Karen
Lee Bertiger
CDPE, CRB, CRS, e-PRO Certified, GRI
FLORIDA LIC. REAL ESTATE BROKER
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8-2-2007
Some basic facts to keep in mind going forward through the bursting of a
major financial speculation bubble:
According to the Federal Reserve Board, the US Census, & HUD (Housing & Urban
Development), sub-prime credit mortgage loans represent less than 1.5% of all
existing mortgages outstanding on US homes. The value of homes & other real
estate in the US has increased from approximately $10.3 trillion in 1999 to
approximately $22.6 trillion in the 4th quarter of 2006. Approximately 5% of
homeowners have non-prime credit adjustable rate loans. 3 of every 4 homeowners
who have these types of loans pay them off before losing their property. And
last, but not least, approximately 35% of homeowners in the US own their
property free and clear. Approximately 60,000 affordable housing rental units
are disappearing each year and have not been replaced.
MY NOTE: Just remember that statistics can be used to mislead. The median prices
of housing will necessarily trend lower as more affordable housing units are
built to replace older or functionally obsolete housing through various
communities. Major builders in the US have neglected this huge market in efforts
to reap higher profits and accordingly priced themselves right out of their own
markets without meeting an unmet demand in most communities in the US. The fact
that sales are falling year over year is only relevant if one looks at this from
a short term perspective. Total sales are still ahead of where they were prior
to the recent boom years. After the EZ money federal reserve policy for so many
years, we are now settling down into a more normal housing market (not the "new
normal" of the past 3-4 years) that will be just fine -- people still need
shelter. And we have a lot more building that needs to be done throughout the
US. That means more jobs in the near future for skilled labor.
3-21-2007 UPDATE
The US has been under economic espionage and overt attack since February,
2005. We would all do well to remember that as we take action in our own
interests. I don't believe there is anything more important that we as
individuals can do for our country right now. We need to remain economically
strong. In order to do that we need all of our federal agencies working to
understand how what they do is part and parcel of whether or not we will get
through these difficult national economic security issues. Maybe the Treasury
should go back to asking US citizens only to invest in a new category of bond
similar to the war bonds issued during WWII. Since we already won WWIII and
we're well into WWIV, let's not seal our own economic fate by leaving all of our
interest rates on mortgages vulnerable to manipulation by foreign interests or
persons. We've had some interesting times here in my neck of the woods lately,
including people falsely claiming diplomatic immunity. I can personally say that
I know there are many more around my area, as I am sure there are in many other
parts of our country. Guys, I like sports too, but there are more important
things in life -- particularly when so many families in our country have members
in the armed services. Let's do our part to keep the country economically
strong. Our future is built on a nothing more important than a secure
foundation.
9-25-2006 Update
Several issues are on my mind these days. It appears that there are
concerted efforts among Wall Street brokerage houses & those in the media
covering financial news who are either unknowingly contributing to a potential
uncontrollable financial spiral or they are intentionally doing it to create new
financial opportunities on the downside. Several things are "troubling" me - and
believe me I do NOT LIKE TROUBLE - particularly when the sovereignty of my
nation rests on it. We have a do-nothing Congress on MAJOR issues. Are they
expecting voter backlash at their culpability? Or national bankruptcy due to a
failure to enact a budget before the next federal fiscal year starts? Spells
trouble to me. Wall Street brokerages are the main proponents of the financial
meltdown in mortgage backed securities that have been issued mainly to foreign
buyers (more than twice as many subprime mortgage securities than purchased by
Fannie Mae or Feddie Mac due to their regulatory restraints.) These have earned
the perpetrators on Wall Street HUGE FEES and introduced a level of risk in
those "private label" securities to the mostly foreign purchasers of those
securities that they may not recognize they are taking - or maybe they do. That
spells trouble to me. Then we have the financial media printing their opinions
and the opinions of various government bureaucrats. Take for instance, the Wall
Street Journal's article today - "Rate Rises Expose U.S. Foreign Debt As a Clear
Burden" - add the financial media harping on real estate median prices released
today by the National Association of Realtors that are feeding panic to a
financially unsophisticated public who bought homes with and signed up for the
subprime mortgages pushed by these "private label" pushers and you have a recipe
for a downward spiral of fear that these same people will then use to make more
dollars while selling out our national interests. DON'T blame the ownership
society or the White House. In my humble opinion, Wall Street needs a good
flush. Main street homeowners need to sit tight and hold on to their homes or
refinance with your neighborhood bank into a lower interest rate soon, without
taking out more dollars for perishables, with the same number of years' term or
a 15 year term, if they can afford it. Let the financial den of thieves on Wall
Street stew in their own mess. At least then if interest rates go through the
roof and foreign investors end up owning the assets (homes) secured by the junk
Wall Street sold them, you'll still have a roof over your head main streeters.
