Housing Bubble - Will it burst?
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"
Yes, of course. Opportunity is always there. I've adopted as my creed the words I heard from an RE investor who picked me up in his Corvette years ago while I was hitchhiking across Texas. He told me "you buy from people who really need to sell, and you sell to people who really want to buy. And there will always be plenty of both."
1. Price Bubbles generally occur in the expensive, supply-constrained markets, such as California and the Northeast. Builders in these markets can't meet demand, so surges in demand tend to result in years of rapid price acceleration. The price acceleration often becomes too rapid because home buyers and investors incorrectly *****ume that what happened last year will happen in perpetuity. Price bubbles can be fueled by declining mortgage rates, which is what The Wall Street Journal and others have been warning about for years.
2. Supply Bubbles generally occur in the inexpensive, supply-plentiful markets, such as Arizona, Atlanta and parts of Texas. In the past, builders in these markets have grown their businesses too fast during strong economic times, eventually resulting in oversupply.
An examination of the ratio of daily recorded Grant Deeds to other recorded instruments shows a 4% reduction over the last two months, in Los Angeles County. Not enough to establish a trend but enough to notate that the High Spike is beginning to slow on sale and the offers instead of meeting the listed price are attempting to buy at reduced amount. Still an active market and sales will be generated among those willing to come down a bit from the listed price.
Also of course speculators and experienced buyers are offering exotic instruments of purchase. Few in number as most do not know the method but in Calif. the PMTD taken back by the seller for say 95% of the purchase price is just now being used. The note is written for 40 years or 35 years. The listed price is met and a small downpayment made. The balance bearing no interest is divided by the payments for period of time. This reduces the price to a normal say 6% interest note and thus the true price paid for the property is about 60 % of what it should be. Greed motivates the seller.
In raw land the offer to lease for say 99 years is made that is 1188 monthly payments of the inflated price of the land. Of course subordination is arranged so that ordinary bank financing can be obtained for construction and development of the land. The property is then sold the new owner takes over the existing loan and pays a monthly lease payment for the land. There is generaly a small mark up on the leasehold amount. There is of course an option to purchase the land for the designated value price of the land. In case of a run a way inflation you can bargain to reduce the price of the land.
Also just now becoming active is the buying of small houses on R-1 zoned lots where the property consists of two or more numbered lots already subdivided. The game plan is merely to build another house on the other lot and then sell and refinance splitting at time of sale the two properties.
Times such as these create interesting changes in the Buy and Sell methods. The advent of really cheap housing now getting started will also have an effect on the market. When advanced housing structures are erected and the cost factor is about 20 to 24 dollars a sq. foot. Why would one not pass a purchase of an existing obsolete dwelling for something very new, very advanced and super Modernistic. I am trying.
Lucius
Sounds interesting but makes me wonder, what kind of modernistic structure can be erected at the humble price off "about 20 to 24 dollars a sq. foot in So. California"?
Ah June June, you have been listening to my fellow constructors, developers and other traditional folks wedded to the concept that if it aint stick built and composed of dead organic matter it just is not a house. They insist on fireplaces where when I was a child people gathered and awaited the arrival of a Salamander or some interesting conversation. In my case it never happened.
the world dear lady has moved on. Now we go down to the local Container Ports, open up a 40 foot long container. Evict those Chinese still in residence after the long boat ride. We take that and a few others and of course a few of the shorties of 20 feet, we must not be predgudised
God what I would give for spell check. And yes we can by getting rid of the hammers and nails and the funny belts and shoes. Utilizing the newer tools of the Plasma Cutter and the Mig Welder. Produce houses so modern that they would make LeCorbusier cry and KG nash his teeth in frustration. R factors are higher. Instead of a Fireplace we give you the Entertainment Center where you can listen to bad music and indulge your fantasy's as you watch Reality on TV.
Oh god. Yes we make a profit. 1400 ft 3 br and 2 ba. $58,000. But think of the good we do. We bypass all those governmental agencies who have created our slums and the projects where you have to wear an armored vest to go to the market. Alt least three gang signs to park a car.
Will we help the bubble burst? I sure hope so.
Termites hate me they have little signs 'Lucius unfair to organized Termites'
The Carpenters now they are really rude. Oh Well someone has to do it. An elderly old ugly man of 82 might as well take the lead . I've given up dating, chasing and most of the really interesting drinks . So what is left?
