Fri, 03 Jun 2005
Two of my favorite blogs are Housing Bubble and Housing Crash. Housing Bubble
collects articles about the housing bubble in the United States. Housing Crash
is mostly Patrick's chronicle of the housing bubble in the San Francisco area,
but he also posts articles related to the housing bubble nationwide.
There seem to be an equal number of people who claim that there is no housing
bubble as those who warn of it. The former group includes all of the real
estate agents, mortgage lenders, and county tax assessors. The higher real
estate prices go, the more money they make. The latter group is made of
economists who point out that sales prices to rental rates ratio is out of
whack, that housing prices and debt service costs have far outgrown household
income, and that the residential real estate prices have been driven up by all
of the easy money thrown at borrowers (well, easy until those 5/1 ARMs get past
the 5 part). See The
Coming Crash in the Housing Market : 10 Things You Can Do Now to Protect Your
Most Valuable Investment for a thorough discussion.
Las Vegas seems to be leading the nation in the bursting
of the bubble. Home builders have started lowering the prices of new
homes. It's got to suck to know that your neighbors bought their houses for
$100k less than you. Las Vegas has tons of open land to be developed so the
surge in home prices was probably largely driven by speculators. Housing
Crash points us to the story of
some of those speculators.
"They call you and say 'you are so lucky .. this just came across.. it's going
to be worth 100k before it closes,'"said Dyan Harmell. "We came with the hopes
of buying two houses. We left the first day owning four. Within the next week,
owning 6 -- all the way up to 19."
"We were told there were 80 people in the lottery for 15 homes. And lo and
behold, every single person we knew got a home in that lottery,"said Pulte home
buyer Cathy Wodka.
That's a pretty good marketing ploy. They must be targeting the same people
who click on flashing banner ads that tell them they've won a new iPod.
Tips for Buying Real Estate
- If you can't afford to be sitting on a property that's worth less than what you owe on it in five years, don't buy it.
- If your bank account will be depleted by the time you pay closing costs, you can't afford the property.
- If you can't afford a 30-year fixed mortage at these rates, you can't afford the property.
- If you're buying rental property and, with 20% down, current rents won't cover your costs, don't buy it.
I know I wasn't the only idiot who lost a bunch of money a few years ago
"investing" in equities. But at least I learned something. Don't buy
something because it has gone up in value; it doesn't mean that it is going to
keep going up in value indefinitely.
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