Real Estate Market

**Peter Hansen** · 08-05-2005, 08:55 AM

Stocks 54

Real Estate has always been a great investment over the LONG haul. It does make you wonder, when the barber and boot black are running down to Florida scooping up 400K condos with interest only loans hoping for a quick turnover and the BIG kill!

**Dave** · 08-05-2005, 11:23 AM

The RE market is pretty crazy right now. Low interest rates and all that jazz. The thing is, building costs are WAY WAY up as a result of materials cost increases such as wood and concrete. Concrete is in a world-wide supply hole right now. China used to be the worlds #1 exporter of concrete, now they are the #1 IMPORTER! Now toss in HUGE workers comp increases, and you have house prices that are going up up up! The only way to keep the market flowing is with low ineterest rates to offset the increased price of a house. Basically all anyone cares about is theit monthly payment, and as long as they can afford that, they could care less what the house actually COSTS them in the long-run. I love to listen to all thevarious opinions on the RE "bubble", especially Greenspan's veiled comments recently. Some people think prices will keep going up because of supply/demand, but take a look at Japan. They are in their 8th (guessing here) year of declining RE prices, but there is not enough RE for the population.

The bottom line is that there are a ton of factors involved in current RE prices, but my feeling is that as long as materials and labor costs continue their current trend, RE is still a good investment, at least long-term. If you are looking to make some huge percentage gains, you need to buy something like Florida coastal property. Supply really is dwindling, and people keep buying and bidding it up!

I am jealous of my dad who bought a beach-front lot 12 years ago for 100k and put a 3,000sq ft house on it for 275k. Now those same lots, what is left of them, are going for 2.7mill, and building costs are 200-300/sq ft. Lucky bastard with good timing!

Now, to answer your actual question after my RE rant, expect a shift out of RE when interest rates go up a bit more, as Greenspan warned they will.

-Dave

**mrmarket** · 08-05-2005, 11:33 AM

Dave,

A very thoughtful and cogent analysis. Sometimes I think about why I didn't buy a house on Cape Cod or on the NJ shore instead of investing in stocks. Then I think about fixing leaks and mowing lawns instead of drinking beer and watching the tape.

**Dave** · 08-05-2005, 03:21 PM

Originally posted by mrmarket

Dave,

A very thoughtful and cogent analysis. Sometimes I think about why I didn't buy a house on Cape Cod or on the NJ shore instead of investing in stocks. Then I think about fixing leaks and mowing lawns instead of drinking beer and watching the tape.

How about because its damn cold up there! When we moved to NY from CA we took a camping trip to Cape Cod. We hit the beach, and I was determined to do some swimming, as I was about 12 at the time and I figured water temp was not relevant. I lasted about 20 seconds and when I got out I could have been mistaken for a girl. DAMN it was cold!

-Dave

**mrmarket** · 08-05-2005, 03:24 PM

no such thing as shrinkage...it is an optical illusion.

**B.J** · 08-05-2005, 04:08 PM

This is good! Insightful real estate discussion gone the way of George Costanza

**New-born baby** · 08-05-2005, 07:17 PM

Japanese Real Estate

Don't forget to mention that in Japan people get 100 year loans to buy a house. Grandpa pays until he dies; Dad pays until he dies. Then one of the sons pays until he dies. Finally, the great grandson inherits the house, gets a divorce, and loses everything in the settlement. Then the family starts all over again.

8 years of declining prices is a good thing there. 100 year mortgages is ridiculous.

**Websman** · 08-05-2005, 07:45 PM

Anyone want to buy 3 lots in Niceville Florida? It's right across the bay from Destin.

I'll let them go for the low price of only $900,000. I would consider that a great deal. For an extra hundred grand I'll even throw in a bonus lot 20 miles north!

**stocks54** · 08-07-2005, 02:32 AM

Everyone - Thanks for your opinion.

Dave - I am sure increase in materials & labour costs have played important role in price appreciation.

What I have observed is that in new development the first release starts at say $X, after 3 or 4 release (may be within 4 to 5 months) the similar house might be going for $X + 40K. I am sure there is some speculation here.

Over a very long period of time I am sure RE is probably best investment but currently in some areas (like CA) it's quite a bit of speculative as well.

Regards,
Stocks...

