housing a sucker’s bet now?

[urbanrealtor]

While I agree with your basic thesis, the one thing I would add is the investment dimension.

For the people buying for the purpose of renting the property out, the magic number I am seeing is 8% return on their investment annually.

If someone feels that they are getting about 1/12th of their money back each year, that seems to make sense for them.

[Fearful]

[quote=urbanrealtor]While I agree with your basic thesis, the one thing I would add is the investment dimension.

For the people buying for the purpose of renting the property out, the magic number I am seeing is 8% return on their investment annually.

If someone feels that they are getting about 1/12th of their money back each year, that seems to make sense for them.[/quote]
That accepted metric, often called the cap rate, will change substantially. I still hear it said that the reason one accepts single digit returns on real estate is because of the upside potential. That will shift to demanding double digit returns to compensate for downside potential.

It is hard to imagine a rational investor accepting 8% returns on a risky, illiquid asset. Then again, the owner of the house I am renting is accepting -9%. Yes, that is a minus sign. Go figure.

[Fearful]

[quote=urbanrealtor]While I agree with your basic thesis, the one thing I would add is the investment dimension.

For the people buying for the purpose of renting the property out, the magic number I am seeing is 8% return on their investment annually.

If someone feels that they are getting about 1/12th of their money back each year, that seems to make sense for them.[/quote]
That accepted metric, often called the cap rate, will change substantially. I still hear it said that the reason one accepts single digit returns on real estate is because of the upside potential. That will shift to demanding double digit returns to compensate for downside potential.

It is hard to imagine a rational investor accepting 8% returns on a risky, illiquid asset. Then again, the owner of the house I am renting is accepting -9%. Yes, that is a minus sign. Go figure.

[Fearful]

[quote=urbanrealtor]While I agree with your basic thesis, the one thing I would add is the investment dimension.

For the people buying for the purpose of renting the property out, the magic number I am seeing is 8% return on their investment annually.

If someone feels that they are getting about 1/12th of their money back each year, that seems to make sense for them.[/quote]
That accepted metric, often called the cap rate, will change substantially. I still hear it said that the reason one accepts single digit returns on real estate is because of the upside potential. That will shift to demanding double digit returns to compensate for downside potential.

It is hard to imagine a rational investor accepting 8% returns on a risky, illiquid asset. Then again, the owner of the house I am renting is accepting -9%. Yes, that is a minus sign. Go figure.

[Fearful]

[quote=urbanrealtor]While I agree with your basic thesis, the one thing I would add is the investment dimension.

For the people buying for the purpose of renting the property out, the magic number I am seeing is 8% return on their investment annually.

If someone feels that they are getting about 1/12th of their money back each year, that seems to make sense for them.[/quote]
That accepted metric, often called the cap rate, will change substantially. I still hear it said that the reason one accepts single digit returns on real estate is because of the upside potential. That will shift to demanding double digit returns to compensate for downside potential.

It is hard to imagine a rational investor accepting 8% returns on a risky, illiquid asset. Then again, the owner of the house I am renting is accepting -9%. Yes, that is a minus sign. Go figure.

[Fearful]

[quote=urbanrealtor]While I agree with your basic thesis, the one thing I would add is the investment dimension.

For the people buying for the purpose of renting the property out, the magic number I am seeing is 8% return on their investment annually.

If someone feels that they are getting about 1/12th of their money back each year, that seems to make sense for them.[/quote]
That accepted metric, often called the cap rate, will change substantially. I still hear it said that the reason one accepts single digit returns on real estate is because of the upside potential. That will shift to demanding double digit returns to compensate for downside potential.

It is hard to imagine a rational investor accepting 8% returns on a risky, illiquid asset. Then again, the owner of the house I am renting is accepting -9%. Yes, that is a minus sign. Go figure.

[peterb]

I will add my usual comment of caution in this market. Take a quick read of this guys analysis and see if you buy his logic:

http://www.howestreet.com/articles/index.php?article_id=7871

Remember, if you’re bottom fishing, RE does not turn on a dime. So you’re safe in waiting for some reversal indicators before you buy. But, if you really want to own a house and you feel quite confident that you will keep your job in the next few years….prices are lower than they’ve been in 5 years, etc…

[peterb]

I will add my usual comment of caution in this market. Take a quick read of this guys analysis and see if you buy his logic:

http://www.howestreet.com/articles/index.php?article_id=7871

Remember, if you’re bottom fishing, RE does not turn on a dime. So you’re safe in waiting for some reversal indicators before you buy. But, if you really want to own a house and you feel quite confident that you will keep your job in the next few years….prices are lower than they’ve been in 5 years, etc…

