How low will real estate go?

msnbc.com ^ | 9-11-06 | Lacey Rose

[RightWhale]

The boom is just arriving in Alaska. We're always somewhat behind the times stylewise.

[Deo et Patria]

No, the game for long term real estate investing is to buy it if prices are reasonable and can be justified by the income you'll receive by renting it out. Make sure your mortgage and monthly costs are more than covered by the rent. Then let the renters do all the paying as your property appreciates over the years.

Fairly simple.

[HawaiianGecko]

Phoenix is a retirement area and sales will pick back up. The current problem, and I'm generalizing, is builders erecting homes faster than they can be sold. The area is still going to see a surge of retirement people in the next 20 years, but the builders have to pay interest on their notes and most of those notes, although relatively low, have balloon payments due within a year to 18 months. So they either refinance them at an added cost or dump them.

That dumping scares the daylights out of many regular owners who have to sell for whatever reason (transfer etc) , and they start dumping.  But in an area like Phoenix, those prices simply cannot keep falling. Real value comes into play when a home is selling for what it costs to replace it.  If I have a chance to purchase a home in an area with increasing population at cost, rather than a decent price of cost plus 20%, I'd be putting it on a list of things to buy as soon as the hysteria settles down.

Why ANYONE bought a home in a frenzied market is beyond my level of comprehension.

I agree with that. It's so easy to get a home builder to walk into a house and tell you what it would cost to build per square foot.  People will look at a lot of houses, but they will generally be appointed with the things they want to have and you can apply that $/ft figure to see if their is value in a home, priced right or over priced.

[Mr. Jeeves]

No, the game for long term real estate investing is to buy it if prices are reasonable and can be justified by the income you'll receive by renting it out. Make sure your mortgage and monthly costs are more than covered by the rent. Then let the renters do all the paying as your property appreciates over the years.

That's true. But for the longest time in California, rents have been running at just about half of the monthly mortgage costs. "Investors" have been buying like crazy, anyway.

[q_an_a]

a S. Calif. condo that sold for 150,000 in 1990 sold for 110,000 in 1994 but it is worth 500,000 today. The guy who bought in 94 is one happy guy. Things change but not much.

[stylin19a]

that's great for buyers.
what were the original purchase prices of those homes and when ?
wonder how much was paid by the last buyer of the 700k home ?

[old and tired]

Well, falling hah! where does this stuff happen. Not in my neighborhood

It's not happening in my neighborhood either, but I think it will soon happen in select overpriced neighborhoods like the Jersey shore. I'm a long time holder of some rental properties down there and I literally had flippers leaving me notes under my doors begging to buy. I did sell one, which I knew needed some structural repair - I sold it for at least 350k more than I'd have ever paid for it. Of course, I disclosed structural problems to the buyer.

Long story short, they've put in stainless steel appliances and granite countertops, did some slipshod repair to the structural and the thing's been on the market for over a year. It's listing for over a million. I really believe they'll have to take at least a 300k to 400k hit on my property by the time they sell that place.

[DCPatriot]

Anyone who purchased a property within the past fifteen months is screwed.

Anyone who purchased in 2004 has potentially made a killing...if they price their home now at 10% under the latest comparable SOLD property in their subdivision.

If they price it at the last comp...they will hear crickets chirping.

[stylin19a]

thanks...

[Deo et Patria]

That's their problem.

[truth_seeker]

"But now we should be saying, what goes up, must come down."

RE and stocks are long term investments. Both have gone up in the long term. Not down in the long term.

Maybe short term downside corrections, but that is to be expected.

So if this market has corrections, that will mean it is behaving normally.

I read an article with "RE Bubble Burst" headline, and the body showed price changes slowing from double digits to single digits.

Most writers, and many market observers haven't taken econ. 100.

[goalinestan]

Soon we will all be living in caves again...and I can guarantee you that I will be financing mine with a 1% teaser rate ARM that will reset to 37.5% in 6 months.

[Arizona Carolyn]

This is the dumbest thing I've seen. 6.5% is still historically low.. and a deal!!! The only reason it's falling is the media has been saying it would fall. If people think our prices are high, they should look at prices around the world -- even Mexico.

[Arizona Carolyn]

Also, lower fuel prices eases the push on inflation and rising interest rates.

[Arizona Carolyn]

Guess it depends on where you're located... if they keep passing stupid laws that increase taxes in California and people keep moving out the prices in our town will keep right on rising -- one reason here is we have limited land that can be used for housing and great weather year round (except for two months in summer) so have a supply/demand issue.

[zigzag]

"Mr. Yun is on crack!"

Ha! I agree- even David Learah seems to have finally put down the crack pipe.

I totally agree about Montgomery Co., MD. I'm not a realtor but have been watching this market very closely, and this is just the beginning.

The numbers we're seeing don't reflect incentives, FSBO's, cancelled contracts, shelved listings, etc., so things are already worse than they appear. The bubble didn't inflate overnight, will not pop overnight. Those who really need to sell now should stop holding-out for last year's price, or prepare for lower offers next year.

For those who say MSM has been talking bust, that's just baloney. They've been talking this way for a few weeks, since signals are undeniable, but have been cheerleading the frenzy for years!

[zigzag]

"This country's standing policy of unfettered immigration (legal and illegal) pretty much guarantees that there will always be robust demand for housing -- particularly in our major metropolitan areas."

Tightening of lending standards, especially of no doc (liar) loans will severely crimp this crowd, which has been a huge consumer of toxic loans.

[DCPatriot]

It's always a supply and demand issue in real estate.

If interest rates are favorable, the demand will be there.

18 months ago, there were 3 to 6 buyers trying to buy 1 property....based upon the multiple offers with escalation clauses we were seeing.

Today, there are literally dozens of properties for one buyer to consider....and with 30 year fixed at 6.25% with zero points? THAT'S SCARY!

I need to carry 15 listings to have two sell each month....and most of mine are priced BELOW the latest SOLD COMPS!

[DCPatriot]

Heck...the stuff we hear (today) and/or read in the local papers or radio/tv...we consider it ancient history.

They are months behind the curve.

IMO, the Fat Lady is singing the bridge right now! ;^)

[Arizona Carolyn]

It's still crazy, if you look at it in historical terms, 6% range is phenomenal... I remember 21% (Carter-era).. now THAT was a time to be worried. I lived through the fall-back in prices in California in the early 90's and those houses are back up twice as high as they fell back. If people think our prices are high, like I said, they should look at Europe, Central America and even areas in Mexico.