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The "real estate bubble" that has been under discussion for several years has stirred up some interesting debate. A recent first-time home-buyers' seminar sparked the discussion of whether to buy or to wait - will prices crash in the next few years, leaving new buyers with negative equity at a time they need to build their investments and credit, or will values continue to escalate at more or less the same rate as they have in the last 15 years?
In a tight housing market where there is an expected influx of workers, causing a projected 12% increase in the population, one real estate agent predicted that properties will jump in value because of the extreme competition, regardless of whether the bubble bursts elsewhere. The sense of alarm in the room was palpable. Thoughts were obviously running along the line of "What good would this do me and my family, to put in the time and effort and deal with the stress of buying property, only to lose money?!"
The International Herald Tribune has an interesting article about the study of Amsterdam's prime real estate, the Herengracht, which is a canal neighborhood. A professor of real estate finance, Piet Eichholtz, wanted more information covering a longer time span than the typical research includes. A 20-year look back does not include the long-term effects that show up over a hundred or more years. So, in the 1990s, he studied the Herengracht's growth and costs over a 350-year period, coming to the conclusion that real estate values on the Herengracht went up only 0.2% per year after adjusting for inflation.
The book Irrational Exuberance, by Yale professor Robert Shiller, highlighted Eichholtz's study in 2005. Shiller had already become famous for his 2000 prediction of the end of the stock market's boom. In Shiller's 2005 version of Irrational Exuberance, he postulates that the huge increases in real estate prices -in major cities like San Francisco, New York, London and Paris- can be expected to level off.
Many others agree, stating that the rise in home prices is supported by a strong economy, and that real estate in highly-desirable locations will maintain its value and continue to increase - a typical supply-and-demand situation.
Thus, for the new buyer and the seasoned investor alike, keep your goals in mind; the benefits of tax breaks for ownership, the pleasure of ownership and control, and location, location, location!
Such is certainly true in the case of timeshare, vacation ownership or fractional property, as different forces control these markets. These types of real estate are not likely to appreciate in value. In fact, like a new car, a new timeshare is subject to immediate depreciation, once it has been "driven off the lot". Just like the joy of driving your new car, the true value of your Maui timeshare is the enjoyment of your Maui vacation. Timeshare real estate on the resale market is typically valued at about 40-60% of the resort's original asking price. For this reason, a timeshare is not typically considered a sound investment if seeking financial return. If a real estate bubble "bursts", each timeshare will naturally share the same fate as the resort. Therefore, timeshare buyers would do well to buy into an established resort destination, an area which will ideally retain demand throughout an economic crisis.
To test drive a timeshare vacation or if you are looking for information on a specific timeshare resort visit Timeshare Resource Center
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