Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Gary L. Kepler who wrote (6121)	10/18/2002 3:38:37 PM
From: Leland Charon	Read Replies (6) \| Respond to of 306849

I know this is a real estate thread but I was just curious if most the folks here buy their automobiles as opposed to leasing them? The old buy vs. rent argument for the automobile.... just curious, -Leland

To: Gary L. Kepler who wrote (6121)	10/18/2002 7:47:17 PM
From: David Jones	Read Replies (1) \| Respond to of 306849

...With current values 200-300 times potential monthly rents, San Diego housing remains at risk for a correction... I've never thought rents equated to price. I equate rent to demand. If San Francisco gets the Olympics rents for that time period will sky rocket. Would that mean the single families or what have you be appraised according to the rent returns? Silly, of course not. Here's a article that expresses it well enough. Seventh paragraph down. nationalreview.com October 4, 2002, 9:00 a.m. The Roof Is Not on Fire Housing has shown some weakness, but the sector is solid. House prices are experiencing weakness in local areas and this should continue with the growth in residential investment beginning to slow. However, home prices nationwide are not in a bubble and no material downturn in housing is due. Why? First some housing history. Robust housing activity has been a key supporter of GDP growth over the past few years, especially during the recession of 2001. From an historical perspective, it is unusual for housing to support economic growth during a recession. Housing has typically exhibited large cyclical swings, intensifying both downturns and upturns. All previous post World War II business cycles were inflationary, meaning demand outstripped supply, placing upward pressure on prices. As inflation went up, longer-term interest rates, including mortgage rates, rose. These increases began to dampen housing activity. As inflation pressures continued to build, the Federal Reserve pushed up shorter-term interest rates, further increasing mortgage rates and creating a drag on the housing sector. Fast forward to the recent recession and current recovery. In a typical recovery, rebounds in housing have been major sources of rebounds in the overall economy — especially at the onset of recovery. In contrast, the current business cycle has been deflationary, not inflationary. And housing has done better in a deflation because the normal increase in mortgage rates did not make an appearance. The Fed did raise short-term rates a bit before this recession (worsening the downturn), but the increase was less than in previous cycles, largely because of the general lack of inflation pressures. So, it's not surprising that housing continued to support overall economic activity throughout the recession. However, since housing didn't take its usual tumble in the 2001 recession, it did not begin the recovery with pent-up demand. Consequently, it is unlikely to make its contribution to economic recovery in 2002 and 2003. Now to the housing bubblists — those who wrongfully believe we're in a hyper-inflated housing market and that a major downturn is in the offing. One bubble argument making the rounds is that home prices have gone up more than house rents in recent years. In stock-market terms, this would be the equivalent of the price getting ahead of the earnings. But this doesn't fly. First, housing bubblists are comparing different houses, or apples and oranges. To measure rental-price increases, the Bureau of Labor Statistics struggles to find a representative sample of rental homes. It produces a data series called the owners' equivalent rent series. The BLS itself cautions that the sample is hard to obtain and not very representative. The sample is rarely updated, so it is systematically biased toward smaller, older homes in neighborhoods which are not hot. In contrast, the house-price data are up to date. It's compiled from mortgage-transaction information provided by Fannie Mae and Freddie Mac and contains comprehensive information on housing sales all across the economy. Home prices and rental prices are not correlated, so the discrepancy going on now is not meaningful. When housing is sluggish (as in the early 1990s), house-price increases lagged rental-price increases. Now it's the reverse. In neither case does the comparison prove anything about home prices. In the most recent reading (the second quarter of 2002), house prices were up 6.5% year-over-year while owners' equivalent rent was up 4.3% year-to-year — not much sign of a bubble. Second, the tax treatment of owner-occupied houses improved dramatically in 1997, significantly increasing the value of owning a home and justifying a tax-related spike in house prices. Capital gains realized on the sale of an owner-occupied home were essentially exempted from taxation. (Previously, there had been a limited lifetime capital-gains exclusion, a much less favorable treatment.) Rather than evidence of a bubble, this rise in house prices is a strong argument for a cut in the capital-gains treatment of equities. Another argument by housing bubblists is that house prices have gotten too high for people to afford them. The nationwide data show the opposite. Housing affordability is near a 20 year high (meaning quite affordable despite the rise in price). Also, income of the median home buyer is now 32.5% above that required to qualify for a mortgage loan to purchase the median-priced house. Again, hardly support for a bubble. nationalreview.com