BiggerPockets

There's so much good news in the real estate market today you'd think there was gold bullion falling from the heavens.

Read my new article "Is the Housing Recovery a Farce?" to see exactly why YOU should be a bit suspicious or confused too...

http://www.distressedpro.com/blog/housing-recovery-farce/

I think the assumption in this article is that a new bubble is forming and when it bursts there will be a repeat of what we have experienced the last 5 years. Problem with that theory is the current batch of investors have paid cash or financed with significant cash down payment so the dynamics of any "bursting bubble" would be different and certainly much less severe than the last time. In my local Phoenix market avg. sales price per sq. ft is $110, up from a low of around $76 but far from the peak of $180. Investors have left my market to pursue opportunities elsewhere leaving mostly organic home buyers who have stepped in and picked up the slack. I expect our rate of rise in prices to slow down which I think is healthy.
There may be another bubble forming but doubt the "bursting" phase will be a catastrophic jolt to our economy like last time.

@Brecht Palombo
Great topic for discussion Brecht.

I think a lot of people subscribe to the notion the housing market may be recovering right now. The problem is we don't have an organic recovery. Many hedge funds such as Black Stone, Colony Capital etc. are coming in and buying SFR properties in the tens of thousands. With interest rates being kept artificially low by the Fed and cheap money its only fueling their speculation. The critical mistake they are making is you cannot effectively MANAGE properties in a excel spreadsheet. In my opinion, these hedge funds will lose their shirts in 5+ years, and many of the properties they picked up will come back on the market as distressed assets. However, this time many of these assets won't be held by the government, but instead by private equity firms.

Housing Bubble 2.0, Real Estate is the opportunity.

There was a great video posted about this on yahoo that's worth a watch on this precise topic.

http://finance.yahoo.com/blogs/daily-ticker/housing-bubble-2-0-david-stockman-133026817.html

Very interesting articles. I hadn't heard too much about the difference in the foreclosure processes before ...but it seems to make sense. Courts are notorious for taking forever to get things done.

I do think there will be more protections in place because many properties have been bought with cash..but I also heard that home equity loans will be making a big come back...what's to stop people from taking money out of their primary residences and investing in properties at the top of the market or to buy a second home?...

Also when you factor in that many funds are buying huge amounts of homes..what happens when one of them pulls an Lehman brothers type situation?

It would just take one of the big players to fall in order to destroy a market or several markets.

I think the fear of hedge funds is overblown. They were buying heavily in the Phoenix market in the second half of 2012 but have now moved on to areas where there is more available inventory. The Blackstone group, one of the largest hedge funds, bought just over 3000 homes in AZ during that period. This accounts for only .22% (one fifth of one percent) of the homes in the two counties where they bought. This represents about a week and a half of supply at our current sales rate. These homes for the most part are occupied by long term tenants. Even if they put all of their houses on the market on the same day it would barely be noticable in our market.

Will Real Estate go bust in the future? Probably. A lot people on this forum probably weren't around to remember the real estate crash of 1990 and the whole S&L debacle. It only took 17 years for a repeat performance of greater magnitude. In a few years, people will forget all about the last crash. Optimism and the battle cry of "property values only go up" will return.

The lesson to learn is that you have to spot the trends in advance. Be careful about leveraging your assets otherwise when the crash hits, you're out of business. When the numbers don't pencil out, it's time to stop investing, sit on your cash and wait until it's time to buy again.

I don't think we'll see any sort of correction, absent some calamitous event, in the near term. The market is just getting legs. It's got awhile to go before it breaks into a full gallop - and the eventual trip and fall.

Realize about 3.6% of homes sell per year (the other 96% are held by the owner). That means one hedge fund (Blackstone) bought 6.1% of the homes in those two counties.

In addition, other hedge funds (not just Blackstone) are investing. Plus there is a flurry of new real estate investors entering the market.

Great point. Take the other 3 major hedge fund players repeating that process and I bet you are well into 20% of the market. All that placed for sale on one day would be catastrophic for that specific area.

DON:T PAY ATTENTION TO THE NATIONAL NEWS STORY!! IT DOES NOT MATTER...

It does not matter completely, but to an extent, it does. Media has a way of spinning things and as another bubble becomes ready to burst, the economic downfall from it will spread across the Nation, hitting the specific markets the hardest.

[quote=

DON:T PAY ATTENTION TO THE NATIONAL NEWS STORY!! IT DOES NOT MATTER...

It does not matter completely, but to an extent, it does. Media has a way of spinning things and as another bubble becomes ready to burst, the economic downfall from it will spread across the Nation, hitting the specific markets the hardest.

you are right - the media has so much influence. I think that is why I put it in capital letters. investors have to stay very focused locally or it can become scary. But, you are right, things have a way of playing out exactly as they are talked about. The self fulfilling ...