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Re: What Real Estate Bubble?
Old 07-05-2005, 02:18 PM   #21
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Re: What Real Estate Bubble?

Last night, at the "Taste of Chicago" they put on a huge fireworks display and at first I thought is that the "real estate bubble", the I realized , nah, that's next month.
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Re: What Real Estate Bubble?
Old 07-06-2005, 01:51 PM   #22
 
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Re: What Real Estate Bubble?

DO NOT listen to economist. Yes, i repeat DO NOT listen to economist. If they know any better they already are INVESTOR not economist....

i personally know a few folks make millions during the last 2-3 years while everyone else keep saying it is gonna BURST. and these people are including house wives/soccer mom/stay home mom or whatever u want to call it.

this morning i just got off the phone with another stay home mom. i am not so sure if she's telling all the truth but she has made 5 deals this year (2005) w/an average of $30k profit each. some of the deals that she bought and kept went up 100% yes 100%, i did not believe it myself. i immediately called my broker and also check the county record. yes, i saw it with my own eyes, 100%...

just mine 2 cents, economist tends to be pasamistic... they like to talk NOT to acts. i worked with some of them...
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Re: What Real Estate Bubble?
Old 07-06-2005, 03:28 PM   #23
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Re: What Real Estate Bubble?

Quote:
Originally Posted by Nords
Oahu, 1990-2000, seemed pretty widespread and we tracked our home's value through that decade with actual offers & appraisals.* Our 1989 $277K single-family home purchase screamed up to $425K by early 1990, ran right back down to $250K by 1996, and scraped bottom for the next five years before the current recovery.* Today we could sell for $550K.* So at -41% & +125% peak to peak I guess it's still a bit shy of the NASDAQ.* Total performance works out to 98% over 16 years and that doesn't include the sweat equity, new roof, new carpet, kitchen refurb, enclosed lanai, complete landscaping overhaul, etc.
Those percentages are on the purchase price, right? If you had a mortgage, what would your profit be on what you had invested?

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Re: What Real Estate Bubble?
Old 07-06-2005, 04:52 PM   #24
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Re: What Real Estate Bubble?

My story:

My house has appreciated over 100% in the last five years. I live in Northern California (not the Bay Area but near it). I decided to refinance my loan for a ten year payoff this year at a better rate. When the notary came to my house to notarize the papers, she said I was the only 10 year one she'd done. She then said she'd done perhaps three 15 year loans. All the rest were 30 year loans where the owners were taking out the equity and mainly spending it on other "stuff." Is this a bubble? Probably. Frankly, I feel lucky that I did buy when I did, but then I feel/think I'm even luckier to be where I'm at wrt my mortgage and plans. I figure even if the house depreciates 50%, I'm still OK. Why, LBYM, LBYM, LBYM----avoidance of expensive shiny toys bought on equity/credit cards, etc, pre-pay mortgage, etc.

My neighbors, instead, went and bought a brand new house a few miles from where they now live and are selling their current house. We both had to replace our roofs, so went in on a joint deal...neighbor financed it (I just dont have $7K sitting around to do the roof - I mean I just put about $70K towards my new house - I mumbled something like - oh, the new house is ~$650K - he said yeah) I paid cash for my roof. They have three kids, two still in school, both work and are about 5 years older than I. I think they'll be working for awhile. And they're just feeding the bubble. NCAL is crazy!

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Re: What Real Estate Bubble?
Old 07-06-2005, 05:23 PM   #25
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Re: What Real Estate Bubble?

Quote:
Originally Posted by Nords
Oahu, 1990-2000, seemed pretty widespread and we tracked our home's value through that decade with actual offers & appraisals.* Our 1989 $277K single-family home purchase screamed up to $425K by early 1990, ran right back down to $250K by 1996, and scraped bottom for the next five years before the current recovery.* Today we could sell for $550K.* So at -41% & +125% peak to peak I guess it's still a bit shy of the NASDAQ.* Total performance works out to 98% over 16 years and that doesn't include the sweat equity, new roof, new carpet, kitchen refurb, enclosed lanai, complete landscaping overhaul, etc.

