Motley Fool on the Bubble
This article from Motley Fool has been referenced numerous times on various bubble blogs over the past few days. Regardless, if you haven't seen it yet, it's worth reading.
Snip...
"Remember Black Monday in October 1987? How about the savings and loan failures that followed? From the late 1980s to the late 1990s, real estate was not a particularly great investment. My wife and I bought a home here in Virginia in 1998 for the same price the previous owners had paid way back in 1989. That's nine years and zero appreciation.
But wait, there's more. One of Warren Buffett's early partner letters (with updated numbers) provides a great example of the irrational returns of today's real estate market. Back in 1636, the Dutch purchased Manhattan Island for $24 worth of glass beads. In 2004, the assessed value of all the properties on Manhattan was $186 billion. What a steal, right?
Well, hang on a minute. Do you have any idea what kind of annualized return you'd need if you wanted to turn that measly $24 into $186 billion? Just 6.37%. Real estate, or any other investment for that matter, will not increase at 20% per year for very long. Eventually, reversion to the mean kicks in."
More...
Snip...
"Remember Black Monday in October 1987? How about the savings and loan failures that followed? From the late 1980s to the late 1990s, real estate was not a particularly great investment. My wife and I bought a home here in Virginia in 1998 for the same price the previous owners had paid way back in 1989. That's nine years and zero appreciation.
But wait, there's more. One of Warren Buffett's early partner letters (with updated numbers) provides a great example of the irrational returns of today's real estate market. Back in 1636, the Dutch purchased Manhattan Island for $24 worth of glass beads. In 2004, the assessed value of all the properties on Manhattan was $186 billion. What a steal, right?
Well, hang on a minute. Do you have any idea what kind of annualized return you'd need if you wanted to turn that measly $24 into $186 billion? Just 6.37%. Real estate, or any other investment for that matter, will not increase at 20% per year for very long. Eventually, reversion to the mean kicks in."
More...
posted by Little_Silvered at 5:35 PM
15 Comments:
This is one great article that rationally lays out the facts.
Do not buy a house unless it drops at least 25% or a condo at least 40%.
hmmm. interesting article. like i've said before, if you drive around momouth county shore towns, ocean grove, belmar, bradly beach, all you see are for sale signs. i've never ever seen that many for sale signs in those towns. it's just supply and demand, it probably is a strong buyer's market right now on the shore. can you imagine what will happen as rates continue to rise!?
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