| We Could be in a Real Estate Bubble |
|
|
|
|
|
marotta
Senior Member
Cash: $ 81.84
Posts: 332
Joined: 19 Nov 2004
|
| We Could be in a Real Estate Bubble |
 |
|
We Could be in a Real Estate Bubble (2005-01-24)
by David & George Marotta
Real estate prices, especially residential, have been increasing for almost a decade. Real home prices have increased nearly 60% since 1996 – roughly triple that of previous housing booms in the late 1970s and 1980s. Home values may be peaking and ready to correct.
Read the complete column at http://www.emarotta.com/article.php?ID=109
David John Marotta
Marotta Asset Management, Inc.
Fee-only Financial Planning
http://www.emarotta.com
|
Thu Jan 27, 2005 4:21 pm |
|
|
Realtor1
Member
Cash: $ 2.95
Posts: 12
Joined: 25 Jan 2005
Location: Elizabethtown Kentucky
|
As a REALTOR for almost 10 years I agree. I personally think it will happen sooner than later.
Interest rates WILL go back up to 8-9 and possibly 10% range. Once that happens the people who can qualify for 300,000 house will now qualify for 200,000, same thing with middle america, the people buying 150,000 homes will only be able to buy 100,00 to 110,000 and the problem is going to be there wont be any inventory in that price range. Seller will be forced to sell for under what they paid in some cases.
Its going to be a crappy few years when this happens.
Rick
|
|
Thu Jan 27, 2005 5:52 pm |
|
|
freddmf
Member
Cash: $ 2.60
Posts: 16
Joined: 28 Jan 2005
Location: US
|
|
|
|
quote:
Originally posted by Realtor1
Interest rates WILL go back up to 8-9 and possibly 10% range. Once that happens the people who can qualify for 300,000 house will now qualify for 200,000,
--- snip ---
Its going to be a crappy few years when this happens.
Here is the flip side.
Even though the housing boom has been going on for many years, the size of homes has also gone from 1000 sq. ft. to 2000 sq. ft.
So, the cost of affordable housing has never been better -- and you get more bang for the buck.
Why would you think this trend would not continue???
Now, if you factor in interest rates, of course people can't afford as big a home -- my goodness -- have to buy a 1,700 sq. ft. home now instead of 3,100 sq. ft.!! rolol
I really don't see a pull back in the housing market. The reason housing prices are going up is because DEMAND is there. It's that simple. The population in the US is growing -- and as long as that continues you will see rising property values and prices.
In some areas the prices are growing at non-sustainable rates. Of course these markets will self correct over time but nation wide there are really not that many (mostly on the West and upper East coast).
In our area -- I believe they are building to many 3500 sq. ft. and above homes. I see a juicy opportunity the next 5 years to pick up a bigger home at a discount. You have to 'play' the markets. There is no one size fits all. If you see on the news there is a housing bubble -- just know that in many areas that's not the case. Either way - the population increase over TIME will fill these bigger homes and then expland again to meet demand.
The bottom line here is think of the SIZE of homes and demand. Demand is way up, size is way up. Even if things go bad with interest rates, we can just decrease the size a bit -- there will still be demand (of course there will be highs and lows but the long term trend is still up). Be sure to not get lost in the daily hype and scare stores --- it can really affect us all if we listen to much.
Fred
|
|
Sat Jan 29, 2005 5:08 am |
|
|
TripleNetCentral.com
New Member
Cash: $ 1.20
Posts: 6
Joined: 24 Feb 2005
|
I agree that both trends will continue...the rising of interest rates back to where they probably should be and the increasing size of houses. People will not settle for the size of a home they used to. Folks spend more and more time at home and require more and more space. As housing sizes increase, so do the costs -- but it is all relative. There are excellent deals in smaller housing stock but people are less interested.
Network with Real Estate Professionals Online
www.TripleNetCentral.com
|
|
Thu Feb 24, 2005 7:41 pm |
|
|
PaulEvans
First Time Poster
Cash: $ 0.20
Posts: 1
Joined: 23 Apr 2005
|
In my city we're seeing bubbles only in certain areas. Our historic homes are flattening out and the prices are not climbing.
However, in the new home divisions prices are climbing and lower priced homes in the area are being drawn along.
Have a GREAT day!
Paul
Investment Property Formula for Beginners
http://www.investmentpropertyformula.com
|
|
Sat Apr 23, 2005 10:18 pm |
|
|
GetRich
Member
Cash: $ 2.20
Posts: 10
Joined: 19 Jun 2005
|
quote:
Originally posted by Realtor1
Its going to be a crappy few years when this happens.
