NOYB wrote:
wrote in message
ups.com...
NOYB wrote:
"Shortwave Sportfishing" wrote in message
...
On Sun, 18 Sep 2005 17:42:30 GMT, "NOYB" wrote:
When home prices hit the outer stratosphere, the number of potential
buyers
admittedly shrinks. But the Naples luxury market is still in boom mode,
local agents say, despite forecasts of a housing bubble that some
predict
eventually must burst.
A slowdown?
You will get your turn and sooner than later.
It's already starting up here in NE.
I figure that once the NE slows, we'll soon follow. They'll be a
slowdown,
but never a correction. There are too many baby boomers looking to
retire
down here.
If the typical house in Naples becomes worth 5-7 times as much as a
typical house is worth anywhere else in the country, (and that is what
you seem to predict), those boomers will "look to retire" where it
won't take a nest egg of
$4-5mm just to buy a retirement cottage, and more importantly, where
taxes won't be taking a $30,000/year bite out of pension and social
security earnings.
It's a screw job. You live in a house that is valued at
$XXX,XXX,XXX.00, and you are free to sell it, but if you do and you
have no desire to start a new life in another portion of the country or
move into a beater you will be compelled to spend $XXX,XXX,XXX.00
*plus* to replace it. Put any value you want on the same property, $1
or a $100mm, and as long as you are *consuming*
the property every month by parking your butt in it that money isn't
really working for you. Meanwhile, the county tax collector comes along
and says, "Good news, NOYB, your house has doubled in value in the last
few years and so has the assessment. Here's your walloping bill for the
privilege of consuming a 7-figure house every month."
The Save Our Homes Act limits the increase in property taxes to 3% per year.
There's a reason that many of the more conservative (there's an
adjective you'll like) financial institutions *do not include* the
value of a personal residence when calculating net worth.
Did you check out "Extraordinary Popular Delusions and the Madness of
Crowds"?
(I particularly like the chapter on the Dutch tulip bulb boom and
bust).
You're comparing a tulip bulb to someone's primary residence?
Yes indeed. During the Dutch tulip bulb frenzy, people became convinced
that tulip bulbs would continue to skyrocket in price, year after year.
Many people
actually *sold* houses, farms, businesses, and what not to invest in
tulip bulbs- and in some cases the proceeds from an entire home or
business proved to be enough to pay for just a single bulb. The 'bigger
fool' theory was in high gear: "It doesn't matter what I pay, the value
of this asset will always
continue to go up and there will be somebody right behind me willing to
pay much more for the same thing almost immediately."
Want to know how much the tulip bulb factor is right now in Naples? It
would be easy to figure out. For how much do houses similar to yours
*rent*, in Naples? Extrapolate a cap rate (return on investment) of 5%.
You get a break right now because rates in general and T-bills are
down- you would normally use 8-10% cap to evaluate a property. Now you
have a picture of what that property is worth based on the amount of
wealth it can produce in a given time period. Renters are a good
barometer in the real estate market becuase they aren't betting on
appreciation, merely paying for the basic economic function of the
house (shelter) every month.
IMO, it's a good time to hold onto matured positions or sell if the
cash in hand looks more attractive than the monthly cash flow. I would
personally be reluctant to buy as we close in on the inevitable market
correction. If prices merely stabilize, then there is some assurance
that the "value" is going to be sustainable. If prices at least
temporarily drop, as they have in many overheated regions during the
last couple of decades, it pays to watch for the apparent "bottom" and
buy then.
Some links:
http://www.stock-market-crash.net/tulip-mania.htm
this one is long, but wirtten by a guy who seems fairly conservative
and it is well thought out:
http://www.washingtonmonthly.com/fea...ace-wells.html