Fed Raises Discount Rate

is this the beginning of interest rates being raised and real estate finally coming down to reality.

Giddy up.

Question is what is reality....what multiple of rent did apartments sell for when mortgage rates were 8%...

Wow, Any minute now my mm yield will triple in Yield. 0.03 APR Woohoo!

It's the discount, not the fed funds.. Big diff

Remember all the talk over the last 2 years about the tools the Fed had in their tool kit to stimulate the economy? Well, they are simply putting some of the tools back in that box. Over the last few months a few programs have been scrapped and a few cancelled, this is a continuation of the doing same, just a more visible one. It is not raising rates.

if someone is predicting rates jump to 8% let us know when that will happen?.....and if the horizon is beyond say 12 months or say, the impact on housing will be arguably equally effected by lots of other factors (which could be worse or better for re)..

Just buy already Jim.

Who cares how long it takes... Its not as though owning saves you any money month to month for the risk to your down payment.

May be only the discount rate, but sounds like a sea change

Predictions that go so far out -- "who cares how long" --start to become silly. There are just too many other intervening factors that can't be foreseen.

The Iowa congressman not running for reelection has more implications than this.

Postive...THAT is ridiculous. It could well be a sea change. Change in sentiment can be important in the market. It is unlikely, however, that rates will pop up to .....8%....or 9% ...anytiime soon

"Its not as though owning saves you any money month to month for the risk to your down payment."

rhino, that assumes that everyone who owns purchased under the same circumstances. You fail to account for when the purchase was made, where it was made, whether and how much was financed, whether the owner can take the full mortgage decduction, interest rate, time horizon, etc. Way to disregard all the variables as jimstreet points out.

But once you pay off your mortgage your monthly expenditures are lower.

RE: mortgage rates....This move is irrelevant. However, big winds are already blowing. Historic tights of mortgages to treasuries at 65bps yesterday. no more room for help here. Fed will finish it's MBS purchase program in a few more weeks. no more help here. Curve continues to steepen...2's/10's at 288bps..this "could" continue..will hurt mortgage rates.

Let's not get crazy. Fannie and Freddie just repurchased all delinquent mortgages from MBS Pools , which returns a huge amount of money to replace Fed MBS purchase. And Fed funds rate/Discount Rate of under 100 bps is ridiculously low.

WTF? is soooooooo hard? Mkt is made on last trade. Financing represents a huge variable, akin to having 3.5% down breathe for me mortgages. And as I see obituaries, ppl die everyday eliminating housing need for that dude at least. That plus divorce, bks, etc etc. Means there will always be a 'sell' side. Now you 'increase' the cost of financing, all else equal, mkt dives given rents do not go up as employment is in the shitter. M'okay class?

gotz it...but let's see how much rates go up...i want frigging rates to go up, personally,..but let's so how much, how soon....so much govt bs..

above two comments by patient and river make good points and i guess deal with the real issues....

Crap riversider. So your monthly is lower, but your asset depreciates. M'okay. It's like holding gold, yeah who cares about the $10/month to put in safe dep box, when gold goes from $1000 to $10. I wouldve flunked you in my class.

I'm not talking about legacy buyers... I am talking about people considering buying today. Why would you buy today at these valuations unless you had a bull case for rents. When you look at the P/E of a stock, you either want a low one, or you want to make the case that the "E" is too low.

Jim, what I don't get about you is that you seem to want to buy...therefore all you need is a 'who knows the future' to justify it. Again, I'd just have a whole lot easier time buying if after tax, and after an honest risk adjusted opportunity cost, that the monthly carrying cost paid a dividend. It DONT.

w67th...bulls dont recognize a normal flow of sellers. They imagine that every seller has a choice and that the market can collectively hold a certain line.

You ll understand it's additive right? 25 here 25 there 50 here 75 there. Bf u know it BAM! 6% ir and 9% mortgages. Holy fuck I wouldn't be surprised if bernie back peddles with u up to 10.5 but he is admitting 0% will NOT last.

