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then home ownership represents the best hedge (even better than stocks) for the average american in which to protect themselves.
what i wrote about are choices for the "average american" (bold since you creatively edited it out). you tell me what the median price appreciation for homes have been over a 20-30 year period? not too shabby over the long haul when looking at this chart (even considering the "predicted" correction to the median line... http://www.realestatedecline.com/Hou..._1968-2013.jpg or this colorado/denver housing chart... Paper Economy - A Real Estate Bubble Blog (http://www.papereconomy.com/HPI.aspx?id=CO|CO_SA|Denver-Aurora,CO|Denver-Aurora,CO_SA&stop=2008&showcomplete=True&showpo=Fa lse&showna=False&showsa=True&normalize=True - broken link)
re the case-shiller denver chart i posted, the rate of price drop is mediocre (a similar small magnitude rate drop in the late 80's followed by a strong rally) when compared to other markets in the composite average. since we're just beginning the primary home buying season, i expect to see an improvement in the sales numbers in a few months, thus stabilizing the denver market. markets don't go straight up or straight down, but cycle according to regional boom-bust cycles.
what would YOU recommend the average american to invest if not a home, business, growth stock mutual funds, or high quality stocks that benefit from an inflationary environment? jl and warren b like rails, but what do YOU like?
Last edited by multitrak; 03-25-2008 at 01:22 PM..
Reason: add another chart
Taxes and insurance add up, interest must be subtracted, pipes break, roofs wear out, carpets get ruined, concrete driveways and walks crack, HOAs charge fees, cities make special assessments, and interiors need updating.
Any statistics that don't take those factors into account when calculating home values are misleading.
For long term investing, a mix of metals and water shares would be my choice. The water shares can produce rental income as well as gaining value over the long term, while the metals are a fairly stable hedge relative to other inflationary commodities.
Taxes and insurance add up, interest must be subtracted, pipes break, roofs wear out, carpets get ruined, concrete driveways and walks crack, HOAs charge fees, cities make special assessments, and interiors need updating.
Any statistics that don't take those factors into account when calculating home values are misleading.
the home as a tax shelter...property taxes and mortgage interest are deductable against annual income, plus repairs and improvements are deductable against the sales basis. and then there's this little nice break for the average american too! this $250k/$500k single/married jointly filed cap gain exclusion is still valid for 2007 and 2008 tax years. it's a great deal because it's not a one time exemption any more...
what i wrote about are choices for the "average american" (bold since you creatively edited it out).
I did nothing of the sort..."average american" does not change the context of my point as it relates to what you said.
Quote:
Originally Posted by multitrak
you tell me what the median price appreciation for homes have been over a 20-30 year period?
Long term, median housing values appreciate at close to the inflation rate.
But if someone were to buy today in most of the nation's markets, they should expect zero to negative appreciation for maybe as much as a decade--because the starting point is way above the historical trendline. That nets out to something significantly less than little i.
For the average american it's a stupid move to consider purchase of a house in today's market an "investment." One can buy the housing (roof over head) component via rent and avoid taking the capital loss on a depreciating asset class.
Quote:
Originally Posted by multitrak
re the case-shiller denver chart i posted, the rate of price drop is mediocre (a similar small magnitude rate drop in the late 80's followed by a strong rally) when compared to other markets in the composite average.
For a brain donor that bought a $500,000 house in the last two years for zero down (because he had no savings), a 5.1% loss is $25,500 he didn't have to start with.
5% loss on a class of typically highly leveraged assets (as houses are for (chorus) the average american) is not trivial or "mediocre" just because there exist really hideous losses like the 19% in FL/NV etc. And as I pointed out earlier, the trend is accelerating...the rate of decrease is getting bigger each month. I think that's troubling.
Quote:
Originally Posted by multitrak
since we're just beginning the primary home buying season, i expect to see an improvement in the sales numbers in a few months, thus stabilizing the denver market. markets don't go straight up or straight down, but cycle according to regional boom-bust cycles.
