Or White Water?
Posted on 08/20/2008 6:30:46 PM PDT by SeekAndFind
The statement above means: once people learn how to make money in residential real estate, there is no going back. Many people believe that real estate as an investment is dead, buried and never to be seen again, but I sincerely believe they are wrong. As I write this, there is a new class of millionaires-in-training who are preparing to get wealthy in real estate. They are buying all the foreclosures, in good areas, they can find. About 3% of the population is busy in this enterprise and about 30%, 10 times more, are people who will tell anyone who will listen that real estate investment should be talked about only in retrospect. Let them talk, while the smart ones are out there. Oh, by the way, not all the smart ones are Americans. Many from across the pond are here spending like they have 50% more money than they do…well actually they do as many currencies have a very positive exchange rate with the dollar.
Why am I so sure about real estate investment? During my early financial training in the securities business, I watched a small-business environment become a mega-industry, showing how great wealth can come from inauspicious beginnings. When I was active as a stockbroker in the 1960s, the number of shares traded in a day would not quite equal the number of shares traded in a minute today. A billion shares change hands each day the markets are open now; about 6 million changed hands then. The ‘60s even had a mini stock market crash and managed to get up to 28 million shares May of 1962. How could this almost 100-year-old business become a giant in its most recent decades? I will be happy to give you my eyewitness account.
The mutual fund industry came to life in those swinging ‘60s. The growth of the Fidelity Group of Funds, for instance, was so phenomenal that one of the fund managers, Gerald Tsai, became a superstar and launched his own fund that was oversubscribed upon the offering. How could this happen? Thanks to mutual funds, ordinary people, not just bankers and corporate presidents, could take advantage of the stock market by making small investments, and they did in droves. In turn, the mutual funds would buy the common stock offered on the stock exchanges and volume started to build. From here, Congressman Keough authored the House of Representatives HR-10 bill which became law and the Keough accounts for retirement were born. Today they are better known as IRAs. Once the ball got rolling, there wasn’t any stopping it and people found the stock market a fine place to invest their money thanks to the new-found security and simplicity of mutual funds and IRAs.
The stock market had its setbacks as well and people lost money, swearing that not only would they never invest again, that the stock market would never rise again. Wrong! But it does sound familiar. As volume grew, the brokerage houses began inventing some of wildest investments commonly known as derivatives and the rest is history. A billion shares a day is nothing to sneeze at and we are only just beginning. In the 1990s, the Internet craze hit Wall Street and the “new economy” pushed even the poorest of Americans to find a way into the market and receive riches beyond their wildest dreams.
At the dawn of the 21st century, Wall Street ran out of steam and all the riches started to look like “fool’s gold.” People pulled out, gains turned into losses, and the stock market came down. Again the thought was “it’s over and it isn’t coming back.” For the general public, “never” lasted only about four or five years. That’s when investors and stock market gains returned.
Now let’s take a look at real estate. I bought my first house in 1968 for $37,500, and five years later I sold it for $43,000. It took 6 months to sell, which wasn’t unusual at the time, and the profit was about right. I bought a bigger house for $44,000 and 3 years later I sold it for $72,000 over a weekend. Wow! How did I yield that tremendous return? Inflation, inflation, inflation! What got it going? Believe it or not: oil. It came with an embargo that drove prices up. Houses couldn’t be built for the same costs because building materials were spiking. Sound familiar? Starting in the early ‘70s, everything went up in real estate in Southern California until the late ‘80s and early ‘90s when the aerospace industry, one of the largest employers in the state, stalled with the end of the Cold War and moved to less-expensive states, triggering a mini-recession. Prices fell and didn’t return until the middle ‘90s. What helped bring the market back was the Federal Reserve cutting interest rates and ushering in 30-year lows in rates in 1993. By now you must be getting the picture.
The turn of the century also brought an unprecedented attack on our shores that changed a stock market recession into the beginnings of another bull market in both the stock market and the real estate market. What facilitated this was another drop in interest rates by the Federal Reserve to 40-year lows in the early 2000s and we took off, full speed ahead, until we hit the wall. Is everything the same as it was in all the earlier times? Not exactly, but we are a pretty smart nation and we will figure out how to get rolling again. If it doesn’t appear to be happening, check the underlying data and you will see that we could be close to or have already hit the bottom in a number of real estate markets. The fact that real estate is more a local phenomenon and the stock market a national one should be noted as some real estate markets will soar from this point and some may never rebound.
Five to ten years from now, we will look back, wonder what the fuss was all about, and ask why we all didn’t take advantage of the opportunities. That also never changes because as they say, hindsight is 20/20.
