Quote:
Originally posted by Penske_Account
I have a line on the first, cheap property that for a variety of specific reasons will appreciate well beyond the market for the next 5 years no matter what I do.
I have a sort of line on a combo of 2-3. Awesome commercial property. Next door to recently rehabbed commercial district that is now trendy. This is the next block that will go but it is still priced with a premium to be realized.
I have considered residential on the first cheap property, but I could always hold and just make 20% a year on my money.
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This article might interest you.
My Tower of Bubble
Deciphering the babble about imminent collapse
by Carol Lloyd, special to SF Gate
Friday, June 24, 2005
Carol Lloyd
Surreal Estate
Lately, bubble babble has intensified from background noise to a veritable roar of warnings from experts and everyone else who still has two disinterested neurons they can rub together.
Even though most people probably haven't endorsed The Economist's recent declaration that this is the "biggest bubble in history" or UCLA Anderson Forecast's prediction that the inevitable pop will send the economy into a recession, it appears that all the bubble talk is giving Mo and Mary Mortgage some heartburn.
Last week, Hitwise, an "online competitive intelligence service," noted that among major search engines such as Google, Yahoo! and MSN Search, searches on "real estate bubble" and "housing bubble" skyrocketed 311 percent and 174 percent respectively compared to the prior week.
Though the "experts" (a.k.a. industry whores) may still talk about how Fed Chairman Alan Greenspan's choice of the word froth to characterize the real estate market could be construed as "effervescence," even many insiders are finally relenting and suggesting that the writing is on the drywall.
On Monday, for example, The Wall Street Journal reported on Fannie Mae's presentation to the National Association of Home Builders, which warned of regional crashes within the United States. Because the most bubbly markets are also the most populous ones, and therefore make up such a large share of the total market, any local busts could have national implications.
It may not happen next week or even the next year, and it may not happen in a flash from Zeus' bolt in a 20 percent tumble, but the evidence is undeniable: Many real estate markets around the globe are being driven to the precipice the way a drunk 14-year-old video game addict might drive a Humvee on Devil's Slide: It's an accident waiting to happen.
Here are but a few of the salient facts that now have made the global real estate market more surreal than ever.
Mortgage Gambling
A record number of people -- more than 70 percent in the Bay Area in 2004 and 31 percent nationwide -- are buying real estate with interest-only adjustable loans. What's more scary, mortgage lenders have successfully sold many home buyers on "negative amortization" loans -- in which home owners pay less than the interest due and therefore go deeper into debt every year.
According to Fitch Ratings, loans with negative amortization accounted for 5 percent of the nation's home loans in 2004. With the rising popularity of real estate roulette, The New York Times recently reported that in 2007, about 12 percent of the nation's mortgage debt will adjust, most likely upward. This trend could have a significant impact on not only those people with skyrocketing mortgage payments but also their neighbors who have banked on their home providing them with a retirement nest egg.
Only in the Snob Belt?
It's long been noted by all but the most blinkered boosters that in coastal areas with a high percentage of affluent residents and cultural attractions that have seen the most appreciation, prices are overinflated. But now there are signs that the disease clusters are spreading into a nationwide epidemic. Last week, The Las Vegas Review-Journal reported that the price of an acre of land in the Las Vegas Valley rose 55 percent, from $274,200 to $423,800, driven by new-construction condo fever and a perception that land is, uh, limited.
Such prices, however, are actually misleadingly low. During this quarter, the U.S. Bureau of Land Management sold a 1,700-acre parcel for $289,000, greatly bringing down the average. Excluding this transaction, the average price per acre of raw desert land is around $511,000.
And, according to an article in U.S. News and World Report, Mississippi, one of the nation's poorest states, is experiencing a boom in the coastal areas as a flood of condo developers flee from overpriced Florida markets. And according to the Billings, Mont., Billings Gazette, real estate agents are experiencing a "busy" time. In the last month, the average cost of a new or existing home in town shot up 10 percent, to $170,000. In the last year, homes appreciated 21 percent.
But Those in the Know Are Still Bullish, Right?
Well, not all of them. Douglas Duncan, chief economist for the Mortgage Bankers Association, announced in a May 28 article in the Los Angeles Times that he is getting out of real estate. "I'm going to rent for a while," he reportedly said, explaining that he would sell his suburban Washington home and move into an apartment. The newspaper also profiled Mark A.R. Kleiman, a professor of public policy at the UCLA School of Public Affairs, who sold his 2,700-square-foot, four-bedroom home on Mulholland Drive and leased a two-bedroom apartment in Brentwood to wait out the madness.
It's a Real Mad World
If all this number crunching only lulls you to sleep, it's important to take note of the joyful inanity that often accompanies businesses predicated on get-rich-quick schemes and the simultaneous attempt to institutionalize their idiocy. Condo developers from Miami to Los Angeles have been wooing investors with massive carnivalesque parties and fancy sales offices in their unfinished developments. Why? Because flipping -- buying and quickly selling homes or condos for a profit -- isn't only for acrobats or high-risk entrepreneurs anymore.
Once, flipping was a relatively unusual way to make money in the real estate market. Even people who used that term in the early days of the strategy typically remodeled the place. But now that the prices for unbuilt condos are rising so quickly that holding a property for only a few days can mean a profit, every two-bit investor is getting into the act. Recently, the practice has become popular in steamy markets such as Florida as investors buy preconstruction condos, then sell them when they are finished for absurdly jacked-up prices.
Now, flippers even have their own dedicated real estate company dedicated to their interests: Condoflip.com (patent pending), "where buyers, flippers, brokers and developers come together." The Miami-based company, which will take a third-party cut of any transactions, plans to open franchises in eight cities, including Los Angeles, Las Vegas, Dallas and New York.
Pssssss
Even as the band of giddy idiots dances deep into the night, some already hear the whispers of leakage -- both here and abroad. Last week, The Boston Globe reported that in Middlesex County, foreclosure filings leaped 34 percent in the first five months of this year over the same period in 2004 and that in 10 out of 14 counties in Massachusetts, foreclosures rates have risen. In addition, Housing Bubble, a blog dedicated to all thing bubblicious, noted that, according to a Las Vegas real estate Web site that enables searches of reduced listings, 6.9 percent of the Multiple Listing Service's 16,346 listings had their prices reduced last week.
On the other side of the planet, the signs are less subtle. In Australia, where house prices have soared 56 percent in the past three years, The Age reported that in Victoria, median house prices have already dropped 4.9 percent, to $352,000, compared to the first quarter of last year. For many observers, this figure may sound mild, but for those who bought at the top of the market, it could represent 50 percent of their equity. And in Shanghai, where prices have skyrocketed in recent years, local media reported that prices for some new developments dropped by one-fifth almost overnight after China instated new taxes to cool the overheated market.
So, what's my recommendation? Don't panic. In fact, don't give this article another thought. And, pleeease, don't do anything -- because here's the pisser: Even as I write this, I'm in escrow on a house I can't afford. And I know I'm not alone. The logic of a bubble defies even those who know better. I'm not trying to make money; I just want to break even -- and I am convinced I'm going to be different, that, actually, I got a good deal, a deal that if I waited only a few months, I really wouldn't be able to afford. In the face of a future with narrowing job opportunities and gutted Social Security, home owners such as myself have placed their faith in real estate as insurance from a penniless dotage. No matter how much I read, how much I know, it still feels infinitely safer than many other options.
A reader of the blog The Housing Bubble 2 put it well: "A house addiction, you know it isn't good for you, but you still do it, freaking weird."
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