Is It Too Late To Buy Real Estate?

Who knows? No one really knows. Not even your real estate broker otherwise they will be rich by now. No one can predict the future. Not even The Oracle of Omaha. Without a doubt, he is the most brilliant investor of all time, yet he did not take advantage of the internet boom. What do we know? Well, risk and reward go hand in hand. The bigger the risk, the better the reward. We also know what goes up must comes down just like the stock market. So is it time to buy? Ask you father and he'll say buy now, so you don't have to live with him. Ask you uncle and he'll say "you should've bought it three years ago when I told you to." Ask you friend and they're as confused as you are. Everyone has their own opinion.

Looking into the real estate market. You kick yourself for not buying that apartment you like a few years ago. Now that same apartment is too expensive. But wait, that's what you said back then? The market is not slowing down and you know it. Last year Fortunue magazine said there is a housing bubble and it's going to burst. Fat chance. The real estate market is unstoppable. During the good years of the Clinton's Administration, the RE market steadily climbed. Despite a slumping economy, corporate scandals, highest unemployment rate in decades, war in Iraq and the terrorist attack, the RE market continued to steam roll them all. So what are we waiting for? Is the bubble ready to burst? If so, you could be stuck with a huge mortgage. If not, you could be stuck living with you parents or stuck renting possibly forever.

Ok, so you're young and brave and want to invest in real estate now. Not so fast. Lets considered the interest rate factor. This is Alan Greenspan's weapon of choice. This could be the thing that can slay the beast. Lets analyze how this work. We have seen studio going from $100k to $200k with a few years. Will it double to $400k within the next few years? If you think like the Oracle of Omaha, aka Warren Buffet, you doubt it. The reason he didn't buy into the stock market back then is because the P/E ratio of those stocks where well above 100. There is no justification for such prices. Meanwhile in real estate market, there is some justication for the recent increase, but the end is here if the interest rate goes higher.

The price of a house represents how much a person makes. Well duh. Let me connect some more dots. How much a person makes will determine how much they can afford. Their affordability is what determine their bank loan which in turns allow them to bid. Now lets say when the interest rate was at 8%, a couple can afford to bid 400k for a house since they can afford a $3000 monthly payment. They got the house and a few years later that same couple decided to move and sell their house. The 2nd couple came along and could also afford $3000, saw it and bid $500k. The first couple made out with $100K. However at a 5.5% rate the mortgage payment is only $2838 for the 2nd couple vs $2935 for the 1st couple!! This is the main reason (not the only) why people think real estate is going up. It's really the interest rate that is making the house more affordable. When the 2nd couple decide to sell their house down the road when the rate is back at 8%, they will only break even at 500k if the 3rd couple can afford $3668 a month. If they want to sell at 600K, the 3rd couple will have to be able to afford $4400!! Here you can say someone rich will come along and buy it. Well, all the rich people will have to buy up the entire neighborhood because when the appraiser/bank comes by to appraise the house, he'll say this house doesn't worth 600K. It'll worth as much as the other 100 neighboring houses. So unless everyone's income jump drastically, which is possible if there is another internet boom which is unlikely, most couples income will remain the same at $3000. At an 8% interest rate, they can only afford to bid $400k for the same exact place.

That is how RE works. As we all know, everything that goes up, must comes down. People's income will increase overtime, but ultimately the RE market is dependent on the people's income and combine with interest rate will determine their affordability. Essentially the RE market can only go up as fast as the raises their company gives them. So how was the jump from a $100k studio to $200k studio possible? Since the price is relatively low compare to a house, I can assure that the buyer at 100k income to debt ratio is higher than the one who purchased it at 200k. During the internet boom, the economy was good, a lot of people were making a lot of money through their job, business, stock market and were able to raise the RE market. Most people no longer have money in the market now, i.e. NASDAQ went from 5000 to 2000, and those savings were probably used to fund the real estate market. However, as reported by various sources, many home buyer's are stretching their income thin. Many people income to debt ratio is about 3:1. So the the same house that the sample couples bought which jumped $100k, the 2nd couple actually pay less per month then the first couple. In that example the real estate for that house didn't actually go up in value. It is the interest rate that allow the 2nd couple to afford a bigger loan, but have the same mortgage payment as the first couple.

