13 Riskiest housing markets

General Real Estate Investing
21

“EVERGREEN IS 110% correct on this subject…”

If not 120% correct.

“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?”

Ya know Dan…it’s always refreshing when you make it home from work…how was the commute?

I’m just finishing up a CMA (ya know data), and after much research I cannot find but two active listings in two zip codes which come close to being ‘substitutes’ for the subject property.

As long as this trend continues–and I see no short term reason why it shouldn’t–property values continue to rise because, of the supply vs. demand ratio.

We’re in a new paradigm Dan…have been for quite sometime. Since you logon to an investors website you might want to quite flapping (not to be confused with flipping), and start listening…you just might make some money despite yourself.

-Infowell

22
23

I agree with you Karlsd. When we were caught in the down turn we were simply stupid – completely inexperienced and I only blame myself. We were not leveraged properly, required the rental income to make the steep payments, and we let our partner’s girlfriend select the tenants (she was about as experience at that as any of us were at the time). When the three groups of tenants stopped making the rent we were in a whole lot of hurt. By the time we were able to get them out (California) it was too late for us.

We’ve learned a lot since those days – and like I said before, I wish we could have weathered the whole mess. I’m not saying don’t invest for the long term, FAR FROM IT – just be savvy in your decisions.

24

Is the consensus of this discussion to stay on the sidelines or to continue to invest in REI with a well thought out stragety.

We are close to purchasing our first rental property which has a postive cash flow, even after debt service, operating expenses etc. The property is an 1 1/2 hours outside an over inflated market (actually #1 on the list). (As an aside I agree with Evergreen that the market data should be reported on a geographic area, no solely on the city). If I am buying for cash flow - woulden’t appreciation just be an added bonus when I do decide to sell?

Even in a economic down turn if my business model is a a buy & hold rental stragety - woulden’t my investment be protected? If I plan to hold and the rent rate increase or stay stagnant - why would I care if the bubble bursts?

Also, does the principle of dollar cost averaging exist in REI (ie - when you buy a property with a higher cost, but lower debt service as opposed to buying with a lower cost and higher debt service in a downturn).

I know that fear keeps a lot of people on the sidelines. But I have to believe that fear can be mitigated by being educated and having a long range plan. I am afraid to make that final leap giving my geography and the predicted “doom”…so any thoughts to bolster my courage would be appreciated.

Thanks for any comments…

25

I think buy and hold is the safest route, which also means it has the least gain, at least short term.

If your property goes up, thats just gravy.

Bottom line, no investment or business is without risk. You want to minimize risk and make sure your reward justifies the risk.

Before you do anything, you should have a plan set out. Figure out your specific goals in life for years to come (for example, you want to have 5 rental props paid off) and then decide the best route to obtain that.

26

It cashflows, you should not have many problems. And you sound like you are in it for the long term. If you keep it for lets say 20 years, who knows what the market is going to be like in 2025? We might be living on the moon driving flying cars by then! If it cash flows and you can afford repairs and vacancies, you should have no problems.

27

Check the unemployment rate for the city. I don’t care how much appreciation occurred before, if there are JOBS then you will find people moving there. I don’t care Vegas went up 54% in 2004, the
unemployment rate is 3.7%, good paying jobs are everywhere.

I think the “bubble” will happen when the jobs stop coming. What is the unemplyment rate in your city?? Call the Chamber of Commerce

28

“I think the “bubble” will happen when the jobs stop coming. What is the unemplyment rate in your city?? Call the Chamber of Commerce”

That’s only one indicator in a long line of very important indicators.

My state has a higher than average unemployment rate (though that’s changing quickly). However, it is, and has been an emerging market.

Anyone who thinks there’s a ‘housing bubble’ in the Greater Puget Sound Region doesn’t know a thing about market fundamentals (wasn’t referring to you LVNL).

-Infowell

29

June: Washington gained another 7,600 jobs, while unemployment edged down to 5.5 percent throughout the state, and to 4.7 percent in the Seattle metro area.
I consider these numbers very good, maybe not Vegas, but you certainly have people working who need places to live. With lower cost of buying a house, low interest rates, and jobs…I can’t see a bubble in Washington. I didn’t know Seattle was that good. Might have to check investment ideas there.

30

“…consider these numbers very good, maybe not Vegas, but you certainly have people working who need places to live.”

If you’re interested in investing in the Greater Puget Sound–Google WA State Chief Demographer (or any state for that matter).

