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-- Posted Thursday, 24 August 2006 | Digg This Article | Source: GoldSeek.com
Rick’s Picks Thursday, August 24, 2006 For investors who’d rather be smart than lucky “Housing Prices May Become More Volatile”. Where do they dig these stories up? The headline, lifted from the latest edition of The Wall Street Journal, is a real classic of the genre in the Sugar-Coated News category. We infer from the word “volatile” that in the years to come, home prices can be expected to both rise and fall at least somewhat more capriciously than usual. Ah, would that we could rely on it. In fact, we expect, not ups and downs, but rather a steady erosion of real estate prices for at least the next decade, which is how long it will take, probably, for K-Wave deflation to run its course.
The soft-edged report, prepared by four Federal Reserve economists, notes that “the housing market is remarkably similar to stock and bond markets” to the extent “expected future real return to housing is the primary determinant of the trend and variance of rent-price ratios.” Although that sounds about right, we would argue that the well-leveraged, relatively riskless returns to be had from mortgage paper in recent years have driven a housing boom to excesses unrelated to such subtle factors as trend-and-variance of rent/price ratios. In fact, easy credit such as we’ve enjoyed for more than a decade has led to a housing boom that makes no economic sense whatsoever.
Buyers Hunker Down
Now, with interest rates on the rise and the Fed constrained from easing because it could destroy the dollar, we wonder what unforeseen factor(s) could conceivably cause housing prices to become “volatile” -- i.e., prone to gyrate both up and down. We see only a steadily weakening market in which the gap between buyers and sellers will continue to widen, inventory to burgeon, and the number of transactions slow precipitously. We also believe that today’s sellers are delusional, believing as they do that the current downturn will prove to be just another blip in a market that only rises over time. Will buyers get second wind and put some volatility into the market, as the Fed report suggests? We think not. More likely is that they will continue to hunker down, waiting for an increasingly significant break in prices. When it comes, as it surely must, don’t expect the U.S. economy to be in the kind of shape that is conducive to real estate booms.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2006, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Thursday, 24 August 2006 | Digg This Article | Source: GoldSeek.com
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