[peterb]

I will add my usual comment of caution in this market. Take a quick read of this guys analysis and see if you buy his logic:

http://www.howestreet.com/articles/index.php?article_id=7871

Remember, if you’re bottom fishing, RE does not turn on a dime. So you’re safe in waiting for some reversal indicators before you buy. But, if you really want to own a house and you feel quite confident that you will keep your job in the next few years….prices are lower than they’ve been in 5 years, etc…

[peterb]

I will add my usual comment of caution in this market. Take a quick read of this guys analysis and see if you buy his logic:

http://www.howestreet.com/articles/index.php?article_id=7871

Remember, if you’re bottom fishing, RE does not turn on a dime. So you’re safe in waiting for some reversal indicators before you buy. But, if you really want to own a house and you feel quite confident that you will keep your job in the next few years….prices are lower than they’ve been in 5 years, etc…

[peterb]

I will add my usual comment of caution in this market. Take a quick read of this guys analysis and see if you buy his logic:

http://www.howestreet.com/articles/index.php?article_id=7871

Remember, if you’re bottom fishing, RE does not turn on a dime. So you’re safe in waiting for some reversal indicators before you buy. But, if you really want to own a house and you feel quite confident that you will keep your job in the next few years….prices are lower than they’ve been in 5 years, etc…

[SD Realtor]

Housing is no more of a suckers bet then it was yesterday or last week or month. As discussed over and over again, you need to analyze why you are buying a home and where you are buying a home. Regional differences are quite staggering. If you are purchasing a property as an investment then as UR said, simply run your numbers to check out the cap rate. It is arguable that 8% is a good cap rate, however in this environment of today I would take it in a heartbeat. As pointed out by others whether that will be considered good a few years from now is an unknown.

If you are considering the home as your primary residence then that is another question altogether. If you are asking, “have we hit bottom yet” the simple answer is no, not even close.

If you are basing a decision to buy a home on proximity to market bottom then sign a multi-year lease and ignore the market another few years. How much risk have we already bled out of the market depends on where you are looking and what type of home you are looking for. Over the past year we have been given a glimpse of what sort of government backed measures will be taken to subsidize the housing market. Those efforts will indeed begin to take effect and we will ABSOLUTELY see additional steps taken. I absolutely expect a foreclosure moratorium to be put in place sometime in early 2009. Whether it will be 90 days or longer is the only question. This will be put in place while another TARP type of program will be created only this time the goal will not be to bail out lenders and businesses but more in line with racheting the cost of ownership down for the current homeowner. The goal will be to prevent foreclosures.

This will not halt the secular depreciation trend but it will indeed stem the foreclosure flow. This will also create a relatively unbalanced market where people who get to stay in thier homes will effectively be lowering comps BUT those comps will never be realized by the open market of true resales. The result will be a Japan style real estate market that should be a slow moving beast for several years.

My hope is that I am wrong. I am not saying foreclosures or distressed properties will halt. However there will indeed be a reduction, more then people care to admit. Rather then a huge second wave I think it will be more like a long drawn out rising tide, slowing and inexhaustibly washing in. Again, some markets have already hit a point where alot of risk has been washed out. What will be particularly interesting to me will be the dilema of the distressed homes in the 600k-2M range. My hope is that nothing will happen to these homes.

Adam

[SD Realtor]

Housing is no more of a suckers bet then it was yesterday or last week or month. As discussed over and over again, you need to analyze why you are buying a home and where you are buying a home. Regional differences are quite staggering. If you are purchasing a property as an investment then as UR said, simply run your numbers to check out the cap rate. It is arguable that 8% is a good cap rate, however in this environment of today I would take it in a heartbeat. As pointed out by others whether that will be considered good a few years from now is an unknown.

If you are considering the home as your primary residence then that is another question altogether. If you are asking, “have we hit bottom yet” the simple answer is no, not even close.

If you are basing a decision to buy a home on proximity to market bottom then sign a multi-year lease and ignore the market another few years. How much risk have we already bled out of the market depends on where you are looking and what type of home you are looking for. Over the past year we have been given a glimpse of what sort of government backed measures will be taken to subsidize the housing market. Those efforts will indeed begin to take effect and we will ABSOLUTELY see additional steps taken. I absolutely expect a foreclosure moratorium to be put in place sometime in early 2009. Whether it will be 90 days or longer is the only question. This will be put in place while another TARP type of program will be created only this time the goal will not be to bail out lenders and businesses but more in line with racheting the cost of ownership down for the current homeowner. The goal will be to prevent foreclosures.

