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Housing Bust=Land Bust?

By Beacon Staff

An article by Peter Coy was posted on Businessweek.com Nov 27th entitled The Housing Bust is Really a Land Bust. The article states that the fall in real estate values is due to the fall in land prices and not so much in a reduction in building costs. This is a great example of a statement of the obvious. Of course the fall in real estate prices reflects a fall in land values. Real estate is all about land. Land is enduring, improvements to land generally depreciate at the best of times.

Land prices in questionable locations skyrocketed in the last 5 years. There was nothing to support these increases and when high finished product inventories combined with liquidity concerns, real estate prices had nowhere to go but down. The article, however states that land is a highly speculative investment. A notion that the author cites as being contrary to the conventional wisdom that land prices perpetually rise. All investment is speculative in nature. Investing in marginal land just happens to be every bit as speculative as any high risk marginal investment. Land, however is simpler to segment into premium and less speculative than most other investments. It is incumbent upon all investors to analyze the fundamentals that drive current and future demand for any investment. Overpriced land in marginal locations is simple to identify and should be avoided, in my opinion. Great land in truly differentiated locations will always protect investors. Never has the axiom been more appropriate; location, location, location is the smart investors’ crede.

To view the entire Business Week article copy and paste the link below into your browser:

http://www.businessweek.com/the_thread/hotproperty/archives/
2007/11/the_housing_bus_1.html?camp

To contact Tom regarding comments or questions on Flathead Valley Real Estate call:

406.250.1453
877.708.4300
or email [email protected]