Back in early 2000, I had a gentleman who said "I don't need no steenking financial advice". A year later he had lost (on paper) 55% of his investments and his holdings were lower than what he had originally paid...And he was not alone.

Just a cautionary tale. What goes up.......

But, as long as the individual holds on, it is just a paper loss...

Doubling the price of anything means little if one goes looking to trade for a similar item in a similar area. Our economy is quickly turning (turned) into one of indebtedness rather than equity. Also, if your home increased in value, say 30%, so did your neighbors, so the situation is actually unchanged unless you plan to move to a different part of the country.The real estate market is not the same across the country. Places like upstate New York for example, are experiencing decreases in sales prices in some areas. This is true across much of the other than metropolitan Northeast. As the ads say, "your experiences may vary".

Depends on where and when.

That's what we're going through. The gain in value looks great on the balance sheet, but it's not like you can buy stuff with the paper gains.

Ah, but you can - it's called 'leverage' and it's what has been keeping the economy going. Home value goes up $50k, take out a $50k HELOC and have yourself a shopping spree.

It's like a pyramid scheme, with each new layer hoping and praying that another one comes along under them.

But I'm allergic to debt.

America: Love it or Leave It!!! :)

I have a coworker that is married to a Korean gal, very nice couple. He plans to leave the states when he retires. If anybody knows about Korean families, the parents leave their estate to their children. His wife is well off with a house and a large sum of money.

He even had a traditional Korean wedding.

And this one time, at band camp...

Good advice people. Thanks. FWIW my credit is sort of iffy, but improving. I've been clean for at least two years now, paid off ALL my credit card debt, cancelled all of them and have not held one since (and won't). I'm convinced one can live without them. All I need is a check card or cash for everything. I DO have some crappy stuff in my history, but I'm actively working on cleaning that up by going through the reports and getting erroneous stuff purged off (I've done this with a couple of entries - BTW CHECK YOUR REPORTS! It is easier than you think for someone to screw up and put the wrong stuff on it!) and challenging other items to get them removed. My goal is that by the middle of this year I should have a reasonably clean history. My wife's is pretty good. I have no idea what her score is though and have to have her check.

Is it better to apply singly (i.e. if her score is way higher than mine, can she apply based on BOTH incomes) or jointly and does both peoples' scores factor in or not?

What do you Arizona real estate gurus think about Gilbert as an investment area?

I don't necessarily agree. People assumed the same thing back in the late 1980's and I (totally by accident) made a killing on my first real estate purchase as a result. I will never forget the looks on the sellers faces at the closing when the bank attorney handed them the note for the amount they owed after the sale. They lost 40%+ of the purchase price. So based on a 10% down payment, they lost $4 for every $1 they initially invested (not counting mortgage payments). Since then that property has done nothing but make me money. So there is nothing special about real estate.

So at present, I am sitting on a pile of cash and keeping my powder dry. My money is off the table until the market corrects. And I assume it will correct when interest rates rise. It isn't rocket science.

Now here is a question for you budding land barons. If you have an income producing property (for instance, a rental) and it is at least paying for itself, does it ever make sense to sell? Here is why I ask. If your goal is to cash out the equity, then why not just refi the property? That way you get to keep the rental income (plus any future appreciation on the property) and you can take the cash to invest elsewhere. In essence, you have "sold" the property to yourself while avoiding capital gains taxes, broker commissions, etc. Granted, after a certain point you can't continue to depreciate the property on your taxes, but I think that may be a small price to pay compared to the savings.

Any thoughts?

Cole, I believe einreb is tongue-in-check.

I read an article that advocates turning over your portfolio every 5-7 years. You extract all equity and trade-up or use the equity to pay off debt on keepers. A refi will only get you 80%. You're still leaving 10+% equity intact.

Porsche-O-Phile,
Absolving all of your debt is not necessarily a good thing. Most lenders look for your maturity to pay of any debts you accrue. That didn't sound right. Basically pay off your debts as you accrue them. I lay-mans terms (is that proper), do not charge more than you can pay off per each credit card statement...and make sure you pay it off that pay period.

:D

The japanese had a nice little run up in the 80's. Land was even tighter there... then an 80% drop. :rolleyes:

-Bernie

Well, I've been waiting for the bubble to burst for a LONG time here in LA. I figure I can't be wrong forever, so at this point...

It's said that the real estate market is 'local,' but some economists are predicting a 20% national drop, with much bigger drops (30-40%?) in the most overheated markets (like CA).

http://www.cepr.net

In L.A., about 10% of recently purchased homes are not occupied by the buyer now, so clearly there is an element of speculation. I think it's a lot worse in Vegas. Beyond that, I believe that there is a near-delusional mentality among buyers, who want to see real estate as a 'get rich quick' proposition -- a way to escape the middle class rat race. Well, we can't ALL get rich from real estate. The equation is self-limiting -- trees don't grow to the sky. I think the fat lady is about to sing on this one.

Here's another one for good measure

http://realtytimes.com/rtcpages/20050124_housingbubble.htm

Realty industry is the proverbial Ostrich with its head in the sand on this one, so if they are openly talking about local bubbles...

