My bold prediction for this decade


By ¥   Follow   Tue, 25 Jan 2011, 11:01pm   6,511 views   77 comments
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  1. seaside


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    1   11:03pm Tue 25 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    Shortest posting ever! :)

  2. American in Japan


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    2   11:03pm Tue 25 Jan 2011   Share   Quote   Permalink   Like   Dislike  

    @Troy

    I don't want to get jabbed by that arrow!

  3. Clarence 13X


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    3   11:29pm Tue 25 Jan 2011   Share   Quote   Permalink   Like   Dislike  

    Do you really think the housing pricess will continue to drop for 10 years? Why?

    Would you hold on buying rental properties even where the rent vs buy makes sense?

  4. ¥


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    4   2:02am Wed 26 Jan 2011   Share   Quote   Permalink   Like   Dislike  

    Clarence 13X says

    Do you really think the housing pricess will continue to drop for 10 years? Why?

    The system doing what it can to keep itself together but I suspect the best-case end result will be repeating the Japan experience of a long, slow grind.

    This chart is in real terms, so a mild inflation can turn a flat housing market to look down when adjusted for inflation.

    But I tend to think adjusting housing for inflation now would be an analytical mistake, given that the existing stock of housing doesn't necessarily respond to rising price inputs, and could in fact be negatively correlated with price inflation this decade (eg. food, health insurance, state taxes go up, housing simply has to go down).

    Would you hold on buying rental properties even where the rent vs buy makes sense?

    I don't know. The economy can go 3 directions from here. Up & away (like the 1970s), down & out (like the 1930s), or grinding slowly sideways (like the 1990s).

    I think with all the intervention going on we'll be lucky to repeat the 1990s, and don't see massive wage inflation coming any time soon, but I've never seen anything before it happened anyway so there's that.

    The state's finances are a big unknown. We've got to close $20B or so, and local government also has to make massive cuts everywhere. Things can in fact get a lot more brutal than they are now, at least for many people.

    These deflationary collapses tend to suck in more & more people as they unwind, and Japan shows this widening effect can go on for a very long time, as more and more people are simply taken out of the game.

  5. APOCALYPSEFUCKisShostikovitch


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    5   5:37am Wed 26 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    It's looking more like cannibal anarchy all the time.

    The people who will live to see their grandkids will teach their kids how to fight and win with nothing but a sharp stick or a rock because when the ammo runs out and the bayonets dull from decades of close order combat, it's likely that's all that will be left.

    Prepare for unimaginable horror.

  6. Philistine


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    6   5:51am Wed 26 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    In 7th grade science I remember doing these boring interpolation and extrapolation excercises with charts. That arrow is more or less pointing where the extrapolated data points would fall, even if the chart were extended many decades back. Whether it's a correct prediction is another matter.

    APOCALYPSEFUCK says

    Prepare for unimaginable horror

    I was just watching the OWN channel and felt your very words come to mind. . . .

  7. joshuatrio


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    7   8:06am Wed 26 Jan 2011   Share   Quote   Permalink   Like   Dislike  

    APOCALYPSEFUCK says

    It’s looking more like cannibal anarchy all the time.

    Dude - you're hilarious.

    I was waiting for you to say grow potatoes.

  8. Patrick


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    8   8:16am Wed 26 Jan 2011   Share   Quote   Permalink   Like (1)   Dislike   Protected  

    I agree with that extrapolation. I think prices will probably fall a little each year for a decade or longer, like Japan.

    The Fed can't just print a lot of money without driving up interest rates, which would force housing down even faster.

  9. joshuatrio


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    9   8:28am Wed 26 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    Patrick says

    I agree with that extrapolation. I think prices will probably fall a little each year for a decade or longer, like Japan.
    The Fed can’t just print a lot of money without driving up interest rates, which would force housing down even faster.

    Depending on how high rates end up - those with cash, or a hefty down payment, will really benefit.

    Nice articles today Patrick !

  10. bg1


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    10   8:35am Wed 26 Jan 2011   Share   Quote   Permalink   Like (1)   Dislike  

    Patrick says

    money without driving up interest rates, which would force housing down even faster.

    I had been thinking they would drop for 3 to 5 years. I was reading some of the housing news that predicted a drop in the first 6 months of this year. I thought, "huh? really? Just the first 6 months?" What magic is going to happen in 6 months?

  11. Hysteresis


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    11   10:52am Wed 26 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    You did a good job with the yellow arrow. It looks good.

