bostonbubble.com

BarryS · Guest

Although Extremely Bearish I read and article, posted on Patrick.net, from charles hugh smith... http://www.oftwominds.com/blogjan09/endgame-RE01-09.html

There are several points of contention that I wanted to bring to this forum for discussion:
1. The number of markets that require more that 3X income in the US for a mortgage have exploded
a. Yes I realize mortgage rates have gone down but is there way to effectively calculate that over time (in relation to past rates and prices)
2. There many factors to forces down the current market, but very few to prop it up (at least in the current economic conditions).
3. If real estate is not an appreciating investment (at least in the short term) why would you rent
a. Boston as a metro has seen a decreasing population over the past 5 years.
4. Renting is considerably cheaper than buying,
a. If you cannot rent the house you buy to cover all the expenses it is really a liability.
5. Potentially seeing an 70-80% drop from peak prices in certain markets.

Now have definitely oversimplified some but couple this with many of the other macro trends, and it is hard to see why anyone would buy in this market.

I recently talked at length to a developer, and he stated you can still build a solid home, if experienced, for under $100sqft.. maybe that is to be considered

admin

Boston ITer · Guest

admin · Posted: Fri Jan 30, 2009 8:05 pm GMT Post subject:

Boston ITer · Guest

admin · Posted: Fri Jan 30, 2009 8:43 pm GMT Post subject:

john p · Joined: 10 Mar 2006 Posts: 1820

My plan would be:

Put Medicare and Medicaid into an Enterprise Fund and increase the amount people had to pay into it. People don't care about how much an office visit costs if it is covered by their insurance, but they would care if they had to absorb the real costs. We're not getting political heat on the situation because people are insulated from the real costs.

Increase the amount people had to pay into Social Security. With the surcharge allow States to borrow from it for Infrastructure spending via Municipal Bonds, which would give the Social Security Trust Fund more money in the future and would force communities to be more resonsible in their infrastructure spending because they would be on the hook for paying it back. Beyond that, require each State to have a Capital Plan that had schedules of amortization and maintenance and prioritize and plan projects instead of manufacturing a feeding frenzy of unnecessary "shovel ready" pork projects. States should also be forced to maintain certain levels in their operating Budgets for Infrastructure so that their neglect doesn't create a surcharge for future generations.

This plan surrounds the notion that surcharges cause turbulence and if you can counterbalance with a financial dampening device mechanism it can make the turbulence dissipate.

Lastly, we need to assess our Military Spending. The former Soviet Union imploded because of their economy. Afghanistan bled them as well. Nation Building costs a lot of money. A lot of money.

Behind the finances are the policies and behind the policies are the values. If we become Bailout USA, the Nation Builder I couldn't even come close to being able to compute the amplitude of the situation. How these policies shake out will determine to what degree inflation is.

The underlying thing here is that people in debt want inflation and the rich want a strong dollar. The populist in office will flood the market with money for safety net purposes, that will trigger a global devaluation of the US. The US might win the stare down because the rich might decide to take a bite out of the shit sandwich to avoid inflation, but greed being what it is, they will most likely move their money to vehicles that will rise faster should mass inflation arise.

Guest · Posted: Fri Jan 30, 2009 10:46 pm GMT Post subject:

Housing as Shelter and not as Speculation...

what an interesting concept

why didnt someone think of that, like 10 years ago

Boston ITer · Guest

Rental Lease · Joined: 28 Jan 2009 Posts: 21

To address #4 on your list, I would propose that this very real estate crisis is serving to equalize the (previously skewed) real estate and rental markets, and return them to a market equilibrium.
When it is more expensive to buy than to rent, real estate investors will no longer purchase rental properties, because they are no longer financially viable. When no one invests in rental properties, the supply goes down, and rents go up. Thus, the market has stepped in and is adjusting, and within a year or two we'll see a normalized real estate and rental market.
Cheers,
_________________
Brian
Editor's Note: Signature links removed. Please avoid overly commercial linking.

wiseman · Guest

Real estate tend to keep pace with inflation over the very very long term; however, having grossly out-performed inflation for two decades and recently burst, it probably will not be a good hedge against inflation for the next decade.

