I know people dont know exactlly what wil happen to the market this year but im just interested in how people feel 2006 will be for there real estate investments? How do you feel about the markets in the
Id love to hear everyones predictions
I think that there will be a significant bursting of the balloon in most of last year’s “hot markets”, such as California, Florida, Las Vegas (already started?), etc. I keep reading articles by analysts detailing the oversupply of new houses in many areas. This is a certain early sign that the end is near.
I also believe that there will be a general decline of the market nationwide as the tremendous number of new homeowners who used risky loan products will lose their homes to foreclosure. As the foreclosures explode nationwide, the oversupply will drive prices down.
Finally, well after it becomes completely obvious that the market has turned, vast numbers of newbie investors will bail out, putting further downward pressure on prices.
The bad news is that flipping will be a term relegated to the distant memories of the surviving investors. Flipping will be much more difficult in a depreciating market.
The good news is that there will be plenty of deals to be had especially for long term buy and hold investors. There will also be a lot of new renters (as people realize that they can’t afford their houses). The greater supply of renters will drive rents up.
After the bust, the government will greatly tighten up on lending institutions and enact new regulations. Money will be more difficult to obtain and investors will feel the squeeze.
That’s my prediction.
Mike
During the Great Depression the largest decline in real estate values in any one year was only 11%.
For a speculator who purchased a property at or near retail (as is happening in the boom areas), an 11% decline spells disaster.
Mike
ram,
Glad to meet you.
This article may be of interest to you in what is happening in certain markets.
http://money.cnn.com/2005/12/29/real_estate/buying_selling/handicapping_housing_markets/index.htm
John $Cash$ Locke
what prop. mgmer describes will take years to ply out. thngs will happen in slow motion and in 2010 everyone will look back and say “why did we do that” and , that was fun".
I don’t htink gloom and doom will reign, but for every revolution there is a counter-revolution. Just look at the stock market over the past 7 years…investing in that arena is different than it was in '99 but still people out there making plenty of money. The same will happen in REI.
I agree with you that RE busts happen in slow motion as compared to stock market bubbles. However, the exact same psychology is in play and the result for the speculators is the same.
Here are some of the signs of an impending crash in any market, whether it’s tulips, stocks or real estate.
Historically, real estate busts take about 4 years to play out (from top to bottom), meaning that prices won’t hit bottom until about 2010 (as aak5454 said). The typical price drop is about 20%. It can take 6-12 years total before prices recover to the pre-bust high. So, by 2015, prices should rebound to their current levels!
Finally, anyone that is familiar with technical analysis can look at a chart of inflation adjusted housing prices and see that the real estate market is in a VERY long term uptrending channel. Each time prices reach the top of the channel, they will decend back to the bottom. This is very predictable and we are now at the top of the channel.
I’m not predicting gloom and doom or any other doomsday scenario. I’m only predicting that history will repeat itself - as it always does. The vast majority of the new investors will exit the market and REI will once again slip into obscurity (until the next boom which should be about 2020). This is nothing to fear, just an opportunity to decide how you will profit from the downturn.
Good Luck,
Mike
Did someone mention tulips?
The Tulip-Bulb Craze
When: 1634-1637
Where: Holland
The amount the market declined from peak to bottom: This number is difficult to calculate, but, we can tell you that at the peak of the market, a person could trade a single tulip for an entire estate, and, at the bottom, one tulip was the price of a common onion.
Synopsis: In 1593 tulips were brought from Turkey and introduced to the Dutch. The novelty of the new flower made it widely sought after and therefore fairly pricey. After a time, the tulips contracted a non-fatal virus known as mosaic, which didn’t kill the tulip population but altered them causing “flames” of color to appear upon the petals.
The color patterns came in a wide variety, increasing the rarity of an already unique flower. Thus, tulips, which were already selling at a premium, began to rise in price according to how their virus alterations were valued, or desired. Everyone began to deal in bulbs, essentially speculating on the tulip market, which was believed to have no limits.
The true bulb buyers (the garden centers of the past) began to fill up inventories for the growing season, depleting the supply further and increasing scarcity and demand. Soon, prices were rising so fast and high that people were trading their land, life savings, and anything else they could liquidate to get more tulip bulbs. Many Dutch persisted in believing they would sell their horde to hapless and unenlightened foreigners, thereby reaping enormous profits. Somehow, the originally overpriced tulips enjoyed a twenty-fold increase in value–in one month!
