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October 10, 2007The Housing Crisis - In it for the long haul?
The recent Business Week cover on the housing crisis is definitely a tough pill for all of us homeowners that bought a new home in the past five years. If you haven't listened to the podcast and/or read the article this week, it is a must. It highlights the crisis in one of America's hottest markets - Las Vegas - and pushes all of us to hope that "what happens in Vegas stays in Vegas". Yet, it's creeping into a neighborhood near you with little relief in sight. As I listened to the podcast this morning, a thought continued to befuddle me about the utility of real estate appraisers in the cyclical housing market. Consider that homes that were once appraised at $800k are now selling for $480k (an example given for the Phoenix market) yet in both instances loans were approved based on values given by real estate appraisers. Their defense is that other homes were selling at the same price - so the home must be worth $800k. A little bit of the "greater fools theory," if you ask me. It seems that in turbulent times, whether it be the boom/bust of the housing market or the boom/bust of tech in the late 90s, investments always come back to real returns. "If there were no buyers, I would be willing to pay X to live in this house," instead of "I know that the value is going to go up so I want to participate in the appreciation." In the long-run, there are no greater fools then when you analyze returns from a return on investment lens versus through rose colored glasses "my neighbors were dumb enough to buy at that price, so it must be worth it." All said, I think it's time to finish the basement, because we may be in for a long haul.
October 01, 2007Fueling Foreign Investment
Whenever the average consumer hears of rising oil prices, the first thing that comes to mind is the fear of high gas prices and the impact on their wallet. Yet, while high oil prices do have a large impact on the economy as a whole, they also serve to fuel foreign investment in the markets and can help drive the economy. For instance, the recent credit situation has constrained many investors. However, investors with large cash reserves, such as oil rich nations possess the necessary liquidity to be risk averse to the credit markets. Thus, allowing them to invest when an opportunity presents itself and capitalize on a poorly performing mergers and acquisitions market.
