... in response to For Pete E (off topic), posted by Stezo71 on May 3, 2005To me the market is way overheated in the US.Low interest rates hanging around longer than I everv thought they would plus lots of creative loans like your ARM or even 1% to start rates have let people continue to bid the prices up.And everyone wants to get on board when the prices are going up.Problem is,even if interest rates do not go up,and they surely will,people are way over their head in the loans they already have when they adjust to even current rates.
Nobody has been more bullish than me in the past on real estate.But its WAY OVER THE TOP.The question is when will it burst?I think right about now for California real estate.I have seen 2 similar feeding frenzies,they both stopped about mid April.This one is still alive I guess.
Should you buy anyway?Lots of people are buying while the rates are still low.I have also been a big ARM fan,but I would go for the fixed rate now if you see yourself keeping the place long term.Then if you can afford the payment just hang on,long term you will be OK.
My son has 3 condos he bought for about $145,000 6 years ago.He just sold one for $359,000 real quick,no realtor.He has 3 left.I guess they aregetting bid up from $375,000 now.I am telling him to sell them even if he can't find anything to trade in to.He sold one,traded in to 6 houses in Alberquerque,but there is no cash flow and they are building like mad there.If he can trade in to something that makes sense,maybe hotels or commercial property,or even out of country property it might be OK.Otherwise pay the 15% federal and 9% California and still net $175,000 a condo.I think these places will hit around $400,000 in this frensy,then drop WAY back.Even in 2001 they hit $305,000 then dropped back to $265,000.They might not see $400,000 again for 10 years plus,while he is sitting on $250,000 equity each for no cash flow.
BUT,real estate,because of leverage,is one of the best things you can do with your money when the TIMING IS RIGHT.For most people a very small down payment and house paymentssimilar to rent afdter taxadvantagesgets them returns they would never get in anything else because they basically had no money to start with.Itswashard to get people to buy back in 1996 or so,when prices had been flat for years.I knew the would go up big.I saw stuff double and triple in 4 years or so.If you put 3% down,like a FHA loan available in 1997,I saw a place triple in 3.5 years.$230,000 apreaciation on 10,000 investment.2300%.Even my son with 20% down investor money made 700% in 6 years.And the down payment was borrowed on his house and the cash flow paid the interest on that.He basically just shifted money incresing hiscash flow and made over $800,000 doing so.Now the rentsare lower,the cash flowwent away.
WE will see.This is going to be the RE bubble from hell in my opinion.Might be some good buyslater,but after the lenders get really reamed with their present policies money
will be more expensive and harder to come buy.
The other lesson for me personally is watch your money.While my son was refinancing buying property I was refinancing spending the money.He made $800,000.Me nada.I spent the equity I already had.It would not really have been that difficult to do what he did.But with no financial discipline I did not.
Fortunately I have my pension plus now my SS I can't screw up,about $50,000 a year total,so I can't complain,I just could have done alot better.
Pete
