[quote=barnaby33]FSD, I posted because I disagree. Housing is only cheap because of unrealistic financing. Housing will be fairly priced when we return to historic norms for ALL the important aspects of how housing is priced, including incomes AND interest rates. Its only cheap if you ignore risk. Risk is NOT intangible. Unemployment is high and probably going higher. Interest rates are driven to lows only because our govt is buying all the mortgages and subsidizing risk at a huge level. Costs for everything basic are surging MUCH faster than increases in income. Its nuts to say housing is affordable.
I’ve had this argument with Rich several times over dinner. I suppose the way I view it is that in order for housing to recover it has to be fairly priced. In order for fairly priced to occur, employment must be on the rebound or at least stable. Lenders must also be accurately compensated for the risk of lending money. One other often overlooked issue is rising taxation. Too many of the unspoken assumptions in this and many other threads are that none of the fundamentals have changed radically. If nothing else this period of instability should point out that many of those either no longer are true, or are due to be changed in the near future.
If you just look at the statistics of rent to own in aggregate I’d agree that things aren’t awful. Of course, again you are making assumptions that the rest of the “market” is functioning normally as well. One of those assumptions is that rent to own ratios encompass a very broad swath of society. In the US where unemployment hovers near 10% I don’t think that’s a valid claim. If unemployment were close to average sure. So now there are two problems I have with that metric. One it covers a much smaller group of people than it used to. Second there is no compensatory stat for those who aren’t covered and probably aren’t working. That’s just one of the traditional metrics that people use. There are of course others.[/quote]
Right now I think people are missing one of the most historic opportunities to protect personal security and assets by not purchasing real estate. There is too much focus on traditional considerations such as job growth and the real economy, which scares people away. The focus should be the government subsidized financing that provides a FIXED, historically low interest rate on a real asset (a home). Governments around the world are expanding the money supply at an exponential rate, and it is a mathematical inevitability that inflation will rise SIGNIFICANTLY in the (near?) future.
Who will win? People owning claims to physical assets, with lots of fixed interest rate debt.
Who will lose? People with lots of cash and the holders of the low-interest rate debt.
Trade the funny money for something real, whether it is a house, a classic car, precious metals, art, whatever.
Think of it this way… it doesn’t matter what the house is worth in the future, because you get to pay that loan back with increasingly less valuable dollars. At some point, those dollars will be worth sufficiently less that the nominal value of the real estate will increase as well. This is always true, but for the past 25 years or so, inflation has been so low that you couldn’t see the process working. Give it 5-10 years, and your monthly payment will be truly insignificant.
So what is a “fair price”? How do you determine a fair price when the medium of exchange (money) is so unstable. By focusing on the market for the house, you are missing the other half of the exchange, the market for money. At this point in history, it is the latter part of the exchange that truly matters.
