Real Estate Rantings
Day two of the blog..... Hoping I can keep this up as it is pretty therapeutic to get my thoughts down on virtual paper. I must say I like the concept that someone could actually read this.
So, yesterday's entry is a nice lead in for everyone's favorite topic of discussion - the housing market (or the real estate bubble as you see it labeled everywhere in the press). I must say that I enjoyed the conversations for quite some time. Similar to the late 1990's it is fun to talk about an asset that you own that has been defying all logical expectations in regard to appreciation.
I moved to "fabulous" Orange County in 2000 (job transfer from St. Louis, Missouri). I was freaked out about home prices - the stock market had just peaked and I had some concerns regarding the future of the economy. Nonetheless, I really did not want to rent an apartment. That being said, I was looking at $300,000 town homes when I had purchased an actual house in St. Louis 5 years earlier for $98,500. I took the plunge, which is really what Californians do - just jump in the real estate pool and hope for the best - and bought a $266,000 townhouse. Cute, but nothing special. Fast forward five years and this little townhouse is worth over $600,000. That is just over 25% appreciation per year on the purchase price and an incredible amount of return on the meager 5% I put down! Who would not want to talk about that!
However, I have tired of the relentless talk. It is everywhere you look. People are maniacal about real estate. I think the tipping point came when I went to one of these master planned communities in Irvine. They were releasing phase 5 of this development the next day (condos). The entry level condo was just north of $500,000, and was a true condo - no yard, small, people living above or below you. We went a full 24 hours before the "release event," and people were camped out - first come first serve. Total herd mentality. I was so put off by the marketing techniques of the mighty Irvine Company (although the MBA in me admired the "slickness" of it all). They build these events to totally push buyers into "panic" mode (i.e., "I have to get into this phase"). They seed the events with a few people who bought in the last phase - these folks talk about how their house has appreciated $25,000 in just one month and the folks hoping and praying for a piece of the next phase want in all the more.
As a result, you get people doing absolutely crazy things - 0% down, interest only loans, option pay (the scariest of them all). Why should they worry? Surely the housing market will continue to appreciate at 25% per year. Of course, another scary aspect is the amount of tax burden these folks are taking on. A good friend and his partner just bought in one of these master communities. Total purchase price was over $800,000 for a detached condo. Taxes on this little slice of heaven will run them north of $15,000 per year.
This has to stop - incomes have not kept up with the increases in home prices and the lenders have been fueling this final push of growth.
In the meantime, I am staying put in my cute little condo with its 15 year fixed rate loan at 4.75%.........
So, yesterday's entry is a nice lead in for everyone's favorite topic of discussion - the housing market (or the real estate bubble as you see it labeled everywhere in the press). I must say that I enjoyed the conversations for quite some time. Similar to the late 1990's it is fun to talk about an asset that you own that has been defying all logical expectations in regard to appreciation.
I moved to "fabulous" Orange County in 2000 (job transfer from St. Louis, Missouri). I was freaked out about home prices - the stock market had just peaked and I had some concerns regarding the future of the economy. Nonetheless, I really did not want to rent an apartment. That being said, I was looking at $300,000 town homes when I had purchased an actual house in St. Louis 5 years earlier for $98,500. I took the plunge, which is really what Californians do - just jump in the real estate pool and hope for the best - and bought a $266,000 townhouse. Cute, but nothing special. Fast forward five years and this little townhouse is worth over $600,000. That is just over 25% appreciation per year on the purchase price and an incredible amount of return on the meager 5% I put down! Who would not want to talk about that!
However, I have tired of the relentless talk. It is everywhere you look. People are maniacal about real estate. I think the tipping point came when I went to one of these master planned communities in Irvine. They were releasing phase 5 of this development the next day (condos). The entry level condo was just north of $500,000, and was a true condo - no yard, small, people living above or below you. We went a full 24 hours before the "release event," and people were camped out - first come first serve. Total herd mentality. I was so put off by the marketing techniques of the mighty Irvine Company (although the MBA in me admired the "slickness" of it all). They build these events to totally push buyers into "panic" mode (i.e., "I have to get into this phase"). They seed the events with a few people who bought in the last phase - these folks talk about how their house has appreciated $25,000 in just one month and the folks hoping and praying for a piece of the next phase want in all the more.
As a result, you get people doing absolutely crazy things - 0% down, interest only loans, option pay (the scariest of them all). Why should they worry? Surely the housing market will continue to appreciate at 25% per year. Of course, another scary aspect is the amount of tax burden these folks are taking on. A good friend and his partner just bought in one of these master communities. Total purchase price was over $800,000 for a detached condo. Taxes on this little slice of heaven will run them north of $15,000 per year.
This has to stop - incomes have not kept up with the increases in home prices and the lenders have been fueling this final push of growth.
In the meantime, I am staying put in my cute little condo with its 15 year fixed rate loan at 4.75%.........
posted by The Random Gay Guy at 11:42 AM
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