The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

[raja]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

Given the mortgage credit bubble that produced massive real estate inflation in the RE sub-sector of the FIRE Economy and the collapse of that sector, there will be no real estate market to invest in for a least ten years. Forget it. It's a dead asset class for price appreciation.

Unless there is a hyperinflation.
Then all "real" assets will surge in price, at least nominally.

That said, in a few years the rental market may come back as prices of both houses and mortgages may make renting economical again.

This seems contradictory . . . .
If houses are cheap, then renting is not a good option. If houses are expensive, then renting is a good option.
So, in the first paragraph you call housing a "dead asset class" . . . in the second you imply that house prices will go up. Seems contradictory . . . .

[FRED]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

Unless there is a hyperinflation.
Then all "real" assets will surge in price, at least nominally.

This seems contradictory . . . .
If houses are cheap, then renting is not a good option. If houses are expensive, then renting is a good option.
So, in the first paragraph you call housing a "dead asset class" . . . in the second you imply that house prices will go up. Seems contradictory . . . .

A house is not an asset. Land is an asset, and land values will only inflate if there is a hyperinflation.

A house is an expense unless you can rent it for at a profit over costs.

[goadam1]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

Our advice remains unchanged. If you run a business, the name of the game is: survive your competition. Cut, cut, cut spending. Renegotiate every contract you can to reduce fixed costs. Talk to your employees about accepting pay cuts to avoid layoffs. Cut your own salary, too. Scout out cheaper facilities then call your landlord and renegotiate your rent or move. Remember, in a recession like this one, recovery is not just around the corner. Everything is negotiable.


I am a small business owner. I already did many of these steps over the last year, before becoming an ituliper. The writing was on the wall.

But I think the hunker down mentality is a mistake. If you own a business, then look to make your business better. I invested in some new equipment and hired different people with skill sets that allow me to keep more revenue "in-house." I changed how I bill. I added new skill sets. I adapted my business to work in parts of advertising I previously did not work in. Wil it all work? It's better than assuming it is over before the game is even played. Hunkering down will kill a business in a tough time as much as being wasteful and foolish would.

As far as investing goes, I believe in the bell curve. On one end is gold and on the other end is speculation. I have shifted the curve down. But I can't imagine putting a figure with many zeros on the end into any one asset. I hear some schemes on this board (none advocated by EJ or Fred) that sound as bad as something an investment banker would pitch.

I understand that these will be tough days. But I also believe that in the coming years people will start new banks, new ad agencies and all kinds of new ways of doing things. And I want to be part of the next new.

[LargoWinch]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

A house is not an asset. Land is an asset, and land values will only inflate if there is a hyperinflation.

Ed, you are confusing me.

Should it be a house is not an investment?

Secondly, could it be possible that land values will inflate [I define "inflate as: will increase in price] in pace with inflation over the long run?

-W.

[raja]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

A house is not an asset. Land is an asset, and land values will only inflate if there is a hyperinflation.

A house is an expense unless you can rent it for at a profit over costs.

O.K. Let's not call a house an "asset".
Let's call it a storehouse of wealth.

If I own a house, and you own a bunch of stocks or a million $ in Treasuries, and there's a hyperinflation . . . well, you get the idea, right? You've lost everything, and I've preserved my wealth.

And, in the case of hyperinflation, if I sell that house it will inflate just like land will.

In focusing on the definition of "asset", it appears that you did not answer my second question . . . or maybe you did and I'm too dense to understand your response (won't be the first time):

This seems contradictory . . . .
If houses are cheap, then renting is not a good option. If houses are expensive, then renting is a good option.
So, in the first paragraph you call housing a "dead asset class" . . . in the second you imply that house prices will go up. Seems contradictory . . . .

[GRG55]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

O.K. Let's not call a house an "asset".
Let's call it a storehouse of wealth.

If I own a house, and you own a bunch of stocks or a million $ in Treasuries, and there's a hyperinflation . . . well, you get the idea, right? You've lost everything, and I've preserved my wealth.

And, in the case of hyperinflation, if I sell that house it will inflate just like land will.

