Miami real estate continues to PLUMMET, another reason why not to buy till 2010

[tallrick]

People need to learn that the more affordable real estate is to a buyer, the stronger the economy will be. High priced real estate is a sign of a hollow, poor economy and that is it. Unless the average home falls to 3x average income, Florida will continue to swing between boom and bust, while productive industry avoids the area like a plague. We should all be encouraging a bigger crash in any way we can.

[tallrick]

Remember, it costs you nothing to hold commodities, but real estate eats up money in taxes, maintanance and insurance. Real estate is the worst investment, especially in Florida today!

[fauve]

The right property does not eat up money in taxes and maintenance. We have an ag exemption (any acreage you have horses on or plants, or even just palms planted can qualify) and pay very little in taxes on the value of the house - $110k - less the $50k homestead deduction. We sell plants that pays for both the taxes and the mortgage (it used to give a nice income beyond that, but those days are over for now). We can also deduct our mortgage payment from all income so we are not paying taxes on that income. Our insurance is very low too, because the value of our home is in land, not the house itself. We have insurance for a house that is only 1600 sq ft. You can now get an house on an acre in Southwest Ranches for as low as $325k, and that's asking. When all is said and done, you will always have an expense for housing if you rent, but come the age of retirement, you need a roof over your head that's paid for. This is the time to buy, but I think I've made my point on this ad infinitum. It may be too late for many people anyway due to the tightness of credit. I expect the next house we purchase will be in cash.

Another plus with real estate is that when it grows, you've made a minimal investment - the downpayment - but it rises in value on the entire value of the house. So, say you put $50K down on a $500k house. Houses have risen at an avg of 5% over the last 50 years. Counting a minimal rise, you're making 5% on $500K ($25K), not 5% on $50k ($2500), if you were to leave it in the bank (plus pay taxes on it!). Same as when it drops in value. If you're invested in commmodities and it loses money, you lose 5% on the entire amount you have invested - the 50K...when housing drops 5%, you're losing it on the full value of the house ($25K) and only $2500 on the money you have invested - the same 5% you would have lost if invested in commodities, etc.

[Wild Style]

Originally Posted by tallrick

People need to learn that the more affordable real estate is to a buyer, the stronger the economy will be. High priced real estate is a sign of a hollow, poor economy and that is it. Unless the average home falls to 3x average income, Florida will continue to swing between boom and bust, while productive industry avoids the area like a plague. We should all be encouraging a bigger crash in any way we can.

good point. you have to remember, this housing mess was spurred on to help the economy recover from the tech/telecommunications bust. Our economy is now pretty much dependent on debt and asset hyperinflation. hopefully we are seeing that come to a end

Originally Posted by fauve

At times it slows, levels off and then continues upward again. Even with the current drop in prices we are still almost 50% above where we were a year ago. That is far from any sort of crash or collapse in prices. As I said before, in economics you deal with year over year trends, not month over month or week over week.


I don't disagree with this. That actually sounds a lot like housing. Why do you believe that housing won't trend up again, but you do believe that commodities will? How can commodities be the next bubble, but housing is still looking at a larger crash? I think the next bubble is still an unknown which is why I asked the question in the first place. I'm liking global REITs though.

again, this goes back to understanding economics. Home prices got out of hand because of the availability of credit. People were given credit well outside of their means to repay. To drive up home prices you have one of two choices and this pretty much goes for anything. You can either drive up wages which means people can afford to pay more OR you can drive up their income via credit. But to do so would be to give them loans which will make repayment in the long run impossible. Again, just like the run up in home prices during the great depression and during the S&L days. The adjustable rate mortgages are nothing new.

Traditional home prices are 3 to 3.5 times annual income historically, that's a fact. Home prices also appreciate about 3% to 4% a year historically which by the way is the amount the average Joe yearly incomes increase per year. Just to make sure I am being clear, yearly raises are about 3% to 4% a year. Easily available credit i.e. ARMs is going the way of the dinasaur. As a result, prices will go back down to 3 to 3.5 times annual income and then increase yearly in relational to the increase in salaries which is 3% to 4% yearly. Again, this is all historical facts. Historically it is also 20% down to obtain a mortgage, we will see that day come again and thats a good thing. Not everyone needs to own a home, if its with in their means then own and if not then rent. As for the next bubble, I NEVER told you commodites was the next bubble. I have always said the next bubble is green tech, infrastructure and renewable energies. Figuring out what the next bubble is very easy. There are clear signs which repeat themselves with EVERY bubble. My best suggestion is to read the january issue of Harper's Magazine, it had a GREAT write up on this.

