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Since this is the biggest expense that most people will have, what exactly is a "good" housing market? I always hear that "my house is increasing in value that is great" but in my mind this is a very bad thing. If the value of your home is increasing faster than inflation, so is everyone elses. That means that your money is becomming worth less and less. It also means that your assessed value is going up and you will pay more property tax. In short, more of your income is going into a necessity. People say "well when I retire it will be a valuable asset" yes, but where will you live, in some crappy condo? In my mind as an economy grows and productivity increases, it should be less expensive to build and the cost of real estate should fall, not increase. Factories and commercial buildings would be able to recover costs of construction faster, due to reduced costs and better production. Since the 1980's the real estate bubble(s) have become more important that actual production/innovation and we see the result as excessive real estate pricing. Just look at places like California and Florida, where almost all properties sell for double their real worth. My theory is that when the economy is strong, real estate is less expensive, and when the economy is weak it becomes more expensive.
In my mind as an economy grows and productivity increases, it should be less expensive to build and the cost of real estate should fall, not increase.
I don't follow your reasoning behind the drop in price of real estate? The supply of actual land can never increase (though more or less land may be on the market at any given time), so demand will continue to push prices up.
Quote:
Originally Posted by tallrick
My theory is that when the economy is strong, real estate is less expensive, and when the economy is weak it becomes more expensive.
I'd disagree. During a strong economic cycle, people spend money. When more buyers enter the market, prices are driven up. The opposite would be true during weak economic cycles.
I understand that reports show us to have a strong economy right now, with falling real estate prices. I see that as much more of a market correction than an effect of the economy. I would argue that the strong economy helped to drive prices up to the level where they were overly inflated.
Just look at places like California and Florida, where almost all properties sell for double their real worth.
CA is way beyond FL. Homes routinely sell for triple or quadruple or even higher than their real worth. In many-- and increasingly most-- safe, desirable parts of L.A., small (700-100 SF) 1940's bungalows sell for $600-$850K. These same properties were selling in the $100Ks and $200Ks, back in the late 90s. If the L.A. market returns to fundamentals, it's got a long, long way to fall. That crash would be heard around the world, so it's unlikely to happen. But it should. And it would, if the financial puppetmasters would let go of the strings.
Since this is the biggest expense that most people will have, what exactly is a "good" housing market? I always hear that "my house is increasing in value that is great" but in my mind this is a very bad thing. If the value of your home is increasing faster than inflation, so is everyone elses. That means that your money is becomming worth less and less. It also means that your assessed value is going up and you will pay more property tax. In short, more of your income is going into a necessity. People say "well when I retire it will be a valuable asset" yes, but where will you live, in some crappy condo? In my mind as an economy grows and productivity increases, it should be less expensive to build and the cost of real estate should fall, not increase. Factories and commercial buildings would be able to recover costs of construction faster, due to reduced costs and better production. Since the 1980's the real estate bubble(s) have become more important that actual production/innovation and we see the result as excessive real estate pricing. Just look at places like California and Florida, where almost all properties sell for double their real worth. My theory is that when the economy is strong, real estate is less expensive, and when the economy is weak it becomes more expensive.
Real estate is an finite resource, and therefore, the less there is, the more scarce it becomes, and the more expensive it is.
Your theory though, has some merit, and thats the fact that people dump their money in to real assets, such as real estate and commodities when the economy is down, or the dollar is volatile. This often creates a huge glut of people (this can also be read as speculators) who shift demand to a product that they dont intend to directly consume. Correspondingly, they create the same exact price pressures that normal consumer demand would, only they are creating them artificially, defined as demanding something you arent going to use personally, and are aquiring it for its appreciative or investment value. Therefore, it is logical that the price would go up in a bad economy.
In a good economy (as measured by the stock market), people try to unload their physical assets and dump their money in to the market. This creates an equivalent over supply, caused by the same factors that created the false demand. Unfortunatley, unlike most real assets, the selling price of real estate only trickles back down, instead of tumbling. That is why bubbles created by real estate speculation are the worst kind. They put housing out of reach for years before the prices finally fall back in to equilibrium.
Since I'm currently in the buyers market.. The best economy is right now.. where I can pick up one heck of a deal...
All depends on what side of the table your sitting
What buyers market? Homes still havent even fallen close to affordable on the national level. Buyers still cannot name their price and get it, and that is the only true buyers market.
What buyers market? Homes still havent even fallen close to affordable on the national level. Buyers still cannot name their price and get it, and that is the only true buyers market.
All depends on where you live.
Locally I seen a house drop from $799K to $199K within 6 months..
Actually, it's when the economy is strong (or the interest rates are low, or banks terms are lax, or two people in a family are working) that prices will go up. It's an elastic thing. The more money available, the more can be put into driving prices up. When the economy tanks prices remain stagnant or go down.
What we have been seeing with the recent housing boom was a combination of some of the above greatly fueled by the "jump on the bandwagon" phenomenon causing those ungodly prices. This is where hordes of followers, as they always do, jump in for a rush at the top, spurred on by spinmasters and others with a vested interest. You seen the same thing in stock market bubbles.
It's not true that in this country there's a shortage of land. We have tons of undeveloped areas all over the place. What might be true is that there may be a shortage of housing within particular urban areas. This is one of the pat incentive ploys used to jack up prices in general. I'm not saying that real estate isn't a good investment, over time it always has been. Some of that is from years of paying off a mortgage and some of that is from the dollars depreciation and some of it is from an improved economy and people moving into an area.
The housing bubble far exceded any inflationary percentage ever known in this country including any other necessary commodities. Now, we will all be paying for those who profited from it by a weakened dollar and higher resulting costs for everything. The only good point is that if housing prices drop far enough so that our children will actualy be able to afford their own homes without going hungry, a better equilibrium will have been reestablished.
Actually, it's when the economy is strong (or the interest rates are low, or banks terms are lax, or two people in a family are working) that prices will go up. It's an elastic thing. The more money available, the more can be put into driving prices up. When the economy tanks prices remain stagnant or go down.
What we have been seeing with the recent housing boom was a combination of some of the above greatly fueled by the "jump on the bandwagon" phenomenon causing those ungodly prices. This is where hordes of followers, as they always do, jump in for a rush at the top, spurred on by spinmasters and others with a vested interest. You seen the same thing in stock market bubbles.
It's not true that in this country there's a shortage of land. We have tons of undeveloped areas all over the place. What might be true is that there may be a shortage of housing within particular urban areas. This is one of the pat incentive ploys used to jack up prices in general. I'm not saying that real estate isn't a good investment, over time it always has been. Some of that is from years of paying off a mortgage and some of that is from the dollars depreciation and some of it is from an improved economy and people moving into an area.
The housing bubble far exceded any inflationary percentage ever known in this country including any other necessary commodities. Now, we will all be paying for those who profited from it by a weakened dollar and higher resulting costs for everything. The only good point is that if housing prices drop far enough so that our children will actualy be able to afford their own homes without going hungry, a better equilibrium will have been reestablished.
I'll keep that in mind tomorrow when I look at the $100K house, thats been dropped to $77K.. and we're planning to offer mid $60's because it goes into a bank foreclosure within 30 days. Note when bank foreclosure properties are blocks from your house, and the asking price is 70% of what your asking for yours, you have no choice but to hold out and weather the storm, or lower your price..
All to many people right now are lowering their prices, because they got stuck with bad mortgages.
Good luck, but keep in mind that there's still a lot of baby boomer retirement dollars out there looking for a place to be put.
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