So it is too late to buy real estate? It's never too late to buy since owning is still alot better than renting or living with your parents. Is it too late to invest in real estate hoping to get the same kind of gain you're used to seeing? If the interest rate moves upward, yes. The fed has cut interested numerous times these last few years and they're ready to increase it as the economy is picking back up.

Fantasy Sports

Man, what a game by Paul Pierce. This guy is amazing ever since Antoine Walker re-joined the Celtics. He's averaging 25 points a game, shooting a whopping 48% from the field, 92% from the line, 8 boards, 1.8 treys, 6 dimes and 2.2 steals a game.



For those who doesn't know sports or in this specific case, basketball, those are actually very impressive numbers. However, a more important question is who really cares? Until recently, about 5 months ago when the NBA 2004-2005 season started, I didn't care either. Don't get me wrong, I'm a die hard New York Knicks fan since the early 1990's during Patrick Ewing's hopeless years with the Knicks. I love basketball. I play basketball weekly trying to get into shape and enjoy watching the New Jersey Nets. So why am I praising a New York rival Paul Pierce from Boston Celtics?

Before I answer the first question, have you ever heard school kids or you fanatic colleagues spitting out obsecure and ever changing stats of a NBA superstars? "Allen Iverson really deserved that All-Stars NBA MVP because he unselfishly dished out 12 assists." Lets be realistic here. How does knowing that useless stats going to help you in your school work or your career? Those numbers are not easily memorized since it changes every night. Why do people even bother memorizing them? Will it ever help you oust Ken Jennings? So why waste your precious time gathering and learning these numbers? These were my exact questions and I was clueless until recently. Its Fantasy Sports.

Towards the end of October 2004, a friend, knowing that I enjoy every aspect of basketball, asked if I'm interested in joining his Fantasy NBA league. It'll cost me $20 to join and the top 3 winners get $130, $80 and $30 respectively. It wasn't the $20 that I'm concern with, but the amount time I will be wasting. He assured me that I won't waste more than an hour a week if I don't want to. Sure enough, he was right. I could've just spent 21 hours to manage my team for the 21 weeks long season, excluding the playoff, since my team is guaranteed not to make the playoffs had I only spent an hour a week. Before the season even started, I already found myself immersed into the fantasy part of this game by spending hours sorting out my draft picks lineup. Before I knew it, I was addicted, spending at least 2 hours a day managing my team, learning the names of the players from other teams, their positions and who's injured and who's in the starting lineup. This was time consuming since I only knew the Knicks and a few guys from the Jersey's Nets and superstars like Shaq, Yao, Kobe, KG and Paul Pierce.

Needless to say, my drafted team sucked. There was this other unfornate manager who got to picked last happened be first place now with guys with names I have never heard of, Marion, AK47, Arenas and Kidd. These 4 names are top 10 players in the NBA. Now I finally know who's who in the NBA. With the help of a friend, my team is now 4th and will soon be 3rd before the end of the season. This is pretty good since just last week, I was 6th place and risking the playoff spots, the prize money and of course the bragging rights since we all work for the same company.

So is spending 2 hours daily to earn a chance to win $130 or even $30 worth it? Of course not! That's almost 300 hours for the season! But it was never about the money. Its more like $20 for 300 hours of fun. That's equivalent to a movie ticket, popcorn and a soda in the theater for only 2 hours of entertainment or about 1.5 hour of bowling with equipment rental. Some people enjoys watching 2 hours of TV, reading a book, watching soaps, playing video games, downloading porn or blogging daily. I leave it to you to decide what's worth it. Now that the season is almost over, I might be blogging instead of managing a fantasy baseball team. It was sure one heck of an experience. Will I do it again for the 2005-2006 season? As much as I don't want to waste those precious hours, unless I have something else better to do with my time, I'm looking forward to next season.

For those who read this blog, thanks. This is my first and it won't be my last. I just want to ask what do you do in your spare time?