This will not halt the secular depreciation trend but it will indeed stem the foreclosure flow. This will also create a relatively unbalanced market where people who get to stay in thier homes will effectively be lowering comps BUT those comps will never be realized by the open market of true resales. The result will be a Japan style real estate market that should be a slow moving beast for several years.

My hope is that I am wrong. I am not saying foreclosures or distressed properties will halt. However there will indeed be a reduction, more then people care to admit. Rather then a huge second wave I think it will be more like a long drawn out rising tide, slowing and inexhaustibly washing in. Again, some markets have already hit a point where alot of risk has been washed out. What will be particularly interesting to me will be the dilema of the distressed homes in the 600k-2M range. My hope is that nothing will happen to these homes.

Adam

[SD Realtor]

Housing is no more of a suckers bet then it was yesterday or last week or month. As discussed over and over again, you need to analyze why you are buying a home and where you are buying a home. Regional differences are quite staggering. If you are purchasing a property as an investment then as UR said, simply run your numbers to check out the cap rate. It is arguable that 8% is a good cap rate, however in this environment of today I would take it in a heartbeat. As pointed out by others whether that will be considered good a few years from now is an unknown.

If you are considering the home as your primary residence then that is another question altogether. If you are asking, “have we hit bottom yet” the simple answer is no, not even close.

If you are basing a decision to buy a home on proximity to market bottom then sign a multi-year lease and ignore the market another few years. How much risk have we already bled out of the market depends on where you are looking and what type of home you are looking for. Over the past year we have been given a glimpse of what sort of government backed measures will be taken to subsidize the housing market. Those efforts will indeed begin to take effect and we will ABSOLUTELY see additional steps taken. I absolutely expect a foreclosure moratorium to be put in place sometime in early 2009. Whether it will be 90 days or longer is the only question. This will be put in place while another TARP type of program will be created only this time the goal will not be to bail out lenders and businesses but more in line with racheting the cost of ownership down for the current homeowner. The goal will be to prevent foreclosures.

This will not halt the secular depreciation trend but it will indeed stem the foreclosure flow. This will also create a relatively unbalanced market where people who get to stay in thier homes will effectively be lowering comps BUT those comps will never be realized by the open market of true resales. The result will be a Japan style real estate market that should be a slow moving beast for several years.

My hope is that I am wrong. I am not saying foreclosures or distressed properties will halt. However there will indeed be a reduction, more then people care to admit. Rather then a huge second wave I think it will be more like a long drawn out rising tide, slowing and inexhaustibly washing in. Again, some markets have already hit a point where alot of risk has been washed out. What will be particularly interesting to me will be the dilema of the distressed homes in the 600k-2M range. My hope is that nothing will happen to these homes.

Adam

[SD Realtor]

Housing is no more of a suckers bet then it was yesterday or last week or month. As discussed over and over again, you need to analyze why you are buying a home and where you are buying a home. Regional differences are quite staggering. If you are purchasing a property as an investment then as UR said, simply run your numbers to check out the cap rate. It is arguable that 8% is a good cap rate, however in this environment of today I would take it in a heartbeat. As pointed out by others whether that will be considered good a few years from now is an unknown.

If you are considering the home as your primary residence then that is another question altogether. If you are asking, “have we hit bottom yet” the simple answer is no, not even close.

If you are basing a decision to buy a home on proximity to market bottom then sign a multi-year lease and ignore the market another few years. How much risk have we already bled out of the market depends on where you are looking and what type of home you are looking for. Over the past year we have been given a glimpse of what sort of government backed measures will be taken to subsidize the housing market. Those efforts will indeed begin to take effect and we will ABSOLUTELY see additional steps taken. I absolutely expect a foreclosure moratorium to be put in place sometime in early 2009. Whether it will be 90 days or longer is the only question. This will be put in place while another TARP type of program will be created only this time the goal will not be to bail out lenders and businesses but more in line with racheting the cost of ownership down for the current homeowner. The goal will be to prevent foreclosures.

This will not halt the secular depreciation trend but it will indeed stem the foreclosure flow. This will also create a relatively unbalanced market where people who get to stay in thier homes will effectively be lowering comps BUT those comps will never be realized by the open market of true resales. The result will be a Japan style real estate market that should be a slow moving beast for several years.

My hope is that I am wrong. I am not saying foreclosures or distressed properties will halt. However there will indeed be a reduction, more then people care to admit. Rather then a huge second wave I think it will be more like a long drawn out rising tide, slowing and inexhaustibly washing in. Again, some markets have already hit a point where alot of risk has been washed out. What will be particularly interesting to me will be the dilema of the distressed homes in the 600k-2M range. My hope is that nothing will happen to these homes.

Adam

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