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coding_to_music

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Location: Beantown
Gender: Male


Posted: Nov 5, 2005 - 7:19pm



More info Here
coding_to_music

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Location: Beantown
Gender: Male


Posted: Apr 27, 2005 - 11:35am

More Housing Bubble views, comparison to Dutch situation
In the late 1990s, the Netherlands had one of the most successful economies in Europe. At the time, both Dutch house prices and household credit growth were rising at double-digit rates. As homeowners cashed in on their burgeoning home equity, the Dutch savings ratio collapsed (from more than 13 per cent of income in 1997 to less than 7 per cent three years later).
The Dutch housing market cooled after interest rates began climbing in 1999. The following year, house-price inflation came to a halt. Household credit growth slowed simultaneously - mortgage equity withdrawal fell from €10bn ($13bn) in 1999 to €5bn in 2002. This had an adverse effect on consumption. As consumer confidence dipped and unemployment climbed, the Dutch began to save more. Three years after the end of the housing boom, the economy contracted.

(...)

Contrary to popular perception it is not necessary for house prices to fall to create a serious problem for the economy at large. When house prices merely cease rising, the rate of credit growth normally slows, inducing householders to save more and spend less. At best, this produces a mild drag on the economy, as has been the case in the Netherlands. At worst, the economy undergoes a severe slowdown with soaring unemployment and a painful recession - as occurred in Japan, the UK and Scandinavia in the early 1990s.


Some pretty amazing graphs Here
.
g-rod

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Location: Church of the Acceptance of Mortality
Gender: Male


Posted: Apr 8, 2005 - 6:48pm

rgio wrote:
I haven't researched this, but I've been very surprised with such "cheap" fixed-rate money that many people took 5 and 7 year ARM's (adjustable rate mortgages). When rates climb, so will the monthly mortgage. In many cases, it'll go up a whole lot.

The scary difference between housing and the stock market is that we're talking about the asset that people live in.

Before I read this thread, I had 2 conversations today with a family member in Portland, OR and a friend in NYC. Both markets are up 25+% over the last year. Common sense tells you it can't continue.

Could someone please tell me what's next...gold, diamonds, 1960's sportscars...I need to make some really silly amount of money so I can go on a nice summer vacation.




The Mogambo Guru would say gold, and he's entertaining even if you don't believe him. Sportscars already bubbled and popped around 90-91, and are not quite back to the peak even now. You could try starting your own strategic reserve of crude, that might work out the best right now...

Scary thing about the ARM's is that these people are counting on the appreciation to pay the mortgage. They get more house than they can afford, as much as they can get, and that means an interest-only ARM. They figure to sell out at a profit before the balloon comes due or the rate goes up. Seeing in that article that 50% of mortages in CA were interest-only is frightening. When the bubble pops there's gonna be trouble.
rgio

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Location: West Jersey
Gender: Male


Posted: Apr 7, 2005 - 7:51pm

I haven't researched this, but I've been very surprised with such "cheap" fixed-rate money that many people took 5 and 7 year ARM's (adjustable rate mortgages). When rates climb, so will the monthly mortgage. In many cases, it'll go up a whole lot.

The scary difference between housing and the stock market is that we're talking about the asset that people live in.

Before I read this thread, I had 2 conversations today with a family member in Portland, OR and a friend in NYC. Both markets are up 25+% over the last year. Common sense tells you it can't continue.

Could someone please tell me what's next...gold, diamonds, 1960's sportscars...I need to make some really silly amount of money so I can go on a nice summer vacation.
coding_to_music

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Location: Beantown
Gender: Male


Posted: Apr 7, 2005 - 6:54pm

Click to Listen: Housing Market Crash?
Via WBUR's OnPoint Radio
Aired: Thursday, April 07, 2005 7-8PM ET

The first edition of Yale economist Robert Shiller's book "Irrational Exuberance" rolled off the printing presses in March 2000, at the peak of the stock market boom. In that edition, Shiller predicted the collapse of the stock market, which did happen one month after the book was published.

Now Shiller's updated "Irrational Exuberance" to take aim at the real estate bubble. The recent housing market boom, he argues, bears many similarities to the stock market bubble of the late 1990s, and may eventually be followed by declining home prices for years to come.

Hear a conversation with Shiller about the real estate bubble and its aftermath.

· Kathleen Madigan, business outlook editor for BusinessWeek, author of the cover story "After the Housing Boom: What the Coming Slowdown Means for the Economy -- and You" in the current issue of the magazine
· Robert Shiller, professor of economics at Yale University
· John Quigley, director of the Berkeley Program on Housing and Urban Policy and professor of economics at UC Berkeley, also holds appointments at Berkeley's Goldman School of Public Policy and the Haas School of Business.


islander

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Location: Seattle
Gender: Male


Posted: Apr 6, 2005 - 12:50pm

and on a related note: Greenspan Wants Portfolio Size Limits

wonder why he might be so worried...
islander

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Location: Seattle
Gender: Male


Posted: Apr 6, 2005 - 8:11am

coding_to_music wrote:


Islander, that is the scariest story I've read this week -- about ANYTHING!


