Housing bubble. This is just depressing to read - Posted by Mike

Posted by DoubleJ on May 02, 2006 at 13:41:54:

I know what you mean. Some people are taking risks and dont even realize it. Of course, their broker could explain that, but then he would be less likely to close.

On the opposite end of this spectrum you have the 30 year fixed guys who refinance every 2 years. They are simply flushing money down the toilet.

One thing I have learned is that there is a time and a place for any type of financing.

Housing bubble. This is just depressing to read - Posted by Mike

Posted by Mike on May 02, 2006 at 08:06:47:

Hi.

Lately, I’ve been logging onto “thehousingbubbleblog.com”. It’s their view of what they belive is the housing bubble bursting.

Personally, I’m all for a real estate slowdown. I think it’s healthy and needed. I’m not a subscriber to the bubble theory, but the articles that they post do make one wonder. They site many different articles and commentary throughout the country pointing to a real estate slowdown, terrible economic scenarios, historical comparisons to our present economic situation. All of which, according to the authors, put the U.S. real estate markets and credit markets on very thin ice.

Sometimes I think this bubble thing may truly be self-fulling. I mean if the media touts it enough and we have housing bubble sites that showcase the slowdown, the public will become scared to buy real estate.

Anyhow, I suppose this probably happens during every real estate downturn. The media reports slowing sales, bubble bursting reports, but in the end, I guess the market always adjusts and comes back. I just can’t help but wonder if this time it’s different.

Re: Housing bubble.??? - Posted by Phil

Posted by Phil on May 02, 2006 at 19:21:38:

Ask this guy if he thinks the is such a thing as a bubble?

http://www.forbes.com/lists/2006/10/98EF.html

The truth?? - Posted by Gene

Posted by Gene on May 02, 2006 at 13:12:23:

The thehousingbubbleblog.com is a great resource but it is very biased. Most of the folks that post on the blog are bitter renters that missed the boat and know want to see everyone elce lose everything.

At the same time, local realtors, NAR, and many guru’s are very biased on the other side. They want everyone to think everything is just peachy. Becuase they know if people dont think appreciation will continue, they will not buy houses/courses.

I think the truth is somewhere in the middle. Many markets are changing in HUGE ways right now. In most western cities and on both coasts…Inventory is climbing, sales are dropping, builders are starting to offer huge discounts (over 100k in many CA developments).

Is it the end of the world like the blog says…probably not. But is everything as great as the realtors and guru’s say…again…probably not.

Many investors also will defend that the market is not experienceing a bubble and are very closed minded about looking at all the avaiable info. I think it might be a insecurity issue. Or mabey they are just affraid of change.

Get in tune with your market. It is changing, don’t continue with your old habits. Buying at the top is not a smart move. I perfer to sell at the top and buy at the bottom.

I sold a few properties in CA last fall and now I am waiting for deals. I am looking for two types of deals right now…a cashflowing property (very hard to get in CA) or a property that I can flip right away. I don’t want to be holding the bag when the bottom drops out.

Bursting the Bubble Babble - Posted by John Behle

Posted by John Behle on May 02, 2006 at 11:55:21:

This topic was big a few months ago. The news media was predicting the end of the world - until something more interesting took up their time.

Most of those making predictions are NOT real estate experts or qualified to make the preditions they are. Most of the “positive” comments or true experts are ignored. News media likes hype, hoopla, gloom and doom. “Fair and Balanced” is just a slogan. There is NO SUCH THING in the news media. It is all about ratings. If more viewers turned in to hear how wonderful real estate was, that would be their story. The print what they are fed, they report on what their competitor reports on. One writer prints an article, another quotes it, another quotes both of them, then the news station reports on that.

Yes, there are some areas of the country and types of properties that are a little overpriced and may take some correction. Usually that is just flat sales and values for a while. Sometimes a temporary downturn in prices that lasts for a few years.

