posted 05-30-2005 09:14               

Each time I hear that question, I flash back to 1999 when I bought the book, "irrational exhuberance" by Robert Shiller. I was 100% sure at the time that we were in a technology bubble. I am sure I wasn't alone. That's why I bought the book.

But, as long as my portfolio was increasing at 20% per quarter, I just figured that I would stick with it for a while and I'd be able to get out when the bubble burst.... WRONG. (I am no Jim Cramer)

Flash forward to Memorial Day, 2005. Are we in a Real Estate Bubble? YES WE ARE. How can anyone who lived through the Stock Market bubble of 2000 not know that to be self evident? It's not a matter of if, it's a matter of when the bubble will burst. And, I believe virtually everyone will be effected. Remember, the stock market bubble was only for tech stocks. But, just think, were other stocks effected, too?

Well, I am sure some on this thread are going to argue that all real estate markets are local and there is no real estate bubble. And, they will argue that real estate has never decreased in value nationally, blah, blah, blah.

Let's face it folks. We are in a genuine real estate bubble. Places like where I live are just more pronounced than other places. How is it that Boca Raton, FL increased in value more than Palo Alto, CA?

And, I've experienced the impact when those bubbles burst. In Hawaii, in Japan, in the Northeast in the late 80's early 90's. It wasn't pretty. And, this one won't be any different.

So, I think the right question is NOT whether or not there is a real estate bubble. But, how can I capitalize on it?

posted 05-30-2005 09:33               

quote:

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Originally posted by BocaBum99:
Everywhere I look, I find an article or television program that asks the question, "are we in a Real Estate bubble?" Almost everyone answers, "I don't think we are in a national bubble, but there are local markets that are overheated."

Each time I hear that question, I flash back to 1999 when I bought the book, "irrational exhuberance" by Robert Shiller. I was 100% sure at the time that we were in a technology bubble. I am sure I wasn't alone. That's why I bought the book.

But, as long as my portfolio was increasing at 20% per quarter, I just figured that I would stick with it for a while and I'd be able to get out when the bubble burst.... WRONG. (I am no Jim Cramer)

Flash forward to Memorial Day, 2005. Are we in a Real Estate Bubble? YES WE ARE. How can anyone who lived through the Stock Market bubble of 2000 not know that to be self evident? It's not a matter of if, it's a matter of when the bubble will burst. And, I believe virtually everyone will be effected. Remember, the stock market bubble was only for tech stocks. But, just think, were other stocks effected, too?

Well, I am sure some on this thread are going to argue that all real estate markets are local and there is no real estate bubble. And, they will argue that real estate has never decreased in value nationally, blah, blah, blah.

Let's face it folks. We are in a genuine real estate bubble. Places like where I live are just more pronounced than other places. How is it that Boca Raton, FL increased in value more than Palo Alto, CA?

And, I've experienced the impact when those bubbles burst. In Hawaii, in Japan, in the Northeast in the late 80's early 90's. It wasn't pretty. And, this one won't be any different.

So, I think the right question is NOT whether or not there is a real estate bubble. But, how can I capitalize on it?

What are your thoughts on this subject?

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Well if your truly convinced then you should sell your real estate now including your home and just wait until the bubble bursts and you can re-purchase everything leaving you a nice profit.

Over time real estate has had it's ups and downs but in the long run it just keeps going up. When I purchased my first home I paid $51,000 and then mortgage rates went up to over 11% and I thought I would never be able to sell. Prices on my house kept going up to around $65,000 and when I sold the price dopped to $61,000 and I bought another house for $63,000 plus all of my closing and moving costs over a three year period I just about broke even. That was 24 years ago.

I have lived in this house ever since then and about 5 years ago the houses were selling on my block for around $260,000 then a year later I would have been lucky to get $200,000. During the past 4 years it's gone up like crazy and I can get over $500,000.

Should I sell now? Wish I knew the answer but right now I have about 4-5 more years before I retire and I still need to live somewhere in the NY area. So selling and buying something else wouldn't give me any profit and selling and renting is not something I would risk at this time.

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Larry

posted 05-30-2005 09:45               

quote:

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Originally posted by snelson:
... put all of your money into tulip bulbs.

