Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
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  • Time for GOLD to shine again

    Hi all,

    Nice discussion. I guess its time to fill our coffers with real assets, aka GOLD and SILVER.

    I think they will give better return that RE.
    CommentQuote
  • A term for "inflationary recession"

    Originally Posted by SanjanaSingh
    What we are witnessing is actually a paradox of the Keynesian endgame.

    Yes -- the inflationary recession is firmly in place. In fact, I'm wondering if there are certain indicators of global hyperinflation showing up. Did you know that in the primary stages of hyperinflation, massive amounts of paper currency is printed, and yet there is scarcity of cash ? !!

    But that's a topic for another day :)


    How quickly things change when declines happen! How fickle is the human mind! :D

    My first post in this forum back in july 2008 talked about the housing decline ranging from 50% all the way to 80% in highly bubbly areas!

    Of course I did not specify nominal or real! Mistake!

    There was overwhelming derision on this count and I was certified mentally abnormal.

    Now 50% does not seem to be so unreal after all!!!:D

    The term for inflationary recession is - STAGFLATION!

    cheers


    How quickly things change when declines happen! How fickle is the human mind! :D

    My first post in this forum back in july 2008 talked about the housing decline ranging from 50% all the way to 80% in highly bubbly areas!

    Of course I did not specify nominal or real! Mistake!

    There was overwhelming derision on this count and I was certified mentally abnormal.

    Now 50% does not seem to be so unreal after all!!!:D

    The term for inflationary recession is - STAGFLATION!

    cheers


    How quickly things change when declines happen! How fickle is the human mind! :D

    My first post in this forum back in july 2008 talked about the housing decline ranging from 50% all the way to 80% in highly bubbly areas!

    Of course I did not specify nominal or real! Mistake!

    There was overwhelming derision on this count and I was certified mentally abnormal.

    Now 50% does not seem to be so unreal after all!!!:D

    The term for inflationary recession is - STAGFLATION!

    cheers


    How quickly things change when declines happen! How fickle is the human mind! :D

    My first post in this forum back in july 2008 talked about the housing decline ranging from 50% all the way to 80% in highly bubbly areas!

    Of course I did not specify nominal or real! Mistake!

    There was overwhelming derision on this count and I was certified mentally abnormal.

    Now 50% does not seem to be so unreal after all!!!:D

    The term for inflationary recession is - STAGFLATION!

    cheers
    CommentQuote
  • Originally Posted by bhuvang
    Hi all,

    Nice discussion. I guess its time to fill our coffers with real assets, aka GOLD and SILVER.

    I think they will give better return that RE.

    Yes, but I will not place my bet on silver as of now. Sharp correction is expected in silver. Declines inductrial production especially in west will put even more pressure on silver.
    Man, silver rates were artificially jacked up as some chaps in US bought metals to the tune of US$ 4+ bn. As they are now selling this, the pressure will be even more.
    CommentQuote
  • Originally Posted by realacres
    Yes, but I will not place my bet on silver as of now. Sharp correction is expected in silver. Declines inductrial production especially in west will put even more pressure on silver.
    Man, silver rates were artificially jacked up as some chaps in US bought metals to the tune of US$ 4+ bn. As they are now selling this, the pressure will be even more.

    why all these news came out in later stage,when common people have already
    bought at higher price.
    Market is not for common man.:o
    CommentQuote
  • Your dream house may not be ready by FY13

    Another eg. of builders facing liquidity crunch:-

    The study covered 11 locations; Gurgaon, Noida, Greater Noida, Mumbai, Navi Mumbai, Thane, Pune, Bangalore, Chennai, Hyderabad and Kolkata.

    Your dream house may not be ready by FY13
    CommentQuote
  • Originally Posted by realacres
    Yes, but I will not place my bet on silver as of now. Sharp correction is expected in silver. Declines inductrial production especially in west will put even more pressure on silver.
    Man, silver rates were artificially jacked up as some chaps in US bought metals to the tune of US$ 4+ bn. As they are now selling this, the pressure will be even more.


    Agrees sir, but there is another aspect to Silver.

