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

To: Micawber who wrote (11824)	7/28/2003 4:06:03 PM
From: Tradelite	Read Replies (3) \| Respond to of 306849

Oh yes...I was not only "around" during the RE crash of the late 80s to early 90s....I was right in the middle of it, making money helping buyers and sellers make the best of it. Here's a crash scenario which actually occurred right next door to my house. Husband & wife brain surgeons bought home at height of the speculative bubble for $650K. Immediately made approximately $100K worth of improvements/expansion. Divorced a few years later....sold home for $450K. Lucky new owner still living there. Home now worth approximately $650-700K, roughly by my estimates. It's not a very big place, either. Just a rambler built on a slab w/ one-car garage. One of the tiniest places in the neighborhood. Please note my use above of the phrase "speculative bubble" to describe what happened in my area during that time. People were turning over houses to make more money on the next one like there was no tomorrow. Prices were skyrocketing. Cocktail party conversation revolved solely around how much more one guy had sold his house for than he had paid for it only 6 months before. It hit a wall when the buyers looked around and said, "Is this all I can get for that much money? I'm keeping my current house and building an addition on it." End of buying binge, for sure. What I have seen in my area in recent years does not have the characteristics of a speculative bubble. I don't see people buying homes and turning them over quickly just for the gamble of it all. If they were, we'd have two or three full pages of open house ads in the Sunday paper for my zip code, instead of a mere column or two. Pages of ads were exactly what we had when the market went bust over a decade ago. Now you can hardly find an ad for a house under $1 million at all--they're selling almost immediately. I believe there is some slowness in the multi-million range, because those same ads keep popping up week after week. There simply haven't been enough sellers to accommodate all the buyers. And I continue to assert this is due to scarce land, scarce housing opportunities, easy affordability in a high-income area, and LOTS of households needing or wanting a home. If interest rates go up a bit, or if prices come down a bit, the same underlying supply/demand imbalance is going to be there--in the seller's favor--for quite a while, I believe. Note also that if the first owners had kept the house until now, they would be even and probably wouldn't be sweating the real estate market's ups and downs one bit. They'd be happily owning it for a long time, which is what we're supposed to plan to do when buying real estate.

To: Micawber who wrote (11824)	7/28/2003 4:37:58 PM
From: Tradelite	Respond to of 306849

Here's another scenario from the "IF ONLY I'D HELD MY REAL ESTATE LONG-TERM" department.... After the speculative real estate bubble had been burst in my area for a couple years, and the market was coming back, but it was too early for most of us to see it was coming back, I sold the home of a good friend and his wife and helped them buy a fancier, newer one. The owner of the house they wanted was a major TV network executive who had paid $650-700K in good times. We got the house for $525K. TV exec had his home on the market for a long time with no takers, and when we came along, he willingly paid what it took to get out from under his mortgage, because he and his equally highly paid wife had bigger plans and bigger jobs waiting in another city. Every time I meet up with the friends who bought TV exec's house, they speak with disbelief about the current $750K selling prices of the homes on their street, where they paid a mere $525K. (They paid cash, by the way, and don't have a mortgage at all, so their profit is all gravy with no interest having been paid). Again, the lesson is that the market goes up and down, but the long-term holder comes out OK. If the TV exec had held long enough, he'd be happy as a clam financially in that house today. But he had plenty of money to take a loss at the time, and was grateful to do it. He didn't need to do it---he could have rented it out, sold it now, and recouped all of his investment and more.

To: Micawber who wrote (11824)	7/28/2003 4:40:44 PM
From: MSI	Respond to of 306849

What you're describing is short-term, overextended buyer, while Tradelite is describing an different buyer. If you assume: (a)major RE crash of even 40%, (b)buyer NOT overextending themselves, who are (c)buying the home to live in for 10 years. By the end of 10 years the buyer hasn't lost the house even if he paid a 'bubble' price, the loan has been paid down by 1/3, and the price has recovered partially or completely. The young homeowner has forced savings of 50% of the home value, often their major equity. I've been through this same issue myself, my siblings and my own kids. The other hidden assumptions are that we're not headed for Japan-type deflation, and the house is in a stable place that doesn't turn into a ghost town.