If main street America buys the fear-mongering, a financial coup will have
successfully turned over a huge ownership of the property of this nation to
foreigners. That's where I see the trouble - and I DO NOT LIKE TROUBLE. Wall
Street melted down before, but this time they've used the housing market to make
billions in underwriting fees to recover and now they want to create a downside
spiral so they can do it again. If our mainstream press can't successfully
educate main stream Americans about what exactly is happening, the financial
perp-e-trators will have won. THAT's where the TROUBLE exists. Just my two
cents' worth opinion. And I don't like TROUBLE.
9-7-2006 Update
Many new home builders are including better warranties for their buyers,
among other incentives that investor/speculator sellers cannot compete with.
However, some builders now have policy that those warranties are not
transferable, so if you are contemplating buying a property owned or listed by
an investor (not buying directly from the builder) make sure you understand the
builder's warranty obligations.
Having been through 7 hurricanes over the last two years, many Floridians
contributed to the housing boom here by buying another residence to live in
while their hurricane damaged homes were (and in many instances still are) in
varying phases of repair due to either insurance issues, materials and labor
shortages.
Believe it or not, in April '05, the University of Florida's Bureau of
Economic and Business Research estimated Florida's population at 18 million, and
is forecast to reach 20 million by 2010 (remember, we're close to the 4th
quarter of 2006), and to reach nearly 25 million by 2025. We have some of the
lowest unemployment figures in the country and the state is actively
establishing a biotech sector. Arizona may have a rougher landing than Florida
because more of its economy is dependent upon the building and property
development industries. In my opinion, Florida has a more diversified economy
which should help it work through some of the major issues it has faced over the
last couple of years. If you are a homeowner and can sit tight, don't buy into
the fear and panic mongering that sells newspapers and media (they've been
saying the sky is falling since 2002.)
6-30-06 Update
The Florida & Arizona residential listings inventory is rising - but there
is a wrinkle that is not being covered by the financial press, nor is it easily
discernable even by brokers who have access to the MLS inventory. As I have
previously stated here, there have been many speculators in both markets.
However, the rising listing inventory may be leading to faulty assumptions,
which as we all know, means that opinions based on those assumptions cannot be
correlated to arrive at a valid conclusion. In many instances, MLS inventories
are including listings that are merely contracts on phantom properties which
have not yet been built, or they are speculators attempting to sell or assign
their contracts before they have to close. In some instances, they have placed
deposits on properties with builders (whose contracts have not prohibited the
practice) or with developers who are only taking "reservations" based upon
"concepts" and drawings (a fairly cheap and accurate way to do your feasibility
analysis.) Many of these types of "listings" will disappear off the market
within a shake out period - and it's anybody's guess how long these speculators
can hold out before throwing in the towel and accepting that they are just going
to have to walk away from their deposits. In the case of those "listing" only
contracts, where no equitable interest is acquired by nature of the contract, a
potential buyer under such a contract may also lose their deposit to the
speculator unless they have a buyer's agent and a real estate attorney involved
in the transaction to protect their interests BEFORE they enter into a binding
contract with a real estate contract speculator. It should be imperative in my
opinion that the MLSs and the real estate licensing authorities need to take a
closer look at this practice of selling contracts where no equitable interest in
any real estate actually exists. Just my opinion.
