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

To: GraceZ who wrote (3778)	7/31/2002 6:38:24 PM
From: Elroy Jetson	Read Replies (2) \| Respond to of 306849

Absolutely psychology is the primary ingredient in a bubble. I see that right now in Los Angeles in income property. People "need" a duplex or similar income property right now. They need it with such a burning passion that not one deal "pencils out" in the way any real estate investor would recognize. I don't think some of these transactions even have a Cap Rate once everything is priced in. They are almost all first time income property buyers. But easy money is essential to making this happen. Ordinarily a fool willing to pay these multiples of rent will not find a lender willing to lend. Today they can - no problem! Homes and Condos can find 100% financing from Lenders at a price that cannot find buyers. I have a friend that just re-financed, in my estimation, a $320,000 condo for 100% of $450,000. He listed it with an agent willing to take the listing at that price a month ago. Approx fifty agents saw the property at Broker Open, yet in the last month not one client has been interested in seeing the property. I think the market is clearly indicating that the property is not worth anything close to what a Lender is willing to value it at. Just in the past two months List Prices have jumped up about 35%. The result has been to shut off transactions. But the income property market still hasn't hit that tip over point. This is the same thing I saw here in 1989. A hot market, then a year later multiple offers, then a few years later a sudden jump in List Price, then no transactions, then a year after that declining prices. It may not be a bubble where you live but I can guarantee you its a bubble here, and this is a major market. It didn't take much higher interest rate to kill the market, Seller expectations did that. But I promise you, there are going to be a LOT of bad income property loans here.