anxvariety, I’m wondering the exact same thing. My guess is that we will end up having pretty significant inflation within the next couple of years, once the Fed has to print money to bail out the “to big to fail” banks and mortgage backed securities holders – I think that’s a couple years away though.
In that case, people sitting on cash (in dollars) and people sitting on houses with no mortgages will get hurt. I’m thinking that if and when I feel So Cal R/E prices have returned to historical norms, it might be smart to buy a house or condo with a mortage on it. The house’s value (as long as it’s in a good location) should keep pace with inflation while it’s mortgage will not. This will be a way preserve your money in a hard asset. If you pay cash for the house, it would defeat the purpose. Another way to preserve your money would be to convert some portion of it into a foreign currency or into gold. I’m in a “wait and see” mode right now. Real estate would have to crash quite a bit for me to even consider buying again. I’m not keen on buying a place in location I don’t want to move to either. I think Peak Oil will make a lot of far flung places lose R/E value over time, especially if there’s no public transportation.
Buying at the bottom of the R/E cycle in a good location, with a mortgage, might work out to be a very good hedge against inflation. Even if interest rates were high, you could ride it out and refinance later on when rates drop again. It all depends on whether the values come back down to earth. If not, I’m not buying R/E – period.