6-16-06 Update
This is becoming ridiculous - but here is some food for thought. Yes, the
RATE of sales has declined in percentages from 2005 to 2006. Yes, the RATE of
percentage appreciation has moderated year over year. Yes, the MEDIAN PRICES may have
declined in some areas, or increased in other areas where pundits are stating
that property is grossly over priced compared to wages (which are historical
numbers.) Let's examine how the statistics can be manipulated to support any
point of view. However, the truth of the existence of a bubble or the
non-existence thereof lies in the after-tax REALIZED return on investment (the
realized return is the actual money you have in your pocket after disposition -
sale or exchange - of your investment or home) for each different property
owner, whether residential or commercial. That figure also depends on each
property owner's tax status and bracket and is different for each. Anyone who
states that national MEDIAN prices for each area are the only relevant measure
of whether a bubble exists must have a bogus degree in economics. Median prices
are not the same as average prices. A MEDIAN price means that roughly half of
the sales have been at higher prices and half at lower prices. A MEDIAN price
can rise in relation to local wages (thereby making that correlation
meaningless) when more homes are being sold in an area at higher prices. This
happens in rapidly or newly developing areas, particularly when substantially
more expensive properties are being developed. Areas which rapidly develop are
generally those areas which are extremely desirable due to a quality of life
factor for retirees and/or the creation of jobs or both. Home inventory in
certain areas may be
rising for many different reasons, not the least of which is a fear of losing
equity or income. Some sellers may be extremely motivated to sell if they have
lived in their home for more than 2 years out of the last 5 in order to take
advantage of the "tax-free" sale provisions in our current tax code. Try to find
one of these motivated sellers if you are a buyer wanting a nice home to make
your primary residence for the next few years. Some sellers just want to test the market which is why many
buyers are taking their time these days. It's tough to make a deal with someone
who really is not motivated to sell, for whatever reason. It also takes a great
deal of work to make sure that a potential buyer is actually working with a
ready, willing and able seller. It used to be that the only thing that mattered
to brokers was whether or not they had a ready, willing and able buyer. It's not
that there aren't any buyers out there - the developers, builders and
speculators just aren't offering product at prices the existing pool of buyers
wants and need. There is a huge demand that is NOT BEING MET in the housing
market and this fact WILL have to be faced in the very near future. Just my
opinion.
3-9-2006 Update
If there is going to be a "bubble" in either Arizona or Florida it would
most likely be a SPECULATIVE bubble - NOT an INVESTMENT or OWNER-OCCUPANT bubble
- true investors and owner-occupants actually have interests which support the
market. Keep in mind that speculators can include HOMEBUILDERS and
DEVELOPERS - many of their contracts are one-sided and contain multiple hazards
for unsuspecting SPECULATORS, INVESTORS & OWNER-OCCUPANTS. READ and (more
importantly) UNDERSTAND ANY PURCHASE OR SALE DOCUMENTS YOU SIGN FROM DEVELOPERS,
HOMEBUILDERS, SELLERS AND SPECULATORS.
2-11-2006 Update
An experienced investment real estate broker such as myself, can convert each
investment return pitched to you from any source, from apples and oranges to all
oranges. Your after-tax return is what I believe should be important to you,
because it reflects what you can actually keep from an income point of view. You
may think differently. Please keep in mind that the rates of return currently
quoted by sellers of each type of investment are NOT directly comparable to each
other for the following reason. Single family homes have gained an average of
5.7% each year from 1976 through 2001 according to OFHEO.
REITs produced a 6.1% average annual return. If one reinvested their dividends,
one could have achieved a yield of 15.2% for the same 25-year period. On a home
with a 20% down payment however, leverage increased the single family home yield to
28.5%! (February, 2006 issue of Money Magazine
in their "real estate bubble" article featured on the cover also makes this common error of
telling you that your return on your home is less than the return on other
investments you might make.) Your banker will not allow you to leverage your REIT
stock purchase, nor will you be able to cover it with insurance, as you can with
real estate. So be sure you are comparing oranges to oranges. Make sure your
investment real estate broker knows how to do this and can prove it to you
(which is why you actually need a broker that specializes in investments.)