In focusing on the definition of "asset", it appears that you did not answer my second question . . . or maybe you did and I'm too dense to understand your response (won't be the first time):

This seems contradictory . . . .
If houses are cheap, then renting is not a good option. If houses are expensive, then renting is a good option.
So, in the first paragraph you call housing a "dead asset class" . . . in the second you imply that house prices will go up. Seems contradictory . . . .

A house is not a storehouse of wealth [unless you've packed the walls with Krugerands :p].

Houses depreciate. Land appreciates.

[LargoWinch]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

A house is not a storehouse of wealth [unless you've packed the walls with Krugerands :p].

Houses depreciate. Land appreciates.

Yep, that I can understand and agree with.

Poor condo owners...

[metalman]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

O.K. Let's not call a house an "asset".
Let's call it a storehouse of wealth.

If I own a house, and you own a bunch of stocks or a million $ in Treasuries, and there's a hyperinflation . . . well, you get the idea, right? You've lost everything, and I've preserved my wealth.

And, in the case of hyperinflation, if I sell that house it will inflate just like land will.

In focusing on the definition of "asset", it appears that you did not answer my second question . . . or maybe you did and I'm too dense to understand your response (won't be the first time):

This seems contradictory . . . .
If houses are cheap, then renting is not a good option. If houses are expensive, then renting is a good option.
So, in the first paragraph you call housing a "dead asset class" . . . in the second you imply that house prices will go up. Seems contradictory . . . .

i can't believe this is a topic of debate here.

a house is a depreciating asset like a car except for fire econ tax laws and mortgage deduction, and the heavy advertising by the nat. assoc. of realtor's.

a house requires maintenance or it becomes less valuable and eventually falls down.

a house is to live in. so it has always been and so it shall be again.

a house can generate cash flow if you put rent paying bodies in it who can pay you more than the mortgage and taxes and maintenance cost.

guess it'll take a while for folks to get their heads around this fact.

[Judas]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

Our advice remains unchanged. If you run a business, the name of the game is: survive your competition. Cut, cut, cut spending. Renegotiate every contract you can to reduce fixed costs. Talk to your employees about accepting pay cuts to avoid layoffs. Cut your own salary, too. Scout out cheaper facilities then call your landlord and renegotiate your rent or move. Remember, in a recession like this one, recovery is not just around the corner. Everything is negotiable.


I am a small business owner. I already did many of these steps over the last year, before becoming an ituliper. The writing was on the wall.

But I think the hunker down mentality is a mistake. If you own a business, then look to make your business better. I invested in some new equipment and hired different people with skill sets that allow me to keep more revenue "in-house." I changed how I bill. I added new skill sets. I adapted my business to work in parts of advertising I previously did not work in. Wil it all work? It's better than assuming it is over before the game is even played. Hunkering down will kill a business in a tough time as much as being wasteful and foolish would.

I think when he says "survive your competition" he means hunker down (reduce your expenses, keep a capital cushion, keep a resume file current, etc.) and when less prepared competitors close shop be there to assume the viable part of their customer base left behind.

[goadam1]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

I agree with EJ's advice. But what I am countering is the doomer/gold bug reactions I have read on this board.

[LargoWinch]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

I agree with EJ's advice. But what I am countering is the doomer/gold bug reactions I have read on this board.

I find disturbing the fact that "gold bug" is being tossed around so freely.

I never heard the term T-Bill bug, RE bug or Stocks bug yet.

For my part, I never owned gold until 2 years ago that is. I am not a "gold bug", but a realist. I intend to sell my gold...for one share of the Dow/oz.

[c1ue]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

JK already spoke to this, but it bears repeating:

So long as house prices are a function of leverage, and the entire structure of modern leverage is broken, expecting houses to behave like appreciating assets is a huge mistake.

The fundamental pricing structure for houses in the past decade was due to leveraging; the present deleveraging process still hasn't returned even to the '80s era banking practices.

Assuming it even stops there - the prices of houses we see now should still be considered high.

Keep in mind that in a hyperinflation situation - the price of a house is going to be set by what cash is acceptable for the seller. Because no one is going to lend squat with hyperinflation rubbing lender's faces in the dirt.

Furthermore in a hyperinflation scenario - fiat cash is being expended at furious rates. The seller thus has both short and long term arbitrage to convert said cash to something which will hold value.

In practice, though, the buyer has to accumulate cash too.

