- This topic has 14 replies, 5 voices, and was last updated 18 years, 3 months ago by sdduuuude.
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July 17, 2006 at 11:12 AM #6901July 17, 2006 at 1:23 PM #28593powaysellerParticipant
I have liquid assets, because I sold my San Diego house. I am totally afraid of buying real estate anywhere in this country, becaue of the loose lending, which has caused buyers nationwide to overextend themselves. This is causing foreclosures to rise nationwide, and prices will drop. What city is immune from this problem? Not Texas, not Nebraska…
I am in CDs, but want to put some money in hard assets, like 5% gold, 10% oil stocks… I am reading a book about peak oil, and I believe we are at peak oil, and that it could easily go to $200/barrel. Wouldn’t an oil investment be a good money maker? I haven’t finished the book yet, but will summarize it by tomorrow on this site.
Before you invest in real estate, I would verify that the local prices are a historical median multiple of wages, that months supply is less than 3, HAI (housing affordability index) is at the historic median, that very few exotic loans were made, that there has not been major appreciation yet, and that the area will have the types and number of jobs to weather the recession. By the latter, I mean an economy not dependent on construction, realtors, lending, retail, tourism, restaurants, as San Diego. SD’s economy is not diversified at all, and many here will lose their jobs when the next recession comes along, and when we can no longer make money buying and selling homes to each other.
So I remain interested: does any city in this country meet this criteria? I do not know of any, but it could exist.
July 17, 2006 at 1:30 PM #28596bob007ParticipantThe idea is to purchase apartments/condos in large metropolitan areas like Dallas where the price/rent ratios are not high compared to coastal California. Dallas is not immune to a recession. I do not see any speculative excess built into its real estate market.
I am not against oil and gold investments. I own a gold mutual fund. I believe in diversification. Having all of your hard earned money in cash seems silly if you get hit by inflation.
July 17, 2006 at 1:39 PM #28597powaysellerParticipantI agree that being in all cash is silly if inflation hits. I parked in CDs while I figure out what to buy. But for now, my principal is safest in CDs, since gold and real estate seem overpriced.
Dallas is a high risk area, since it is #3 in the nation for foreclosures, indicating speculative excess and that prices have a long way to fall.
Here’s a 2 copies of an article on Ben’s foreclosure report.
QUOTE
Some foreclosure news from around the US. “Indianapolis, Atlanta and Dallas have the highest foreclosure rates among the nation’s 100 largest metropolitan areas, according to an industry report released today. ‘Indianapolis narrowly edged out Atlanta as the city with the highest foreclosure rate in Q1,’ said James Saccacio. ‘Most of the cities with the highest foreclosure rates have above-average unemployment rates and below-average home-price appreciation.'”“Saccacio added that other economic factors such as decreasing affordability, rising interest rates and speculative buying can also fuel foreclosures. He cited Jacksonville, Fla., and Las Vegas, both of which documented foreclosure rates in the top 10 despite below-average unemployment and above-average home-price appreciation.”
“‘Because of the high home prices in many areas, more home buyers have stretched themselves financially with creative, and often risky financing that involves adjustable interest rates, interest only and negative amortization loans’ Saccacio said. ‘Home buyers with these types of loans are more susceptible to default and foreclosure when interest rates move higher.'”
Top Ten Metro Foreclosure Rates:
1. Indianapolis
2. Atlanta
3. Dallas
4. Memphis, Tenn.
5. Denver
6. Detroit
7. Jacksonville, Fla.
8. San Antonio
9. Canton, Ohio
10. Las Vegas
END QUOTEQUOTE
The Dallas News reports on defaults in the metroplex. “The surge in North Texas home foreclosures shows no sign of abating. Next month, 2,961 homes are scheduled for foreclosure. That’s a 26 percent jump from the number of foreclosure postings for August 2005, Foreclosure Listing Service Inc. reported Thursday.”“Through the first eight months of 2006, more than 24,000 Dallas-Fort Worth area homes have landed on the foreclosure list. That’s an increase of 15 percent from the same period last year.”