Every realtor group will be trumpeting the spike in sales from Feb-Mar...of course the seasonal nature of CO real estate is that some 50% of annual sales are made in the Mar-Apr Spring frenzy. But, at least in COS, a market I am very familiar with, the numbers of houses going on the market is outstripping the sales numbers, and inventory is continuing to increase. And year-over-year sales are down some 19%.
Quote:
Originally Posted by multitrak
what would YOU recommend the average american to invest if not a home, business, growth stock mutual funds, or high quality stocks that benefit from an inflationary environment? jl and warren b like rails, but what do YOU like?
You'll note I took issue with purchasing housing as an inflation hedge. A small business...perhaps, but very location and market dependent. Growth stock mutual funds? Standard Dave Ramsey fare there, but I do not see growth stocks appreciating at a significant delta over GDP long-term. It's classic something-for-nothing logic, and the smoke and mirrors that allowed gains over a few decades isn't working so well in today's environment. High quality stocks that benefit from inflation...like what? The real ones are already arbitraged way up in price.
I think companies that are ahead of the power curve in dealing with the coming challenges in energy, water, and other dwindling natural resources could be profitable. There are a number of long-term bond portfolio management strategies that allow portfolio duration to be managed in a way that at least keeps returns close to inflation. There are some deals in good quality muni bonds these days too.
The unhappy reality is that much of the foreseeable future profit for a large number of companies was priced into their equities a long time ago...Wall Street counted all the chickens that might ever have hatched and rolled that into the stock valuations.
the home as a tax shelter...property taxes and mortgage interest are deductable against annual income, plus repairs and improvements are deductable against the sales basis. and then there's this little nice break for the average american too! this $250k/$500k single/married jointly filed cap gain exclusion is still valid for 2007 and 2008 tax years. it's a great deal because it's not a one time exemption any more...
A tax free expense is still an expense, and like you say above, laws change. There is no guarantee that you won't be taxed at a high rate for capital gains when all you've done is to hopefully keep up with inflation. The best you're doing is to shelter the expenses that eat up your investment dollars. If the load on a mutual fund is deductible, that still doesn't make it better than a no load.....
You'll note I took issue with purchasing housing as an inflation hedge.
yep. but i don't agree with your assumptions and prediction(s). that's what makes a market...a buyer and seller with opposing points of view. only time will prove which one is right. as they say on mythbusters: "i reject your reality and substitute my own!"
Quote:
A small business...perhaps, but very location and market dependent. Growth stock mutual funds? Standard Dave Ramsey fare there, but I do not see growth stocks appreciating at a significant delta over GDP long-term. It's classic something-for-nothing logic, and the smoke and mirrors that allowed gains over a few decades isn't working so well in today's environment. High quality stocks that benefit from inflation...like what? The real ones are already arbitraged way up in price.
I think companies that are ahead of the power curve in dealing with the coming challenges in energy, water, and other dwindling natural resources could be profitable. There are a number of long-term bond portfolio management strategies that allow portfolio duration to be managed in a way that at least keeps returns close to inflation. There are some deals in good quality muni bonds these days too.
The unhappy reality is that much of the foreseeable future profit for a large number of companies was priced into their equities a long time ago...Wall Street counted all the chickens that might ever have hatched and rolled that into the stock valuations.
so what you're saying is that there's not much available for the average american to invest as an inflation hedge, outside their home or small business. well, that's my point...sometimes the best real rate of return you can get is the one that doesn't dig you into too deep of an inflationary hole...
Last edited by multitrak; 03-25-2008 at 06:55 PM..
For long term investing, a mix of metals and water shares would be my choice. The water shares can produce rental income as well as gaining value over the long term, while the metals are a fairly stable hedge relative to other inflationary commodities.
