Quote of the Day - There is science, logic, reason; there is thought verified by experience. And then there is California. - Edward Abbey
It's Sunday, And What Does The Real Estate Section Of The Paper Tell Us?
Sure, we've all heard The Three Laws Of Real Estate: location, location, location. But if you read the news, it's doom, gloom and bust for the housing market. Just look at this report by Marilyn Lewis for MSN. First, before you read that report and put too much stock in it, you should realize one of the sources she quoted claims she misquoted him, in his post, ".... and That's Not Exactly What I Said." Realize too, she's not a specialist: she covers health and fitness "news," too.
Beyond offering inaccurate quotes, the MSN article looks to two other sources for its information: Standard & Poors' Case-Shiller Home Price Index and the PMI Mortgage Insurance, Inc. U.S. Market rate index. The former looks at history, the latter predicts indices over the next two years.
We all know how accurate predictors are.
Nonetheless, the article comes to the conclusion that home prices in certain areas of the country that have sustained growth in the past will decrease, and others that have had only moderate increases are less risky investments. To quote the article, "Not surprisingly, the riskiest markets identified by the index are located in areas that saw rapid price appreciation, a reduction in affordability followed by a rapid decrease in the rate of price appreciation," and in a subheading, "The Rust Belt Is Less Risky."
There you have it in a nutshell. But before you go too far, let's see what MSN has to say its sources claim are the worst areas for real estate investments (the percentages quoted are the predicted chance for a decline): "Riverside-San Bernardino-Ontario, Calif. (65.2%); Phoenix-Mesa-Scottsdale, Ariz. (64.6%); Las Vegas-Paradise, Nev. (61.4%); [and,] West Palm Beach-Boca Raton-Boynton Beach, Fla. (60.7%)."
Not to be outdone, there's still more doom and gloom predicted for the boom markets (including Irvine, California where I live): "Los Angeles-Long Beach-Glendale, Calif. (58.6%); Santa Ana-Anaheim-Irvine, Calif. (57.7%); Oakland-Fremont-Hayward, Calif. (57.2%); Orlando-Kissimmee, Fla. (56.3%); Sacramento-Arden-Arcade-Roseville, Calif. (56.0%); San Diego-Carlsbad-San Marcos, Calif. (55.5%); Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla. (54.2%); Miami-Miami Beach-Kendall, Fla. (52.4%); Tampa-St. Petersburg-Clearwater, Fla. (50.6%); Boston-Quincy, Mass. (50.1%); [and,] Washington, D.C.-Arlington-Alexandria, Va.-W.Va. (50%).
Just so you don't think the news is all bad, there are less risky areas to buy a home.
According to MSN your less risk areas are: "Cincinnati-Middletown, Ohio-Ky. (9.7%); Columbus, Ohio (9.3%); Indianapolis-Carmel, Ind. (8.4%); Houston-Sugar Land-Baytown, Texas (7.9%); Dallas-Plano-Irvington, Texas (7.5%); Fort Worth-Arlington, Texas (7.4%); [and,]Pittsburgh (6.4%).
Now don't get me wrong here, the real estate economists I've talked to generally agree the housing market hasn't hit bottom yet, but they disagree that the bottom is two years away, despite the much-hyped "subprime market" crash. Several, including noted real estate economist Dr. Alfred Gobar, believe the downtown will be at its nadir in the next ten to fifteen months, if even that long. More important, however, is Dr. Gobar's take on the Orange County and Inland Empire areas. He believes the prices will not accelerate but instead remain nearly flat, and not decrease.
Lewis's sources, in comparison, aren't real estate economists. They're field-tested real estate agents knowledgeable about their limited "farm" area, not nationwide or even regional trends.
But before you go too far and start checking whether that window on the fiftieth floor of your building can open up far enough to allow you to climb out on the ledge, let's look at what else these two supposed "bust" sources had to say.
Standard & Poors notes that the housing market since 1997 has had an over 10 percent return on investment, second only to a 15 percent return if you had invested in a REIT. Plus, what MSN is not telling you about PMI's report is significant.
It's a brand-new prediction model that hasn't seen the test of time that would vouch for its accuracy.
Oh yes, and then there's logic.
There's MSN's 2004 Best Places to Live, none of which show up on either list above. Or the 2005 Safest Places to Live, likewise missing from these lists above. Irvine is America' safest city, but a bad place for investing, according to MSN. Perhaps it's an oranges/apples comparison, but you can follow the real estate investment trends here. You'll find the return on investment on a home is scanty at best when compared to a home in a coastal area.
But you already knew that.
Sure, people are still moving out of California at a greater rate than they're moving in, but MSN isn't reporting where that trend is headed. California's economy, especially in Southern California, is in part driven by rising jet sales. But that's just part of it. There's more out there, if you look.
Just don't believe everything you read. After all, would you rather live in the Golden State or the Rust Belt?
The answer lies in the three laws of real estate.