Some of that was fueled by Japanese investment and squelched by a round of military base closings plus new military housing development.* There was also a horrific overbuilding excess inventory overhang to work through.* At one point people were walking away from $500K Makaha beachfront condos and dropping the keys in the mailbox.* It got bad enough for the military "Homeowner Assistance Program" to start bailing buying people out of their folly investments.

In 1996 FIL & I looked at a home for sale two doors up the street.* In the 20/20 retroscope it was a screaming steal that was doing everything but jump up & down shouting "Buy me!"* The numbers were workable but all we could do was whine "Geez, not another rental, how will we ever find the time to go to work?" and "What if the market drops another 10-20%?"* Meanwhile friends of ours up the street took out a 100% mortgage, biting their lips the whole time, to buy their $130K 2BR condo.* Both properties are up about 150% and I'm sure they've refinanced four or five times by now.

We'll be ready next time, and this time we really mean it!
Nords: Around 1990, Calif. had more than their fair share of base closings. (Fair share being arguable). The areas close to the various base closures, were hit really hard. Sacramento, and a whole bunch of So. Calif.
The area I live in the property flattened, or declined maybe 5 or 10%, but nothing compared to the areas of base closures.

Probably a little nosey, but how large is your Hawaii property. (Sq. Feet). What are your current property taxes?




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Re: What Real Estate Bubble?
Old 07-07-2005, 01:52 AM   #26
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Re: What Real Estate Bubble?

Bubble? There might be some areas where the price of housing is out of line with earnings. However I think most areas are fairly priced. The housing market is not like the stock market. It will not suddenly drop and houses stay on the market for long periods of time, without external input (policy change, interest rate increases, etc.). The best part of the housing market is, if you own your house and have little other exposure to it as an investor, it makes no difference if your house drops in price for most people. You need a place to live. If your hosue is valued at less than you will accept for it don't sell it. The stock market has many people buy and sell shares hoping they'll make a quick buck.

I'll bet the banks will work some kind of deal with the people who have used the mortgage only loans and are in danger of defaulting if the market drops. The last thing the banks want is to hold a lot of houses and not be able to sell them.
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Re: What Real Estate Bubble?
Old 07-07-2005, 08:46 AM   #27
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Re: What Real Estate Bubble?

Quote:
Originally Posted by lets-retire
The stock market has many people buy and sell shares hoping they'll make a quick buck.
And there aren't speculators in the real estate markets buying 2nd, 3rd or 4th houses, also hoping to make a buck by flipping?* Things are looking more and more like the dot-com era, with people speculating in certain market segments (i.e. technology and telecom).* The problem is knowing when to get out (or more accurately, when to turn off the greed).* Just like the speculators in the stock markets of the early-2000s, speculators in the real estate markets won't know either.* In fact, I'd hazard to guess that many people who speculated and lost in the stock markets didn't learn their lesson, and are engaging in the same risky behavior in "hot" real estate markets in the hope of making up for their previous investment folly.

Quote:
The best part of the housing market is, if you own your house and have little other exposure to it as an investor, it makes no difference if your house drops in price for most people.* You need a place to live.* If your hosue is valued at less than you will accept for it don't sell it.
This only applies to your primary residence.* Second, third and fourth houses bought as investments won't (and can't) be treated in the same way as your primary residence.* Selling one or more properties will have little impact on your living circumstances, except for the concomitant monetary loss(es).* Consequently, you won't hold on to additional properties if you're losing money.

Quote:
I'll bet the banks will work some kind of deal with the people who have used the mortgage only loans and are in danger of defaulting if the market drops.* The last thing the banks want is to hold a lot of houses and not be able to sell them.
Actually, banks will foreclose on a house and sell it for whatever they can get, even if that amount is fifty cents on the dollar.* This is why there will be an absolute feeding frenzy when the bubble does burst in white-hot areas like Northern California, South Florida, Las Vegas, etc...
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Re: What Real Estate Bubble?
Old 07-07-2005, 09:26 AM   #28
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Re: What Real Estate Bubble?

