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Millionaire Now! by Larry Nusbaum

This blog is based on the organizational principles found in my new book, "Millionaire Now! - A Financial Toolbox with Seven Steps to Wealth".

My random real estate thoughts

Posted on 09/19/2006 22:59 PM | Link | Post Comment

from: http://millionairenowbook.blogspot.com/

1. Robert Shiller, Yale economist, famous for his stockmarket book "Irrational Exuberance" published in 2000 now believes that the housing craze is another bubble destined to end badly."It probably will feel bad when the turndown comes. However, in many areas of the country like Ohio, Pa, Mi, Mn, Wi, upstate NY, Tx, Al, Ak, Ms, etc., there never was a "housing craze".

2. Too hard to try to time the stock and real estate markets. Better to have game plans for both asset classes and review regularly for adjustment. Without an investment plan, how can one achieve financial goals if they are undeclared?

3. Greenspan once called some local markets "frothy" but emphasized that there was no national bubble." Well, he was determined to raise by a quarter point for the next 16 meetings after that. Maybe there wasn't a housing bubble, but he sure created a "credit bubble". Thanks Alan.

4. Here's the problem. The real estate bubble warnings started in March 2000 (See Wall St Journal). Let's say you bought a house in Scottsdale 30 months ago for $275,000 and got scared out after 6 months at $300,000. Now, today, 12 months later the house appreciated 47% to $441,000. But, you bailed out because you "timed" the bubble. Looking back at California's worse year in the last 30, - 3.79% (1993), and triple it, if the $411,000 house declined by 11.37% ($50,000).....you would be out $90,000 and WHEN WOULD YOU GO BACK IN? Those who decide to actually go back in after being out, help to define and shape a financial bubble.

5. A stock is a click of a button or a call and you are out. How do you adjust on a house, especially if it is bought with an exotic financial instrument? The "clicking" can hurt stocks on the way down. There is no clicking in RE transactions. These "exotic" loans ARE NOT NEW! They just happen to be getting a lot of press. I make no predictions about a so called bubble. I make it my job to know the markets that I play in. However, let's say the bubble pops next week......my property still exists, the land still has value, my rent still gets paid and my mortgage payment remains the same. And, if it does pop, the fed will have to lower rates again in the face of a bad economy and ARM rates will go down. I DO NOT HAVE TO TAKE ANY ACTION.

6. As I have noted, price increases are not in all markets. Some markets have gone up and others have stagnated. However, prices continue to appreciate because falling interest rates and creative mortgage products allow people to stretch their monthly payments to afford more expensive houses. PRICES INCREASE BECAUSE OF SUPPLY AND DEMAND. Low rates and lower "qualifying" monthly payments have helped more particpate, no doubt If the price to rent ratio is out of historical whack, couldn't we see rent prices go up instead of home prices go down? In fact, as prices have gone up, won't that throw more people into the rental pool, driving up price on more demand? Just asking, not telling.

7. In his new book Unconventional Success, David F. Swensen tears shreds off the mutual fund industry and concludes "Nearly insurmountable hurdles confront ordinary investors."There are no such hurdles facing individuals investing in their local real estate markets.

8. If housing were to go down, "leveraged" consumers will not be any more levergaed and therefore they do not need to sell.The media is playing a real number on people's psyche regarding the premise that everyone will be selling once real estate stops going up. According to PMI, the number of investor loans taken out increased slightly from 7+% in 2000 to 11% in 2005.

9. There has never been a Real Estate bubble. Doesn't mean it can't happen now. But, what are the chances that if you bought a house for $500,000 today and the bubble "pops", that it's values goes down to $250,000 or even $150,000? And, can there be a financial bubble if it doesn't pop?

10. Last spring I attended a Mutual Fund Retirement Seminar in Phoenix. There were about 200 older people there. The host asked everyone to raise their hand if they plan to sell their home and move into a rental unit. About 3 hands went up. How does a real estate bubble pop if everyone remains in their home?

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