What Is Real Estate Really Worth in Miami and Coral Gables?

posted on February 2nd, 2010 filed under: Real Estate News

“Supporting home prices is an explicit policy goal of the Government.”

Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), Quarterly Report to Congress, p. 126 (Jan. 30, 2010).

The great dilemma facing anyone who buys real estate, or would like to, is that prices are now a function of government intervention.  In Miami, Coral Gables and beyond, the true value of real estate is obscured.

As in physics, where the Heisenberg uncertainty principle holds that the act of measuring distorts what’s measured, government intervention is distorting the real-estate market.  You can bet that prices are higher than they otherwise would be.  But how much?  How much less would the house you buy today be worth tomorrow if government assistance abated?

The importance of the question is proportional to the magnitude of the intervention.  And make no mistake: the intervention is massive.

“To the extent that the crisis was fueled by a ‘bubble’ in the housing market, the federal government’s concerted efforts to support home prices . . . risk re-inflating the bubble in light of the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.”

SIGTARP Report, p.6.

If that isn’t enough to make you uneasy, try this on for size:

“Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.”

Id.

In such a grossly distorted, dangerous environment, your best approach is to heed fundamentals and history.  Properties occasionally come to market in Miami and Coral Gables at prices that are defensible as a matter of area incomes, rents and historical values.  Stay true to those basics, and you will be less likely to get hurt.

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posted by // This entry was posted on Tuesday, February 2nd, 2010 at 11:44 am and is filed under Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed.

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