Dangers of Homes or Homebuilders as Investments
Latest News about traditional investments.
On the New York Times’ Economix blog, Harvard economics professor Edward Glaeser points out that home values don’t necessarily increase. Like stocks,
Houses are assets, too, but it’s a mistake to expect them to offer a regular rise in price. Houses pay hefty dividends to their owners in the form of living space — that’s the real return on housing investment — and the basic economics of housing doesn’t point to perpetual price growth.
It’s a good analysis of a complex issue. Of course, your house — like any investment — has the potential to increase in value. There’s just no guarantee.
As on other assets, the return on a home depends on the details, especially local demographics, how much it costs you to maintain it, and what your renting alternatives are. Some contend that real estate can serve as a hedge against inflation.
If you would rather rent but are still looking for a way to invest in a housing sector rebound, you might buy homebuilder stocks.
Listen to the warnings of Stifel Nicolaus (SF) homebuilder analyst Michael Widner before you do so. In a sobering Apr. 6 report, he says:
• The hope that homebuilders will benefit in the future by buying up cheap land now is largely a pipe dream. There’s not enough cheap land, and there’s lots of competition from other buyers, he says.
• Builder won’t “return to normalized earnings levels” before 2014.
• Homebuilder stocks will be volatile, yet they are likely to provide an annual return of just 3% through 2013. “At current prices, we see little appeal for buy-and-hold investing,” he says.
If you “buy and hold” a house, at least you get to live in it.
Original source for this article: Business Week
Housing Prices: The Slide Continues
Latest News about traditional investments.
Bill Bonner, writing for The Daily Reckoning, analyses the latest housing news from the U.S., including the recent increase in prime mortgage defaults.
Bill Bonner (The Daily Reckoning):
The Los Angeles Times tells us that mortgage defaults in the prime category rose in the 3rd quarter. If you are wondering what might happen to housing prices in the US…should the depression continue…you might want to keep an eye on the default rate.
Housing prices are down about 30% nationwide. In some areas, they are down much more. But they had been going up for so long…this downswing still seems like an aberration. Hope has momentum…especially in the housing market. Housing prices rose along with inflation for 100 years. Then, they rose much faster than inflation over the last 10 years, ending in 2007. This leaves people with the impression – false – that housing always goes up over the long run. As we have pointed out many times in these Daily Reckonings, housing prices in the nicest neighborhood of Baltimore, where we have our offices, hit their highs, in real terms, in the 1920s. They’ve been going down ever since. Even after the big run up to 2007, they were still below their ’20s peaks. That’s a bear market in real estate prices that has lasted, so far, 80 years.
We don’ t have reliable numbers – in fact, we don’t even have unreliable numbers – but our guess is that property prices in central Rome topped out during the reign of Trajan…or maybe even Augustus. They must have gone down for the next 1700 years, because as late as the 1800s, the most precious real estate of the Roman Empire…around the forum…was being used as a goat pasture. That’s still better than say Troy or Ctesiphon – cities that were abandoned and forgotten completely.
Real estate doesn’t go up over the long run. Sometimes it goes down…often for a very, very long time. . .
Click here for the rest of Mr. Bonner’s commentary at The Daily Reckoning.
Original source for this article: Contrarian Profits
