Posted on 03/15/2008 5:30:28 PM PDT by shrinkermd
...For all the wishful thinking in the housing industry, home prices can be remarkably stubborn. Just look at what happened in the '80s and '90s. The inflation-adjusted average price of an existing home peaked in 1979, didn't bottom out until 1984 and didn't return to the 1979 level until 1995. In other words, real home prices went nowhere for 16 years.
Granted, inflation during that period was running at an average of 4.7%, versus 2.6% since 1995. But that doesn't mean real home prices will now fare better. Chief economist Lawrence Yun of the National Association of Realtors predicts that nominal house prices will bottom out by the middle of this year, and then resume a 3%-plus yearly increase. Not bad, on the surface -- but possibly in a dead heat with inflation.
Housing does remain a good hedge against inflation over very long periods. Examine any 20-year stretch since 1970 and you'll find that home prices, adjusted for inflation, rose. Inflation-adjusted stock prices generally did even better over long periods, albeit with greater volatility, a Barron's analysis found. Surprisingly, commodities way underperformed both housing and equities as inflation hedges, notwithstanding the current run-ups in food, fuel and metals.
A Tale of Three Markets: Over the past 40 years, home prices have been a decent hedge against inflation -- not as good as the market, but far better than the commodities.
(Excerpt) Read more at online.barrons.com ...
These guys always, always give some Pollyanna worthless prediction.
No kidding. There’s been no shortage of articles claiming we’ve already hit bottom lately. If the news is any indication, we ain’t even close.
Where are the guys who keep telling up RE is a good investment ?
It’s a good thing I never believed any of it.
Just heard on a local “discussion” TV show that there is legislation pending here in Nevada that would require home sellers to hire an “expert” for an “energy audit”. No mention of how much or how long one would have to wait for the “audit” to be performed. I guess that if I list my house, I would have to make the price contigent on the cost of the “repairs” of an energy audit”. My house is less than 3 years old, but I have a feeling that the “energy audit” would find lots of stuff they would “REQUIRE” changed. This kind of BS could be the final nail in the real estate market. NO one could sell what they have and move, no matter the reason.
What is next? An electronic detector that tells the government how long I have my front door open and what time of day??????
And Barrons is nothing but a bunch of permabears.
I've owned for 20 years and I finally beat inflation at the peak of the bubble, and now I'm below inflation again. Some bubble!
That is so funny!
Does anyone remember what happened to the interest rates and assumable mortgages between 1979 and 1984? Do you remember 18% interest? People were building houses and by the time they were ready to convert to a regular mortgage, they couldn’t afford the house. Now, we lock in that rate before we start building. But rates were rising so high, so fast that builders couldn’t close on houses that they sold because they couldn’t lock the rates. They were coming up with all kinds of creative financing in order to get people qualified and the foreclosures were everywhere.
Look at it this way. I bought my house in the middle of the aforementioned slump, and today it’s worth 8x what I bought it for.
Of course, two years ago it was 12X what I bought it for, but that’s the nature of any investment.
The people that run into trouble tend to be the ones that have bought real estate as a “get rich quick” scheme. Even if it works out well, it’s very hard work. And the risk can be huge.
“What is next? An electronic detector that tells the government how long I have my front door open and what time of day??????”
Maybe — that sounds like it would go well with a remote controlled thermostat.
http://michellemalkin.com/2008/01/18/step-away-from-the-thermostat/
In Nevada!? You gotta get rid of those southern politians.
Any investment? That's not an investment, that's a crap shoot.
“The inflation-adjusted average price of an existing home peaked in 1979, didn’t bottom out until 1984 and didn’t return to the 1979 level until 1995.”
Most curious about the above statement as we purchased our first home in 1975 and sold it in 1987 for 4X what we paid for it. The market dropped after we sold, and bought our new place that same year.
“Where are the guys who keep telling up RE is a good investment ?
It’s a good thing I never believed any of it.”
Real estate only goes up?
These guys always, always give some Pollyanna worthless prediction.
That's his job, he wouldn't get a check if he used an honest opinion.
On a side note, he's wrong. If the market will bottom out, it'll be in 2009, late 2009. The current repocessions will have to work themselves out of the system, that usually take 6 months after the foreclosures start. Then throw in a recession (sorry kids, this is a recession, deal with it), nothing is going to happen this year. It's going to continue to slide for another 12-18 months (atleast).
I don’t understand your comment. I’m not a guy, but RE is a great investment. Our approach is buy and hold. We get 9 times the leverage of alomost every other investment. In fact, we’re ready to buy again. It’s a great market for investors.
I'm inclined to agree with you. Even willing developers are finding lending drying up. Some have even had previous loan committments pulled. These are not weak developers I am talking about. These are developers in good position trying to bottom-fish, seeing good deals but not being able to find banks with money to loan.
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