By
Gary Scott

Jyske Bank's December 20, 2005 daily update was worth a pause for thought.  This analysis said:

"House prices in the UK rose for the first time in 15 months during November with London leading the charge higher, a closely-watched survey found today. In its monthly survey, the Royal Institution of Chartered Surveyors said 4 % more chartered surveyors reported rises in prices than falls in November from the previous three months, against the -8 pct balance in October. That was the first increase since August 2004 and was better than expected.” See Jyske's reviews at www.jbpb.com

How can London house prices rise? They already seem unbelievably high. A previous message at showed how a 1-bedroom, first-floor flat of approximately 836 sq. ft. situated in the heart of Mayfair with all the amenities was selling for $935,000 or $1,168 a square foot!

Another recent article at this site outlined how in Naples, Florida a new golf course development (Quail West) sold out to 303 people from across the US and around the world at the tune of $306 million for 300 home sites in just 12 hours! 

These people were chosen by lottery from a pool of nearly a thousand who had already paid a deposit in the hopes they would be chosen. In addition to forking out between $600,000 to $1.6 million dollars for a lot, they are also required to pay $175,000 to join the golf club and $7,000 a year in homeowners’ fees.

How come some areas command such high prices? Will these sky high costs last?

These questions are worthwhile because the answers can help us understand real estate growth, booms and busts.

First, let’s examine how some areas have higher prices because of demographic shifts. Statistics show that 53% of Americans now live in coastal counties representing 25% of the US landmass. This inequality of distribution of Americans distorts house values. The average home value in the coastal counties is $308,845. The value elsewhere is nearly a third lower at $208,256.

A money article at CNN shows how some real estate markets are hotter than others.  This article says that the South and the West of the US remain hot real estate markets.

These areas have a number of the fastest-growing states in the country and for the 19th straight year, Nevada was the fastest growing state.

Arizona is the second fastest growing state and Idaho and Utah along with Florida constitute the five fastest growing states followed by Georgia, Texas, North Carolina, Delaware and Oregon.

Most of this growth came from migration (except in Georgia, Idaho and Texas).

But why do people move to these places? This move is certainly not just a shift to the sun and escapes from winter. Atlanta and Portland have plenty of grey and rain. Boise has a very harsh winter.

One reason seems to be price and cost of living. The Census suggests that homebuyers are moving from high-priced markets to more moderately priced ones.

According to the CNN article, "Atlanta, Dallas, Jacksonville, Phoenix and Portland, Oregon, have been highly desirable in this regard".

Another CNN article gives more details on this downsizing.

The article begins by saying, "NEW YORK(CNNMoney.com) - Many residents of high-priced housing markets around the country are cashing out and moving to more affordable areas."

A survey in Massachusetts indicated that a quarter of those surveyed would move if they could because of the high cost of living and housing affordability problems.

The article showed that a Hawaiian survey indicated that two out of every five residents have considered leaving the islands because of the cost of housing.

The article points out that 100,000 Californians move to other states each year. Many who cashed out appreciated homes originally moved to Arizona, Washington, and Oregon but as prices rose in those states they are moving to the Midwest, where houses cost half that of Los Angeles.

The article says:

"On Long Island, the once bucolic suburb but now heavily developed region next to New York City, about 70 percent of residents are at least somewhat concerned that high housing costs will drive their families from the region.

"And this is not a far-off issue -- 45 percent said it was at least somewhat likely that they would move out during the next five years.

"The first is that younger Long Islanders aged 18 to 34 are unable to afford decent homes.

"Many families spend more than half their income on housing," says Egan at the housing group.

"The second is that older residents who already own increasingly valuable property find they can sell their present homes, buy in less expensive locales, and have big nest eggs left over.

"For them, the numbers add up like this: A Long Island couple with income of $100,000 wants to move to Daytona Beach. Florida as well as Georgia and the Carolinas are prime destinations for Long Islanders.

"According to CNN Money.com's cost of living calculator, they would need only about $68,000 a year there to live as they're accustomed to. (Try different scenarios with the tool calculator above.)

One reason I like investing in Ashe County are the high prices just
south in Watauga County and Blowing Rock.
http://www.blowingrock.com/

"And selling their house and buying a new one down South would produce a big fat dividend. The American Homebuilders Association reports that a comparable home in the Deltona-Daytona Beach area, for example, costs about $194,000 compared with $434,000 in Long Island's Nassau County."

So we can see that price is factor. But why are some areas, such as Los Angeles and San Francisco, California, Naples, Florida, Long Island New York and London, England so expensive in the first place?

One big reason is international demand. All of the expensive places above have owners from all over the world. Here in Naples the wealthiest portions of many societies from the US, England, Germany, Belgium, Netherlands, Canada and elsewhere have a winter home in Naples. Los Angeles and San Francisco have long had huge numbers of Asian buyers and New York is the Big Apple. Anyone who is anyone wants to have a “pied de terre” or more there. Manhattan and Long Island have this appeal. The rich and famous of all the colonies want their London flat or townhouse etc.

The first wave of international buyers had wealth and this money attracted other buyers who become the service industry to cater to the wealth.

A number of these places also offer sanctuary to the poor from some other less attractive place. Thus London has many immigrants from the economically depressed parts of the Caribbean, Asia and other former colonies. Los Angeles is a first stopping ground for many poor Latins moving north. New York and San Francisco have long been ports of entry for "Your tired, Your poor, Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore, Send these, the homeless, tempest-tost."

So some places may be more immune to real estate bubbles than others. Weather favored towns Naples, Florida, Aspen, Colorado, Blowing Rock, North Carolina command higher prices than normal.

International centers such as London, Paris, New York, Hong Kong, Los Angeles, San Francisco may also have this extra price appeal.

As wealth becomes more concentrated in the hands of a few (which it tends to do) such centers will even have a higher demand. More of the few will have large amounts they want to preserve and owning a bit near the other rich and famous is one way to do this.

This review suggests two (of many) ways to make money. First, find an area with lots of international demand and despite high prices. Buy and hang on. The rule is location, location, location and a few locations have exceptional value beyond normality. Prices can rise more in such places even if they seem totally ridiculous already.  

Second, figure out where the places where those who have a normal income and/or wealth, but live in the expensive places will go when they sell out to the rich and famous, such as small town USA or Ecuador. Buy ahead of the pack and wait for the middle classes huddled masses to arrive.

I am taking all three tactics investing in real estate in Ashe County, North Carolina, Naples, Florida and Ecuador. Investments such as this may also help you enjoy good investing!

Gary