Is the cat out of the bag?

[geo in mi]

For years now, we have all gone under the assumption that real estate values will "always" appreciate as the years go by. (That assumption, coupled with a lot of greed and sheenanigans by bankers and brokers helped lead us into the financial mess we find ourselves in today). Given time, and pain, we will come out of this situation, but, I wonder, what will happen to the idea that, sorta like the stock market, "all" real estate appreciates? I know that location, location, location, is always the key, but do you think that we--and especially our younger people--face a new reality when it comes to plunking down money for their housing needs? Do you think that a lot of housing has become like a car, refrigerator, or TV purchase, an expense, or a depreciating investment? How would you advise your young people? Have we started a new era?

[Jennifer L.]

No. Real estate will always be valuable.

Every asset goes through re-evaluations over time. Right now we're in one. Too bad for us, but it's great for new owners because now their assets will be going up again. And if you hang on and don't move every five years, it will be good for you, too.

Jennifer

[r93000]

Originally Posted by Jennifer L.

No. Real estate will always be valuable.

Every asset goes through re-evaluations over time. Right now we're in one. Too bad for us, but it's great for new owners because now their assets will be going up again. And if you hang on and don't move every five years, it will be good for you, too.

Jennifer

Precisely! Real estate has always been a long term investment , and it is always a gamble to make money on real estate in the short term.

[Michael Kawalek]

I have to disaggree with that assumption, about increasing valuation. Some of the reports I have been hearing recently are talking about housing in undesireable neighborhoods (Detroit for example) that banks can't even give away. Once the house has been abandoned, theives come in and strip it of anything of value. All the copper pipe, fixtures of any kind, anything that can be ripped out of the walls to be sold for a dollar. At county auctions, there are some houses that recieve no bids at all, not even a dollar! The cost of restoration excedes the market value, so it is just left to rot!

It has gotten to the point that banks are not reposessing some houses because they don't want the legal liabilty, and leave them in the defaulted owners names so they don't have the responsibility for them. People that have vacated forclosed homes months ago are recieving fines in the mail for code violations for the houses they were ordered out of. It is now considered easier to raze it to the ground rather than rehabilitate! At this rate, it is going to be a long time before the price of housing appreciates significantly.

By the way, I believe these events in no way effect the rural land market. As more and more people realize how serious our situation is, the more rural land that can grow food will appreciate. I just feel we are so fortunate that we saw this coming years ago and used our home equity to buy our homestead land instead of financing expensive toys!
Michael

[mnn2501]

I don't know that real estate or the stock market will ever reach the artificial highs they were at. Speculation and easy credit caused this mess (along with greed). I still believe in both real estate and stocks, held for the long term. Real estate prices, once the artificial bubble has totally deflated will once again hold their own and slowly increase in value. The stock market will eventually start going up again also, hopefully due to the corporations being on solid ground and not due to speculation as it was.

[postroad]

Define value as oposed to price.

I value my property the same no matter the market price.

But I have been here for fifteen years and hopefully fifty more.

Now if you are talking some McMansion in a subarb those prices and "values" may never recover.

I suspect there is a coming "perfect storm" of economic distress brought on by environmental, resource, economic and demographic convergenses that will wipe out the middle class and all its pretensions. Possibly forever.

[ksfarmer]

Around here I see signs that farmground is pulling back a little on price. Land in the '80,s did a similar thing. Prices paid then were not reached again for nearly 20 years. As others said, its a long term investment. I think a lot of the pulling back now is due to the lack of buyers for recreational purposes (hunting, fishing, camping).
The wife and I cashed in our IRA's a couple of years ago and finished paying for our farm. Value may go up and down, but, the land will always be there, and we don't owe a cent on it.

[paintlady]

What scares me is that I saw on TV the other night that the Chinese are taking advantage of our housing slump and are here buying up all sorts of houses and properties. I don't understand why this country is allowing a communist foreign country to buy ANY of our homes and land.

[Marie04]

Just 2 or 3 years ago an appraiser told my daughter and SIL that within 5 years their home would be worth $500,000.. this is a 1970's ranch home in the suburbs. I could not see how that would be possible, it did not make sense and of course, it DIDN'T make sense!! Now values have dropped considerably, and they owe more than the house is worth.. as so many others are experiencing.

On the other hand, a realtor told me in the mid 90's that he would never buy vacant land, it was a loser. At that time, it was hard to find buyers for land or houses and values were extremely low in this area. AGH! shortly after, prices began to rise.. I so wish we would have bought land then..

In 1990, a relative begged us to buy a 70 acre farm with a 4 story farmhouse.. asking price was $23,000 but she said just make an offer, they so wanted to get rid of it. We didn't know what we'd do with such a big house and couldn't afford to even think about it....

hindsight, huh? oh, well!!!! We could not have foreseen what would happen with prices within just a few years..

[mnn2501]

Originally Posted by paintlady

I don't understand why this country is allowing a communist foreign country to buy ANY of our homes and land.

One reason -- they have the $$$

[brewswain]

Originally Posted by Michael Kawalek

I have to disaggree with that assumption, about increasing valuation. Some of the reports I have been hearing recently are talking about housing

You are confusing 'houses' with 'real estate'.
Real estate is LAND.
Houses come and go, land is constant.
Real estate, (land) will continue to go up in value since the number of people wanting land increases, but land does not.

[fordy]

................Every facet of Real Estate ownership , valuation , taxation , and Sales is predicated upon , Ever increasing values . The system is so integrated in one direction that it can't abide going into reverse . The Tax Authority(s) are especially oriented thusly , they Never will admit that a property is worth less . , fordy

[agmantoo]

Foreigners buying land in the USA never bothers me. The likelyhood of them exporting it is minimal. I have never seen a politician that I trusted and if things do not go the way we want it to the politicians will just change the law or disregard the original conditions the sale was made.