Quote:
Originally Posted by lets-retire
Bubble? There might be some areas where the price of housing is out of line with earnings. However I think most areas are fairly priced.
Lets see, the typical home in my area was selling for 145-175k three or four years ago. They now sell for 400-450k. In my wifes old neighborhood, six years ago you could have your pick of the litter for 50-70k, and they sell for 150-250 now.

Not a thing has changed in either area with regards to employment, amenities, crime rates or any other significant stat.

I'm not sure that this areas pricing can be called fair or reasonable.

Looking at relatively high crime rate areas in earthquake prone zones, high traffic and pollution doesnt make me think a lot of the SF bay area homes are just about 'worth it' either...
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Re: What Real Estate Bubble?
Old 07-07-2005, 10:45 AM   #29
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Re: What Real Estate Bubble?

Quote:
So at -41% & +125% peak to peak
We saw much the same swing north of Boston from 1990 - present. I researched the forclosed prices on the dozen units I purchased '92-'95. Forclosed prices range from 90-130k. At HUD auctions I paid: 8.5 k, 5k, 15k, 19k. Then when the auctions went dry I turned to REOs and paid: 17k, 30k, 32k; 40k. Granted each needed 10-20k worth of "work" and all had lead paint issues ... but many of the REOs had tenants in the property.

So I tell people the bottom will see property for a 10-25 cents on the dollar.

Can't wait!
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Re: What Real Estate Bubble?
Old 07-07-2005, 08:56 PM   #30
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Re: What Real Estate Bubble?

This isn't directly relevant to the thread but thought fellow Real Estate geeks might enjoy chewing the issue over.

It is my observation that interest rates alone (i.e. the current historcally low rate) are not the primary driver in house price bubbles. It is the availability of 100% mortgages and 100% interest only mortgages. Even with the income multiples used to derive what an individual can "afford" it really addresses only the monthly payments, not the actual price paid. I remember the days when folks would be "saving up" for the deposit on a house and even then it would only be 5 to 10% of the purchase price. Now, it seems almost anyone that can convine a lender they can scrape together the monthly payment will be lent what seem astronomical sums. I remember being in the UK during the last big housing bubble (early 90's) when people were offered 120% mortgages! It was unbelievable. It is interesting to contrast this with some other jurisdictions where lenders are prohibited by law from lending more than a certain percentage (often 70% )of the purchase price, thus forcing borrowers to first save 30% of the cost themselves. Leads to a more responsible lending and borrowing environment. Whilst this tends against my natural free market inclinations, I tend to look at this type of borrowing restraint as a generally good idea.

Any thoughts or views on that?

Disclaimer: Perhaps I should mention that I am currently the proud carrier of three mortgages, totalling $1.01m.
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Re: What Real Estate Bubble?
Old 07-07-2005, 09:22 PM   #31
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Re: What Real Estate Bubble?

Quote:
Originally Posted by Patrick
Those percentages are on the purchase price, right? *If you had a mortgage, what would your profit be on what you had invested? *Patrick
Ooooh, pre-Quicken data. *That took some archival excavation.

You're absolutely right; I stand corrected. *We started with a $238.5K mortgage so our actual equity was only $38.5K. *Over the next 15 years we added another $73,700 of improvements. *(Landscaping, appliances, carpeting, new master bathroom, new cedar shake roof, and so on.)

