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?
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Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.
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