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

To: Joe S Pack who wrote (24627)	10/18/2004 1:43:48 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

The only reason I state this is because I believe most people buying RE believe that they will in fact have an easier time paying the mortgage in the future, they are counting on inflation. Whether their decision is rational or have a high probability at this stage I don't know. I'm not betting that way, I've used this RE rally to sell RE holdings and I've used the low interest rate environment to lower debt. There's really only two reliable ways (at this level of interest rates) to grow out of a large debt, one is to have your income grow significantly (I'm past the age where my income would grow significantly and so is a large segment of homeowners whether they realize this or not) or the other to have the payment shrink in relative terms through inflation. Most Americans who bought houses over the last 50 years are intimately familiar with both scenarios, their incomes grew while the mortgage payment which seemed huge when they took it on looked smaller and smaller. I doubt seriously that American buyers have considered RE as a hedge against the dollar falling against other currencies, what they worry about is what the dollar buys at home although they are getting hit over the head with the price of oil due (to some extent) to dollar refactoring. I've heard from a client who works for a big home builder that a lot of the speculation in new homes is coming from foreign investors. So there might be some currency aspect or as jrhana pointed out, they see US values as relatively cheap. Given the current sky high appreciation of real estate, is your point still valid? Does this mean that there is going to be further upward trend? We're in the speculation stage and that always ends up with someone getting left holding the bag for some period of time but I never underestimate the extremes to which speculation can take price. I don't know if we've reached the level of craziness that they reached in Japan yet, perhaps it is close in some places. The figure that sticks in my mind is one from Japan. In the five years leading up to the bursting of their RE bubble only 5% of the RE in Japan had turned over. So one would think only some small segment of the population would have suffered losses due to the crazy speculation and parabolic rise in prices but unfortunately the bursting of that bubble had a devastating effect on the psyche of anyone who owned a home in Japan and even those who didn't. Just like during our Nasdaq bursting, they counted their unrealized gains as losses, not the actual investment lost. This second bursting ( two years after their stock market) compelled a society which already had a high savings rate to save even more and to do it in a way which destroyed money. There is no deader money than that which piles up in banks. For money to add to the economy it has to move from one person to the next, it has to be used. What is comical is that the RE rally could only occur in a situation where money is also piling up in bank accounts and money markets, so in essence what allows one set of investors to "short" the dollar by borrowing them, selling them for RE holdings is that a large group of people (or governments) are essentially stockpiling no yielding cash and low yielding cash like instruments. The world is still seriously long the dollar.