Special report: Boom or bubble?

Wednesday, October 19, 2005
By PRASHANT GOPAL
STAFF WRITER

Houman Sarmasti took up a new hobby a few years ago: flipping real estate.

Sarmasti began putting down deposits on condos and town houses before they were built and then cashed them out as their value appreciated. The 33-year-old electronics distributor says he has pocketed more than $160,000 by buying and quickly reselling homes in Teaneck, Edgewater and Cocoa Beach, Fla.

He recently put a deposit on a $399,000 condo at the planned Grand Cascades Lodge condo-hotel, part of the Crystal Springs golf resort in Sussex County. Sarmasti isn't sure whether he'll flip the new condo or keep it as a weekend retreat, but he's confident things will work out fine.
"I don't see how you can lose money," he says. "You might not gain a lot, but I don't think you can lose, especially the way real estate is going."

That faith in real estate values has convinced an ever-growing number of homeowners that one home is just not enough. And this surge in second-home purchases is helping to pace the real estate boom, while raising concerns about a bubble nearing the bursting point.

More than one-third of all American homes purchased in 2004 were for investment or vacation purposes, according to a recent study by the National Association of Realtors.

And buyers are increasingly taking on debt for the properties. Federal Reserve Chairman Alan Greenspan, who has warned of "froth in certain housing markets," noted last month that "mortgage originations for second-home purchases rose from 7 percent of total purchase originations in 2000 to twice that at the end of last year."

There is evidence the trend is especially strong in New Jersey, with its wealth and vacation destinations. In Atlantic and Cape May counties, about 38 percent of mortgages this year were for second homes, according to LoanPerformance, a subsidiary of First American Real Estate Solutions. Only Myrtle Beach, S.C., and Naples, Fla., have a higher percentage of second mortgages, the company says.....MORE
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