One final point before I start drinking. The Fed's MBS purchase program equalled on a "monthly" basis the entire value of the upcoming FNMA and Freddie repurchase program.

rhino, you may look at a home purchase based solely on a risk adjusted opportunity cost, but the vase majority of buyers don't. Its their home - their castle if you will -- as well as an investment. To ignore this aspect biases all of your arguments. Most people won't wait until the rent to own ratio is back to any standard deviation, rather they will wait to buy until they can afford it and believe that most of the downside has been experienced. Its not just about numbers, there are psychological factors involved (which is true of most markets).

Right right but nothing you've said has ever been any different in prior downturns. Try again.

w67th, any asset can depreciate, so should we all simply be renters of assets? Hell even cash can depreciate, so now what?

w67. Everyone's predicting my apt will depreciate 40%. Well it hasn't happened yet in the midst of the worst economic crisis of a generation. Add to that a lack of Manhattan foreclosures. If NYC real estate would have crashed, don't you think it would have already done that?

And maybe it goes down a little from here. But five ten years from now? On a nominal basis..It's probably up a little.

Right and as rates rise fewer people will be able to afford it.

One final point before I start drinking. The Fed's MBS purchase program equalled on a "monthly" basis the entire value of the upcoming FNMA and Freddie repurchase program.

Very good point. There are no coincidences here.

Cash has appreciated in terms of what you use it for...that's such a BS argument. Cash buys more house, more stock, more oil then it at the peak of the market...everything ex gold, and you dont 'need' to consume gold.

Yeh, just 25%. Flmao. We r not done yet. Flmao. Righto rhino.

Gator true only if your in cost is 1999-2002 basis and you've 0 heloc. When you find this unicorn take a picture for me. Itz a rare one.

"Its not just about numbers, there are psychological factors involved"

Is that code for "nagging spouse"?

Only if we have stagflation rhino (which is indeed a distinct possibility). I still have yet to see a single chart that correlates declines in property values with increase in interest rates.

Gator. When you see a burning white hot piece of steel. Do you need to touch it to know it's hot?

FWIW - The FED has telegraphed this move for some time now. Wall street's only question was "Why raise the day before options expiration and the CPI?" Either Bernanke's long OTM puts or this CPI # will be a whopper. If neither, then this FED move is, from a Wall St. perspective, not very significant. Have a look at SP futures, down a bit, but no big deal. Same with treasuries. Don't get me wrong, I don't pretend to predict market direction, but if this was THAT bad for the markets, we'd see a lot more blood after hours. The impact on RE? I will defer that to the RE pros.

Vintage65

Rents are what they were in 2000. What is different today other that the cost of money? We know that the cost of money is going to rise. How much and when, who knows. We also know you save nothing vs renting by buying. So the bull case is (1) oh well, I just dont see it going down much further, cause this is NY....(2) a home isnt just an investment...and (3) um, this will probably work out okay looking out 5-10 years. Oh yeah, and in order for me to win the debate, I need to prove to you that when rates rise, there will be no countervailing forces pushing the market up.

Here is the freebie. The best bull case, that none of you have been smart enough to raise is this. Its that rents are depressed. Make the case that even though rents are at 2000 levels, that they should really be 30-40% higher...therefore the cap rates and price to rents are all off.

I wonder if there is data on Manhattan tax receipts....I wonder where we are compared to like 1999-2002 timeframe. Even better would be granularity on how the income is distributed.

Sorry don't buy that purchasing power of dollar is up. Food, energy, cars, utility bills, real stuff costs more.

Because we can all time the market perfectly, right rhino?. Otherwise cash can depreciate just like any other assest and relative to other currencies; nothing BS about it. I'm sure all the people who got out of the stock market before the S&P climbed back to 1150 are so happy with their cash? Point is that at some point you have to put the cash to work, but you can't wait until there is no risk to your down payment because there is no such time. Catching a falling knife is one thing, buying only at the bottom is entirely different.

w67, there are other situations. It's not nearly as rare as you seem to think it is.

inonada, might be a nagging spouse, but there are many others.

