House Prices Have Reached Their Peak?

[DaveRhydderch]

I sent this out to my clients and JV partners the other day. I thought maybe some people on here would like to do the same. It is from a book called "The 106 Common Mistakes Homebuyers Make":


Among all the lessons history teaches, none is more certain that the fact that home prices will go up. Regardless of how high you think prices are today, they will be higher 10 years from now. And much, much higher 20 or 30 years into the future. Don`t make the mistake of believing home prices have reached their peak. Before you put faith in the naysaying of economic "experts", take a quick trip through some of their faulty predictions from years gone by:

• "The prices of houses seem to have reached a plateau, and there is reasonable expectancy that prices will decline." (Time, December 1, 1947)
• "Houses cost too much for the mass market. Today`s average price is around $8,000-out of reach for two-thirds of all buyers." (Science Digest, April 1948)
• "If you have bought your house since the War...you have made your deal at the top of the market....The days when you couldn`t lose on a house purchase are no longer with us." (House Beautiful, November, 1948)
• "The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000." (Business Week, September 4, 1969)
• "Be suspicious of the `common wisdom` that tells you to `Buy now...because continuing inflation will force home prices and rents higher and higher.`" (NEA Journal, December 1970)
• "The median price of a home today is approaching $50,000...Housing experts predict that in the future price rises won`t be that great." (Nations Business, June 1977)"The era of easy profits in real estate may be drawing to a close." (Money, January 1981)"In California...for example, it is not unusual to find families of average means buying $100,000 houses...I`m confident prices have passed their peak (John Wesley English and Gray Emerson Cardiff, The Coming Real Estate Crash, 1980)"The golden-age of risk-free run-ups in home prices is gone." (Money, March 1985)"Financial Planners agree that houses will continue to be a poor investment." (Kiplinger`s Personal Financial Magazine, November 1993)."A home is where the bad investment is." (San Francisco Examiner, November 17, 1996)

No doubt, in some future years, we will hear "experts" tell us "Buy a home as a comfortable place to live-not to make money. Home prices can`t go any higher"....

 

[RobMacdonald]

That`s great!! It goes to show you that these times are not unique, maybe the extent of the dip, but not the first time in history that the public has panicked. Helps to confirm the long term focus!

Thanks for sharing!

 

[Thomas Beyer]

QUOTE (DaveRhydderch @ Jan 5 2009, 11:23 PM) I sent this out to my clients and JV partners the other day. I thought maybe some people on here would like to do the same. It is from a book called "The 106 Common Mistakes Homebuyers Make":


Among all the lessons history teaches, none is more certain that the fact that home prices will go up. Regardless of how high you think prices are today, they will be higher 10 years from now. And much, much higher 20 or 30 years into the future. Don`t make the mistake of believing home prices have reached their peak. Before you put faith in the naysaying of economic "experts", take a quick trip through some of their faulty predictions from years gone by:

• "The prices of houses seem to have reached a plateau, and there is reasonable expectancy that prices will decline." (Time, December 1, 1947)
• "Houses cost too much for the mass market. Today`s average price is around $8,000-out of reach for two-thirds of all buyers." (Science Digest, April 1948)
• "If you have bought your house since the War...you have made your deal at the top of the market....The days when you couldn`t lose on a house purchase are no longer with us." (House Beautiful, November, 1948)
• "The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000." (Business Week, September 4, 1969)
• "Be suspicious of the `common wisdom` that tells you to `Buy now...because continuing inflation will force home prices and rents higher and higher.`" (NEA Journal, December 1970)
• "The median price of a home today is approaching $50,000...Housing experts predict that in the future price rises won`t be that great." (Nations Business, June 1977)"The era of easy profits in real estate may be drawing to a close." (Money, January 1981)"In California...for example, it is not unusual to find families of average means buying $100,000 houses...I`m confident prices have passed their peak (John Wesley English and Gray Emerson Cardiff, The Coming Real Estate Crash, 1980)"The golden-age of risk-free run-ups in home prices is gone." (Money, March 1985)"Financial Planners agree that houses will continue to be a poor investment." (Kiplinger`s Personal Financial Magazine, November 1993)."A home is where the bad investment is." (San Francisco Examiner, November 17, 1996)

No doubt, in some future years, we will hear "experts" tell us "Buy a home as a comfortable place to live-not to make money. Home prices can`t go any higher"....

brilliant .. that`s why they teach history in school .. but frequently economic history is not at all on the agenda !