“Dallas County had the largest number of homes facing foreclosure in the latest survey. More than 1,400 residences are scheduled for sale at next month’s foreclosure auction. That’s 30 percent more than in August 2005.”
“‘Many households that were barely squeaking by last year will be pushed off the edge by these extra costs,’ George Roddy said. ‘With both the cost of living expenses and interest rates expected to continue rising, I anticipate that foreclosure postings will remain high for some time and may even reach a higher level than we have seen thus far this year,’ Mr. Roddy said.”
“The biggest jump in August foreclosures was in Collin County, which saw postings rise by 34 percent. Foreclosure postings in Denton County were up by 30 percent.”
“Texas has one of the highest home foreclosure rates in the country. Because the state has lagged behind the rest of the nation in home appreciation, homeowners who get in financial trouble sometimes find they don’t have enough equity built up in a house for a quick and profitable sale.”
END QUOTEJuly 17, 2006 at 1:44 PM #28598bob007ParticipantWouldn’t the high foreclosure rate be an indication of a buy signal ?
July 17, 2006 at 1:52 PM #28600no_such_realityParticipantTo rain on your parade for a minute, but with $200K liquid, IMHO, you don’t really have the money to be looking at large scale apartment investments in remote cities. For small scale, it’s in tune with the housing market.
Also, if you don’t have rental property investment experience, your first one being in a remote city pretty much makes it a suicide run.
July 17, 2006 at 2:00 PM #28601powaysellerParticipantForeclosure rates are low when housing prices rise quickly and the economy is good, so high foreclosure rates mean “stay far away”.
The last 5 years in CA, foreclosure rates have been abnormally low, because prices were rising so fast. When a homeowner ran into payment trouble, they listed their home for sale, and within days, they got their asking price. There is a normal national foreclosure rate of under .5%, due to illness, job loss, mental problems, etc.
As housing prices flatten out, or decline, it is impossible to sell the house for the mortgage amount, so the homeowner just lets the bank foreclose. What is raising the foreclosure rates in CA is the use of exotic loans. In other cities, like Denver, it’s the poor economy.
When you see foreclosures rising, you have a lagging indicator that homeowners did not have the wages or employment to make their mortgage payment PLUS the demand for homes is so poor that they could not find a buyer during the long preforeclosure period.
Foreclosures put a lot of downward pressure on prices, because the bank is a very motivated seller, and they will sell at a rock bottom price. But before you think you are getting a good deal, beware that with all the recent real estate seminars, the competition at the auctions usually leads to people paying above market prices, plus you don’t get to see the house or do an inspection first: it’s as-is, not a good way to buy a house in my opinion.
In a period of declining prices, why buy? Why catch a falling knife? How do you know that prices won’t keep falling? Today’s $350K foreclosure house could be worth $290K next year, $213K the next year, etc.
I am waiting to buy until prices come back up, as indicated by the leading indicators. NOT median price, which is a 2 year lagging indicator. Prices in SD have been falling 2 years, and our median just showed it this month.
Work with a good realtor, who can keep you tied in to the months supply, HAI, and can tell you when prices are starting to turn around.
I am sure there is money to be made in real estate somewhere, but I do not know where. Definitely, not residential. Maybe land used for oil drilling, or areas where people might buy housing if oil rigs come to town, or some other unique idea. I think commercia/retail is still spending, as they lag the slowdown by 9-12 months, and since retail is just now slowing, they have already made their building construction plans are completing them. My friend is a RE attorney in Phoenix, and just finished the legal work on a very large retail center in Phoenix; by next year, the anchor tenants will not be in the mood to rent/build these buildings, but today, maybe they are still out buying land. I have no knowledge of these things, though. Perhaps others on this forum do.
Why real estate? Why not oil stocks, Precious metals, euros, yen? I also want to diversify, but am in cash until I figure it out. Why not farmland, water? Isn’t water supposedly in short supply?
July 17, 2006 at 2:02 PM #28602bob007Participantthanks for the comment.
i was looking to buy a small home/condo and rent it out. the idea is that the rent pays the mortgage. i have not completely worked out the math from taxes/maintenance/collection agency (if i need one).
dallas would be a prime area of interest.