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posted 05-30-2005 09:55            

BTW, I am one of the twelve people in this country who made money in the tech stock market (I'm not bragging because one could argue we pulled out too early as well) because I started my "history teacher" whine of "remember 1929...this can't go on forever" and my poor husband finally agreed to divest a healthy share of our investments. It isn't about being "right," it's about paying attention to history.

But I'm also with Larry on this one - I would love to jump the market before the bubble bursts, but where shall I live? I need to stay put in Southern NH for two more years. Short of someone paying twice the "market value," I have few options. I try not to think too hard about it. We got "caught" in the last New England real estate crash because of a job transfer and I cringe at being in the same situation but it IS only money - if no one dies, gets sick, gets scarred, we'll survive. Taoism....

Judi

posted 05-30-2005 11:13               

So unless the economy really drops, real estate will just cool a little until all of the demand has finally been met. If interest rates creep up, I expect that demand will spike up because buyers will panic and try to get something fast and lock in a good fixed rate.

If rates jump up real high real fast, it could affect the bubble, depending on how many existing mortgages are floating (THAT could get ugly!). In stocks, selling too soon isn't so bad, but selling your home too soon could be awful.

posted 05-30-2005 11:44               

quote:

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Originally posted by anne1125:
Ok, who's going to explain the tulip bulbs?

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try googling "tulip mania". (As other TUGgers have noted, If You Want ANY Information ....)

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Steve Nelson

posted 05-30-2005 12:42               

I dont doubt the real estate market will slow down as a result of increasing interest rates,but I dont think there will be any big drops in value. If history is any guide, a drop of 10 percent will be considered a large drop in value.

posted 05-30-2005 12:54               

After the tech bubble burst in 2000, he immediately sold his 401k stocks, too late of course. I tried to reason that stocks would cycle back in a few years but he would have none of that.

Then when his house was appraised at 5 times what he paid, he immediatly evicted his daughter and kids and sold all his furniture. By the time he realized an equally sized house or even slightly smaller house would cost him as much he could sell his old house, he had alienated his daughter and was looking at yard sales for furniture.

But, he still has his time share in Atlantic City. Wheather he wants it or not!

Take a deep breath and sleep on it, are wise words indeed.

Now, to look up those tulips.

Jack

posted 05-30-2005 12:57               

In St. Louis we have had a steady 7 – 8% increase in the real estate market for a decade – is it overheated? I think not.

The average house in Maui has doubled in the past 5 years – is it in a “bubble” – I think not. A similar house in Maui near the beach is still cheaper than a comparable home in Ft. Lauderdale or Miami. Are those markets in a “bubble” I just don’t know.

If a “bubble” were so clear either in the high tech stock market or the real estate market there would be very few losers and mega million rich folks who knew when to get out. A “bubble” is obvious to everyone AFTER it has broken and resulted in the loss of trillions of dollars.

I’m sure there are pockets of ultra hot real estate markets, namely southern California and these may indeed be a “bubble” but when will it burst? No one knows.

One thing is for certain the leading edge of the baby boomers are entering the second home market with a vengeance and these folks are snapping up condo-hotels so fast that the day they are announced the entire project is sold out – and the ground has yet to be broken for development. These projects take 2.5 – 3 years to build and they double in price like clock work.

There are condo-hotels being built from converted motels that sell for $80,000 in Orlando and these things are bought 2 or 3 at a time by folks who go to Orlando – even companies are jumping on the band wagon and buying these things for their employees to use for business and pleasure.

Here’s a sample of what I get every day: www.condohotelcenter.com

Here’s the one that I was talking about: www.condohotelcenter.com/alerts/heritage-park.htm

Supply and demand drive all markets and I think that 90% of the real estate market is far from the “bubble” state – IMHO.

So I haven’t a clue if the real estate market has hit a “bubble” and if or when it will break.

Perry
P.S. When we stayed at FF’s Ocean Walk in March a 1 BR just came up for sale (there are 220 whole ownership condos at Ocean Walk). The 1BR was one year old and was selling for 40% than what the owner paid – it sold in 2 minutes. Is the Daytona Beach market overheated – I really don’t think so, if anything its way below where it should be.

