advise please, buy or wait???

[thomp95]

Ok folks, I am not as financially astute as many of the posters here so I seek your advice. Here's the situation:

1. Young, single, engineering professional
2. Relocated by company to Michigan (buyers market)
3. Many homes in foreclosure/priced below market value (opportunity)
4. Need a place to live for 2-5 yrs, buy or rent?
5. Read iTulips articles on potential housing crash (now question buying)

Question 1: what steps/reccommendations do you offer?

Question 2: if one had 50 K cash, how would you advise employing its use for continued gains/growth?

Thanks for your responses, and if I can assist you with any engineering related matters please don't hesitate!

[thomp95]

wow, I thought loads of responses would come roaring!

[Lore]

Hi...

This forum is new, so hasn't drawn a lot of visitors yet.

My first thought regarding your inquiry is that you're investing in a HOME, not a house. If you believe as I do that hyperinflation is inevitable, then you don't need to concern yourself with near term price deflation in a structure that you intend to inhabit for 10+ years.

Energy shortages are virtually guaranteed, so you want to think location, location, location: try to avoid a long, expensive commute. Try to be close to essential services. People tend to own their homes in mature neighborhoods, which buffers them against the sharp drops that characterize downturns in new, heavily indebted subdivisions. Try to be close to water. Sheeple have no savings, so will do whatever it takes to get by: stay away from downtown.

You get the idea. Think strategically, and trust your personal antenna. The house you're meant to own will surface.

As for investing $50K, I'd begin by putting at least 10% into hard gold and silver. Then there are junior producing gold and silver stocks, and oil and gas stocks. If the latter interest you, then watch the Canadian oilsands closely. As Jim Willie puts it, "They're going to be recognized as the only ball game in town."

[jeffolie]

Save all the cash you can and be very long term patient before you decide to move up to a bigger freaking house. The housing market in Japan has been declining for 15 years from 1990. So, wait, wait and wait some more. You will need a good credit history and maintain your employment for the consolidated remaining banks to give you a mortgage when you want it.

DEFLATIONARY DEPRESSION for me by the end of 2007. The era of ultra fast communications via first the internet, then radio programs and last the main street media will create an avalanche world wide. I look for real estate be down 80 percent from the peak, stocks down 85 percent, and mortgage backed bonds down 95 percent by the end of 2007.

HeliBen has no where to go to avoid the deflationary collapse. He must raise rates because the economy is relatively strong with lower unemployment. He must raise rates because commodities are going ever skyward. He must raise to bust the HOUSING BUBBLE.

As rates rise, the adjustable mortgages ( I/O & ARMs, plus HELOCs) raise monthly mortgage payments and default and foreclosures go up. As houses held by flippers and investors try to liquidate prices decline. As prices decline the MEWs (Mortgage Equity Withdrawals) disappear. Greenspan stated the MEWs added $700 billion to the 2005 economy or 70% of the 2005 growth.

Investors and flippers were 24% of the housing purchases in 2005 nationwide. 50% of mortgages in 2005 were adjustables which will easily be underwater with a 14% decline. The subprime lenders disappear when house owners cannot borrow when they have no equity. No subprime lenders means not MEWs for cars, vacations, educations, etc. As unemployment rises and more houses go into default, the mortgage backed bonds (MBS) default or become impaired. The GSEs (Freddie and Fannie) go from not reporting their earnings to the NYSE. The pools of MBS which become CDOs and become sold outside the Fed's control and regulation as derivatives worldwide in the hundreds of Trillions. HALF THE VOLUME OF THE US STOCK MARK COMES FROM DERIVATIVES. -- end game worldwide.

THE BLOODBATH HAS STARTED

“One builder with a project in the busy southwest confided that he dropped his prices $20,000 per unit to compete with the handful of large publicly traded builders that have projects surrounding his. Unfortunately, that move just prompted the big builders to drop prices more. He described competing in that market area as a ‘bloodbath.’”

The worldwide rise in house prices is the biggest bubble in history.

Prepare for the economic pain when it pops

Good article but near the bottom is a graph showing the bubble in the US, Britain & Australia is actually bigger than the one in Japan.

http://www.economist.com/finance/dis...ory_id=4079027

Scavenger real estate funds will buy repo's. The high end of the housing market will suffer the most on a percentage basis because of overbuilding in luxury condo's and mini mansions. The over building in areas outside the suburb of major cities in recent years will see vacant houses for years. Buyers make the market for every sale but sales will decline rapidly as buyers get gun shy. Speculators and weakly capitalized owners will be cleared out by early 2007. As shown in other countries, housing bubble collapses linger for many years even with lowered interest rates (i.e. in Japan, their central bank effectively went to zero and real estate declined 14 years).

[blazespinnaker]

I'm not sure I'd want to suggest placing my faith in a fiat currency, especially with "HeliBen" at the helm.

HeliBen is all about creative methods of avoiding deflation (read "hyperinflation")

[thomp95]

so far the advice has been an interesting read, continue please...

[jeffolie]

Renting cost about half what it costs to buy and pay mortgage payments.

Housing Inventory Up 32%, Median Prices Fall: NAR

The national median is $209,000, down from $220,000 in August 2005.

Inventory is up 30.2% year over year and months supply is up 32.5%. February’s nationwide median was the fourth straight monthly decline.

In the west it’s $306,000, down from $327,000 last August. In the south, the median is $182,000, down from $189,000 in October. In the midwest, it was at $160,000, off from $176,000 in August, and the northeast was at a high of $263,000 from $250,000 this month last year. Sales by region were as follows, all YOY: NE up 2.6%. MW up 1.9%. South up 3.1%, and the west was down 10.6%.


