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newdefault

are we in another bubble?

Posted on 2005.06.16 at 22:33
interesting article from the economist-

And there is a troubling similarity between the house-price boom and the dotcom bubble: investors have been buying houses even though rents will not cover their interest payments, purely in the expectation of large capital gains—just as investors bought shares in profitless firms in the late 1990s, simply because prices were rising.

Comments:


betternewthings at 2005-06-17 06:07 (UTC) (Link)
precisely what i've been saying.

the gross rent/gross price ratio ought to hover around 10:1, more or less.

in times of low interest rates, i'll forgive 13:1 because your capital cost is lower.

currently, my return on real estate would be much lower than my return on the s&p, at a higher leverage, with consequently higher risk, and a significantly higher barrier to entry.
(Anonymous) at 2005-06-19 22:43 (UTC) (Link)
How are you calculating that? Gross Rent / Gross Price Ratio = $1400 Mo * 12 = $16,800 / $160,000 = 10.5% Where are you located?
Damon Amyx
damyx at 2005-06-17 18:26 (UTC) (Link)
yeah, this stuff is interesting-
I've heard that the problem is made worse by the fact that despite continually rising housing prices, people still keep buying because it's too easy to qualify for a loan.
personally, since i have nothing invested in housing (and my parents just sold my grandfather's estate for over $1m), I'm going to be happy when the bubble bursts :)
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