G Sharp

A majority of my friends, those that work the 9-5 grind, have bought houses in the past 2 years. Whenever I start thinking about joining them, I keep running into the following analysis:

You don't want to buy at the top of the bubble. The signs of a collapse are imminent

1) unemployment has increased in the past 2 years
2) foreclosure rates are at a record high http://biz.yahoo.com/rb/030107/economy_housing_2.html


Then, on the other hand, the following facts:

1) housing prices in the Los Angeles region has climbed higher and higher for the past 5 years
2) interest rates keep sinking

One line of analysis is that due to the tight housing supply here, buying a house in a relatively decent part of town [ median: $280,000 but actual avg is around $350,000] is a safe bet b/c even if prices dip, the tight supply will push them back up.

Another line of analysis is that the rise in prices are due to people refinancing their existing loans and people who NORMALLY CANNOT afford to buy a home getting enough $ for a down to lock in on the low interest rate. According to this line of analysis, a growing proportion of people buying homes now or living in homes now cannot afford to live in their homes once the market craps out. That's why the 2 sets of data above are interrelated--bubble buying fueled by low interest rates, sustained by refinancing, which then fuels more buying.... all it takes is a jolt to knock this chain out. Maybe in the form of a interest rate hike [doubtful...although the dollar IS crapping out against the Euro], earthquake [useless in predicting nor wishing this, but it is a, albeit a distant one, factor] or further economic erosion.

Maybe another approach is this: Just buy the damned house as long as you are sure that that is where you want to live for the next 15 years--fuck the economic rollercoaster.

I am beginning to like the last piece of advice..... what do you guys think?

Royaltee_Gee

Wait 2-3 years, once interest rates go up......... then the rich will get richer, the poor will get poorer...

G Sharp

I actually hear that quite a bit. Supposedly, the first nail in the coffin is the interest rate creep up. This would freeze first level home buys preventing people sellers from buying up, eventually putting the squeeze on overextended investors looking to do a 1031 tax swap.

ZoiNk

Go for foreclosures now if there are high levels of foreclosures where you are. Actually, Pre-foreclosures. I will post a URL once I find it. It has lots of info on doing pre-foreclosures.
ZoiNk

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Mike AI

With interest rates this low, even with some bubble like conditions its a no brainer to by real estate. Especially a house.

Real Estate bubble is only in a few locations along East and West coasts... stay out of the big cities which have blown up, and you will be fine.

ZoiNk

http://www7.richdad.com/forums/threa...1&thread=15801

Might have to register to get access to it (Registration is free if you have to and it is a nice collection of info in one post)
ZoiNk

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goBigtime

Sure.. if you don't mind thinking of an investment in a house as you would an investment in a new car.

The bottom line is there is more of a chance now than ever for you to lose money in a real estate investment. The market (especially in California) steadily went up because of the desire to live here because of high paying jobs.

Now many of those high paying jobs are gone, yet people are still stuck with their mortages that were based on their previous incomes.

I'm not sure how a real estate bubble would burst exactly... like if it would burst like the stock market did or not. But I know the area I am in has more than doubled in value over the past few years.... I would imagine it could easily give 80% of those gains back.

That could hurt a newbie home buyer pretty bad if you were buying all the house that you could afford & then your income changed.

G Sharp

I may be misinformed, so please correct me if I am, but buying foreclosures normally require 25% or more down? or is it finance like regular homesales [10% with PMI or 20% with no PMI]?

UncleJimmy

all bubbles burst sooner or later

only thing that is constant is change and what goes up must come down or level off....just a matter of time not an "IF" thing here


the county I left in Cali, the houses even in the shit areas were rising at a rate of 10k a month, how long can that even last?

it's mostly psychology that's driving up those prices, not purly market factors...

it's not like we just had a MEGA baby-boom and have a massive increase in population or did I miss the orgy????????????

;)

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UncleJimmy

PS: Even that richdad's friend that wrote his real estate book for that series mentioned that a good rule of thumb is that


when everyone is buying, hold off....and when everyone is selling BUY


I guess he likes buying things when they're on SALE

that simple rule kinda makes a lot of sense to me

if you're into the daytrading psyche though, go for it and buy in those rapid growing areas and turn fast dollars, worth a run for a little while left I'm sure

how long exactly is a coin toss atm

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G Sharp

Interesting observations UncleJimmy .

To illustrate your point.... in ECHO PARK [district in Los Angeles], which has a high level of gang violence, car theft, and personal assaults, went up more than 60% in value from 1998.

Now the hard question: is this due mostly to tight supply and increasing demand by rising immigration? speculation?

Pornwolf

Buying property in prime areas of Cali, NY, Florida or any other major metro is never a losing proposition. It never will be. As long as people still gravitate to those areas, and they will, property values will steadily creep up no matter what the rest of the market is doing. You can count on this.