  12. pkowen


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    12   11:46am Wed 26 Jan 2011   Share   Quote   Permalink   Like (1)   Dislike  

    APOCALYPSEFUCK says

    It’s looking more like cannibal anarchy all the time.
    The people who will live to see their grandkids will teach their kids how to fight and win with nothing but a sharp stick or a rock because when the ammo runs out and the bayonets dull from decades of close order combat, it’s likely that’s all that will be left.
    Prepare for unimaginable horror.

    "I got a shogun, a rifle, and a four wheel drive, and a country boy can survive...."

  13. thomas.wong1986


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    13   12:53pm Wed 26 Jan 2011   Share   Quote   Permalink   Like (1)   Dislike  

    Back to the 90s on the index.... and a few bruises on the way down.

    Patrick says

    I agree with that extrapolation. I think prices will probably fall a little each year for a decade or longer, like Japan.

    I think we may see a much faster drop than most people expect.

  14. thomas.wong1986


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    14   12:56pm Wed 26 Jan 2011   Share   Quote   Permalink   Like (2)   Dislike  

    joshuatrio says

    APOCALYPSEFUCK says
    It’s looking more like cannibal anarchy all the time.
    Dude - you’re hilarious.
    I was waiting for you to say grow potatoes.

    I dont think MadMax grew potatoes...

  15. Vaticanus


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    15   1:02pm Wed 26 Jan 2011   Share   Quote   Permalink   Like   Dislike  

    I agree with the graph, just think the arrow is going to get a hair steeper (adjusted for inflation) at some point over the next 10 years.

  16. burritos


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    16   1:23pm Wed 26 Jan 2011   Share   Quote   Permalink   Like (1)   Dislike  

    I hope you're right.

  17. Huntington Moneyworth III, Esq


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    17   3:11pm Wed 26 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    I dunno. It looks to me like we could see high volatility for the next decade, with short booms and busts. It will be the right time to buy before it's the right time to sell before it's the right time to buy before it's the right time to sell.

    What happens after ten years, Mr. Smarty pants? An up arrow?

    NAR Ad of 2021:
    "Ignoring the last decade of inconclusive market data, there has never been a better time to buy a home. NAR specialists have been trained to analyze the market and only an NAR agent can show you homes that will hold their value over the long term. Other real estate agents cannot give you the same piece of mind.*"

    (You need to read the below in a really fast disclaimer voice)
    *Results based on a non-double bind study of market gobbledy gook. Past market conditions are not guarentees of future market performance. Local conditions vary.

  18. pkowen


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    18   3:45pm Wed 26 Jan 2011   Share   Quote   Permalink   Like   Dislike  

    thomas.wong1986 says

    joshuatrio says

    APOCALYPSEFUCK says

    It’s looking more like cannibal anarchy all the time.

    Dude - you’re hilarious.

    I was waiting for you to say grow potatoes.

    I dont think MadMax grew potatoes…

    No, he ate canned dog food. A good source of protein, vitamins and minerals!

  19. ¥


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    19   4:00pm Wed 26 Jan 2011   Share   Quote   Permalink   Like (2)   Dislike  

    It looks to me like we could see high volatility for the next decade

    I just see a leaking boat.

    I felt the same way in 1991-92, but we had some major changes happen to make things happy for a while, some intrinsically good (dotcom money coming in and dotcom innovation going out, rise of big-box one-stop retail), some intrinsically bad (expanding trade deficit with China, temporarily cheap oil -- West Coast domestic oil production has declined 50% since 1995 [1]).

    Reading the financial commission report last night, I learned a new word, "crimogenic". That's the perfect summary of the previous decade, which kinda actually was an echo of the 1980s in some areas (Iran/Contra -> Iraq, S&L -> Housing Bubble).

    Demographically, we're a lot closer to the end of the book in 2011 than we were in 1991, and there's been quite a tide of illegal immigration allowed since then too.

    I see a lot of labor surplus and a crushing need to either start raising taxes to pay for the welfare state, or start scaling back the welfare state.

    The third option, issue more debt, is possible, but with the Republicans for some reason running on "right-sizing government" and general austerianism, I am not entirely sure Congress will pull the trigger on the Japan solution of a truly runaway national debt. (Right now, we're not so bad compared to the rest of the world, but we're moving up fast with these $1.2T/yr deficits).

    All this BS doesn't mean the end of the world, but it is all going to take a bite out of the consumer surplus and increase social friction and bad-feeling.

    We were a poorer people in the 1920s-30s, and we can return to that. Housing was certainly a lot cheaper then.

