NOYB wrote:
Good article. She's pretty much on the money.


Did you read the part about how houses are not good investments, and the
risks of 'decline in relative value' is the way she put it, I believe.
Florida is also one of the places identified with over-inflated house
values. I'm a little curious why you so amiably agree with an article
that flat-out contradicts almost everything you were claiming a while back.

** * ** quote ** * **
Most homeowners imagine that their properties will make them rich. But
except in unusual periods, homes aren't terrific investments. Since
1980, the price on the median house has risen only 1.46 percent a year,
adjusted for inflation, compared with 9.2 percent for stocks. Homes are
even less profitable if you deduct the cost of taxes, insurance, upkeep,
remodeling and repair.
** * ** end quote ** * **

I don't know where she got those figures, I've gotten returns in the low
teens from my stock investments, although there were a few flat periods
in there.

** * ** quote ** * **
What will happen to your life if the value of your home flattens or falls?

Nothing, if you stay in the house and keep making mortgage payments. The
only change is that you'll go back to building equity the old-fashioned
way—by paying down your mortgage loan.

It's a bad time to borrow the equity out of your house or to buy a house
with no money down. If you had to resell—because you changed your job,
lost it or divorced—you might find yourself with no money left (or owing
money to the bank). Once prices soften, they tend to stay soft for a
long time, Zandi says.
** * ** end quote ** * **

Another way of putting that is to say 'prices are sticky' and it tends
to hold for both ends of the spectrum. We all know examples of people
trying to sell cars, boats, etc etc, for what they think it's worth, and
holding it for a long long time trying to attract offers.

Here's the advice for your brother:
** * ** quote ** * **
But don't sit in a rental waiting for prices to drop so you can buy
something cheap. Prices might not drop. What's more, you'd be losing
your chance to stabilize your long-term homeowning costs, Sinai says. If
you expect to keep the home for at least four or five years, there's
more risk to staying out of the market than getting in.

Get in with a plain-vanilla fixed-rate or adjustable-rate loan.
Mortgages that let you pay only the interest (or less) each month are
bull-market dreams. A few years from now, payments on those loans will
jump—a problem you may be expecting to solve by refinancing or selling
out. But if prices flatten, you'll get trapped. I'm not saying they
will—only that it's a good time to shore up your finances, just in case.
** * ** end quote ** * **

Notice that she talks about prices flattening, not crashing.

You might want to take a look at what the projected median income in
your town will be in ten years, and think about whether or not it's a
good time to take your gains and go find something you can really
afford. Just a little friendly advice.

DSK