Wednesday, September 21, 2005

I am back

I am back. Sorry I was gone so long. During my respite on this blog, I saw several interesting things.

I saw "Whistler: Art for Art's Sake", a truck that was caught on fire, and a rear axel of an 18-wheeler in the middle of the I-55 bridge over the Mississippi river.

I also read this article today: Hurricane Watch for Real Estate. I am wary of anyone saying there is a housing bubble and that is going to burst.

"To top it off, we are hardly preparing ourselves for the inevitable category 4 or 5 hurricane when housing prices do come down. Just ask those who actually lived through the stock market crash of 1987 and the ensuing savings and loans debacle, which caused a real estate depression in the early 1990s. Memo to those who didn't own property then: prices went down, not up."

Housing is fundamentally different than other investments because you live in it. I also have read numbers that say prices stayed level, but did not go down. Now they could have stayed level - not counting inflation, which means the "real" value dropped. So I do not know whose numbers are correct.

The magnitude of Katrina will certainly be felt, though claiming that it can begin a housing bust might be a little extreme. Though if you are thinking about buying a house, you could try to catch the housing market when it is down. It would seem that if you believed that a housing bubble was imminent, it could be worth they money to wait 2 years before buying a house in some cases.

The money that is lost is the money spent on rent and the money lost on a higher interest rate.

The money saved would be the value you saved on the house and the money saved on a lower interest rate (You had more money to put down on the house, so you got a lower interest rate.)

If the housing bubble was a sure thing, that could be a smart strategy to try.


1 comment:

transientforeigner said...

I read something a while ago and the post reminded me about it. Greenspan had commented on the cooling of the housing market before Katrina was of serious concern.

"The housing boom will inevitably simmer down," Greenspan said. "As part of that process, house turnover will decline from currently historic levels, while home price increases will slow and prices could even decrease."

A day earlier, he cautioned the public against thinking the value of homes and other investments will only go higher. "History has not dealt kindly" with that kind of optimism, he said.

If house prices fell suddenly or if interest rates rose quickly, it could clobber homeowners and lenders.

Rising prices have helped make many people feel wealthier and thus more inclined to spend. Consumer spending accounts for roughly two-thirds of all economic activity.

Greenspan said people taking cash out of their homes through refinancing, selling or other financial arrangements will ease along with "some of the strength" in consumer spending. The estimates of how much consumer spending will ease differ widely, he said.

An end to the housing boom and a moderation in consumer spending, however, could have a silver lining, Greenspan said.

It could lead to a boost in the personal savings rate, now dismally low, and could curb the public's insatiable appetite for foreign-made goods, helping to narrow the country's trade deficit, he said.

It seems as though there are several variables specific to New Orleans: Whether or not people decide to come back, whether or not they rebuild in dangerous, low-lying areas (9th ward) and what role government officials will have in the reconstruction process. I have heard concerns over land devaluations, primarily in that it could result in the disappearance of the low income housing available to the massive number of impoverished in New Orleans. None of this is really meant to be any sort of a prediction, just some comments.