  20. toothfairy


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    20   6:02pm Wed 26 Jan 2011   Share   Quote   Permalink   Like (1)   Dislike  

    There are enough problem cities that the 20 city composite could be dragged down for a decade.

    that's definitely possible.

  21. 2ndclasscitzen


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    21   9:33am Thu 27 Jan 2011   Share   Quote   Permalink   Like   Dislike  

    I agree, but think that yellow arrow should be a hair steeper. The decline will accelerate (adjusted for inflation) at some point in the next ten years.

  22. SiO2


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    22   9:42am Thu 27 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    It all depends on how you measure inflation. If you buy manufactured goods in addition to food and fuel, inflation is not very high. If you only buy food and fuel, it's higher. If you measure it by the price of gold, it's very high.

    So there's a way for all to say that their prediction is correct. A housing bull could compare the nominal price to CPI and say "yes, it's up". A bear could compare the price to the price of gasoline and say "yes, it's down."

    Personally I do buy things besides food and fuel, so for me, inflation is about the same as CPI, not very high. (e.g. I bought a car in 2010, same make/model as what I had bought in 96, but otherwise better in every way, and it cost the same. but of course bread and beer cost more than in 96).

  23. FortWayne


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    23   10:02am Thu 27 Jan 2011   Share   Quote   Permalink   Like   Dislike (2)  

    Patrick says

    I agree with that extrapolation. I think prices will probably fall a little each year for a decade or longer, like Japan.
    The Fed can’t just print a lot of money without driving up interest rates, which would force housing down even faster.

    I think that also at some point healthcare and education bubbles will start to really hurt and who knows what that will result in.

    More service and manufacturing jobs will be outsourced, I already see white collar jobs going overseas. So generally our economy will be basically going down concentrating all the wealth at the top 1% while impoverishing the rest.

  24. Hysteresis


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    24   12:05am Fri 28 Jan 2011   Share   Quote   Permalink   Like (1)   Dislike  

    http://www.businessinsider.com/chart-of-the-day-global-housing-bubbles-2011-1

    this chart, which shows that the housing bubble in the US was mirrored all around the world.

    Thus, any attempt to pin this to The Fed, or Wall Street's control of Washington, or Fannie and Freddie, fails on the ground of the global nature of the crisis.

  25. ¥


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    25   12:42am Fri 28 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    Syphilis says

    thus, any attempt to pin this to The Fed, or Wall Street’s control of Washington, or Fannie and Freddie, fails on the ground of the global nature of the crisis.

    This argument came from the AEi, and is crap, like everything else they're paid to say.

    "Happy families are all alike; every unhappy family is unhappy in its own way."

    The Fed could have been printing money for the mortgage funding, but if it was going to buyers who were, gasp, vetted to be able to pay the actual loan, there would not have been the 40-50% crash we saw over 2H07 ~ 1Q09.

    The short answer is Casey Serin caused the crash. The long answer is a nation of Casey Serins caused the crash.

  26. MarkInSF


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    26   1:05am Fri 28 Jan 2011   Share   Quote   Permalink   Like   Dislike  

    Troy says

    The long answer is a nation of Casey Serins caused the crash.

    Nation? I think you're missing the point made. This bubble was not just in the USA. Speculators have always been with us, but what changed was the completely unregulated - literally - global financial system that enabled them.

  27. ¥


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    27   1:31am Fri 28 Jan 2011   Share   Quote   Permalink   Like (1)   Dislike (1)  

    MarkInSF says

    global financial system that enabled them.

    That's like blaming the reservoir water for the dam failure.

    Yes, the money was available. There still had to be a conduit to the buyer created.

    Which reminds me, Casery Serin set up an "Able Buyer" site early in his career.

    LOL, that's exactly what I'm trying to get at, the gap closed between "willing buyer" and "able buyer" was closed in the 2002-2007 period.

    Our doom was sealed when the oversight was loosened in 2002 and the lending system shifted into a pump & dump mode to create as many able buyers as would come through the door.

    The creation of this lending conduit was the failure, and each country failed in its own way.

    The UK, for example, was very hot on "buy to let".

    We fucked up our own economy with cash-out refis & HELOCs feeding back into the economy, amounting to up to 10% of total discretionary income during the bubble years.

    This temporary stimulus supported millions of jobs.

  28. Cvoc13


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    28   10:21pm Fri 28 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    I think we will see another leg down strong move of say 13% - 28% then years of lower and lower housing prices, due in part to us BABY BOOMERS dying and or moving to assisted living, and or nursing homes. Add that to rising fuel costs, and food and health care, People there simply will not be the amount of money needed to support pricing of today, Interest rates are likely going to go higher.

