Re: Real Estate Bubble Stories - Posted by Frank Chin
Posted by Frank Chin on September 15, 2005 at 07:44:59:
Bubbles come and go. If you’ve been in REI for over 20 years, like myself, and other veterans here, like Dave Krulac among others, you would’ve gone thru the last one.
I invest mainly in small multi’s in NYC. Around 1980, a small 2FH can be had for 110K. By 1983, it was 150K, when I actually bought one, and up to 360K by 1986.
And as adamant as many on this board points to interest rates vs. housing prices, from 1980 to 1986, rates ran as high as 18%, peaking around 1983. Even so, prices skyrocketed. And I got started around 1981 with my first condo. It wasn’t till the tax reform of 1986 limiting tax deductions that pricked the bubble.
The downturn started in 1986 when prices no longer escalated each year, dropping to the bottom around 1992-1993. By then, I gone to auctions every week. At the bottom, no one wants to buy, and I’ve gone to auctions where I was the only one showing up, and the autioneer ask “can I get a bid from you, or should I leave now”??
Prices of 2FH that peaked at 360K in 1986 actually dropped to a mere 275K by 1992. The nice thing about down markets is that most “buy and hold” investors simply sit on the sidelines. I was one of those. And this prevents crashes that occurs in the stock market.
BUT if you buy right, you’ll never lose in the down market. I bought carefully and paid 150K to 190K for properties in the early '80’s and they never dropped below 250K to 275K at the bottem.
In fact, I started buying in the early 90’s again when no one else wanted to buy. Why?? Many people expected the market to drop some more. This is the opposite of the peak market when everyone expects things to go up some more and jumps on the bandwagon.
As an exapmle, a 2FH with a FMV of 290K in 1993, is bought as an REO for 227K. Everyone said “you’re crazy, it’ll go down”.
By 1997, prices stabilzied, and its back up to the mid 300’s, and in the current BUBBLE, zoomed to 850K. I got to fasten my seat belts.
Do you think I’m going to worry that it’ll drop to 650K??, even 500K. I really don’t care. Locked in on a below 6% fixed rate mortgage, and the place cash flows nicely with a 230K mortgage. Let them raise the interest rates. What I have to do in down markets is to make sure my property taxes are reduced, along with the price of the house, as it happened in the last down market.
I say, “let the bubble burst”