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!
OK, I don’t know why that chart did not show up. URL is : http://en.wikipedia.org/wiki/Image:Uspop.svg
Correct. It's going to take at least another 9 months for prices to stabilize. My guess is that it will be 2-3 years after that until we see some decent appreciation. At the moment cash is King.
Real estate may bottom out...which just means that prices stop falling.
There is no guarantee that real estate prices will increase steadily, however. Look at Miami with thousands of empty, new condos coming on the market between now and the end of the year...with thousands still left unsold from before.
As for foreclosures...the bigger discounts are when you buy a distressed mortgage note (often at $0.30 on the Dollar) and do the foreclosure on the deadbeat later, yourself.
That’s buying U.S. real estate at a 70% discount.
Now isn’t the time, we are at least 1 1/2 years from the bottom.
No, but they - we - are interested in downsizing to retirement houses in congenial locations. Money to be had there. I found out the easy way - lucked into it. ;-)
US bank ‘to fail within months’
The global financial crisis is set to get worse, with a large US bank likely to collapse in the next few months, a former IMF chief economist has warned.
Kenneth Rogoff’s comments came as shares in Fannie Mae and Freddie Mac sank on a report that the home lenders would, in effect, be nationalised.
Despite hopes that the US economy had turned the corner, Mr Rogoff claimed it was “not out of the woods”.
“I would even go further to say ‘the worst is to come’,” he said.
“We’re not just going to see mid-sized banks go under in the next few months,” said Mr Rogoff, who held the IMF role between 2001 and 2004.
“We’re going to see a whopper, we’re going to see a big one, one of the big investment banks or big banks.”
We have to see more consolidation in the financial sector before this is over
Kenneth Rogoff
Speaking at a conference in Singapore, Mr Rogoff, now an economics professor at Harvard, forecast that Fannie Mae and Freddie Mac would “probably” not exist in their present form in a few years.
“We have to see more consolidation in the financial sector before this is over.”
On Monday, shares of Fannie Mae fell more than 22%, or $1.76, to close at $6.15. Shares of Freddie Mac fell almost 25%, or $1.46, to $4.39.
‘Wrong move’
Shares in Freddie and Fannie first fell sharply last month on fears that they would run out of money to fund their business, forcing the US government to take radical steps to ease the panic.
snip.
As mortgage guarantors, they must pay out when homeowners default on their loans.
With the housing market across the US crumbling, their finances have come under severe stress.
Problems in the US housing sector prompted the Federal Reserve to slash interest rates to 2% earlier this year.
But Mr Rogoff said the Fed was wrong to cut interest rates as “dramatically” as it did.
snip
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/7569903.stm
Freeple?
You have not seen anything yet in the housing market. Never have so many been upside down in their house they couldnt sell it if they wanted to. These people now have to have at least a 690 beacon score with 20% down and income to justify the full payment. So if you have limited buyers , you could steal a house and hope you break even by renting it, not me sit a bit longer.
I was in Texas in the 80’s when the real estate markat went under. Went down, flattened out, then really went down. Ruined Milk Money John.
Anyway, a fool and his money are soon partying.
Yea, housing was flat in most of the Mid Atlantic states from 1989 to 1999 or so. Thats a long period of time.. Its just ridiculous to assume you could beat inflation forever, wherever, in real estate.
The bottom is not uniform, rather it is at different levels in differing parts of the country. Some locations aren’t even falling. Others are still rising albeit ever so slowly.
timing and prevailing economic conditions at the time of a transaction is the key in real estate. I’ve never owned stock but invested heavily in real estate from the late 60s to 2004 when I cashed out and retired before I was 60. The timing was right when I bought and when I sold. Real estate will go up again but I seriously doubt we’ll see a bubble like the one that just broke and anyone with common sense should have seen it coming. Anyone with common sense should see the even larger financial mess that’s coming unless we address our national and personal debt. The real estate piggy banks aren’t going to be there for most nor is there going to be investors around who have faith in our economy enough to finance our debt. I think we’re all in for a huge shock. We don’t make anything anymore and soon there won’t be faith in our service sector either.
“One of these days maybe I will get a house for only one silver ounce.”
Yup, just as soon as the metal thieves are done with it.
It's not the down, it's not the market, it's not even whether or not you're upside down. It's whether or not you can make the payment.
Some are reluctant to buy, but in soCal we can now get cash flow on rentals. Hard to do 2 years ago. I put an investor in a house in Hemet in July for 130,000. He's getting $425 a month positive cash flow.
RE continues to be a great long-term investment, tax break, and where else can you get the leverage that RE provides?
People that want safe, liquid, and rate of return should try tax advantaged, indexed universal life. Good method of building your retirement also.
I have been through the real estate bust in Texas. We had people jumping in “good deals” only to find the price going lower (yup they ended up let it go back to the lender). The real estate cycle is a slow one,no need to be in a hurry. I would rather buy on a true upswing than attempt to catch a falling knife.
Well considering the Feds, and those who do demographics have told us we’ll have 50 million more people in the U.S. in the next decade or two, I’d say RE is pretty good bet for the future.
Just a wild guess through.
Have I got a deal for you! A nice place in Wynne, Arkansas. Email me for details :-D
Manhattan has been the lone holdout in the housing crash. That is about the end. Manhattan is going to be hit hard over the next 24 months.
A big, unspoken cause of this irrational housing boom was the idiotic mortgage deduction, and lack of a renter's deduction. They need to either scrap the former, or enable the latter. How did owning a home ever become "The American Dream"? In countries like China the "Dream" is to SAVE money for future prosperity. Americans don't save shit. Balance of payments don't lie.
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