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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Broken_Clock who wrote (20969)	3/25/2005 9:01:08 PM
From: Carl Worth	Respond to of 78953

"Remember that most vacation homes are really for spec." Again, this is your interpretation, and simply adding the two numbers is completely illogical for determining the true situation. Further, buying a home as an investment is not inherently "speculative." It's only speculative, i.e. risky beyond the normal situation, if the price is far above what could reasonably be justified. This parameter is obviously open to debate, but your figure of 35% spec purchases is clearly way too high. This is comparable to saying, "Bankruptcies are at an all time high" without any color to the statement. Of course they are, the population is at an all time high too. What is the current percentage of households who are filing bankruptcy? Oh, well that's lower than most recent years, but that doesn't sell newspapers and TV advertising now, does it? LOL "The typical vacation-home buyer is 55 years old and earned $71,000 in 2003." This is precisely the type of buyer I was talking about, an empty nester who has put his children through college and now has plenty of extra money to buy a second home. Would you simply dismiss all such second home purchases as motivated by investment decisions? If so, then how do you account for "86 percent of vacation-home buyers do not rent their property?" Why would anyone who was buying a home as an investment not rent it out? Of course there are some who are buying homes on "spec" to flip them as soon as they are completed, but this data wouldn't apply to them, as they wouldn't be around long enough to return the survey forms. "Because the typical second-home buyer is a baby boomer, it's likely over the next decade that second-home sales will remain historically high," Lereah said. "The boomers are still in their peak earning years and have both the wherewithal and the desire to purchase vacation homes and investment properties." Wow, the article seems to have the same opinion I do. Thanks for the confirmation. As for LTV, you didn't answer my question. I understand the concept of leverage, and its advantages and disadvantages. What I'm asking is where is all this supposed 100% LTV paper being written, and by whom? Note as well that if you own stock on margin, when your stock goes down enough, your broker will send you a margin call, which may force you to sell your stock. This again is an illogical parallel to the housing market, because your bank sure isn't going to call you to force you to sell your home if its value drops. In addition, you can live without your stock positions, but you can't live without some place of residence, so once again the parallel fails. Nice try with the scary scenario, but again, the comparisons just don't add up.

To: Broken_Clock who wrote (20969)	3/25/2005 9:14:31 PM
From: Carl Worth	Respond to of 78953

more interesting info from your article: Eighty-three percent financed with a mortgage and made a median downpayment of 22 percent. Although 45 percent use savings for a downpayment, 29 percent used equity from a previous home. Oops, 17% paid in full, but even the ones who financed had a LTV of 78% on average, and half of those made the down payment from their savings (which implies they have plenty of money to cover their expenses, so not much chance of default or financially induced sale of the property, huh?) This is great info, thank you again.