Real Estate. Real Estate. Real Estate.
Real Estate investment cycle is very long, 6 to 10 years, and very predictable. You are 25. There are plenty of time to catch a few cycles.
Real Estate investment cycle is very long, 6 to 10 years, and very predictable. You are 25. There are plenty of time to catch a few cycles.
Real estate cycle is very predictable. It takes a long time and lot of effort to go up and it has a long leading time before it drops, unlike stocks. Real estate is also more depending on real economic factors which are more trackable and less manipulated by market makers than stocks.
For the last down turn, people had been screaming the housing market was overheated from 2004 to 2006, with graphs after graphs showing it's unsustainable. It's really a matter of whether you listened to them.
For predicting housing bottoming out and rising, check out the rental rate, vacancy rate, interest rate, employment trends, permits issued, housing started, inventory backlog, days on market, etc. If that's too much work, just monitor the long term sales price graph. It's not too late to join the train ride once it starts moving up. The thing about real estate is that once it starts moving up, it's very difficult to stop. There are too many factors to keep pushing it up. Likewise, once it starts falling, it will keep falling for a long time.
Of course, that's only the investment aspect of it. There are many other facets. I would encourage people to study economic, finance, and real estate. Don't dismiss it just because a big burst. It's actually a great opportunity to get in. There's an investment saying, most money are made when blood is running on the street.
I also know, that a lot of people predicted in 2004 to 2006 that the housing market was overheated. But, you know, you always get bearish and bullish people at all times, and the market can stay irrational for longer than you can stay solvent.
I did not invest anyway at that time: I did not have any money, being barely out of school. However, I had some nice returns when I bought some index funds starting in March last year --- when everyone thought the world was going to end.
I was not going to downvote because of disagreement. It sounded like shilling with no reason to back it up.
I have no idea what you mean by predictable or how you have a timeline. You mentioned housing starts so I will assume you were specifically speaking to residential real estate. It sounds simple to say look at rent to income or housing starts for an indication of housing price trends but really if you dont know what you are doing dont bother.
You mentioned interest rates for example. You do realize that a conforming home loan is sub 4.5% right? Well, you might not know that for most parts of the country (prices behave differently in land constrained regions and or low population density) the biggest factor in predicting nominal home prices changes is the interest rate on a home loan. Home value and interest rates are inversely correlated just like most asset classes but a little more so since we have a social obligation to make it easier to own a home. Anyways, my point was if you think we are japan and will have 15+ years of low interest rates that might be ok to neutral for home prices. Keep in mind japanese housing prices countrywide have been falling since 1991. If interest rates happen to move upward anytime soon housing prices will be crushed. We have no room for interest rates to go downwards anymore. Also we have a ginormous shadow housing inventory that is being held by banks who have tattered balance sheets. There are a lot of homes that should be going through the foreclosure pipeline that are being held because a flooding of the market with empty homes would destroy the value of the mortgage obligations that are being held. Someday these will be sold however. It wont be pretty for the housing market or for the owners of the whole loans.
Ramblings. But my point was that nobody really has any idea whats going to happen in the future. The government has a plan of its own with its own agenda. The banks and servicers all are trying not to get crushed under an avalanche of bad assets and are hoping they can earn/appreciate their way out of it. Maybe underwater home owners in non-recourse states will wise up and walk away. There is some hoopla in the industry about the lack of ability to foreclose due to crappy title transfers (exchange of ownership of debt from one play to another) and this could effect the ability to lend since people are already nervous about unknown consequences for lending in this political environment. Houses are nice. You can live in them (and for a primary res I dont think pricing should really matter over 30 years although the math to be sure is somewhat complex). But nobody really has any idea where prices are going or to what magnitude. But maybe you know something I don't.
Oh, fyi there are case-shiller options and futures available on the CME. It avoids a lot of the bothersome carrying costs of actual ownership.
Your long ramblings are just justifying your fear of real estate market in the SHORT TERM.
There are so much about the topic that it's difficult to fit in these comments. That's why I said I wanted to pique people's interest and they can do their own research.
And real estate is not that bad an investment in general, if you do not rely on it going up forever. The real problem is its illiquidity.
All investments have up and down. Just because there's an overdue big downturn in real estate, it doesn't mean it isn't a viable investment vehicle. Actually your negative reaction to real estate represents the general public sentiment, which is a perfect contrarian indicator. It really points to now it's the time to look into it to invest.
OP is 25 and has just seen the big housing downturn, which is great for him, lessons learned on other people's expenses. He has the next couple years to learn about it and accumulate capital to get into the game. If he asked couple years ago, I would have advised against it.