Unrealized loss is not a loss … that is a good one. I hope the Japanese are still optimistic about their holding since the 90.

Maybe, maybe not. Stocks are relatively concentrated in investors who already own houses. Part of the reason for the fall in the market is that there were $320 billion in mutual fund withdrawals. Money market funds tell a different story:

“Meanwhile, money market mutual fund assets rose by $​130.​2 billion, or 3.​6%, in November to $​3.​736 trillion, and these assets have risen by $​628.​4 billion, or 20.​2%, year-​to-​date in 2008.”

source: http://www.cranedata.com/archives/all-articles/2048/

Question is will that money stay there or go to an inflation hedge, like say, real estate ahead of the $1 trillion stimulus package that is burning a hole in the new Congress’ pocket.

If you think of your home as solely an investment, especially a short term one then you should rethink your financial planning.

I look at buying a house solely as an investment, which is why I won’t buy at current prices.

Investing does not mean playing a Ponzi scheme. Looking at a house as an investment does not mean blindly assuming prices will go up. It means looking at P/E and comparing it to other assets, to see if it is a good place to put your money. If P/E is inferior compared to other assets of comparable risk, prices will go down. Like they are doing now and will continue to do.

Well now you’re just being silly. Everyone knows that the most fair way to compare things is to assume an all-cash purchase.

the scenario given of a 20% down payment has not really been very common for quite some time

100,000 Investment

(46,000) Capital Loss in 2008 (not recognized this way by tax code… but)
(22,000) Cost of financing remaining $400k @ 5.5%APY
(5,000) Annual maintenance and repairs @ 1%
(5,000) Insurance @ 1%
(4,350) Property tax @ 0.86%
(3,700) Cost to sell house at current value, divided over 10 years

+24,000 Rent payments avoided
+9,200 Tax benefit on mortgage interest and taxes @ 35% bracket
————
$47,150 = a return (loss) of almost (53%)

.

If you’d paid 100% cash for the home, of course, your loss would be much smaller, only about (8%) and much better than if you’d parked your half-mill’ in the S&P. But most people prefer to use their 4:1 leverage when they buy real estate.

The US govt and Fed can increase supply of money like crazy

Sure, policy makers can increase the money supply but that has little or no impact on the value of the currency relative to assets. Japan has been massively pumping it’s money supply for 20 years yet deflation has run rampant nevertheless.

Moreover, all this stimulus from global goverments and central banks doesn’t come close to making up the difference in the loss of private credit markets (which have vanished in the last year). Anyone putting their money under the mattress will do VERY well over the next 3 to 5 years since most other assets (real-estate, stocks, commodities, gold) will keep crashing in value for YEARS.

In the LONG run fiat currency will inflate, but we are going to go through a prolonged bought of deflation before we get to that point.

I have laid out the case for deflation in my blog at http://www.surkan.com.

CitiGroup was the first indicator that a Financial Institution can create a global economic riipple. They, by the way, are a Consumer Credit lender. There was anothe Consumer credit lender at the same time that started the ball rolling, I forget if it was Chase or not.

To be short, because I need to go to work, manufacturing or jobs in manufacturing may the only way to help. Propping up financing will only prolong any recovery. The need for goods is immediate and extremely sustainable. The world population needs more than toys from China.

The American households cannot spend because they have debt burden. They just focus on repaying loans. This is crazy. Same thing is with housing. People feel burden of the payments especially after moving from ARM to full blown payments for a depreciating shack. So how to do this? You have to somehow reduce debt- and inflation is the way to go.

Offline – are we screwed big time. I would think that the following people will be screwed big time:
- People saving under mattress or in CDs. However for the moment you are dealing with deflation so for the very short term this may be the way to park your money.
- People who are buying long term US treasuries. Come on this is a classical bubble. Too many people panic.
- Govts who hoard US dollars
- In a way banks who were lending all the money. They will get it back but it will be worth less than they would think it should.

