I 'm going to say this loud and in bold print... I like real estate.. and I think it will always be a good investment... I can't think of any other investment where you can buy an appreciating (long term) asset with so much leverage and over time..with a few exceptions... will always come out ahead on that investment.... and you have the added bonus of having a place to live. Google is a great stock but they won't let you move into the company headquarters.
The credit markets were whirling and twirling last week sending consumers into endless confusion. Much of the Los Angeles County market and our local South Bay-Beach Cities market is dependent on the jumbo loan(over $417,000) and that market is now deemed to be risky.
The reality is that most of the loans that will go into foreclosure are those with conforming loan limits($417,000-) that were made to people with poor credit who couldn't really qualify for them in the first place. Generally those buying in Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo with jumbo loans were able to afford the financing and are sound financially. The loans are considered risky because they are higher then the norm but our buyers are usually good credit risks. That said, we are in a segment of the market that is considered risky and we will pay a financial price.
One of the difficulties with cheap money is that too many people have used their homes as ATM machines.. not realizing that the cash they get is money they will have to pay back..and we certainly will have a few of those in the Beach Cities.. You can't fix dumb or bad judgment and there will always be a segment of the market that doesn't use good judgement.... whether it is consumers or the Wall Street credit markets.
We bailed out the banks in the 80's and they didn't learn from that fiasco which is why financial institutions are in trouble today.... it's about money and profits and as long as financial markets figure out ways to make money they will continue risky behavior believing the government will bail them out. They might be more prudent in the future if they had to live with their bad choices.
There was no need to stretch financial rules the way banks did in the last few years. Money was and still is incredibly cheap. I've been in real estate 28 years and with the exception of the last 8-10 years lending rates were in double digits. Guess what.. homes were bought and sold at 10%-12% and we thought it was a good market.
Yes we will see problems in the beach cities and if the rates for jumbo loans continue to be high we will see things slow because of the increased cost of money. People who have refinanced until they are out of equity will be in trouble. Does it make real estate a bad investment.. NO.... it means people make mistakes.. Real estate bought for the right reason and purchased within the financial means of the buyer historically is a good investment over the long run.
The key is long term.. real estate is not a short term investment.. it never has been and never will be. Many consumers forgot this in the frenzy to get rich quick. Sure there will be times when you can make a fast buck but historically real estate is a long term investment. In the giddy years of rising prices many lost sight of that fundamental aspect of the market and confused buying a home with playing the stock market...but then so did many of the professional hedge fund players.
