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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Tradelite who wrote (145202)1/22/2002 3:15:49 PM
From: reaper  Read Replies (3) of 436258
 
<<The real estate is a valuable underlying asset and will only become more so in many cases. >>

There are two things that make an asset valuable. One is the cash flow that it generates. The other is what people will pay for that cash flow.

Last time I looked my house generates no economic value. It produces no cash. It produces no productivity improvements. It produces no increases to the workforce (though my wife and I are working on that <g>).

Therefore the ONLY thing that I have to rely on in selling my house for a higher price than I paid is that somebody will want to pay more for it. Greater fool theory. This is PRECISELY what people who bought internet stocks were doing; the asset generated no cash flow but it did generate higher prices (until it didn't).

Don't confuse "price" with "worth". The bank may have put a "price" on my house of $1mm; there is no way in heck it is "worth" that.

<<there are more people alive today of home-buying age, and this figure is going to grow>>

if you define "home buying age" as +/- 25-54, then yes you are right there are 13% more people of that age in the US than there were in 1990 (see Census.gov). that's about 14mm more people. generating a 53% increase in the average # of new home sales in the same period (from 3.9mm a year to 6.0mm a year). so increased population explains a very small part of the increase in new home sales. the rest is churn, which is brought about by unconscionably lax lending practices and Fannie & Freddie propagating the dangerous myth that you "own" your house when you have a loan outstanding for 95% of its value.

IMHO of course.

Cheers
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