So if there really is a housing bubble then how do you profit from it?
 

The stock market bubble's bursting was predicted for some time. Of course it happened. Everyone has a story of what they should have done to protect their gains. It's easy to think of how much money we all could have made had we shorted just about any tech stock.

Now there's talk of the real estate market bubble. Many experts say it's only a matter of time before it goes. Short of selling my house and moving my family into rental property, is there any way to protect ourselves? Our house has almost doubled in value since we moved to Phoenix six years ago.

Are there other ways to profit if/when housing prices start to decline?

You only capitalize on the gain OR loss when you sell. So, if you're planning to sit tight for a while, lock in your mortgage at the lowest rates.

If the equity in your home is the only asset with which to play, I would do nothing else. If you do have cash, and want to really bet on the bubble, you could always short builder stocks.

Go back in time 5 years, buy a property, then sell it today :)

There's nothing to really 'protect' yourself from unless you consider your home some sort of short-term investment, or you're greatly over-leveraged

Lee,

I am very bullish on the Phoenix market. I think its still undervalued. DR Horton is finalizing 35,000 new permits for the Maricopa area. I think the good times will end some day in Phoenix, but that some day (in my humble opinion) is still at least a year away. My advice: pull out $30k in equity from your home and buy a new home from a builder. Sit on it for several months (don't rent it). Then sell it. There's risk, for sure. But the upside potential is very good.

Maybe you can short a REIT?

So you have half of the people hoping the bubble bursts now and the other half hoping it holds on for a few more months. Each is waiting for the other to blink first.

Pigs get fed. Hogs get slaughtered...

Lee,
.
Since I have been sitting on well over $1 million in equity for the past 6 - 7 yrs., and only have a $400k equity line of credit in case of emergencies, I'll defer to the courageous RE folks/smart money managers to answer you.
.
But what about getting a healthy equity line of credit, then when/if the bubble burst hits hard enough, you do what you can to scoop up a foreclosure or two, and rent them out? Perhaps even to the previous owners. :D
.
A buddy of mine in Sacramento has done *well* buying/selling foreclosures for the past 30 yrs. (He thinks I've been financially irresponsible to not have been doing the same)

Don - That's a great strategy. If you can be in a position to make long-term investments when the market is at or near its low, you will be looking very good down the road.

I agree with Motion. I'm piling up cash (and setting up low interest equity lines) with the intention of buying land at bargain prices when the market over-corrects. Unless you plan to sell right now and realize the gains of the inflated market, I think stockpiling cash and buying after the crash is the best way to "time" a market when you expect it to fall. At least, that is what I plan to do. YMMV

The predictibility of stupidity can never be underestimated!

Ok while the Housing bubble bursts every other investment class is going to be doing NOTHING? RE as an investment exists in a vacume....When the Dot Coms crashed what took off in value? When RE corrects what is going to being going up in value...

I just fking love how everybody is so myopic on these Boards....RE, RE, RE as if thats the only thing under the sun...

Don't you boyz get it...everything is a 5 to 7 year business cycle...RE has been moving up since 98....ummmm ...OH thats 7 years....isn't it?

Greenspan has been moving interest rates up to do what....to stop the irrational exuberence in the RE market....and he will continue to do that until it does...

U really want to know something....there have even been conversations among players that the Fed works these business cycles on purpose....Oh but thats a whole different level of abstraction...

So you boyz go and set up your low rate interest lines of credit....so that you'll be ready to move on those low RE prices in say.... the middle of 2010.....

So tabs, give us your hot stock picks.

Do a little research. There are many ways to "short" the real estate market. Some of them are not so obvious. One obvious way is to short the stocks of the home builders. Some people beleive they are as high-flyin' as the Internet stocks of years gone by.

E-bay...MMM, MOT and COP

Short Toll Brothers

Just stop perceiving that you will lose money if your house goes down in value (it starts by perceiving that you gained nothing while it went up).

Of course, this won't help you "profit" from the housing bubble, but unless you have regeared to the eyeballs, I'm not sure what protection you need.

Yup, yup. Take the purchase price of six years ago and add 3% per year if you're conservative and 5% per year if you're aggressive. Best case, your house is worth 27.6% more and conservatively, 15.9% gain. Again, you aren't losing or gaining unless you sell.