I've never run a spreadsheet on that place and I don't think I ever will. *That property was our home and it was never intended to become a rental. *For example, the Navy's housing allowance rules used to require you to use it or lose it. *So shortly after we bought the place with a big 30-year mortgage, we refinanced for a "use it all" mortgage payment that brought the duration down to 10 years (but what a great interest rate!). *As soon as we waved that justification paper in front of the housing-allowance accountants we were transferred to San Diego. *Our SD housing allowance was $1500 less but our Hawaii mortgage payment was unchanged. *The ink ran red for a number of years as we kept pouring in accelerated principal payments, landlord repairs, and sub-market rents on top of the other "improvements". *

Your point is exactly correct, though-- let's pretend that our initial equity was $112K. *That would have made the trough 123% (at $250K) to 390% (at $550K). *Gross sale proceeds of $438K ($550K-$112K) after closing costs, cap-gains taxes, and a massive depreciation recapture would probably clear a $350K profit. *Turning $112K into $350K over 16 years is a compound interest rate of 7.4%. *Not shabby at all, even for a first approximation. *I suspect that a rigorous time-value accounting would produce an even higher rate of return on our initial equity stake. *Glad you brought that up! *I'll keep that spreadsheet in mind when we eventually bottom-fish another rental property.

Quote:
Originally Posted by ex-Jarhead
Nords: Around 1990, Calif. had more than their fair share of base closings. *(Fair share being arguable). *The areas close to the various base closures, were hit really hard. *Sacramento, and a whole bunch of So. Calif. *The area I live in the property flattened, or declined maybe 5 or 10%, but nothing compared to the areas of base closures.
Yeah, I hear ya. *Alameda's Moffett Field was a clear case of civil encroachment where the military decided that it was better to cave in than to keep losing squabbles over flight paths. *And the food fight over the Presidio was especially impressive.

OTOH in 1989 the Navy sold Oahu land to the state at $100M. *Five years later it was worth $50M and Wal-Mart/Sam's Club bought most of it back for well below $100M (but more than $50M). *The $100M was used to build Oahu's Ford Island Causeway, which saved me many ferryboat rides over the five years I worked there... so overall I think the base closings helped the military (although it may have made life harder for a lot of retirees). *We take a lot of retiree comfort in hoping that Pearl Harbor & Schofield Barracks are "too big" to BRAC.

Quote:
Originally Posted by ex-Jarhead
Probably a little nosey, but how large is your Hawaii property. *(Sq. Feet). *What are your current property taxes?
*No, not at all. *The place we bought in '89 is a 4BR 2BA single-story of 1873 sq ft plus a garage (many Hawaii homes are still carports) and a 400 sq ft screened lanai. *It's on a 5400 sq ft lot (which is considered big although Hawaii lots are too tiny to measure in acres). *Our '00 dream house is a 4BR 2.5BA (the 2nd floor is the master suite) of 2400 sq ft (which includes a crappy job of enclosing a 500 sq ft lanai) plus a garage. *The lot is a weird cul-de-sac on a gulch that's 15,000 sq ft. *Only about 6000 sq ft is level and the rest is a steep hillside of overgrown orchard.

Oahu property taxes are 3.65 mil with annual assessments that (luckily) lag well behind a rising market. *In the next year we'll pay about $1400 on the first home and $2500 on the second. *Even without Prop 13, I'll never complain about Hawaii property taxes!
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Re: What Real Estate Bubble?
Old 07-07-2005, 10:45 PM   #32
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Re: What Real Estate Bubble?

Jay-
The point of my stock market statement was the time duration of quick buck.* In the stock market your looking at hours or days for a quick buck.* With real estate they're looking at weeks or months for a quick buck by flipping. If the housing market takes a hit then these investors can suddenly become landlords until they can sell at a "not-lose-your-shirt" price. Unless there is a sudden population decrease.

Quote:
This only applies to your primary residence.
That's what I said.

Quote:
Actually, banks will foreclose on a house and sell it for whatever they can get, even if that amount is fifty cents on the dollar.*
Banks with a large amount of exposure can only do this for so long then they risk bankruptcy.* If the drop is long term I'll bet they start offering some type of concessions to the troubled homebuyer and receive 100% of the loan amount.