I see today’s existing numbers as rather bearish. Momentum is the most reliable indicator in near term direction of asset prices. Today’s numbers showed that we had a decline in home prices with increasing volumes. That is very bearish. With that surge in sales volume, the inventory is still at near record levels – another bearish fact. It looks like the fissure in the dam is cracked open in recent months. Momentum has inverted, and it will continue to pick up steam with bigger price changes, especially when you have rising inventory to fuel the downward momentum, and the Fed applying rear-end pressure with rising interest rates. There is not much to celebrate about today’s number, more dark clouds ahead.

[Steve Sink]

Read everything you can on free web pages, BUT decide for yourself. Also might try some paid services. I have made good money using several, they have more than paid for themselves. Most offer a trial basis, either free for few weeks of a full refund after few weeks. Of those I have canceled (3-4) , I have always gotten my refund.

Mel

[jeffolie]

"I have said this before but I will repeat it again: The next time a housing bubble gently deflates will be the first time a housing bubble gently deflates," Naroff said.

[EJ]

Not much to add to Lore's advice. iTulip.com Ka-Poom theory circa 1999 expressed the idea that the most likely result of the collapse of the last asset bubble (deflationary) of the cycle of bubbles that have ocurred since the 1970s bubble cycle is a major inflation. I did not anticipate the housing bubble (asset inflation) balanced with China dependency on the U.S. for expports (deflationary) as the deal to avoid a monetary inflation that generates a more obvious increase in the general price level in the U.S., but cannot see another similar opportunity in the future. The question is whether we get an orderly increase ala...

http://www.alwayson-network.com/comm...P10025_0_4_0_C

...or a less orderly increase.

EJ

[Rose]

Having a lot of homes in foreclosure that can be picked up cheaply is only an opportunity if there is a reasonable expectation that the market will come back up by the time you want to sell something you purchased. If the area stays economically depressed and housing prices don't rise, then you are not purchasing an opportunity, you are purchasing what is right now someone else's problem.

Keep in mind that maintaining a home can be expensive. There is more to the cost than the mortgage payment. Things go wrong and have to be fixed. Items have to be purchased (lawn mower, etc) unless you already own those things.

If you are considering purchasing a home strictly for investment purposes, then you might consider writing it up as a business proposal to yourself.

There may be other reasons for purchasing a home that have a value though it may be only to the individual or family. Non-monetary considerations are valid and can't be discounted, even though they are subjective. Only you know if there is a non-monetary value that makes purchasing a home rather than renting 'worth it' to you.

If you are thinking of purchasing and selling 5 years down the road, you will likely not have paid off much principal on the mortgage, unless you make extra payments. That has to be considered. Closing costs also have to be considered. Again, if you are looking at this strictly as investment, you might total up the cost of owning that home vs renting for 5 years and then ask yourself if there are other ways of investing that same dollar amount that would bring you a greater profit. There might be, there might not be. A LOT depends upon the area. As you consider the cost of owning the home for 5 years and reselling, make sure you factor in such things that may have to be replaced in order to bring the home up to it's current condition. For example, if a place has brand new carpet now...after 5 years...would you have to replace that carpet? ( Some people the answer would be no, for other people who have dogs or are hard on things the answer might be yes). Some costs of bringing a home up to 'resale condition' can be mitigated if you have the skills and inclination to do the work yourself. If you can't, then you need to consider the labor costs involved. Don't forget to include in the cost/benefit analysis such things as insurance and taxes, any proposed zoning changes that might impact a specific property, the higher cost of heating a home, etc. A rise in heating fuel costs can be significant. I heat with wood, but friends of mine told me their propane costs were double what they were a year ago. Some went from paying 350.00 per month to 700.00. Some rental places have the renter paying heat, others have it included in the rent, so comparing what your cost would be to own will differ depending on what sort of rental situation might be an option.

You need to know what your break even point would be. Tally up all the costs involved in the purchase of the home (closing costs, etc), the cost of maintaining the home, etc, over the 5 year period. Some of those costs might be offset by benefits (tax deduction, etc). Add in the costs of selling the home. Would you use a realtor? Would you bear some of the closing costs, etc. If you sell using a realtor, they can take anywhere from 5-7% of the selling price of the home, unless you do it yourself...and even then there are advertising costs, closing costs, etc. Figure out what your break even cost would be...how much would the home have to appreciate in order to cover all those costs over 5 years and the cost of selling it. Then ask yourself if you have any concrete reasons to believe the market would rebound enough for you to recoup those costs.

If there are a lot of foreclosures in a given area I would be looking very very closely at purchasing if I planned to resell within 5 years. If there are many foreclosures, that spells economic depressioin. Unless you have reason to believe that will turn around in 5 years, buying a home there might not be in your best interests. You might mitigate your risk by entering into a 'rent to own' situation with a purchase price written into the contract. That would give you the option to purchase at a later date for a specific price. If the price were negotiated based on current market value and the market recovered in that area, you could come out ahead. If it continued to decline you wouldn't be locked into it.

Best of luck to you
Rose

[jeffolie]

As to investing, I am a bear. Here is my current position:

50% ProFund inverse mutual fund that makes money when the market declines

3% physical gold for the long term in case the world as we know it ends

2% cash in the safe for the crash of derivatives and banks

45% in Emigrant Direct savings account, FDIC insured, earning 4.5% now

[thomp95]

The level of detail in the last few replies are excellent, Thank you all, I am busy researching all options/opportunities that you've mentioned. Hopefully, from these I will be able to begin to define a progressive roadmap to wealth generation. In my next life I will do things a bit differently...if you want to make money, maybe study money (not freakin engineering, although the pocket protectors are awesom LOL)