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Bubble bursting???

Discussion in 'Real Estate' started by skier, Jun 17, 2005.

  1. skier

    skier Beach Lover

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    In response to Bob on property flippers thread--

    I hope you aren't betting your life savings on the up, up and up theory. I agree wth pg0178. The demographiscs and prices and inventory don't add up to any more growth. In fact, all the signs point to a nasty fall. Any historical runup in stocks, real estate, bonds, gold, silver, etc. like the current runup in real estate has ALWAYS historically ended in a crash. If you own property, but your life, net worth and living don't depend on these high prices, you will be fine. But, watch out if you're betting the farm.

    The market in SoWal isn't just frothy, there is "irrational exuberance" abounding with all of those that don't see the warning signs staring them in the face.

    Within 12 months, come back and read these posts by us pessimists (I believe most of us on the pessimistic side are trained financial professionals). I hope you can call me chicken little at that time, but I wouldn't bet on it. 100% appreciation over the course of a year of two is not reasonable. Those that have been in for a couple of years should be okay. those that got in the last 12 to 18 months will get slaughtered if they were counting on flipping at a profit and they don't have the staying power to hold the property (or in the case of some of the developments, heaven forbid that must build a house within 2 to 3 years of purchase).

    I remember having these exact same conversations with the stock market Bulls in 1999. They were sure the model had changed forever and that the old ways of looking at the market were no longer valid. They laughed at me for putting my money in money market funds. they weren't laughing in 2000/2001. And, look at the market since the crash. It's basicaly been flat for 5 years. Look at Japan. Stagnant for 20 years after huge runups in real estate and then a crash. The current runup looks too good to be true--so it probably is.

    All that said, I still love my home in SoWal.

    good luck.
     
  2. FoX

    FoX Beach Fanatic

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    I read this in your other post. You must be doubly pessimistic.


    As a financial professional, tell me how much value real estate in SoWal is going to lose in the next 8.5 months?
     
  3. Buckhead Rick

    Buckhead Rick Beach Lover

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    Keep it up Skier, there is nothing like a good panic attack and front page stories in the press to make me feel the real estate market is still fine.

    This market had its roots in the 1930's. the children of the depression were the world greatest savers, and they are now making the greatest wealth transfer in history to me (actually to other baby boomers, my Mom and Dad didn't have much), as they die and those baby boomers believe in the Mark Twain quote of " it is not the return ON my money, it is the return OF my money" that I am concerned about. So they invest in T bills and (guess what) real estate.
    As I said many months ago, I know nothing about real esate, but as the first baby boomer I cannot think the market on second/retirement homes hit it's top BEFORE I hit 60.
    I love the smell of nap... make that panic in the morning. OK what movie is that from?
     
  4. Travel2Much

    Travel2Much Beach Lover

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    Hi there--I have been lurking here since after Ivan, but this is my first post. I bought a second house in SoWal last year, and so of course threads like this make me panic. For assorted reasons, I had to buy last year and since I was long term I figured that if I shopped wisely I could avoid the bubble. So, I bought a relatively inexpensive house in the Seacrest area (outrageously expensive by my standards, but inexpensive by SoWal standards), avoided condos, and avoided particularly any property by St. Joe, where there is clearly an outrageous bubble. I still don't know who pays 2.0 million for a "beach house" that is nearly a mile from the beach.
     
  5. kurt

    kurt Admin Staff Member

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    :welcome:


    Long term investing is very relaxing.
     
  6. BrettMan

    BrettMan Beach Comber

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    Well said Kurt. That's exactly why I'm switching from a short-term to a long-term view. You have to adjust your style with market conditions and it's definitely time to start thinking long term. From that perspective, nothing on 30-A is a bad deal - even at today's prices - because if you plan on living in it, or renting it (and you can handle any negative cash flow as an investment) over the long term, you'll be in great shape.

    Long term being 10+ years...
     
  7. kurt

    kurt Admin Staff Member

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    Last year, long term in SoWal was 6-12 months. :shock:
     
  8. skier

    skier Beach Lover

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    Fox,

    I hope I am wrong on my predictions. To answer your question about falling prices, it depends on which prices you are talking about. Are you asking about the current prices people are asking and not getting or are you asking about the prices actually paid for property 6 months ago?

    I would say if the average home along 30A sold for $750k one year ago, I would bet that within 12 to 18 months the average price will be 20 to 40 percent less than that. For those in the higher end places like watercolor, seaside, etc., I would bet that those currently asking $1000 plus will not be aboe to sell for over $700 per square foot.

    Again, I hope I am wrong
     
  9. FoX

    FoX Beach Fanatic

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    Asking prices should be disregarded in a real analysis. As a financial services professional, I would imagine none of them are on your balance sheets.
     
  10. skier

    skier Beach Lover

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    Fox,

    If you will notice in my post, I mentioned that the price for homes actually purchased (ie: real cash changed hands if you don't understand that financial concept) 12 months ago will likely go down by 20 to 40% over the next 12 to 18 months. However, that will only be for those that choose to sell and convert back to cash (a difficult financial concept I know). For those that choose to hold after values fall, they might make their initial investment back in the long term. But, as seen in many previous bubble bursts (Japan, Houston, etc) it can take decades to recoup the initial investment.

    I did mention that for folks in the higher end communities "asking" prices will not be met and to sell, most will have to lower prices in the short term by 30% plus. Hope this helps explain my comments.