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ZoiNk

No idea, I am Canadian You can always get around with little or no down payment if you do it right, just have to pay the closing costs. Talk to some Mortgage brokers and pay less then the market is. So if you pay 75% of appraised value for something that normially requires 25% down, you should be able to get a loan for the full buying amount if you shop around. Also, 2nd and 3rd mortgages if you can't get the price down low enough and it is still profitable.
ZoiNk

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G Sharp

I've read Robert Kiyosaki's book "Rich Dad, Poor Dad" and in the process of rereading it again. Good advise on asset/capital formation and the right "attitudes" that go with it.

He also said that most profits are made when BUYING a property not when selling it. I guess, this would support a WAIT and SEE approach to the current bubble market.


I've also looked at government drug property auctions... even looked at one in Newport Beach that opened at 250K... it was bidded up to $600K in no time. But I'm sure there's diamonds out there....its just buried under the pile of hype and bullshit.

minifly

This is a good topic,

I have been searching for a home in southern california for a while now and it seems to keep going up with no end in sight, right now a condo with 1 bedroom, 1 bathroom is going for $340k in a half decent area.

I'my missing something?, I just can not understand that when people are getting laid off everywhere, more and more homes are being built and sold even before they're finish, the question is if you hold on now and wait, will I be kicking myself in the ass when this condo's go for $500k in 2 years...

FlyingIguana

i think you should look more closely at the local real estate market. its possible real estate values will drop, but its hard to tell right now. grab the low interest rate while you can. especially if you plan on keeping the place for a long time.

Honeyslut

G sharp,

What state are you in ?

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Pornwolf

They may drop slightly but it won't matter in 5 to 10 years. Prices don't drop in L.A., San Francisco, NY, Miami and Chicago. It just will not happen. Even though prices are higher than in most places buying a 1 bedroom condo for over 150k is better than buying a house for the same price anywhere else.

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goBigtime

Hardly. If the undesireable areas take a 50% loss, you can bet that the desireable areas will take at least 40%... at least in the areas I am talking about in Northern California.

Maybe NY or Florida is a different sort of whacky, but I can't imagine that BUYERS would still pay doubled or tripled (over hte past 10 years) pre-bubble-burst rates - or more as suggested in other posts. Why woudl they do this when the other 80% of the market (the less desireable areas) has dropped in half and become a buyers market.

I think if gains are lost via a real-estate bubble burst (not just normal RE pricing fluctuations), the losses will be across the board for the most part.

If you want a stock market analogy..The stock market has its "sectors" that get effected more than others from time to time (like neighborhoods)... but we are talking about the RE "Bubble" bursting here as a whole.

Anyone who's actively traded in the market understands just how crazy things can get when people panic. When they are losing/making money hand over fist - they panic & make decisions that arent very thought out.

The market makers know this and (in the stock market) milk every panic buy/sell run for every dime its worth... right now its safe to say that the RE market is/was going through a "panic buy" stage.
When enough people start thinking that they may have paid too much for this houses... they start looking at those for sale signs popping up everywhere & wonder why the "SOLD" signs don't pop up anymore (layoffs, bad economy).... then they think they better hurry and put their house up too (usually the preserve the little gains they have.. but instead the contribute to what will be the SELLING PANIC)

Anyway...the equity markets are led by market makers that jerk around the pricing and in the process of making the markets, "trap" investors into buying higher & selling lower.

The RE markets are pretty much the same, but they are led by brokers... if the neighborhood is hot, they will put their next house up at 20% higher than their last and see what happens. If enough of these RE market makers do this, they can effectively set the market price for that market. The buyers will see that and think that the market/demand is going up and they better hurry up and buy.

The question is.. can the buyers afford it now? There is always a "better neighborhood" to move into if you have the money.

The markets went up so quickly because of all that funny money that was around in the DotCom days. There were tons of high paying jobs (based on funny money) to support the rate of growth the RE market had (people with new high paying jobs need new places to live)... But now those jobs are gone for the most part, and alot of these people are moving/have moved "back home" wherever that may be.

UncleJimmy

Good question that I don't have any accurate answers to. I know that area, I grew up in the SF Valley ;)

Got family still in the Sherman Oaks area... Crazy prices there too.

I view a lot of this bubble jumping as a result of the market (stock) dump....people are worried, uncertain, have no faith in big companies, etc...so they are reaching for what they appear the 'solid' deal to be...

When you multiply that sentiment times a few 100k people (investors) that adds up to bubble

and from my understanding a 'good' percentage of market fluctuations are based on psychology, not always raw data... If that was the case then everyone would only need to look at raw data and charts and make 'bazillions' on the floor

;)

However, I do agree that certain states and regions have a growth rate and appeal like no others... and these will always be sound long term investments...

