Coffee Hour with Beat

In March 2005 I published a Coffee Hour with Beat with the title “Homebuyer Beware,” where I warned readers about buying a home they could not afford. To me, the writing was on the wall, and I foresaw a crash on the housing market long before some of the famous economists had the same idea.

Shortly after that prediction, the crash on the housing market did happen in 2007-08 and following. The housing bubble burst triggered many to reach out, including a Swiss reporter, who had discovered my 2005 article and question why I made such a prediction.

With more than 30 years of experience as a real estate entrepreneur in central Florida and around the globe, I believe that I’ve developed a sense for the markets. And as of late, the current state of the housing market, interest rates, and economy have people asking, “Will there be another crash like in 2007? Does it not feel like 2006? Will there be a recession? Will there be hyperinflation? Etc.” I do not know, and nobody really can know for sure. However, I am absolutely convinced that real estate prices in central Florida will continue to increase substantially over the next 25 years, well past 2046! That means that if my sense is correct, and you are 30 years old today and own a home with a current value of $400,000, the value of that home when you turn 55 will be well over $1 Million. However, this will not likely happen in a straight line over the next 25 years and at times, your home may have a lower value in the future than today.

I continue to be very optimistic for central Florida in the long run. As a matter of fact, my group of companies has decided to concentrate on investing in real estate in central Florida. Selling our real estate investments in Australia, Canada, China, and Indonesia, we have shifted a significant portion of our focus to the over 10,000 acres of land we own in central Florida.

HOWEVER, land, home, and other prices have increased dramatically over the last year. Caution is always advised when the sky is the limit, although I do not see any reason for a housing price crash at this time in central Florida. In 2006 many homebuyers bought single-family homes for speculation reasons only. This is not the case today. As a matter of fact, there is presently a shortage of homes all over the United States. There are other forces working, this time I do not think Florida’s economy and state of the housing market will cause a crash, but if tomorrow a large bank in Europe or Asia (and there are several larger than Lehman Brothers with thin capital) fails, and government, wherever it is, does not come to aid in time, then all bets could be off, as we saw in 2008-09.

Florida historically and continues to be a fertile place for speculation. If it is too good to be true, we usually are in. So, I urge you to please not speculate with your home, the place you raise your family. It is not primarily an investment, it is a capital good, which you need to be able to afford in good and challenging times. Do not finance short-term, because of lower interest rates and amortization. These loans are not made for people who cannot afford long-term rates and other conditions.

While ownership of a home is part of the American Dream, many times renting your home or apartment is financially a better choice, particularly in a volatile market environment. For instance, if you are at retirement age, it may be wiser not to buy a residence, you want to stay flexible. Whether you need to quickly transition to a residential solution with less upkeep and more care like an independent living community or assisted living community or want the flexibility to travel, you do not want to be forced to sell your home at the wrong time in the market, because of another pressing need.

Home prices will go up over the next 25 years, I am convinced, but they can as well go down at times. So, my caution from 2005, Homebuyer Beware, remains true, but for different reasons. Do not speculate with your home, purchase within your means and if you cannot, then rent!

Happy 4th of July from My Family to Yours!

Beat Kahli

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Investment into sitEX Properties Holding AG, a publicly traded Swiss real estate development company with activities in Northwest Switzerland, Central Florida and Texas. Largest shareholder. Top performing publicly traded company in Switzerland with a 10-yr IRR of 19.4%.