Thursday, January 26, 2012

Dear CaptiousNut,

Well, my bank puts are gone now (this month)....and I'm not planning on buying more (but you should!).

If inflation picks up steam....rates will rise and housing will crash. Actually it's still so astronomically high, and over-supplied and under-demanded to the extent that it will crash EVEN with continued low rates.

Yeah, inflation can theoretically raise the price of homes...but you need *wage inflation* and sinking rates for that to happen which is unfortunately the opposite of current economic reality.

Also, inexorably rising property taxes and energy prices are working and will continue to work strongly against home prices.  Don't underestimate this phenomena like EVERYONE else is.

Inflation and deflation rarely permeate across all segments of the economy at the same time.

For example, from the mid-90s to the mid-00s' we had very low commodity inflation.....BUT we had ridiculous inflation in healthcare and education - two effin' big budgetary nuts for most households.

Yeah you can certainly lock in a very low long-term mortgage rate at the moment.

But I submit it's nothing short of a TRAP. Once rates climb (which they certainly will at some point over the next 30 years!) it will be *game over* for the entire real estate market/stock market/economy. And while you may be locked in at a low monthly rate.....that same piece of property will be on sale for a much lower sticker price but at a similar monthly cost of carry to whatever you are paying. But the guy who buys then will benefit from the massive appreciation of his house if/when rates drop again.  So my advice is to wait, horde your cash until there really is blood in the streets.  Unless of course the house is something you are 1,000% sure you want for the rest of your life and you have the means to think of it as a *sunk cost*.

Believe me....once real estate crashes everyone is simply going to stop paying the bank, squat and/or mail their keys back to the bank/government - a la my old landlord in Massachusetts who's still in his house despite having stopped paying the mortgage  AND property taxes 4.5 years ago (thanks GMAC, er taxpayers)!


JReality said...

"Well, my bank puts are gone now (this month)....and I'm not planning on buying more (but you should!)."

Making money shorting the market (or by buying puts) ain't easy, although it worked fine in 2008. Every time it looks like sanity is prevailing (e.g. last summer's collapse) they find a way to manipulate the market higher again. I managed to make money last year by holding my nose and going long after losing money in 2009 and 2010 from shorting. I'm LIGHT short right now and hoping I don't get trapped. Market has pretty much erased the entire collapse from last summer.

CaptiousNut said...

Hi JR,

A 1-2 year rally off the bottom would have been/was truly INSANE.

But we are coming up on 4 years now!

I don't watch it anymore. I've moved on to more rational endeavors.

No regrets though. It was the right career for me at that stage of my life. I learned tons.