BiggerPockets

Until property values and the long term, inflation driven trend line match up.

Have a look at this graph of MO farm land prices: http://agebb.missouri.edu/mgt/landsurv/07landgraph.htm Notice from the peak in 1981 it took until 1997, 16 years, for prices to come back up to that value. It took six years, until 1987, before prices stopped declining.

House values may well undershoot the long term trend line. The supply/demand equation has changed, since the easy money that drove demand abnormally higher is gone. If we end up in a long term recession (low probability IMHO, though others will disagree), prices will be further depressed.

Yeah, I noticed that. Its been a while since I looked at that graph, and its been updated recently. A new bubble begins. I doubt that's restricted to MO.

Locally, I wasn't overly concerned until today when there were big news stories about rationing rice. I had felt we would be at the bottom by late this year, now I'm not so optimistic, personally.

Do you think this statement is true? " We generally go through 5 years in a down market and 10 years in an up market"

No, it's not true. If you do a little googling, you can find charts of historical housing prices. You will discover that after a typical housing boom, it takes about 2 years to reach the bottom and then another 8-10 years for inflation adjusted prices just to reach their previous highs. However, since this bubble involved a HISTORIC runup in prices, I think you can reasonably expect things to be much worse this time.

In addition, our country is at or near a crisis point. Two-thirds of our economy is consumer spending. The consumer stopped saving many years ago. Over the past few years, the consumer was spending money from home equity via frequent refinancings. That is over. The average American is also tapped out on their credit cards. Add in the mix that the baby boomers are beginning to retire and there is no money to pay all the entitlements we have promised them. Furthermore, our entire monetary system is based on NOTHING other than the government's ability to tax us into the ground (fiat money). Every time a government has used fiat money, the economy has collapsed.

Now, add in $4 per gallon gasoline and runaway inflation on food and I honestly believe that we will see a major DEPRESSION in the near future (if we're not in the beginnings of one now). The only real question is whether we're prepared to survive and even thrive during those tough times.

Mike

hahaha @ " But I'm not worried, oh no sir - I'm gonna start making all my tenants pay their rent with rice!" - Typerider

You might want to, rice is getting more expensive!

But I think this entire thing is kinda a result of bubbling with the government messing around with the tax system for political reasons... but regardless of the reason, i wasn't too certain about a full blown " depression" but that very well might happen depending on how badly the gov passed " financial rescue plans" for the mortgage crisis will go... Inflation's gettin worse, and I doubt that we can recover soon, but depression? hmmm... still iffy for me. Economic realignment by the market itself is what I think should happen. It's a matter of enduring short-term economic pain versus long term pain. But with this being an election year, i doubt the gov will allow that.

But the thing is, I think it's because the government has been giving all these " tax breaks" and " bail outs" that is screwing stuff up. They NEED money to run the country and compete with other currencies/countries... but I do understand that increased taxes usually kills the " little man" not the " millionaires" ... eh... my 2cents.

Now, add in $4 per gallon gasoline and runaway inflation on food

Mike

what runaway inflation on food ? Mike, remember what our guru Wheatie ( Jon) wrote once , and I eagerly quoted him on every ocasion ?.
THERE'S NO INFLATION ON FOOD - just a " supply/demand" interplay....

yeah, what I'm affraid of the most is that instead of picking food off the dumpsters I will soon have to DIVE into them........ :lol:
atarget

Maybe things will collapse into a depression. Its not impossible, IMHO, that we could end up with a really bad situation as this all comes to a head, and end up in a major shooting war.

That's exactly right. We're sitting on a powder keg and all we need is a spark to blow the entire economy into oblivion. Wheatie is exactly right, a major shooting war could literally happen any day. The US has not had the stomach to do what it needed in Iran, even though they are killing our soldiers. The Iranians are VERY FORTUNATE that someone like me isn't president, because I would have already turned their country into a parking lot. Fortunately for the rest of the world, Israel has already said that if the US doesn't act, they will. I saw a report last week that Israel is planning an attack on Iran in May or June. This thing could go nuclear so fast that it would make your head spin. Regardless of the nature of the war, oil prices could double literally overnight. I think that would be enough of a spark!

If you go back in history, you'll see that there hasn't been a single generation that hasn't experienced an economic collapes - except this one. Of course, the pundits will say that somehow things are different this time. :roll:

Look at Zimbawbe, where they now print $50 MILLION dollar bills that will barely buy a hamburger. Their government is running the printing presses full speed, resulting in money that's worth less and less every minute. Fiat money doesn't CAUSE this, but you sure can't do it without fiat money.

The US is printing money (or more accurately adding computer digits) at an alarming pace also. That's where all this bail out " money" is coming from - THIN AIR! Based on last month's inflation number, (1.2% as I recall), even the government is forced to admit that annual inflation is even now at double digits. Of course, if you don't eat or use fuel, inflation is a little lower!

I'm buying a shopping cart, so that I can fill it with cash if I get hungry for a Big Mac!

Mike

I'm not sure that's a meaningful question. I guess you could look at the total for-sale inventory 10 years ago vs. right now. The difference would be the answer. My guess is that the difference is small, compared to the number of sales that took place in the last 10 years.

If you're asking a supply/demand question over time, that's much easier to answer. Real estate agent groups track that data very carefully. Home sales rate and inventory are carefully recorded. Agents often talk about " months of inventory" , meaning the number of homes currently for sale divided by the number of sales per month. Getting this data isn't always easy, though. I'm on one of the local agents mailing list, and he often includes this data. As of 4/7/08, in the Denver area, there were 20,575 homes for sale, with 3,187 sales per month. That's 6.5 months inventory, which this guys shows at being right at top edge of a neutral market. Any higher, it would be a buyers market. At lower prices, there is less inventory while at higher prices, there is more. Its a buyers market over about $400K and a sellers market under $200K.

So, if you mean was the inventory low or high over the last 10 years, I think I can be pretty confident in saying the inventory was low, maybe very low, from about 2001 to about 2006 in some areas. Now its high, and getting higher. Demand exceeded supply in the early 00's, and that's what pushed prices up.

Didja ever see " The Roadrunner" when Wile E. Coyote runs off a cliff?...

IMO, there are two distinct advantages to REI: 1) it's a local market, meaning situations vary from town to town depending on many variables that are not simple to quantify using 'national averages'; and 2) it's an inefficient market, unlike, say, the stock market.

The economics of the pond I swim in are driven by a growing university system and a growing regional medical center. At present my target renters are those connected with the university (students), and the low-income people connected with related service and support industries. Anecdotally, while one group has much more money than the other, both exhibit remarkable similarities in irresponsible destructiveness and a necessity for 'parent-like' guidance from me.

Because of the future potential of my pond many large investors are pouring a great deal of money into real estate development. Personally, I cannot compete with anyone who can write a million dollar check. But I can certainly find and exploit market inefficiences.

When Ross Perot was building his mega-succesful company many years ago he stressed the importance of recruiting the right personnel. His quote about that was, " Eagles fly high and by themselves and must be gathered one by one."

Thus it is in my own endeavors buying property.

So bad times may certainly come, but they will be distributed unequally throughout the land, IMO. My feeling is that if you're in this business one worthwhile strategy is to find and define your market and then become a local expert. Opportunities will present themselves.

Let me also add, FWIW, that I also have a good half acre reserved should I ever need to grow vegetables. It helps me sleep at night.