Saturday, April 16, 2005

Economist On "Nationwide Tour"

The GrantsPass News couldn't wait till Sunday to run this cartoon. "I believe that in years to come, historians will see the beginning of the 21st century as the 'golden age' of real estate."

With the plaster falling down around his head, and all those copies printed, these are busy times "promoting his new book on a recent nationwide tour." You can almost hear the rustle of pom-poms. "His infectious enthusiasm is as strong as his theory."

You simply must view things his way. "Like other experts, Lereah wants to start any discussion of real estate booms and busts by redefining what a boom is."

Isn't it possible that "when interest rates hit a 40-year low", that we may not see rates that low for another 40 years? Is it really a positive that "relaxed credit terms allowed more people to buy."

"You can have a downturn and still be in a boom period. A home is no longer a place to live.."

10 Comments:

At 9:54 AM, Anonymous Anonymous said...

I have reserved some space on my shelf for this book right next to "DOW 36,000 : The New Strategy for Profiting from the Coming Rise in the Stock Market."

 
At 10:01 AM, Anonymous Anonymous said...

I am waiting to buy mine at a foreclosure auction.

 
At 12:07 PM, Blogger John Law said...

how embarassing must it be to have your professional career as a milestone marker of a bubble? btw- glassman writes the worst column ever, I can't believe it's in my paper.

 
At 1:24 PM, Blogger Ben Jones said...

john,
(how embarassing must it be to have your professional career as a milestone marker of a bubble?)

He probably figures he may as well make a buck. He is the least objective "economist" I have ever heard.

 
At 5:42 PM, Blogger John Law said...

(Echo boomers, the next largest population wave are entering the homebuying market as first-time home buyers.) except because of the housing bubble they can't afraid a freakin home. if they can, they probably need some crazy mortgage.

 
At 6:06 PM, Anonymous Anonymous said...

I agree with you guys, except that I'e heard more than one analyst lately state that they expect US interest rates to stay low and the US dollar to stay strong.

It doesn't make sense given the US's deficits and lack of economic growth, yet as long as the US is doing better than europe and Asia has huge surpluses, where are people to put their money ? If they keep pumping it into the US, the RE boom will continue.

Somthing has to break this cycle. I don't know what it will be other than lack of ever more buyers, but I think it might take even more than that.

I smell a stock market crash coming this week. That might do it.

 
At 6:26 PM, Blogger John Law said...

(Robert A. Knakal, chairman of Massey Knakal Realty Services, said that in the mid-1980's and early 1990's, investors could expect an 8 to 10 percent annual return on rental properties. Today, he said, investors are buying properties with yields ranging from 3 to 6 percent.

"They're not being foolish," said Mr. Knakal, whose firm specializes in selling apartment buildings, commercial properties and town houses. "They're looking at it differently than people who have been in the market for a very long time, because sometimes historical perspective is a negative thing. People will look at a transaction - if they've been in the market a long time - and say, 'I could have bought that property for $50 a square foot or gotten a 9 percent return and today it's selling for $600 a square foot and the cap rate is 4½ percent.' And they can't bring themselves to pay that type of price and someone with a fresh perspective looks at it and says, 'A 4½ percent return is not so bad; I'll take it.' " )

the "new era" in RE needs to get rid of the old people and bring in the new! ahahah

(Ms. Bianco said that eight years ago, a foreign client she represents bought a one-bedroom apartment at 166 East 63rd Street for $280,000. Ms. Bianco furnished the apartment and found a tenant, who paid $3,500 a month. Three years later, the client sold the apartment for $585,000, she said. To qualify for a like-kind exchange and defer capital gains, the money was used to buy a three-bedroom apartment at 134 East 93rd Street, for $616,000. The apartment already had a tenant, paying $5,500 a month, and the rent has since increased to $6,000 a month.

The client recently had the apartment appraised at $1.4 million and took out a $1 million mortgage on the property to finance another real estate purchase, Ms. Bianco said. )

this foreign investor has been a smart long-term investor, he's done pretty good. but he's gone and messed it up with a new purchase. he made money when you consider the dollar went up for years, but now he's going to get killed on his property prices, his new mortgage and on his US dollar exposure. even smart money makes mistakes.

 
At 7:06 PM, Blogger Ben Jones said...

(US interest rates to stay low)

Personally, I think the bubble has been bursting for months and will continue regardless of rates.

Thanks for commenting.

 
At 8:25 PM, Anonymous Bill said...

I agree with you, Ben. I believe the market has peaked, too.In the Vancouver area, history will shoe that it peaked last May.

 
At 1:22 PM, Anonymous timesiscrazee said...

---(Robert A. Knakal, chairman of Massey Knakal Realty Services, said that in the mid-1980's and early 1990's, investors could expect an 8 to 10 percent annual return on rental properties. Today, he said, investors are buying properties with yields ranging from 3 to 6 percent. ---

I'd give my left (insert favorite body part) to find an "income" property in the Bay Area that throws off 3-6%.

Everything around here is pure negative cash flow as far as the eye can see. Everyone ASSUMES asset inflation so they don't care that they will be losing money every month. And yes, that includes apt buildings.

In fact, we just sold two very long-held buildings in SF last fall. They were throwing off good income (fully paid for...no mortgage). But at some point, ya gotta sell if someone makes you an offer you can't refuse. The new buyer will be losing money every month. We loaned him half the money to buy them at 5.5%---pretty much what we were earning by owning them. But now he's the guy who's gonna have to put in the new elevator, new windows, and deal with rent control and the People's Republic of San Francisco.

Of course, we won't benefit from future appreciation. But since these buildings have doubled in the past five years (in a rent-controlled market where vacancies are now 12% vs. 1% five years ago), we'll take that chance.

Folks may be right in thinking we are in for a long period of very low returns on investments (if any). But that's no excuse for overpaying for property. Hell, if they want a 3% return, just buy a freaking T-bill. No headaches about tenants or property problems and no worries over a fall in property values.

 

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