So in short. Home prices fall to historical price points i.e. 3 to 3.5 times annual income. It may fall just below that during the bottom, then stabilize, then tick upward WITH yearly incomes for a given area. These huge gains well not be seen again in our life time. They are in the process of passing all sorts of legislature and over sight on the banking industry to ensure that.

[fauve]

Originally Posted by Wild Style

Prices have fallen fast yes, however the things I mentioned i.e. debt deflation, wage inflation etc. can not happen over night regardless of how fast asset prices have fallen. Wage inflation takes many things, namely reduction in the number of individuals in the work pool which will take legislature etc.

As for oil prices going up/down etc., ask anyone who knows investment. You can not take a week, 5 days or 7 days and declare that to be the trend. Just today oil prices are up 5 dollars. Ignore the week to week or day to day stuff. Look for long term trends. Its like these people who bring out these home sales higher than last month reports and declare a bottom. month to month means nothing, its year over year that is important.

As for another Bubble, we don't need one of those. That is F.I.R.E. economy thinking and that economy is on its death throws. We need to restructure our economy which means a lot of pain and medicine for the foreseeable future. It sucks but it is what it is. We will be a better country for it.

This is what you said on 7/30,. Oil had been dropping steadily, and has dropped significantly since then. If you were to consider the trend in the last few years you would predict (and you did) that this was a temporary drop. I don't agree, and is what led me to believe you were bullish on commodities. This was the beginning of the end of high oil prices. Oil prices were driven up artificially by speculators and now those speculators are leaving the market as demand has decreased. If I were to wait years to predict that, I would have lost money waiting for oil to continue to rise on the trend it has shown over the last few years. The economy is moving at a lightening pace due to easy trading. The only answer for the individual small investor is to stay diversified. This includes real estate, commodities, domestic equity dividend producing stock, international large cap stocks, emerging markets, TIPs (treasury insured protected securities), bonds, and of course, cash.

Real estate however right now has dropped double digits over each of the past 3 years - the most since the late 1930's. Unemployment is rising. Small businesses are failing. Just like then, only now we have inflation too! What got us out of that lovely time was WWII and GI Bills. Volcker got us out of the late 70's/early 80's recession/stagflation (Carter to Reagan years) by raising interest rates dramatically, and we had tremendous inflation. I was getting 10% yearly income raises. We weren't able to afford a home till 1990. Wages increased, FHA loans became available, and eventually things balanced out by the late 80's. I am just concerned that if people who can afford to buy now and don't, they will lose 10 years due to interest rate rises, and they will lose an important 10 years of equity building and tax benefits. I also realize that housing is unaffordable for most people now because of wage stagnation. It's all very sad for non-homeowners, and people who'd like to sell and move on with their lives.

[Wild Style]

Originally Posted by fauve

This is what you said on 7/30,. Oil had been dropping steadily, and has dropped significantly since then. If you were to consider the trend in the last few years you would predict (and you did) that this was a temporary drop. I don't agree, and is what led me to believe you were bullish on commodities. This was the beginning of the end of high oil prices. Oil prices were driven up artificially by speculators and now those speculators are leaving the market as demand has decreased. If I were to wait years to predict that, I would have lost money waiting for oil to continue to rise on the trend it has shown over the last few years. The economy is moving at a lightening pace due to easy trading. The only answer for the individual small investor is to stay diversified. This includes real estate, commodities, domestic equity dividend producing stock, international large cap stocks, emerging markets, TIPs (treasury insured protected securities), bonds, and of course, cash.

Real estate however right now has dropped double digits over each of the past 3 years - the most since the late 1930's. Unemployment is rising. Small businesses are failing. Just like then, only now we have inflation too! What got us out of that lovely time was WWII and GI Bills. Volcker got us out of the late 70's/early 80's recession/stagflation (Carter to Reagan years) by raising interest rates dramatically, and we had tremendous inflation. I was getting 10% yearly income raises. We weren't able to afford a home till 1990. Wages increased, FHA loans became available, and eventually things balanced out by the late 80's. I am just concerned that if people who can afford to buy now and don't, they will lose 10 years due to interest rate rises, and they will lose an important 10 years of equity building and tax benefits. I also realize that housing is unaffordable for most people now because of wage stagnation. It's all very sad for non-homeowners, and people who'd like to sell and move on with their lives.

interesting conclusion you came up with

[fauve]

Originally Posted by Wild Style

interesting conclusion you came up with

Thanks (I think)