Old Shipping Containers crying out for salvation. They do not want to just sit there and rot. They yearn for the warmth of the Plasma Cutter as an 82 old Ugly cuts out the doors and windows and sometimes even the whole sides to stick them together in close embrace to get a proper room width of at least 16 ft. Ah well sorry for tirade, its lonly here in the desert. My that Coyote is beginning to look very attractive. Hi Honey want to meet a nice cat for lunch? My god I think he does.
Cheers Lucius Tertius
Cheers
Yes, I see your point; living in shipping containers could be cheep and thus fun venture. To get into one you got to evict dozen of illegal immigrants who've just landed in one of our ports.
A safe and practical living is afterwards *****ured by the structure's durable steel-cage ribbed walls that may stop or deflect shrapnel. Safe not only against termites but also against drunken drivers, drive-by-shooting, neighborhood thieves and nature induced lightening, if you ground it properly.
And if you install infrared heaters, these structures could down the road be quickly turned into gigantic convection ovens or fireproof storage facilities instead.
Good job Lucius, you got my tomb up! Keep on a good work and hopefully, "THEY" will get it to.
Hi Lucius:
I love your ideas (and your wit )and would love to learn more about your shipping container houses. I see this as a terrific solution to low cost housing which could be used worldwide. And you do it with good design too! Wow! Pretty hip for an 84 yr old. Do you have plans, or photos of any? I'd love to see some. Used to live in SoCA but am now in DC so a visit will have to wait. I wish more of us looked at ways to help as well as make a profit!
cheers
Ro
would this type of housing work in any other region besides south & sunny? I am guessing you could probably spray in some insulation? do you sheet rock these? and how do you run your plumbing and wiring...I have been reading your articles and am quite intriuged with your idea. how many of these have you actually produced and sold? where do you place these containers ( mobile home courts or sfh lots?thanks for your time
Kim
shipping containers are applicable from the artic to the tropics. Yes we line the walls and ceilings and under the floor. we use R-28 rated insulation it comes in big pieces 4 by 8 and we cut it up if we have to. Right now we are using an apox and just stick it on. Then of course the wall coverings go on we do not use sheet rock we use a very light thin plastic which holds color or pattern depending on your tast good or bad. We do them super Modern following the concepts of Modernity as started in 1929 at the Spanish Pavilion . Ames Chairs, Knoll furnishings and all the new little modern designers who are trying to make form follow function. The windows we are deciding on now should they be a triangle, or a square or a rectangle or an oval. But one thing they do all turn opaque on the touch of a switch. Then clear when you get your clothes on and want the neighbors to see. Lots of fun.
Lucius
You might think about spraying on a polyurethane foam. Its relatively cheap, (especially if you buy a lot) great insulation (one formulation is marketed under the brand name Great Stuff), conforms to the shape of the corregated side of the containter, and has no cracks or seams when you are done.
I think spraying on foam rather than putting up foam boards would be much harder to do.
Dear Roe,
I can see it now, all along that vacant land that leads up to the monument. Little metal houses, children frisking around and guess what all of them Republican. Nevah Hoppin. But it would be fun.
Biggest problem we have is not to surrender to the various offered grants. We just have to fight them through the building departments . Then erect them of course we have to go through a very ineffectual way as we are almost stick building to begin with. But by number five which is when we should be really standarized and can show pictures it should be out of stick building and into true metal erections methods. I can hardly wait.
Now do not spend your entire life in DC. it is a fun place but nothing as crazy as here.
I came back into town the other night just for a good meal and some nice conversation. I ran into my ex wife, (unplanned) at a place on the strip. Listening to my present (and last) wife and the prior dragon lady taking stabs at each other was interesting. I felt like I was at a fencing match. The last of the line and I have been married for 25 years. We get along very well, we never beat on the children and we never trump each others ace. She can go anywhere she wants and keep all kind of hours. Just as long as she fills in a written report when she returns and submits to a full examination by a qualified doctor. Small matter. The ex wife brought up and exposed every sin I have ever committed and a few I did not.
I like my present wife, she clapped at the end of each example. I stood up and took bows as while the place was noisy my Ex wife has a voice that should have been lent to the cavalry to start a charge. On the last little bit of information when I stood up and bowed the entire room clapped.
I tried to stick her with the check but years of fancy living have taught her better. When she did not return from the ladies room after 20 minutes. I admitted defeat paid the bill with her card. And we left.
Such is life in LaLa land.
Cheers Lucius
REAL ESTATE Is the Housing Boom Over?
Fortune (subscription) - USA
Maybe this is the most ominous sign of trouble ahead in the real estate
market: The Kiwanians have gotten into condos. When real ...
http://www.fortune.com/fortune/investing/articles/0,15114,693864,00.html