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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Tradelite who wrote (343)	8/28/2001 8:15:26 AM
From: stomper	Respond to of 306849

Trying to "time" a real estate investment is going to cost anyone much money one way or another.....people who think this way need a really good financial advisor to break down the costs of waiting to buy/waiting to sell/trying to rent/avoiding taxes.... to better their financial situation Generally, I would agree with you. Not to mention the psychological benefits that many gain from providing a "home" for family and having a piece of "the dream". But there are many places outside of manic tech towns that have seen historically ludicrous price appreciation. My home, in a decidedly middle class suburb in Minneapolis, has seen an almost 100% gain...in three years. As a real estate professional, would you have no pause in counseling someone under the current economic conditions to bid on a property after such insane price increases? (and I don't ask that flippantly). -dave

To: Tradelite who wrote (343)	8/28/2001 10:34:19 AM
From: AC Flyer	Respond to of 306849

Tradelite: In general I agree with your points. Timing the real estate market is no easier than timing the stock market and it has the added difficulty of very large transaction costs. That said, however, people can and do lose bundles by buying real estate at the wrong time. Ask anyone who bought in the Boston area in 1988 how they felt when it took them maybe 10 years to break even. It is easily shown that while residential real estate values march steadily upwards over time, prices fluctuate significantly above and below the long term trend line. In my opinion, there is a good chance that we are at one of those inflection points now where anyone buying residential real estate in 2001 will need to wait eight or ten years to break even. My wife and I closed the sale of our primary residence in a Boston suburb one week ago. We bought this house in 1996 and sold it for about 70% more than we paid for it. Our equity gain was 500%, net of transaction costs. We are moving into a lower cost "fixer-upper" that has significant upside potential. This kind of play is not for everyone, however. The transaction costs made me wince.

To: Tradelite who wrote (343)	8/28/2001 10:42:39 AM
From: portage	Read Replies (1) \| Respond to of 306849

Tradelite or anyone - How much do you think the change in the captial gains treatment of home sales affected the recent years' price increases - along with the economic bubble and everything else ? Because the upper end of house prices went crazy, it seems to me that much of that was supported by downpayments made possible partly because of the cap gains exclusion of $250k/500k on their existing home sales. Outside of stock options recipients, people who bought and sold equities from their savings could mostly not have made the kind of after tax money to support downpayments on these $600k - $1 million plus homes without cashing in on their gains from selling lower cost homes tax free, I'd speculate (I have no data, just using common sense). So the winners of the pyramid have been those who owned homes prior to the tax law change, or those who bought shortly afterward -- those low down payments would have provided some real equity leverage. Quite a bonus compared to trying to save gains after the almost 50% tax rate on stocks sold within a year in the highest tax bracket, when combining federal and state taxes (at least in California - other states have lower state taxes though). Plus, you just sat there while the home equity goes up - you don't have to spend the time picking the right stocks, sweating out earnings reports, etc. But what happens now if entry level home buyers can no longer afford the higher costs to get in - especially as jobs get scarce and if mortgage qualification rules are tightened in a downturn ? The bagholders have been renters who never could get in, and have watched the cascading upward effect of prices on the entry level homes, partly supported by the generous cap gains tax exclusion incentive to purchase. On top of that they've suffered the insult of rapidly rising rents, which may prevent their saving for a downpayment if they want to buy now. But if prices do retrench, who will the next bagholders be ?