The Bubble

[acoolmariner]

I'd like some input from as many of my fellow investors as possible on the question of the "Bubble". What alternative kinds of investments would you suggest when this Bubble bursts and values plummet. Keeping in mind that the Economy as a whole is kept afloat, at least in part, by the Real Estate Market, We MAY be in for quite the flush. Until things stabilize again and values start to go back up, what are the most attractive investments aside from Foreign Currency and Gold? Any thoughts?

[Roger J]

I take it that you firmly believe in "the Bubble" and that the housing market will plummet.  If that is the case, before I give my views on the "Bubble,"  can you explain to me why you think it's going to happen.  Can you show evidence that suggests this bubble forming, and more importantly, can you show me anything in the history of the housing market where the bubble has burst before?

Roger

[acoolmariner]

No, I don't firmly 'believe' and I should have said "If". Now calm yourself and I will give you an example. The reasons for the drop in value can be too extensive and intricate to list in this forum. Much has to do with available jobs, public spending, bank's loan criteria, Gov't spending, community growth, even the price of oil can play a part. After all, Real Estate, the Stock Market,...Life...It's all "Speculation" isn't it. I'm a Real Estate Investor...I don't take ANYTHING on 'Blind Faith'. If there is the slightest chance that I lose money, I pay attention. It's cheaper.

Latter half of 1989, California.  Medium sized home prices were in the 210K range. By 1991, that had gone to 228K. Nice for those who were in the loop. By 1993, those same houses were selling for 210K again. Not so nice for those buying at 228. By mid 1994, they had dropped another 10K in value. Unfortunately, for all those banking their early retirement funds in these markets, it wasn't over. By Mid 1996, those houses that had, only five years before, been selling at 228K, were now dipping below 178K. Massive foreclosures for a ton of reasons. Some people lost everything. Understand? What goes up....Y'know. Fortunately, in this business, what goes down, usually comes back up, but do the math...are you ready for it "IF"? If one can tough it out, one will still be sitting pretty, if not, Ill see those properties at auction.  There are more examples, but I think you can see what "some" economists are getting at.

If, in fact, the economy is being propped up by only the Deficit and Housing, this could get really nasty. Well, you understand my concerns. Yes? Recession, if not worse. I'm cautious, so I look at everything I can find that affects my life. You are not required to look at this issue and come to the same conclusions, but please, if you have a different view, by all means, share it with me. Maybe I'll change my mind.  

[johnmichael]

Please forgive my sarcasm on the "Real Estate Bubble"

Since the post depression era real estate has remained stable!

So Is it full speed ahead?

Are we headed for a crash?

The housing bubble may burst!
It might inflate!
Rates might skyrocket!
Housing prices may plummet!

Two-thirds of Americans own their homes!

American's spend just under 40% of their income on housing and housing related expenses!

Approach home buying with the attitude of a savvy stock investor. We've long preached the
benefits of buy-and-hold investing. The same approach translates well to the home-buying market.

The Office of Federal Housing Oversight recently released its house price data for the first quarter of 2004. U.S. home prices rose 7.7% over the first quarter of 2003.

The median price for an existing home rose to $170,000 in 2003, up 15 percent from just two years earlier. Yet housing actually grew more affordable during that period as the typical mortgage rate fell to 5.74 percent from over 7 percent. The average monthly payment on a median-priced home was 17.8 percent of median family income in 2003, down from 18.4 percent in 2001, according to the National Association of Realtors.

“Our own sense is there will be a slowing of price appreciation but no widespread price corrections,” said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies.

A government report issued last month startled many analysts, showing that home prices rose in the fourth quarter at an annualized rate of more than 14 percent, the biggest one-quarter jump in nearly 25 years.

David Seiders, chief economist for the National Association of HomeBuilders, predicts sales will drop only 2 percent this year from last year’s 7.2 million, which was a third straight record year.

How exactly should you play this one?

I say on your mark. Get set. Buy, sell, hold, build, borrow, or refinance.

