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View Poll Results: How long will the current real estate bubble last?
The bubble ends in 2013 4 13.33%
The bubble ends in 2014 3 10.00%
The bubble lasts six years like the 2002-2008 one 14 46.67%
There in no bubble, foreigners will be lining up to pour money into paradise forever 9 30.00%
Voters: 30. You may not vote on this poll

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Old 03-30-2013, 11:31 PM
 
Location: Heartland Florida
9,324 posts, read 26,855,429 times
Reputation: 5040

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I am hearing all kinds of real estate ads on the radio and even see the infomercials and scam seminar ads back on tv. It feels a lot like 2006 again, so how long till this Miami bubble blows up as well? I know that Bernanke has to print like no tomorrow or the whole economy collapses, but when will gravity finally pull the overinflated real estate market back to earth?

Last edited by tallrick; 03-30-2013 at 11:40 PM..
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Old 03-31-2013, 04:34 AM
 
Location: western East Roman Empire
9,515 posts, read 14,485,369 times
Reputation: 10291
"Foreigners", including Henry Flagler, have been pouring money into the paradise that is southern Florida, and Miami in particular, since about a century ago, and there is every indication that it will continue for at least another century.

The US economy is not going to collapse, it still is a great agricultural and industrial goods producing nation and exporter. The problem, of course, is stupid overconsumption, but there is no crisis of production.

Bubble means excessive buying of an asset financed by credit, artificially created money not based on value-added production, such that when supply of credit stops, prices of such assets fall suddenly and sharply.

The fact that many of residential real estate purchases in Miami nowadays are by cash, not financed by credit, means that US monetary policy has nothing to do with the current uptick in Miami real estate prices, at least not directly. The fact is that right now there is very little inventory of quality stuff in Miami's most strategic neighborhoods.

I do not know what percentage of the new money pouring in, if any, is "drug money" from South America, but I do know that current economic policies in several South American, as well as European, countries are scaring off, even choking off, people with assets, including many with legitimate entrepreneurial skills, the same people who are quite used to apartment/condo-style living for which in Miami there is actually, as mentioned, currently a dearth of quality and adequate size. Hence ongoing construction.

More in detail, in the US the effective federal tax rate is around 17%, and there is strong opposition to raising even that very low effective rate, and Florida is a no income tax state, while in countries like Italy and France the effective central government tax rate is around 45%, plus myriad other taxes (other than even property tax), not to mention countries like Russia and Cyprus right now, and in countries like Argentina, Venezuela and Ecuador there is the real possibility of confiscation of assets. The US is still a political and policy haven and Miami is the main port of entry for South Americans and, though to a lesser extent, even some Europeans. Many of these people start up international and local businesses, and at the very least they pay local property taxes and consume, business and purchasing power. Meanwhile, the financing for the infrastucture which keeps goods and services flowing in, out and through Miami still comes from the US northeast, as it did about a century ago, and people from or with roots there are also still interested in Miami.

By the way, the US dollar has been gaining against South American currencies for about a year now and it has traded in a predictable, at times narrow, range against the euro for almost a decade. So the external value of the USD is not a main factor.

What has weakened is the domestic purchasing power of the average worker on US soil. The main purpose of current monetary policy is to help those already indebted during the bubble of the mid-2000s to keep making minimum payments on their credit cards, car notes, and mortgages, but standards for the issuance of new domestic credit seem to have reverted to what they were before then.

At any rate, Miami has always been about outsiders bringing their wealth here to develop what otherwise is a swamp, and current demand is more driven by fiscal policy and politics in the US and abroad, and Miami's geographical position globally, not by domestic monetary policy as had been the case in the mid-2000s.

The risk, then, is whether Miami will continue to be able to build upon its success based on its strategic national and global position and hence whether the people who purchase residential real estate will have enough income going forward to maintain their properties in top quality shape long term.

Having said all that, I agree with you that the best real estate investments are in 1) productive farm land, 2) commercial real estate, especially related to infrastructure, then 3) residential real estate, though all three categories have many sub-categories, each with its own pitfalls.

Good Luck!
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Old 03-31-2013, 05:33 AM
 
Location: Miami
6,853 posts, read 22,551,318 times
Reputation: 2962
i think this is a little different than 2006 because a lot of these buyers are cash buyers for one or they are putting down large amounts of money
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Old 03-31-2013, 10:08 AM
 
Location: Florida
16 posts, read 25,000 times
Reputation: 24
Great post Dale002, one well deserved Positive Rating for you.
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Old 03-31-2013, 12:15 PM
 
Location: Seattle, WA
2,975 posts, read 4,968,924 times
Reputation: 1227
Since the effective spending power of local residents has still been falling, each real estate bubble/bust cycle increases the gap between the wealthy and working class. Also, it diminishes the middle class who can't afford the new luxury properties but do have the resources to move out of the area, which will continue to lead to the decline of traditional middle class neighborhoods, like North Miami Beach, Kendall, and Palmetto Bay. During the boom, many working class families were able to buy homes they couldn't afford and ended up in foreclosure, further contributing to the decline of these 'hoods. It is not clear how sustainable this is in the long term. At any rate, until salaries start to rise again, real estate in traditional middle class neighborhoods may not be such a good investment long term. Nevertheless, as we saw with the last cycle, the wealthy neighborhoods increase faster in the boom and hold on to their value during the bust. Also, there are plenty of cheap properties for investors to buy up and rent out, and distressed properties to flip.
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Old 04-02-2013, 09:08 AM
 
