This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
10/11/2005
Real Estate - Now Is Not The Right Time
People that have recently invested in real estate (2005), or are thinking about real estate as a possible investment plan for the future should carefully access their asset portfolio. As Geordie Crossan states that if your investment portfolio is 75% real estate holdings then you are overexposed to the current market trend possibilities. He compared our current situation to the 99' tech stock problem that arose due to many people being overexposed in those areas as well. Many analysts state the real estate boom will not crash but there is a strong possibility the market will retreat. The article Real Estate: Avoiding the Burn, states a few strategies that investors may want to consider if investing in the real estate market. Do not finance with adjustable rate mortgages, interest rates are increasing. In 2004, 64% of homes sold were second homes purchased as an investment. Some analyst’s say that those people "missed the train," the prime time to invest in real estate was 3-5 years ago. Along the same lines those people whom are buying these so called investments are actually using them as vacation homes rather than rental properties (if that is the purpose), the deficit can be tremendously unfavorable on the outcome of their investment. There is much more to this article, those points were just a few that stuck out. Personally, unless you are planning to use your home as a long-term investment, (which they say not to consider your home an investment) now is not the best time to jump into the real estate market.
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1 comment:
-1 on Tyler's post - I think you mean assess not access.
I'm torn about this topic. Certainly there is some speculation and "flipping" going on. Further, "experts" have been saying this can't last.
But, I'm one of those people who is supposed to be an "expert" and I'm not so sure. Here's some things that make me think this is not a bubble.
1) Interest rates are not done with a generation-long downward trend. Real rates on mortgages are still higher than they should be, because banks are cautious after getting burned so badly in the 1970s.
2) The average age of a house in the U.S. is older than it has ever been - believe it or not.
3) Our affluence gets turned into stuff, and the best place to store your stuff is in your own house. I'd be a lot more convinced there was a bubble if all these new houses were empty, and the old houses weren't overflowing with stuff. But ... they are.
FWIW: Our home in New Orleans was 40% the size of our home in Cedar City. In New Orleans, we had to have 7 climate controlled 4x6x6 storage lockers to hold all the stuff that wouldn't fit in our house. To me, the self-storage business seems like a leading indicator of the residential real estate market, and if anything the self-storage market is still in the midst of a protracted boom.
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