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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (4045)	4/9/2004 11:18:23 PM
From: yard_man	Respond to of 116555

you make a good point -- if we can admit that prices are "relatively high" with respect to the trend -- the last thing you want to do is "speculate using leverage" that there is a "new trend" of persistently higher appreciation. OTOH, there is an inconsitency in your reasoning -- there are two ideas there -- one exposure to debt is a no-no -- and exposure to floating rates is a no-no. If you really think rates are going up and can recognize that housing price appreciation is above long term trends -- then you would favor waiting -- since higher rates will surely bring prices down => more house for the same amount of money that one puts down. Many mortgages are now written to be non-assumable, but I suppose even that could change if we ever got the high interest rate environment that you think possible -- I don't think higher interest rates are likely in the short to intermediate term -- but if they did occur -- one would certainly be better off waiting to purchase. I don't think rates will rise significantly from here for years, but I still think one would be better off waiting on purchasing -- if in a relatively high cost area. (re historical trends of appreciation: the length of time over which something has been true, doesn't count for a lot -- if the thing abruptly changes tomorrow.)

To: Tommaso who wrote (4045)	4/10/2004 9:01:15 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 116555

If you think that the goverment has lost control, then the best thing is still to get hold of a house using a 30-year mortgage. Millions of people instinctively realize this and that's why house prices are jumping. while i almost always agree with what you say, i beg to differ here. i am with Elroy in thinking that long-term housing prices match INCOME growth as opposed to inflation in this or that consumer price. and the one HUGE thing that has not inflated these past few years is income. this means people are in a very different situation from any previous time in the post-war period, in that they cannot expect wage inflation to lower the real cost of their mortgage payments (and thereby increase the value of their houses). and in fact what we have seen is that "affordability" has been stretched just as tortuously as any government definition of hedonic price reduction in its statistics--people put less down (huge loan to value ratios), rely on historically low rates and also on ARMs (less flexibility if rates DO rise), and qualify on much larger percentages of disposable income to mortgage payment. so, in an environment where rent prices nationwide are continuing to track flagging income, i think housing is not a rational response of consumers, but rather a bubble, just like the stock bubble of the 1990s. they are irrationally expecting that 1) qualification requirements will get even easier, 2) rates will move lower, AND 3) incomes will move higher. i think only one of these three things has to move in the opposite direction and the housing bubble is screwed.

To: Tommaso who wrote (4045)	4/11/2004 4:49:59 PM
From: gregor_us	Read Replies (2) \| Respond to of 116555

Thanks for all the Comments on Buying a House. I intend to cover the issue in my next newsletter, using my local area as the prime example. The big question about home ownership right this minute is whether we can trust our government to preserve economic stability and the purchasing price of the dollar. If you think that the goverment has lost control, then the best thing is still to get hold of a house using a 30-year mortgage. Millions of people instinctively realize this and that's why house prices are jumping. I agree totally. People may instinctively realize the dollar is at risk of becoming increasingly worthless. Therefore, why not trade in those worthless green things for a real asset?