That's the best formula to avoid being taken advantage of when dealing with
stock brokers, financial planners, misinformed reporters, etc. It's an
important calculation even for owner-occupants purchasing properties to live in
- know what your after-tax situation is, including whether or not the mortgage
interest deduction & property tax payments are more than your standard deduction
and will not be phased out as your income rises. Since now is tax time, it's a
great time to ask those questions of your CPA or tax attorney.
12-24-2005 Update
The sky is falling - as chicken little said - and all the chicken littles on
Wall Street who want your money have been touting a real estate bubble/bust for
going on 3 years now. If you are buying a property to live in, consider owning as much house
as you can without overextending yourself and explore locking in a fixed rate mortgage at
today's rates. You can institute a forced savings plan by taking out a 15 year
fixed mortgage, particularly if you plan to stay in the home for an extended
period of time. You can always pay off a fixed rate mortgage by making
additional principal payments, but you don't have the problems associated with
predatory, negative amortizing or adjustable rate loans that can wreak havoc on
a household budget. While other household expenses such as taxes, insurance &
HOA fees out of your direct control
this is one area where you can take control and the only differences in your
monthly payments would be reflected in your property taxes, insurance &
homeowner association fees & assessments if these items are collected and
disbursed for you by your lender in an escrow account.
If you are a residential property investor consider being patient and look for
bargain properties that have "fixable" problems or owners who do not want the
property.
If you are a speculator in residential property, you may find yourself in the hot seat if you
"sandwich" yourself between two other parties, particularly if you cannot
deliver clear marketable title. I'd be willing to "speculate" that most of the
speculators can't deliver clear market title. If you are an owner-occupant buyer
or a real investor beware of this type of seller. It pays to know who you are
dealing with BEFORE you sign a purchase contract. Why buy from a speculator who
can't deliver clear title unless you want to be a greater fool
than they are????
11-09-2005 Update
Watching the financial shows or listening to Wall Street pundits can be
hazardous to your investments, including real estate. Just remember that there
is now a shortage of certain types of housing in this country which is not being
addressed by many of the publicly traded real estate industry firms. Also be
aware that traditionally, 4th Quarter statistics for housing always show a drop
in median prices in most areas of the country; therefore such a drop cannot be
used to state unequivocally that the housing or real estate markets have burst.
One still needs localized information and in depth knowledge of a market. You
don't get that information by sitting behind a desk. Unless you are depending on
specialized, local, honest people who are actively involved in the markets in
their local areas. They know things your office staff in NY/NJ will never know
and probably won't be inclined to tell you, since they, like me, probably could
care less if you and your audience has accurate information or not. We know how
to make money in real estate in any market and through any cycle. Why are you
guys so eager to see a bubble burst. Ahhhh, you want to pick up all those
publicly traded stocks at a reduced price. Or to have SOMETHING to talk about.
Yep, it's always about YOU in your business.
10-7-2005 Update
Is there a distinct possibility that all those bubble proponents don't
realize they are committing the sin of "nationalizing" the real estate market -
when the seasoned pros in the business can pick apart their theories in a New
York minute. First of all real estate markets are localized. If you do not
possess a detailed knowledge and insight of a particular local market it is
difficult for you to understand the reasons why certain behaviors may be taking
place in certain markets. For instance, one of the current favorites is to trash
the Miami/South Florida condo markets. Maybe the prognosticators ought to look
at more local data, rather than issue press releases to get their names in the
news. My point is that many of these condos, while maybe not appreciating as
rapidly as they have in the recent past, may actually still be great
investments, particularly when one takes into account the types of national and
international business and events taking place locally. It's entirely feasible
that a Miami condo purchased with or without leverage could produce a
substantial cash flow just from seasonal and/or event rentals. Take a look at
where the Superbowl is being held through the 2010 season. Miami is hosting two
- one in 2007 and one in 2010. Miami is also the US gateway for Latin American
and international business. One still needs to be astute in defining the purpose
of their investment purchase, but before you prognosticate about too many condos
in Miami, you might want to consult a true local market expert.
