Real Estate Supply

[SHELLY]

Here's my take on the real estate market

- If you're living in a home, and are not leveraged to the teeth, you're going to be just fine

- If you've owned a vacation/rental property for several years with a manageable mortgage and can handle the increased taxes, insurance and other carry costs, you're going to be just fine

- If you bought an investment property in the last year at sky-high prices with an exotic mortgage (leveraged to the hilt), figured on double-digit appreciation, and believe you will make a profit after carrying costs by renting it out, you're going to be severely disappointed.

- If you bought into pre-construction condos that will be complete in 2006/2007 and expect to flip them for a bunch of money--you're going to get screwed.

Areas with the highest and fastest appreciation will fall the fastest and the furthest (Florida condos come to mind). If you're looking for a homestead, I see no problems getting into the market now. Investment property is a whole different ballgame; the days of double digit appreciation and "flipping for fun and profit" are pretty much history. If the stock market takes off (like it did today), real estate will fall even faster as investors turn their back on and move out of real estate (whose illiquidity is a drag on one's portfolio). If you want to own more RE than your primary residence and a second home, there are other areas in the real estate game which are better investment plays than gambling on pre-construction condo flips (commercial or self-storage REITs come to mind).

Personally speaking, not a single one of my "boomer" friends, family, or acquaintances have expressed any desire to shell out $500,000+ to live in a 930sf concrete box in the middle of an SUV traffic jam.

 

[SHELLY]

I didn't even have to tune in to hear the world bubble. Gosh, I was discussing the bubble in the post office line this morning - and several times since then. All this talk, talk, talk is detrimental to real estate. One day, again, it won't dominate the news and each deal will be judged on its own merits instead of media slant.

IMO what the media is doing is trying to compensate for the screw-ups it made by hyping the dot-com frenzy. Economists back then were screaming "where's the fundamentals to back the soaring prices??!!" But the media just brushed them aside, saying it was "different this time" and "fundamentals don't count in this new age" and went right on their merry way inflating the tech bubble up to the breaking point and subsequent crash.

The media "bubble" hype is the antithesis of the realtors' "the boomers are coming" hype that created the current high, unsustainable real estate prices. The wise buyer will weigh both sides and see that the "right" price is somewhere in the middle--although realtors would prefer investors to have only one side of the story (that being the realtor's side).

Investors put a lot of blame on the media for the part they played in creating the tech bubble....as a result, the media is being overly cautious to avoid having their fingerprints on this train wreck.

 

[WiLe]

Personally speaking, not a single one of my "boomer" friends, family, or acquaintances have expressed any desire to shell out $500,000+ to live in a 930sf concrete box in the middle of an SUV traffic jam.

If you're talking about high rise beach condos, its really rare for people to "live" in them. I found that out way back in 1995 when I moved into my first condo fulltime and found out we were the only one living there in November. After about three months living there my wife grew tired of getting on the elevator every time the dog had to be let out. We traded the house straight even for a beach house (on the lagoon here). I paid $169,900 for that condo (pre in 1993) which at the time was a huge price to pay and I was told it was too high to ever make anything out of it.

I don't know who your boomer friends are but my booming buddies would dearly LOVE a condo on the beach.

 

[TooFarTampa]

One day, again, it won't dominate the news and each deal will be judged on its own merits instead of media slant.

I just don't see why it's so hard to judge an individual deal on its own merits. But I guess to some people it is. I have a friend who is about to buy her first home. She is 35 and about to spend 110K (not in Florida), and she is freaking out. I am trying to help her without being critical. It all boils down to: What are the comps? What is the market doing? Can I afford it comfortably? Will I need to sell anytime soon? Is the house in good shape? Etc.

This is not rocket science. Really it's not. But as SHELLY so quickly reminds us, there are people who do these things without thinking or worrying about fundamentals. Anyone who does is an idiot, IMO. Especially after the dot-com bust.

