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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (37495)	7/7/2002 2:55:27 PM
From: j g cordes	Read Replies (3) \| Respond to of 68215

Hi Harry and Lawrence.. I was asked to help someone find a rental over the weekend. So I naturally jumped on the internet and searched through local newpaper listings and real estate sources to get a sense of what cost what. Having luckily owned a home for some time I was struck at how expensive apartment and home rentals have become and couldn't help but relate this to the housing appreciation bubble (for lack of a better term). Most rents i found for smallish apartments and especially small homes were far higher than what most mortgage payments are for home owners who bought five and greater years ago. This is logical as rents will generally reflect the current 80% mortgage payment at current market values... values have risen, so have rents to give a comsurate return on risk. Of course many rental owners are doing well in this environment.. but what struck me was how high many rents were. It was as if I had owned a car for twenty years then gone out to buy a new one and found they were no longer ten but thirty thousand dollars for fewer bells and whistles. Are there any rules defining a bubble? Inaccessibility is one. Renters who might want to buy are unable to find free cash to create a down payment. A fifteen percent down payment on a 200 -300,000 home is a significant amount to put aside while paying monthly rentals. This supports the evidence that children live with parents at historically high ratios and for extended periods of time hoping to save for a home. Prices need to have demand support to be stable. Equities have scared the heck out of many investors, the home has become more of an investment shrine than ever before, witness the popularity of home devoted publications and business's like Home Depot that feed the illusion. We'd rather put on a deck than take a chance traveling to Europe or the East. So too with auto travel.. Canada is alive with summer voyeurs. Low interest rates feed and support the home investment / appreciating asset dynamic. But there is probably a point at which new buyers are unable to mount the cost of joining the game. Unlike the equities market, short selling isn't a contributing force, an interest rate turn, or lack of employment .. especially for the most vulnerable who are highly leveraged and sitting with variables.. would force many to bail out quickly. Foreclosure rates in part determine the ability of banks to lend at agressive rates, more importantly they undermine local prices.. thus many recent buyers would find themselves under financed having paid too much for a depreciating asset. Jim Cordes