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Yakk · 10-28-2005, 07:22 AM

The theory I've heard is that the cost of owning a morgage on a home is not out of line with historical trends.

If you take the growth in the median income and divide by the reduction in the cost of carrying a morgage, you end up with prices not that far out of line with what we are seeing.

The differences, of course, are ignored.

1> Equity in your home becomes harder to gather under this model.
2> The increasing number of "creative" financing options that leave homeowners very vunerable to downturns in the market.
3> The high levels of speculation (25%-30%+), a bad sign.
4> Rental prices not keeping up with the increase in home prices.
5> The large number of "buy real estate and get rich!" pseudo-pyramid schemes on TV (always a bad sign -- remember the daytrade schemes during the dot-com bubble?)

Real estate is, admittedly, local. One good rule of thumb to determine if your market is overpriced:

Work out how much it would cost to rent a home. Call this RENT_COST.
Work out what your morgage+property taxes+utilities would be for the same home given a 25% downpayment. Call this OWN_COST.

Compare OWN_COST to RENT_COST.

If OWN_COST > RENT_COST, then we have a price-inversion, and stay the hell out of that real estate market.

There seems to be a lack of tools to "short" the housing market. If I believe the price of real estate in an area will go down, is there anything I can purchase that will allow me to profit if I am right?

10-28-2005, 07:22 AM	#7 (permalink)
Yakk Wehret Den Anfängen! Location: Ontario, Canada	The theory I've heard is that the cost of owning a morgage on a home is not out of line with historical trends. If you take the growth in the median income and divide by the reduction in the cost of carrying a morgage, you end up with prices not that far out of line with what we are seeing. The differences, of course, are ignored. 1> Equity in your home becomes harder to gather under this model. 2> The increasing number of "creative" financing options that leave homeowners very vunerable to downturns in the market. 3> The high levels of speculation (25%-30%+), a bad sign. 4> Rental prices not keeping up with the increase in home prices. 5> The large number of "buy real estate and get rich!" pseudo-pyramid schemes on TV (always a bad sign -- remember the daytrade schemes during the dot-com bubble?) Real estate is, admittedly, local. One good rule of thumb to determine if your market is overpriced: Work out how much it would cost to rent a home. Call this RENT_COST. Work out what your morgage+property taxes+utilities would be for the same home given a 25% downpayment. Call this OWN_COST. Compare OWN_COST to RENT_COST. If OWN_COST > RENT_COST, then we have a price-inversion, and stay the hell out of that real estate market. There seems to be a lack of tools to "short" the housing market. If I believe the price of real estate in an area will go down, is there anything I can purchase that will allow me to profit if I am right? __________________ Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.