P.P.S. How long before timeshare-hotels? Instead of whole ownership a fractional ownership and a hotel. Now this makes sense for quarter-share ownership. When you don’t use it you rent it thru the hotel. Could this give timeshares a run for their money? Perhaps at the high end market to start with – followed by cheaper quarter-share. Who knows?

posted 05-30-2005 15:57               

We did however, buy a second home (condo) in a new development in HI a few years back and the prices have skyrocketed. What scared me most was as I got to know the owners more I found a great percentage were just flippers. In the three years we’ve been there prices have nearly doubled and some of the properties have sold two and three times. Just investors selling to investors. But almost any new development in HI is selling out in hours so there must be a lot of flippers in the world.

posted 05-30-2005 17:28               

We did however, buy a second home (condo) in a new development in HI a few years back and the prices have skyrocketed. What scared me most was as I got to know the owners more I found a great percentage were just flippers. In the three years we’ve been there prices have nearly doubled and some of the properties have sold two and three times. Just investors selling to investors. But almost any new development in HI is selling out in hours so there must be a lot of flippers in the world.

posted 05-30-2005 18:07               

Whadddddaaaa think.... midwest turn to a ghost town as everyone lives on the coast ???........Peter

posted 05-30-2005 18:28            

quote:

---

Originally posted by gmarine:
I dont doubt the real estate market will slow down as a result of increasing interest rates,but I dont think there will be any big drops in value. If history is any guide, a drop of 10 percent will be considered a large drop in value.

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Both the LA and LI/NY markets dropped by 40+% in the 80's.

I just read in Money magazine that 31% of all mortgages are now interest only loans.

I truly hope that there is no bubble and that things just slow down, but with all these interest only loans out there, if the market drops just a little then there's going to be a whole lot of people upside down in their homes. People won't be able to sell their homes without taking a big loss or declaring bankrupcy/foreclosure. Then, banks will be stuck with a lot of foreclosed homes that they can't sell without taking a big loss.

posted 05-31-2005 07:16            

quote:

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Originally posted by BocaBum99:
So, I think the right question is NOT whether or not there is a real estate bubble. But, how can I capitalize on it?

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Sell real estate. Buy Euros, which just fell 20 percent against the dollar.

posted 05-31-2005 11:11               

quote:

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Originally posted by snelson:
Sell your house and put all of your money into tulip bulbs.

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That's an original thought!!

posted 05-31-2005 11:11               

Another 1BR Ocean Walk sold just 3 weeks ago for $380,000! Bother were owned by the same owner and both are near the top of the building ocean front.

So in just 3 weeks price for a Ocean Walk has escaladed by almost $100,000 for a 1BR!

He still thinks the market is priced too low for Daytona Beach!

So is the market at Daytona in a “bubble”? We shall see.

posted 05-31-2005 11:13               

quote:

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Originally posted by KauaiMark:
(..I wonder how many people will get this reference in history..)

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... only those of us who are old enough and are of Dutch decent. LOL.

posted 05-31-2005 11:15               

quote:

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Originally posted by gmarine:

There is a huge difference between the stock market and real estate. People dont need to own stocks. They do need a place to live. With the ever increasing population there will be an ever increasing need for homes.

I dont doubt the real estate market will slow down as a result of increasing interest rates,but I dont think there will be any big drops in value. If history is any guide, a drop of 10 percent will be considered a large drop in value.

If you think that we are in for a big drop in real estate prices then there is no reason why you shouldnt sell your home, move to an inexpensive apartment and wait for the drop. Then buy back in. That is,if you are so sure.

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Your thoughts are more reasoned and probably is the most likely scenario that will unfold.

posted 05-31-2005 11:28               

And as a final reason why real estate prices will continue to rise: the horrendous inflation scenario the US Federal Reserve was forced to create to salvage the economy after 9-11 when the Fed eased up on interest rates to boost the flagging economies of the world.

The mantra for the next ten years is to see the world globablly and analyze how the various parts interact.

posted 05-31-2005 12:26            

quote:

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Originally posted by KauaiMark:
(..I wonder how many people will get this reference in history..)

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Well, I was ROFL when I first read Steve's post. But then 15 years working with economists gives one an inside track on jokes of the realm.