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July 30, 2007 at 8:58 AM #9641July 30, 2007 at 9:55 AM #68649PerryChaseParticipant
I think it’s helpful to look at the car market as an analogy to the housing market.
Someone leases a car but can no longer make the car payments. He can’t afford to dump it because he has no equity. So he turns the car back in to the the finance company. The finance company in turns dumps it to the dealership who turns around and marks the car right back up to the retail price.
The price depreciation and discounts and cars don’t appear until later in the cycle because you need large inventory to build up first.
Same with houses, except that houses last much longer than cars so the hang-over will last longer.
Homeowners can’t make the payments but can’t rent for cheap. They keep on asking high rents to cover their mortgages until the houses sit and sit and sit. Rents will go down when enough inventory builds up and the assets are transferred to owners with lower carrying costs. We are just in 1 1/2 of the real estate downturn so it’s not surprising to see slightly higher rents.
The mentality of the homeowner is “it’s not worth renting if I’m still losing money every month.” His house will eventually be foreclosed.
I predict rents lower in a couple of years. I’ll let time prove me right.
July 30, 2007 at 9:55 AM #68719PerryChaseParticipantI think it’s helpful to look at the car market as an analogy to the housing market.
Someone leases a car but can no longer make the car payments. He can’t afford to dump it because he has no equity. So he turns the car back in to the the finance company. The finance company in turns dumps it to the dealership who turns around and marks the car right back up to the retail price.
The price depreciation and discounts and cars don’t appear until later in the cycle because you need large inventory to build up first.
Same with houses, except that houses last much longer than cars so the hang-over will last longer.
Homeowners can’t make the payments but can’t rent for cheap. They keep on asking high rents to cover their mortgages until the houses sit and sit and sit. Rents will go down when enough inventory builds up and the assets are transferred to owners with lower carrying costs. We are just in 1 1/2 of the real estate downturn so it’s not surprising to see slightly higher rents.
The mentality of the homeowner is “it’s not worth renting if I’m still losing money every month.” His house will eventually be foreclosed.
I predict rents lower in a couple of years. I’ll let time prove me right.
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