Needless to say, the prices were not an accurate reflection of the value of a tulip bulb. As it happens in many speculative bubbles, some prudent people decided to sell and crystallize their profits. A domino effect of progressively lower and lower prices took place as everyone tried to sell while not many were buying. The price began to dive, causing people to panic and sell regardless of losses.
Dealers refused to honor contracts and people began to realize they traded their homes for a piece of greenery; panic and pandemonium were prevalent throughout the land. The government attempted to step in and halt the crash by offering to honor contracts at 10% of the face value, but then the market plunged even lower, making such restitution impossible. No one emerged unscathed from the crash. Even the people who had locked in their profit by getting out early suffered under the following depression.
The effects of the tulip craze left the Dutch very hesitant about speculative investments for quite some time.
Investors now can know that it is better to stop and smell the flowers than to stake your future upon one.
As my old friend Gunny Sgt Highway says “Adapt, Improvise, Overcome” especially when it comes to real estate investing.
John $Cash$ Locke
Ahhhh…I love Zero-sum games. ;D
Now the good news…I should have plenty of cash saved up by 2010 to buy everything in sight at rock bottom prices…hello new Benz in 2015. ;D 8)
Ps- Anyone else reminded of the tech stock drop 6 yrs ago?
Yes, I remember it very well as I was in the middle it working as an engineering manager for a company building equipment for computer chip manufacturing ($2M/ machine). It went from people where faxing in orders for $10M in equipment without even asking for a discount to they would not even answer the phone and purchasing agents became actors where they stared at contracts and said “did we buy this equipment???” and “I’ve never seens this contract before”. Some of the most unprofessional things I have ever seen went on in '01-'02 as people were literal fighting for their lives as they knew that jobs were bing axed left and right money going to pay a vendor(like our company) was money that not available to make payroll. It was a brutal time.
The 5 things prop. mgmer listed are EXACTLY on target.
BTW, when was the last time you heard the phrase “New Economy”; remeber how in '99 or so how everyone was saying the “The Rules” were different now that the Internet Age was here (and thus $2BILLION dollars was OK to pay for a 50 person start-up company :o). Now we all laugh…how stupid could you be???
Time to get back to work… 8)
Yes, but there’s always a bull market somewhere…
If people are going out of their expensive homes, they have to go somewhere. That place is to more affordable housing - mobiles, cheaper homes and as was already mentioned renting. In our area of the midwest the market is flooded with properties over $200K (that’s pretty high end here), while the demand for 100K and around there properties is pretty strong.
Hi,
I’m in the midwest. 1 Hr. north of Detroit. We invest in our local area and I’ll tell you what I see.
It’s not good for the general public. People in the industrial line of work are being laid off like crazy. These are people who have made a pretty good living in this field. People who could previously afford cabins up north, toys, expensive homes etc. What I see I feel is the beggining and I believe that we will lead the nation.
I don’t want to be doom and gloom either but have you ever drove around Flint mI. Kind of sad if not scary.
There have been so many layoffs.
People are starting to sell their extras. Toys, cabins, etc. The forclosures are increasing on a daily basis and I’m sure it is just the beggining.
What does that mean for real estate investors? Well I hate to say it but wow what an opportunity to pick up properties at a great price. Hold it till the predicted 2020 and you’ve got one heck of a retirement. In the mean time you can rent them out so someone else is paying for your retirement.
I have to say, I believe you get back what you put out soooo if you can help someone while taking care of your goals, you will benefit in the long run. :
p.s. 2 local builders have just filed bankruptcy.
When a market is hot, you can buy into it at full value and achieve a profit in a short time due to rapid appreciation. Many people have been doing this over the last three years. But, if the market goes flat or down and you must sell due to the negative cash flow of renting, you will be a loser. It could even result in a foreclosure.
Buying right is crucial. Staying power is even more crucial. If you have bought a house where you can get break even cash flow - or have the ability to absorb the negative - you will always prosper in any market.
Some one correct me if I am wrong but my basic understanding is that real estate values have always gone up in any ten year period since 1930.
It is very exciting in a hot market to simply pay more than the competition knowing that in six months you can sell it for more. But searching for properties that you can buy right will always keep you in the game
Happy investing.