Just Not-
I live in a similar area 7-8 years ago you could buy my house for 80,000.* Now houses like it are going for almost 300,000.* It would seem these houses are overpriced, but if you look at the income level and assets for the area we are low.
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Re: What Real Estate Bubble?
Old 07-08-2005, 01:16 AM   #33
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Re: What Real Estate Bubble?

The banks here in Japan didnít foreclose and they got the nonperforming loan mess.

When the bubble burst, here was a lot of pain for certain people mostly the banks and the speculators. Also, I have friends whose families bought million dollar homes with 35 year mortgages. I even have a couple of friends who have Ďinheritedí mortgages from their fathers (these were planned when the kids were in JR. HS). Now these houses are worth half or less and they are stuck.

OTOH things never really got that bad. Although there have been things to worry about. Unemployment was and is a problem but it did not touch most people and wages did not fall for most people. Average families are in a much better position now. Crazy low interest rates, relatively cheap house prices, and overall deflation, which has made everything more affordable. Even the people who bought the million dollar houses are not in really bad shape. They planned on the expense and they are paying off the houses on schedule. (Japanese generally donít move house so that isnít a problem.)

There are some differences though between Japanís and Americaís bubbles. Japanís economy is not as fluid as the USís so changes could not happen as fast. People had time to adjust. Also, average people were not speculating and Japanese loans were all traditional so there were not as many foreclosures on residences as there probably will be in the US.

Another thing is Japanese knew they were in a bubble but never thought housing prices would fall. Our apartment was probably worth close to 800K at the height of the bubble but we paid 240K last year.
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Re: What Real Estate Bubble?
Old 07-08-2005, 02:58 AM   #34
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Re: What Real Estate Bubble?

mikew, do you know of any J-REITs available to US investors? Also, I'm curious about the Japanese mindset towards investing. How do the Japanese deal with a stock market and real estate that has declined for over a decade? Where do they invest?
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Re: What Real Estate Bubble?
Old 07-08-2005, 07:38 AM   #35
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Re: What Real Estate Bubble?

Several people mentioned banks and the likelihood they will foreclose mortgages if they are under water. Remember that banks don't hold that many mortgages anymore, most first mortgages are sold on the secondary market to other lenders, like Washington Mutual, Countrywide, etc.

HUDs current stance is to try to avoid foreclosure for FHA insured mortgages: http://www.mortgagenewsdaily.com/532...reclosures.asp
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Re: What Real Estate Bubble?
Old 07-08-2005, 08:33 AM   #36
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Re: What Real Estate Bubble?

Interesting HUD link. They must have done a "lessons learned" from the last deep recession ('90-93). But ... with so many 100% financed deals out there the home owner simply has no incetive not to mail back the keys... especially when they can rent the neighboring house for 1/2 their mortgage cost.

I'll predict that the people in the second position will be the first to foreclose. They are the first to loose and do not have HUD's deep pockets to absorb losses. And the rates (my buyer had an 11% second!) are designed to punish. This will of course preserve HUDs first position (at least for a while), but does nothing for the home owner (as he's in the street regardless of HUDs policy).

Quote:
It is my observation that interest rates alone (i.e. the current historcally low rate) are not the primary driver in house price bubbles. It is the availability of 100% mortgages and 100% interest only mortgages.
If history repeats it'll be an economic event (recession) which pops the housing bubble. Working people can/will try damn hard to keep the roof over thier head ... but you can't get blood from a stone.

Enjoy!
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Re: What Real Estate Bubble?
Old 07-08-2005, 12:35 PM   #37
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Re: What Real Estate Bubble?

http://www.efficientfrontier.com/ef/405/housing.htm
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Re: What Real Estate Bubble?
Old 07-08-2005, 12:51 PM   #38
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Re: What Real Estate Bubble?

Quote:
Originally Posted by tryan


I'll predict that the people in the second position will be the first to foreclose.
The home equity lenders are in a jam. If they foreclose, they have to pay off the first mortgage , or the first mortgage holder will foreclose out the junior mortgages.