July 17, 2006 at 2:14 PM #28605powaysellerParticipantWell, if you can buy a house for 8-10x the annual rent income, then the price is right. OTOH, your house will decrease in value, because of the high foreclosure rates there. Depending on the types of jobs there, which I have not researched, the upcoming recession could result in more job loss, and more foreclosures.
Again, why the interest in rental properties? The housing boom is over?
I hope I am not offending you, but your interest in buying rental property now is like someone wanting to buy Qualcomm in April 2000 (one month after the collapse started). So we are past the peak, and coming down.
Don’t feel bad, I also missed the real estate run-up. I thought this whole thing was crazy. If I’d been smart, I would have flipped properties from 2000-2003. Now it is too late, but let’s look for where we can make money…For now, I am preserving my assets in CDs, but will oil, commodities, gold be the next bubble? Is there enough global liquidity to support another bubble, or are the bubble years gone? Can any asset rise by more than the 5.5% paid by CDs?
July 17, 2006 at 3:37 PM #28613bob007Participantyou are not offending me. I welcome sharp critiques and different opinions.
my argument is that Uncle Sam is printing dollars like a drunken sailor. Why keep all my assets in dollars ? I hold some $$$ in foreign bond funds, foreign equity funds and gold funds.
I am not worried about the value of the house over 20 years. Dallas, Houston, Indianapolis have bad real estate markets. They have kept pace with inflation with little appreciation. Essentially I am hoping to get some schmuck to pay my mortgage (at least most of it).
If I was making a bet Texas should have a good job creation record with its pro-business climate.
July 17, 2006 at 3:40 PM #28614SD RealtorParticipantFor what it is worth, the most successful RE investors know the market (geographical location where they are investing in) well. Don’t rely on stats, do the work yourself… travel…. If possible choose a place you have been or plan to visit or maybe have a relative. When you create your spreadsheet make sure you allocate all of your costs accordingly. I know this is all basic stuff and you may know all this… yet… ya never know. Check for demographics and find fast growing communities. 4 years ago my wife BEGGED me to by land in the Imperial Valley and I poo pood it… maybe not a good idea on my part. Research fast growing cities, research where Wal-Marts, Home Depots and other signs of infrastructure growth are occurring. Not long ago I saw a posting by Powayseller about Yuma… now I don’t know if it is good or bad there but every year or two I drive through it, including about 2 weeks ago and every year it is bigger and bigger…
You may also want to think of joining investment groups and work with people who have done it before.
July 17, 2006 at 6:16 PM #28628bob007ParticipantI completely agree with SD Realtor that you need to know the market before you buy. I was not planning to make an impulsive purchase. I was evaluating different options.
July 17, 2006 at 8:27 PM #28633sdduuuudeParticipantConsider this article – from early 2005.
Prof Piggington linked to it long ago.
I keep it around because it shows distinctions between the cyclicality of different cities. At this point in the cycle, it would be better to look at markets that are less cyclical to avoid plummeting prices.Also, consider Japanese real estate. I don’t know anything about it, but after 15 years of flatness, it may be ready for growth, and it would get you out of dollars.
July 18, 2006 at 3:13 AM #28667powaysellerParticipantsduuude, fascinating article by Cagan, and much more honest than his more recent work. He has data showing that San Franciso, LA, and SD home prices turned negative in certain areas in 2005. He was ahead of his time! I am interested in your comment about Japanese real estate: since their market is turning up, it would be a way to invest in an non-US asset and diversify out of dollars. Are there any funds which invest in Japan real estate? Or did we miss the bottom of Japan real estate, and the price is so high again?
July 18, 2006 at 1:16 PM #28729sdduuuudeParticipantFor the most part, this is the article that convinced me to sell last year.
Japan has been flat for years and years. I’d be surprised if we missed the bottom, as it hasn’t really come up yet.
Even so, the high-growth period in the cyle comes after the bottom, anyway so missing it isn’t so bad.
I wish we could find the Piggington-son site that does brilliant, in-depth analysis on Japanese real estate, with lots of data.
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