anger??

[powayseller]

Yes, I have that same experience. As my friend explained to me, “telling someone their house will go down in value is like telling them their spouse is cheating with the neighbor”.

A house is a security blanket, and an emotional issue. That’s why so many people buy instead of rent when renting is half the price, why sellers won’t lower their price by even $5K (because their house value reflects the owner’s own value and if the house is worth less then the owner is worth less).

Housing is a fincial security too. People are counting on it for their retirement. They cannot continue life as they know it if their home’s value drops and they are upside down or they lose their piggybank.

Regarding inflation and the weaker dollar – how can real estate go up when the dollar goes down? Only if foreigners are buying houses? In the past, rising inflation led to higher housing prices only because wages rose too. But in today’s global economy, that’s not happening. So I don’t understand the connection.

I think it’s good to tell people that housing prices will go down. You may save someone’s retirement plan. I’m glad my brother persisted in telling me about this bubble. His constant comments made me start researching the topic, and that’s how I found piggington’s data. I believe I am helping people by at least planting the seed that their financial security is enhanced if they sell their house now, at near the peak. It’s my duty to help people in this way. Say it once to acquaintances, twice to friends, three times to to family, and then let it drop.

[DaCounselor]

The value of someone’s home and its corresponding impact on that person’s financial picture (as well as its evidence of that person’s investment acumen) is of course a highly emotionally-charged issue.

Emotion played a huge role in the insane run-up of real estate prices. One cannot cite the impact of emotion in support of the run-up and ignore its impact on the correction that is underway, however. Emotion may keep asking prices high, may keep homes off the market and may lead to an extension of exotic lending to avoid a forced sale. We may see a battle between emotion and the cooling market/adjusting loans. Can emotion fend off these realities and ease the market into a less-than-catastrophic landing?

As for “not rubbing it in” to existing homeowners, for most there is simply nothing to rub in – at least not yet. Only the small percentage of folks who bought in the past year or so are presently experiencing or in danger of valuations below their purchase price. Hard to imagine rubbing it in to long-standing owners who are already up hundreds of thousands of dollars. I’m in the latter category and would find an “i told you so” attitude quite amusing.

[PerryChase]

powayseller, I think that you have the passion to be a buyer advocate. I however, don’t feel that it’s my job educate people. While I might voice my opinion online or with a few really good friends, I find that most of the time, people like me more when I’m light and breezy.

[(former)FormerSanDiegan]

ps –

I agree wholeheartedly with your suggested approach in the last paragraph. As opposed to saying “Your home price went down” like the original poster, your approach is more proactive and positive (take advantage of the inflated prices).

Re: “how can real estate go up when the dollar goes down?”
I’ll answer with a couple multiple choice questions :
1. Suppose I have 1 oz of gold. Suppose it’s worth $500. Now assume that over time the dollar is devalued to 1/100th of its current value. What would you pay for the ounce of gold in the future devalued dollars ?
A. $50
B. $500
C. $50,000

2. Suppose that the “true” value of a house in San Diego is $200,000 in todays dollars. Now assume that over time the dollar is devalued to 1/100th of its current value. What would you pay for the house in the future devalued dollars ?
A. $200,000
B. $2,000,000
C. $20,000,000

[lendingbubblecontinues]

DaCounselor-

I doubt you’ll find it amusing when I tell you that you’ll only be “up several hundreds of thousands of dollars” for a short while longer. Eventually, the value of your home will return to the nominal price it would have fetched back in 1998, as the pendulum will overshoot to the downside.

See…it is quite painful to hear and I imagine most people don’t like hearing it but they should.

[DaCounselor]

If the values of the condo and the townhome I purchased in the early 90’s (both of which i now own outright)revert to zero then you will be correct. My bet is that will not happen.

As for the home I purchased four years ago and live in now, I guess we’ll see what happens. I can’t predict the real estate market or any other market for that matter. What I can say is that I would rather own these properties and have a mountain of equity than not own them and be on the sidelines rooting for a disaster as my only savior.

Now, I do believe prices will pull back, but how much and for how long I do not know. It will take a helluva pull-back to erase the equity gains of the past 5-6 years, that’s for sure.

The enlightened ones who predict future events with such specificity and certainty always provide amusement for old guys like me.

[powayseller]

FSD, so you’re talking about an increase in the money supply and high inflation? The gold example works if you buy and hold gold, and then exchange it back into dollars when you are ready to buy. How many people put away $50K in gold today (assume it’s worth $500K in 10 years) in gold, ready to buy a house? Usually people need a mortgage to buy a house…

DaCounselor, I am always amazed when the old timers like you (and others previously on this board) forget about the cyclical nature of real estate. You guys who made money in real estate are so stuck on it, like super glue, and think just because you made a boat load of money once or twice, you will continue doing so. A lover that was once so sweet surely won’t poison you, will she (hehehehehe). When you keep your money in real estate, isn’t that called “throwing good money after bad”? And isn’t it denial when you dismiss the cyclical nature of real estate?

