performance is a no win situation IMHO. This seemingly national trend, has put me in a watch-and-wait game for my areas of property investment. I still know a great deal when I see one, and believe me, I’ll be in there attempting to get it. I’m positive there are people who disagree with me because there is money to be made – I’ve been burned badly, so I just don’t go that route any longer.
I’m convinced people have decided the RE market is the place to put their money now and are doing so with wild abandon (can you stay dot.com?), assuming it’s a slam dunk based on past performance. TV shows (that do not account properly for the costs) and, infomercials telling everyone how “easy it is,” while the formerly homeless woman sits infront of the rented mansion telling her story of vast gains continues to drive the inexperienced investor.
When I heard Jim Kramer (sp Cramer?) I forgot how to spell his name, was touting Real Estate a week ago as a great investment. I figure RE has jumped the shark. He did the same thing with Tech Stocks, he pumps it and pumps it until it went downhill fast. It’s not the question of if, it is a question of when. I can not tell you when it will pop, it might be popping right now. And most people will who own will just wait it out, no big deal, as long as you can afford too. Would you sell your home because a nieghboring property was selling for 50K less than what others sold for? No, because as long as you can afford, why would you sell?
Thinking as a long term investor who is seeking a positive cash flow via rental properties; does it really matter if the bubble bursts, no matter where you purchase?
If I buy a 2 story rental for 400K in NY and my montly nut is 2850 (Mortgage, Home Owners and Taxes) and I am collecting 1800 & 1400/month rent. I will have a positive cash flow of 350/month. If the bubble bursts here in NY and my house is now worth 250K, who cares!!! I still have 350/month coming into my pocket. Sure if something unexpected happens which forces me to sell, I’d be in big trouble.
I decided to move forward with this deal, regardless of all the bubble talk, sure I could have gotten into this house 2 years ago at 275 and it could end up right back there 2 years from now, but in my mind I have built a positive cash flow that will take me through the ups and downs.
I think now is the time to look for deals on properties that can give you a positive cash flow right now and over the next 5 years. That should be the focus, NOT HOW MUCH THE PROPERTY MIGHT BE WORTH IN THE NEXT YEAR OR TWO. Just my 2 cents
Is making your payments on time dependent on the market rising? If so, you are a high risk factor.
Can you make your payments now and long term regardless of the property going up or down in value? If so, you are a low risk factor.
I guess the reason I don’t care about bubbles is because I don’t do deals where I will have proper capitalization to sustain business. If I was going to buy a home to flip, I would make sure that I could pay the mortgage now and for years if need be.
People who usually get in trouble are the ones that do something like buying a home to flip with only a few payments (perhaps a little more) in the bank. If the home declines or sits, they go down. Also people who overbuy.
If your back is to the wall that is one thing (IE job going nowhere, debt piling up, bankruptcy looming). When things can’t get any worse, go for it.
Also you have to remember, if you wait for the reset (I personally don’t like the term bubble) banks tighten up lending standards. So you might not even be able to buy the property unless you can prove you have the cash.
“Let the flippers flip to each other and sit on the side line and watch.”
THAT’s your contribution on how to invest? ???
I’ve been taking note of Bubble Heads Reporters & writing emails for sometime now. If the sensationist media feels free to scare people in their own homes…then I should be free to point out they cannot be considered serious experts after this long of predicting a “Housing Bubble,” and being wrong.
I’ve seen charts & graphs & probability statistics for 5 years now. I’ve heard those who don’t invest–warn me how I was going to be sorry for daring to succeed (Investors have made small fortunes in the interim).
In that time I’ve started developing arthritis, I’m getting grey hair, our child, nieces & nephews have grown into young adults, I’ve taken nearly 15 GOOD vacations & so many getaways I’ve lost count. Our country has invaded Afghanistan & Irag. The Angels & Red Sox have won World Series for Pete’s Sakes…and I’m still being forced to listen to non participants warn year…after year…after year…after year…after year…“you better watch out…don’t dare to dream…sit on the sidelines and watch…the Housing Bubble’s coming.”
Some of those cities are my picks for emerging markets, and if anyone cares to keep score; So far it’s Infowell-5, Doomsdayers-nothing.
Anyways if you think it’s smart to go out a buy property for the sake of owning something because, it can only up up up up! Than do it, go out and buy all them 500K condos, if you buy them all you can control the market! But you can’t buy them all, you will run out of cash and credit eventually. Plus you would encourage the builders to build more!
Tell me Infowell, what would happen if the end users (not all, but a good majority of them) stopped listening to the Realtor Cliches and thoguht for a second “Gee if I don’t buy now, I could get in cheaper later”. What would happen to Real Estate? Could flippers alone keep the market afloat and have it appreciate 20-40% more?
Problem is buyers won’t get together and leave because (1) they don’t know each other and (2) that is a poor assumption. It would be like us all getting together and demanding that our cars get 10 more MPG so we can kill our dependancy on foreign oil. Not going to happen.
What makes you think prime property will be cheaper in 5 years? If one of my properties goes from 300 to 500k in the next 5 years and then a bust happens and the market goes down 25%, my home goes from 500 to 375. Still, 75k more expensive than it originally was. All waiting did was cost me years of tax incentives, 75k in lost equity, and all that time not enjoying the property.
Also people who are getting older think the dream of home ownership might be passing them by. They don’t have 5 years to wait and a home going down in value because of being over paid on is a minor concern.
I think the younger crowd (18-25) can afford to wait (well most can’t afford to do much else anyway).
I think the list of 13 might be semi-accurate. Going by city is the wrong way. Should be by area.