The only sure winners are RE agents making crazy commissions off of suckers right now. It hasn't been real hard to sell houses these last few years, and the numbers were nuts.

Article in Sunday's LA Times about mobile homes selling for ~$1M in Malibu now, and that's not including the land that they are on top of!! :eek:

Yeah, I'd say it's a little crazy. :rolleyes:

People have been making hundreds of thousands buying and then re-selling houses, (and mobile homes), 2 months later w/o making any improvements. That doesn't sound like a speculative market to anyone? Crazy. No relation to any financial reality, more akin to a religion or cult, which RE more closely resembles now. Unless you believe that it has just been horribly under-valued for ages and is racing to catch up. :rolleyes:

The economy in SoCal is almost completely propped-up by RE, when the re-fi boom ends there is going to be hell to pay.

The housing boom in Phoenix has a HUGE influence on the economy here: contracters, RE agents, Lowes/Home Depots, furniture retailers etc. I hate to see how PHX is going to be hit if/when the bubble bursts....

Well the multi-billion dollar question is "will it keep going up or will it pop?" I've heard good arguments for both positions. I personally think it's overvalued (greatly) and will pop, but I tend to be a pessimist at times so this might just be that shining through. It's possible that we are at the crossroads of our future. The middle class has finally had their backs pushed up against the wall to the point where there's no longer any "wiggle room". Either you buy now or you and your descendents will never be able to afford it. Prices of houses could very well top $1M on AVERAGE in five years at this rate. In "hot" areas like L.A., SFO, NY, the northeast, etc. it could easily be higher. And these are averages. You're talking half a million or more for a starter home. The only way people will be able to afford even the down payments is through an equity lending from their parents as a wedding present or a trust fund or something. It is simply unsustainable otherwise. This is what worries me - what does the young twenty-something right out of college do that has a less-than-good credit history, a lousy Mc-Job (which is all kids are getting now), and like everyone else, wants to get married and start a family in 5-10 years? Ain't going to happen the way things are going.

Bad credit and a lousy Mc-Job a homeowner does not make. Maybe when their parents expire and the kids inherit the house?

Like Wayne said, it will be the sea of ARM holders out there that will cause the "bubble" to burst. In areas of high demand that bubble will be smaller than what some of you predict, or perhaps secretly hope. To really mess things up we just need another "big event" from our terrorist friends to completely destroy the economy.

HA! That's what I get for posting when I'm home sick with the flu (smack hand against forehead). Now I need to go take some more Nyquil and ponder whether or not pro wrestling is really fixed and why the headlights on NASCAR cars never seem to shine. Sorry about that. Too much medication. Or as Roseanne Rosannadanna would say...

Nevermind.SmileWavy

Dunno... I agree California is overvalued on the whole, which is why I moved to FL.. But anyway, real estate is all about location. A nice property with a nice view in a nice area will not go down. EVER... If you're waiting on a 50% drop on those, you'll wait a while!

Also, lots of people complain that it takes a 1/2 million to buy a house. Just move ! Plenty of 2000 sqft home for $70K to $120K in the rest of the country. No view, no tofu, not so many IT jobs, but hey...

Thing is, I wonder if the bubble will burst or just burp a bit and prices will stabilize instead. Too many peole and organizations have too much vested in this to allow the market to drop, govt included. Thnk the govt will let freddic mac collapse? Plus the impact on the economy would be terrible. Sure, if it happens you can buy something at 1/2 price but who's to say by then you'll still have a job ?

so I for one hope it calms down but remains where it's at... I'm cashing in on my house now, and will buy somethign smaller, more fixer upper to repeat the profits or at worst lock in my past increase.

Hmmm, we built our 2850 under roof home last year for under $100K. Antique wood floors, custom plan, 8' island, granite countertops, custom cabinets, 3 bedrooms, 3 bathrooms... Of course, we can see no where from there. Just sold my old 3/1 house for $22,000.

i am in my first home, so basically i am still on some learning curve. so when this bubble explodes, is the bubble multileveled? i mean, does the most expensive homes take the first hit? i picture the folks with the multimillion homes that overextended, will need to sell and buy a cheaper home right? does this float the value of the smaller, affordable housing? can the big houses act as the "canary"?

i see california differently. there are crazy amounts of people living here. with the crowds they have to find homes, and they have to buy things right? as long as the crowds stay, i think homes will still sell.

History does not support that. In the early 90s in CA, there was a 20% drop in RE value pretty much across the board. The most dangerous thing in investing is to think 'this time it's different.'

Even if the prices only 'level off,' one has to ask if it's a sound financial investment to have all you cash tied up in a very expensive home (as many are doing now) for years, paying (higher) interest on an asset which is not appreciating.

Time will tell. I just do the common sense appraisal. The house I saw three years ago at 500K is now one million? (true in L.A. area). What has fundamentally changed that has made the house DOUBLE in value in such a short time? Incomes have doubled? (no) Population up? Immigration of wealthy people? (no. new L.A. immigrants are low income). The only thing that has changed is interest rates, and public perception. Those are both on the move.

