Thursday, November 29, 2012

Housing bottom?

Amid all the talk of us now hitting the housing bottom, keep in mind that housing is a purchase “on time,” and that when mortgage interest rates go up to 6 percent, housing prices will fall about 20 percent, income levels remaining constant.

I view the current bottom as local, not global, and a bear trap from an investment point of view.  It’s strictly a cash-flow play at this point, which is why the big boys with unlimited access to zero percent money are piling in.

It may take ten years for rates to go up, but during that period the potential for price appreciation is limited by highly indebted and skittish Millennials, downsizing Boomers, and a generally sluggish economy.

What if we inflate?  Interest rates adjust to inflation much more quickly than housing prices.  I think the affordability would fall quickly.  Of course, if you’re betting on a strong inflation later in the decade, as some are, the time to buy is now, as a debt-deflation is probably just as likely, this isn’t the bet it was for the sixty years up to 2005.

I just can’t get excited about the talk of a housing bottom.

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