    As Gold breaches its 1600 USD level and head towards 1800 and then 2000, it'll go further go out of reach of middle & lower class. Though, Gold ETFs do provide option for Gold investment, but even there units would become costly with physical gold. And i see only Silver as a viable and most widely available option. Probably that's why Silver is referred to as Poor Man's Gold.

    Besides, a major source of Gold's supply comes from recycling - either from jewellery or other physical source. But silver is used industrial processes in either very small quantities or in such a form that its either economically not feasible or physically not possible to recycle. So silver once gone is like gone.

    This is my POV. Still, i agree that Gold provides better stability and gradual growth prospects than highly volatile silver. Silver is like - high risk high return game. :bab (6):
    CommentQuote
  • Problem with high inflation and especially stagflation:

    The savings are destroyed. Those who save suffer.

    Those who spend prosper - because they spent the money quickly, before its value dropped.

    In high inflationary times, it is always better to buy whatever is a NEED now - and not wait for tomorrow.

    Exceptions : Cars and electronics prices stay the same or even drop.

    Food and other consumption materials cannot be hoarded.

    Only thing which can be hoarded is RE. So if you have renovations of the house, tiling, extra stories etc to be built, better to do it now.

    Tomorrow cost will go up - is not of the materials, then definitely of the labour wages.

    Other hoardable things are furniture - buy the best today - good quality fixtures.

    Since our currency is strong, go on foreign vacations now.

    Any other hoardable things - apart from gold and silver?
    CommentQuote
  • Venky - Gold has crashed from a high of $ 1568 to below $ 1500 levels. What do you think will happen to gold prices in the short and medium term.


    some analysts are saying that we cud see significant downside form current levels right down to $ 1470-1450 levels. Some are expecting a sharp pullback in the next few days, especially if oil makes a comeback. 200 DMA for gold is $ 1415.

    Immediate Macroeconomic event which could impact gold - Greece's Parliament will debate and then vote on a €28 billion austerity package over the next three days . Greece needs to show that it is taking serious steps to slash its debt in order to get more bailout money from the IMF, European Union and European Central Bank. If the measure fails and Greece can't access more money, investors might buy up gold as a safe haven asset. If, however, Parliament approves the package then investors, feeling secure about a resolution in Greece, might opt for riskier stocks.

    Few events which can lead to a rally in Gold in the next few days
    - Rise in Oil Prices
    - Rally in Global Markets
    - Weakening of Dollar
    - Rise in Inflation fears
    CommentQuote
  • Gold is same as currency = unpredictable.

    Since it has no use except as a currency when all other currencies are failing/losing value, gold prices are going to depend on the cumulative loosening and tightening of 20 plus countries central banks.

    Nobody can predict that. If you have to sell gold within 3 days, sell 1/3rd on each day.

    You might gain - or you might lose.

    But you will at least get the average of 3 days price.

    A lot depends on QE3/Quasi QE3 from fed in the next months time. A lot also depends on economic data from OECD countries, China and also commodity prices of Brazil and Russia. I personally believe that RBI will pause tightening while Fed will lapse the QE programme. Which means that net net Rs will loseagainst dollar. So Dollar will rise, gold will fall in dollar but gold in Rupee will stay steady

    It is all as unpredictable as India's stock market.
    CommentQuote
  • China’s Debt Situation Not Far Off From Greece: Analyst

    News Headlines

    Btw, OPEC has said yesterday that they will ensure that the oil remains in $ 80-100 range. Don't know whether this will help global economy to recover a bit faster.
    CommentQuote
  • Originally Posted by Venkytalks
    Gold is same as currency = unpredictable.

    Since it has no use except as a currency when all other currencies are failing/losing value, gold prices are going to depend on the cumulative loosening and tightening of 20 plus countries central banks.

    Nobody can predict that. If you have to sell gold within 3 days, sell 1/3rd on each day.

    You might gain - or you might lose.

    But you will at least get the average of 3 days price.