I have tried to paint a picture of the investment world and why we always say it’s changing while it basically remains the same. At least now you can tell the “naysayers” to take a hike and feel confident, based on history. Like I said, the genie is now out of the bottle. I’ve told you why you should be investing in real estate. There is no going back. Time to make your wishes come true!
>>>I bought my first house in 1968 for $37,500, and five years later I sold it for $43,000. It took 6 months to sell, which wasn’t unusual at the time, and the profit was about right. I bought a bigger house for $44,000 and 3 years later I sold it for $72,000 over a weekend.<<<
that was then, this is now.
and folks are not as excited.
“I bought my first house in 1968”
I wonder if he has any older friends or relatives that bought a house in 1929 that he could go talk to?
1.The baby boomers are done buying houses to raise their kids in.
2. Part of the recent runup in prices was due to bubble behavior in lending, and due to Mexican illegals buying houses on no-doc lending, and people buying houses on spec. Those days are gone, and now there is a surplus of housing as laws are tightened on illegals (e.g. Oklahoma, Arizona) and as limited sanity returns to lending practices.
There is a glut of houses on the market and most are over priced.
There is a global shortage of silver bullion in the markets and it is selling for dirt cheap.
I am putting my money into physical silver bullion. One of these days maybe I will get a house for only one silver ounce.
and it isn’t a great return after taxes, improvements and inflation.
Illegal Mexicans, anybody with a pulse and even some documented cases of people without pulses.
Loan brokers generated worthless mortgages to SELL to gullible Wall Street investors.
The worthless mortgages included not only Mexican illegals but solid middle class folks with good middle class jobs that bought $400,000 houses with $800,000 of borrowed money that they could never afford to repay once the "interest only" grace period expired.
Three years ago, FR real estate threads were flooded with such people.
They all claimed that the worst that could happen was that, once the "interest only" grace period expired and their income did not magically jump to make principal PLUS interest payments possible, they would simply sell the house for a cool $1 million and laugh all the way to the bank.
IF they have children they could live in mom and dad's house or live in all the houses about to empty out by the dying boomers and elderly.
Once the prices come down to a more reasonable level, won't the following people start buying ? A) Legal Immigrants B) Those who have been saving to buy a house C) Foreigners with cash
Not nearly enough of those to keep the market rising.
It is difficult to get excited when a house in some places means $3000 a month payments for 30 years.
My youngest just turned 21 today. I have plenty of "house". It would be nice if two of the "kids" would vacate for their own digs.
If you think the return is bad now, just consider that BHO wants to levy a 28% federal sales tax on the "profit" from selling your home. It doesn't matter whether that "profit" was simply your home price keeping up with inflation as the fed endlessly prints more money.
I’m going to be investing in a new start-up company which specializes in manufacturing 8-track tape players. They’re gonna make a BIG comeback!!
Yes, technology is cyclical!
that’s a lot of money!
for the return, as you say.
I believe the correction is just in phase 1. Now some people with more money than brains and realtors always looking for their next 6% payday are claiming the bottom is in and its never been a better time to buy.
The bottom is not in. Not even close. Its going to take years for prices to correct where they should be with the monsterous glut of homes on the nationwide market.
If it keeps them out of bankruptcy, why not rent?
If you can only afford the price of a house by stretching your budget to barely make "interest only" payments, you are FAR worse off than you would be renting. Renting at a reasonable price is not a disaster waiting to happen like buying at a price you can only afford with gimmick loans.
If you want to buy my San Diego, CA rental house at current Bubble prices and pay three times more in mortgage payments than you would pay me in rent, let's make deal!!
Once the prices come down to a more reasonable level, won't the following people start buying ?
True.
The problem is that you are advising people to buy those houses BEFORE they have come back down to the pre-Lending Bubble insanity prices. Those prices were prices that people could afford paying principal PLUS interest without going bankrupt.
You are advising people to catch a falling knife.
So...give them their walking papers...
Let's just say that telling you exactly how the real estate market will go, is "above my pay grade" to coin a phrase.
Look at this chart (numbers are from 2000): 
See the 2 longest segments for male and female? That is the baby boomers (roughly). Now add 8 years to each range, and that gives you an idea of how old the largest 2 segments of the population are.
On the point you raise about kids needing to buy houses, the answer is that those "kids" are not having children as early, nor in as great a number, as the boomers. So they need less house.
Your point about houses coming down to a reasonable level is accurate, however, what I pointed out was that some houses were bought on spec, that is, the person buying the house, already had a house to live in and bought a second one, hoping to hold it for only a brief period of time before selling it at a profit. That creates an excess of houses for people to actually live in.
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