Posted by Ronald * Starr(in No CA) on September 09, 2003 at 09:55:39:
When the market is hot it is often hard to buy a property for a sensible price, especially on the MLS or from newspaper advertisements. To find a bargain price one has to learn how to buy the properties which are not publicly shown to be for sale. There are many bargain buying systems that increase the odds of getting a good deal efficiently. I recommend Jack Reed’s book on the topic “How to Buy Real Estate for at Least 20 % Below Market Value,” available at his www.johntreed.com website.
I am surprised when you say because there has been a hot market you are less sure of appreciation. I would say exactly the opposite. You can’t have much appreciation in cold market. High appreciation comes in the hot markets. If the market is hot now, I think presages appreciation in the near term. Of course, over a longer term, that could change.
I do not think anybody has deviced a model of how high houses “should” sell for. The market determines. People try to project increased values or slowing of values based on several statistical indicators–household formation, average family income, building starts, and perhaps a few more. I have seen no evidence that any of these models are accurate. The may be. I just don’t know that they are.
Here in the San Fran Bay Area, property prices have been rising smartly for something like 40 or 50 years. They have not always gone up, we have had our pauses and declines, such as in the mid-1990s depression here in CA. However, people all during that time have said “prices are too high, they can’t go higher.” You know what, they have. The area is a nice one in which to live: good climate, natural beauty, fine cultural and recreational opportunities, consumer goods from Gucci to Wal*Mart. Or even to Goodwill. It is a nice place to live. I think there is no place in the continental USA which has a better all year round climate than Coastal California, from Mendocino in the north to the Mexican border in the south. Maybe Hawaii is better. I don’t know. Anyway, we are in an area where the cheapest small, old ghetto properties sell for close to $200K. The better ghetto properties sell for a quarter of a million dollars.
So, you may have a hard time predicting property values where you are. Is the area growing in jobs and population? This produces more demand for housing, pushing toward higher prices. Are there any restrictions on building more properties? If so, there are pressures to push up prices. For instance in the Phoenix and Las Vegas areas there is a lot of flat vacant land and it is easy to build lots of more houses to feed the buying demand. So prices don’t go up much there. Where there are restrictions of bulding, either geographical or man-made, the prices go up because the supply cannot increase fast enough to meet the demand.
Good Investing***********Ron Starr****************