I wish my grandmother's father had kept that LIL ol 2 story house on Hollywood & Vine that they lived in back in the 20s

Or my other grandmother's house in Century City....wow, I'd be retired right about now off the proceeds from those 2 sales....

*/me staring off into the distance, wondering what if* HAHA





ok, back to work I go

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erotictrance

Fact: There is a real estate bubble, and it will burst.

Higher prices have been driven by lower interest rates.

Hence, a $160,000 house at 8 percent a couple of years ago has the same mortgage as a $200,000 house at 6 percent ...

Since it's the same monthly payment people have been willing to pay higher prices ...

However ... when the economy improves and interest rates go back up to 8 percent ... housing prices will fall ...

No question about it ...

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G Sharp

Good examples you made there. It seems that when there's corporate news of further lay offs, it seems that housing values even go up some more. I am not saying one causes the other, its just an absurd juxtaposition of trends. One of the main sources of this capital that pushes up home sales is REFINANCING... once interest rates go up, this source of $ may slow to a trickle. However, supply may still be tight.

As for the 1 BR condo example, you just described Marina Del Rey and Santa Monica [north of Wilshire].... very very $$$.

G Sharp

Hi Honeyslut,

I am in Southern California, San Fernando Valley

Just Mike

You can't go wrong. Buy something now and look at it as a long term investment. If you are looking for a quick buck then you will be bummed when the RE bubble burst. Just rememebr...

If we all knew when the markets would take a down turn then we'd all be millionaires. No one can tell you when it will happen so just take the money you have and invest, invest, invest!

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G Sharp

Buy and Hold strategy. Warren Buffett uses this. Of course, he invests in stocks and metals, but the same strategy. Long term investing.... horizon of at least 15 years.

Plugger

I can't tell, but it looks like this would be your first house? IF so, then buy all means buy. In the long run you will do much better owning your home . . .

If you are talking about 2nd houses, then it is a whole differnet ball game . . .

Someon mentioned that when the economy picks up and interest rate rise the bubble will burst? Well, when the economy picks up, and interest rate rise, that will be because more people are employed. More employed people means high wages and more demand for housing. More demand means higher prices.

The fact that housing prices (esp. in CA) have NOT fallen during the downturn is a bad sign for affordable housing

Monk

but, but prices just don't come down in places like NY, Chicago and S.F.

http://homes.wsj.com/buysell/salestr...0330-muto.html

...not.

And this is just the beginning. As the stock market continues to swoon and people find themselves out of jobs (or worried about keeping them), they will have less discretionary income to spend and will not be willing to pay as much for homes.

G Sharp

Yeah, this would be my first house if I take the plunge.

Seems the argument is good for both sides. What I got from this thread is that it all depends on the PURPOSE of the house... if I plan to live there for a LONG TIME, then price doesn't matter cuz even if there's a bust, I'll unload 15 to 20 years from now.

Good point you raised re investment. I guess if its an investment--timing is everything. The more I am motivated by flipping it the more important timing would be.

Monk

But the trick is buying when the 20 year cycle is at bottom. Anybody who invested in stocks in 1999 and holds them until 2019 will probably not be breaking even.

G Sharp

Good point, I guess Buffett protects himself against these swings by 1) buying over a long period of time [cost averaging] 2) buying blue chips and asset-heavy issues like insurance wholesalers and reinsurers 3) buying blue chips.

evildick

That is what I am doing. I just bought 8 acres out in the country and I am building a new house, hopefully early next year.

I'll be stuck there for good, and I like it. I'm done with this business of moving every 5 years.

The only downfall is there is no high speed internet yet, but that should come sometime in the next two years. I'll probably go with satellite until it does come.

I'm going to put up gates and make it look like a compound, maybe stockpile some firearms.

G Sharp

EvilD,

I just saw a government impound auction for some 10 acres in WY that is currently priced at less than $800 There's no K after that 800... just eight hundred bucks! Its a tax lien seizure sale.

If they had high speed DSL there, I might think about it. Nothing like the open space and nature...

here's the link:
http://www.governmentauction.com/auction/buyerf.html

Pornwolf

Yes, NY and the desireable areas of Florida are an entirely different world real estate wise. Will property continue to double every 5 or 6 years maybe not but any real estate person will tell you that buying in these areas and in the high class areas in L.A. will ALWAYS appreciate better than other parts of the country. Always. If you are judging from another market you cannot equate what's going on in your neck of the woods with this.

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KCat

Interesting thread. I've been planning to use my p0rn money to buy condos, rent them out & let the renters pay my mortgages. So far I just have the one I live in & one other, but housing prices have risen so much in the last 3 years I've been hesitant to buy more.

Since I plan on keeping each property 20+ years, I wonder if it's worthwhile to keep buying now or wait until prices go down a little.

Anyone have any good real estate market links?

minifly

I woudn't think that buying and renting would be so easy to do anymore unless you got some nice cash to drop on a down payment you would most likely be paying on top of what they pay you.