[Marie04]

Originally Posted by fordy

................Every facet of Real Estate ownership , valuation , taxation , and Sales is predicated upon , Ever increasing values . The system is so integrated in one direction that it can't abide going into reverse . The Tax Authority(s) are especially oriented thusly they Never will admit that a property is worth less . , fordy

Ahhh, now that's an interesting thought.. Property taxes should go down now too, shouldn't they!!!

Last night I heard on the news that Bernie Madoff's victims can get refunds on their income taxes going back to 1995 or so.. Just think - they paid taxes on their so-called earnings on investments, when in fact there were no earnings at all! It surely has far-reaching effects!

[WisJim]

Back in the early 1980s housing prices were getting higher and higher, and then suddenly people were having to sell for less than they owed, but the prices hadn't gone up as fast or as high, and it was mostly people who were used to buying and reselling in a year or two that were affected, at least to my personal knowledge. This time, prices just kept going up and LOTs of people were figuring on making a killing on flipping houses, and they got caught overextending themselves--sort of like the 1929 stock market crash in a way.
As for me, I'm looking at foreclosed houses in nice older neighborhoods as a place to put some of my savings. And maybe as a retirement place for us if we ever want to move to town.

[fordy]

Originally Posted by Marie04

Ahhh, now that's an interesting thought.. Property taxes should go down now too, shouldn't they!!!

Last night I heard on the news that Bernie Madoff's victims can get refunds on their income taxes going back to 1995 or so.. Just think - they paid taxes on their so-called earnings on investments, when in fact there were no earnings at all! It surely has far-reaching effects!

................If Madoff never invested the funds , then logically , he never actually , made any profit ; so the IRS should refund ALL income taxes he paid , which can then be refunded too the investors ! , fordy

[Marie04]

I heard this on NPR in the car last weekend.. The Confidence Man.. very interesting!!

http://www.onthemedia.org/transcripts/2009/03/06/05

especially this:

JAMIE YORK: New Yorker staff writer George Packer traveled to the epicenter of the country’s housing crisis, where he found a Ponzi scheme writ large. In Florida, real estate had become the equivalent of the counterfeit bill from the 1850s that you took because you knew you could pass it, a rotten system that again made us complicit in our own undoing.

GEORGE PACKER: Ordinary people - secretaries, construction workers - were buying and selling multiple houses, speculating, flipping them. Real estate was everybody’s source of wealth. I saw some records that showed houses being flipped for double, overnight, literally. So it was unsustainable. It was a mirage.

JAMIE YORK: This was greed putting all of us pigeons in a fever, suspending our better judgment – not just Madoff investors or mortgage signees, but all of us.

GEORGE PACKER: Economically, Florida does hold a kind of funhouse mirror to the country and shows us something true about ourselves. We live on debt. We don't think in the long term. We imagine that wealth can be created by simple transactions that don't actually require [LAUGHS] a whole lot of work. We don't want the government involved in our economic affairs. We don't want to pay taxes to support the services we expect. And those are all qualities that are on full display in Florida.

[Terri]

I would tell them to buy land they will enjoy having.

It is possible the bare land we own outside of town is no longer worth what we paid for it, as we bought it only 5 years ago. I don't care.

We put in 100 asparagus roots, I put pressure treated lumber across the creek so I could get to the other side, and it is a good place to catch swarms of honey bees in the spring.

I have a bait hive out there now, waiting for homeless bees to move in! And, I think I will get some blooming water plants out there this year. My squash plants did poorly last year: I think they needed more frequent watering.

OK, it might not now be worth what we paid for it.

I don't care.

[geo in mi]

"................Every facet of Real Estate ownership , valuation , taxation , and Sales is predicated upon , Ever increasing values . The system is so integrated in one direction that it can't abide going into reverse."

Thanks, Fordy, that's why I'm asking.. All farming was at one time predicated upon the use of the moldboard plow. You can't push a rope, and, I really wonder if we aren't standing atop an earthshift due to this current situation. The last bastion of high wage earnings was in the American automobile industry. The recovery from this recession will place the wage earnings at a lower par than ever before. Kids, even with education, may have to relocate from state to state--or even overseas-- in the future to have employment.(Right now, nobody can move inter or intrastate, because their houses are underwater and can't be sold.) Inflationary spirals of energy--electricity, fuel, propane, and such may prohibit anyone from owning even a newer, so-called energy efficient house. And, the majority of Americans now live in cities, or at least metro areas. (That's where the jobs are...) And, judging just from college apartment houses, I haven't seen too many apartments that weren't thrown together without regard for energy efficiency or long-term service. And, if you look at typical acreages, the ancient farm house with ten foot ceilings, oil or propane furnace, leaky windows, no insulation--while nostalgic--don't seem to be any answer for the future, either.

So, just what if the system does go into reverse? How then should we advise our kids and grandkids?

[Ohiogal]

I'd tell them to buy what they'd enjoy living on. And do it with cash.
You can't time the market. Nothing stays up long, it will come down. On the taxes thing, if the property depreciates, there is such a thing as getting a re-appraisal and then petitioning the county to reduce the tax burden. That's what I'm doing now.
I figure as long as I can grow something on it, feed and house my flocks and horses (and cats) and be a viable part of the community, and have a place to live, its worth it.
We are in a cycle that will eventually end up going up. It might take 5-10 years, but it will.