Going Up! Real estate prices - where does it end... does it matter?

[Moneyguy1]

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.

[LeeH]

Originally posted by Moneyguy1
Doubling the price of anything means little if one goes looking to trade for a similar item in a similar area.

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.

[widebody911]

Originally posted by LeeH
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.

[LeeH]

But I'm allergic to debt.

[widebody911]

Originally posted by LeeH
But I'm allergic to debt.

America: Love it or Leave It!!!

[666]

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.

[widebody911]

And this one time, at band camp...

[Porsche-O-Phile]

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?

[Spede]

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

[Wrecked944]

Originally posted by einreb
This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.

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?

[turbo6bar]

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.

[chapstic2001]

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.

[einreb]

Originally posted by turbo6bar
Cole, I believe einreb is tongue-in-check.

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

-Bernie

[grudk]

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.

[grudk]

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...

[speeder]

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!!

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

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.

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.

[KNS]

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....

[Porsche-O-Phile]

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.

[JavaBrewer]

Originally posted by Porsche-O-Phile
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?

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.

[Wrecked944]

Originally posted by turbo6bar
Cole, I believe einreb is tongue-in-check.

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.