Buying Real-Estate?

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This is for those of you planning on moving, or just have an interest in the economics of real-estate.

http://www.bankrate.com/brm/news/real-estate/20030918a1.asp

If people want to debate about the economics involved with the article, feel free.

 

I notice he didn't really address the demographics issues on which the prediction for a real-dollar decline in housing prices is based.

I also think he's using the idea of a 'bubble' as a strawman. The predicted decline is not on the basis that housing prices are artificially inflated at present.

Sure, boomers aren't done buying. No question. Especially if you include Gen X as the last gasp of the boomers, which many do based on their sheer numbers.

But when the boomer-retirement hits its peak, there are going to be a LOT of houses on the market as they move to the apartments, condominiums, "lifestyle residences" that are being built to accommodate them. My generation, the baby-bust, is supposed to have 20-something kids around that time who should be looking to buy their first homes. But there aren't that many of us, and we are mostly running very late in the having-babies phase of life. So who's going to buy those boomer houses and keep the prices high?

That's the real issue.

 

You're going back to the supply and demand issue in real-estate. There will be many more houses for sale in a few years than there will be buyers for them.

Honestly, I don't see all the Boomers moving to condos and apartments. Sorry, it just seems like a step backward from a house for me (no offense to any of you that like condos or apartments).

Many of those Boomer houses will already have their mortages paid off, so they may not want to sell and claim them as landed assets, which are generally more stable investments than conversion to liquid.

Historically, the real-estate market, even in its low points has not given in much to depreciation of value. We'll have to wait and see, I guess.

 

Have you ever heard of the empty-nest syndrome? Once your kids are grown and out on their own, the house that used to be bursting at the seams with life is suddenly a huge empty space for two people to rattle around in. Also, as you get older, so does your house, and older houses need more work than new places. I don't know about you, but I can think of better ways to spend my retirement than cleaning 9 rooms when we need only 4, or doing yardwork in a place where no one plays, or spending time to get things fixed when I could just call building maintenance instead.

But retirement is when you need liquidity the most. What's the point of having a huge reservoir of equity when you need cash for the monthly bills? Downsize the home, take your one-time tax write-off, and re-invest the funds into something that provides the income stream you need.

We just bought a home in an area that's seen an EXPLOSION in housing prices in the past 10 years. In only one year, homes in one particular development rose in price by 33%. People were paying more than the asking prices. Homes were selling within hours of putting the sign in the yard.

It was truly ridiculous, and that's why it took us almost two years and two real estate agents to find the right home - we weren't about to play that game and risk getting burned. Now what we're seeing is that prices are coming down just a little (to simply crazy from completely insane) and that houses are staying on the market longer. I don't know if the bubble is going to burst, but around here it's certain stopped expanding quite so fast.

 

I would have to say that

(1) I agree that with the exception of certain small geographical areas there is no real estate bubble and that price reflects the current demand

(2) As people age they most definitely tend to move into condos, bungalows, seniors' residences, nursing homes etc.

(3) Baring some completely unforseen change in social trends or a large increase in immigration the population of Canada (I assume the U.S. would follow similar trends) will begin to decline.

(4) Given (2) and (3) relative demand for houses will decline. So will the demand for most other things but with houses they tend to last a lot longer then most things so decreasing production will not have as big an impact on supply as most products. As such, house prices will likely fall relative to other things.

Looking at the Canadian statistic for 2002 is kind of scary actually. I knew that people my age were having fewer (if any) children but I didn't quite realize how bad the trend actually is. Below are the percentages of the Canadian population by certain age groups.

0–4 5.4% 5–9 6.3% 10–14 6.7%
after which it is fairly steady at around 6.8% per age group until we hit the baby boom and get
35–39 8.3% 40–44 8.6% 45–49 7.8%

I am 27 and of all of my friends from high school I know of only one of them who has children. I don't think that we have anything to worry about in the next 20 years but forty years from now...

 

Which is certainly one situation when liquidity is no where near as preferable as taking the landed investment.

True, but historically real-estate prices do not fluctuate much. Investments do, in a major way. The stability would be nice to have until the day when the money might be more desperately needed.

Which is why the actions of my parents are actually becoming quite common as well. They are still well away from retirement (15-20 years), and just built a brand-new house to retire in. It's currently gone up more than $50k in value in the last month. It also provides them a backup if my education starts hurting.

 

From The Motley Fool , a nice website for basic education about money and investing.