And it's not just real estate (although it is linked). People have taken value out of their houses and used it to support living well beyond their means for many years. If the real estate market crashes, it will likely have a pretty bad impact on many other facets of our lives.

I'm fortunate enough to live in a fairly valuable house, and have a relatively low loan to value ratio (I'm below %50 now). I have resisted the urge to take out equity and spend it on cars, big screens, and other trinkets. We have tried to be responsible and plan for our futures, and I'm hopeful it will all work out. It has taken hard work and discipline to get here. I'm going to be really pissed if everything crashes, and the consequenses are so dire that some one in our government gets the bright idea to bail every one out using public funds 'for the greater good'.
coding_to_music

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Location: Beantown
Gender: Male


Posted: Apr 5, 2005 - 6:08pm

islander wrote:


From the same people now fighting to change the bankruptcy laws...

while reading that article I waffle between stunnd amazement and raw anger at people's lack of responsibility and beleif that some one will come along to help them out of the problems they create for themselves.


Islander, that is the scariest story I've read this week -- about ANYTHING!
coding_to_music

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Location: Beantown
Gender: Male


Posted: Apr 5, 2005 - 11:42am

They're In — but Not Home Free
Many Californians have 'interest-only' loans. They might be living on borrowed time.">(click here)

Islander wrote:

By David Streitfeld
LA Times Staff Writer

April 3, 2005

OAKLAND — Rachael Herron's new condo will ensure her financial salvation — unless it provokes her ruin.

Herron put no money down for her tidy one-bedroom, borrowing the entire purchase price of $211,000. To keep her monthly payments as low as possible, she got an adjustable-rate mortgage that won't require her to pay any principal for three years.

Thanks to her "interest-only" loan, the 911 police dispatcher was able to afford, barely, her first home. She now has a stake in California's sizzling real estate market. As her home increases in value, she plans to use some of that equity to pay down her credit cards.

But Herron is also setting herself up for a day of reckoning: Nov. 1, 2007.

That's when she has to start paying off her loan principal. If interest rates are higher than when she bought her home last fall — something many economists consider probable if not inevitable — her monthly payment will increase by as much as a third.

"I don't know what I'll do," said Herron, 32. "I'm already working overtime to pay my bills."

Confronted with soaring home prices, Californians are adopting a "buy now, pay later" strategy on a massive scale. The boom in interest-only loans — nearly half the state's home buyers used them last year, up from virtually none in 2001— is the engine behind California's surging home prices.

But all that borrowed money might be living on borrowed time. When higher bills start coming due, Herron and hundreds of thousands of other homeowners in the state will have to find ways to cope — or will have to sell.

In the most dire scenario, if they owe more on the home than it's worth, they'll simply walk away. Abundant foreclosures could spark a downturn in the entire housing market, leading to the long-feared bursting of what some call a housing bubble.

Interest-only loans, and other forms of so-called creative financing that are far riskier than the traditional 30-year fixed-rate mortgages, have allowed more people to afford homes in California even as prices have skyrocketed.

When the price of houses in California soared 17% in 2003 and 22% in 2004, a curious thing happened: Instead of home ownership decreasing because fewer people could afford houses, it rose to record levels.

During the last two years, according to U.S. Census Bureau data, home ownership in the state rose to 59.7% from 57.7%. The previous record was 58.4%, measured during the 1960 Census.

Although homeownership in California traditionally lags behind that in the rest of the nation — the U.S. rate in 2004 was 69% — the 2-percentage-point increase during the last two years was greater than in all but about a dozen states.

Rather than closing the door, lenders have apparently been opening it wider, inviting in people like Herron who would not have qualified for a mortgage under the more rigorous standards of an earlier generation.

"If you can fog a mirror, you can get a home loan," said mortgage analyst Ralph DeFranco.

An interest-only loan offers the ability to defer for three, five or seven years any payment for the house itself. That allows a potential buyer to stretch to afford a place that otherwise would be out of reach.

Of course, everyone else using an interest-only loan can stretch too. The result is that prices keep rising. That, in turn, encourages still more people to use interest-only mortgages, which fuels still more appreciation.

In 2001, as the current housing boom got underway, fewer than 2% of California homes were bought with interest-only loans, according to an analysis done for The Times by LoanPerformance, a San Francisco mortgage research firm.

By last year, the level had risen to 48%. Nationally, LoanPerformance says, interest-only loans were used in about a third of all purchases.

What's propelled the market up in California, some experts worry, could just as easily speed its descent.

