Wednesday, October 6, 2010

Wishful thinking......................?

Our friends at Keeping Current Matters have a superb blog.
If you follow this blog, you know I reference their posts from
time to time.  However...............

Their recent post quotes John Paulson as saying, “If you don’t
own a home, buy one. If you own one home, buy another one.
And if you own two homes, buy a third and lend your
relatives the money to buy one.”

Now, John Paulson is one smart guy.  He made more money
than the average bear by being one of the first to bet against
the sub-prime mortgage market.  Paulson sees inflation coming.
He is hugely into hard assets- like gold and real estate.  Maybe
I am misinterpreting what is being said, but it sure seems like
Paulson sees a big spike in value coming and KCM is urging us
on to take advantage of it.

Real estate values are highly location specific, so Paulson's
quote might be gospel for his neighborhood.  But, in the
average real estate market, more caution might be warranted.

For real estate values to increase substantially, at least four
things must happen. 

First, the supply of buyers must exceed the supply of sellers. 
With the incredible oversupply of sellers today,  the real estate
market is likely to stay a bargain hunters paradise through at
least the end of  2011. 

Second, inflation has to pick up it's pace.  While all the models
would suggest that inflation must be coming, this blogger is more
worried today about deflation than inflation. 

Third, interest rates would need to stay at historic low levels.  An
 increase in mortgage rates to say 8%  reduces the ability of many
a buyer to pay inflated prices.  If inflation rears it head, don't you
think interest rates will be going up too? 

Fourth, the employment picture needs to improve.   The
economy today is in a shambles because too many people bought,
and/or mortgaged, real estate based on jobs that just evaporated.

 If one wants to emulate Paulson, you would do well to
remember that "a whopping 80% of his assets are in gold."

If you want to buy a house, it is an excellent time to do so.
I agree.  The selection is plentiful, prices have moderated
(and may go a bit lower), interest rates are at historic lows,
and there are plenty of excellent Realtors ready to make the
whole process flow easily.

Just remember (unless you are planning to rent it out), it is a
home you are buying.  In due time it may become a good
investment, but if you buy with visions of new found wealth
dancing in your head........well, good luck to you.

No comments:

Post a Comment