Real Estate bubble hype

[DFWHoldings]

I see periodically on these message boards topics that are related to 'declining values' or 'real estate bubble'.

Please don't by into the media hype that you read in Money Magazine or other publications.

Before I get into some thoughts, let me preface this by saying I'm relatively new to real estate investing privately but I have worked for a wholesale mortgage lender for several years. I am an underwriter and review property transactions all over the country (well, we don't lend much in the Northeast so I can't speak for that specifically) including Arizona, California, and Florida (three of the top 10 real estate markets for appreciation).

That being said there are some things to consider when wading through the real estate articles on the internet, watching news reports or reading other publications.

First: Death, Destruction, Mayhem and Fear are what sell. Without commenting on why this is the case (that's a whole different discussion) just remember that the things you read, the shows you watch, etc are all trying to get ratings / viewers. Stories about how everything is just great, life is wonderful, hope springs eternal just don't have the same 'bite' that stories of 'Impending Danger, tune it at 11 to see how YOU could be affected!' have.

Second: The real estate collapses that these experts predict are almost always validated by a story of how prices for real estate collapsed in 'X' year in certain areas. The part that is often overlooked is the 'WHY'. In virtually every instance of overwhelming depreciation in homes, the economics of the area are what caused this. Take for instance the Oil price drop in the mid 80's. That took a toll on housing prices in Houston, TX.  The area dropped about 21% during that time. This is just one example, but you get the picture.

So, the point? The point is that the real estate bubble that people predict doesn't make sense unless there is an accompanying economic disaster for the area. In the United States home prices have outpaced inflation by about 1-2% per year and in the last 40 years there has NEVER been a nationwide decline in prices(ironicaly enough, this data is from Money Magazine). I'm not naive enough to think it couldn't possibly happen, however we know the media loves to prey on fear, and the fear of impending doom for home prices (which would affect almost 70% of Americans so the story hits home) is just good their ratings.

What is the most likely scenario is that very hot markets like Phoenix or Nevada slow down to more normalized levels. I'll use Massachusetts as an example. According to the Office of Federal Housing Enterprise Oversight, since 1980 Massachusetts Home prices have outpaced all over states in appreciation. Home prices have appreciated over 600% during that time. However, as is the case in most areas, they couldn't sustain the growth and during 2005 they are actually below the national average of 13.4 percent (Mass is at 11.8%). The bottom line is that prices in one area may level off but this fear of massive real estate collapse isn't justified.

[karim0028]

I was searching for something totally off this topic, saw this post, started laughing and just thought it was kind of ironic to see peoples view points 3 years ago and then see them now, everything that was "warned" has happened.... 

This post seems to have been wrong on almost every point mentioned; simply bc it ignored the inherent rules of finance/money/staying in business. Money in MUST BE GREATER than money OUT...  Money OUT = Things get more expensive, inflation kicks in, money gets tighter, dollar loses value, investors want more of a return on capital if they fear a return OF capital to bad policy or inflation....  MONEY IN = Poor sap working 9-5 gets a 2% raise per year and inflation is ~10% (gas for cars has doubled in the last year alone), result, net decline in income/spending power. 

This is fact, pure and simple, no fear, no hype, nothing!  Money (like physics) has immutable laws, you can never last long if you consume more than you earn; whether you're an individual, a corporation or a nation...  Nations take longer simply bc politics plays a role and nations can be propped up by other nations for political reasons, but if/when interests no longer align (and that time will come as politics makes strange bed fellows) in the end, money always wins (need look no further than previous powers like, Rome, Greece, Persia, Egypt, Ottoman empire, etc, etc...)

Now, hopefully when people warn that the US may end up like Argentina if we dont clean up our deficit spending or that the dollar (or as itulip.com calls it, a "bonar") may go the way of the russian ruble if china stops buying/feeding our spending habit; dont come true.  But, as i flee that temporary moment of delria, in my head i tend to fall back to the immutable laws of money.... 

When you're in debt and nearly insolvent, your destiny is no longer yours; your actions and your words will always be scripted/dictated for you....

-Karim0028

[fdjake]

Banks are crashing and burning all over the country (and the world) because of HYPE????   Are you for real????

I'll go you one better.....

If you think this is ANYWHERE near over....IT AIN'T.

The next phase of this cycle will be BIG job loses.  THAT will have profound effects on our economy, and the economies of other nations.  Notice the slow downs occuring GLOBALLY????   The ONLY bright spot in our economy was EXPORTS.  That was due to the U.S. dollar getting CRUSHED. Say bye bye to that one stand out.  The dollar continues to build strength as over seas economies TANK.  Think that's GOOD???   It isn't.  Remember all those Europeans coming here with bad fulls of money to scoup up what's left of the Florida real estate market???  KISS THEM GOOD BYE!!

Here's some FACTS.....

This country just spent the last 6 years taking every penny it had in EQUITY out of a MASSIVE number of it's homes.  These homes were once the BEDROCK of our economy.  NOW READ THIS NEXT PART CAREFULLY.........

THAT ATM IS ALL GONE!!!!!

Our citizens have an average savings rate of NEGATIVE .6.  Did you get that??  -.6
 
The average American has just under $10,000 in credit card debt and the banks just RAISED ALL THEIR RATES!

Here's an interesting tid bit......Banks thought (incorrectly) that people would NEVER walk away from their homes.  They might walk away from their credit card payments, but NEVER their HOUSES.  Well guess what???  The genius BANKERS were WRONG AGAIN.  What is actually happening is people are leaving their homes BUT keeping their credit cards paid (at the minimum payment of coarse) because they are using those cards TO LIVE ON!!!!!!!!!