Very good point. I just ran a balance sheet a few days ago and updated the value of the house to reflect recent sales in our neighborhood, so the there is definitely a perception of a significant gain!

The market is insane hete in FL right now. I own 2 condos on the water and the values have doubled in the last year. Does anyone think there is a bubble in the SW FL market? It seems like its never going to end.

There is no bubble in SW Florida. 100% appreciation over 12 months is perfectly normal. :rolleyes:

Was reading this yesterday:
.
~~~
.
The California effect
Flush with equity, Californians are driving up home prices in markets outside the Golden State.
March 10, 2005: 11:37 AM EST
.
http://money.cnn.com/2005/03/08/real_estate/thursday_california/index.htm
~~~
.
NEW YORK (CNN/Money) - Real estate: If it is a bubble, and it bursts, how at risk are you?
.
http://money.cnn.com/2004/12/16/real_estate/buying_selling/thursday_price_volatility/
.
~~~
.
Top housing markets - Fourth-quarter numbers are in. See how your town stacks up.
.
http://money.cnn.com/pf/features/lists/nar_4q/
.
~~~
.
Watch out for these three risky real estate moves.
.
http://money.cnn.com/2005/03/07/real_estate/financing/riskyloans/index.htm
.
~~~
.
Cheapest, priciest & fairest markets
.
http://money.cnn.com/2005/02/17/real_estate/buying_selling/thursday_theoverundermarkets/index.htm
.
~~~
.
Are you living in a bubble?
Study ranks 99 housing markets as over, under and fair valued.
.
http://money.cnn.com/pf/features/lists/home_valuations/
.
~~~
.
Quiz on Friday. :D

Yes, that is a good example. Toll is one of the flag bearers of the overvalued home builder stocks. One might say the equivalent of a "Yahoo" of the tech stocks if you will pardon the grim analogy. If you believe that the real estate market is heading for a correction then this stock is sure to take a major tumble.

Any comments on Fannie Mae/Freddie Mac traded on the NYSE? Stock to short sell? After all, if there is even a minor blip in RE, it will result in higher foreclosures.

Gee witty retort there turbo6bar. There is a difference between a bubble and a boom. I think that the market here has just caught up with the east coast of FL market.

I wasn't witty. I was smart-aleck. What's the difference between a boom and a bubble, and what factors depressed the RE market on the SW FL coast? Don't tell me SW FL is so desireable and they aren't making any more land. Why is the frenzy NOW as opposed to five or ten years ago? Seriously.
Jurgen

Where do you live turbo?

Hmm, seems like a pretty safe bet.

http://data.moneycentral.msn.com/scr...D3=0&D5=0&E1=0

While I'm among those happy longterm homeowners who's equity has skyrocketed in recent years, there is a horrible downside that I'm seeing everywhere.

Land values escalate to the point that the local par 3 golf course and driving range sells out and the local fruit and vegetable stands that were surrounded by 5-10 acres of farmland are almost gone completely. Hundreds of trees are leveled, acres of grass are bulldozed and for what? So contractors can build more damn homes, condos and asphalt byways. Like we aren't congested enough already.

Who wants to sell corn or buckets of golf balls, when you can just hand it over for millions? The cash is just too enticing and I don't blame them for selling out, but it's our loss. Those little oasis' never come back once they're gone.

Here in LV ....surrounded by a sea of sand....developed land sells for 700K an acre....that means builders are now building 3 story home on 3800 sqft lots....menaing 9 to 10 homes per acre whereas the lot size is now 8600 sq ft or 5 homes to the acre...

They are now talking that there are going to be more $3M custom homes built because of the cost of land....Sotherybys Reality is now coming to LV...right now what is considered to be a Luxury home starts at 1M....

Fannie just hit 8 yr lows. I wish I had the testicles to short FNM back in March/April. :)

Data Point: The house next to mine is a three family. It was sold to an investor a few months back for an outrageous amount of $$ (well over $300k) even though the roof was trashed and the house needed lots of repairs.

The new buyer then evicted all of the tenants, blew tons of cash on fixing the roof etc and put it on the market as three individual condos for well over $100k each.

But it didn't sell. No offers. Nada. I was amazed. It has been years since I'd seen a house that would not sell.

Anyway, with three empty apartments and no bids, the investor was losing money daily and so gave up on the condo idea. He is now offering the empty house as a three family. With the amount he paid for purchase and the cost of renovation, I doubt he will be able to make his money back. Real estate has slowed considerably in my area since the peak. I see "For Sale" signs all over town and they seem to have a very long shelf life. Inventory is high and the flippers are in real danger.

