If the home you wanted could be bought today at 30% off the peak price, would you buy?...

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bigmoneysalsa,





Theoretically, yes, the increasing rents and appreciation will help make real estate a better investment. Real estate has always been a good hedge against inflation. In fact, that is the primary reason one should own their own home -- when the price is right. With the risks inherent in real estate, I certainly would not pay a <em>premium </em>for that inflation hedge. I will take my 5% at the bank over a 3% cap rate on an investment property any time.





As a conservative investor, I would not count on increasing cashflow to make the numbers work. If the stabilized year 1 cashflow does not provide the return I am looking for, I am not going to start playing with growth rates until I get the answer I want. That is the first trick you discover in real estate finance class in college. Plugging in aggressive growth rates can make even the worst deal look great.
 
I would have to disagree there IR, I don’t think you should discount the expected appreciation of a real estate investment any less than you would for any other investment instrument. The nominal rate of expected return for any investment instrument includes all factors of gains including income, appreciation, and inflation, and the same factors should be considered for a real estate investment. IF an investor felt that the security is at a fair value, then his expected return on that property would have some portion of each of these factors going positively. Of course in today’s RE market, the expected ROR on price for any given property is Negative (since housing is NOT at fair value), and therefore the cap rate needs to be even higher to make up for what you are expected to lose in price. That is why RE is such a bad investment today (low cap rate, over-valued), but it does not eliminate appreciation (or depreciation these days) as part of your expected ROR.



I think things change a bit if you consider housing a commodity (I tend to), but that’s a different – is somewhat related – conversation.
 
<p>gepetoh,</p>

<p>Housing is a critical commodity, sometimes, a rarity, i.e. beach front properties. Moreover, I see population grows, I do not see land grow.</p>
 
NIR - please don't bring up the "population growth, they ain't making more land" point. You sould just like 99.9% of the hack agents out there when you start spewing that stuff.
 
<p>oc-conservative -- Do you really believe that land supply is a non-issue? Is the beach not more crowded than the I.E.? I suppose an acre of beachfront land should cost the same as an acre in Corona, since there is an unlimited supply of land.</p>
 
<p>Yes, I believe it is a non-issue when making a <em>general</em> point regarding real estate. It is their cookie cutter answer when you ask them if real estate is a good investment. That is the problem I have with it.</p>

<p>And yes, obviously beach front property is more valuable than the desert. But this is not limited to the fact that there is less beach front property than desert property.</p>

<p>Also, I believe there is not an unlimited supply of land in Corona. But I could be wrong. </p>
 
<p>Exactly right, there is not an unlimited supply of land in Corona, nor is there an unlimited supply of land next to the beach, but the comparatively lower supply of land by the beach makes it more valuable than where it's more plentiful, e.g., Corona and the other lovely cities of the I.E.</p>
 
Technically speaking, there is not an "unlimited" supply of land even in Kansas. Even in Kansas you can't build an infinite number of homes as they are not making more land there. I the point is that for all intents and purposes, the amount of land is not going to be a limiting factor for Orange County real estate. Are you sure every available piece of land where a house can be placed is going to be a major factor for the number of people we will have in the future? We won't run out in 20 years I would bet.





Off on a tangent, there are places in the US where they are "making more land." http://www.detroitblog.org/?p=287
 
Yes the no more land myth. I have been hearing this all my life here in OC. I haven't heard it as much now since the 90s. Funny thing how in the 90s there was no more land and yet they found the space to build 200k units. If you factor in that our population is expected to grow by 200k by 2030 and how there is about 100k units in the pipeline in the next 5 years I don't think we will have a problem meeting that demand. Of course demand also means people willing and able to buy which is something we do not have right now.
 
Since this is the Irvine Housing Blog, I'll say that yes, there will be a land shortage in Irvine in the future, as remaining open spaces zoned for development are built-out. After that we will see periodic redevelopment projects here and there, but for the most part there won't be large tracts of new homes being built. By then the developers will probably be drooling over Camp Pendleton for their next hit-and-run project.
 
<p>If you have a geographical area of a certain size, and you build stuff on it, then less area remains on which to build more stuff. It's not that developers won't find a way to make room, but density will continue to increase, and increases in density makes each remaining parcel of land comparatively more expensive.</p>

<p>Here's but one example of Irvine's finite supply of land: <a href="http://www.ocregister.com/ocregister/homepage/abox/article_1756146.php">http://www.ocregister.com/ocregister/homepage/abox/article_1756146.php</a></p>
 
<p>marty mcfly,</p>

<p>Good point.</p>

<p>You are talking about recycle use of land, usually pockets of land. </p>

<p>I supposed nature beauties such as mountains, wetland, and even canals can be built on. </p>
 
<p>Marty said:</p>

<p><em>"but density will continue to increase, and increases in density makes each remaining parcel of land comparatively more expensive"</em></p>

<p>I think the cause and effect may be reversed in your suggestion.</p>

<p>Momopi- </p>

<p>By my eye, all the area north of the 5 and east of Jeffery has yet to be developed. We are still many years from having Irvine built out. I would guess 20 or more.</p>

<p>SCHB</p>
 
The "running out of land" myth is thrown around by realtors to imply there will be a permanent shortage of dwelling units relative to the current demand.





In areas where this actually does occur -- where zoning does not permit higher densities and every parcel is developed to its maximum -- prices rise until the income limit is reached (trees can't grow to the sky). Local wages are always a limitation on house prices (unless of course you have a credit bubble). Over time, wages, rents and house prices strike a balance. If you want your house prices to go up, look for communities with better than average wage growth not a restriction on supply.





This is one of the main reasons California has land use regulations which strike a balance between job creation and housing supply. If you put excess job creation in an area with limited housing (think Manhattan Island, New York), you can get the "running out of land" phenomenon. However, go to any other older, built-out city, and you just see a balance between wages, rents and house prices. They are "out of land" but it doesn't create high home prices.
 
There are some cities in Europe which have undergone re price cycles for hundreds of years. The cities "ran out" of land, and even though at times the prices become relatively unaffordable, the prices always revert to affordability for the income levels for each neighborhood. And there are a few places, mostly farmland, where prices are permanently unaffordable and are mostly handed down by inheritance.
 
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