    Sadly I am sorry to say I don't see it being our shining years in USA, the rest of the world wants what we have taken for granted for all of our lives, and we used way too much of the worlds resources or food and oil, coal, and health care.

    Ok so bottom line for next 10 years I see much lower prices, a bigger move down from here and then 3% - 8% lower a year in most of the USA. as I have posted here before I see no recovery in direction until 2023 or so.

  29. B.A.C.A.H.


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    29   8:44pm Sat 29 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    Cvoc13 says

    Sadly I am sorry to say I don’t see it being our shining years in USA, the rest of the world wants what we have taken for granted for all of our lives, and we used way too much of the worlds resources or food and oil, coal

    Interesting. We're blessed with more than enough food and energy for our 300 million and millions more. Nothing that $15 per gallon gasoline won't solve. We can reduce consumption in a huge way without suffering. Inconvenience, yes. Adjustment, you bet. Mad Max? Naw, probably more like a European lifestyle. Not the end of the world. And, a lot more of the money we put into our gas tanks and utility bills will stay in the USA, or at least in North America.
    So contagion from Tunisia to Cairo to Riyadh, bring it on.

  30. ¥


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    30   9:36pm Sat 29 Jan 2011   Share   Quote   Permalink   Like   Dislike  

    sybrib says

    Nothing that $15 per gallon gasoline won’t solve

    $15 gasoline means $10 cheeseburgers.

  31. bubblesitter


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    31   9:42pm Sat 29 Jan 2011   Share   Quote   Permalink   Like   Dislike  

    You say prediction, I say it is obvious and inevitable.

  32. B.A.C.A.H.


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    32   10:03pm Sat 29 Jan 2011   Share   Quote   Permalink   Like (2)   Dislike (1)  

    Troy says

    $10 cheeseburgers.

    Probably do more for our health than Obamacare.

  33. thomas.wong1986


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    33   10:12pm Sat 29 Jan 2011   Share   Quote   Permalink   Like   Dislike  

    sybrib says

    Troy says


    $10 cheeseburgers.

    Probably do more for our health than Obamacare.

    Never under estimate the power of marketing.. Its not just a $10 cheeseburger.
    Its a Classic Gourmet Old Fashion Cheeseburger! so its really special and worth $10

    Anyway i rather blow $18 on Amato's cheesestake anyday...serious beef going on!

  34. ¥


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    34   10:26pm Sat 29 Jan 2011   Share   Quote   Permalink   Like   Dislike  

    bubblesitter says

    You say prediction, I say it is obvious and inevitable.

    Thing is, that's real pricing, so if the inflation balloon *does* go up, buying now would be a winner even with that future decline.

  35. B.A.C.A.H.


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    35   10:28pm Sat 29 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    Troy says

    bubblesitter says

    You say prediction, I say it is obvious and inevitable.

    Thing is, that’s real pricing, so if the inflation balloon *does* go up, buying now would be a winner even with that future decline.

    I think that inflation is the inflation of the money supply + credit, not exactly the same thing as rising prices. While both may occur at the same time, not necessarily so.

  36. bubblesitter


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    36   10:30pm Sat 29 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    Troy says

    bubblesitter says

    You say prediction, I say it is obvious and inevitable.

    Thing is, that’s real pricing, so if the inflation balloon *does* go up, buying now would be a winner even with that future decline.

    So you think banks will catch up with that inflation and keep loaning money that high? Will employers boosts their employees salaries?

  37. coop


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    37   11:59pm Sat 29 Jan 2011   Share   Quote   Permalink   Like   Dislike (1)  

    I would cherish any advice from you gurus out there. I'm a young homeowner in Los Angeles (Woodland Hills to be exact) and in light of all this forecast pessimism, I feel the desire to sell my house this Spring and get out before shit hits the fan. There's $230k left on the mortgage and if I sell it now I could get about $650k. The other option is to rent it out and weather the storm for the next few years. Any advice to this neophyte would be MUCH appreciated!

    Thanks,
    Coop

  38. ¥


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    38   12:17am Sun 30 Jan 2011   Share   Quote   Permalink   Like (1)   Dislike (1)  

    coop says

    Any advice to this neophyte would be MUCH appreciated!

    I'm just shooting the sh--t here so don't take my opinions for anything.

    Like I said above, there's 3 ways this can go . . .

    up, down, or sideways.