Im not a bull.. Some of the points I raised about int rates and other things you say have to do with your dead certainty about price direction. I think it is overstated. Your best argument is that because the risk is assympetrical (for all the logical arguments you give that prices should decrease), and because it is cheaper to rent, why take the risk. But rent/buy is not as nuts uniformly throughout the market, and so while it would be folly to buy some of teh most absurd cases, someone might rationally choose to buy one of the less wackily priced apartments. And, there is no guarantee prices will fall significantly further. Dead certainty seems odd to me, sorry.

As to rents -- why do you have to insult everyone saying they are stupid -- that is actually a fairly obvious issue. But, at least anecdotally depressed rents seem to me to not fully explain the rent/buy getting out of whack, even if rents correct back some. I think to argue rents should be 40% higher is a bit extreme...even at the peak rents of a couple places I know well were not 40% higher than now.

Prices of apartment could rise..its just funny that none of you can really articulate a strong case for why. No one can time the market perfectly. However, like what value investors do, you can get a sense of when something is intrinsically overvalued. That is what Manhattan real estate is. Yet all of you seem to want to be convinced not to buy.... You need someone to prove to you what is better. Its silly.

Rent/buy is a function of money cost, almost entirely. And money cost looks set to rise.

jim, if you look at a set of factors and every damned one points down, but for some vague desire to own, i'd say you pay attention to the fact that every damned one points down. sure, the world could end in 2012 and we could discover a source of wealth generation to dwarf all of those points. but probability-wise, i'm going with the evidence. sometimes it takes a long time for the evidence to be proven correct, but if everything turns out rosy and uplifting before prices fall further, well that's your question, isn't it? and i'm taking the no-go on that one.

where, i ask you, is the positive? and until you can come up with something, you're just fretting about a nebulous possibility. yes, it's interesting, the timing. but we don't have answers to that. factors intervene. but we can look at sustainability of pricing. and see very little.

I am not argying prices will rise. Personally I think some slight drift down, unless a shock comes of some form, and we may get a bigger leg down. I just don't see the dead certainty that you do. At the right price the advantages of owning (some perceive those even ifyou don't), might induce me to take the risk. On the other hand, a reaally good rent could cut against that. As to certainty,...i'm not a trader but i spent many years working with them, and i don't recall anyone ever so certain about anything.

jim, there are shocks all around us. little ones, medium-sized ones, large ones, huge ones, just waiting to happen. the question isn't whether there will be some shocks, it's how big they will be and whether we'll be able to deflect them somewhat or at all.

this economic world we live in is mighty precarious. lovely time to buy.

Here's the thing, your slight drift down has no basis. Valuations, the numbers of condos out there, incomes, the state of the NYC budget...recent hiring classes. These all suggest worse. The retort? Oh well then why isn't it lower already? Okay I'll bite...the government stepped in and is forcing rates down every way it can. Nothing is CERTAIN... But you have no case. You have no case, but oh well stocks are volatile so what else can I do. Now once you are there, you psychologically manufacture a soft downside case. Nothing could be less reasonable.

In such a slow moving market as real estate, the idea we need more shocks to drift down 15% a year in each of the next two years....its basic bullshit.

aboutready's toilet

I'm not getting through . I certainly see the case for the bears, and think it is by far the better case than for any true bull, but where I difffer is your view that it is absurd to have any other outcome.

Pick your poison
Cash => FDIC broke, money market law change make it not as safe as one might think. Also interest rate makes you lose to true inflation, which the gov is also hiding through law changes
Bonds => THE new bubble. Not many countries that aren't broke
Stock => Very Volatile and had a huge run
Real Estate => Hasn't bottomed yet, need leverage and cash

Tough times

Jim,
You think it's such a big deal because you're on the fence about buying, right? I'm firmly on the sideline, with NO intention of moving towards buying if rates rise.

aifamm...yes...it all sucks....you could have added gold -- zero yielding crisis safety net that, uh, doesn't always act like that

positive..you said it was as meaningless as retirement of an iowa congressman...i did differ with that...i dont know if this move per se really means a new direction...

jim, what does a 10 or 5% chance of no downward movement matter? so, you get it wrong and there is no big lurch, or medium or small lurch down? are you saying you see a 5-10% chance for upward momentum in the short term? or medium term?

