Only serious real estate investors, brokers, sales agents and homeowners will read “Beyond the Bubble” by Michael C. Thomsett and Joshua Kahr. This is a serious thinking-person’s book explaining so-called local “real estate bubbles” and how individuals can profit from them.
The “media,” such as some newspaper writers, TV and radio commentators and other book authors, have loosely used the term “real estate bubble” to refer to escalated prices that may or may not be justified by sustainable demand.
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This new book explains, after emphasizing that all real estate is very local (rather than statewide or national), the major considerations that cause property values to rise rapidly beyond normal market-value appreciation. Glaring examples of recent real estate bubbles becoming hyperinflated and then rapidly declining, such as South Florida, are showcased.
Co-author professor Kahr brings his academic real estate talents to the book by explaining the theories and details of so-called real estate bubbles. But co-author Thomsett contributes a more practical real-world approach to profiting from real estate bubble opportunities and avoiding their pitfalls. Together, they make a superb writing team.
The theme of the book is “greed drives economic bubbles,” applying to real estate speculators who create an artificial demand; the bubble feeds itself until it cannot grow any larger and then it bursts.
The recent South Florida speculative pre-construction condominium bubble is a classic example where speculators drove up demand without any intent to occupy or even rent the condos after completion. They hoped to profitably re-sell before construction was completed. But thousands of units came on the resale market at the same time and buyers disappeared, causing the bubble to burst.
Throughout the book, Thomsett and Kahr explain how to spot a real estate bubble. One of those signals, they emphasize, is the spread between the asking price for a property and its ultimate sales price. In a healthy economy, they say the spread is 5 percent or less. However, when there is a growing real estate bubble, there is a “buying frenzy” causing buyers to bid more than the seller’s asking price.
But the authors caution the spread between asking and sales prices is based on averages. Then they explain averages are misleading because they include sales below asking prices and those above asking prices, often in different neighborhoods. “The average is not the whole story of real estate valuation and trends,” the authors warn.
Although the book is far from a boring academic textbook, it is so well organized and documented it can be used in college real estate classes to show students the many unpredictable influences that affect real estate valuations.
The book’s last few chapters bring the sometimes confusing early chapters together by showing readers how they can profit from real estate bubbles. This is the most valuable part of the book because it emphasizes how the reader can spot local trends, apply the key factors explained in the book and predict what is likely to happen locally to real estate values for different types of properties.
Chapter topics include “The Nature of Real Estate Bubbles”; “Real Estate and the Rest of the Economy”; “The Regional Character of Real Estate”; “Stocks, Bonds, Real Estate, and Money”; “How Bubbles Happen”; “The Four Major Signs of Coming Change”; “Bubbles by Property Type”; “Be Your Own Market Analyst”; “How to Profit in Up-and-Down Real Estate Markets”; “How to Profit When the Bubble Pops”; and “Real Estate in Your Portfolio.”
Whether you are just getting started in real estate or you are an “old pro” who has amassed your real estate fortune, Thomsett and Kahr have written this book for you. It offers quality opinions and advice, based on facts, to show readers how to apply the principles explained to their local real estate markets. On my scale of one to 10, this well-researched, outstanding book rates a solid 10.
“Beyond the Bubble,” by Michael C. Thomsett and Joshua Kahr (AMACOM Publishing, New York), 2007, $16.95, 216 pages; available in stock or by special order at local bookstores, public libraries and www.Amazon.com.
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