No bubble here?
Alphie has a good post on the supposed housing/real-estate bubble and its pending burst. I tend to disagree that there’s only normal growth in Tennessee. The supposed bubble has been very good to me personally. Like all good things, however, it will not last forever. The trick is to be prepared and, then, you could potentially benefit from it. A few things on the burst:
If you’re not in the game now, I’d say don’t bother. It has probably already peaked. It’s capital intensive to get into and directly tied to interest rates. Those rates are rising (though slowly) and short term loans can get you as they tend to be variable. Long term rates may not be worth it if they come with substantial closing costs. Also, material costs are rising (particularly concrete) and that combined with high rates aren’t good for anyone.
Be prepared for the burst. The smart money is in building up your capital, waiting for the burst, and buying up stuff on the cheap. Then moving into the renter game (see below).
Part of me is also inclined to believe the press is making this call way too early. My personal experience indicates that the trend will continue for a while longer, at least in East Tennessee. Cheap starter housing is becoming a thing of the past and houses that were formerly considered second to third homes are now considered starter homes. People don’t buy 1,100 square feet houses these days. The rental market for cheaper living is still around and a burst of the bubble would add fuel to this market. If people stop buying, they still need a place to crash.
This financial advice is worth what you paid for it.
June 20th, 2005 at 9:41 am
I pretty much agree with that assessment, with one exception.
East Tennessee, and particularly Knoxville, have a long history of “steady as she goes” real estate appreciation. It’slower than the national average at times, but it is steady and relentless. I attribute this to the generally low unemployment rate and overall employment stability, which I attribute to the predominance of Government Jobs at U.T. TVA, ORNL, etc.
June 20th, 2005 at 11:56 am
Sounds like a good time to sell my puny
$400k$700k house in “the” O.C. and start renting somewhere.June 20th, 2005 at 12:25 pm
Or you could buy five ‘starter’ homes here 🙂
June 20th, 2005 at 1:55 pm
Yeah, but that would be one hell of a commute.
June 20th, 2005 at 4:46 pm
Wife and I went house hunting this weekend for a bit. We can sell it for about $700k (paid $240 in ’99) Saw a small little rambler – half the size of our small townhouse – that was listed at $850k. A house two doors down in atrocious shape was at $750. The woman I purchased my Jeep from just sold her McMansion (only slightly larger than my town home – but mostly wasted space) for $1.6 million. Ugh.
What I need to do is sell and move.
Fast – though not too fast. Once the new METRO expansion in NoVA is in place I will be 1/4 mile from the first stop on the Tyson’s Corner line – should be good for another couple of hundred thousand in worth.
Once I can wring even half that out though, its not gonna be too long before we return.
I’m just trying to figure out how to retain the most cash and keep about even salary wise (though with the cost of living issues I could certainly afford some pay cut).
June 20th, 2005 at 4:53 pm
Where you moving to?
June 21st, 2005 at 10:38 am
Ummm . . . I really see no “bubble” in East Tennessee. I don’t really see one in Arlington, VA (22202) where I just purchased either. Yes, here the prices are rising rapidly and a lot of that is because so much property could be used for housing, but it is restricted to uses other than housing (See Dr. Sowell for many articles on this).
Rising prices are not a bubble unless the real value of the property is not rising. I suspect that in my building the prices are just catching up to where they should have been a couple of years ago. This is not evidence, just a quip, parking spaces in my building have sold for $20,000 each for the past two years.
Also, the slightly-larger apartment that I moved from when purchasing this condo was pretty close in price to my mortgage payments after the tax effect.
So, what we have in my area is rental property leased at approximatly the same real price as purchased property.
Anothwer thing that happens here is speculators bidding up the prices of condos under construction. These units are sold well in advance of completion. I thought there was some “bubble” evidence there too, but no, by the time the units are completed they are around the same price per square foot that everything else is in the same neighborhood.
Now, something that I will benefit from is that if I borrowed the same amount of money to buy property in West Knoxville the property would not appreciate nearly as rapidly and when I finally sell I will have made much less of a profit. Plus, I can rent my current property to people on per-diem for months on end for double what my mortgage payments are.
Just a few fedmath free thoughts 🙂
June 21st, 2005 at 10:43 am
I really doubt Arlington is in any trouble if the .gov keeps growing. 🙂