Sat, 12 Feb 2005

Idiots Lose Money "Investing" in Real Estate

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

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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The state is that great fiction by which everyone tries to live at the expense of everyone else. - Frederic Bastiat