Residential Real Estate Speculation

"The Housing Bubble"

01] Interest rates being raised at a “measured pace” by the fed.

02] Unemployment figures could go up.

03] New employment figures continue to miss economists projections.

04] Inflation rising.

05] Supply/demand in residential real estate is to be questioned. “Authentic” supply vs. demand (i.e., s/d which exists outside of speculation) seems artificial.

06] CPI (Consumer Price Index) rising.

07] Large speculative sentiment (flipping) vs. small ownership sentiment. In 2004, 23% of home purchases were made by such investors. (Rising interest rates, among other things, could cause these people to pull out money abruptly).

08] Baby boomer retirement approaching. 80 million North Americans will be turning 65 between years 2010 – 2014 while a large majority of them have lost money in the stock market crash of 2000 (the biggest crash in world history) which wiped out nearly $7 - $9 trillion in investments… The rich got richer.

09] Social security – US government program that provides retirement income, health care for the aged, and disability coverage for eligible workers and their dependents – is under fire and will likely not suffice so many retirees (baby boomers) when the need arises.

10] Warren Buffett and Alan Greenspan warned of caution in the residential real estate market. The stock market crashed in 2000, 2 to 3 years after the two authorities warned of an overpriced market.

"...irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" - Alan Greenspan, December 5, 1996

11] Wide gap continues to develop between the residential rental and residential ownership real estate markets (Residential Affordability Index – RAI – decreasing).

12] Gap between median income and median home price widening.

13] Unforeseen events as terrorist attacks on North American soil, or corporate blunders the likes of another Enron, could damage the market (real estate) severely.

14] Oil prices at all time highs.

15] US dollar fallen causing foreign investors to withdraw investments from US bonds.

16] Outsourcing (layoffs) to countries like India poses a significant threat to North American employment.

17] Federal budget and payment deficits sitting around $10 trillion.

18] Mortgage loans sitting around $8 trillion.

19] Average time on market for a residential property was 4 weeks (30 days) in 2004. In 2001 the average time on market was between 180 days – 210 days. As the time on market drops lower the issue of mass speculation in the residential real estate market becomes more evident.

20] Housing industry hasn’t grown in the past 50 years. 2 million new housing units per year were built in the 1950’s – 60’s, 1.8 million in the 70’s, dropped slightly in the 80’s – 90’s, and now back to 1.8 million/year.

21] 300,000 – 400,000 of these homes each year are “second homes”.

22] Corporate accounting problems at Fannie Mae and Freddie Mac (a GSE - Government-Sponsored Enterprise) being brought to light.

23] Low income housing shortage (1.6 million units were short last year) even after potential $400 million - $1 billion in financing from the government.

24] The financing’s main purpose is to provide new, more stringent regulation for the two GSE’s – not to make life easier for low income earners.

25] The funding could result in anywhere between 4,000 and 14,000 new units each year (significantly less than low income demands).

DON'T SIDE WITH THE DUMB MONEY! BE PATIENT AND BUY AFTER EVERYONE SELLS! "BUY LOW, SELL HIGH!"