[quote=chrisp]Again point taken. What is everyone’s thought on inflation though? Is that an additional incentive to get in now?[/quote]
Let’s suppose that a law was passed tomorrow that made it legal for you (and everyone else) to take the money in your neighbors’ bank accounts. To make it a bit more realistic, assume that any money taken this way went immediately into the taker’s bank account, but the deduction from the neighbor’s bank account didn’t occur until a year or two down the road.
Then should I advise you (or anyone else) to take as much as possible, while the going is good? Or to stay away until things are more sensible and sustainable? My tendency is to advise others to stay away.
But let’s assume for a moment that you didn’t care about that side of things. (Everyone is doing it, it’s legal, it’s good for me, so it’s alright….)
Then what should you do? How can you extract the most from the system for your own benefit?
Well, in the case of the current housing market, the FHA is offering 3% money down loans. It’s a huge giveway. If prices go up, you can pocket the gains. If prices go down, you can walk away with a tiny loss.
So what are the chances that you will have a gain, or a loss? Your chances are better if you buy at prices that reflect that we are no longer at the peak, and are now heading for the bottom of the RE cycle. At the bottom of the last downturn, prices were about 20% (that’s right, 20%) of where they were at the peak. Adjusted for inflation, maybe 30%. This last peak was greater than any in recorded history. (See some of Shiller’s excellent and respectable work.) No one knows the exact price level at the next bottom, but it’s pretty clear that $600-700K for a modest condo is nowhere near the bottom. I’d say you have very little appreciation to look forward to in the near future. Being able to putg down the FHA minimum, allowing you to walk away with almost no loss, is a huge gift to you from the taxpayers.
Oh, inflation? Calculate the number of years of inflation you’d need at 7% (or even 10%) for home prices to increase back to today’s levels from what they could go down to if they simply return to their inflation-adjusted value in 2000. The last bottom of the SD market was 1996, so for fun try that too.
