Newsweek on current real estate market: "A home as a shelter, not an ATM"

[Bush_Eats_Beef]

House Sitting
Is it too late to get out of the real-estate market? Is it too early to get back in? An expert on the mysteries of the bubble.

WEB EXCLUSIVE
By Susanna Schrobsdorff
Newsweek
Updated: 8:32 p.m. ET March 3, 2006

http://www.msnbc.msn.com/id/11661266/site/newsweek/

NEWSWEEK: Is the housing bubble about to burst—or has it already?

June Fletcher: There has been double-digit inflation in home prices for the past five years and it looks like the end of that is near. We don't know if it's going to pop or be like air going out of a whoopee cushion, but I tend to think it's going to be gradual—like something moving underwater. Last year, price appreciation was about 13 percent. Typical appreciation is 4 to 6 percent a year, and they're predicting a little bit higher than that for this year, and there's a large inventory. So yes, there's probably going to be a decline.

A lot of people who do sell are wondering whether to buy again or rent.

The ratio of what you get for the rental cost is tremendously cheap in some places like San Francisco. Many rental markets are overbilled. If you think real estate is overpriced in your area, wait it out and rent—it's better than stretching yourself too thin. There are tons of buyers who are sitting on the fence waiting here in Naples, Fla. In Miami they've got people creating "vulture funds" waiting to buy condos. Realtors are always going tell you it's the best time to buy, but if you think it's not, why not rent—apartments are getting nicer and nicer.

So is it risky to buy something now?

I'm conservative about home buying. It's an illiquid asset, and you may have to wait out the housing cycle —and they run for five to nine years. I've had to do that once. I've waited out, and I made good money in the end, but I had to wait. Now is the time to look at your house as shelter, not as an ATM. And you should avoid what I call those "funny money" loans, like the interest-only ones. You don't want the house to own you.



Fletcher: 'Now is the time to look at your house as shelter, not as an ATM'

[xchrom]

1. i'm surprised at the renting advise

considering how expensive it is to rent in some areas.

i live in the bay area -- and wow -- some of the rents are staggering.

but yes -- the real estate market is going to bite many in the ass.

[LiberalPartisan]

2. Opportunity knocking?

We're on the cusp of a major run of foreclosures. Personally I'm looking forward to the opportunity to pick up real estate at a discount as the banks work to liquidate real estate they've taken back due to foreclosures.

[Rabrrrrrr]

3. Yes, the houses of the idiots who are making $40-50K a year

but got a $200K loan for far too much house so they could impress their friends and then realize a year later that with the cost to heat it and the cost of property taxes, they're way over the head, especially with the new SUV in the driveway and the ATVs in the garage and the boat out on the dock.

The fiscally responsible are gonna clean up in the next couple years.

[HockeyMom]

4. Newsday article on same

http://www.newsday.com/business/realestate/ny-coversprd4646693mar03,0,7027490.story

We sold a year and a half ago. My husband's job had been off shored and he was out of work for nearly a year. To make a long story short, he got a job in Florida and moved there. After paying all the debts we had, brokers/lawyers, etc., the net gain was about $300,000. We split the money. He promptly bought a condo in Naples, Florida for $250,000. I told him I thought that was a bad idea that real estate prices were overvalued. I checked it out and found the very same condo sold the previous year for $93,000. My feeling was, and still is, that even though our house sold for an overvalued price, you were also going to have to pay an overvalued price for something SMALLER. If you have read any articles on this recently, Naples, Florida was listed as the most overvalued area in the country. It even beat out California. My husband had planned to keep the condo a year and then buy something BIGGER. Thinking the value of the condo would increase? And then have to pay even more over-inflated prices? Does not make any sense to me whatsoever.

I decided to rent. My share of the money was invested and is yielding profits. Our daughter will graduate from college here next year. She is considering moving to Nevada to teach. We have been talking about this for a while. I may go with her and use my share of the money as a down payment there and move in together. From my research, the cost of living in Nevada is far cheaper than either Florida or New York. The money I have should yield either a substantial downpayment or perhaps even an outright purchase of a condo.

Here is another article from Newsday on families buying TOGETHER.


http://www.newsday.com/news/local/longisland/ny-lihouse0306,0,4563601.story?coll=ny-homepage-bigpix2005

[Bush_Eats_Beef]

5. I'm in California (Silicon Valley), and...

...it makes me shudder to consider your statement that Naples "even beat out California..."

I feel like I am sitting in the middle of the worst of the worst. A newspaper article that came out 2-3 weeks ago said that fourteen percent of the working families in this valley right now qualify to buy a "median-priced" home. FOURTEEN percent! And the median is $600-700K, depending on which source you choose to believe. This is the price for a SINGLE FAMILY home, often considered a "fixer-upper," in neighborhoods of QUESTIONABLE quality.

Many "professional couples" (if we actually have any LEFT in the wake of outsourcing) and families are buying condos and townhomes as opposed to houses. The townhome two doors down from me...exactly like mine...sold this past summer for $450K. My neighbor two doors down...in the opposite direction...bought hers, also exactly like mine, ten years ago...for $115K.

So if Naples is WORSE, all I can say is "my heart goes out to Naples."

:patriot:

[HockeyMom]

7. It's all relative

What are you getting for your money? I thought Long Island would make that overvalued list, but didn't. In talking with my husband, he said he can see why not. As an example, his coworker just bought a house in Naples. He paid $500,000 for a tiny, fixer upper with postage stamp property. According to my husband, his friend's house would fit into the one we sold here. Ours also was just under 2/3 of an acre. It sold for $500,000 too. Ours also needed work on it. The man was told that only 2 years ago that same house in Naples would have been worth under $200,000. Since I don't live there, others would know more about this than me.

I guess they don't just take prices into consideration in determining the overvalued housing costs of an area. Other factors play into it.

[KharmaTrain]

6. House Poor + New Bankruptcy Law...You're Really Screwed

Driving around my neighborhood, I've haven't seen as many homes up for sale this year than I've seen since the early (Poppy Bush bust) era. This an area where housing values soared...the medium home value doubled over the past decade and low interest rates and creative financing brought more people into home ownership. Then boooosh came along.

The dirty secret is why property values rose. As states lost money when boosh started turning the U.S. Treasury into his personal checkbook, the states and local taxing bodies needed to replace lost revenues, but do it without "raising taxes". What better way than to push up local property values? As home prices rose, so did the taxes...mine have nearly doubled in the past five years purely based in the rise in the overall house prices in my area.

People got stuck in a vice...to get into the housing game or to "move up", that meant taking on bigger mortgages. It's great when wages make it possible to meet the higher payment, it gets tight when wages stagnate and becomes living hell when someone either loses that job...and that's what's happening around here. Many of the tech and management jobs have been outsourced and many are now stuck in either re-training or starting into new "careers"...all while trying to maintain a nut that keeps growing larger.

Add to that the regressive bankruptcy bill that is quietly destroying millions of lives and turning them into modern day wage serfs and the future of the middle class is in critical condition.

[acmejack]

8. Good observation, it holds true in a lot neighborhoods here too.

Austin Texas & I know the story has to be the same. But Michael Dell is doing quite well thank you.