I have been dealing with real estate for a long time and I use a simply approach in good times and bad times "KNOW YOUR MARKET"

[EZmoney]

YES, There will be a problem in Over heated markets. The depth of the problem is unkown. Yes it has happened in some areas in the country before. Could it be more wide spread in the future--maybe.  Let's face it the middle class is choking on debt, the poor can't afford food and the rick get richer.

MAKE sure your purchase, that you are holding for investment, also have good cash flow---in case you have to hold longer to wait out a price decline. And don't put all your eggs in one basket. Spread out your risk.

Jeff

[acoolmariner]

Johnmichael,

Did you even read the question? As you can probably tell, Sarcasm is a huge character trait of mine. I totally agree with your statement "know your market". Without that, you might as well go to the casino.

If I knew it all and could tell others, with any degree of accuracy, how they should play it, I wouldn't be here asking advice. Would you? Some agree, some don't. Ain't America great? The question I posed had nothing to do with acceptance of a theory. I was asking if anyone had any financial advice about alternative investments. Hold on, let me check.....hmmm, yep, that's what the question was.

"The housing bubble may burst!
It might inflate!
Rates might skyrocket!
Housing prices may plummet!" Well said!!

Is it "Two thirds of Americans own their homes", or is it "Two thirds of American homes are owned by Finance companies?" I forget. How many of those mortgages have adjustable rates?

[Roger J]

Well, first off, I am calm.  You asked for input on the question and I merely asked you to give me specific examples that would a) support a bubble even forming, and b) examples in history where a national bubble has formed before.  The only example you give is California in the late 80s, early 90s.  Yes, local markets will have flux, and booming markets (like California now) will more than likely have a price correction coming (or a burst bubble).  Will that affect the National housing market?  NO.  

And while there are local markets now that are booming, there are others that are normal, or average appreciating, some that flat, or no appreciation (like mine now), and others that are depreciating, a little or a lot.  As John Michael has so wonderfully put it, the key to making money is to know your market.   And no, I don't think that real estate, the stock market or life is speculation, but that's just a personal difference I guess.  

But back to the point at hand.  No, I don't believe that there is a National real estate bubble that is about to burst.  Housing markets rise and fall based on that area's dynamics and financial status.  Yes, a national crisis of some sort may affect local markets, but for the most part, affects are limited.  Even during the Great Depression, which affected the world and which was before the current Federal bank laws and lending guidelines, there were markets in the U.S. that were stable and even appreciating some.  

Roger

[johnmichael]

Johnmichael,

Did you even read the question? As you can probably tell, Sarcasm is a huge character trait of mine. I totally agree with your statement "know your market". Without that, you might as well go to the casino.

If I knew it all and could tell others, with any degree of accuracy, how they should play it, I wouldn't be here asking advice. Would you? Some agree, some don't. Ain't America great? The question I posed had nothing to do with acceptance of a theory. I was asking if anyone had any financial advice about alternative investments. Hold on, let me check.....hmmm, yep, that's what the question was.

"The housing bubble may burst!
It might inflate!
Rates might skyrocket!
Housing prices may plummet!" Well said!!

Is it "Two thirds of Americans own their homes", or is it "Two thirds of American homes are owned by Finance companies?" I forget. How many of those mortgages have adjustable rates?

Sorry I thought this was a forum for real estate investing.  My mistake.

As for advise on other forms of investments it all depends upon ones financial objective, what type of return one wants, what one's current financial condition is and so on.

For me I seek the advice of my financial planner and accountant.

As soon as my crystal ball gets back from the repair shop I will look into your needs and see what is best.

Over 90% of my investment portfolio is in real estate and has been for the past 20 years, You will not face a bubble when one researches a subject property properly, knows the market condition and properly forecast the past and the future markets.

During the worst so called housing bubble during the 80's, During the dot com explosion and than it's burst I made a great deal of profit facing no losses by simply following what I posted.

