SV HOODS - Inspired Real Estate

This article came across my radar this morning.  The video is "proof" of another housing bubble.  No it's not.  

Here is the stupidity.  For their to be a "bubble" there has to be a fundamental flaw in the marketplace.  In 2000 there were companies with no product, no business plan and no idea what they were doing.  They were drinking Dom, playing video games and acting like children.  Coupled with VC's throwing money around like drunken sailors and voila!  The dot.com bomb.  No fundamentals=disaster.  

After 9/11 the Bush Administration and the Fed held interest rates (which should have naturally inflated) down.  Then they added "designer" loan products where the lending requirement was the ability to fog a mirror (which was sometimes waived) and that equaled disaster.  

The problem with the idea that there is a bubble right now is there are still people coming in and spending all cash on homes.  It's less that before but there is still about 30% cash in the market.  That does not equal a housing bubble.  That's just a raging housing market.  

That being said, I think we are due for a pull back in the next 18-24 months.  I don't think it's going to be more than 10-15% though.  That's not going to help very many people at all.

Waiting isn't going to help as interest rates will have gone up by then so affordability will continue to be an issue.  

Now I disagree 100% with Ken DeLeon and a man like him should know better.  All markets are cyclical and this one is too.  There will be a pullback Ken.  Those comments were foolish, sorry buddy.  After nearly 40 years in the business I've been through 23% interest rates, changes in the tax laws that created sell offs, three major pullbacks and record breaking appreciation.  The market is cyclical.  It will contract.

Here's what I'm telling my buyers.  If you are going to continue to 1) Live in this area 2) Live indoors 3) Have a great paying job, then you need to consider real estate.  As long as Congress leaves the Mortgage Interest Deduction in place (their nemesis will continue to be the National Association of Realtors, the largest lobby in the country...hence why it will not go away) real estate will continue to be a wise financial choice.  

While Steve and Michelle whine about the cost of living in the Silicon Valley, just think of those who strategically defaulted on homes between 2007-2011 in the valley that have now doubled in value.  How smart were they in retrospect?

I like to use my own home as an example.  My neighborhood was a $600,000 neighborhood in 2006.  I cashed out of another neighborhood because I saw the crash coming in 2006.  (That's right.  I predicted it)  In mid 2007 I was able to buy in this "$600,000" neighborhood for $489,000.  I then watched it plummet.  I sold the same model that I owned for $250,000 in 2010 and the neighborhood hated me.  

This year I've sold two homes for $600,000 and another for $577,000 in this neighborhood.  The lesson?  If you want to live indoors, pick a place and buy it.  The market is cyclical, but when it goes down, you still have to live indoors.  And when it goes up, your housing costs are locked in.

Bottom line: if you can afford the payment, do it.  If not, consider other options for your family.