where's the f'ng fire? the odds are for downward movement. if you have a particular reason for buying, and you feel you NEED to do so, that's one thing. it may not be the best option investment wise but you may not care. and you must be comfortable with the potential loss if you need to move for any reason. but everyone else, there are some awesome rental options out there. to say that prices MAY increase is like saying cancer might be cured next year. yes, maybe so, but not bloody likely. and kind of a useless mental exercise unless you can come up with a few plausible reasons why they might. i haven't heard any, other than the foreigners (and good luck with that with the dollar climbing) and the pent-up demand (prices, prices, prices).

this country is broke, most of the developed countries are broke. the emerging countries have money, but not enough in the hands of the people to substitute for our consumption. this is a truly f'd up situation.

I didn't mean to say his retirement/not running for reelection was meaningless.

What I meant was Republicans winning Ted Kennedy's seat and Iowa guy dropping out is more of a sea change than the bump in the discount rate.

I read on some blog that for every 1% that treasury yields rise, we add $1 Billion a week to our debt. Where do you think rates are going?

"this economic world we live in is mighty precarious. lovely time to buy."

aboutready, actually I would argue that is precisely when one should buy. There are few buyers so prices are down and the cost of money is down to motivate the market. So price and money costs are low which sets up a great environment to buy depending on your time horizon (the longer it is the better the bet). Are you suggesting that buyers should wait to buy until all economic signals turn positive? By then you will have missed a great opportunity. It's like Buffet buying Goldman when no one else would touch it. It went down significantly but he had the backstop of the interest on the preferred shares and time was on his side. This is no harder to understand the what you, rhino and w67 are saying. Most often the best purchases are made when the asset is out of favor, out of season etc.

And rhino if "Rent/buy is a function of money cost, almost entirely. And money cost looks set to rise" then the time to buy is now not later. Buy when money costs are low. Those low rates provide a huge hedge to potential depreciation. Again the longer your time horizon the greater the hedge.

And the idea that real estate is "such a slow moving market" has also been pretty much debunked.

gator, i don't think you have a clue what i'm saying. bunker down.

but best of luck.

"And rhino if "Rent/buy is a function of money cost, almost entirely. And money cost looks set to rise" then the time to buy is now not later. Buy when money costs are low. Those low rates provide a huge hedge to potential depreciation. Again the longer your time horizon the greater the hedge."

Wrong...I mean exactly wrong. You want real estate to be a fast moving market now, because you've decided the worst is behind? You can always refinance. Higher mortgage rates lowers buying competition. Its not clear to me why you dont understand that. Its not contrarian to buy real estate now, when the price/rent and cap rates continue to factor in high appreciation potential in the coming years. When cap rates are high and price to rents low, that is when the market is telling you the outlook is bad...and then you buy.

gator, re IS a slow moving market. which means that when it moves quickly, something is fundamentally wrong.

Gator,

Did you just compare NYC RE to Goldman dropping from $235 to $50? Seriously?

We're nowhere near close to that. When Buffet buys Stuytown, then I'll go all in.

about, why is that? Because I disagree with you? There are many valid theories to investing. You seem to think there is only one...yours. The thing that stands out about your or rhino's or w67th's opinion is that it is so unequivocal, that it is so absolute. I fully recognize that my "bet" may not pay of in the near term, but then I'm not making a near term bet, but there are plenty of reasons why it should pay off in the mid to long term.

rhino, I don't want real estate to be a fast moving market, but it has shown that it can be. Is a market that can go up or down 20% in a year a fast moving market? I would say so (its not the stock market, but that's not the point), and the RE market has certainly proven that it can do that. It has nothing to do with what I want, rather what it is. You can always refinance? What is the chance that anyone is going to be able to refinance at 5% at anytime in the next 20 years. Not too good. So I'll take that depreciation hedge now thank you. You and Deustche Bank can stick with your price/rent and cap rate analysis. I give it credence, I'm just not a slave to it.

postive, I'm not saying that we are anything near that. I was just using it as a conveninet example to make the point. It seems fairly obvious: buy low, sell high while accounting for cost of money.

gator, i'm one of the few bears here who actually supports buying under more than one limited set of circumstances (wealth that simply doesn't care).

but you also have to realize that i've been saying that we're in a bubble since 2004. and i've gotten a shitload of abuse for my position. and i hate the "i was right" mentality, see swe, but fuck yes, i was right.

do what you will. is a 20% correction that fast? no, not in a market that had over 100% appreciation in a decade or less.

