[tallrick]

Oh the complaints about the current real estate market, but just take a moment to think here. So many people want real estate to rise in value faster than inflation, but exactly how does this help? In my view a falling market is best, here is why:

If prices are climbing and you sell your home, unless you purchased a home first, you lose buying power every second you wait. Higher purchase price=higher taxes for life! Your rent to the Government rises each time you move. If your salary is not keeping up, you have to take on even more creative financing. All in all a rising market is a losing proposition for all except flippers. Even landlords lose due to higher holding costs.

In a falling market you are a winner. Say you sell your home today, and have to rent or stay with someone till you find another place. That money you recieved from your sale picks up more power every day! You get to pick from a wide variety of properties. Less purchase price=less money on Government rent. People sour on holding land for investment so you can choose a nice piece of property to build on, and spend less on owning it. I just cannot see the downside to a Florida crash, even real estate professionals will have plenty of business because people will have a hard time selling their properties themself. Simplified , I know- but do not fear the "crash". It is like a gift!

[riveree]

Originally Posted by tallrick

So many people want real estate to rise in value faster than inflation, but exactly how does this help?

It helps:

1) Those who plan to sell and move out of area to a less expensive locale

2) Those who plan to stay in area, but significantly downsize

It gets tricky when people think they may make these abstract moves in the future, but in reality end up staying in area and don't want to - or the option is no longer available in area - to downsize significantly. Now you have a problem. Your $500k house only buys.....another $500k house......which is probably not even as nice as your own.......rut-ro !

Still, in a rising market the upside to such equity might be in a reverse mortgage or other such products .

I know what you're getting at, Tallrick, but I don't see a compelling reason to want home values to drop.

[bale002]

In principle, a better real estate market is one in which prices are proportional to locally produced income and real estate prices rise in proportion to production and productivity increases in the local economy.

In reality, we have fast transportation and a lightening fast financial system. That means that people, physical resources and money can move in and out of, in principle, any geographical region, with proportionally less regard for the local production system.

As you yourself have pointed out in several other threads, Florida real estate prices have boomed in recent years mostly on the back of resources coming from without, and unless and until this flow slows significantly, real estate prices will not come back down in proportion to locally produced incomes.

In economic terms, it is a simple (or complicated) as that.

So far, the credit flow has been cut-off only to the subprime sector, maybe 10% of the market, probably even less than that in southeastern Florida.

Yes, tax, insurance (hurricane) and affordability issues have stopped the bubble from expanding in Florida and prices have declined from their peak 2005 levels, but another 30%-40% decline, which may bring real estate prices back into the affordability range of local incomes, would depend on the decline in the flow of money from significant sources from without.

Though I do not exclude the possibility that the flow of retiree/tourism/rich foreigner money to Florida (or certain regions of it) will decline, I do not assign a significant probability in a relatively short period of time, at least by my measure of significant and short.

The wild cards might be another significant hurricane, a palpable recession, or other significant event (severe energy shock?) that affects the outside sources of money referred to above.

We know what the dominant economic model is in many regions of Florida, and there are powerful groups of people with a vested interest in ensuring that this dominant model is not replaced any time soon, they have invested too much in it, and I am not talking about the marginal flipper who came in late in the game who, on the contrary, is mere fodder for those power groups who control the dominant model.

These same power groups do not give a hoot about potentially expanding small businesses.

And why should they? Small business owners can't afford the real estate and they pay no state income taxes. That's how they reason, for better and for worse.