I'm no expert, but I think that it's logical to think that the home which have appreciated the most also standsto drop the most. In L.A., it's middle income homes which have appreciated most in value. So, ....

VERY few people can afford home above 1.5-2 million. There's not as much demand, and so the most expensive homes have NOT gone up as much. But speculation HAS driven 'average' homes up to silly prices. When you take away the speculation and the low interest rates, average homes are still... AVERAGE!

I recall similar words re: the stock market in 1999.

There are so many variables affecting the RE market. Anyone who speaks in absolutes is either a fool or unknown genius. Want to wager on the fool to genius ratio? ;)

Wayne's comment regarding long-term vs. short-term mortgage rates should be considered heavily. Consider a scenario where long-term 30 year rates increase from 5.5% to 6.5%. The monthly payment is 11.5% higher. To qualify for this mortgage, your monthly income would need to increase by 34.5% (for 33% debt-income ratio), or 23% (for 50% debt-income ratio). So, if housing is overvalued, then higher interest rates crimp affordability even further.

The best we can do is analyze the variables and market conditions and predict how people will react.

Sure, homes will still sell, but at what price?

Da. What changed in the last 5 years to make CA real estate so good? I can understand Vegas real estate going up (everybody wants to be like tabs) :D, but otherwise, nothing has changed except lending regs and rates.

vash, one more thought

As long as you are in a home that you like and plan on staying in for the long haul (I think 10 yrs or more in the current environment), and as long as you have a fixed interest rate and are not paying too high a percentage of your income towards the home, you will probably STILL come out ahead even if the 'bubble' pops.

The problem is, there are a lot of people who have stretched their finances to buy a bigger place than they need, and financed with ARMs or interest only mortgages in the hopes of rapidly generating wealth. And the banks are writing loans they would NEVER have approved a few years ago. I think it's potentially a VERY volatile situation.

A home can and should be an important PART of most financial plans, and it is after all worth paying for a nice place to live. But homes are not a risk-free method of printing money. History has shown this, and unless something has fundamentally changed, it will repeat itself.

All just my opinion, of course, based on watching the RE market for too long.

>A nice property with a nice view in a nice area will not go down. EVER...
--------------------------------------------------------------------------------
>History does not support that. In the early 90s in CA, there was a 20% drop in RE

Well, we're nitpicking here, but I think history is on the side of good locations with good views. There may be rare cases of overvalued homes (idiot buyer) droping, or ncie ones which temporarily lose a bit in a big bubble bursting situation, but I betcha they'll return to their prices faster than the rest. If you can wait 2 years, it never happened! Location, location, location... A 4 Mil house in Tiburon with view on the SFO bay will not sell for 2 mil, ever !!! A 1Mil dump in the silicon valley might, but my point is good locations will not go down "historically", over the years... I agree with most of what's been said, there are some crazy pricesout there, but in most cases they are up there because the market will bear it... High demand, scarce offer!

It all comes down to preference though. . . Personally I'd rather rent in paradise than own in a dump. "Dump" to qualify constitutes any area where (1) I can't walk down the street 24/7 without concern over getting mugged, (2) Anywhere with snow more than once every 25 years, (3) pretty much any "red" state (some exceptions), (4) Anywhere that Nascar is more popular than baseball, etc. Unless a REALLY good opportunity falls into my lap, I'm staying put.

El Toro sold to Lennar homes
 

Lennar won the bid for the former El Toro base in Orange with $1.02B. Story says that comes to $1.2M per developable acre despite concerns about possible "contaminated" soils.

Union Tribute Article

Intersting listing of 99 cities re: real estate prices and whether thay are overvalued or undervalued:

http://sev.prnewswire.com/banking-financial-services/20050210/clth0180022005-1.html

a few examples:

Chico Cal: 43% overvalued
Tucson AZ dead center
Rochester NY 13% undervalued

link isn't working

Try again..

http://sev.prnewswire.com/banking-financial-services/20050210/clth01810022005-1.html

Don't know why it truncated the frst time

It did it again.....

Just go as far as the word banking and search within the sight.

I know I typed the whole thing in...

Wayne?

House prices over here in the UK are mental. in the last ten years house prices have more than trebbled. you don't know how lucky you usa lot are, the houses/land that you get for your dollars are unreal. Im in the south east (dearest area) and I bought a three bed flat in 99 for £59000. I just sold it for £190000. yes thats right £190000. yeah we went right through it, new kitchen bathroom electrical plumbing decoration etc but £190000?? mental.


Andy

The article linked by Moneyguy1:
Real Estate Study Finds Growing Risk of Housing 'Bubblettes'

Lot's of conflicting data out there. Here's a more bullish forecast:

http://money.cnn.com/pf/features/lists/topzipcodes/index.html

That info is from CSW, pretty much in bed with the mortgage industry. Kind of like asking a diamond broker where the price of diamonds is going. There's just no rational reason why real estate will continue to appreciate, especially in CA. But that doesn't mean it can't rise for a while more. Sooner or later the bubble will pop. It's not 'if,' but 'when.'