Hi Tradelite, <<don't know many people who have negative equity in their homes>> ...
I believe you meant "not yet".
<<..where are you all meeting these types of people?>> ...
Hong Kong and Japan now, Hawaii only 36 months ago, and once upon a time, California, Detroit, New York, College Station (Texas). And soon, Hawaii and New York again, but after London.
I had bought a Sacramento complex of 88 apartment units in 1991 at 20% below replacement, watched it go to 40% below replacement, fixed a lot of roofs, bought a lot of appliance, filled out a mountain of forms, was saved by declining interest rate, then sold at small cash profit, only to then be insulted by depreciation recapture calculation.
<<people who buy homes to live in don't look at the economy everyday>> ...
I own my home in HK, effectively free and clear. It is not a part of my NAV calculation, because if I sell, I would need to rent or buy equivalent home, meaning bright, spacious and on the shore line.
I therefore concede that when purchased by owner resident, residential real estate is an emotional and financial decision, and my less than cheery comments apply more particularly to the real estate investor, a decided different species of animal than the owner-resident.
<<when their life situation demands it or makes it a good option>> ...
I am thinking the current bull market in residential real estate, at the margin, where the action is always at, is due to (a) folks trading up, beyond their sustainable means, (b) folks buying a "second good thing", as they invariably are liable to do, (c) folks panicked into buying "right now" before it is too late, (d) folks running away from the equity market and trying to preserve wealth, and (e) genuine new family formation through marriage and/or divorce.
Now, of the five mentioned motivations, four will go pop, at the margin, causing pain for the fifth type of buyer, and for the neighborhood bank, and of course, given the relatively "recent" financial innovations that allow people to keep their homes liquid, sometimes in exchange for SUVs, for the asset backed securities market and thus the broader financial system. During each and every mania since before the Roman times, there is one common denominator, credit creation and accumulation of eventually unsupportable debt; and here we are again.
I actually like real estate, but believe it does not and cannot thrive in isolation, and it is mostly and simply just another trade, because I can only live in one home at a time :0)
I had another bit of real estate experience ...
Message 15368598
Message 14980719
The base assumption underpinning purchasing of real estate now, residential or otherwise, is that the future value will be higher, net net NAV positive, after commission, taxes, debt service, with no interim hiccup worthy of input into the risk management equation, and this assumption set will prove wrong. In the 'off chance' that the assumption set is wrong, then J6P will be hit with a disaster more wounding than Nasdaq, right at home.
The concurrent belief that massive inflation will somehow make house purchasing debtors life better is also false, because people ultimately retire on cash flow (pension, SS payments, investments, less cost of living), not hard to extract or already extracted and spent home value.
Message 15135006
Chugs, Jay
Disclosure FWIW:
I am not always bullish
Message 16230052
and not always bearish
Message 16020847 |
