Start Here

The Future of the U.S. Real Estate Market (Intro)

Taken from the January 2012 Intelligent Investor
 
Overview
Home ownership has been a vital component of Washington’s economic strategy for decades. The marketing end of this strategy has positioned home ownership as a key element of the so-called “American Dream.” 
For millions of Americans who are under water with their mortgage, facing foreclosure or in one of many stages of default, home ownership has become an “American Nightmare,” riddled with a variety of caveats ranging from millions of foreclosures, the poor effect and other undesirable consequences. 
The Real Estate Bubble chapter in America's Financial Apocalypse* opened with a discussion illustrating why home ownership is usually not a prudent investment choice.
Let’s take a look at a small portion of the discussion presented in this book…
"A few decades ago, the real estate and mortgage industries devised a marketing campaign to increase business. They began preaching a myth to Americans that home ownership is always a great investment with no risk, because “home prices always go up.”  
 
As a matter of fact, these industries have even made claims that real estate is a better investment than the stock market and has led to more millionaires. These statements are simply not true as historical data indicates. 
 
As a result of this propaganda, most Americans have the misconception that they can buy a home and it will always go up in price. But this is not necessarily true, especially when buying during the last stages of a real estate bubble.
 
Even without the effects of a bubble, in many cases the annual expenses associated with home ownership wipe out most of the gains in appreciation, yielding relatively modest returns.  
 
For the average American, the fact is that residential real estate typically provides about the same rate of return over a twenty- to thirty-year period as a money market mutual fund after you deduct the total costs of property ownership. However, unlike a money market fund, owners of real estate have significant liquidity risk as well as other risks specific to this asset class.
 
Of course, there are several variables that can deviate from these results, such as obtaining a low-interest fixed mortgage, buying a home in an area that becomes rejuvenated, and so forth. But these are not typical conditions and therefore cannot be relied upon with much certainty. Regardless, widespread speculation continues to fuel perhaps the biggest real estate bubble ever seen in America. And the consequences are going to be devastating for millions."
 
Source: America’s Financial Apocalypse, 2006 (expanded edition, chapter 10)
 
Today, you hear several individuals preaching what this book proved prior to the collapse in real estate. I would like to remind you that it’s easy to warn of a fire once the fire is ablaze. Such individuals are always late to the party.**

This article continues.

To continue viewing this entry please sign in to your Client or Member account.

Print article

Restrictions Against Reproduction: No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the copyright owner and the Publisher.

These articles and commentaries cannot be reposted or used in any publications for which there is any revenue generated directly or indirectly. These articles cannot be used to enhance the viewer appeal of any website, including any ad revenue on the website, other than those sites for which specific written permission has been granted. Any such violations are unlawful and violators will be prosecuted in accordance with these laws.

Article 19 of the United Nations' Universal Declaration of Human Rights: Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.

This publication (written, audio and video) represents the commentary and/or criticisms from Mike Stathis or other individuals affiliated with Mike Stathis or AVA Investment Analytics (referred to hereafter as the “author”). Therefore, the commentary and/or criticisms only serve as an opinion and therefore should not be taken to be factual representations, regardless of what might be stated in these commentaries/criticisms. There is always a possibility that the author has made one or more unintentional errors, misspoke, misinterpreted information, and/or excluded information which might have altered the commentary and/or criticisms. Hence, you are advised to conduct your own independent investigations so that you can form your own conclusions. We encourage the public to contact us if we have made any errors in statements or assumptions. We also encourage the public to contact us if we have left out relevant information which might alter our conclusions. We cannot promise a response, but we will consider all valid information.


0:00
0:00