Maybe for some people, but I can't wait until this happens. I could make a killing when house prices drop and when people default on their mortgages. It would be a great time to buy.
|
|
Sun Jun 19, 2005 8:21 pm |
|
|
ThinkBig
Member
Cash: $ 1.56
Posts: 13
Joined: 01 Jun 2005
Location: Miami, Florida
|
|
|
|
Ive also been wondering about if we are infact in a "bubble" and if this bubble will soon burst. Now we cant argue the fact that the demand IS there, but, we need to also look at how these home buyers are acquiring the loans necessary for them to afford a home that in an ordinary case would be out of there budget....Over the last year I've been hearing about INTEREST ONLY LOANS as if they were a God send. Now I've always been skeptical of that type of loan because; first off, most of these loans are aquired without a fixed interest rate...<<dangerous>> then secondly, after years of paying a mortgage you still have no equity...SO, if infact we do reach a stage where housing prices start to decline what are these people going to do when there interest rate go up and they have to start paying the principle as well?... Their mortgages are going to, in most cases, double.
There was a very interesting article that came out in the sun-sentinal this past sunday that spoke about this exact situation.
http://www.sun-sentinel.com/business/local/sfl-sblending19jun19,1,5374282.story?ctrack=1&cset=true
Reach for the next galaxy, so if you fall short, you would of already reached the sky.
|
|
Tue Jun 21, 2005 4:37 pm |
|
|
yoander
Member
Cash: $ 3.67
Posts: 23
Joined: 23 Jan 2005
Location: phoenix
|
| I thought Interest only loans were good? |
|
|
Hello ThinkBig,
I thought that interest only loans were the way to go for the following reasons:
-maximaze your biggest tax write off
-maximaze your equity (if any at the time you refinance) instead of having it sit there in your property, you are having it work for you.
-Even if interest rates go up it will not affect the monthly payment by much.
-Cheapest money you will ever get your hands on.
Convert your gov't debt into real Money.
http://www.libertydollar.org/default.asp?REFERER=NRC20245
|
|
Wed Jun 22, 2005 1:26 am |
|
|
jlee1224
Full Member
Cash: $ 12.65
Posts: 63
Joined: 26 May 2005
Location: Baltimore
|
yoander -
Interest only loans are great if you think you will have increased income or wealth in the future. It's great for future doctors or lawyers or the like. It is not the cheapest money you will ever get your hands on. Maximizing tax write off is offset by having no equity in your home, and the increased risk (of prices falling/interest rates rising).
People take interst only loans because the lower payments enable them to buy a bigger house with less money down. They are running major risk when their payment goes up when they have to start paying principle, coupled with the risk of interest rates going up (variable rate loans are dangerous!).
|
|
Wed Jun 22, 2005 1:28 pm |
|
|
ThinkBig
Member
Cash: $ 1.56
Posts: 13
Joined: 01 Jun 2005
Location: Miami, Florida
|
yoander, you made some good points, but, as jlee said, most of these homebuyers are buying on the assumption that they are going to be making more money in the future. Now..if you were a disciplined individual you could infact make this loan work for you.
What you can do is instead of just paying your "cheap" mortgage you can take the money that you would of ordinarily have to pay towards the principle and invest that. So you"could"possibly come out on top at the end. BUT people are going into this type of situation playing it close. Buying a house that they could not normally afford; therefore they are not able to put any money aside. Now in a few years, when interest rates rise and they now have to start paying towards the priniciple, if they have not increased their income significantly..I will be buying some homes at really great prices in a few years.
Reach for the next galaxy, so if you fall short, you would of already reached the sky.
|
|
Wed Jun 22, 2005 3:57 pm |
|
|
efflandt
Senior Member
Cash: $ 80.45
Posts: 401
Joined: 25 Apr 2005
Location: Elgin, IL USA
|
Some things to consider.
With a variable rate (and/or initial teaser rate) a 1% gain in interest rates could cost you hundreds of dollars more per month. Hopefully the 80's will not repeat, when mortgage interest rates were so high that the bank offered me a discount if I could have paid off a 10% fixed interest land contract early.
If you buy a home beyond your means on an interest only loan, it may also come with a heafty (5-figure) property tax bill. So the equity gain may be reduced by property tax and insurance.
If your home is paid off by the time you retire, that much less money is needed for living expenses, and in a pinch, you could get a reverse mortgage.
|
|
Thu Jun 23, 2005 12:42 am |
|
|
MattL
Senior Member
Cash: $ 46.85
Posts: 234
Joined: 25 Jun 2005
|
We may be in a bubble, but lets not get a real esate bubble confused with a stock market bubble. With real estate we won't see a major decline like we do with the stock market. The real estate market usually just goes flat.