"In the last few years, rates went down and values went up. It's like you were paid to live in California," said analyst DeFranco, who works for LoanPerformance. "People got so used to refinancing. They'd think, 'No problem. My house will be worth twice what I paid, and I'll refinance my way out of trouble.' That's not going to be a good approach going forward."

Here's how he thinks a collapse could occur: Rising interest rates put a brake on price appreciation and refinancings. People realize their interest-only period is coming to an end, raising their monthly payments substantially. Since they have no equity in the house, they choose to default.

"If housing prices go down or even are flat, heaven help us," said DeFranco.

The notion of prices falling in California goes so contrary to the current environment it's almost laughable. In the San Francisco Bay Area, probably the state's strongest market, it's routine for houses to get more than a dozen bids. To win a house, a buyer often needs to pay a third over the asking price. A four-bedroom Berkeley house went on the market in February for $985,000 and promptly sold for $1.5 million.

The last statewide downturn in housing came 15 years ago, sparked by large job losses in Southern California's defense and aerospace industries. Nothing like that is happening now. Many experts forecast prices to continue to rise, but more moderately.

Federal Reserve Chairman Alan Greenspan has a different point of view. "I do believe it is conceivable we will get some reduction in prices, as we've had in the past," he told a House of Representatives hearing in February. But he added that this wouldn't be a problem, because housing prices had gone up so much, providing homeowners with "a fairly large buffer."

People who buy at the peak, however, aren't going to have that buffer — or, if they have an interest-only loan, much room to maneuver.

The number of buyers falling into this category in any given month is unclear. But a California home builder recently got a sense when he sought to answer this question: How many of the potential buyers of his houses could still afford them if interest rates went up even a little?

To find out, the builder conducted a little experiment.

His firm's preferred lender had pre-qualified 90 potential buyers for a group of new houses. Since the houses wouldn't be ready for another six months, the builder tightened the loan criteria. He didn't want buyers to sign up for a house and then get frightened into canceling by rising rates.

He raised the threshold from a fully variable loan, the easiest to get since it immediately moves upward when rates increase, to a mortgage that was fixed for the first three years. That would shield buyers from rate jumps for at least a little while, but it's also more expensive.

Under the higher threshold, only about 15 of the buyers still qualified.

"People are really pushing to borrow as much as they can, and the lenders are right there," said the builder, who declined to be identified. "There's apparently not much of a cushion."

The Federal Reserve regularly queries banks about whether they're tightening or loosening credit standards for home mortgages. In four of the last five quarters, standards were loosened. The combined drop was the biggest in more than a decade.

Meanwhile, the range of home mortgage products keeps expanding. Some lenders offer mortgages that are spread over four decades rather than three. Others extend the interest-only period to 10 or 15 years, or offer programs allowing those who have what is called "difficult to document" incomes to put only 5% down.

"A few years ago, you would have had to go to an infomercial to get the kind of deals we're offering now," Wells Fargo home mortgage consultant Jimmy Kang told a group of new real estate agents last week.

Two weeks ago, the Fed raised short-term interest rates, which caused adjustable rates to spurt. But that only increased their popularity. The Mortgage Bankers Assn. said adjustables rose last week to a record high of 36.6% of all mortgages nationwide, exceeding earlier peaks in 1995 and 2000.

In California, the traditional fixed-rate loan is in danger of becoming extinct. According to recent LoanPerformance data, the percentage of new loans that are adjustable in Santa Cruz and San Diego was 85%; in Oakland 84%; in Santa Rosa 81%; in Los Angeles 74%.

Many of these loans are also interest-only, compounding the borrowers' risk of what the mortgage industry calls "payment shock."

Owning real estate in California has always been a matter of hope — that ground zero of the next big earthquake won't be under the kitchen floor, that the house won't slip downhill in a mudslide or combust in a wildfire. Real estate agents around the state say their clients are equally optimistic that payment shock will never arrive.

"They say they'll worry about tomorrow when tomorrow comes," said Glendora agent Steve Robinson, who says half his clients use interest-only loans. "Right now their worry is, 'How can I get into this house as cheaply as possible?' "

Christopher Stafford, a San Francisco agent who says nearly two-thirds of his clients use interest-only loans, said prices had risen so much for so long that clients had a hard time conceiving of anything bad happening.

"In 12 years of selling real estate, I've never heard anyone tell me they wished they had purchased a smaller house," said Stafford. "They always say, 'If I'd known what was going on, I should have stretched further.' "

If disaster does strike, he believes, the housing market will be propped up. "The real estate economy is too important to the country and the state," Stafford said. "Lenders don't want foreclosures. They'll introduce new loan products that will allow people to stay in their properties."