[(former)FormerSanDiegan]

poway –

I’m not giving an example, I’m asking a question.
Q: What happens to the value of hard assets (Gold, real estate) when the currency used to buy them is devalued ?

A: The amount of currency required to buy these hard assets goes up.

If I believed the value of the dollar is to decay rapidly, I would pile as much debt as possible and buy as much in hard assets as I could.

[gold_dredger_phd]

The value of your gold is whatever the government says it is when they find it. First you have to prove to them that you did not get it from selling crystal meth.

[no_such_reality]

Q: What happens to the value of hard assets (Gold, real estate) when the currency used to buy them is devalued ?

It’s not just hard assets, it’s all assets.

Let’s do it for simpler scenario. Say the Dollar continues it’s slide to half it’s current value. Say next Christmas, the Dollar trades at 0.25 Sterling, 0.37 Euro and the Chinese float the yuan and it trades at 3.9 Yuan.

How much does the $19.99 Shirt manufactured in China and shipped on EU owned ships from Target cost?

A. $9.99
B. $19.99
C. $39.99

Gas will do the same thing.

As will the chips in the computers we’re all using.

[powayseller]

Thanks for your explanation. I understand that imported goods are more expensive when the dollar is devalued. Just don’t see how US goods become more expensive. If a shirt “Made in the USA” costs $9.99 today, and the dollar loses half its value against the euro, won’t the shirt still cost $9.99? Unless of course you imported the fabric to make the shirt. For simplicity, assume all materials for production come from the US. How much will the shirt cost?

[no_such_reality]

If the product is made entirely in the US, with entirely US sourced commodities, then the price would be $18.99.

The manufacturer cost might still be in line with $9.99, but 90% of the products it competes against will double in price. That being said, very few products are made in the USA anymore. TVs, VCRs anything with a silicon chip in it, overseas. Textiles, largely long gone. There’s some sweatshops in LA and other large cities, but they’re just stitching.

However, on the bright side, US services will become very affordable on the global scale and cost benefit off paying an Indian software engineer $8000 will get wiped out since the additional overhead costs nets about a 25% savings for companies at current exchange rates.

[powayseller]

So the price of US made goods would double as well, but only because of too much money creation. Too many dollars makes each one worth less. I get that part. But if the value of the dollar falls due to less demand from the foreign exchange market (and not due to excess supply from the Federal Reserve creating too much money) is the outcome still the same, i.e. higher prices?

[DaCounselor]

“DaCounselor, I am always amazed when the old timers like you (and others previously on this board) forget about the cyclical nature of real estate. You guys who made money in real estate are so stuck on it, like super glue, and think just because you made a boat load of money once or twice, you will continue doing so. A lover that was once so sweet surely won’t poison you, will she (hehehehehe). When you keep your money in real estate, isn’t that called “throwing good money after bad”? And isn’t it denial when you dismiss the cyclical nature of real estate?”
_________________________

Where in my prior post do I “dismiss the cyclical nature of real estate”? You have quite a knack for creative interpretation, that much is certain.

The value of my real estate holdings has gone up and down over the years. By getting into the game and staying in the game I have acquired a ridiculous amount of net worth for a pretty regular guy. I’ve bought at the top of the market, the bottom of the market and the middle of the market without having any idea (or pretending to have any idea) of where the market was going in the near term.

You are simply confusing a buy-and-hold real estate philosophy with ignorance of real estate cycles. How you make that leap is beyond me. In fact, it is recognition of the very unpredictable nature of market cycles that drives folks like me to buy and go long on quality real estate.

[bubba99]

if the value of the dollar falls due to less demand from the foreign exchange market (and not due to excess supply from the Federal Reserve creating too much money) is the outcome still the same, i.e. higher prices?

The answer is it depends. As long as oil is posted in dollars (not adjusted for dollar devaluation) the supply of dollars does not impact oil prices. The big jump comes if OPEC moves to the Euro instead of the dollar, then the devaluation maps directly to inflation in the U.S. But since most of the OPEC nations rely on the U.S. to keep them in the weapons they need to maintain power, it is not likely that OPEC will do anything to anger the U.S. – more than they already have.

The easier part is regular foreigns exchange. It will take twice as many dollars to buy the same goods and service after the devaluation than it did before. Kateras Parabus (all else equal) then the cost of imported goods doubles in the U.S. and becomes 100% inflation. Also not likely, but any devaluation will fuel inflation.

[Author]

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