Homestead mailing list

[Gene GeRue <genegerue AT ruralize.com>]

> Many have said it was coming, but this group has an amazingly accurate 
> track record on economic predictions:
>
> http://news.yahoo.com/news?tmpl=story&u=/latimests/20041208/ts_latimes/californiausinahousingbubbleuclaforecastsays

Much ado about something, but less, I think, than the hype. Real estate 
"bubble" has become a favored buzz word to make writings more saleable and 
the authors more quoted. The housing industry has supported the U.S. 
economy for the last several years. Certain areas of the country have 
experienced abnormally high real estate appreciation rates including much 
of California and the whole of Las Vegas. I have for several years 
recommended not buying in either place.

Over-appreciation is far short of a nationwide condition. As has been the 
case for a couple hundred years, sustained real estate appreciation depends 
on supply and demand. Beware of buying in areas susceptible to 
unemployment. That's where demand falls, and prices with it.

Here's a quote from the article:
"For their part, UCLA economists contend that inflation-adjusted mortgage 
rates are on par with those of the 1970s and early '80s, and above those of 
the 1960s — all periods when prices did not rise as fast as they have 
today. What's more, they contend, current population growth is being driven 
by lower-income immigrants who cannot afford homes at current prices."

I started in real estate in January, 1969. Interest rates today are lower 
than then and all the times between then and now. Adjusting for inflation 
the 7-percent loan rate I paid in about 1965 would make if far higher than 
the current 5.5- to 6-percent rates available today. (Someone better than I 
with math can do the numbers for us.) Furthermore, in 1974 or 1975, I 
forget which, California average real estate appreciation was 24 percent 
for the year. Those kids at UCLA need to do their homework or stop smoking 
that funny tobacco.

And let's hear it for the low-income folks at the bottom of the real estate 
good pyramid, the ones buying the shacks that are the foundation of the 
housing market. Those cheapies are lived in for several years, sold and the 
equity used to buy something a bit pricier, the process repeated many times 
until the family is happy with their space. At each move, the sellers move 
up a notch or two above the buyers coming in. And the beat goes on.

Perspective: When I bought my first new subdivision home in 1967 for 
$15,500, my payment was $167 per month. Upon hearing this, my father 
exclaimed: "Eugene! Nobody can make that kind of payment!"