8-26-2005 Update
Just heard a news statement claiming that a federal official stated that
people should not rely on the wealth in their homes since there is a bubble that
may burst. Funny we never heard it put exactly this way when the stock market
was involved. I might point out the extremely obvious; that the stock market
bubble WAS entirely based on paper with "vapor income." I'd also like to point
out that real estate has intrinsic values as do other physical assets which are
not paper based. This may have been one of the most irresponsible statements
I've ever heard since our economy's health is based upon mainly paper assets.
i.e., our currency, bonds and stocks. If our federal officials are making
these types of statements, then reading between the lines, I'd be inclined to
think that the Federal Home Loan Banks, Fannie Mae and Freddie Mac are all
headed for taxpayer bailout. Is this "redlining" or other "scare tactics" by
federal officials???????
6-28-2005 MORTGAGE SERVICING FRAUD IS RAMPANT
What is Mortgage Servicing Fraud?
It is committed when a mortgage lender/servicer manipulates PERFORMING loans to
falsely indicate a default by any number of techniques including but not limited
to:
Entering on-time payments as late, to exact illegal
and unauthorized fees; charging force-placed insurance when the property's owner
already has full coverage and then not actually delivering an insurance policy;
falsely reporting a default to credit bureaus when it is the servicer creating
the default; refusing payments to guarantee default; adding thousands of dollars
in unearned legal fees to create a default; ignoring customer complaints and
"qualified written requests;" arrogantly violating numerous state and federal
laws and regulations; trying to coerce the property owner into signing a
forbearance agreement to strip away their legal rights; falsifying records;
committing fraud upon the courts by stating they are the holder and owner of the
Note - when in fact - they DO NOT own the NOTE; intentionally cause delays to
run up legal bills to charge the property owner; forgery; rounding up ARM rates
when index is on a downward trend; creating additional false deficiencies
through a variety of questionably legal practices (appears to be RACKETEERING);
adding miscellaneous fees to purportedly create a deficiency for borrower's next
payment; not applying payments to principal and interest; committing perjury
through flagrant misrepresentation to the courts; withholding or redacting
discovery evidence; conjuring up events that never happened and refusing to
provide documentation when requested by property owner; and refusing to
cooperate with another legitimate lender's attempts to assist a property owner
to refinance in order to force a foreclosure. It's all happening in this country
folks. Individuals don't have the financial backing to fight it. I just might
take out a full page ad in the Wall Street Journal calling on the President of
at least one of the companies involved in this practice to answer and then take
it to the courts. With evidence that has been filed with other state and federal
agencies over the past several years, we have AT LEAST ONE (possibly several
more) CASE where the
evidence supports an immediate judgment in favor of the property owner and
borrower.
6-20-2005 BUBBLE Update:
It is my professional opinion that the "bubble" if one exists right
now, is entirely in Wall Street's court. Upon collecting many documents and
speaking with many homeowners, it is my opinion that MANY mortgage loan
servicing companies which are publicly traded stocks are engaging in illegal
foreclosure sales against unsuspecting homeowners. The reasons for this are
varied, including an explosion of pre-payment penalties (prevents refinancing), loan products that
didn't exist a few years ago, sub-prime lending, predatory lending, federal law
regarding due on sale clauses (used as an excuse to prevent strapped homeowners
from selling their properties along with pre-payment penalties), and a massive failure of federal oversight due to
a misunderstanding of the exact nature of the problems and how these problems
have dovetailed to form a perfect storm. Personally, I believe that the
officials at Fannie Mae have known about this and have allowed it to happen. If
the feds want to take someone in the real estate industry to task over this, it
should be the apparent violation of Anti-Trust and or RICO Laws by the mortgage loan
servicing companies and Fannie Mae. If there's not collusion there I'd be mighty
surprised. Because of Fannie Mae's recent financial reporting troubles, as well
as its "quasi-governmental" financial status, this could be operating as a
massive financial fraud against both homeowners and taxpayers. Gee, aren't most
homeowners also taxpayers? WAKE UP JUSTICE DEPARTMENT! WAKE UP SEC! WAKE UP OCC!
WAKE UP FTC! And by the way, Realtors are not the source of this problem. If you
want to see a massive collapse of the country's financial systems just sit there
and don't do anything. The worst possible outcome would be exacerbated by
allowing banks into the real estate business. If you want more information on why I hold this opinion,
feel free to call me.