The California Housing Finance Agency, which helps first-time home buyers, announced Friday that it too will be offering an interest-only loan. Its version is less risky, because the loan is fixed for its entire life, which is 35 years instead of the standard 30.

But it still bumps up after five years, when repayment of the principal starts. On a $300,000 loan, it moves up about $340, to $1,657 a month.

"We had great debates whether we should be doing this or not," said the agency's executive director, Theresa Parker. "What happens to people in five years if they can't make these larger payments?"

In the end, she said, they decided not to be "paternalistic," especially since the customers wanted and needed this type of loan.

Proponents of interest-only loans like to note that Californians tend to move every couple of years and that therefore many will escape payment shock. On the other hand, many people move to get into a better house, something that will be less attractive if interest rates keep going up.

Amy Matzenbacher and her fiance, Chris, a restaurant manager, are closing this month on their first house, a three-bedroom in Palm Springs that cost $495,000. They're borrowing $60,000 from their parents for a down payment, and financing the rest with an adjustable-rate loan that is interest-only for the first three years.

"We will be extremely nervous if we decide to stay longer than three years in that house and interest rates skyrocket," said Matzenbacher, a cocktail waitress in Del Mar. "We are just banking on the hope that the home will gain enough equity by the time we sell."

It's not just first-time buyers who are at risk of payment shock. Miseon and T.G. Kang just sold their town house in San Jose for $625,000 and bought a new home for $1.21 million.

"We paid a premium. We wanted this house. Without an interest-only loan, we couldn't have afforded it," said Miseon Kang, a pharmacist. "For five years, our payments will be OK. But after that, they'll be a problem. My husband and I are concerned."

Rachael Herron is concerned too, but mostly she's just exultant to have a home of her very own. It's only about 540 square feet, but it has a claw foot bathtub, space to store a voluminous amount of yarn (her passion is knitting) and a porch where she likes to watch the cars on the freeway, which is about 10 feet away.

Even better, she pays a few dollars less each month than she did for her last rental.

It's good to be a homeowner. Herron knew that three years ago, when she saw a place she liked for $169,000. She could have gotten a mortgage, but this was before interest-only loans were widely available and she didn't think she could swing the payments. "I was being fiscally responsible," she said.

She kept an eye on that condo, and says it's now worth $250,000. Something that seemed incredibly risky would have made her solvent.

Last fall, Herron decided to take the plunge. With the first four places she found, she was outbid. Then a bottom unit in a fourplex became available, and she got it. She's still amazed.

"I have $40,000 in student loans from my master's degree," Herron said. "I have high credit card debt. I'm a typical American. And yet they wanted to give me more debt to buy a house."

She wonders sometimes if she'll end up in foreclosure, if the bank will take her beloved home away from her when she can no longer pay her bills. Maybe it was a mistake to give her this money, maybe it was a mistake for her to take it. But she wasn't about to protest.

"If you're like me, you're so incredulous that anyone would give you any money whatsoever, you just close your eyes and sign the papers," Herron said. "I would have signed anything."

islander

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Location: Seattle
Gender: Male


Posted: Apr 5, 2005 - 11:37am

coding_to_music wrote:


It seems that prices are not affordable by people who use their paychecks. The lowest price for the worst houses in metro Boston is about 400k, how can a young person buy a house? That's why they are moving to North Carolina and Arizona etc...


A related story from the LA Times: (click here)

look at some of these quotes from this story:

"I have $40,000 in student loans from my master's degree," Herron said. "I have high credit card debt. I'm a typical American. And yet they wanted to give me more debt to buy a house."


and from a person who is worried about the payments going up on her interest only loan:
"I don't know what I'll do," said Herron, 32. "I'm already working overtime to pay my bills."


what happened to being responsible and buying what you could afford?

and here is another aspect of the problem:
"If you can fog a mirror, you can get a home loan," said mortgage analyst Ralph DeFranco.


From the same people now fighting to change the bankruptcy laws...

while reading that article I waffle between stunnd amazement and raw anger at people's lack of responsibility and beleif that some one will come along to help them out of the problems they create for themselves.
coding_to_music

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Location: Beantown
Gender: Male


Posted: Apr 5, 2005 - 11:12am

miamizsun wrote:
the short answer here is that when mr. & mrs. consumer, the average couple can't afford to purchase the average priced home, the market cannot and will not sustain.

"welcome to bubbleville, population you."


