10/04/2005

Is The Boom Getting Quieter?

Last week I spoke with a friend of mine from Colorado, he enthusiastically told me about his plan to retire in 5 years with more money than he will ever be able to spend. He plans to get rich through buying and selling homes in the St. George and Cedar City areas. He is not alone in this housing frenzy of Southern Utah. I recently found an article that may possibly let some of the air out of my friends inflated plans. According to many industry analysts, the housing market on the east coast and California is beginning to slow considerably. Many economists have predicted that the bubble would burst, but the market would only slow down for a short time and then would begin to accelerate again. With gas prices near $3 a gallon, and house prices higher than their worth, analysts say that this slow-down may be the real thing. Will the market slow-down cross the Sierra Nevadas and reach our small protected valleys in Southern Utah? Will those individuals banking on the real-estate market become as rich as their dreams dictate? Personally, I feel that the boom in this area will continue for a relatively short time. Certain people will make enough money to retire in 5 years, but most won't. Real-estate is a great investment, but to be safe, generating income from some other source seems very wise.

5 comments:

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Bree said...

Honestly, I don't see the real estate market slowing down in Utah. Especially after the hurricane Katrina and Rita disasters I think we're going to be having a lot of people moving our way. Still, I think that people look to lightly on real estate as an investment. They don't consider the real risks involved. I really don't think this boom will bust but for those looking to invest i'd still consider all possible risks and weigh your options.

Liz said...

I think that your friend is crazy. When you look at how the market is down in St. George you would see that it is virtually impossible to purchase a hope without having cash. By the time one has gone through the process of getting a loan there will have already been others with cash offers. The average market time for a home in St. George is currently three weeks. If he wants to stick to his plan he better find another place to invest that is just on the verge of exploding and not right in the middle of it.

Alex said...

I think that the real estate trend going on right now in Southern Utah is just that, a trend. A few people got rich quick from buying and selling homes and property, so now everyone thinks they can do it too. But, not everyone can get rich from the same idea. Although, I do think Cedar City and St. George will continue to grow, I just think that those who get rich will depend on who does it first.

Dr. Tufte said...

-1 on Bree's comment for a spelling error.

-1 on Liz's comment for not rereading the comment before publishing it.

Logan - this is all very pretty but your future boss wants me to get your writing to be concise, and to-the-point. Writing a post that is too extensive is a good way to make a careless error.

I think there is a lot of sense in this strategy. However, the problem with this (and similar strategies) is that the risk is very easy to underestimate. Yes, there are people who have gotten rich from flipping residential real estate. The problem is that they are easy to spot. The people who tried to get rich and lost money instead are much more difficult to observe. This means that the risk in this sort of venture is typically underestimated - often by quite a lot.

There is a basic principle in economics that all gains accrue to those who hold fixed assets. This suggests three ways to get rich: 1) already be holding property in St. George, 2) have superior knowledge of the St. George market, or 3) just be smarter than everyone else. Logan's friend is probably too late for #1, and most people overrate themselves on #3, but #2 is a strategy that can be successfully followed.