I think the trend over the next 10 years will be steadily increasing homes prices in coastal and other retirement/second home locations as boomers start to retire. The locations that they are coming from (inland, subarbs, etc.) will flatten out and stay that way for quite a while.
$$$ Debt Elimination
Software | Computers | Electronics
|
|
Sat Jun 25, 2005 8:16 pm |
|
|
KinHong
First Time Poster
Cash: $ 0.20
Posts: 1
Joined: 12 Jul 2005
Location: Washington
|
Agreed. It's all about principal, principal, principal.
If you keep doing what you're doing, you're going to keep getting what you're getting.
|
|
Wed Jul 13, 2005 4:59 am |
|
|
bigp
Member
Cash: $ 4.60
Posts: 22
Joined: 19 May 2005
|
Bubble or not, the way most of the richest people out there have made it is holding for the long term. This goes for stocks and real estate. Ignoring the minor fluctuations and watching the big picture is usually a good idea.
BiggerPockets.com
Real Estate Social Network | Real Estate Forums | Real Estate Blog
|
|
Wed Jul 13, 2005 5:54 am |
|
|
forexdaytrading
Full Member
Cash: $ 12.40
Posts: 71
Joined: 14 Jul 2005
Location: Miami, Florida, USA
|
| It's different this time...Famous last words |
|
|
There is a saying that goes something like, "Those who forget the past are doomed to repeat it." (paraphrasing)
It's funny; every time that a financial market has gone up for a prolonged period of time, people argue whether it should stop doing so or continue. Given the fact that every market is cyclical, logic dictates that the real estate market should decline or go flat line at some point. Even though I believe that it will drop sooner than later, most people disagree. That is pretty normal. It happened during 1999-2000 when most people defended the unrealistic valuation levels in the US stock market. Despite unrealistic and unsustainable price to earnings levels, stock market proponents argued that we were in a "New Economy," that interest rates were lower, that productivity was rising, that “this time was different.” In reality, people will always look for reasons to justify their desire to speculate in an overvalued market. Many times, the underlying reason why people don't want to sell is just "because it is going up!"
Here in South Florida speculation in real estate is rampant. Some sources claim that over 70% of condo buyers don't plan to live in their units. It's the "greater fool theory" in action. As long as there is a greater fool willing to pay a higher price, the market keeps going up; but whose usually the last fool standing?
What is happening with housing prices in Florida has been occurring in other parts of the United States, as well as in other global regions; South Africa, Hong Kong, Spain, France, New Zealand, Denmark, Sweden, China,..., and the list goes on and on. This is a global phenomenon folks. That's what makes it so scary.
What has led to this crazy surge in demand for real estate? Two of the primary factors are a prolonged low interest rate environment and a multi-year global disgust with the stock market; in other words, people don't know where else to put their money!
If we look at the ratio of real estate prices to rents (like a PE ratio for housing), we realize that we are at historically high levels. Investors all over the place are buying real estate knowing that the rental income won't even cover their mortgage payments. This is crazy! They are assuming a short-term loss on purpose with the hope that prices will keep going up at the rate they have been doing so. To make matters worse, many are getting adjustable rate mortgages or interest only loans to be able to buy even more properties. This is called "GREED" and when interest rates go up, many people will get slaughtered in a massive explosion of debt.
Prices don't even have to drop for all hell to break loose. If prices just level off we might begin to see a global real estate market correction. The reason is that many people have taken advantage of their lofty home valuation and low interest rates to borrow money "out" of their properties to spend on other things. If prices just level off, this increase in consumer spending will stop. People won't be so eager to take money out of their homes to spend after that. A slowdown in consumer spending can push the economy into recession and cause a further drop in property prices.
This is not science fiction folks. Even Warren Buffett has sold some of his properties and has publicly expressed his bearishness on the US real estate market. He even did so during the notorious Berkshire Hathaway annual meeting.
Even though no one knows exactly when prices will begin to fall, they have already begun to do so in some countries like Britain, Australia and the Netherlands. Once prices start falling, they can do so for multiple years, like has been happening in Japan and Germany (Japanese housing prices have been dropping for over 10 years in a row since their peak). There are many warning signs out there. Investors need to proceed with caution and take off the blinders that have helped the surge in real estate during this decade.
This time, is not different. It is never different.
|
|
Thu Jul 14, 2005 10:30 pm |
|
|
|
