RE and inflation: to buy or not to buy??

[jpatter666]

Re: RE and inflation: to buy or not to buy - High Interest rate best time to buy??

Many of the folks who are living the cheapest now were people that bought their homes when Interest Rates were fairly high and Real Estates values were at a corresponding low.

It strikes me has idiotic that buying Now when Interest Rates are at some of the lowest in history- could be a Smart move when the People who did the Best in seeing their R/E asset appreciate purchased in the early 1980s when Interest rates were at Highs.

Am I being too simplistic in my thinking?

I also don't believe there was the massive shadow Inventory in Real Estate in the early 1980s?

My best gauge is psychological. I bought in the DC area in 1997. I'd go to open houses and be the only person there -- all day. People thought housing was a *terrible* investment. When I finally bought my townhouse (which had been for sale for 18 months) people in the neighborhood commented that they were so happy *someone* had finally bought in the neighborhood. I, myself, told my friends I didn't expect to make much money on the place -- it was a lifestyle choice.

Used a 15-year mortgage -- which my broker fought my doing tooth and nail.

These days in DC houses are still moving briskly in the inner suburbs. Townhouses move especially fast (people are leery of condos and single-family prices are nuts). Several people have tried to involve us in picking up foreclosed houses, fixing them up and flipping them. Others are buying "bargains".

People think they can still make money on housing in this area. That tells me the bottom is nowhere close yet here....

[thriftyandboringinohio]

Re: RE and inflation: to buy or not to buy??

I am currently sitting on 10% gold and 90% cash, and the thoughts of coming inflation make me very nervous.
Since I don't want to invest into stocks more than 40%, I am trying to figure out if an investment in RE as a primary residence (I am renting now) makes sense.
As I understand it, during inflation RE prices go up (as everything else), but at the same time, inflation causes mortgage rates to rise also, which makes RE prices to go down.
So my questions are
1. what would have a bigger impact on RE price - rising interest rates or rising inflation?
2. what makes more sense - to buy now with 20% down, and lock in at a very low interest rate, or wait until inflation hits, mortgage rates rise, RE prices drop and buy cheaper for cash or with a large (50%-100%) down payment.
I live in So. Cal, and to be realistic, assume to keep the property for about 10 years.
Any opinion would be greatly appreciated.

I executed your strategy in 2001 and it failed for me.
I was banking on big inflation, so I bought a much bigger house than I needed at a low interest rate, hoping inflation would run up the house price.

I didn't see the real estate price collapse coming way back in 2001 (this is where Metalman will quote me and link to EJ's articles back then that told me so).

I'm lucky, here in the midwest we have cheap houses that didn't rise much and aren't falling much, so I've missed gains instead of taking real cash loss.
I would have been beaten to a bloody pulp had I done this in So Cal.

[don]

Re: RE and inflation: to buy or not to buy??

I've been renting throughout the housing bubble- not because of any flash-of-lighting insight, more serendipity. I went the gamut from being "ashamed to be renting" having held mortgages since my 20s, to the envy of most of my acquaintances. I can certainly dig the freedom of movement and don't miss the never-ending homeowner repairs, after decades of maintenance and pouring sweat equity into RE. I closed my construction business just before the bubble- what a break that was. Sure, there would have been work but to get sucked into that vortex.... Instead I stayed and nurtured my consulting business (construction defect defense litigation. Expert witness, forensics, etc.) and began writing, choosing a small pond to make my splash. About a year ago consultancy work seemed to evaporate, as RE and CRE ownership itself is so much in question, why sue? That pushed me full-time into the writing gig. After publishing 40-50 articles, I'm very close to finishing my first book and can't wait to get into the publishing/promotion business side of the venture. I was fortunate my wife was topping out salary-wise, which took much of the anxiety out of a process where dues had to paid. I still plan on buying at least a home, but timing will be very important. Investing in a business, even writing, has great rewards if it fits your personality. Entrepreneurship is not for everyone. Most small contractors in construction make no more than if they were a superintendent for a large firm (at least in the daze of a few years ago). You have to like it. In most cases there will not be enough financial reward to offset the level of commitment of starting a business, if you find you don't.

[ER59]

Re: RE and inflation: to buy or not to buy??

I'm expecting a market downturn soon, perhaps within two or three weeks.

I have been shorting Nasdaq for the past 6-7 months - ready to give up and go long.

[thriftyandboringinohio]

Re: RE and inflation: to buy or not to buy??

... Entrepreneurship is not for everyone. Most small contractors in construction make no more than if they were a superintendent for a large firm (at least in the daze of a few years ago). You have to like it. In most cases there will not be enough financial reward to offset the level of commitment of starting a business, if you find you don't.

Amen, brother.
I've seen people go bust when they start a business where they are expert at the technical work but turn out to be lousy businessmen at sales, customer service, bookkeeping, hiring, negotiating....

I've seen others turn out like the small contractors you describe. They essentially bought themselves a lousy job with low pay and long hours.

I suspect Jeff may have been including investing in smaller private businesses operated by others who ARE good entrepreneurs.

[jpatter666]

Re: RE and inflation: to buy or not to buy??

Amen, brother.
I've seen people go bust when they start a business where they are expert at the technical work but turn out to be lousy businessmen at sales, customer service, bookkeeping, hiring, negotiating....

I've seen others turn out like the small contractors you describe. They essentially bought themselves a lousy job with low pay and long hours.

I suspect Jeff may have been including investing in smaller private businesses operated by others who ARE good entrepreneurs.

Yep, that's me. I've had many people over the years tell me I ought to start my own business because I'm a technical wizard -- but I've known for years that the same maniacal focus that let's me resolve technical issues would absolutely suck at running a business. I'd let the thing implode while working on this really cool but honestly immaterial issue.... I make for a great lieutenant, right-hand dude, but in no way should I *ever* be given the tiller.... ;-)

Know thyself....

[Jeff]

Re: RE and inflation: to buy or not to buy - High Interest rate best time to buy??

I'm with jpatter. I bought a house on 28 acres, including a lake 20 miles outside DC in 1995, and everyone tried to talk me out of it. Same for 5 acres of oceanfront in the Florida Keys in 1997. ("Nobody buys real estate. Hold onto that WorldCom stock". Sounds funny now, but I sold a LOT of WorldCom to buy those properties.) But by the time I sold them the same people who said I was crazy to sell said I was crazy to sell. Interest rates weren't an issue as they were both cash purchases.

I still get funny looks now when I tell people I rent, but I expect that to change soon to looks of confusion, then envy.