RE slopes along an inflationary upwards-sloped line like a wave with peaks and valleys !

 

[EdRenkema]

The real clear understanding for me is not that prices will go up its the understanding of inflation.
The buying power of the dollar is going down and leveraging into a RE asset with positive cashflow is locking in the asset at yesterday`s value and paying if off with tomorrow`s dollars (your tenant`s dollars), read more here:
http://www.greghabstritt.com/2008/12/

 

[JordanRich]

QUOTE (EdRenkema @ Jan 6 2009, 01:40 PM) The real clear understanding for me is not that prices will go up its the understanding of inflation.
The buying power of the dollar is going down and leveraging into a RE asset with positive cashflow is locking in the asset at yesterday`s value and paying if off with tomorrow`s dollars (your tenant`s dollars), read more here:
http://www.greghabstritt.com/2008/12/

I read greg`s blog on inflation and to be honest i`m a little confused? can someone ellaborate more on inflation and it`s affect on real estate specifically how you lock in an asset at yesterdays value and pay it off with tomorrows dollars? and how that`s a positive, thanks.

 

[ChrisDavies]

QUOTE (JordanRich @ Jan 6 2009, 01:00 PM) I read greg`s blog on inflation and to be honest i`m a little confused? can someone ellaborate more on inflation and it`s affect on real estate specifically how you lock in an asset at yesterdays value and pay it off with tomorrows dollars? and how that`s a positive, thanks.

Say you buy a house today for $100,000 and you`re making $50,000 a year. That`s a ratio of 2:1, or 50%. Inflation takes off, and your salary is indexed to it, so now you`re making $75,000. Has the purchase price of your house changed? No, you already bought it, but now the ratio is 4:3, or 75%. You have relatively more dollars to play with.

 

[jamievaughan10]

QUOTE (ChrisDavies @ Jan 6 2009, 06:36 PM) Say you buy a house today for $100,000 and you`re making $50,000 a year. That`s a ratio of 2:1, or 50%. Inflation takes off, and your salary is indexed to it, so now you`re making $75,000. Has the purchase price of your house changed? No, you already bought it, but now the ratio is 4:3, or 75%. You have relatively more dollars to play with.

Hey everyone,

My name is Jamie and i am a just starting out on my real estate adventure. I am quickly catching up on all these important topics. I have one question regarding inflation:

I read on Investopedia.com that "Creditors lose and debtors gain if the lender does not anticipate inflation correctly. For those who borrow (an investor like myself and most people on here), this is similar to getting an interest-free loan." How is this so?

 

[Thomas Beyer]

QUOTE (jamievaughan10 @ Jan 6 2009, 11:39 PM)
I read on Investopedia.com that "Creditors lose and debtors gain if the lender does not anticipate inflation correctly. For those who borrow (an investor like myself and most people on here), this is similar to getting an interest-free loan." How is this so?




Actually, it is better than that even:



If real inflation is 6% but interest rates are 4.5% then you get a loan that has a negative real interest rate of 1.5% .. better than free money !



On some REIN posts I have put those charts .. accessible to REIN members:



http://myreinspace.com/rein_members_only/Members-Only_Discussion/81-6621-50_Year_Calgary_House_Price_View.html

 

[jamievaughan10]

QUOTE (thomasbeyer2000 @ Jan 7 2009, 10:00 AM)
Actually, it is better than that even:



If real inflation is 6% but interest rates are 4.5% then you get a loan that has a negative real interest rate of 1.5% .. better than free money !



On some REIN posts I have put those charts .. accessible to REIN members:



http://myreinspace.com/rein_members_only/Members-Only_Discussion/81-6621-50_Year_Calgary_House_Price_View.html




Ok. Thanks Thomas. Where is Canada currently at in regards to inflation?

 

[DaveRhydderch]

The one interesting thing in regards to inflation is that there is historical examples of inflation being high and house prices decreasing. If inflation gets too high, interest rates are raised, and housing affordability goes down.

However, overall real estate is a good inflation hedge.