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St George,
Utah
Real Estate Blog
08/30/05
Today’s real estate
numbers:
- All homes for sale on the MLS:
580
- Homes pending (under
contract): 871
- Median asking price: $369,900
- Average mortgage rate: 5.31%
Wow, a 25% increase in the number of
homes for sale in St George. I think that Mr. Greenspan has finally
gotten the real estate markets to moderate a bit.
I did like what he said in his
Jackson Hole,
Wyoming speech in
regards to risk and indirectly the housing market:
“But arguably, the growing stability of the
world economy over the past decade may have encouraged investors to
accept increasingly lower levels of compensation for risk.
Thus, this vast increase in the market value
of asset claims is in part the indirect result of investors
accepting lower compensation for risk. Such an increase in market
value is too often viewed by market participants as structural and
permanent. To some extent, those higher values may be reflecting the
increased flexibility and resilience of our economy. But what they
perceive as newly abundant liquidity can readily
disappear.
Any onset of increased investor caution
elevates risk premiums and, as a consequence, lowers asset values
and promotes the liquidation of the debt that supported higher
prices. This is the reason that history has not dealt kindly with
the aftermath of protracted periods of low risk
premiums.”
What Mr. Greenspan is saying is that
the purchase of an asset, say a rental home, at a premium price in
comparison to rental income is very risky. If an investor is
counting on short term appreciation and not actual income, it is
possible that the market may not be kind to this
investor.
Long story short, it is wise to look
at income in comparison to price when buying a rental home and be
willing to hold onto the home for the long run.
Don
P.S. Too many years of strong negative cash
flow and no appreciation will make most home investors very
skittish. What will they do at that point? Just a
thought.
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