[quote=flu][quote=CA renter][quote=patientrenter][quote=irondoc] …So yes, I cheer when prices rise, even though I hope to never act upon that increase in value.[/quote]
I concur with CAR, and hope your wife gets a job soon.
But I am a little puzzled about why you would have to sell. If your house payments did not exceed 28% of household income, the old standard for maximum payments, then it’s hard to see why losing your wife’s income would force you into selling.
Now, it wouldn’t surprise me if you, like many people, stretched to more than 28%, but that just goes to show how weak the loan underwriting standards have become. Our government is inviting us (as buyers or taxpayers backstopping the loans) to take on way too much risk, and the only reason is to keep home prices high.[/quote]
[Note: none of what I’m saying is directed at irondoc, who seems to be as responsible as one could expect, especially if they’ve amassed enough savings to get them through a few years of one spouse’s unemployment.]
Herein lies the real problem with asset prices that are dependent on credit. The prices are set by those who are willing to take the greatest risks. For as long as there are buyers out there who are willing to commit 30-50% of their (gross!) income to housing expenses, those of us who try to be much more conservative will forever be “priced out.”
In the meantime, whenever bad circumstances befall those risk takers, we’ll all have to hear about their “victimhood” and those of us who were “priced out” by these idiots will be forced to pay for them to “stay in their homes” (so they won’t have to rent, God forbid!) while the prudent continue to rent.
That’s why those of us who are trying to be much more conservative were cheering on the “credit crisis” and the credit market failure. It’s not only the housing market that’s affected by the biggest, most over-leveraged risk-takers setting prices of assets, it’s all markets. Until we see the end of this high-leverage environment, we will be at risk for these dislocations/crashes.[/quote]
CA Renter,
I had a very interesting conversation with a friend of mine last night. I’ll call him Confucius.. Not that he’s really a philosopher. He’s one of the head honcho’s at a big telco firm and runs the operations in China… but because he’s a quite wise individual, down to earth, has a most interesting perspective on the economy of the U.S.
In the course of dinner, we talked about the health the the U.S. economy and the health of China’s economy/opportunities, and a few things that said that struck me as interesting…
1) It doesn’t matter what country you are in, are governments will do everything to protect the elite 10% of the population while indirectly screwing the remaining 90% of the population
2) The U.S. will continue to print dollars to hearts content…
3) In about 25 years the U.S. will declare bankruptcy. However, don’t worry about it. Either the U.S. will start a war with everyone else, or the the rest of the world will be forced to write it off. And hence, since no one else really wants to go to war with a country with 400x stockpile of warheads,missiles, etc, the world will write off the U.S. debt, and the U.S. will start over with a clean slate. Just like how loan mods are being done over and over again right now.
4) Don’t hold on to cash and “save”….Because every government will slaughter people who save in cash. For example, when I was your age, I use to send my mom $100 USD each month (when the RMB was 10:1 with the USD)…My mom saved each $100 I sent to her, with the intention that she would leave it to my sons so that if we ever moved back to China, they could live a nice life. She saved a total of 400k worth of RMB. Today that 400k of RMB couldn’t buy a 5ft x 5ft hole in the wall in Beijing, because during that time, the government had inflated the RMB so much that they majority of the population that held on to cash immediately got screwed and became poor, while as landowners and “rich” people completely benefited from the screw-over job…
That was a complete eye-opener for me…Hence, my advice to you… Break the “chinese habit” of being a “saver”… Don’t save things in cash…Because what happened in China is exactly what the U.S. is doing/going to do over the next 25 years…. If you’re in cash and save, you’re going to get screwed. So break out of the chinese mold and forget about holding on to cash…Go buy hard assets..
Forget about worrying about whether RE prices are good or not good. You might lose some money by buying RE, but you’re going to get slaughtered if you stay in cash.
I don’t know, but I can’t help feel Confucius has a point….Seeing how cash holders are “earning” 1.5-3%, while the dollar continues to weaken, it’s just interesting….[/quote]
Excellent post, flu, and very much appreciated.
I think people from different countries view currencies a bit differently than younger Americans, because we’ve haven’t seen a currency crisis in our own currency (in our lifetime, though it has happened in the past), and we’ve been taught from birth about the “full faith and credit of the U.S. government.”
As you know, people from different countries have often seen, first-hand, what can happen during a currency collapse/crisis — almost always caused by “too much debt.” My mom grew up in Europe during WWII, and always preached about buying hard assets and not staying in the dollar because they could confiscate it and/or issue new currency, but only to a certain limit (e.g., only converting up to $10K, and anything above that is lost), or offering 1 unit of the new currency to 2 or more units of the old currency.
This is a marked difference I see between my American friends and friends/family from other countries, with the people from other nations advocating getting into hard assets at almost any cost, while Americans tend to favor cash (unless there’s a bubble). 😉
Believe me, I’ve been dealing with this issue for a long time now, and do not discredit it. The 0-2% yield on savings is also part of the problem, as you’ve mentioned. I agree with you that this fear of currency debasement/hyperinflation and the low rates have pushed many cash holders into hard assets, and this is one of the big reasons we’re seeing so much competition from the “investors” in the RE market. It’s also why prices in stocks, bonds, commodities, real estate, etc. halted their slide and rocketed up during “The Greatest Recession Since the Great Depression.”
This currency/inflation fear was one of the main reasons I was willing to buy a house a in November (have since pulled out of escrow). I don’t believe the fundamentals are there to support housing prices, but a currency crisis is most definitely a very real threat.