I spent a little more time on a response a few months ago when everyone was sure the sky was falling in the next few moments. Then all of a sudden the news had something more interesting and dropped the crash news. If it comes back now for a while, it’s just for ratings. The news media has ADD. They chase after shiny objects like a puppy then lose interest as fast as a child with new presents on Christmas. The only difference is the child or puppy may have more sophisticated analytical minds.

A few months back I wrote a more detailed response to someone’s question (and a little less sarcastic) that CREonline published in the articles the same time as she published Bronchick’s article. Read them both and it will help to see the full picture more than the hype on the media.

My article is at: http://www.creonline.com/articles/art-290.html

Re: Housing Bubble Articles - Way to Sell News - Posted by ErickaD

Posted by ErickaD on May 02, 2006 at 11:31:04:

I remember reading some old newspaper headlines from decades ago and they read the same as they read today, “The Housing Bubble is Going to Burst”. I had to chuckle, because, evidently, things don’t change - Same Housing Bubble News Stories by lazy news people, People Still Making Money in Real Estate and Real Estate Steadily Appreciating in Value.

ErickaD

Re: Housing bubble. So what. - Posted by DaveD (WI)

Posted by DaveD (WI) on May 02, 2006 at 10:57:46:

So, Mike, what’s your next move? Or, are you too afraid to do anything? You see, folks who obsess about bubbles and such things usually are indecisive and can’t / won’t act. Hope you aren’t one of those.

Those who do well in any endeavor find ways to make money regardless of which way the market moves. True in stocks, commodities, as well as real estate. You read the tea leaves, and adjust your moves accordingly.

Like Krulac, I was one of those guys who were just too dumb to know they shouldn’t be buying in the early 80’s. High rates, too many sellers, no buyers. Wish I would have just stuck to RE. The stocks tanked, I still own the RE.

So, you have identified a bubble. So what. What are you going to do about it? How will it positively or negatively affect Mike’s life?

Re: Housing bubble. Where? - Posted by John Corey

Posted by John Corey on May 02, 2006 at 10:09:41:

The US housing market as a whole as not seen a down year since WWII. There have definitely been areas that have seen massive changes in value (up and down). Some areas did ‘crash’ or otherwise have a nasty correction. For most people who continued to live in their home, drive to work and get on with their lives they did not recognize the change in value. Over the long term all they know is they made a profit.

Predictions of a bubble in Australia and the UK were announced some time ago. Both experienced a correction of sorts. Australia first and then the UK. The US market is further behind the other two (rise was later and the predicted fall is still to come). In both Australia and the UK there was no meltdown.

Bronchick explains why the bubble conversation is overblown. There is definitely specific markets or specific borrowers who are exposed or over stretched. Hence one person might crash and burn while the owner next door notices very little.

Employment levels, interest rates and the overall supply/demand drive prices.

In the condo market or Miami there is a glut of condos given the number of short term speculators compared to the number of people who are looking for a long term hold. There is an imbalance and the price are soft. In much of the Midwest (and TX?) there are people wondering how a bubble can burst when they are still trying to figure out why appreciation is under 3%-5% for the last few years.

Read Bronchick’s article.

Also understand that in the US the % of fixed rate mortgages is something like 45%. That number varies based on the market as the high priced coastal regions do have more ARMs and other solutions.

John Corey

PS. I am fine with a slow down or a more traditional rate of appreciation. Rapid appreciation prices people out of their own area in that they can not afford to move. It also wipes out the key workers (UK term for police, fire, nurses, teachers, etc) ability to live in the local area. Over enough time you hollow out the community’s ability to function if the income levels and the prices are too far apart. An investor in Naples FL says they are having problems there finding people to do the service jobs. A restaurant in HI was half closed because the could not afford the wait staff even though there were customers asking for a table. Prices rising in line with wages is a good thing.

depressing to read NOT - Posted by David Krulac

Posted by David Krulac on May 02, 2006 at 09:42:08:

I think that Bill Bronchick’s article was the best he’s ever written.

  1. National popular media is looking for stories to write. They will often focus on one small region or even a smaller segment of one region to support their view.