So there ya go - the first casualty of the bubble...

Actually, "flippers" have been protected from their own bad judgement (paying too much for fixers/investing too much in rehab) by a rising market.

Now, there are a lot of flippers who think they are geniuses, and they are skating on the bubble. Some are so confident that they have 2-3 properties they are working on. It's a house of cards for those folks.

The TV show "Property Ladder" is a perfect example of the old JD Rockefeller maxim that once everyone knows about an opportunity, it's been gone for a while...

One show had a couple in Texas buying a nice looking 3bd house in the suburbs for $117K and trying to flip it at $140K(?) and having trouble. Another had a woman in L.A. buying a disaster of a house across from a freeway for over $400K and trying to flip it for $600K+ -- and she was successful(!)

Watching this housing market and the opportunists exploiting it is kinda like watching a NASCAR event where two more lug nuts are removed at every pit stop...

ROFL!

I've always said NASCAR should move to centerlock rims...

My father retired years ago and lives in Bradenton, Florida.

About two years ago he bought a lot, flipped and made some money. Now he is doing this as if it were a full time job.

He buys lots and flips them. Or he buys lots and builds starter homes on them, then sells them.

Of course the market has gone through the roof over the past 24 months and there are few cheap lots...but he believes that there is more money to be made.

From what I understand, the taxes advantages with this kind of "job" are great. You just pay capital gains.

Of course this only works so long as there are new people coming into the market to fuel the demand and drive up the prices. He seems to think there is still money to be made. I hope he's right.

The area where he is buying and selling is called "North Port" and "Port Charlotte."

Apparently years ago North Port was broken up into building lots. Thousands of them. They were sold to people in the North east as building sites for retirement homes. This never happened and for years the lots were empty. Over time demand increased.

When my father got into the market he did all kinds of research using county records and the internet (for example Charlotte county has an excellent GIS system online, you can zoom into an individual lot. http://www.ccgis.com/)

He found the names of the owners of the lots and then sent hundreds of letters to owners in the north east offering to the buy the lots. He would then buy low and sell high. Of course everyone has caught on to the game and lots that sold for $5000 are now selling for $40000. And everyone seems to think (or hope) that they'll go even higher. Who knows, there is a risk involved. I wish I knew enough about how it all works, I'd like to get a piece of the action too!

Will the babyboomers in the North move to Florida to run out the clock in warmer weather, thus driving home sales for the foreseeable future? Will northerners flee high tax states to go to Florida?

I would not short TOL- The price per sq ft. is very competitive in the regional markets, and they are innovative thinkers. Just bought a Trump property in Atlantic City.

Actually if the IRS determines that he is doing it "as a full time job"...he would have to pay the much higher rate of income taxes on any gains...as opposed to the lowly 15% capital gains tax...he would also probably have to pay interest on the amount he had not been paying...as well as fines.

Whatever. I don't think 3 or 4 deals a year would make the cut. Most of the time he's reading the MLS and looking at property maps, nothing illegal about that.

actually, it probably would. You'll be surprised at what the IRS will believe.

It isn't reason that matters to them.

rjp

You guys know more than I do. I'll have to ask him again about the tax questions. Maybe at this point the taxes paid are different. I know the properties are held for more than a year before they are sold. Anyway the original question was how to make a profit in real estate, the market in Florida for lots and homes might be a place to make some money before the bubble bursts.

I do not think that the RE market will pop like the dot com; prices will stabilize and higher end homes will generally experience a greater decline than lower priced homes.

My reasoning...
-Homes are not as liquid as stocks, i could not sell a home in 2 mins like i could stock.
-Homes are not created on hype, there is intrinsic value in land and structures.
-People will still need to live somewhere.
-Financial institutions that made high risk/levereaged loans will feel the biggest pains.

How to profit?
As mentioned by others, lock in your equity at low long term rates and invest it in other instruments/markets that are not as pressurized.

alf