Economics Questions

Re: The Near Term Future Price ... not Value ... of Real Estate

fsk — Fri, 03 Apr 2009 23:00:04 GMT

Real estate should underperform gold and silver for several reasons.

The biggest reason is property taxes. Property taxes are a drag on the return from a real estate investment. If there's 10% inflation, your property taxes will probably also rise by 10%.

When you buy real estate, you don't actually own it. You merely have a perpetual transferable lease.

Another problem is zoning laws. A few blocks away, someone is buddies with the zoning board and builds a big apartment building. That decreases the value of my house.

Another problem is tax breaks for new construction. New construction frequently is exempt from property taxes for a certain number of years. To compensate, other properties pay higher taxes.

Another problem is that housing wears out. You have to spend money on repairs.

Another problem is rent control laws. Even if your rental property isn't subject to rent control, the regulation could be changed later.

Re: The Near Term Future Price ... not Value ... of Real Estate

jdavidb — Fri, 03 Apr 2009 18:38:32 GMT

The thing is you haven't demonstrated real estate to be a good investment. You're basically exploring a tautology: a self-evident but (mostly) irrelevant truth: if prices will go up, in general, then, yes, real estate prices will go up. That doesn't mean it's a good investment. That doesn't mean your investment has "doubled." As it says in your title, it's not the value going up. It's just the price in dollars. If you measured the price in anything else -- gold, silver, matchsticks, butter -- you'd probably find the value going down slightly due to wear and tear on the house.

What you're seeing is just the fact that in an inflation scenario, holding a commodity -- any commodity -- is preferable to holding fiat money. Yes, buying real estate might be a good hedge against the inflation that we are likely to face. But it's not investment. It's just a form of savings that is more inflation-proof than buying a bunch of dollars and stuffing them in their mattress or putting them in the bank (with an interest rate that won't keep pace with inflation). In fact, it's not even good savings, since as I said the house is going to experience some decline in value due to wear and tear. Better to save with something that doesn't wear out, i.e., gold. Land itself is possibly a good commodity as well, just not the buildings built on it.

If you want a real investment, you have to have a plan for producing something with your money. i.e., you buy a business, the business invests your purchase price (saved capital) in their operations and doubles their profitability, you reap profits. Buying real estate just because it's going to "go up" is not investing.

In the end, the buy real estate because of inflation strategy will be outperformed by lots of genuine investments.

The Near Term Future Price ... not Value ... of Real Estate

Connie — Fri, 03 Apr 2009 14:42:02 GMT

Paul Cleveland wrote in his article ...

Is This America's Dark Knight?

Mises Daily by Paul A. Cleveland | Posted on 3/10/2009

"It is my firm belief that providing the average person
with the right information
in a readily understandable format can make a difference.
I only hope that it is not too late,
and that we do not have to watch America burn"

Perhaps one of you can point me to some writings on the following. I believe the question is asked by thousands like me who have only an "average person's" understanding of economics.

I am trying to get opinions on how the devalued dollar will affect the prices of homes. I think of a scenario as follows ...

With printed paper dollars being injected into the economy,

The dollar is devalued

Real Estate prices (as well as prices in general) increase,

not because of increased demand

not because of increased inherent value

not because of decreased supply

but because inflation will drive up prices.

Hence purchasing depressed properties (e.g., foreclosures) today at 40¢ on the dollar represents a good investment.

That 40¢ investment will likely double (maybe more)

within the next 5 - 10 years.

Without arguing the applicability of the ... 40¢ ... the doubling of the investment ... and the 5 -10 years, is the scenario one that can be supported with facts and logic that are anchored to the laws of economics?

I would appreciate your guidance.