Danish Dude

Ten Comments on Housing

To the man in the know:

I believe anyone who bought real estate in any of the bubble markets pre-bubble inflation would have done well at this point. The prices are still far above historical GDP-adjusted averages. This may change over time as the correction continues - I would think, until this country and its citizens are again paying their bills.
I really think it is that simple. Currently, we are not paying our bills. At some point in the future, we will be paying - we will have to.
Would you think that buying Hawaian real estate on speculation would be a winning investment strategy today?

Ten Comments on Housing

Dear Mr. Merkel,

Thank you for the article - though I generally concur with your views, I really don't think we should be waiting for foreigners to provide a bottom for the US real estate markets.

A bunch of not-so-smart money HAS poured into New York and, so they say, Miami. What returns have these guys gotten this far? I live in an apartment in New York that I rent from an Irish lawyer. As far as I can tell, the dude is losing money on a monthly basis. I hope he financed with a dollar-loan - otherwise, he is getting raped by the exchange rates, too.

What is the utility for a doctor in London of a vacation-home in Florida? It is NONE! It is 10x easier, and 100x cheaper for him to rent for the two or four weeks he is going to spend there a year.

The only reason for the European buying in New York is, that US originated economic crises generally hit Europe with a 1-2 year delay, and that's about how much the real estate market over there is behind in its correction. Dumbos bought because they referenced their market conditions (already then in decline, but not obvious to the Ds, since it hadn't hit the front-pages yet) with "attractive" EUR prices in NYC and Miami, and thought they could make money buying real estate an ocean and several thousand miles away from their own location. When they realize the stupidity of the proposition, they are going to sell. It will likely take a little while before the realization arises - taking into account the psychological phenomenon of cognitive dissonance and the fact that distance shelters those folks from the factual reality that their investment is located in. Does anyone think that these guys have a competitive advantage when it comes to renting out that vacation home in its overbought location for the 48 weeks a year that they are not using it?

"foreigners will find U.S. housing attractive as vacation/flight homes" - really?? If you live in Paris, do you want to own a vacation place 6 time zones and 8 hours of flight-time away in Miami - or take the TGV to southern France? The food is better there, too.

As for other economic ills, will Santa Claus come and make our credit card debts, the zero-down financing of consumer items and the car loan on that stupid-looking SUV away, too?

This will stop when we pay our bills. Balanced budget, no trade deficit, interest rates that makes sense (i.e., higher than inflation), and house prices that are affordable to the people that actually live in the relevant area. We've got a ways to go, and all this bail-out s... isn't helping. It is just passing to bill, not paying it.

Best regards,

LJ