To keep the lesson grounded in practicality, we’ll use ROE to better understand Blue Square Real Estate Ltd. (TLV:BLSR). Over the last twelve months Blue
Do real estate investors know when it is a good year to buy or sell? How?
Real estate is cyclical. When you’ve lived long enough, and you have an eye on real estate that includes the whole country and not just your own neighborhood, you eventually realize that real estate bubbles happen regularly. The expand, then they burst. There’s a lot of “demographics” involved, and the effects are more pronounced in areas of desirability, like the sun belt, or Southern California. There was at least one bubble in CoCal in the 1970s, maybe two, then the late 1980s became another bubble, and by 1995, prices began increasing again, then spectacularly blew up, starting in 2006 and culminating in the stock market crash of 2007–2009. But you had to be watching to see any of these things evolve.
In the 1990s, on trips to visit family in FL, we always drove around and looked at new housing developments. One year we realized that housing prices in the Bradenton/Sarasota area were going up 25% per year. Bubble forming.
In VA I discovered that counties appraise housing values every year, and those records are available online, and free, as they are in most areas. I found that between 1995 and 2005, a one house that caught my eye had gone up from being appraised at $50,000 in 1995 to a valuation of $500,000 in 2005. An obvious bubble.
Simply put, when bubbles burst there’s usually a period of a year or three when housing prices are at their lowest, especially in the more desirable areas or parts of the country. Then over a period of years, prices appreciate at rates higher than inflation. But it’s locale specific. When I lived in NC over a 15 year period, the houses I owned went up about 3% per year, while in FL they were going up 25% per year. Location, location, location. Do your homework, track hundreds of homes in various developments, their prices, their mortgages, and eventually a clearer picture evolves.