People on this forum were bashing me for saying that there will be bailout like crazy. But this happened. And then people did not like when I was talking about starting the printing presses and bringing in good HP machines – this is obviosly now how this happens but it makes the point.

The bailouts are great.

So if GM gets a bailout then unemployment will stay lower becauise of this. Barrack Obama will not want to preside over a nation with 20% unemployment rate. He will give GM even a sweeter package than current administration.

I would presume that Barrack might start giving sweeter deals for all distressed home owners. Everybody will just get a small piece of the pie.

And then checks, or less taxes or whatever to get you to keep more money in your pocket. People are obviously going this route!

I initailly thought that this will just cripple the $$. But no. I take that back. All other govts will do the same think like the US – so the $$ will be disfunctional but will have lots of disfunctional company. So it will be great for everybody.

People bashed me that the Chinese will be angry etc. No. The Chinese will be scared that their factories producing toys for American market will get shut down anytime. They will be even willing to be dilluted in terms on their USD holdings just to avoid social unrest. In 10-20 years time this may not fly and they might send in some helicopters – but for now – they will cooperate with a smile on the face.

I think the way to avoid long term for your wealth to diminish – you need to invest in sthg. Now maybe is not the time but soon it will be the case. Holding cash for say 20 years time means that the cash will be worthless.

I would suggest the math be performed with the difference between mortgage payments and the equivalent rent.

here is the math:
20k down + 96k (16 years of payments) and 84k left on your mortgage.

assume about $1k/year average maintenance, but it is likely more over a 16 year timespan due to big ticket items.

6% comission on that 425k sale =~ 400k

400k – 84k = cash after mortgage
132k (your cash in total) * x^16 = 316k

this works out to about 5.6% gain per year on average. not bad to bad for buying at a low and selling right after the high, but not great either. considering the average person moves every seven years and you will see why real estate is, generally, a break even “investment”. hopefully when this sinks in for most of the population, like it was before the bubble, price sanity from sellers will return.

How many pending sales failed to close in December? I believe it was 1 in 5 last month (or was it the month before?)

Can someone explain to me how my current personal living situation has anything to do with the content of this post?

I bought my first house in 1992 for $200K with 10% down ($20K)

At the peak, some fool would have bought it for $580K.

If it sold today for 15% under market value, it would sell for $425K.

Even with a cost to sell of 10%, you do the math return on investment.

Why do you accuse me of lying? The market is down and it is going down further over the near term.

Let’s talk again in 15 more years.

What makes you think anything is coming back?

I haven’t lost on either my real estate or my stock investments at all in 2008.

My returns were the worst on record, but I didn’t sell either of them and don’t expect to sell for the next 15 years.

It is not a loss until it is realized.

Having stated that, this quiz could’ve been trotted out in 2006 and you could’ve seen double digit returns by flipping some real estate. Unsustainable, yes, especially in hindsight but many people made money in those years.

1) The value of the shelter provided by the home – that is, the amount saved by not having to pay rent. This must be figured as the rent for the *median property* – not a small apartment. In King County in 2008, I’d claim that’s roughly 2000 a month – which more or less matches the amount spent on mortgage interest;

2) the fact that montly mortgage interest is tax-deductible – which comes out to be close to 500 a month that the “investor” gets back at the end of the year.

3) property tax and insurance… but those are roughly canceled by the benefit provided by item #2 above.

http://www.youtube.com/watch?v=bNmcf4Y3lGM

Hitler’s “translated” words actually sound a lot like something that The Tim would write! Or maybe he *did* write that :) . Regardless, it’s a blast to watch! pay attention to how he’s about to lose his “Camaro SS”.

Should I stay or should I go?

http://www.payorgo.com/

The laws were changed years ago to give the “investor” the right to take the property. That’s the “investors” hook, they collect fees and interest income and take back the asset to resell if it doesn’t work out. That was the reasoning behind 100% financing.

The investor is in parethesies because it ultimately ends up being some mega land trust financial engineer. There are so many people along the way looking for a hand out it’s shameful. Give them nothing. We already gave them our tax dollars.