**skiracer** · 08-07-2005, 08:28 AM

I'm on the Jersey shore. 5 years ago we bought a distressed home for $63,000, not on the water but a couple of blocks away from the bay, and sold it a year later for almost $200,000 after fixing it up and renting for about a year. It was just a real small beach bungalow. That same house just sold for over $400,000 by the guy that I sold it to and he didn't do a thing to it that I could see. People here are buying them and paying top dollar for tiny houses and razing them just to build larger 2 and 3 story places on the same lots which are tiny, maybe 40/50 by 75/80, and packed in very tight right next to one another. Plus their mortaged to the limit on them and they're usually a 2nd home for vacation purposes.

I know that they're not making any new real estate, especially waterfront or water view now, but it seems kind of shaky to me to be paying those levels of prices and then to be in debt to own it. Nothing is written in stone that says the real estate market has to keep going up.

Back in the mid to later part of the 80's or so after several years of depressed prices the real estate market went bonkers and the prices escalated so rapidly that prices were going up on a weekly basis. You would check a price one day and the next week it was $5000 higher. It was like a feeding frenzy. Within a few years the market just stopped, to kind of coincide with the beginning of market bubble bursting and prices fell faster than they went up. People with adjustable rate mortages were jumping out of windows. It stayed like that for a few years until the markets recouped some and then started back up again and now we are back where we were 15 years ago.
It cycles up and down like sine and cosine waves and you can bet anything that this top will eventually cycle back down again. I don't know what will trigger it but something or some event is out there in the shadows just waiting to tip the cart.

Webs,
Real estate is just like the markets. Buy on the weakness and sell into the strength.

**thebign1** · 08-07-2005, 09:30 AM

Originally posted by skiracer

I'm on the Jersey shore. 5 years ago we bought a distressed home for $63,000, not on the water but a couple of blocks away from the bay, and sold it a year later for almost $200,000 after fixing it up and renting for about a year. It was just a real small beach bungalow. That same house just sold for over $400,000 by the guy that I sold it to and he didn't do a thing to it that I could see. People here are buying them and paying top dollar for tiny houses and razing them just to build larger 2 and 3 story places on the same lots which are tiny, maybe 40/50 by 75/80, and packed in very tight right next to one another. Plus their mortaged to the limit on them and they're usually a 2nd home for vacation purposes.

Webs,
Real estate is just like the markets. Buy on the weakness and sell into the strength.

This is true, but it also depends on your time frame. When you bought the $63K house it was a steal. Then you sold it a year later at a HUGE profit plus you also made a few $$$'s in rental income. Then that guy sells the same house for over $400K. WOW! I hope he was smart and did a 1031 Exchange.
But the point is you & the next guy were thinking short term. Hit & run, you made a quick buck. A different scenario would be if I came along and bought your house for $200K and the numbers worked for me to rent it, then I would have a $400K house that support's itself and $200K or more in equity to buy something else. Now it wouldn't matter to me if the RE market went up or down because my time frame would be 10-15 years. When I bought my first house in 1975 I paid $30K (which was the average price) and it was bought by someone last year for $300K.

This is just my point of view. Regards, Norm

**skiracer** · 08-07-2005, 10:00 AM

Norm,
I did buy it somewhat cheapo, but my original idea was to fix it up and rent it just to pay the debt service and build some equity. I paid cash and was never leveraged or in debt because of it. The guy who bought it from me was mortgaged up pretty good. I don't think he was thinking of selling it over the short term because to replace it would probably cost more at the time he sold it. I never got a chance to talk to him about it but if he was leveraged up it probably made sense to him to exit with his profit and hope the bottom falls out of the RE market to pick up something else cheaper. He would end up with something for nothing.
Like stocks the equity is tied to the present value an if your leveraged up with a big debt service and borrow more on it to do something else it could all come tumbling down if prices start to fall. Once that domino effect starts to go panic sets in and you know the rest.
I also believe rents are tied proportionally to price levels so if prices begin to fall rents will most likely follow them down.

I also believe that alot depends on the individual and their money situation. If your debt free or near that and not mortgaged to the hilt then you're definitely in the drivers seat and would be able to ride out the storm if it came to that an it cycles back up again.

**IIC** · 08-07-2005, 10:11 AM

Originally posted by Websman

Anyone want to buy 3 lots in Niceville Florida? It's right across the bay from Destin.

I'll let them go for the low price of only $900,000. I would consider that a great deal. For an extra hundred grand I'll even throw in a bonus lot 20 miles north!

Would you consider Zero Down, Interest Only for 100 years?

**skiracer** · 08-07-2005, 10:17 AM

So the Vulcan is a land baron huh. I bet you got those lots dirt cheap when you bought them.

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