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by Willard Michlin
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a greatly reduced profit, and if the properties couldn’t be sold then they were just taken by the banks in foreclosure. The worst part of loosing or selling houses at the bottom of the market is not the money that is lost or the pain that suffered but that the investor is out of real estate market completely when the market starts to boom again, which it will. Every boom market brings a new batch of buyers. Very few of the old speculators are around to take a second ride on the real estate rocket. I personally have been in the middle of 3 rocket rides and 2 crashes. I survived all of them despite having several banks planning my funeral over the years.
Let me try to respond to the following arguments I heard in 1980, 1990 and 2005 which were all just before the market crashed: There is still a housing shortage. The population is supposed to increase 50% in the next 5 years. More people are moving in than out. Inflation will raise the value of housing. The baby boomers are getting older and richer.
The Housing Shortage
Lets take the issue of shortages, which is why prices have been going up. There have been more buyers then sellers. The buyers are composed of two groups a) Speculator/Investors and b) Homeowners. The newspaper published a statistic that only 16% of the population can afford a house at today’s prices. That translated means that everyone that can afford a house has already bought one, and unless the prices go down the rest are out of luck. There is no housing shortage; it only appears to be so. The truth is that 25% or more of the buyers are the speculators/investors and therefore are not buying a property to live in, but to rent. Did you know that rents went down in Los Angeles 10% in 2004 from 2003? Westside Rental Connections who rents over 60,000 units per year reported this to me in Summer 2004.
In 1990 (top of market) the vacanc |
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