Not trying to scare you and joke you: New study find DC region house value to rise 3000 percent in 50 years. How much will it rise in 10 years? It’s easy for you to figure that out. DC area is one of the remaining “affordable” (if you regard $477K median as affordable) markets that will have almost guaranteed return over the long term. I don’t really care about 30 times return in 50 years, I am not that greedy and I don’t have that much time. 2 times return in 7-10 years is already sweat enough to me personally.

Building and selling homes or condos is definitely a high margin quick profit and low risk business when the time is good. Why so? A builder like Toll brother can simultaneously build 400 communities nationwide. Each community has about 300 houses on average. Each community take about 2 - 3 years to finish. Once the community is finished and all houses are sold, Toll brother comes clean with nothing but huge cash. One thing you need to be aware of that builders not only make money from margin profit, i.e., the profit from substracting sales price with cost. They also make money from these 2 -3 years of price appreciation resulting from the whole market’s rise. In a sense, they not only earn margin profit, but also earn flipping profit. So, it’s a profit on profit situation. They don’t flip, but they get the same effect of flipping like investors. Because their original cost is fixed, such as land cost and construction loan cost. Any yearly appreciation becomes their pure profit.

In my view the following scenario is likely to happen.

1) US economy is getting weaker, probably worsen itself into a recession, if not, it’s going to be a slow down at the least. In individual sectors such as financing/credit/mortgage and residential housing, they are going through a depression like slump. In the next 3 to 5 years, it’s going to make US housing market remarkably inexpensive. In many locations, the price may get to 2002 level, if not 2000 level. That’s cheap because if we factor in cost of inflation, all the bluff will have been completely blown away after this depression.

Builders are actually super real estate investors. They usually leverage themselves to the extreme. One strategy they use is “Option to buy land”. Similar to the lease-option business, builders sign up hundreds of option contract to lock price on hundreds of parcels of land. They not only locked the price at earlier year’s level, but also blocked the availability of such land parcel to other investors. Toll Brothers Inc started to lock land under option contract as early as 80s at extremely low price. So they can apply for county zoing approval. In many states, it often take 10 years to get the land approved for residential construction.

Builders are actually super real estate investors. They usually leverage themselves to the extreme. One strategy they use is “Option to buy land”. Similar to the lease-option business, builders sign up hundreds of option contract to lock price on hundreds of parcels of land. They not only locked the price at earlier year’s level, but also blocked the availability of such land parcel to other investors. Toll Brothers Inc started to lock land under option contract as early as 80s at extremely low price. So they can apply for county zoing approval. In many states, it often take 10 years to get the land approved for residential construction.