Monday, April 25, 2005

CA Rush To Get Out Bids Up Albuquerque

The California price boom is driving markets in other areas of the country, as this Albuquerque Tribune story relates. "'We're meeting with at least one new West Coast person a week looking to get into this market,' Romero said."

"They're looking for tax-deferred 1031 exchanges. Investors are bailing out of California in fear the bubble there will burst. They're moving their equities out."

So much for the localized RE market. Those high prices in LA have another side effect. "In Los Angeles, the rate of return is about 4.5 percent. In Albuquerque the rate is from 5.5 percent to 7 or 8 depending on the property."

Not only are Californians cashing out, but the tax law is enticing them to bid up other "safer", areas. The big increase in sales and prices reported today is critical, because for every seller you have a buyer and now, further to fall.

6 Comments:

At 3:08 PM, Anonymous Anonymous said...

Reminds me of when dot com investors shifted their portfolios from dot com stocks to telecom stocks.

 
At 3:19 PM, Blogger realist said...

great timing. they're buying into alburquerque at a time when vacancies are moving up.

 
At 4:13 PM, Anonymous bigdeal said...

It's amazing how so much of this nonsense is fueled by tax policy. I can't tell you how many people I know are making decisions based on tax benefits, 1031 exchanges, etc.

When I mention that a capital loss of 20% would make those tax benefit meaningless, it falls on deaf ears. No one believes real estate can tumble. No one.

At some point, this game will end, tax benefits or no tax benefits. While some folks are sitting on big equity gains, real estate is a zero-sum game. If I make a lot of money by selling my home to you, all that happens is that the wealth is transferred. Now you have a giant debt to pay off that could represent 35-45-55% of your annual income.

Of course, housing costs can't exceed 100% of annual income. Or can it?

 
At 5:14 PM, Anonymous Anonymous said...

I believe you, I believe you!

I believe real estate can tumble!

 
At 6:11 PM, Anonymous Anonymous said...

bigdeal, you don't know what you're talking about! People could easily pay 125% or more of their income by borrowing against the equity in their houses! Since real estate always goes up, this shouldn't be a problem.

 
At 6:13 AM, Anonymous Jim in Venice said...

Vegas I get. Phoenix I get. But Albuquerque??? What's next, El Paso???

It's like California'a manifest destiny to methodically inflate the prices in every southwestern city.

 

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