The wished for situation sometimes is a bankruptcy. The only way the debtor can keep the house is to continue to pay on all the mortgages. The debtor ditches all other debt, like credit cards, and keeps the home debt.

This works out OK if the debtor has an income to service the debt. I have been surprised over the years at how many debtors want to keep their homes, even if they are underwater.
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Re: What Real Estate Bubble?
Old 07-08-2005, 02:04 PM   #39
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Re: What Real Estate Bubble?

Quote:
Originally Posted by lets-retire
The point of my stock market statement was the time duration of quick buck.* In the stock market your looking at hours or days for a quick buck.* With real estate they're looking at weeks or months for a quick buck by flipping.* If the housing market takes a hit then these investors can suddenly become landlords until they can sell at a "not-lose-your-shirt" price.* Unless there is a sudden population decrease.
Not necessarily.* Your suggestion assumes that people will want to: (1) rent the available housing, and (2) at a monthly rate that will cover a large mortgage.* Those people who bought 5 years or so ago, and doubled their money, might be able to ride out a substantial dip in housing prices.* Those who bought very recently will be in a significantly different situation, and may end up simply walking away from the property.* Real estate is nowhere near as "liquid" as stocks.* In the case of the former, once the real estate markets take a dive, it will take a very long time to recover, and buyers will be scarce.* In the case of the latter, there will likely still be buyers betting that the stock market is merely undergoing a temporary correction.

In regards to your suggestion applying only to one's primary residence, it wasn't clear from your post that was what you meant.* You seemed to suggest that because people need a place to live, the housing market won't drop precipitously.* It is the ownership of investment properties and expensive primary residences (regardless of whether something is "expensive" in a particular area), on over-extended credit or interest-only loans, that will be responsible for a drop in the housing market.* Again, those people who bought 5+ years ago, and have seen 50%-100%+ appreciations, will probably be fine.* Everyone else may not.

Quote:
Banks with a large amount of exposure can only do this for so long then they risk bankruptcy.* If the drop is long term I'll bet they start offering some type of concessions to the troubled homebuyer and receive 100% of the loan amount.
Banks are more likely to dump a property, than to allow a borrower to remain in the residence.* Banks are not in the speculation business, notwithstanding the current trend of offering risky financing.* You can bet that when the merde hits the ventilateur, banks will be looking to cut their losses, rather than ride things out in the hope of recovering their entire investments, since doing so in the real estate markets requires years, if ever, to occur.
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Re: What Real Estate Bubble?
Old 07-08-2005, 08:22 PM   #40
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Re: What Real Estate Bubble?

Hello Wabmaster
This maybe too much information but...

Quote:
I'm curious about the Japanese mindset towards investing.* *How do the Japanese deal with a stock market and real estate that has declined for over a decade?* *Where do they invest?

This is overly simplistic but the stock mrkt and real estate prices are not something most Japanese think about. I read only 8% own stock. The majority of Japanese savings goes into time deposits in banks which pay less than 1% (I forget the exact rates). Annuities were popular but there were problems with the insurance carriers being able to cover the promised returns. I havenít heard much about them recently.

In terms of real estate, individuals never really became speculators and residential property doesnít change hands much. Commercial property is mainly held by the big boys. We looked at buying a rental property. The numbers did not work out even with a 1.5% mortgage. They barely worked out to buy a primary home.

Personally, I donít own any Japan investments except as part of a global fund. The simple reason is the market is too speculative due to hot money. Most of the shares are non-active because of cross holdings between companies (around 55% of stock). Most domestic individual investors (about 20% of stock) tend to be extremely long term. Most of the active stock is owned by foreigners (about 25% ofl stock) who are mainly speculators. There are also problems with transparency etc. People say these things are changing but who really knows.