6-6-2005 Update:
South Florida Focus: Only 9% of lots currently ready for development
are for homes priced at less than $300k in Palm Beach County. Housing
construction in St. Lucie County stands at 47% higher, this year's 1st quarter
over last year's 1st quarter (some distortion in the figures should be taken
into account due to permitting problems and delays.)
Source: Metrostudy
"Regardless of what the news media say or print, there is no bubble in South
Florida. There is excessive current demand for affordable housing for new
college grads and the majority of the middle class workforce, including first
time buyers. Developers who ignore this market may miss the next wave. Some just
seem to be clueless. The color of money is the same. The easy money may be a
thing of the past."
Karen Lee Bertiger
5-21-2005 Update:
Is Wall Street happy yet????? They've been talking about a real estate
bubble since 2002!!! Although now in recent months it does appear they are
becoming more adept at comparing their product to my product. My product still
beats the returns on their products. Wonder when they'll get tired of talking
about the "bubble?" Why are they so intent upon trashing the real estate
industry??? Because they trashed their own industry, that's why. All investments
should be made by comparison of apples to apples or oranges to oranges which
involves a little better analysis than Wall Street has provided to the general
public in the late 90s and the more recent past. Wall Street reporters and
analysts have obfuscated that true financial comparison for many, both in the
press and in their own inaccurate representations many times. I find it very
disheartening as an investor myself; particularly when I am seeking
diversification. Real estate is a bona fide investment class that can compete on
its own merits - i.e., we do not need to sell on Pro Formas based on
non-existent income (although some do) and we do not need to hype that our
industry is part of a "new economy." We'd all have our licenses pulled for such
representations; apparently, without Elliot Spitzer breathing down your necks,
most Wall Streeters would say just about anything to get your money. We
supply a great deal of the profit Wall Street is enjoying right now - from REITs
to CMBS. Quit trashing the real estate industry and improve your own!!!!
2-12-2005 Update:
Currently, its my opinion that certain flaws in the single family
mortgage origination system, and what appears to
be widespread fraud in that system in the market areas in which I work, may have
a very negative effect on the
vast majority of honest property buyers and sellers in those markets. At this
time I am not counseling any
property owners to take the maximum loan they qualify for if it means paying a
stressful high percentage of
monthly income for housing expenses. Always remember that lenders, including
mortgage brokers, do not
make any money unless they keep the funds flowing at the highest velocity
possible. Many honest appraisers
are leaving the business rather than inflate appraisals; in some markets they
have no choice but to leave the
business because certain lenders have "blacklisted" them and therefore they do
not receive any business. Just
because a lender says you can qualify for a particular amount doesn't mean you
should take it - DO take into
consideration that lenders always like to find a way into your pocket through
the "monthly payment" scheme.
Take control of your own finances and your own financial decisions. Stay out of
as much debt as possible.
Learn the difference between good debt and bad debt. Live within your means. If
there is a bubble in your
market area, and you are then faced with unforeseen problems, you will be able
to work them out financially
instead of finding yourself in a potential foreclosure situation which can ruin
your credit rating. In my opinion,
there is currently a HUGE amount of mortgage debt purchased by Fannie Mae and
Freddie Mac that has some
aspect of fraud introduced into the system. If these quasi-governmental agencies run into further
financial
problems, the velocity of
the flow of mortgage funds will slow substantially and will have the effect of a
"credit
crunch" in the residential
lending industry, not to mention a possible federal bailout becoming necessary.
Another interesting indicator to watch is the yield curve for its predictive
powers. Having lived through
several
real estate market cycles, this one is making me very observant now. There are a
greater number
of possible
trigger actions that could have a domino effect causing severe disruptions in
the market now than
existed
during the last boom cycles. For
instance, in the late 70s in the Phoenix market, there was a rapid
run-up in the
median values of homes with one major difference - the appraisers absolutely
would
not deliver an appraisal beyond a certain percentage above the best
available comparable. If you wanted to buy
a house for more than what the
appraiser would give as value, you had to pay for it out of your own pocket. In
fact, that's how I bought my first home. I had to pay more than the appraised
value. The differentiating fact
here is that now that some appraisers are
bending to lenders wishes in overheated markets, the entire appraisal
process
has been "gamed" by speculators, not people who are actually purchasing homes to
live in. That's the
risk to the newest homeowners, and the market, as well
as the difference between a bona fide boom (driven
by real homeowners) and a
speculative bubble which is driven by speculation.
