real estate roller coaster
Are you familiar with the term “chat classes”? Simply put, they are the talking heads on TV, pundits in the press, and activists in the local community who know how to run your life better than you do.
They are from all points of the political spectrum and speak on all issues of interest to modern humanity. They will tell you how to vote, what movie to go to, what cause to support, what stocks to invest in, and when, where, and why to buy a home. The good thing, too, is that you can shop around until you get an opinion you agree with. Some chatterbox somewhere will co-sign the idea you already had, allowing you to proceed with authority.
Contradictions coexist peacefully among charlatans, because well, everything is everything, right? My truth is my truth, yours is yours. Right? That must be correct, since on the one hand, many charlatans say that the current financial crisis makes this a good time to buy real estate, while others say the opposite and advise a wait-and-see approach.
It’s almost like a contest of fighting clichés. In this corner, “The credit crunch changes everything, just like 9/11 did.” And in this corner, “There is nothing new under the sun.”
It’s okay. Simple question: What the heck is going on with real estate?
Here, there, everywhere There are some regional differences, but overall, US real estate has slipped. At the end of October 2008, Standard & Poor’s Case-Shiller Home Price Index of 20 cities reported its comparison of August 2007 with August 2008. The index showed the largest annual drop in history, nearly 17 percent. hundred. Only two cities in the survey, Boston and Cleveland, were flat, while Los Angeles, San Francisco and San Diego fell 25 percent. In Phoenix and Las Vegas, the loss in value was a staggering 31 percent.
Does this mean it’s a “buyer’s market” and everyone who can should run out and buy a house? Of course, no. That’s never good advice anyway, since it’s not individualized. Beyond that, the best of the best financial analysts tell us that the bottom is still 24 to 30 months away. How do they know this?
A long-term thing There are many things that go into a modern economy, too many for any one person to keep track of. And the things that need to improve in the economic pipeline to support growth in the “housing sector” are numerous, often mysterious, and subject to constant fluctuations. But looking at orders for durable goods, tools and dies, manufacturers of building materials, availability of credit, employment numbers, mobility patterns, and dozens of other “indicators,” savvy market and financial analysts they can make some pretty accurate predictions about the home. construction, sale and resale.
Bert Dohmen writes the biweekly Wellington Letter and other investor advisories, and is one of the few “smart money” men (or women) who can turn up articles from 12 to 18 months ago predicting a “credit crunch” and “crunch.” financial”. Dohmen’s book, Prelude to Meltdown, was written in late 2007 and published in January, and by then he had made it clear that credit was the big bubble waiting to burst. One of the industries in which Dohmen keeps a microscope is home construction. He is literally the architect and contractor of the American Dream.
RH Johnson, a financial planner who passed away in 2006, was well known as a big, friendly man. He too was a bear market most of the time, like Dohmen today. He was predicting, as early as 2004, the bursting of the credit and real estate bubbles, a condition he saw as that of parasite and host, respectively. Valuations were too high, he argued, and were driven by “non-rational factors,” including the relatively new trend of viewing real estate as a wealth-creation vehicle, rather than wealth storage.
Johnson saw the beginnings of the “reality TV economy,” where shows like Flip This House and others promoted buy/fix/sell as a way to play Monopoly for real money and build a real estate empire. In Johnson’s adult life—he graduated from college as an engineer in 1944 and switched to financial planning in 1970—he was used to seeing real estate as something you held on to, for the most part. It was a long term thing.
Old meets new The next two years offer great opportunities for people to get involved in real estate with a true market valuation, not the American version of Dutch tulip mania of 1636-37. (Look at that if it’s news to you. Awesome.) Dohmen says it’s not the bottom yet, which will be confirmed in the next few months, he hopes. That said, there’s certainly no reason first-time buyers shouldn’t start preparing to buy a home.
Just this week, in Yuba City, California, a half-hour north of Sacramento on the freeway, a four-bedroom home with a separate in-laws’ studio in the backyard sold for just over $100,000. It was listed in March 2007 at $189,000. Dohmen suspects it will fall further (maybe not in appraisal value, but in actual resale value) before it starts to appreciate again in 2011 or so.
The new owner, Sherry Hutchins, is a single woman in her 50s, with a credit score of 750 (very good). She put down zero down, she paid no closing costs, and will have a monthly payment of about $700 and change. She can get over $300 a month renting the back studio, so the net mortgage payment on her new home will be about $400 a month. She currently pays over $800 for rent for a much smaller duplex, with picky neighbors to boot. She collected a lot for herself, cutting her “rent” in half, managing to free herself from troublesome neighbors and also insuring herself for the future. Triple play!
Hutchins’ plan is to move up in five years, which is sensible. She’ll put sweat equity into the house even before the general market rally helps raise its value, and she’ll pay a little more up front each month. Her good friends, Michelle and Matt, are do-it-yourselfers, and Matt can do carpentry, plumbing, painting, electrical, and just about anything else. With the house in need of repair, Hutchins plans to strip a few rooms enough to add some built-in shelves, French doors, and a state-of-the-art video security system.
“While I’m working on the site,” he says, “I thought I might as well build the little accessories for the surveillance cameras, which are about the size of a soda can. The wiring might be out of place.” view as we’re getting to the frame at a few points.” Right now he likes the idea of controlling video surveillance from his computer, which is easy to learn and allows him to log in from anywhere in the world and take a look at his property. However, before making a final decision, he “goes to see a demonstration of this stand-alone system” using a DVR (digital video recorder), only to be able to say that he did his “due diligence diligently.”
Persistence Is Key The nation has weathered tough economic times in the past and will do so in the future as well. The government cannot prevent it, nor counteract it, nor “pay for” it. The future, as always, is in the hands of the more than 300 million Americans who will get jobs and lose them, buy houses and sell them, make loans and collect them, invent things and build them, and make everyone else billions. of things. each year that, together, add up to “what’s happening in America.” What they do with real estate in the next few years, frankly, will determine “what happens” for at least a generation, maybe two.
Best bet is, drum roll please, the story. As Mark Twain is supposed to have said, “History may not repeat itself, but it does rhyme.” Principles don’t get old, anyway, so the notion that some “new” forces would be at work to propel you through life, rather than the usual hard work and persistence, is downright silly. The same good, solid, sensible habits that built the modern (Western) world over the past millennia will also lead you to a new home.
And these are not “optional” moves either. Unless you inherit a lot of money, you’ll have to work and save, and then work and save some more. You’ll have to shop around, make offers, negotiate with lenders, finally find the right property, and then put it all together. And then you will have to pay for it. There is simply no other option. This is the way you have to do it.
Now, of course, the other part, the computerized video security installation, that decision is yours. See? Apparently you have a few options after all. (But video surveillance is a good idea, so think about it.)