High inflation and high interest rates tend to depress real estate value, especially rental real estate, because the mortgage interest payment would be high. Rent increases tend to lag behind high inflation, not to mention the possiblity of rent control again in that scenario. There was a reason why many buildings in the big cities like Boston and NYC were abandoned by their owners back in the high-inflation 1970's. The rapidly increasing property tax and slow growth in rent made it financially infeasible to hold onto real estate as landlords.

In the case of hyperinflation, i.e. typical consumer goods going up in price more than 1000% in a year, the tennants will be effectively living rent-free, either due to de jure moratorium on eviction or inability to raise rent week if not every day. Being a motel operator renting out rooms by the day might be a better shot. LOL

admin · Posted: Fri Feb 06, 2009 8:18 pm GMT Post subject:

balor123 · Joined: 08 Mar 2008 Posts: 1204

Buying a house and renting it out is not an attractive investment for several reasons. First, you'll lose out on benefits which are priced into housing (mortgage deduction, $15k FTHB bonus, etc). Second, a house is highly undiversified and you put your investment at huge risk for the reward that you are getting.

I argue that gold and silver aren't good hedges against inflation anymore because they aren't recognized as currency. They have huge swings in value because it has become an investment and they have relatively little value to you personally. There are a few better options. First, you could buy a diversified TIPS fund, composed of TIPS from several countries. Unfortunately, going down this route exposes you to currency risk and inaccurate models of inflation. You do have to pay for fuel and housing but they aren't factored into TIPS. Also, the flight to TIPS last year drove their yields to incredible lows.

A perhaps better alternative is to invest in diversified commodities - not just gold and silver but also fuel, food, etc. You'll basically be locking in todays prices for products that you use. Of course, this has disadvantages as well. First, if we get deflation and your income starts dropping you're expenses won't be going down. You only want inflation protection. Second, there has not been historic inflation-adjusted growth in commodities. That may change over the next few decades as resources become scarcer (water, for example, is becoming a highly values resource now).

Stocks are the best hedge against inflation long term. Short term there aren't many good options. Just accept that you might lose less than others.

admin · Posted: Sun Feb 08, 2009 10:12 pm GMT Post subject:

GenXer · Joined: 20 Feb 2009 Posts: 703

It is interesting that there is prevailing thought that trading stocks is speculation (notice, I don't mean INVESTING when its done right, but most people trade, not invest), while all of a sudden, a house is a HEDGE AGAINST INFLATION. So is gold, by the way.

The truth is, neither is a hedge against anything. Both are speculative assets which can go up or down. Here's what is known about gold and houses. If we look in the past, the ANNUALIZED return for gold and houses is ON PAR with inflation (~5% for gold, ~4% for housing, of course depending on how long a period you take, but for the sake of argument assume that it is 30 years). By the way, these are EXPECTED returns, and NOT actual future ones!

In fact, stocks are a MUCH BETTER hedge against inflation, returning 10% annualized over the past 80 years.

Now the question is, WHICH ONE is a better hedge against inflation? This is where we bring in risk. And I think I beat that one to death in another thread, but the risk for extreme random blowups (either way - up or down, by the way!) is great with EITHER ONE of these assets. Therefore, one is NOT safer than the other! So for MY MONEY, I would rather hold stocks, with a higher expected return, which is NOT guaranteed to be 10% in the future, far from it. But it is the 'form' in which stocks are held that is important. Choice and the mix of products is essential in this undertaking. But there are enough tools to construct a portfolio (which by the way can include some real estate and some gold) which is a LOT more immune to blowups than any one of the above (stocks, gold, real estate).

Simple? Not by a long shot. Something that is easy to understand? Perhaps after many years of study and with an appropriate math background, and still one must be humble to plead ignorance where we do not have definite answers. But this is doable, in my opinion, by ANYBODY with a little cash and more than a little patience and discipline.