Check out the estimated population growth vs. building permits. Population was outpacing building here…we predicated an increase in building permits last February…now were starting to see that increase (made the news today–day late & a dollar short as usual).

Active listings are still way down & days on market (DOM) are in the single digits if homes are priced competitively. There’s an imbalance in supply vs demand that’s lingered for more than a year now. Mutiple offers are more common than not (the guy that purchased our last listing had made seven offers on seven different properties–this time he pulled out ALL the stops…intending on getting the home).

Everything’s lining up and signaling a coming boom. Bubble Heads need not apply, however. They’re being left in the dust…different year…same broken record!

-Infowell

31

There is not a bubble here (Vegas) because of some simple facts:

  1. Homes were dirt cheap to begin with.
  2. We have 6000 people moving here monthly AND our growth has been doing on for decades, not just a couple months.
  3. We have more money in this city than is on the books. There are lots of people here who earn 50k on up–all off the books.
  4. Land is limited. We have pushed up against the AFB and Indian land. It is estimated that we will be out of land in the coming few years. New growth will start happening away from Vegas.
  5. We are a major entertainment destination. We have tons of multi-millionaires flying in here daily to live it up.
  6. We lead the nation in gaining educated graduates.
  7. 60% of our migrants come from California, namely Orange County where homes are drastically higher.
  8. Low taxes.
  9. A place where people actually want to live.
  10. Becoming a top retirement destination.

and more.

Not saying prices will go up forever, but we still have plenty of room to go. The area I live in is a prime area and I see the median price of homes going up roughly 40-50% over the next 3 years. As to the rest of Vegas, hard to tell. There are some areas that are still cheap and they are the armpit of the city and won’t change. Lots of hookers, drugs, rape, and more reside there. In these areas you can still get condos for 70k.

32

I thought that I would jump in with this:

Kiyosaki sounds off about the Housing Bubble

“In a nutshell, we really do not have a real estate bubble… the world is in a currency bubble.”

Check it out:

http://www.richdad.com/pages/article_dollar_crisis.asp

33

I realize that my comments will probably result in a landslide of rebuttals;

We’ve got more bubbles going on here than Lawrence Welk, Mr. Bubbles, Cleaning Bubbles, Tiny Bubbles, and The Boy Who Lived In A Bubble–combined! :eyecrazy:

Bubbles are for bathtubs! Stick to market fundamentals & you’ll make money.

Tech Stock Bubbles, The Great Depression, The Tulip-Bulb Bubble of 1634-1637 in Holland, Y2K computer bubble, and the ‘70’s’ song by Blood-Sweat-And-Tears, “What goes up must come down”…

HAVE ABSOLUTELY NOTHING TO DO WITH THE HOUSING MARKETS!!! :eyecrazy:

For the record: What goes up doesn’t HAVE TO COME DOWN: Space Probes, Moon Cars, Voyager and the like are prime examples, and they have as much to do with the Housing Market as a Hyacinth!

The “Housing Bubble” is a broken record worthy of change. It hasn’t happened, it isn’t happening, and the likelyhood it will happen is slim.

-Infowell

34

ok. its official. infowell has declared there’s no housing bubble.
someone call Alan Greenspan. he was wrong in december 1996 about
the stock market bubble so he must be wrong about this one too.
after all, infowell has been hearing about bubbles for past 5 years and there’s not been any bubble so far. ;D

35

Alan Greenspan is as confused about housing as the boys on CNBC. He keeps raising interest rates, and the 30 year mortgage doesn’t move, except downward. I bet he wakes up every day trying to bust the real state boom, and he has nothing left to play with. He raises the interest too high, and his friends on Wall Street will rage against him, and the market will collapse.

36

I hate to burst your bubble, Infowell, but what happened in late 80’s early 90’s? Are you too young to remember or just have a selective memory?

37

“ok. its official. infowell has declared there’s no housing bubble. someone call Alan Greenspan. he was wrong in december 1996 about the stock market bubble so he must be wrong about this one too. after all, infowell has been hearing about bubbles for past 5 years and there’s not been any bubble so far.”

You Bubble Boyz hear what you want to hear. I watched Greenspan talk to the Rep’s yesterday (I stayed awake through the whole thing).

Greenspan didn’t say there’s a “Housing Bubble.” Greenspan warned novice Speculator’s. I’ve offered the same warning. There’s too much volatility in Speculating for my blood…that’s NOT the way I choose to invest. Speculating IS like musical chairs…I agree. Happens to be the same reason I’ve avoided these super heated markets for these past few years.