Our Goverment is run by MORONS who spend money like teenagers at a local Mall.

It's very simple.....

THERE IS A REAL, Honest to god, real estate BUST.  It's REALLY going on in this country.  Sure a few select areas may miss the blow up because they never had the run up.  BUT....as a whole this is VERY REAL.

Oh, and if you doubt it.....Just ask BEAR STEARNS how REAL the real estate bubble is.

[Hoosier4life2005]

You guys are all so dumb.  Your ignoring the fact that Obama is going to save us.  I believe in "change" and "hope."  I strongly suggest that you guys do too.....

 

hahaha...

[fdjake]

Buddy, let me tell you...It isn't going to make one iota of a difference WHO gets that job.  We had an absolute idiot in there for the last 8 years.  This guy went to YALE and he can't even speak the English language.
Here's one of my favorite "W" quotes.....

"More and more of our imports are coming from overseas."

This bill has been coming due for DECADES.  We're ALL going to pay up no matter WHO sits behind that desk.

[Hoosier4life2005]

Buddy, let me tell you...It isn't going to make one iota of a difference WHO gets that job.  We had an absolute idiot in there for the last 8 years.  This guy went to YALE and he can't even speak the English language.
Here's one of my favorite "W" quotes.....

"More and more of our imports are coming from overseas."

This bill has been coming due for DECADES.  We're ALL going to pay up no matter WHO sits behind that desk.

Yes I know, i was being sarcastic buddy   We could have Jesus Christ himself behind that desk, but as long as we have our horrible Congress, much wont change.

[karim0028]

fdjake and others, hopefully from my post you were able to garner i was disagreeing with the original poster, im right there with you guys!  The situation we are in now is bad, like i stated, immutable laws of money....  Money in MUST BE >= MONEY OUT otherwise you are BANKRUPT!

[jfpen]

Here's one of my favorite "W" quotes.....

"More and more of our imports are coming from overseas."

fdjake,
           I don't see a problem with this statement.  This means overseas as opposed to Canada and Mexico.

jp

[fdjake]

If you don't see a problem with it, you'll LOVE this site....

www.dubyaspeak.com

[John_in_NC]

Our Goverment is run by MORONS who spend money like teenagers at a local Mall.

Pete, are you going to vote for this guy?

http://www.bobbarr2008.com/issues/spending-economy/

He has my vote. Too bad more Americans don't see things like you or most of the intelligent folks on this board. But then again, most americans are way to screwed up in their own finances to care about stuff like government spending, which goes back to education and values that weren't instilled by parents.

[John_in_NC]

Nevermind

http://www.bobbarr2008.com/press-releases/110/no-auto-industry-bailout-says-bob-barr/

[fdjake]

John,

I think you hit it right on the head.  Americans aren't brought up to understand what guy's like you already know.  That is.....it takes SACRIFICE to build something.

You are a perfect example....You deal with some tenants that aren't the nicest people in the world...BUT.....you are doing that because it is profitable.....NOT EASY!!!

Most Americans want EASY!!

As far as my vote goes......This is what I KNOW....McCain is a great American.  He has more character than any of the dopes who have run for that office in 20 years.  ANYONE....let me repeat this......ANYONE, who refuses EARLY release from a LIVING HELL on earth, because it would be jumping in front of prisoners who have been there longer has my never ending respect.  The problem for McCain is BUSH...That DOPE has single handedly DESTROYED the Republican party.
Mc Cain is DONE....

That leaves Obama......from where I sit this is the scenerio I see...

Obama wins....He has already said he would back AND SIGN $50 BILLION in low interest loans for American car companies....Remember folks this is EXACTLY what was done for CHRYSLER in the early 1980's so there is abundant precident for this type of deal.  Which one of these guy';s do you think wants to be known for LOSING one of the BIG THREE on HIS WATCH.  I'm not talking about right or wrong, good business models vs. bad business models, I'm talking about being known as the President who was IN OFFICE when we lost a HUGE American car company.  NOT GOING TO HAPPEN.   THINK ABOUT THIS GENTLEMEN.

Result......

Those loan packages WILL be made.......American car companies will dodge another bullit, and just WATCH what WALL St. will do to the prices of those stocks once UNCLE SAM Guarantees their money.

THIS HAS ALL HAPPENED BEFORE!!!!!!!!!!!!!!!!!!

It's not about being right or wrong.......It's about being POSITIONED for the LIKELY OUTCOME.

The LIKELY outcome is NO sitting U.S President is going to WATCH as Ford Motor Company CLOSES IT'S DOORS during HIS administration. 

I've already made my move.  Now the FUN part is watching as the pieces fall into place.

Oh, as for Bob Barr.......I think the guy is 100% correct on his assessment of this countries situation....The problem is..... I could pull more votes than he could.

[John_in_NC]

So your voting for Obama right? To protect your interests with the ford deal? I don't blame you, I would too in your case. Money is what makes this world go round, not love (liberals)

I'm still voting for Bob Barr, it's not a wasted vote in my opinion When this country fails economically, we will all be in much pain. Not if but when. I think most Americans are a bit arrogant, in that we have had it too good for too long, my wife is Argentinian, and I have spent a lot of time in that country. What a financial mess they are in, but it's scary, we both see our country heading down the same path. The government is too big with too much control for this to be a true capitalistic society. I live around a bunch of liberals/democrats here in Raleigh, I don't get it. Never will. They are mostly trust fund babies that have never worked a real job. I'm not kidding, just about every neighbor I have right now fits this category. 

So you want change? Bob Barr. Don't throw your vote away!