walking away PII

One point i forgot to make in my last posting was that, while the pundits and permabulls were dismissing any concern about a housing bubble, the sources i was paying attention too were highlighting the nature of the bubble and the consequences. Who was right?

Well the issue is there are always permabulls and permabears in any market, housing included. So who do you listen to? Well neither. You should read both sides and decide for yourself. But frankly i pay attention to those who see both sides of the issue. In this case Bruce Norris is the definitive resource about the housing markets, especially in Southern California. While he was recemmending sell, morons like Jim Cramer were pumping the home building stocks. Who knows more about it? Not Cramer.

This also highlighted for me an interesting thing. Cramer was pumping the homebuilder stocks basically out of a lack of understanding of the industry and many of the challenges it faced. One example was that Cramer was stating that builders only build what they sold. Well not true. What about the 40% cancellation rates? And why are they still building even now? The anwser is that they are stuck finishing a project due to commitments, insurance, and a myriad of other reasons pointed out by Norris.

While these minor little details seem unimportant to the big picture, they are. Why? Well the fact that builders must finish what they started means that they are forced to keep building inventory into a declining market which exaserbates the situation. It is a key in understanding when to buy real estate or the homebuilders.

In my case I got married and we ended up selling both our homes. We still have the nut there and we are renting. In this case we did not time the real estate market we just looked at the facts. Should i rent this condo? No it was a losing proposition because rents would not cover the mortgage plus taxes AND i could sell now two years after my wife bought for nearly twice what she paid. Should we buy this house (and moreover rush to submit an offer in 1 hour)? Well no. Because we can rent a better place for half as much money each month.

So in some ways you only need to use your own common sense. Run the numbers yourself and you will see the right thing to do. The numbers will tell you when it makes sense to buy a house. They will reveal that "hey i can buy for the same price i rent and get the tax benfits". That is when you buy (think how far we need to come). To summarize be very careful where you get your information from. It can really hurt you if you are not careful.

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