“I hate to burst your bubble, Infowell, but what happened in late 80’s early 90’s? Are you too young to remember or just have a selective memory?”

Dan-

You’re kinda fun to toy around with…ya know it. Thanks for calling me young by the way.

What happened during the ‘80’s’ & ‘90’s’? A short term market cycle is what happened. The same thing happened to housing markets then–that’s happened ever since World War II in this country (hope you ARE too young to remember that period)…the housing markets HAVE NOT sustained significant depreciated for extended periods of time.

In the early ‘90’s’ there was a brief period of stagflation here in the Pacific Northwest (different scenarios for different areas of the country). There was some depreciation in higher end homes (the pool of individuals with the financial wherewithall to purchase those homes had shrunk). Median to lower end home prices went sideways (again, for a brief period). That was the result of a Recession combined with earlier overbuilding.

The early ‘80’s’ saw home price appreciation following a short term down cycle as well (why do you dwell on brief periods of depreciation when overall the markets appreciated so significantly?).

Assuming you both invest (Dan I don’t know about you):
I’ve tried to provide information on how to gather & digest data. How to pay attention to Market Fundamentals rather than Market Mentality.

You should have copied that information & pasted it to a Word Program. If you’d rather get your investment ideas from CNBC, a newspaper, Aunt Millie, or the fact there was a Tulip Bulb Bubble in the 17th Century…then there’s nothing anyone can do to help you.

Individual market will cycle when–AND ONLY WHEN–something happens to break the imbalance in Supply vs. Demand.

-Infowell

Footnote: The Fed (includes Greenspan niravmd) admitted to raising rates one (perhaps two) too many times in ‘99’…they killed a hot economy and we slid into recession as a result. The Fed continues raising short term rates much past 3.5% and I’m of the opinion they’re risking recession again (I think they know it this time around…it’ll be interesting to see what they do).

In a free and open market…they shouldn’t try to CONTROL housing markets at the expense of the rest of the economy.

38

hmm…seems like we’re backing into the same argument, infowell.

right now oil has spiked and whenever thats happened in the past, the economy has gone into recession, the fed did mention that they were concerned about inflation. the fed’s response to inflation is raising the interest rates. so i guess we both agree on that part of our economy going into recession. [might take few years to fully play out]
the inverted yield curve will correct and mrtg rates will eventually go up.

so overpriced places where people who would normally have to pay 60-80% of there income [though through the use of neg-am loans can still “qualify” to buy] to get into a house will no longer be able to. these places will observe a “short term market cycle” as you so eloquently put it during which time property prices will decline, banks will lose their shirts & tighten lending criteria and the stock prices for banks and lending arms of institutions will plummet. You are right, there will be no mania, only a short term market cycle consisting of depressed market prices for 4-10 years in a few select areas.

39

“…the fed did mention that they were concerned about inflation.”

I didn’t get that out of the conversations yesterday. Inflation is relatively low despite oil prices…the cost of fuel (for whatever reason) is not being passed onto the consumer (other than at the pump).

“…so i guess we both agree on that part of our economy going into recession.”

I’m taking a watch & see approach. I think the Fed could be flirting with Recession should they continue raising short term rates. I think the Fed knows that & certainly doesn’t want Recession (especially so soon after a rather lackluster recovery period).

“…the inverted yield curve will correct and mrtg rates will eventually go up.”

I’m not on board with that premise either. But just for kicks & giggles…let’s say rates do go up (I’ve thought rates were going up for 3 years now…and I’ve been wrong…it’s a conundrum). I don’t think the rates will go so significantly higher that “property prices will decline, banks will lose their shirts & tighten lending criteria and the stock prices for banks and lending arms of institutions will plummet.” I think something was learned during the S&L debacle.

“…only a short term market cycle consisting of depressed market prices for 4-10 years in a few select areas.”

I wouldn’t necessarily disagee with that statement except to say stagflation (should it rear it’s ugly head) will be limited to the shorter period. Areas of So.Cal are notorious for sideways markets, but look for slosh over to more affordable areas (even within CA itself).

“…so overpriced places where people who would normally have to pay 60-80% of there income…”

That’s a relatively small segement of society. People obviously have more money than doomsdayers realize. In fact homeowners are paying less for housing out of their disposable incomes than they did 10 years ago…all thanks to new programs that didn’t previously exist. Programs–I might add–which gloomers seem to love to complain about.

In the meantime…no “Housing Bubble”…it’s OK to invest. Making money is American & legal.

Don’t worry…be happy!

-Infowell

40

now thats something no one can argue with! :slight_smile: