Rantings and tirades of a frustrated economist.
Still a great time to buy... :-)
Does this real estate bust resemble a stock market bust in enough ways to use the same indicators for finding the bottom?
Hey Rebarb,Yes and no, just thinking off the top of my head. Stocks you invest in for the returns, or at least presumably you do. Houses, unless you are investing in rental property, you are not investing in them the same way. So whereas stocks can bubble and crash, housing is not as liquid. People will hold onto their house and live in it for years, with no particular investment horizon. In otherwords housing is first and foremost a consumable.However, they are similar in that you use similar ratios to determine whether they're over/undervalued. Stocks use a P/E ratio, whereas housing using a P/E ratio as well, it's just instead of earnings, they use rents. Price to Rents.In both cases, say Dotcom mania vs. the housing bubble their price to earnings and price to rents skyrocketed, causing bubbles. And there is an "average" Price to Earnings and Price to Rents they should average around. In this sense you can kind of guess the bottom. My figures show that housing would have to drop 20-40% from its peaks (or rents would have to increase similary) to be back to normal values. But I could be wrong.Regardless, housing in a different creature than stocks/
Nice graphic, Cappy. I suspect you are about correct in the necessity for a 20-40% pullback, but unlike the stock market, it will not be evenly spread geographically because the bubble was not evenly blown up. Cali and Florida are going to be crushed, Nebraska and Alabama not so much. One other unknown to factor in with prices is lending availability. I think we are heading into a period (5-7 years) where mortgage money is going to be tough to come by at all unless you are a top flight credit risk, and even then *very* limited for jumbo mortgages. That will tend to drag big houses down even more.If you have money and intend to live in your house a while, it IS a great time to buy - blood in the streets and all that.But I think next year and the year after will be much better times, FWIW.
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