Posted by Ben (oh) on December 20, 2002 at 06:52:27:
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Are We In A Real Estate Bubble? - Posted by A.W.
Posted by A.W. on December 19, 2002 at 08:30:24:
Some Commentary on the current state of affairs.
I sincerely hope that the real estate is doing better
for you than the stock market has been to most folks
these past several years. Perhaps herein lie some
insights for you to use to adjust your business plan.
-
“A survey of 1,103 households with individual
retirement accounts, 401(k), pension and stock
investments,” reads the first article in
Newsday.com, “found that 77 percent had lost
money in the stock market over the past two years.”
The piece goes on to report 34% said they had
postponed vacations, and another 30% had already
postponed a major purchase this year. -
“Among stock owners aged 50 to 70 years old who
have lost money in the stock market,” says USAToday,
quoting a study done by the AARP, “about 20% have
already postponed retirement as a result of their
losses. Among retirees who’ve lost money in the
stock market since March 2000, 3% have returned to
work.” Also according to the study, 15% of workers
aged 40 to 59 say they’ve saved nothing at all for
retirement…and another 27% have saved only
$10,000 or less. -
Yet, reports another McPaper piece (as Doug Casey
so fondly calls the newspaper), investors fearful
of stock market losses “may be committing the cardinal
investment sin”: expecting real estate gains to continue
the blistering 29% price increase they have over the
last five years. One investor profiled maintained 75%
of his assets in stocks in 2000, against 25% in real
estate. This year, he’s dumped everything into a half-
million dollar home in the Bay Area - the priciest
market in the U.S. He no longer saves. -
What of the 100,000+ jobs lost in the Bay Area as
the tech industry has fallen apart? "I felt great
about [the choice], "the investor says. So far, he’s
been right: Silicon Valley real estate shot up 25%
in 2000; a measly 5% in 2001; and what looks like a
healthy 12% this year. How long will the trend
continue? we’re tempted to ask…(if only to spread
our reputation as a stock market sour puss to the
real estate market). -
Well, let’s consult history for some insight.
“Concerning real estate,” continues Dr. Faber,
“it is very common for prices to continue to rise
for some time after a stock market bubble has
burst…it is not particularly unusual then that
the U.S. real estate market has stayed buoyant over
the last 18 months [or more] even though the stock
market has performed poorly. But although real
estate prices can stay strong for some time after
a bubble bursts, as money shifts from liquid assets
in to real assets, in due course, some kind of bubble
also occurs in real estate. Property, in the absence
of a strong stock market, becomes the only game in
town.” -
Thus, New Century’s big announcement…according
to Yahoo! Finance, thanks to New Century’s “new
proprietary Web-based loan underwriting engine”,
you can get a mortgage loan approved in 12 seconds
(or less, the marketing voice in me wants to tack on…). -
Forthwith we have a few suggestions for programmers
at CNBC. Maria Bartiromo, as you may or may not know,
made a name for herself during the bubble years
covering high-flying tech companies for the bubble
channel. Now it seems poor Maria’s ratings are down
42% since August. Gulp. Perhaps recast Maria B. -
formerly known to male investors as the Money Honey -
as the Mortgage Mama, or the Reine of Reits? Perhaps
those titles would prop up her sagging ratings through
another bubble period…?
Cheers,
Addison Wiggin
Re: Are We In A Real Estate Bubble? - Posted by Ben (OH)
Posted by Ben (OH) on December 20, 2002 at 07:02:10:
If you feel there is a bubble then alter your investment strategy. For example, we invest half of our portfolio in subsidized housing. If RE valuations decline a bit the income will not be affected, thereby having little effect on the performance of the investment.
I find it difficult to make an argument for or against a bubble. It is a question that if asked by leading economists to answer I am sure the opinions would vary greatly. Above all listen to Greenspan. He is on record stating that declines in real estate are rare and short lived.
I suppose if 100% home ownership is possible then the market is prone to correction simply because the demand is weaker. But this is but one of many factors.
Remember that many wealthy people have achieved success in RE for generations, regardless of gyrations in the market.
Re: Are We In A Real Estate Bubble? - Posted by Tray Giddens, Houston
Posted by Tray Giddens, Houston on December 19, 2002 at 23:08:56:
god only made so much land. nuff said…
Tray Giddens, Houston, TX
www.hudsandvas.com
Re: Are We In A Real Estate Bubble? - Posted by Mike
Posted by Mike on December 19, 2002 at 16:38:18:
One can’t compare the most overvalued stock market in history and the subsequent secular bear market we’re in to a tangible investment like real estate. Most folks will just sit on their houses and ride a soft economy out. There’s also the whole supply and demand issue. Where I live the demand for housing close in to the city will never ever wane because we have a strict urban growth boundary.
I can see real estate softening in some markets, and probably areas where McMansions popped up en mass, but blanket statements about a bubble hitting the entire country will probably be proven wrong.
With that said, I am focusing on foreclosures for good reason. Picking up houses at a 20-30% discount is a pretty safe way to play the current real estate market regardless of whether or not we’re in a massive bubble IMO.
Re: Are We In A Real Estate Bubble? - Posted by Real Estate Timer
Posted by Real Estate Timer on December 19, 2002 at 10:56:19:
Mr. Addison -
Regarding your well-written commentary, I have read your market insights for many years and have great respect for you.
Whether you are correct or incorrect in your analysis of the economy and market, you always raise important questions that should be factored into intelligent decision-making.
Knowing your “mission” is to prepare your readers (and clients) for changes in the markets (both good and bad), I would like to send you a complimentary copy of my newly released book Timing the Real Estate Market. I believe you will find it very interesting.
By the way, I have tried to email you privately several times with the above offer; however, because your organization is so large, I am not sure my emails ever reach you personally. Maybe this response to your discussion board posting will be more effective.
Even if you post infrequently on the CREOnline discussion board, I believe everyone could benefit from your comments.
Best wishes, Mr. Addison.
Robert Campbell
Of course we are! - Posted by Eric - GA
Posted by Eric - GA on December 19, 2002 at 09:28:53:
Of course we’re in a real estate bubble! We have been since 1776. This stuff just keeps going up!! And if you really want to know if we’re in a real estate bubble, ask any stock broker. After all, real estate is their specialty???
Demand Can Slacken - Posted by Sean
Posted by Sean on December 20, 2002 at 09:45:40:
Sorry to ‘burst your bubble’ (sorry, couldn’t resist) but it is entirely possible for demand to wane even with a strict urban growth boundary.
Imagine a place with no vacancy. A married couple, hoping for a child, are living in a two-bedroom. Two unmarried adults each living in a one-bedroom. Hard times hit. The married couple moves into one of the one-bedrooms while both of the unmarried adults become roommates in the two-bedroom. From 0% vacancy to 33% vacancy overnight.
When times get hard people may start to rent out unused rooms. College students stay with parents instead of moving into apartments. The demand for the same supply of housing drops.