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

To: Doughboy who wrote (16077)	1/16/2004 6:16:05 AM
From: Micawber	Read Replies (2) \| Respond to of 306849

Doughboy: Nice response, but major faux pas: The Capitalization Rate or Cap Rate is a ratio used to estimate the value of income producing properties. Put simply, it is the net operating income divided by the sales price or value of a property expressed as a percentage. It is one of many financial tools used by investors, lenders and appraisers to establish a reasonable purchase price for a given investment property in a specific market. the-home-improvement-web.com What you are describing as the cap rate is really the inverse of the GRM (gross rent multiplier). If you are using gross rental income to figure your cap rates, you are REALLY overpaying. By either of these measures, nothwithstanding the perma-bullish arguments of the broker/salesman on this thread, residential real estate is ridiculously overvalued. To posit otherwise is to ignore historical valuations, and to ignore the effect of 40 year low interest rates. I especially love the recommendation that we all heed the analyses of appraisers, the implication being that they do this for a living and therefore are the experts. Yeah. Getting a fair, unbiased opinion from an appraiser working for a lender is like looking for an unbiased opinion from Sean Hannity. Or a stock recommendation from Henry Blodgett...

To: Doughboy who wrote (16077)	1/16/2004 8:41:43 AM
From: Tradelite	Read Replies (2) \| Respond to of 306849

Doughboy, I have no doubt that this market will turn around at some point and home prices will decline, either somewhat or maybe even a lot under extreme circumstances. From what I can see, prices are already softening and supply increasing in the upper price ranges. However, your area and mine are likely to keep on experiencing some degree of shortage in homes in the lower-to-middle price ranges. Good houses priced for the $300-700K buyers were hot sellers even 6 years ago. They're like gold today. I did read about the apartment-to-condo conversion you mentioned as happening in DC, but I wouldn't overestimate its potential to depress prices of condos. Traffic is getting so bad and gas prices have gotten so high that you might just see many more suburban SUV drivers migrating to in-town living, particularly older people----we'll see plenty of them retiring soon and I can only wonder how many of them will stick around and keep paying high property taxes for big houses and lots they no longer need. (I'm one of those looking to flee this area eventually, and never thought I'd say that.)