Re: Crash or No Crash, buyers or sellers market - Posted by Rich
Posted by Rich on March 25, 2006 at 11:27:34:
This is very true. One of the factors fueling the price increases is investor money. I have friends who sold 10 houses in Phoenix last summer. All were multiple offers over asking price on the first day the properties were listed. Not one offer came from an owner occupant. Much of the money used by my investor friends to buy Real Estate came from the surviving stock investments after the dot com bust. When stocks are down, the money flees to Real Estate.
However, as prices rise, returns drop because buyers become more scarce. As interest rates go up, the great multiplier of leaverage drops off as well. There are several markets I’ve identified that are far below the national Median, so that if the median drops these markets still have room to grow before hitting the more national limiters of interest rates and competition from other investments.
I live in No. CA and invest in Phoenix (among others). This summer we hit the wall on price and the current sales in my own neighborhood are as much as $40K below what the summer had (that’s only a 5% drop at local market prices). In Phoenix we hit a partial wall for prices above the upper 200s. DOM extended to60 and more days. In the middle of that I sold a house in 2 weeks in the lower $200s. Just means that the market price and asking prices have a bit of a gap.
I think what people need to watch for is changes in economic conditions, bother overall (this affects lenders) and locally. For example you can get low priced houses in Detroit, but the market is a dog. Highly taxed and regulated areas get downturns first because taxes and regulations take money out of the market that could be used to bid higher prices. Hostile local governments send builders elsewhere. For example, we live near Berkeley, one of the most owner hostiole places in the country. There is a severe housing shortage there as many places go vacant rather than put up with the anti-landlord government. Up the freeway in Richmond there is an apartment boom, because the local government treats owners more like people.
Even in a particular area, the market varies from town to town. I think what we need to take away from the warnings of doom is that it is foolish to COUNT ON appreciation in the future just because it happened in the past. I worked in the industry that collapsed when the doit com bubble burst. I watched $1 million dollar homes sell for half that. Many of my friends and family members lost more than they invested with the crash. ANY market can crash, so do your homework and hedge your bets. Do not believe the salespeople who’s next commission depends on a fast sale at a higher price.