Quote:
do you know of any J-REITs available to US investors?
There is something of a boom in Japanese Reits. I donít know of any foreign funds investing specifically into Japanese real estate. Reits are set up as open and closed ended funds here so if you can purchase foreign stocks directly you can purchase the closed ended funds, I guess. Here are a couple of articles that may be interesting.

http://www.bloomberg.com/apps/news?p...4Y&refer=japan


This article was in the International Herald Tribune January last year. Sorry about placing the entire article. It is from googleís cache.

Japan real estate trusts seize the moment

The collapse of the Japanese real estate bubble in the 1990's epitomized the wrenching economic transition that Japan went through in the past decade. But out of the troubled landscape of the property market has emerged a booming real estate investment market known as J-REIT, Japan's rendition of the real estate investment trusts that are widely popular in the United States and elsewhere.
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The market that began in September 2001 with just two listed vehicles has grown to a total market capitalization of nearly •1 trillion, or $9.4 billion, shared among 10 listed funds.
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J-REIT's grew as banks, individuals and foreign investors jumped in to take advantage of yields between 4 percent to 6 percent, a handsome return on relatively solid capital in a country where interest has virtually disappeared from bank deposits.
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J-REIT's received a big lift when the general stock market began to recover last spring. The Tokyo Stock Exchange REIT index closed on Wednesday at 1,221.55, an all-time high.
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J-REIT's are now on something of a roll. There are several J-REIT funds of funds run by major fund management companies. Two funds, Nippon Building Fund and Japan Real Estate Investment, were adopted as components of the Morgan Stanley Capital International index, and local money magazines are rife with features on J-REIT's.
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"Investors' interest has been aroused," said Masahiro Horie, president of Tokyu Real Estate Investment Management, which runs a REIT focusing on properties in the trendy Tokyo district of Shibuya and along the Tokyu Railway line.
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Yet some say that J-REIT's contain structural flaws that are masked by the current boom. First, analysts say, they are overexposed to office properties, a category that is more vulnerable to the swings of the overall economy than other property types like retail and industrial properties.
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"In Japan, statistics are most richly available for office properties," said Takashi Ishizawa, a real estate industry analyst at Mizuho Securities in Tokyo. "Those for residential and retail properties, meanwhile, are insufficient. So office buildings are easiest to handle."
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Some analysts have doubts about REIT's as an investment because of their close ties to the parent companies, many of them traditional property players like Mitsui Fudosan and Mitsubishi Estate.
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The parent company typically sends employees on loan to REIT's, which then engage property management firms from within the group. As an executive with an international executive recruiter in Tokyo put it, "One might as well buy shares of the parent companies."
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Ishizawa, the Mizuho analyst, offers a more charitable view, saying that the REIT's were trying to grow out of a very early stage of development.
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"REIT's have no track records or recognition in Japan, so people tend to look at the credibility of the sponsors," he said. "This is going to change."
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Ishizawa suggested that investors look at Japan Real Estate Investment for financial health, at the Nippon Building Fund for quality properties and at the Japan Retail Fund for diversification.
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While most Japanese REIT's invest in midsize office properties, there are some varieties. Yuuichi Hiromoto, president of the Japan Retail Fund, the only REIT that specializes in shopping malls and other retail facilities, said his fund had a unique advantage because he was buying from a wide range of choices of properties offered by banks and financially struggling owners.
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"We have turned down 95 percent of the offer, which comes to about •2.9 trillion in total," Hiromoto said.
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The •150 billion Japan Retail Fund, he said, is set to grow to •400 billion in about three years.
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Orix Asset Management, founded by the leasing giant Orix, operates a REIT that buys small- to medium-size office buildings for •2 billion to •5 billion.
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"Buildings this size are most efficient in terms of cost performance and have the greatest tenant demand," said Hiroshi Ichikawa, president of Orix Asset Management.
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Another criticism of REIT's centers on their price: Some trade at 30 percent higher than net asset value, a premium that will look even higher if interest rates go up. If that happens, REIT managers said, an upturn in rents will almost certainly follow - and that could usher in a new growth period for real estate funds.
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