50 year ave inflation rate = 4.1%. gold's ror = 4.2% over 50 years. a good mutual fund's ror = 15% over 20 years. a home's national ror = 5.8% since 1968. fwiw...
ps: i like the idea of buying property with water rights, stripping and keeping the water rights, and selling the property. if you work it right, the property sale could pay for the water, then you wait for the front range cities to come knocking...
yep. but i don't agree with your assumptions and prediction(s). that's what makes a market...a buyer and seller with opposing points of view. only time will prove which one is right. as they say on mythbusters: "i reject your reality and substitute my own!"
OK, no problem with that. Lots of other folks consider me an uber-contrarian, too. My POV is arrived at by challenging assumptions right down to the foundations of the monetary system and markets. Works OK for me...I completely avoided equity losses in both the tech crash and this housing-initiated credit bubble. Without those hits, my low-risk investment approach stacks up respectably against much more aggressive portfolios that still stand a chance of being utterly killed in today's super-dangerous market conditions.
Quote:
Originally Posted by multitrak
so what you're saying is that there's not much available for the average american to invest as an inflation hedge, outside their home or small business. well, that's my point...sometimes the best real rate of return you can get is the one that doesn't dig you into too deep of an inflationary hole...
But a house bought today isn't the lesser of the evils. There's always TIPS and I-series US bonds if inflation is the principal worry...much less of an evil than a massively overpriced and highly leveraged house in a downward-moving market.
Quote:
Originally Posted by multitrak
a good mutual fund's ror = 15% over 20 years
The most recent 20 years of history is dominated by the biggest boom and equity bubble in the market's history. Take that period back to the beginning of the 1960s and capture the rosy markets of the 60s and 70s. Most of the market pundits either have never studied back as far as the pre-boom and Great Depression markets, or they intentionally leave those experiences out of the dataset to skew the numbers in their favor.
What this is all adding up to is that the spoiled, hedonistic, self-indulged Baby Boomers (and I am a Baby Boomer, by the way) are going to get the surprise of their lives. Lurking out in the weeds is the coming insolvency of both Medicare and Social Security--that is, unless payouts of benefits are greatly reduced. There is no way that taxes could be raised enough to fix the problem--it would literally take all the tax revenue that could be generated just to pay for those two programs without leaving anything for any other spending.
Surprise number two will be, as Bob notes above, that private retirement accounts can't and won't gain value at rates above the general growth in GDP over the long-term. Given the recklessness of the financial shenanigans of late, they will be lucky to hold value.
Final surprise will be that the Boomers' supposed cash cow of real estate appreciation won't outpace inflation, either. In fact, when all of the holding costs of real estate are factored in, it may be negative.
So, what do most Boomers have to look forward to? Well, work, for one. Retirement age will by law or necessity get much later in life. Boomers may also have to face the prospect of doing some things that they thought they never would have to--but things not terribly uncommon until they came along. For example, spending their twilight years living with their children, liquidating their savings and assets over time to pay to live, and living a much more austere existence in retirement (no more 6 week cruises, second homes, RV's, and other toys). The Boomers' kids? They may just have to live with the realization that Mom and Dad are not going to leave them a fat inheritance, either. And that retirement for them will be nothing like what their grandparents probably enjoyed.
Demographics show that the current generation of those over 65 (the remnants of the "Greatest Generation") hold the highest percentage of wealthy people of any age group in the US. They will most likely be the last over-65 group to hold that distinction.
As for Colorado--a state so economically dependent on the "money-train" of retirees, real estate speculation, and "investment" in non-productive assets like residential and recreational real estate--this will raise havoc with the economy of the state. A few pieces are already flying off of the Colorado economic jalopy right now, and it hasn't even hit the economic and demographic brick wall yet. But it will.
...The city has worked overtime to attract and retain businesses of all sizes: The Metro Denver Economic Development Corporation is a truly regional economic development entity, with more than 70 partner organizations
....A highly educated workforce supports a diversifying economy, with growth in aerospace, IT, biosciences, energy and financial services. Denver entrepreneurs ranked fourth in the nation for landing funding from the federal government's Small Business Innovation Research program....
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well, that's my point...sometimes the best real rate of return you can get is the one that doesn't dig you into too deep of an inflationary hole...