    You can argue all you like. Bottom line, no one knows for sure. we are all speculating aobut a bubble or a continued bull market. Time will tell. Lets chat again in 12 months. Hope you didn't invest your nest egg in the market over the last 12 months or so.
     
  11. Travel2Much

    Travel2Much Beach Lover

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    Forgive me for chiming in again, here, but I do not understand skier's logic. While I tend to feel there is a bubble going on (and do not have my life savings invested in SoWal), like everywhere in the country, I can't see why houses not in high end communities are predicted to drop 20-40% from LAST YEAR's actually selling prices, but those in high end communties might have to lower prices 30% from THIS YEAR's asking prices (which probably have gone up 40% from last year's asking prices), in the short term at that. There's this house at Seaside that goes up several hundred thousand dollars every quarter, from the advertisement.

    I would actually think it might be the other way around or at least equal, since few ordinary people, the bread and butter of real estate markets, can afford anything in the high end communities anymore, so that's where the major speculation by investors, realtors, and builders is. I came real close twice to buying in one of those, but since I was buying for real live personal use couldn't stomach having my neighbors be a limited liability company, a real estate development group, and a local realtor flipping the property. My neighbors/fellow owners in where I eventually bought appear to be real live human beings, and that makes me happy and cozy.

    That said, I shall shut up and return to my corner.
     
  12. SoWalSally

    SoWalSally Beach Fanatic

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    Travel - from the attempts at sarcasm in skier's post - me thinks there is either fear of loss at play, or bitterness from being on the outside. If I'm wrong, feel free to bash away.

    There are sensible people here I've been listening to for a long time. No one expected the rapid rise of prices to continue forever. "Irrational exuberance" is a tired phrase. Sure some people got caught up with dollar signs and wanted to cash in. And no doubt a few people might have made some questionable moves.

    Bubble is another term that is a little out of place in real estate. Bubble is associated with burst. In real estate, balloon might be a better word. As the balloon expands to a larger size, the market has to take a breath.

    No one here now is talking much about buying and flipping. They expect some asking prices to become more realistic, and sales prices to grow steadily. If prices were to dip a little in the short term, who's going to really care?
     
  13. Paula

    Paula Beach Fanatic

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    If one buys in SoWal as a quick investment, then this investment is as risky as any other quick investment and requires significant due diligence and the stomach and financial slack to ride whatever happens.

    As for me, I'm glad we bought our two little cottages not as investments but as places our family and friends can grow to love and spend time at over several decades. The investment has turned out to be excellent so far and having the rental income doesn't hurt at all. But, I don't know what I would do if I were thinking about SoWal as a short-term investment right now. I'd do a lot of homework first. But I suppose that's what people said 3 years ago, 2 years ago, 1 year ago. We bought our second cottage next door to our first cottage just a little over a year ago for about $65,000 more than we paid for pretty much the same thing 2 years ago. That hurt quite a bit at the time, but the pain has been relieved. It has done very well as an investment already even though we thought the price was high then. But, as with the first cottage, we bought it as a place to enjoy for a long time, so the short-term returns weren't important.

    Also, just as a suggestion, rather than buy one big place, it has worked out very well to have two small places next door to each other. If we ran into financial difficulty, we could sell one without losing our "home" in SoWal. If we come down there and don't need both cottages for family/friends, we can just use one and continue to rent out the other.
     
  14. OnMackBayou

    OnMackBayou Beach Lover

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    Gee, it really is easy to tell the haves, (not me) from the have nots (me). The fact that there is even a message board such as this with so many active contributors, and lurkers (again me) so hyped about the SoWal real estate market tells me one big thing. All of us reading this are also scouring the real estate sections every week, and we're looking on the internet to try and decipher a trend.

    I predict that at the first sign of a decrease there will be no shortage of buyers trying to get in on what they consider to be a good deal, and any fall in asking prices will be short lived. Too many people want to live here, for good reason. Where are they going to go? :idontno:
     
  15. kurt

    kurt Admin Staff Member

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    Good post!

    Don't be such a lurker. :lol:
     
  16. Georgian

    Georgian Beach Comber

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    Skier,
    To be successful in Real Estate you"ll have to forget everything you have read or learned from the equity markets including all those sound bites.

    When did California's bubble burst?

    On Your comment "Any runup in stocks, real estate,... has ALWAYS ended in a crash"

    Perhaps you should read more non-fiction. Or at least visit a different library.

    And when the Real Estate market did experience a period of slight decline or low growth where were the interest rates compared to where they are now?
     
  17. njackie

    njackie Beach Lover

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    This is a great response and thanks for educating others on the board as to this philosphy!
     
  18. beachmouse

    beachmouse Beach Fanatic

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    California had a serious real estate crash in the late 80s. It took some areas quite a while to regain pre-crash values.

    Florida had a major real estate crash during the Great Depression. If you look at the lending practices then and now, there are some interesting parallels. (though I think the market is in way better shape now than it was then)
     
  19. SHELLY

    SHELLY SoWal Insider

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    Does anyone think the present "unattractive" state of the SoWal beaches will slow the market down a bit (or result in price reductions by motivated sellers)?
     
  20. chrisv

    chrisv Beach Fanatic

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    I'd say it depends on what is "motivating" them.

    Florida also felt a hurtin' from the weak market in the 80's. Look, no locale is immune from a "bubble", but I'll put my waterfront up against any investment of any kind...
     

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