It seems that prices are not affordable by people who use their paychecks. The lowest price for the worst houses in metro Boston is about 400k, how can a young person buy a house? That's why they are moving to North Carolina and Arizona etc...
miamizsun

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Location: (3261.3 Miles SE of RP)
Gender: Male


Posted: Apr 5, 2005 - 7:17am

wallacehartley wrote:


Is there a likelyhood that this might become a global thing? Property prices out here are very high, particularly for the Average Bloke, and cannot possibly be sustainable to my limited knowledge.


you are "spot on" sir.

everything has historical rates of appreciation, and when that rate deviates from the mean, look for it to correct.

when the bubble in the tech "stock" market began to go south, people took billions and billions out of the market and were looking for a "safer" more stable investment, meanwhile greenspan had lowered interest rate to spur liquidity in the US economy, to have cheap money available to encourage people to borrow and spend, for new business start ups, etc.

so money poured from stocks into real estate, interest rates are at 40 year lows which created a massive sellers market and quickly led to the housing bubble we see today. home ownership is through the roof, but foreclosures are at record highs as well.

the short answer here is that when mr. & mrs. consumer, the average couple can't afford to purchase the average priced home, the market cannot and will not sustain.

"welcome to bubbleville, population you."
wallacehartley

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Location: Cape Town South Africa
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Posted: Apr 5, 2005 - 6:15am

coding_to_music wrote:
National Public Radio: Coastal Housing Bubble May Be Set to Burst
Weekend Edition - Saturday, April 2, 2005 · Joe Nocera, former editorial director at Fortune magazine, describes soaring residential real estate prices along the East and West coasts. He tells Scott Simon that real estate values are being fueled by people looking for profitable investments in the wake of the stock market's troubles. Listen Here


Is there a likelyhood that this might become a global thing? Property prices out here are very high, particularly for the Average Bloke, and cannot possibly be sustainable to my limited knowledge.
coding_to_music

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Location: Beantown
Gender: Male


Posted: Apr 4, 2005 - 1:26pm

National Public Radio: Coastal Housing Bubble May Be Set to Burst
Weekend Edition - Saturday, April 2, 2005 · Joe Nocera, former editorial director at Fortune magazine, describes soaring residential real estate prices along the East and West coasts. He tells Scott Simon that real estate values are being fueled by people looking for profitable investments in the wake of the stock market's troubles. Listen Here

coding_to_music

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Location: Beantown
Gender: Male


Posted: Mar 26, 2005 - 7:42pm

Via NY Times
March 25, 2005
Trading Places: Real Estate Instead of Dot-Coms
By MOTOKO RICH and DAVID LEONHARDT

Real estate-crazed Americans have started behaving in ways that eerily recall the stock market obsession of the late 1990's.

In Naples, Fla., some houses have been bought twice in a single day, an early-21st-century version of day trading. Buying stocks on margin has morphed into buying homes with no money down. The over-the-top parties of Internet start-ups have been replaced by flashy gatherings where developers pitch condos to eager buyers.

Five years ago, the cable channel CNBC sometimes seemed like a backdrop to daily American life. Its cheery analysis of the stock market played in offices, in barbershops, even in some bars. Today, "Dude Room," "Toolbelt Diva" and other home-improvement shows are the addictive fare that CNBC's exuberant stock shows once were.

"It just seems like everyone is doing it," Laurie Romano, a 26-year-old self-described real estate investor, said with a giggle as she explained why she was attending an open house this month for the Nexus, a 56-unit building going up in Brooklyn's chic Dumbo neighborhood. She and her fiancé, a dentist, had already put down a deposit on a Manhattan condo earlier in the week and had come to look at another at the Nexus.

Nobody can know whether the housing boom of the last decade will end as the dot-com frenzy did. But the parallels are raising alarms among many economists, even those who acknowledge that there are important differences between homes and stocks that significantly reduce the chances of another meltdown. For one thing, houses are not just paper wealth: you can live in them.

Still, perhaps the most troubling similarity, some analysts say, is the claim that the rules have somehow changed. In an echo of the blasé attitude that "new economy" investors took toward unprofitable companies, the growing ranks of real estate investors are buying houses they never expect to be able to rent at a profit. Instead, they think the prices of houses will just keep rising.

Indeed, the government reported yesterday that sales of new homes jumped sharply in February, in the biggest monthly increase in four years. A strong economy and an improving job market contributed to the gain. But many buyers were also trying to beat rising mortgage rates, which could eventually cool the market.

Adding to the parallels between stocks and housing, some of the doomsayers from the 1990's have returned with new warnings.

"We're going through something very similar in real estate that we did with stocks," said Robert J. Shiller - a professor of economics at Yale, whose prescient book on stocks, "Irrational Exuberance" (Princeton University Press, 2000), appeared just a few months before technology stocks began their slide. "It's driven by the same forces: that investments can't go bad; that it has the potential to make you rich; that you'll regret it if you don't do it; that it looks expensive but is really not."

A new edition of Mr. Shiller's book will be published next month. The cover promises an "analysis of the worldwide real estate bubble and its aftermath."

Premonitions of a bubble on the verge of popping do not ruffle those who are bullish on real estate. In Miami, Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors, predicted that a limited supply of land coupled with demand from baby boomers and foreigners would prolong the boom indefinitely.

