| Is it time to invest in US real estate market? | |
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| Dec 4, 2008 22:06 |   |
 | Affected by the credit crisis, US real estate market is nearly dead. The housing prices slump sharply and many people own debt to the banks. Many banks have already closed. Now many Chinese investors plan to invest in US real estate market because they think that the best time to do investment in US has come. Do you agree? |
| Dec 4, 2008 22:34 | #1 |
| Not here; prices are still way beyond value. Perhaps in the big cities. |
| Dec 4, 2008 23:04 | #2 |
| Hey Whats up, Right now is not exactly the best time to invest in US real estate. For the past few months I have been looking to purchase a new home and although the news tells of a real estate disaster taking place in America, it only applies to homes in the median price range, and that is if its an REO, and your qualified with a pre aprove letter in hand. Million dollar homes are of some value but it does not come out to much savings. For example, Million+ homes are lost by those who were not financially savvy enough to understand that they could not afford such a grand home and those who own businesses that have failed because of the economic downturn and these homes are put back on the market for 40% off market value by a real estate agent representing a certain bank. With this strategy, a 3 million dollar home is now about 1.6 which draws in a huge crowd of 25 people, (myself included) bidding on this home in which the home closes for about 2.6 million which in turn gives the lucky bidder a 400,000 less than market value. BUT, million dollar homes usually tend to have serious damage left by the previous owner, higher probability if it was an REO less if it was a short sale. So in turn, the only value really is in the median priced homes. But, If the next wave of real estate troubles does come true (commercial real estate) than that may be something of real profit to invest in. |
| Dec 6, 2008 03:21 | #3 |
| Short answer is no. The long answer is that market values have declined 20-25% compared to an over 300% increase over the past two decades. This was mainly fueled by the steady devaluation of the US dollar and the treasury printing more money to prevent the economy from falling into a recession (a mistake in my opinion). As a result, this huge influx of cash spawned the sub prime mortgage market which in turn allowed more people into the real estate market thus driving up values to astronomical levels. Now let's look at this more critically. Fannie mae and Freddie Mac was the main cause of this melt down, not because all the morgages went bad, actually only 4% was non accruing, but because the CEO's of both companies with held reporting this for years in order to show more profits and insure their 90 million dollar annual bonuses. When the bad loans were finally uncovered, shear panic took over and no one wanted these morgage backed securities. Despite still paying interest, these once highly liquid triple A investment became a long term asset. Well needless to say, banks invested heavily into these instruments counting on its liquidity to meet current obligations and to get a better than US T bill rate of return, as well as pension funds, investment houses, et al. And the rest is history, banks could no longer make loans and the economy stopped dead in it's tracks, the stock market crashed, and corporate America took this opportunity to downsize. But what are we talking about? A 4% loss in the mortgage markets? Well just to give this more clarity, the 4% is still secured with underlying real estate. Is it worth 100%?, no, 70%?, maybe, 50%?, absolutely. So the total loss is really only 2% at worst. But fear and panic has taken all of us on this wild roller coaster ride. I don't see any real further errosion of the housing market, but I don't see much of an upside either. Despite a Democratic incumbant (BTW you do know that both CEO's of Fannie and Freddie where high Democratic officials, one being Former President Clintion's financial advisor) I don't see that the American public will allow for a "no oversight" situation again for these companies. |
| Dec 6, 2008 03:21 | #4 |
| The economy will recover and will take a couple or more years, but the reccession was long overdue and hopefully we will come out stronger down the road. But I see housing stagnating for the foreseeable future and perhaps growing at a much slower pace if at all. I think the smart money is waiting on the sidelines for the stock market to finally bottom out. With interest rates at all time lows and no increases on the horizon, the market is your only bet. And with the current 50% drop, an 100% profit could be gotten within the short term if you play your cards right. GM is looking pretty good now at 4 bucks for a huge return if they make it and Sunpower Tech at 8 bucks is a safer play and can pay off 400% should it return to previous levels. But if you want real estate, I would buy in Shanghai at the current depressed levels, it will have a better up side IMHO. Good luck Allan |
| Dec 7, 2008 22:51 | #5 |