My fellow investors you can follow the doom and gloom or just be attentive to your market and go forward.

[acoolmariner]

Roger,

.....Wow!

[ckj]

Cool,

Not sure why you would need "alternative" investments when the bubble bursts. I for one, will be buying as much real estate as possible when/if that happens.

You mention Gold and Foreign Currency. I can see gold as a hedge against inflation, but see no connection with foreign currency?

You can always short the home builders when/if the bubble bursts. But be careful, had you been doing that for the last 2 years you'd be out of money. That play is right up there with trying to short yahoo and Amazon in anticipation of the tech bubble. You were probably broke before the bubble actually burst.

The futures exchanges are working on a product that would allow you to hedge the equity in your properties. You'd short the futures product to lock in your equity.

Then of course there's t-bond, t-bills and the whole gambit of interest rate sensitive futures.

There's no shortage of "alternative" investments, but you better know how to play the game before you step into that arena.

As you can probably tell, I work in the financial services industry.

Good luck.

[acoolmariner]

ckj,

Thanks for the words. I'll be looking to buy when/if, as well. It just seems to me that it may take a bit of time to realize any real gain. In reality that may not be the case, but I'm just looking around to get a feel for the most efficient bang for the buck. I have resources on hand to help me make these decisions, and, as you pointed out, you really have to be able to play. I'm not a player in that game, so I ask everybody that may have wise words and I do a lot of reading. I've been fairly sucessful in REI, but, I have no experience in the world of Finance.....I'm having to do a lot of catch up. I appreciate the information and, in fact, have invested in some of the very products you mentioned. Thanks again. -coolguy

[Dave T]

I'd like some input from as many of my fellow investors as possible on the question of the "Bubble".

acoolmariner,

When you base your question on the premise that there is a bubble, how do we address your question when we believe the premise is wrong?  For many of us who don't accept the existance of a  national "bubble", the question is really moot as JohnMichael was trying to tell you.  

If you want to invest in markets other than real estate, I suppose you can do what Warren Buffet is doing; but, that is outside the scope of this website.

[niravmd]

i live in san diego. i know a bubble when i see one and this is a bubble.
i can buy a 900 sq ft condo for $450k that costs me 3750 per month and get only 1600 in rent. and people tell me real estate can only go higher. what BS!

if you think the dollar will fall buy gold. if you think the real estate market will crash buy puts on mortgage companies because they will suffer. if you think crude will go up, buy crude future calls, or sell puts on them. there's a hedge for everything if you're willing to do some research.

and just because someone asks a valid question is no reason to mock them or question their stance. other posts obviously haven't done their homework, so we'll forgive them and hope they're not invested in california.

[Dave T]

niravmd,

We all recognize that certain local markets may be experiencing what might be called a bubble.  The original question, however, implied that there is a national real estate market bubble.  

A lot of us don't accept that premise.

[wallacehobbs]

I'd like some input from as many of my fellow investors as possible on the question of the "Bubble". What alternative kinds of investments would you suggest when this Bubble bursts and values plummet. Keeping in mind that the Economy as a whole is kept afloat, at least in part, by the Real Estate Market, We MAY be in for quite the flush. Until things stabilize again and values start to go back up, what are the most attractive investments aside from Foreign Currency and Gold? Any thoughts?

The "Bubble" Is like the Chicken Little the Sky is Falling.

It is mainly started by Stock Brokers to get REI folks to pull money out of properties so you will buy "Safer" lol Stock from them...

So they can make what.........Yes a commission.  This is the way they make money, no stock sales, no money.

Also, Bubble, folks are banking on Appreciation.  

If you study your craft, and Educate yourself in REI, you can make money when prices are dropping fast.

If you know what to do you can sometimes make more in a down than an up market.

You make money when you BUY not when you sell.

I am sure there are a lot of thought on this in REI Club land,  but that is what I think on Bubbles.

Hope everyone has a wonderful weekend!

Now get off the computer, Me too, and go do a Deal!    :D