12-15-2004 Update:
Despite rising short term interest rates, mortgage rates have remained
low, as I thought they would. David Lereah, Chief Economist for the National
Association of Realtors® states, "A number of studies from NAR Research indicate
that in spite of a projected slowing of home sales, demand remains robust. In
fact, I would argue that the current housing boom (a boom that started way back
in 1992) shows very few signs of abating. The housing market will continue to
expand through the next decade. We will be looking at nearly two decades of
expansion in the housing market. That is a Boom with a capital 'B'!"
Home sales are expected to shatter existing records in 2004 - again!
Lawrence Yun, NAR's Senior Forecast Economist states, "Apparently the
lag impact of holding back imports from a depreciated currency is much longer
than what has been written in economic textbooks." He also says, "The continuing
supply limitation in some coastal markets will drive up home prices at even a
faster rate, even on the heel of two-three years of double digit yearly
appreciation."
7-7-2004 Update:
Since everyone is talking about it, here's my best guestimate - a
housing bubble will only "exist" if the tax laws are changed again to remove
certain benefits of property ownership. Keep in mind that home prices have risen
40% over the rate of inflation over the last eight years. In my view the first 4
years (1996-2000) were as a result of financial gains from stocks translated
into nicer homes, and the second four years (2000-2004) is a result of the
change in capital gains taxation for homeowners - single taxpayers can escape
gains taxes on up to $250,000 while married taxpayers can escape gains on up to
$500,000. (PLEASE NOTE: THIS INFORMATION IS COPYRIGHTED -DO NOT USE IN ANY
MANNER WITHOUT AUTHORIZATION.)
5-17-2004 Update:
Upon further research, it appears that there is a serious supply/demand
imbalance regarding debt in our economy as well as the worldwide economy. The
demand for debt is huge - the US Government, business, consumers, etc. are all
looking for debt at interest rates that constitute a steal based upon the fact
that the Fed is now keeping short term rates artificially low. Add in inflation,
and debt investors (bond purchasers) are demanding more interest because they do
not want to be paid back in cheaper dollars. At this point in time I am still
not 100% convinced that inflation is anything but a short term problem. However,
if things begin to spiral out of control, all bets are off. The rates paid on
mortgages, car loans, credit card debt and other debt will go up. It has the
potential to puncture any housing bubble if one exists.
Click
here for more information from the Federal Reserve. (This is a PDF file.)
HOUSING BUBBLE?
Actually, probably not. Between 1991 and 2001 we added 32 million people to our
population. So at first blush it might seem that population growth numbers are
responsible for the record breaking residential real estate sales of the past
few years. Actually, if we bought homes at the same rate as we did 30 years ago
we'd have far fewer transactions. In 1971, we had 206,827,026 people and 2.018
million real estate transactions - or 9,757 home sales per million people. In
2001 we had a population of 284,796,887 people and 5.296 million home sales per
million people - almost double the rate of 30 years ago! The increased
transaction rate is great for lenders, brokers, title companies, lawyers and
state treasuries. Our population is growing younger. There is a growing pool of
first time home buyers -- about 42% of all transactions are first time home
buyers according to NAR. That's 2 million first-time buyers each year! These
buyers are the key to the marketplace because people can't move up to larger
homes without them. Could the current dynamics of real estate demand change in a
way that would impact prices? Possibly. Interest rates, qualifying ratios,
anti-immigration policies or tax law changes could have an impact. For now, I
think it's steady as she goes!
However, higher property taxes may be on the horizon for many states and
localities. If property taxes rise dramatically, along with rising insurance
rates along with no job growth in the economy, I may change my opinion. These
conditions, especially if they worsen, make
it more difficult for people on fixed incomes or those who've lost jobs to make
timely mortgage payments. All the more reason to watch your state and local budgeting processes
closely. Click here for further information on
property taxes in general.