The problem is you think $1000 a square foot is low. You're out of your mind. We were just at $500 a few years ago. Can you honestly say that you can look at a Jonathan Miller chart and say the market is just taking a pause before it resumes it's upward movement?

Gator. Would u prefer a fenchie w67? Wavering back and forth?

Postive, now where did I suggest that $1000 was low? I don't think that at all. I'm not suggesting that everyone should go out and starting buying property. I'm simply advocating that it may be a good time to do so depending on one's financial circumstances, time horizon, and the deal they can get. As I've said many times, I can certainly see a resumption of the decline in RE values, but that current interest rates provide a significant hedge to depreciation. Do I see a resumption of upward movement? Unlikely. I think the most likely scenario is a fairly static market for the next several years.

Gator,

35 minutes ago you said prices and money costs are low. Prices aren't low. That's all I was saying.

never w67. You're great just the way you are :-)

and aboutready, a 20% decline wipes out roughly 40% of a 100% increase if I've done the math correctly (i.e., $1 million apt in 1998 is a $2 million apt in 2008; 20% decline makes it a 1.6 million apt). So a 20% correctiion is pretty fast. I don't see that apt going back to $1 million, might get down to $1.4 million but I can live with that (plus I'm not buying a $1.4 million apt!).

positive, I understand and maybe I should have been clearer. Prices are certainly lower, by 20-30%. Where that's low depends on how much further prices will drop. I can see another 10%, maybe 15%. But today's low money costs provides a great hedge to that downside. That's all I was saying. If prices drop another 30% then I may have made a bad bet (over thirty years at current interest rates I'll likely still be ahead).

Excellent. I'll try to remember this post so a year from now I can pull up your "I can see another 10,15%" comment and we'll talk then.

I made 34% more in 2009 than in 2008. I am not NYC. People like me are not going to save this city's RE prices. I (and several people on this website) can read a chart. It's not screaming buy. With that, I'm off to the bar. Good luck with your purchase.

"So I'll take that depreciation hedge now thank you."

I guess if you plan to keep a big mortgage out there for a long time, its something. The best hedge is a low price. If you are paying such a high price that you need a low rate and all your mortgage interest deductions just to come in line with current rents...what's the celebration of low rates all about? Low rates would be something to celebrate with low prices. Read low as low enough to make your payments after tax much lower than renting an equivalent place.

Prices from 1988 to 1992 fell what, 40%? 20% from here would be what 40% off the top? What was it about 2008 that makes you think that it was at worst, as overvalued at 1998? Anyway you look at the figures, 2008 looks like a much richer peak than 1988. Again, you want to buy, so you are sugar coating your downside to comport with the "advantage" of low rates that you have grabbed hold to as the main justification.

"If prices drop another 30% then I may have made a bad bet (over thirty years at current interest rates I'll likely still be ahead)."

How does this work, if over 30 years, the average $1 is out there for 15 yrs, on 80% of your value? SO you save 200 bps a year for 15 years, thats 30%...but 1/3rd or so comes back in taxes...so you have saved 20%.

rhino, I don't need to buy, I don't want to rent any longer. I've both owned and rented, and buying is now right for me. Nothing more, nothing less. I'm not sugar coating anything; I provided some of my thought process and what I think the likely outcomes are. Could the downside be much greater? Of course it could. I've never denied it, but you appear to deny that there is any other outcome but enormous downside. And by the way, right, wrong or otherwise, most people buy homes with a 70-80% LTV mortgage and pay it off in between 15-30 years.