  2. All markets are not the same. In my market in Pa. its not the same as CA or CO. I’ve been investing here for 4 decades and we never had a dip in prices. There were plateaus, and there were many years where there was very low appreciation, but there was always growth.

Our market is different from NYC, and Washington DC, both of which are close by, but not within communiting distance.

  1. The higher your market went up over the last 5-8 years the further it can drop.

  2. Ca and coastal markets are different from midwest and steel belt. Pittsburg, CA is different from Pittsburg, KS and different from Pittsburgh, PA. Real estate in those 3 markets are different from day to night. For example Pgh, Pa. has lost 50% of its population over the last 50 years. The steel and coal industries are not what they once were. this has had a drastic effect on the general economy as well as the real estate economy. PA has the second largest number of retirees after FL. That has an effect on the real estate market.

  3. Rising energy costs and rising interest rate costs will have an effect on real estate markets. For every 1% increase in the mortgage rates there are 1 MILLION fewer qualified potential house buyers.

School buses don’t have fuel to run in TN. Meals on Wheels volunteers, many retirees themselves, can’t afford to drive and pay for the gas out of pocket. Some Meals and Wheels are considering weekly deliveries rather than daily.

Foreclosure rates are still way down in CA and way up in OH & IN. With national lenders the interest rates are essentially the same. Therefore rising mortgage interest rate at least alone are not the sole direct cause of foreclosures.

  1. I’ve written this before and probably will again. In my investing career 1981 was the worst year with mortgage interest rates in the 15-18% rate fixed for 30 years. 30 year T-bills were paying 15%. 50% of real estate agents dropped out of the business due to a drastic decrease in the volume of sales. People that didn’t have to move were staying put and sitting on the sidelines of real estate sales. Days on the market was often more than a year. I was still buying, though many others had stopped buying. Some of my best purchases were made during this time. There were few buyers, more sellers, and if a seller wanted to sell they had to be negotiable and flexable. In this conservative area, seller financing, seller seconds, seller closing costs help became common for the first time.
    Before that sellers would think you were from Mars and talking gibberish. I was looking to buy then, but wasn’t looking to sell. Adapting to the market conditions makes real estate investment possible in any market and in any time. Your real esttae toolbox needs multiple tools for different tasks, different markets, and different conditions. To a man with a hammer everything looks like a nail.

The Sky is NOT falling - Posted by dutch

Posted by dutch on May 02, 2006 at 08:15:48:

Read Bronchick’s treaty on this:

the sky is NOT falling. You just need to be prepared for rain.

Dutch
OKHomesavers

Re: Housing bubble.??? - Posted by Gene

Posted by Gene on May 03, 2006 at 11:05:12:

Sounds like a man that understands real estate.

The only clue as to his thoughts on the market is…“Lately a seller”…sounds like he is selling at the top also.

Buying a cashflowing [sic] property - Posted by John Corey

Posted by John Corey on May 09, 2006 at 08:58:04:

Gene,

Take a minute and spell out the logic of buying a property that has cash flow. In particular explain why you feel that buying a property that cash flows is a safe bet even if we are looking at a market top.

I am sort of playing the straight man so you can make a point about how cash flow is like insurance from a housing correction.

John Corey

Re: The truth?? - Posted by JohnK

Posted by JohnK on May 09, 2006 at 01:28:33:

“Buying at the top is not a smart move.”

Exactly!

Re: Bursting the Bubble Babble - Posted by DoubleJ

Posted by DoubleJ on May 02, 2006 at 12:58:00:

I am with you totally. Late last year I watched a CNBC special where analysts were telling people to sell their homes (ones they live in) and rent until prices dropped and buy low later down the road. I almost fell out of my chair!

Its clear that nobody in the media ever sat down and analyzed REI as a whole prior to making a blanket statements.

But fear mongering is their business, and business is good.

Re: Bursting the Bubble Babble - Posted by Gene

Posted by Gene on May 02, 2006 at 12:53:32:

I see it very diffrently. Most of the articles I read in the paper just interview realtors, which always say its a good time to buy.