"South Florida," he said, "is working off of a totally new economic model than any of us have ever experienced in the past."

The can't-miss aura of real estate has also helped nudge many families to invest more of their personal wealth in real estate by buying more expensive homes and taking on riskier mortgages - much as ordinary workers used their 401(k) plans to bet on company stocks.

There are certainly serious reasons to believe that house prices will not suffer the fate of technology stocks. Not only are houses more tangible, but people do not sell their homes as quickly as stocks, making a panic much less likely. Because of tax advantages, few owners are likely to sell and rent something else simply because local house prices start to decline.

As high as they might seem now on the coasts, home prices nationally have not quite doubled over the last decade; during the 1990's, the Standard & Poor's 500-stock index more than quadrupled.

"I just don't think we have what it takes to prick the bubble," said Diane C. Swonk, chief economist at Mesirow Financial in Chicago, who was an optimist during the 90's. "I don't think prices are going to fall, and I don't think they're even going to be flat."

Such confidence about real estate has created a 1990's-like stampede of new investors. The night before the Nexus party, Patrick Cullert, 31, and Jennifer Mathews, 29, who are engaged, camped out to ensure they would be near the head of the line for one of 16 condos to be sold at the party. It was today's version of pestering a broker for shares in a hot public offering.

And many former stock market enthusiasts are now turning to housing. Douglas Paul, a 46-year-old former analyst, left AT&T in 2002 to buy and sell stocks on his own. But he soon decided that real estate could be another way to make quick profits. Mr. Paul owns two condominium units around Fort Lauderdale and one in Miami Beach, all bought during the last year, in addition to the one where he lives. He plans to sell one of the Fort Lauderdale condos in June for what he believes will be double his investment.

"It really is a very hot real estate market, and I don't know how long it's going to continue," he said. "But in the short term, why not profit from it?"

Mr. Paul's path is an increasingly common one. The National Association of Realtors estimates that nearly one-quarter of home purchases last year were made by people who thought of the house as an investment rather than a place to live. Seminars promising to teach amateurs the tricks of real estate speculation have proliferated.

Even at Harvard Business School, where students have traditionally gravitated to careers in investment banking and corporate marketing, real estate is suddenly hot. About 25 graduates have taken real estate jobs in each of the last two years, up from only six in 2001.

It is not quite the gold rush of 2000, when about 200 Harvard M.B.A. graduates flocked to technology companies. But even if they are not working in real estate, some of those graduates are now investing in it.

Andrew Farquharson, a member of the class of 1999, said he recently teamed up with a high school friend to buy a home in the Central Valley of California "out of pure speculation." He knows of other classmates who have made similar investments.

"I look at this as a short-term investment," said Mr. Farquharson, 36, who works for a venture capital firm, "and plan to unload it as soon as things look dangerous."

In addition to the flood of investors, the parallels between real estate and stocks extend into mainstream culture.

Real estate bulletin boards and blogs like Curbed.com and Real Estate Pimp have taken the place of financial chat rooms like Tokyo Joe's. ABC has a breakout hit in "Extreme Makeover: Home Edition," and Home and Garden Television, a once-obscure cable channel, now draws an average of 827,000 viewers in prime time.

The seemingly inevitable how-to guide inspired by Donald Trump - "Trump Strategies for Real Estate" (John Wiley & Sons) by George Ross, one of Mr. Trump's assistants on his hit show "The Apprentice" - is a strong seller, already hitting No. 177 on Amazon.com's list in March, less than a month after its release.

At the Nexus party in Brooklyn, Steve Nguyen, Ms. Romano's fiancé, said he was heeding Mr. Trump's advice. "He says buy, buy, buy," Dr. Nguyen said.

The same message is being trumpeted by David A. Lereah, chief economist of the Realtors association, who argues in his new book, "Are You Missing the Real Estate Boom?" (Currency), that real estate investors will "experience substantial and satisfying wealth gains" into the next decade.

The question that looms over these books is whether they will suffer the fate of another optimistic talisman, "Dow 36,000" (Times Books), which was a best seller in late 1999. Its authors, James K. Glassman and Kevin A. Hassett, argued that stock prices, despite five years of roaring gains, "could double, triple or even quadruple tomorrow and still not be too high."

The Dow Jones industrial average hovered around 11,000 when "Dow 36,000" was published. It dropped below 8,000 in 2002 and closed at 10,442.87 yesterday.

Another lingering echo of the stock market boom is the role of the Federal Reserve, the nation's central bank. In the 1990's, the Fed kept interest rates relatively low because it saw little risk of rising inflation despite a booming economy, helping feed a fever for stocks. Alan Greenspan, the Fed chairman, famously asked aloud in 1996 whether "irrational exuberance" was driving the stock market, but then backed off from second-guessing investors.