    I knew things were going down by mid-2008 but I also knew there was going to be intervention, and boy was there ever!

    Back in 2007 $10B was a lot of money for the government to spend on something! Now it's a rounding error.

    Bernanke's $600B "quantum easing" that's going on now is also going to have some interesting follow-on effects.

    What it's doing is displacing $600B of private money that would be committed to propping up Uncle Sam and liberating it to find productive use in the economy (or, more likely, find some commodity investment to park in).

    But it's certainly a positive push for the economy.

    But I don't know what else the current political configuration is able to gin up this year or next. All eyes seem to be on November 2012, the battle lines are drawn and the issues are stark, with the life or death of the Republican Party on the line it seems (as they've staked all their cred on killing the jobs-killing, baby-snuffing, granny-offing PPACA that's supposed to come on-line in 2014).

    If the economy doesn't get a lot better next year, Republicans should have a cakewalk booting Obama, and the seats up in the Senate seems to give the Republicans a good chance of taking control of everything.

    So I am not too sanguine about the prospect of any great recovery coming any time soon.

    And that's not considering the state's many issues, and the macro situation about energy inflation.

    So. "Advice". Dunno the capital gain, but the money you'd clear on the house should be tax-free.

    I'd cash out this Spring selling season and keep myself more mobile. The 3 year treasury is 3.3% now . . . that's around $1000/mo in interest you'd collect on your new cashpile if you sold.

  39. ¥


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    39   12:36am Sun 30 Jan 2011   Share   Quote   Permalink   Like (1)   Dislike  

    bubblesitter says

    So you think banks will catch up with that inflation and keep loaning money that high? Will employers boosts their employees salaries?

    This has all happened before. And it will all happen again : )

    Inflation sure got on a rip-roar in the 1970s and 80s. But our debt and demographic situation was all different then.

    We had the boomers aged 13 to 28 in 1975, now they're in their 50s and 60s.

    Total of household debt + gross national debt / GDP was 0.8. Now it's 1.8 and heading to the moon.

    We had more untapped credit capacity I guess in the 1970s and 1980s, but now we're tapped out.

    Just like Japan.

    But just like Japan, they can try helicopter money. The $600B is first dose.

    The CBO released a new, shocking, forecast for the next 10 years, and, they have the optimistic scenario of the national debt DOUBLING to $18T by 2021.

    http://www.zerohedge.com/article/cbos-revised-budget-sees-2011-deficit-rising-500-billion-15-trillion-4-trillion-deficit-thro

    There's a lot of moving parts here but I think it's entirely possible we'll see the national debt TRIPLE by 2022 (partially because the SSTF is now permanently cash-negative), since the CBO numbers are very optimistic about a lot of stuff (+200,000 jobs a month for the next few years).

    With all this debt hitting the economy, money supply simply has to keep on trucking, and inflation simply has to follow. Somehow.

    It is very difficult to see the future though. I want to stick to my position that this is just year 4 of a very long trainwreck.

    Perhaps my living in Japan 1992-2000 is unduly coloring me "negative".

    But I think there's a lot to be negative about, now.

  40. doubleup


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    40   6:55am Sun 30 Jan 2011   Share   Quote   Permalink   Like   Dislike (2)  

    coop says

    I would cherish any advice from you gurus out there. I’m a young homeowner in Los Angeles (Woodland Hills to be exact) and in light of all this forecast pessimism, I feel the desire to sell my house this Spring and get out before shit hits the fan. There’s $230k left on the mortgage and if I sell it now I could get about $650k. The other option is to rent it out and weather the storm for the next few years. Any advice to this neophyte would be MUCH appreciated!
    Thanks,
    Coop

    You can easily list it for what you want and see what happens. You don't have to sell if you don't get an acceptable offer. If you do sell, then you'll need a safehaven for the money. In general, I would be surprised if real estate went up but rather seems more likely to continue a slow slide downwards until it has a date with inflation at some point in the future. I won't be surprised if mortgage rates were two and a half points at some point. This could be a good economic strategy if that is what you value for the hassle of moving. Just recognize it is first and foremost about economics. Moving and renting can be a hassle.

    Another advantage is that after you sell you can shop for another house. But you can tighten up your criteria and focus on finding a real gem. Zero in on neighborhoods you really like and after a while you'll know them inside out. You'll get a great feel for the right home and price point. You can save a fair amount of money by tailoring the home to what you want and not paying for an extra bedroom, or an extra bay in the garage or a commute that is five miles too long.

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