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

To: JBTFD who wrote (81208)	7/15/2007 4:33:26 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

Houses are complex primarily because they are assets which confer a service but are also considered investment vehicles, you buy a house for the service it will convey to you now and in the future. You'd have to find some formula to separate out not the renters from the owners but the proportion of housing price that covers the price of current housing services conveyed but also the present value of future housing services that the owner expects to receive. This involves giving a discounted value to the services while subtracting the expected negative cash flow to maintain the house as it depreciates. The rental equivlent is not perfect but it is closer than your suggestion. I know, as a former holder of residential rental units, that capital appreciation and tax considerations make rents an imperfect way to measure either segment of the population's true housing expense. In some places where housing appreciation is higher than average, expected capital appreciation allows landlords to rent at far lower rates than they would if all rental units had to be cash flow positive. The landlord subsidizes rents in areas where they expect big gains in appreciation. In other places the rents charged are far in excess of the services conveyed and expenses incurred because of some government subsidy, allowing substandard housing to command a much higher rent than a free market would allow for. In my area, rising housing prices did eventually effect rents and oddly enough rents are rising sharply while housing prices are moderating. If house prices were included as part of the index it would lead to an underestimation of the inflation index just as inflation seems to be picking up, especially considering that a strong majority owns rather than rents and house prices are falling. Aside from that, if you owned for some time and refinanced as rates fell, rising house prices did not raise your basic housing expense (principle and interest pmt.). My mortgage payment (before we paid it off) was lower not higher in response to lower mortgage rates and higher house prices. While housing was making it's sharpest rise, rents were pretty much stagnant here simply because the pool of renters was shrinking and deteriorating in terms of what they could pay for rents. In other places where there was clearly housing supply rising in excess of demand, rents have fallen along with house prices. Surely one would not see this as having much if any effect on the rate of inflation. Price changes due to supply demand issues can change how much house you can buy for the money but I would never confuse this with changing the value of your money overall, it is akin to falling flat screen TV prices.