I think the media has been spinning this as good as they can.

Many areas on both coasts are expereincing a HUGE correction right now. Inventory levels are up, sales are down, now prices are dropping. And all this before the loan crisis really starts effecting the market.

Its happening.

No big deal, I sold a lot of properties last fall at what now appears to be the top. I am ready to buy in a couple years.

Gene

Re: Housing bubble. So what. - Posted by JohnK

Posted by JohnK on May 09, 2006 at 01:17:47:

“Like Krulac, I was one of those guys who were just too dumb to know they shouldn’t be buying in the early 80’s. High rates, too many sellers, no buyers. Wish I would have just stuck to RE. The stocks tanked, I still own the RE.”

That’s because the early 80’s was a perfect time to buy- very low prices, but high interest rates- because you can always refinance at a lower interest rate, but keep this in mind: You can NEVER refinance a LOWER purchace price. Bargains in 2008. Can’t wait! :slight_smile:

Re: Housing bubble. Where? - Posted by JohnK

Posted by JohnK on May 09, 2006 at 01:10:12:

Real Estate has nowhere to go but down or flat from here. While, I’ll agree that an experienced rehabber can still make money in such a market, newbies have no place in it.

If you are a new investor, admit that you have missed the mark. You should have invested in 2002, 2003, the hot market. If you don’t have a well-oiled experienced rehab machine already in place, you will chase the market down and lose your shirt. I almost did that. :slight_smile:

Buy low, sell high. Sell at today’s prices before they go down even more.

Those who don’t study history are doomed to repeat it.

Naples FL - Service Jobs… - Posted by JT-IN

Posted by JT-IN on May 02, 2006 at 10:37:13:

John:

This has always amazed us about Naples. There hasn’t ever seemed to be a shortage of folks to go around in the past, but we always wondered how or why…? Also wondered where do these folks live, that work in Naples…?

You’ve got folks doing labor or unskilled jobs in restaurants, landscaping, grocery stores or any number of other jobs… when they go home, it sure isn’t anywhere near where they work. They must drive inland a number of miles to arrive at a place that is well out of site from Naples… there are some rental apts south of Naples and east of US 41, that seem to rent for 1K per month or more. No doubt groups of employees live there too.

The pipeline of US workers is low for this type of employee. We are certainly witnessing some historic times, viewing the TV of around the country, of the immigrants who are boycotting… I wonder when that will become the norm, rather than a one day event. I guess when the benefit in doing so is more plentiful than the offset of performing such work…

I guess we will stay tuned for more info on the subject.

JT-IN

Re: depressing to read NOT - Posted by Joe

Posted by Joe on May 02, 2006 at 14:34:43:

“6. I’ve written this before and probably will again. In my investing career 1981 was the worst year with mortgage interest rates in the 15-18% rate fixed for 30 years. 30 year T-bills were paying 15%. 50% of real estate agents dropped out of the business due to a drastic decrease in the volume of sales.”

This is interesting to think about. You’ve probably noticed that in today’s market, everyone and their brother and sister is in real estate. I was flipping through the TV one night and came across the intro to Wheel of Fortune (the game show) … 2 of the 3 contestants were real estate agents. And 1 of them was an asbolute moron. These people just move to and from the latest financial fad. They just jump on the gravy train with everyone else and let it flow. They provide nothing substantive to the field, but merely act as a cog in the wheel. A slow down every once in a while is a good thing for many other reasons, but also to weed out the overpopulated field of agents.

One nit - Posted by Mark (SDCA)

Posted by Mark (SDCA) on May 02, 2006 at 08:56:41:

The one thing that I do think Bill glossed over- at least in my market- was adjustable rate loans. Specifically, toxic waste products like option arms. As the market softens, I believe these people will REALLY get hurt. They won’t be able to refi or move. Yes, they are able to make the payments on their ARM loan NOW. But what happens when their payment goes up 40%?

Cheers,

Mark