All Forum Posts by: Ryan B.

Lashtal, again, I mean no disrespect, but I cannot in good conscience let you say something like that without responding. This statement is just plain wrong. Anyone who spends a few minutes online can easily see that.

For instance:
http://duende.uoregon.edu/~hsu/blogfiles/shiller-real.gif

Since WW2, after adjusting for inflation, home prices were pretty much constant in the long run. There were temporary run-ups in the late 1970s and late 1980s, but they quickly corrected back to the long-term trend. There is no good reason to think the current recent run-up will end any differently than those two did. Japan (talk about a place where land is scarce!!) had a big run-up in the late 1980's similar to the one we have now and home prices have fallen there for 17 straight years, to the point where you can buy stuff now for HALF what it would have cost in 1990. So although I admit it is possible to wait too long and miss out on good investments, it is also possible to jump in too soon and lock yourself into bad ones for a long time.

If you want to talk about specific markets instead of national ones, I can tell you that the one I live in (So Cal) absolutely tanked for half a decade in the early 90's. From 1991 to 1996, median inflation-adjusted prices in LA County fell by 31%. Many individual areas fell much more. Thousands of investors went bankrupt and lost all their equity.

Even if prices do always go up in the long term (which itself is not certain), if you are losing money in the short term, you may not be able hold out that long. Look, real estate can be a great investment. That's why we are all here to learn about it, right? :D If you find a good cashflow investment then awesome, go for it! But anyone who thinks that appreciation is going to bail them out of a low or negative cashflow situation is gambling, pure and simple.

T-bone77, I definitely see your point. You are absolutely correct that if someone is looking to invest right now, and finds a deal with good cashflow, falling prices are not a reason to wait And many if not most of the people on this board probably fall into this category. More power to them - I wish them well. However if you only have the savings, credit, and time to make a few long term investments, then it can also be a good idea to wait for the great deals instead of the merely good ones.

Lets say I find a place right now that I can buy for 150X monthly rent. OK, not bad, I could probably buy this and hold it for 20 years and do just fine. But suppose I wait a couple years for the normal market cycle to play out. Back in the mid 1990s in my area, there were lots of great properties that could be had for 100-120X monthly rent. Over the same 20 year span, these are going to yield much better profits, even considering the 150X place has a 3-4 year head start.

I guess my point is that depending on your overall strategy, then ones evaluation of where the market is headed can be a legit reason to wait. It is not automatically a sign of laziness or cowardice as many comments seem to imply.

"I personally think that there is no excuse for not investing in real estate."

Seriously?

What if you thought that the market price of an asset was going to fall by a large amount in the near future? Seems to me that this is an excellent argument, whether or not you believe the proposition is true.

No disrespect intended... I am genuinely curious. Do you not believe that residential real estate prices are not poised for a large fall, or do you believe that even if they are it's still a good time to invest? Or both?

I am not investing yet because right now it is very difficult to find properties that will come even close to cash flow positive. Even more to the point, I believe that residential property values are poised to fall by large amounts in the near future where I plan to invest (Southern California) because of the existing real estate bubble. Why would I buy something now when I am confident that I can purchase it at 40 or 50% off in a few years?

GreenHorizons, you are mistaken. It is clear from recent history that prices certainly can fall quite a lot in places like Southern California and NYC. From 1991 to 1996, median inflation-adjusted prices in LA County fell by 31%. Many individual areas in So-Cal fell much more; looking at the sales histories on zillow.com I can find countless examples of houses that sold for around 40% off the 1991 peak. I don't have the exact stats, but my understanding (correct me if I'm wrong) is that NYC and several other high-cost cities experienced significant declines in the early 1990's as well. And don't try to claim it was because of the recession or the cutbacks in defense spending - leading indicators of a housing bust such as declining home starts and rising inventory started in 1989 well before the larger economy started to head south. And even in the early 1990's, was not the US the richest country in the world, with the strongest banking system in the world?

The housing market tanked in the early 90's for the simple reason that prices had become disconnected from fundamentals and a correction was due. The same thing is happening now. Yes, places like So-Cal and NYC have a lot of great things going for them. That explains why a home in NYC or LA is much more expensive than a home in Nowheresville, South Dakota. However it does not explain why an a home in LA in 2006 costs three times more than a home in LA in 1999. I mean think about it: what has changed in So-Cal over the last seven years to justify prices tripling? Is the weather better than it was in 1999? Are the schools better? Is crime lower? Has the population grown at a faster rate then usual for So-Cal? And even if there is some special reason that you believe in, explain to me why it hasn't pushed up rents the same way - over the last seven years rents have increased only a little bit over inflation. And explain to me why it has, by some AMAZING coincidence, simultaneously come true all over the country in places like South Florida, Boston, DC, SF, Seattle, and even places where there is tons of buildable land like Phoenix and Las Vegas.

The speculative bubble that swept over the nation is now ending. Prices are poised to fall big time in So-Cal and all the other bubble places. Don't take my word for it; go online and the stats are all there for the world to see. Inventory of unsold homes is at record levels all over the place. Foreclosures are starting to skyrocket. Homebuilders are canceling land options because they know they won't be able to sell high enough to make a profit. It doesn't take a PHD in statistics from MIT to figure this out, it just takes some basic econ knowlege and a couple hours research online.

People should buy whenever it makes sense to do so based on comparable rents. Right now in Southern California and the other bubble markets, you are going to pay about twice as much to buy as opposed to rent something similar (assuming a fully-amortized loan). This is absurd and history has shown that home prices always correct to be more in line with rents. Unfortunately home prices are "sticky" on the way down and this process takes years, probably 2-3 years at least if we look at the last Southern California downturns in the early 80's and early 90's. I hope it happens ASAP, since I am one of those renters who is waiting! But hey, if prices correct a lot in the next year and finds a great deal that makes sense compared to rent, they should go for it.

I think that your plan is great! Keep in mind though that residential real estate is a highly cyclical market. Like most investments, you make most of your profit by buying a good value at a good time. In 2-3 years Florida will be a much better value than it is right now as the speculators there now sell out. Before you buy, make sure that you watch the rent/cost ratios, rent/income ratios, inventory levels, foreclosure rates, etc to get an idea of where the market is headed. Good luck!