[quote=XBoxBoy][quote=temeculaguy]I never understood the massive price increases of the bubble and I’m beginning to get confused about the massive decreases during the meltdown.[/quote]
Your own words are the clue to your quandry. I’ve read enough of your posts to know that you TG, are an analytic type of guy. You like to look at the numbers, the data and make rational decisions. (You like to drink good wine and make wise guy remarks late at night which make us all laugh too!) All good and well, but you and most economists today suffer from the belief that most people are like you. They are not. They listen to what they hear at the hair salon, or what they hear while watching Johnny play soccer, and they trust that. Data just confuses them.
The point being that the vast majority of people are not “rational consumers” and any analysis or economics based on that is deeply flawed. This expectation that people would be rational is what is hindering your understanding of the bubble going up, and why you’re going to misjudge the overshoot that is coming.
XBoxBoy
[/quote]
So what do you suggest? You are quite right, numbers are my friends, they give me comfort. Numbers never confuse me, people do. I made compelling arguments to people why 2003-2007 was not a good time to buy, yet they did so in droves. I can make a compelling argument why 2009-2012 will be a good time to buy, but they will run away. 2005 had great employment numbers and the economy was roaring, that was bad for buying, good for selling. 2009 will have high unemployment and a tanking economy, bad for selling, good for buying. Good is bad, bad is good, whatever the talk is at the soccer field is, do the opposite.
Let’s just say you paid cash, remove the leverage play. When that house was 260k in 2003, the rent was the same, lets say 1200 x 12 months, 14,400 a year return, lets go 4,400 for taxes, maint and emergencies. The return was 10k on 260k, about 4% return for a lot of risk and work, in 2005 it was probably worth over 300k, rate would be closer to 3%, at that time you could get those returns many other places. They were buying the appreciation potential, usually losing money for the right to bet on it. Now the cash outlay would be 110k, same 14400 annual return, the 4400 should be more than enough (1k taxes, 600 insurance, leaves 3k a year for maint or even a 10-15% drop in rents) so the net return is closer to 10% and that return cannot be found as easily today other places, certainly not in stocks or bonds today. Completely ignoring location, future appreciation, etc. the pure return exceeds other available investments and the leverage return is twice the cost of money. You used to pay them to leverage, now they pay you to leverage, how does that make it to the hair salon gossip agenda. If it were in texas or arkansas, I’d look at it. I have a similar feeling about stocks these days, when the dow breaks below 6k, I think I’m going “all in.” But back to these ever present cash positive rentals, they have another potential positive beyond the pure return, they are a hedge against the very real posiblity of inflation, something I think will be more likely to
happen than guns, riots and canned foods, but that’s me, I’m a betting man.
