Posted by Bill Gatten on May 10, 1999 at 17:12:04:
You’ve found your compatriot. I agree.
I’ve screamed for years that a house is only “worth” what it costs to build it or one like it: the rest is only the fluff caused by the de-neutralization of Supply and Demand.
When people stop buying, the prices can only drop to a level a little above the actual price of nails, sheeting, windowpanes, concrete and shingles. The lower they go, the less it pays to build. At the point where the cost of building a new one, or buying a used one gets close, the builders get out and wait until the general inventory is depleted and the profit potential is more obvious. When the supply is grossly diminised and economic forces begin to dictate good profits for builders, they’re back in until the next point of over supply. Then, once again, movement and prices head back down the proveriable “tube.”.
However, when this phenomena synchronizes with a corresponding relative down-turn in the national or local economy, the problems are exacerbated, and you get what California got in 1990 and what Texas got in the late 80’s (only now beginning to rectify here in California). If the two contributing factors are not coincidental, [creative] real estate investing is seldom seriously impaired for long… it’s when the Recession and the Over-Supply occur simultaneously and feed each other that the “frappe hits the fan belt (so to speak)”
Essentially it’s a matter of “…shouting and waiving it about and everyone else wanting one…(as it were).” When those unwilling to take the risks, start hopping in on the backs of the intreped and sturdily successful, the latter is forced out and the market heads south and stays there until the real entrepreneurs decide its time to get back in the game, despite of (or because of) the down-turn itself. Demand and prices are thus driven back up, richly rewarding those “foolish people” who continued buying (or building) at a time when there was just no chance for appreciation. Then the cycle begins again.
I clearly recall an old gentleman in a Real Estate office here in the L.A. area, about three years ago, folding his arms in front of him during a presentation I was giving, and refusing to sign up for our seminar. “Because,” he loudly insisted, “…the days of real estate appreciation are OVERWITH–not only in California, but everywhere else too–and folks better d… well get it through their selfish thick skulls that free lunches don’t last forever.”
Thanks so much for your response for my plea for help in finding the hot and cold spots across the country. 'Really appreciate it.
I’ve thanked each of the other posts (so far) by private e-mail.