7 Reasons Why Housing Isn't a Good Investment Yet

Now is an OK time to buy a house to live in for the long term, but as an investment, we still have a while to go. Here is why, especially the last two reasons.

1. Mortgage rates have increased during the last few weeks by almost one percent for 30 year fixed mortgages.

2. Nonfarm payroll employment fell by 345,000 in May.

3. The number of unemployed persons increased by 787,000 to 14.5 million in May.

4. The unemployment rate continues to rise, increasing from 8.9 to 9.4 percent.

5. Real gross domestic product decreased at an annual rate of 5.7 percent in the first quarter of 2009.

6. Many amateur / first time real estate investors are jumping in to the market. Last time I saw that was at the top of the market in 2005.

7. In California and Nevada, I've seen a significant number of houses receiving many multiple bids over the asking price. Last time I saw that, again, was at the top of the market in 2005. Maybe things are different this time, and it now means that real estate is bottoming, but I doubt it.

However, I think we are still close to a bottom and I still stand by my prediction I made in September of last year, that the bottom of the real estate market will be November 25, 2009.

Comments

[nobull:]

The govt has promised to create or "save" (wink wink) 600K new jobs - esp those high paying summer jobs cleaning up parks. That should give a boost (rolling eyes).

Jun 15 08:59 AM

[LarryG:]

My real estate agent contacts in the southern U.S. are reporting new listings and increased traffic by potential buyers in recent weeks. Once all those baby boomers in the northern U.S. decide to stop waiting for the price their neighbors got for their homes two years ago; understand they get a cost of living bump by moving south; and decide their retirement lifestyle is more important than some fantasy about recouping their losses, they will take the equity from their homes, downsize and live happily ever after. And when they price realistically their primary homes, that will help the market stabilize, maybe even by Thanksgiving.

Jun 15 09:45 AM

[Mad Hedge F...:]

You got it! Iam more convinced than ever that real estate has another 25% to fall, and best case, it is dead money for another five to ten years. The New York Times produced some insightful data on inflation adjusted home prices for the last120 years, which baselines at a $100,000 for a single family home in 1890. Few people realize how superheated the recent real estate bubble really got. Past bubbles very consistently peaked at $125,000 in 1896, 1979, and 1989. This last one peaked at $205,000 in 2005, almost double the previous record highs. And while we have dropped 34% since then, to $135,000, we haven't even fallen tothe past all time highs yet. If you look at historical lows, my call for a further 25% slump looks positively bullish. We saw lows consistently around$66,000 in 1920, 1932, and 1942. Postwar lows came in at $105,000 in 1976,1983, and 1996. These figures suggest the best case low is down a further 28%,and the worst case is down another 51%. I think I'll go find something else to trade.

Jun 15 10:54 AM

[Sean Sloan:]

The biggest difference is that we now have a neo-communist Congress and President who are intervening in free trade and freely traded capital (Example: Owning GM and creating TARP TALF BARP BARF CARP DLARP **ARP ad nauseum), and THAT is why housing will not continue to fall. And also because of the neo-communist Congress and President, to actually pay for all of this BARF, money is being printed and created out of thin air (fiated) at a level similar to our buddy Adolf H. did back in the 30's - after which a loaf of bread cost a wheelbarrow full of German Marks.
Here in the states, a $500,000 house will be worth $2 million when Mcdonald's employees are making $25 an hour - in 5-10 years.

That's change we can BELIEVE in. You voted for them, now we ALL have to pay for your irrational emotions...again.


On Jun 15 10:54 AM Mad Hedge Fund Trader wrote:

> You got it! Iam more convinced than ever that real estate has another
> 25% to fall, and best case, it is dead money for another five to
> ten years. The New York Times produced some insightful data on inflation
> adjusted home prices for the last120 years, which baselines at a
> $100,000 for a single family home in 1890. Few people realize how
> superheated the recent real estate bubble really got. Past bubbles
> very consistently peaked at $125,000 in 1896, 1979, and 1989. This
> last one peaked at $205,000 in 2005, almost double the previous record
> highs. And while we have dropped 34% since then, to $135,000, we
> haven't even fallen tothe past all time highs yet. If you look at
> historical lows, my call for a further 25% slump looks positively
> bullish. We saw lows consistently around$66,000 in 1920, 1932, and
> 1942. Postwar lows came in at $105,000 in 1976,1983, and 1996. These
> figures suggest the best case low is down a further 28%,and the worst
> case is down another 51%. I think I'll go find something else to
> trade.

Jun 15 01:42 PM

[Accuriz:]

Acquisition of single family residences should never be considered an investment. If one is looking to acquire properties for investment purposes, than they are subject to all of the inherent risks similar to the stock market. Prices will continue to rise and fall based on historical market patterns. Whether one buys today, waits until November or acquires properties next year, one thing for certain will exist. The market is forever changed and predicting the future is just like gambling. You will most likely lose more often than you will win.

Jun 15 01:46 PM

[mlonz:]

Re Mad Hedge's comments:


you cant really compare today to pre 1980. If the mortgage interest deduction and 250k primary residence exemption stay in place, with tax rates increasing, these generous write offs that didnt exist way back when, will cushion the floor on residential housing.

Jun 15 04:29 PM

[crewman:]

Pricing is driven by supply-demand. The problem with the author's analysis is that he doesn't address the supply side of this equation. Most of the comments on this board usually site national statistics to claim we're oversupplied without taking into consideration that most of the oversupply is in outlying areas far from job centers. In core areas the oversupply is much less. Authors trying to give sound real estate advice (whether your bullish or bearish) need to provide facts and analysis (i) on both the supply and demand sides and (ii) on a local (not national) market.

Jun 15 04:51 PM

[Houston:]

The stock market is going to 5k or lower. Housing prices are going down another 25%.....

I don't think so. There are people out bidding on houses in bad markets because there to dumb to know how stupid that is...I suppose?

But there are a lot of them.

Jun 15 09:12 PM