| Habitual consumption behavior is deep rooted in culture. flat int. rate makes no difference to China or Japan but it does make difference to USA. FedReserves buy back T-bill which was mandatorily reserved by financial institution is another way of cash rejection, BUT fed has already in deficit, where is the paper money, yet keep printing money? that cause another problem - inflation. |
| Dec 8, 2008 23:41 | #6 |
| Not sure if I completely agree with your specific cultural statement. I have had the opprotunity to work in 18 countries over the past 3 decades and have seen significant consumer habits change over that period of time in many different countries. It seems to have more to do with increased education, exposure, consumer wealth and enviroment and the evolution thereof. The US has a very strong and large middle class and now with both spouses working career jobs, they also have increased disposable income. So even with the current financial crisis, retail sales are actually up by 3.6% over last year. Naturally, with the large middle income population, we are a country of consumers. If you look back on Japan, Europe, and may other countries, spending habits have increased exponetially, but because of population size and vast middle class, they cannot compare with the US. China is also on the upswing and in 10 or so years, China will become the largest consumer country in the world as the better educated younger generartion enters into the market and China production becomes more efficient and technologically superior. So it's more of wanting a better life and being in a position to attain it. It's more human behavior rather cultural. The economic engine for any capitalistic country is credit, I undersatnd China's larger business' are government run and funded, but all of the other private business' need credit to do business. The lower the interest rate, the more money can be borrowed and the larger volume of sales can be achieved. When Japan fell into it's economic problems, the Japanese treasury lowered its form of the prime rate to ZERO to stimulate economic growth from 2001 to 2006. And if you investigate the problems that initiated the current financial downturn, it was due to the sudden lack of credit which stopped industry dead in its tracks. So I do think it makes a difference to any country including Japan and China. The way the Federal Reserve Bank regulates money supply is to set a targeted fed funds rate. Without going into technicalities, what this does is cause a "Money Multiplier" effect, so one printed dollar can be circulated into the market multiple times, the lower the rate, the more money is in the market, the higher the less. Should the rate be set at ZERO, additional monies can be injected through the re-purchase of T-bills and asset backed securities. Yes, uncontrolled printing of money can cause inflation, but we are currently in a recession and additional funds is expected to stimulate the economy, so when the economy begins to heat up, rates will rise and monies will be removed from the market place. It's a balancing act and every country with its own currency, controls it in this manner. |
| Dec 9, 2008 19:36 | #7 |
| GearBox, you look like a movie star from HongKong. I can tell you what's gonna happen if flat interest rate adopted in current China - The idle cash which is intended for deposits will be reallocated to gov. debt mkt insteaded of consumption mkt. The only way to stimulate consumption in China is half of salary is delivered in the form of money-valued coupon which have to be turned into consummer goods by coupon maturity. |
| Dec 9, 2008 23:31 | #8 |
| Marrie, thank you for the flattering comment, but which one? Chow Young Fat or Jacki Chang LOL :) I understand what you are saying, and I agree, right now, given China's distribution of wealth, there is only a small middle class. China is still in it's industrial revolution and in the process of creating a middle class of consumers. Most of China's wealth has been through exports and the factories that produce the products. The lower interest rates will help them. As for the consumers, China has to rise from the worlds low cost producer to the worlds high tech producer. Such as Japan from the 60's to the 70's and the US before that. And until that time factory workers and employees will not earn the income to have much to spend on consumer goods. But from what I have seen, China has a growing educated population, all the college students I had talk to on my last trip only had one thing to say, "I want to work and learn". As the younger generation begin to enter the workforce, they will be the ones to create that new thing, the new product, or a better way of doing business, and then incomes will rise. And it's not as far away as one might think. US companies are relocating its research and development departments and labortories to China which will create a tremendious need for entry level technicians, engineers, and scientists from China. The experience and exposure to cutting edge technology will enevitably spawn new technologies that will be absorbed into China production. I guess you can tell that I am excited about China's future. |
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