Thus it is not a good assumption that houses will retain purchasing power value in a hyperinflation - property taxes, maintenance, etc all are going to be non trivial factors.

Argentina is likely your basis for thought - it is a poor example. Because in Argentina houses were traditionally transacted in US dollars and served as a proxy for foreign currency in their hyperinflationary era.

However, a quick glance at any number of other hyperinflationary nations show that real estate was not a particularly good investment: Russia 1996-1998, Mexico, Brazil, etc etc.

[raja]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

A house is not a storehouse of wealth [unless you've packed the walls with Krugerands :p].

Houses depreciate. Land appreciates.

Depreciation does not mean that a house ceases to be a storehouse of wealth . . . .

Let me give you an example:

I buy a house.
You buy Treasuries.

Then, there is hyperinflation.

When the dust settles, you've got nothing, and I've got a house.
I can sell that house for X "new dollars".
Or, I can rent it for X "new dollars".
I could rent it to you, but you've already got accommodations in the poorhouse. ;)

That house has stored my wealth. Maybe not all of it, but a good chunk. You have not stored any of your wealth . . . in fact, you've lost it all.

Or, let say I've got a house, and you've got gold.
And, there is hyperinflation.
The government confiscates your gold and gives you the American version of Zimbabwe dollars. These Zdollars dwindle to zero.

You've got nothing, I've got a house.
Who has stored their wealth more effectively?

What about if there is no hyperinflation?
Inflation, deflation, stagflation, exflation (made that one up ) -- in any scenario (except a communist revolution) a house is a storehouse of wealth.

You (GRG, metal, et. al.) don't seem to understand how a house works.

A modern metal roof lasts about 60 years.
Windows, siding, and other components will probably last twice that. Concrete foundations and wood structural components last forever if kept dry and termite-free.

Sure, there will be some maintenance costs. You'll have to replace the water heater and the furnaces once every 15 or 20 years, but you'll probably collected 500 times that in rent over that period. There are houses in England that are over 400 years old, and they are completely functional.

And, 60 years from now, you could sell that house and get whatever a house is worth at that time. It's actually indexed to inflation :eek:
You will have preserved most of your wealth successfully, with much less risk than any other investment options now on the table.

I'm not claiming that you will store your wealth with 100% efficiency with a house, but it will store wealth, especially if you buy it on foreclosure or otherwise get a good deal. Can you please tell me another way to preserve wealth that has equal risk with a better upside. It ain't gold, treasuries, stocks, land (unless you rent the land), euros, yen . . . .

All that being said, I'm 1/3 RE, 1/3 TIPS, 1/3 gold . . . and a little bit of gambling money for SRS, etc. I'm also long chickens, goats, cows, emus and corn (at my farm).

[BrianL]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

I think the argument is over the rate of depreciation.

Others are arguing that a house will depreciate less than other some other holdings when faced with hyperinflation. This doesn't necessarily make it the best (or even a good) investment during that time period.

[RebbePete]

Re: The US economy glides like a box of rocks. Don't stand under it - Eric Janszen

And, 60 years from now, you could sell that house and get whatever a house is worth at that time. It's actually indexed to inflation :eek:
You will have preserved most of your wealth successfully, with much less risk than any other investment options now on the table.

I'm not claiming that you will store your wealth with 100% efficiency with a house, especially if you buy it on foreclosure or otherwise get a good deal. But can you please tell me another way to preserve wealth that has equal risk with a better upside. It ain't gold, treasuries, stocks, land (unless you rent the land), euros, yen . . . .

A couple of observations:

• That assumes that the house isn't radically overvalued at the time you buy it. We saw the link with inflation rates broken in the last few years, and the return to the mean will be painful. Once values return to the mean, your thesis might be more reasonable.
• On the other hand, not so much as a "store of wealth," but as a "safety net," a fully paid house with self-sufficiency (solar panels, solar hot water, a source of clean water on the property, etc.) is of great value in detaching from the vagaries of inflation altogether. In that sense, if we define "wealth" as the ability to survive and thrive, then a house can be "wealth" no matter what its convertability back to dollars is, if you live in it.
• As far as renting the house out, I don't think that's working very well for a lot of people right now. House prices and rental prices do obey the law of supply and demand, just like treasuries and stocks and....