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

To: GraceZ who wrote (24631)	10/18/2004 5:16:39 PM
From: Joe S Pack	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 >lthough 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. I am wondering is this similar to what Japanese did during 80s to commercial real estate side? Won't these foreign investors be more selective in terms of suburs/cities in which they want to invest in real estates? It seems, our current appreciation in home real estate is more wide spread and is all over the country. > 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 >o 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.