From: Les Cargill 
Newsgroups: sci.econ sci.physics soc.culture.china misc.invest.stocks misc.invest.real-estate
Subject: Re: How do I short real estate before the bubble pops?
Date: Sun, 04 Sep 2005 15:55:08 GMT

Steve wrote:

> Misseur Kool wrote:
> 
>>Komin wrote:
>>
>>>hwo do you know there is a bubble  Real Estates coming ?
>>>
>>>the Oil price is high and the Americans are still importing .
>>>Do you think the interest rates will go up  ?
>>
>>CNN and New York Times say there is a real estate bubble.
>>http://money.cnn.com/2004/08/06/real_estate/investment_prop/hedging/
>>
>>BEND, Ore. (CNN/Money) - If you're like most Americans, much of your
>>net worth is tied up in a single, illiquid asset: your house.
>>
>>"Don't put all of your eggs in one basket," warn financial gurus.
>>
>>Yeah, well what's a homeowner to do?
> 
> 
> For most people your primary home is NOT an investment. So the "bubble"
> doesn't matter to you. Over time real estate will go up at 6-7% or so,
> so if it goes down it will go back up over time. If the value of your
> house goes down and you need to move, so will the cost of whatever
> you're going to buy next. So its all relative.
> 

No. Because if you need to move, it'll be from
a less desirable to a more desirable area. You'll
face an uphill equity climb.

And you'll lose on it.

> Suppose your house is worth 500K. RE is booming and you want to move
> up. So you look around and its going to cost you 800K for another
> house. You need to borrow an extra 300K.
> 
> Now suppose your house value goes down to 400K. Its likely the place
> your moving to will be 650K (as higher end homes tend to go down more
> than lower end homes). You only  need to borrow 250K more to get the
> new home. You've actually made out.
> 

You've made out into owing money for the
rest of your life. This is roughly the same
thing as "minimum monthly payment syndrome"...

How many 30 year mortgages can one person retire in
a 45 year working life?

> A bubble only really matters to investors. What the house you live in
> is worth has no bearing on your lifestyle. Interest rates are another
> matter. If you have a fixed mortgage and you're not moving, who cares?


How do you know you're not moving?

> If you have an adjustable and you think rates are going way up, convert
> to a fixed to protect yourself if you can. If your house is worth more
> than you can afford with a fixed mortgage, then you might be in
> trouble. But people who don't live within their means are in trouble
> generally.
> 

Huge mortgages are the main reason people don't live within
their means...

> A bubble will hurt banking more than consumers. People who put a lot
> down generally don't default, and generally aren't stupid enough to get
> an adjustable mortgage when fixed rates are low. On the other hand, if
> you didn't put much down and your adjustable rate goes way up, you walk
> away and rent. Its the American dream in reverse.
> 

No, it's just renting by another name...

--
Les Cargill