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« Ben and Barry.....and Barney, too | Main | The Usefulness of Forward Earnings »

February 15, 2007


Bill aka NO DooDahs!

Last I checked, anyone interested in rental real estate as an investment would examine individual properties on their own merits and wouldn't give two hootanannies about "housing" as a gestalt. The main advantages of real estate as an investment are leverage, capital gains exemptions if lived in, and depreciation tax credits and tax-free Starker exchanges for rentals, none of which are impacted by the "national median home price."

To my knowledge, New York, Chicago, and London all fail to have liquid markets for "housing futures" contracts. Similarly, I have yet to see anyone trading a futures market in GPD, although Vegas might have an over/under side bet. Keep in mind that the "economy" is not the same thing as the GDP.

Both the general stock market and the homebuilders' stocks as a group bottomed in the summer of 2006. Does the rest matter?


Sold to you by Mr. Gates' portfolio manager

Spring selling season is round the corner and I suppose we will get an idea of where housing sentiment lies soon. Housing prices are sticky and so where popular conception will doubtless be wrong is in expecting a crash -- but home prices get lowered by motivated sellers and their effect on comparables for the neighborhood. This is not even theory -- prices are down 7% in OC -- in a strong economy to boot, explain that!

Nova Law

What is different from housing compared to other asset classes is that if an owner cannot get the price he wants, the tendency is not to lower the price, but to just hold on to it and wait the market out.

Speculators will surely be hurt most in a declining real estate market, but it's unlikely that genuine pain will be widespread amongst homeowners. They'll just hang on to what they have a few years longer than they otherwise would have.

marlyn trades

I happen to agree with this assessment. I use the "front page story of MSM" as my primary tool and in the past three weeks I have seen three stories on the collapse of the housing market here in Maryland on the front page of the Baltimore Sun - one story was in the upper right hand column (number one with a bullet).

I immediately upon market open loaded up on the homies. There is no better contrary indicator than the local news editor finally deciding to run "that story."


Out here in Orange County, California -- the long-term average for mortgage payment for the median home as a proportion of the median income is 34%. Currently, it is in excess of 50%. Numbers for many other places in California are similar. Perhaps the rest of the country is not so bad, but I find it hard to believe that this is the bottom for OC. Besides, the minimum down-cycle has been four years (1978-1982) and we are less than a year into the downturn here (median prices have gone down by~7% since June 2006). I find it hard to believe that people are starting to call a bottom when housing is "just" beginning to unravel -- in fact, it has been less than 8 months out here in OC.

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