And I needed to use a ten year period (in response to aboutready's statement of 100% apprecaition over a ten year period) and my use of 1998 and 2008 was solely convenient. You're reading way to far into things (I never suggested that it was as overvalued as 1998).

http://www.washingtonpost.com/wp-dyn/content/article/2010/02/18/AR2010021805904.html?hpid=topnews

maybe i should buy a hotel in dc

Gator, I don't think of this the same way as you do obviously. I don't deny at all that downside is the only scenario. I just don't hear from anyone a compelling argument for upside. I wouldn't need upside per se if the carrying costs of owning were more favorable relative to renting. Also, buying would hold more water with me if the ratios weren't all still off the charts. All I would suggest is that you actually run the math of a 15-25% move down and paying a 2-3% higher interest rate. You've declared that you still come out favorable relative to waiting... I just don't think that's mathematically correct for a 70-80% LTV paid off in 15-30 years....after taxes and given how long the mortgage would be out there. You'd probably need a real amortization schedule. I don't think these rates actually protect 15% downside. Or maybe what you're saying is you don't give a shit because you are 'tired of renting'. 70% of your value, out there for an average of 11 years, at a savings of 2% per annum...assuming a 33% deduction...protects you from about 10% down. Maybe we have highlighted a key point. This interest rate thing really depends a lot on how long you intend to keep a mortgage of what size out there. For instance I plan to put at least 50% down and would hope to pay the other 50% in less than 10 years.

Rent vs Buy currently favors BUY on NAV Pre-tax and NAV Post Tax. It's only on monthly payment and Total Cash out that RENT Is better. Assumed 20% down 5.5% mortgge 3% inflation, $1 per square foot common charges and typical r.e. tax... oh and 1% appreciation rate.

It comes down to your market call and entry point. How long will it take stock market investors with a bad entry point of say the late 1990s to enjoy a 1% appreciation rate. If we fall another 20%, it will take 30 years to realize a 1% appreciation rate.

So what have we learned? If you can buy your last home today, and intend to keep a big mortgage outstanding for a long time, then maybe MAYBE its not a terrible idea.

riversider...are you using ROB screen on bloomberg?

Yes

Why should a rent/buy monthly cost comparison need a discount to buy on day one? That makes no sense. Rhino has never provided any valid support for his rent v. buy claims. He makes a conclusion and then disregards variables that do not support his conclusion, or makes up supporting variables for his conclusion.

aboutready
about 13 hours ago
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gator, i'm one of the few bears here who actually supports buying under more than one limited set of circumstances (wealth that simply doesn't care).

but you also have to realize that i've been saying that we're in a bubble since 2004. and i've gotten a shitload of abuse for my position. and i hate the "i was right" mentality, see swe, but fuck yes, i was right.

Hmm, how exactly have you been right? You are now into the 6th yr of a money-losing trade. even with the huge 9/08-3/09 decline, you've still made a bad trade. what exactly are you bragging about?

printer, so you ARE saying people should try to time market tops and bottoms? not just pay attention to trends and try to act accordingly? thanks, but i made very decent profits on all three of my sales over the last 15 or so years. and i avoided buying again in 2007, and moved into a very inexpensive alternative in 2004.

so i think i'm doing ok.

btw, printer, market timing was not the primary reason i sold. it's true that at the time i didn't feel it was my forever apartment so getting out then seemed opportune, and i was early in that regard. but i sold for at least three other reasons, my daughter's commute time to school, financial (stiff reduction in bonuses), and my daughter's becoming asthmatic and the heating/cooling system in that apartment made it much worse.

All I'm saying that someone who sold in 2004, had rising rents for the first 5 of those years, missed out on re-fi opportunities at the lowest rates we've ever seen, paid the transaction costs of the sale, and hasn't paid down the principal balance of that mtge for the past 6 yrs (which, depending on when you initially purchased it could have been a pretty meaningful amount),

doesn't really have much to brag about, that's all.

Flmao. It's not that there wasn't a bubble, not how big a bubbble, or or how much further NYC re has to fall, IT'S you didn't BUY into the bubbble, that's the problem

Flmao.