Location: Heartland Florida
9,324 posts, read 26,855,429 times
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Quote:
Originally Posted by hurricaneMan1992 View Post
Since the effective spending power of local residents has still been falling, each real estate bubble/bust cycle increases the gap between the wealthy and working class. Also, it diminishes the middle class who can't afford the new luxury properties but do have the resources to move out of the area, which will continue to lead to the decline of traditional middle class neighborhoods, like North Miami Beach, Kendall, and Palmetto Bay. During the boom, many working class families were able to buy homes they couldn't afford and ended up in foreclosure, further contributing to the decline of these 'hoods. It is not clear how sustainable this is in the long term. At any rate, until salaries start to rise again, real estate in traditional middle class neighborhoods may not be such a good investment long term. Nevertheless, as we saw with the last cycle, the wealthy neighborhoods increase faster in the boom and hold on to their value during the bust. Also, there are plenty of cheap properties for investors to buy up and rent out, and distressed properties to flip.
This is very accurate, The employment situation of the working class in the Miami area is stagnant. It truly is amazing how low wages are compared to other cities in Florida, despite the increasing costs of living. Many "investors" are using this bubble as a way to get in on the 40+ billion of money printed by the Fed to buy MBS, no matter how bad they are. They can buy up properties, cobble together a MBS and dump it on the Fed to rot, and walk away with a healthy profit. What concerns me is that the customers of those rentals have less and less disposable income. Once they can no longer pay Miami's overinflated rents, I see "investors" running for the exits. Combine that with the coming end of the US dollar as a reserve currency and there is no avoiding real estate disaster. You can see the decline in working class suburbs as more and more properties turn to rentals. Salaries are not rising, and will not because the supply of workers is endless but the economic engine is running on easy money backed by endless debt. The collapse is inevitable, only the timing is impossible to predict.
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Old 04-04-2013, 03:39 PM
 
Location: Whispering pines, cutler bay FL.
1,912 posts, read 2,765,333 times
Reputation: 2070
We are lower middle class and decided we could not wait any longer to jump in and it has been hell finding anything. Sellers are now asking either 20% or cash only. Unfortunely we only have about 10 percent saved up. But the way rents are now it would be impossible to to even afford renting a house so we would have to settle on a small apartment. I don't understand how these houses are renting out for 2 k and above a month. Regardless we put in a offer in whispering pines and are in the process of purchasing that house, if there is a bust we are going to be long term there since it is our home that we plan to retire in.

Btw I do see a lot of homes being purchased there and being turned into high end rentals.

Time will tell.
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Old 04-13-2013, 12:54 PM
 
Location: Heartland Florida
9,324 posts, read 26,855,429 times
Reputation: 5040
Expert: Fed Creating New Housing Bubble
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Old 04-13-2013, 02:46 PM
 
Location: western East Roman Empire
9,515 posts, read 14,485,369 times
Reputation: 10291
Quote:
Originally Posted by tallrick View Post
Again, bubble means excessive buying of an asset financed by credit, artificially created money not based on value-added production, such that when supply of credit stops, prices of such assets fall suddenly and sharply.

This article is full of contradictions, even at the very end it acknowledges that investors are buying cash, absolutely negating the concept of bubble.

The purpose of the Fed policy is to keep already heavily indebted people afloat.

To be sure, not all is well with the economy, but it is slowly healing: in globally competitive neighborhoods in key cities, including Miami, real estate prices are rising because there is still a dearth, a dearth, of quality housing, and this time around purchases are either with cash or with standard financing; while in globally uncompetitive neighborhoods investors willing to get their hands dirty are buying distressed properties, fixing them up, and renting them to working/middle classes people who are still struggling, in some cases with 10% or so yields for the investors if all goes well.

In terms of a real estate crash and interest rates, Japan has been in a similar situation for more than 20 years now, and recently they have once again ramped up quantitative easing, such that even government bonds at yields like 1.20% have made further capital gains.

There is little or no risk of collapse in the US economy, there is no crisis of production, rather it suffers from stupid overconsumption and that is being addressed very, very slowly.

Some sort of equilibrium will be achieved when the average income of the average US (and European) worker is about the same as that of the average Chinese, Indian, and South American worker, a process that could take another 20-30 years, and that's how much longer interest rates could stay low, just ask the Japanese.

To be sure, other prettier or uglier scenarios are possible, but this is the trajectory that we are on now.

Last edited by bale002; 04-13-2013 at 03:21 PM..
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Old 04-13-2013, 04:31 PM
 
Location: bellow a bridge
15 posts, read 21,751 times
Reputation: 15
The bubble will not end, it will be worse and worse untin ee.uu fall down.

Do you want to save the economy of ee.uu?

Simple...

Don't send more money to "aid" other parasitic countries as for example africa and the terrorist state of isra-hell....

With the money that this country use to support all those parasitic countries we can pay-off the debit.
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