Reading is fundamental. Flipping is not!!

 

[WiLe]

IMO what the media is doing is trying to compensate for the screw-ups it made by hyping the dot-com frenzy. Economists back then were screaming "where's the fundamentals to back the soaring prices??!!" But the media just brushed them aside, saying it was "different this time" and "fundamentals don't count in this new age" and went right on their merry way inflating the tech bubble up to the breaking point and subsequent crash.

The media "bubble" hype is the antithesis of the realtors' "the boomers are coming" hype that created the current high, unsustainable real estate prices. The wise buyer will weigh both sides and see that the "right" price is somewhere in the middle--although realtors would prefer investors to have only one side of the story (that being the realtor's side).

Investors put a lot of blame on the media for the part they played in creating the tech bubble....as a result, the media is being overly cautious to avoid having their fingerprints on this train wreck.

I don't agree with your assessment. The media would have played the tech meltdown for all it was worth, if it hadn't have melted before they got around to exploiting it. By the time the media catches on to a "stock story" its an old story. That's not so with real estate because its illiquid and slow developing.

I will agree with you about weighing both sides, but prime real estate isn't a lot different from blue chip stocks, except that you can have more fun on the beach than reading your monthly brokerage report. Markets go up and markets go down. There's no absolute guarantees, but the odds are in favor of coastal property and odds are in favor that the migration towards the coasts will continue - at least as long as it still snows in Michigan.

 

[SHELLY]

I just don't see why it's so hard to judge an individual deal on its own merits. But I guess to some people it is. I have a friend who is about to buy her first home. She is 35 and about to spend 110K (not in Florida), and she is freaking out. I am trying to help her without being critical. It all boils down to: What are the comps? What is the market doing? Can I afford it comfortably? Will I need to sell anytime soon? Is the house in good shape?

The new way of thinking of one's "primary home" as an "investment" is the demon that haunts home ownership today. The "investment" tripe dished up by some in the RE and mortgage industry in an effort to keep bread on their tables would tend to freak any first-time buyer out. IMO being able to comfortably AFFORD the home (and all associated costs) and still have money left over to have a somewhat enjoyable life trumps many of the other arguments. Having peace of mind while living in a 900sf duplex sure beats sleepless nights and hiding from bill collectors in a 2300sf beach condo.

Keep trying to exorcise those "investment" demons out of her thinking when it comes to her primary residence. At the age of 35, getting into a piece of real estate she can afford with a low fixed mortgage is a good thing in any market.

 

[SHELLY]

prime real estate isn't a lot different from blue chip stocks, except that you can have more fun on the beach than reading your monthly brokerage report.

But the fun ends when you have to board up the windows, tear out the drenched carpeting and deal with insurance adjusters; or you can sit in your recliner, sipping a martini while reading the brokerage report--and if you want to go to the beach or anywhere else in the world, rent a place.

 

[SHELLY]

I don't know who your boomer friends are but my booming buddies would dearly LOVE a condo on the beach.

So what's stopping them from buying one??

 

[WiLe]

So what's stopping them from buying one??

Simple answer: Money.

The ones that have enough already own one or more. The ones that don't have enough dream of owning one.

Personally, I'm working towards having a condo in Colorado and JUST one or two somewhere here on the coast.

 

[WiLe]

But the fun ends when you have to board up the windows, tear out the drenched carpeting and deal with insurance adjusters; or you can sit in your recliner, sipping a martini while reading the brokerage report--and if you want to go to the beach or anywhere else in the world, rent a place.

Actually, all that's pretty easy to deal with in a condo. Just don't sit on the board. Its a house where you're on your own. Been there, done that.

You must own a lot of stocks. Anywhere in the world, huh - anytime you want to go? I've always wanted to see Hong Kong, the Great Wall of China, an around the world cruise and that's just the first couple months. So I can sell my real estate and travel till I'm dead.

Now if I run out of money before I'm dead, I'm going to blame you.