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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Tradelite who wrote (499)	8/29/2001 2:45:08 PM
From: chomolungma	Read Replies (1) \| Respond to of 306849

well, obviously you are attempting to apply commercial real estate principles to home ownership, and that's not what the title of this message board (i.e. "residential real estate crash) is about. No, I am applying the principles of finance to the question that was posed. Sorry if it wasn't the answer that you were expecting. You need to consider the effects of inflation on home ownership costs, too.....mortgage payments look smaller and smaller with each passing year.... Nice try. With each passing year, your investment also increases because you are putting more dollars into your house via principal payments. These are dollars that could be invested elsewhere and achieving real returns on the money. These are what we economists call opportunity costs. Besides, that is all accounted for in the computations that I laid out in my ROI calculations. No matter how you paint it, the cost of a home is not free. And if you want to discuss unanswered questions, nobody has disputed my assertion that residential real-estate is a non-productive asset and cannot appreciate faster than the rate of price-level increases.

To: Tradelite who wrote (499)	8/29/2001 3:35:07 PM
From: Robert Douglas	Read Replies (1) \| Respond to of 306849

Trade, You said: <<<You need to consider the effects of inflation on home ownership costs, too.....mortgage payments look smaller and smaller with each passing year....they are fixed, while usually one's income increases and inflation renders such payments very small in comparison.>>> Please be aware that when you take out a mortgage, the inflation rate for the duration of the loan is priced into the rate that you receive. If the actual rate is higher, then you will benefit. If the actual rate is lower, you will suffer. If you are counting on inflation bailing out an investment, you are taking a specific risk. Part of the reason that many homeowners made out well in the high inflation periods of the 70s and 80s was that their homes appreciated faster than the rate of interest. In other words, they had a mortgage that was actually a negative "real rate of interest." Those were unusual times and will not be repeated, IMO.