|
|
November 19, 2008, 02:17:15 AM
|
|||
|
|||
|
News: Industry Insights Buy Real Estate Now Stephane Fitch 11.05.08, 6:00 AM ET On Halloween, Radar Logic published a new compendium of housing for the year ending in August. The results were frightening: House prices have held up in just a precious few cities (Milwaukee, up 3%; Columbus, flat; Charlotte, down 3%). All the big California cities tanked, falling 23% to 28%. Prices in Phoenix and Vegas dropped 29% and 30%. Even prices in resilient New York City are off 7%. These kinds of price declines in housing are unprecedented. Our friends at Zillow.com reported on Oct. 29 that half of American homeowners believe their residences are worth just as much or even more than they were worth a year ago. Forbes has assembled a panel of real estate experts to discuss the current markets. A lively e-mail exchange was the result, with picks in both residential real estate and stocks. Joining us were Spencer Rascoff of Zillow.com, Michael Feder of Radar Logic, Donald Trump Jr. of the Trump Organization and Peter Slatin of Real Capital Analytics. The moderator, Stephane Fitch, covers real estate for Forbes magazine. In Pictures: What To Buy And Where Spencer Rascoff, Zillow.com: I do think this is a great time to be buying residential real estate, with two caveats. First, you need financing, which is much more difficult than in the past. Second, you need to be smart about it. The good old days when anyone could make millions flipping homes in their spare time are over. I have four friends who have raised investment funds in the last few months to buy up residential real estate--one in Miami, one in San Diego, one in New York/New Jersey and one in Seattle. It's a great time to be doing this, if you're sharp and well capitalized. Michael Feder, Radar Logic: Regardless of whether or not you are a well-off Forbes reader, now is a fine time to consider purchasing a home. The questions remain: Where, at what price and on what terms? As our data have shown, the housing markets are being affected by various forces in different ways in different regions. In California, Nevada and Florida, increased foreclosures and the presumably resulting motivated prices are putting considerable pressure on markets. In Manhattan, foreclosures are not yet a significant force and the decline in activity that has resulted is more the result of buyers and sellers disagreeing about price. I am aware of more than one instance where developers and even re-sellers are asking $2,000 a foot for condos that buyers are bidding $1,500 per foot. Our data suggest that most upscale Manhattan neighborhoods are seeing deals in the $1,200-$1,400 per foot range today but that the number of transactions is well below earlier periods. The Zillow survey really highlights one of the key problems. Most people who do not need to sell their home (and even some developers) have yet to accept what the data seem to be saying: House prices have come down. The housing market is really an accumulation of a very large number of housing markets and the circumstances may seem similar on the surface from one to the next, but a deeper look suggests they are very different. The Zillow report also shows what our data have been saying for several months: Housing prices have been falling, and not all sellers think that's either real or are willing to accept the decline. The converse is that a buyer who simply pays the asking price for a home may not be very well-informed about the market. From the height of the bubble our data indicate that prices per square foot have declined between 5% and 45% in the 25 MSA's we track. Peter Slatin, Real Capital Analytics: Any time you are sharp and well-capitalized is a great time to do anything--this is meaningless. So is getting financing. Most buyers are not moving from rentals; what if the person buying your home can't get financing? What is meaningful is that housing prices vary hugely, as the Radar Logic data show. Virtually all markets are in decline; the Manhattan data are skewed by some very high-end deals, but the severely slowing transaction volume tells the story. There is always value somewhere, and you can always get ripped off right next door. The real answer is: If you see a home you want to live in and can afford it, then buy it. If you want to make an investment, be aware that value is a relative metric and will continue to fluctuate. Clearly, markets will continue to slide until a generator for the economy kicks in. Rascoff: My point about needing to be sharp was that, yes, this is a good time for an investor to buy, but in a very different way than a few years ago. Back then, it was a good time for anyone to buy. In 2008-2009, it's only a good time for sophisticated real estate investors. The market is too turbulent for novices to succeed as real estate investors right now. There have been serious proposals for a short-term government buy-down of mortgage rates to at least 4.5% for a 30-year fixed-rate mortgage, down from current rates of approximately 6.04%. This home-buyer incentive would apply to the purchase of all new and existing homes sold up to $1 million in price. There are a number of ways in which the government ultimately could decide to structure and fund this program, which could be addressed as part of the stimulus packages currently being discussed in Washington. This is obviously still a long way from becoming policy, but hypothetically if this did happen then it would become a fantastic time to buy. Slatin: Previously, it was a lucky time to buy, and many people got lucky--but many, many people are being badly hurt now because they thought they would get lucky. There are always plenty of people out there who can't wait to talk you into buying. If you are "sophisticated," then you should know already that this is a very tricky time and that it was preceded by a bubble conflated by rampant fraudulent and misguided lending and borrowing. So, can you score a deal now? Absolutely. Will the deals get better? Absolutely. How long will you have to hold your property to make a profit--or if it's a rental, to earn a return? Longer than you'd like. But still, given all this, good deals are to be had for those willing to put in the time and risk the capital. Feder: Peter, there are always going to be "trophy" properties that command big premiums to the rest of the market, and, as you well know, new developments tend to attract premiums as a result of location, quality, finishes, amenities and so on. But RPX being calculated as a price-per-square-foot metric tends to eliminate the potential distortion of the outliers, and the data show that Manhattan has been pretty stable in price but significantly down in volume. What remains to be seen is whether the volume decline coupled with the economic pressure facing a large number of Manhattan buyers will cause prices to fall. Spencer, in response to the specific question about whether this is a good time to buy, especially as an investment, the answer is probably not yet. If you look at RPX forward, the capital markets are still predicting further declines into '09, with stability appearing in '10. To read the rest of this article and more: go to Forbes |