After the market plunged and the economy weakened, the Fed pushed interest rates down to 50-year lows, helping to fuel the housing boom. This month, Mr. Greenspan made some comments about housing that offered a faint echo of his 1996 musings.

"Analysts have conjectured that the extended period of low interest rates is spawning a bubble in housing prices in the United States that will, at some point, implode," Mr. Greenspan said in a speech in New York, adding that real estate speculation had shown a "marked increase." Nevertheless, he said he did not expect a "destabilizing" drop in prices, in part because home prices across the country have never fallen significantly.

But by one measure, houses in at least a few metropolitan areas are as expensive as telecommunications stocks were in 1999, relative to their underlying value.

The average house in San Jose, Calif., costs 35 times what it would cost to rent for a year, according to Economy.com, a research company. In New York and West Palm Beach, this ratio - a rough equivalent of the price-earnings ratio for stocks - is almost 25.

In March 2000, the price-earnings ratio of the Standard & Poor's 500 - the combined price of the stocks, divided by their profits per share - peaked around 32, and it was briefly even higher for telecommunications stocks. The S.& P.'s P.E. ratio has since fallen to around 20.

Still, no matter how expensive real estate might be, it continues to provide many owners a return worth boasting about.

Holly Peterson, who is writing a novel about the idiosyncrasies of New York's rich, said that at dinner parties in Manhattan, she frequently hears complaints about high home prices, followed by claims of quick profits. "They always hit you with their last jab: 'Of course my money's doubled three times over since I got married,' " she said.

Five years ago, she said, friends at parties were crowing about "making millions of dollars on paper with $25,000 and $50,000 investments." But "most of those people," she added, "got wiped out."

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Posted: Mar 2, 2005 - 9:21am

Via NYTimes
March 1, 2005
Speculators Seeing Gold in a Boom in the Prices for Homes
By MOTOKO RICH

SUNNY ISLES, Fla., Feb. 25 - Within six months last year, Carlos and Betti Lidsky bought and sold two condominiums. Then they bought and sold two houses. They say they will clear a half-million dollars in profit, and none of the homes have even been built.

Now Mr. Lidsky, a lawyer, and his wife, a charity fund-raiser, have put down a deposit on a fifth property, a $1.3 million condo in a high-rise under construction, and are planning to sell before the deal closes, without even taking out a mortgage.

"It is much better than the stock market," Mr. Lidsky said. "This is an extraordinary, phenomenally good result."

In several metropolitan areas, from Miami to Riverside, Calif., where the real estate market is white hot, rapidly rising prices are luring a growing number of ordinary people into buying and selling residences they do not intend to occupy, despite warnings from some economists that prices cannot continue to rise as steeply as they have in the last few years.

According to LoanPerformance Inc., a San Francisco mortgage data firm, about 8.5 percent of mortgages nationwide in the first 11 months of last year were taken out by people who did not plan to live in the houses themselves, up from 5.8 percent in 2000. In some markets, that proportion is much higher: in Phoenix, more than 12 percent of mortgages were taken out by investors; in Miami, the figure is 11 percent.

The National Association of Realtors, a trade organization that represents real estate brokers, said in a study being released on Tuesday that the percentage of homes bought for investment might be as high as one-quarter of the 7.7 million sold last year.

"Americans are treating real estate as a viable alternative to stocks and bonds," said David Lereah, chief economist at the Realtors association. And some are buying at least two properties at a time.

Like the day traders of the 1990's dot-com boom, people are investing in a market that seems to just go up. Promoters use Web sites to attract investors, promising quick profits. One site, getpreconstructionprofits.com, is run by a pair of investors who offer online training for $197. On their home page, they say people can earn over $100,000 in six months investing in unbuilt real estate.

Some economists say the influx of investors into the real estate market could have negative consequences.

"Investors are now seemingly buying based on the expectation that house prices are going to grow as rapidly as they have in the recent past, long into the future," said Mark Zandi, the chief economist at Economy.com, a private research group. "How quickly and high fixed mortgage rates rise will determine whether the speculative fever in the market just goes flat or whether it caves."

For now, low interest rates are helping to fuel the frenzy. Sometimes, homeowners borrow equity from their primary residence to finance down payments. These buyers, some of whom lost money when the stock market crashed five years ago, believe real estate is a safer bet.

Rita Lawrence, a construction business owner in Phoenix, has bought three houses in the last two years. Ms. Lawrence and her husband rent out two of them, and they hope to sell the third - which they are buying for $195,000 - for $249,000, after a quick renovation.

Taxes can take a sizable part of the profits in these deals. Investors who sell within a year of purchase face federal short-term capital gains taxes of up to 35 percent, and 15 percent if they wait a year.