G Sharp

Definitely have to factor in additional costs:

water
garbage removal
maintenance
property taxes
mortage insurance
gardening


I looked at that avenue as well, buying an apartment complex has advantages [self liquidating, lots of tax relief] but has its downside as well [see fees above, plus active management].

Brad Mitchell

It's a buyers market now, cash is king. If you have it, use it to your advantage and swing a hell of a real estate deal. Rates are super low and you can bet they won't be if/when the market gets better.

Brad

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evildick

I have a friend who's a real estate broker that used to do the 'buy properties then rent them out' thing, but he quit.

He also talked me out of it.

I guess it depends on where you live, but his main beef was the problem of dealing with tenants and actually collecting the rent.

It sounds great, buy a house then have renters pay your mortgage, but when you start getting calls at 2 in the morning because someone's furnace pilot light blew out....fuck that.
Or you get the "Sorry, I'll have your rent check to you next week."

He swears there is money in buying cheap, slightly run-down properties, fixing them up yourself, and making a tidy profit on the sale.

UncleJimmy

EXACTLY!

So, now while everyone is busy inflating RE prices, I'd think it would be smarter to be buying all that STOCK that is "ON SALE" right now

If it's a good solid company, in a good solid industry or one that seems to have nothing to do but grow and mature, I'd go for it...

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FATPad

Based on the S&P 500 (which is a fair representation of the market), since 1926 there has never been a 15 year or 20 year cycle where stocks lost money or broke even. They always gained over those time periods. Over a 10 year rolling period, there is a 3% chance of losing money.

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Monk

The only comparable markets to what is currently going in today's stock market are possibly the current Nikkei Index and the 1929 stock market crash. The current stock market meltdown is obviously of epic proportions.

The Nikkei has been in a decline for 12 years and is still trending down. How long before it comes out of its bear market... let alone return to its previous highs?? No doubt in my mind that it will be more than 20 years total to get back the losses there.

The 1929 crash took 25 years before the market returned to its pre-crash level.

The housing bubble was not quite as euphoric and manic as the stock market bubble (maybe) but will likely take a long time to crash and recover as well.

mpegposter

I'm buying up land in rural N. Dakota to turn into hydrogen pumping stations!

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DrGuile

Lol, funny coincidence, I just bought a nice 2+1 condo in the Montreal metro area

prices are still very decent around here. and seems likely they will adjust (up) to Toronto prices (much higher).

with the low prices and this being a home and not just an investment, seemed like a pretty safe bet!

btw, to everyone in those crazy priced area, the condo I just bought is built in 1990, 2 bedrooms, a mezzanine with a skylight and a fireplace. About 10 minutes from downtown.

.....


.....

132,500! (down from the 140k asking price)

btw, I was reading the wsj article, and it said in some region, ALL home went for asking price or above..... thats just insane, unheard of around here...

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goBigtime

The late 90's brought on a lot of "firsts" for the stock market, what other times other than obvious (Black Friday - 1929) has the stock market had as much gain as we have had (or anywhere near), followed by almost the same loss during a few years time span?

There isn't a historical financial scenario that compares to what we have just went through, what we are still going through for that matter.

DrGuile

Looks like you broke the thead ;p

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G Sharp

You're right about the last part--there are a lot of new trends with the economy that we haven't seen in the past 50 years...there's even talk of deflation.

Deflation is big in Japan right now, responsible for back to back GDP shrinkage for most of the 90s. Then again, everything was inflated [read REAL ESTATE] in Japan for most of the 80's. I sure as hell hope that that does not happen in the US.

FATPad

You already answered it. 1929.

It's not a first if it's happened before.

*shrugs*

The names change, the prices change, the fundamental theory that the stock market as a whole always goes up given the right timeframe does not as does the concept of not putting money you need in a few years or less into the stock market because no one knows when it will crash.

People can chase their tails in the dark trying to time the market bottoms and market highs if they want. Matters not to me.

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G Sharp

Warren Buffet doesn't do Market Timing.... he just buys and holds. Takes a while to buy--studies the hell out of the company, then he buys.

I guess the results speak for itself. I knew a guy back in college who bought Berkshire A shares when they were only in the 4 digits.

FATPad

I didn't say he did market timing...I actually didn't say anything about Buffet...

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KCat

So far I've only bought one other place & it's a condo so things like garbage removal, gardening & maintenance are all taken care of by the condo board. The rent isn't too high so I don't make extra income from it, but the renters are helping me to build equity.

If I can eventually have 10 places, even if I have to shell out a couple hundred dollars for each of them every month, I'll still end up owning 10 properties in the long run with very little investment, plus the one I live in.

I could probably earn more money if I bought houses, since their value tends to inflate more. But I think you're right...the hassle may not be worth it.