There is a ifference between buying and not selling, especially in a market with huge transaction costs and funded with amortizing mortgages. But I'm impressed that you managed to write a full sentence that's almost understandable. I guess you're up to the 1st grade grammar - just 2 more grades to go!

aboutready is worse off financially than she would have been if she didn't sell and rent since 2004, but she is (in a vulgar way) proclaiming that she was right and being obnoxious about it. Classic.

Btwn sets.
Licc that presuppooses the same lemming mentality doesn't stop you from locking in. Saw a study once. 90% ppl rode Internet stocks up and down. Almost 0 got it perfect. So who is smarter. The kid who sees the kids lives going shit with crack and says I'll just drink, or the guy who says we were all taking crack?

Yeah transaction costs r what's keeping 90% locked into greatestest bubble minus 25%. Flmao. How do you come up with this stuff? Back to my 495 squats.

At this point in time, someone who held on in 2004, rode it up, and saw the 20% plunge, kept paying down their principal, saw their maintenance increase, maybe re-fi'd, is better off than the person who sold in 2004, paid all the associated transaction costs, paid rent that went up sharply for a few years and is just now back down to that level. That is pretty clear. yes, if prices resume falling and plummet another 30% that won't be the case. but she can't brag victory when she's lost. if she had sold in 2007, different story.

Perhaps the bears vs bulls is shifting to deflationist vs. inflationist.

I get the bear argument, down on RE, but my point of view is:
Where should you put your money instead?

"In the 1930s, the U.S. watered down a decent Gold standard and turned it into a quasi-Gold standard after confiscating the Gold of private citizens. This devalued the currency by 69% overnight (Gold peg changed from $20.67/oz to $35/oz). Savers got screwed.

In the 1970s, the Gold standard was completely abandoned and rampant inflation ensued, with Gold going from $35/oz to $850/oz at its peak only 9 years later (a 24-fold increase). Savers and those on a fixed income or invested in government bonds got particularly screwed.

We stand on the threshold again. There is no way out of the current debt situation the U.S. is facing."

http://www.financialsense.com/fsu/editorials/brochert/2010/0218.html

printer, you're confused. i'm not claiming victory in my sale. i sold for many reasons, and i made money. who cares. i would have made more, true, had i sold later. but my rent has been very cheap and i've been able to save which i couldn't have done in the prior case. i sold for MANY reason, get it?

where i claim victory is in spotting the f'ng bubble. bubbles are dangerous. wise people avoid them. where i did well is in not turning around when the income went up (2006) and going out and exchanging the cheap rental for another property.

"Where should you put your money instead?"

I dare say this is one of the most overused irrelevant retorts around. Lets see, if you cashed out when Lehman went bankrupt you can now buy more stock and real estate then you could have if you didn't. Stocks are a closer call. The problem here is that people can sit in a house and know there down payment is worthless...but they can't look at their stock portfolio down 50%.

same thing, AR. If it was such a big bubble in 2004, then for you to be right, prices should be sharply lower than they were in 2004 - i.e. the bubble burst. not the case - in fact for established places prices are generally higher than they were in 2004. 2004 was too early.

"The problem here is that people can sit in a house and know there down payment is worthless...but they can't look at their stock portfolio down 50%."

That is a very true statement. The illiquid nature of real estate is actually a good thing for the average investor. Just ask all of the folks on this board that were doing rent vs. buy calculations with their down payment money returning 15% while they were losing 50%

Market timing using your home is unwise. The transaction costs for one will kill you. Home prices are still higher than 2004 and assuming one took on expenses that were reasonable as a percentage of gross income, then the after tax costs(mortgage + tax) may make for an attractive comparison to rent. I also agree with the point that one cashing of real estate would look awfully fookish if he/she committed the money to stocks or some even riskier asset. And if the money went into CD'S then over the long term you've essentially committed yourself to investing at below the rate of inflation and paid taxes on that return each year giving up any deferred growth.

I agree many were wisse not to buy in frothy 2006 & 2007, but most people did not.

You don't need to always try to market time your home. Just the first one.

Don't invest in a market valued over 15 x normalized earnings and don't pay 20x rent or more for your home. Value investing is not market timing.