Still, investors have been seduced by the steady upward march of house prices over the past few years. Since 2000, the national median price of a house has increased by 33 percent. And in the fourth quarter of last year, out of 129 metropolitan areas covered by the Realtors, 62 markets showed double-digit price rises over the same period a year earlier.

Demand for investment properties has risen in markets with the most spectacular price increases, according to brokers. As buyers were priced out of Los Angeles, they moved into San Bernardino and adjacent Riverside County, where prices rose by 35 percent last year. Nancy Overgaag, a mortgage broker at Financial 2000 in Redlands, Calif., said about one-third of her customers were looking to invest in real estate.

Even in Manhattan, where average sales prices topped $1 million last year, investors are piling into the market, brokers say.

Some investment buyers are willing to rent out their properties at a monthly loss, anticipating future sales price rises. Dru Finley and her husband, Hsiao-Li Pan, who live in Brewster, N.Y., bought a one-bedroom condominium in Battery Park City in Lower Manhattan last summer for $499,000. They rent it out for $2,225 a month, about $1,000 less than their mortgage and maintenance costs. The couple hope to make up the shortfall when they sell the condo in a few years. "It seems that real estate always goes up," in the long term, Ms. Finley said.

Many homeowners are tapping the paper wealth in their own homes to buy more real estate. Mark Purnell, who manages internal technology for a software company in Southern California, said the four-bedroom house he bought eight years ago in Rancho Santa Margarita, south of Los Angeles, had quadrupled in value to $800,000. Last year he took out a $150,000 home equity loan and, with his brother, bought three houses in Phoenix.

Mr. Purnell, 36, who is renting out those houses, said he would buy more in Phoenix but could not find anything. So he is turning his attention to Palm Springs, Calif. His Phoenix real estate agent, Kim Martin of Re/Max Achievers, said that investors had helped deplete inventories of available properties from about 25,000 this time last year to about 8,000 now.

In a backlash against speculative investing in some popular markets like Phoenix and Las Vegas, some homebuilders now prohibit renting or selling houses for at least a year after closing. As a result, investors have started to back off in Las Vegas, where the pace of the price rises started to ease towards the end of last year.

But in Miami, the speculative craze is promoted in part by developers and brokers who help buyers to resell quickly.

Brokers in Miami work overtime to get their clients into V.I.P. sales events before developers start pitching buildings to the public.

The Lidskys were heading out of town early last year when they got a call from Michelle L. Judd, a sales associate at Ocean IV, a high-rise being built in Sunny Isles by a consortium led by the Related Group of Florida, the same company that built the condo where they have lived since 2003. Ms. Judd was offering to sell them a second unit, but only if they would put down a deposit that day.

Shortly before their flight, Mr. Lidsky drove to the sales office and without viewing any floor plans, ended up writing deposit checks totaling $159,380 for a $479,900 two-bedroom condo, and an adjoining four-bedroom unit for $1,113,900. The money came from a bank line of credit not secured by their current home. Within three months, Ms. Judd called again: she had buyers for the two-bedroom willing to pay $625,000 and $1.425 million for the four-bedroom.

Such get-rich-quick stories have increased demand for preconstruction condo units in and around Miami. While many buyers do intend to move in to their homes, as many as half the original buyers of some condos resell them before they are built. Of the 280 units at Ocean IV, Ms. Judd said, nearly 130 had resold.

Thomas Daly, a principal investor with the Related Group in 18 condo projects, said the company did not "encourage investors" but that once a project was initially sold out, the developer would help buyers resell their properties quickly "to accommodate our purchasers."

Developers of some projects do not allow buyers to resell before closing, because they fear this could artificially inflate prices.

One of those projects, Arté City, a 202-unit condo complex being built in Miami Beach, is still attracting investors, although they are those who are willing to wait longer to sell. Jaime Nack, a 29-year-old event producer in Santa Monica, Calif., bought a one-bedroom unit at Arté City for $270,000, financing the down payment with a second mortgage on her one-bedroom condo in Santa Monica.

Ms. Nack plans to rent out the unit for a couple of years before selling. Because of its proximity to the beach, "I think it will be safe even if the market drops a bit," she said.

Some real estate watchers in Miami wonder whether that drop will come soon. With more than 60,000 units in some phase of development in the Miami area, "the supply may be greater than the ultimate demand," said Michael Y. Cannon, managing director of Integra Realty Resources-South Florida, a market analyst. A similar situation in 1986 sent the market spiraling, and it took seven years to recover.

For now, investors like the Lidskys are still buying. They intend to buy at least one more unit - their sixth in less than a year - in another condo. But the couple, who acknowledged being "killed" in the stock market five years ago, sounded a note of caution.

"Maybe we won't lose money, but I just think it is not going to keep up," Ms. Lidsky said . "At some point there are just going to be too many apartments in this area."

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