[quote=CA renter]
The bolded part of your post is very important here, IMHO. This is exactly what I was referring to in my response to sdr — when interest rates are this low for this long, savers/cash holders will be MUCH more willing to part with their money than in a higher rate environment. Everyone who is throwing money around today is making a bet that interest rates will stay low for the duration, and/or are betting on inflation. I honestly see both sides of the inflation/deflation debate, and have always been conflicted about it. Right now, our position is entirely unhedged in favor of deflation (all cash), but I’d be lying if I said it doesn’t worry me.[/quote]
We are sitting on mostly all cash positions now as well but will almost certainly put it a huge chunk of it in a high-end home with the balance financed with a low interest loan within the next 12 months. We want to do that while the dollars are still worth something tangible and will then pay back the loan with inflated dollars in the coming years — a strategy which I imagine the government will be pursuing as well. Despite DeadZone’s pessimism about real estate values, I still see that as a more prudent play at this time than sitting on cash long term, or, heaven forbid, the stock market. I am talking about $2M and up properties, however, rather than the ones focused on here.
While making the purely economic play sounds great on paper, it often doesn’t mesh with real life — and the opinions of your spouse. I’m reminded of Dr. Evil in “Austin Powers” when he complains “I didn’t spend six years in evil medical school not to be called doctor!” My point being that many of us busted our backsides for years. Stayed in and studied whilst other kids partied. Worked weekends while coworkers went skiing. Took risks and went for ownership while others kept the steady paycheck.
At some point you look in the mirror, and the calendar, and realize you can’t keep waiting for everything to be perfect (trying to time the market). And your spouse asks if not now, when we’re old and grey? And you realize you’re not getting any younger, and if you don’t get that dream house in the dream neighbourhood now, you never will. And if you’re not going to get it, what the hell was the point of working so hard all these years?
This may seem as a bit of an aside here, but I wanted to highlight that there are factors that are hard to account for looking at published metrics, but may affect a broad demographic.
Whether we earned it, inherited it from aging boomers, got lucky with stock options, or turning over appreciated real estate, a lot of us have cash, the US government seems to be hell bent on destroying the most successful *market* economy in history, traditional investments are looking scarier than $%@!, and real estate looks like a good place to park it.
And don’t bother telling me about how the projected returns on real estate look like crap vis-a-vis other vehicles. I’m not talking about people looking for great returns. I’m talking about people anticipating potential disaster who want to preserve capital until they figure out which way the wind is going to blow.
You can, of course, argue that there is still a risk of depreciation. True, but at some point you’ve gotta nut up. Cut bait or fish. Buy right, and I’m betting I do okay. I’ve seen people hurt a lot worse than losing 10-20% on a house.
So that “may” explain why money keeps popping up for $1M plus homes. And yes, I understand I may be wrong and crazy. Whatever; I’m not hurting and don’t expect to be.