    A lot depends on QE3/Quasi QE3 from fed in the next months time. A lot also depends on economic data from OECD countries, China and also commodity prices of Brazil and Russia. I personally believe that RBI will pause tightening while Fed will lapse the QE programme. Which means that net net Rs will loseagainst dollar. So Dollar will rise, gold will fall in dollar but gold in Rupee will stay steady

    It is all as unpredictable as India's stock market.


    Sir ji, sorry for disagreeing with you.
    In short term, Gold could be UNPREDICTABLE.
    But in medium to long term, i consider it to be more predictable than currencies, RE and Stock markets.

    Look at attached stats - Gold reserve - Wikipedia, the free encyclopedia

    Developed nations central banks (US, Italy, France, Greece, Germany etc.) hold majority of there reserves in Gold (60% - 80%). Why - because of GOLD's inherent strength as a store of value and wealth. Because it can't be printed in unlimited qtys like Paper currency, and hence its prices are governed (almost) by primary market forces of Demand and Supply.

    And look at EMs - India (8.1%), China (1.7%), Russia (6.7%), Brazil (0.5%), Malayasia (1.5%), South Africa (12.2%), Japan (3.0%). These are the nations that hold some of the world's largest forex reserves (Foreign exchange reserves - Wikipedia, the free encyclopedia).

    Even India is holding majority of its reserves in Dollars and Euro, both of which are gradually losing confidence across globe. (http://www.freewebs.com/rrajan01/FE5.pdf)

    Moreover, for the first time after 2 decades, central banks have become net buyers of gold then being net sellers. WHY ?
    (The Daily Bell - Central Banks Buy Gold).

    All indicators point that one day, countries and especially EMs will start dumping losing Dollars/Euros and raising there Gold Deposits in terms of Forex Reserves to save there wealth (or pobably they have already started silently).

    Think of where will GOLD PRICE reach then. I see even 2000 USD per ounce to be very conservative target, that too for next 2 years only.
    CommentQuote
  • Originally Posted by bhuvang
    Sir ji, sorry for disagreeing with you.
    In short term, Gold could be UNPREDICTABLE.
    But in medium to long term, i consider it to be more predictable than currencies, RE and Stock markets.

    Look at attached stats - Gold reserve - Wikipedia, the free encyclopedia

    Developed nations central banks (US, Italy, France, Greece, Germany etc.) hold majority of there reserves in Gold (60% - 80%). Why - because of GOLD's inherent strength as a store of value and wealth. Because it can't be printed in unlimited qtys like Paper currency, and hence its prices are governed (almost) by primary market forces of Demand and Supply.

    And look at EMs - India (8.1%), China (1.7%), Russia (6.7%), Brazil (0.5%), Malayasia (1.5%), South Africa (12.2%), Japan (3.0%). These are the nations that hold some of the world's largest forex reserves (Foreign exchange reserves - Wikipedia, the free encyclopedia).

    Even India is holding majority of its reserves in Dollars and Euro, both of which are gradually losing confidence across globe. (http://www.freewebs.com/rrajan01/FE5.pdf)

    Moreover, for the first time after 2 decades, central banks have become net buyers of gold then being net sellers. WHY ?
    (The Daily Bell - Central Banks Buy Gold).

    All indicators point that one day, countries and especially EMs will start dumping losing Dollars/Euros and raising there Gold Deposits in terms of Forex Reserves to save there wealth (or pobably they have already started silently).

    Think of where will GOLD PRICE reach then. I see even 2000 USD per ounce to be very conservative target, that too for next 2 years only.


    Hi, 2000$ is nothing.

    If gold standard is ever to be restored, then probable calculated price of gold will have to be 50,000 USD if I remember right - Wiseman will probably know - i.e. Total global wealth (currently calculated about 420-460 trillion dollars, divided by total ounces of extracted gold currently available).

    Chances of this ever happening are miniscule.

    But yes, as long as the world keeps printing money, gold will keep going up. Until the day the printing presses stop - when gold will plummet.

    I expect 2014 to be the watershed day when global imbalances will create an extreme hyperinflation event when gold will reach crazy prices. After that the crisis will recede.

    So yes, keeping some gold in your investment at current low prices CANNOT GO WRONG .

    Value investors of course will never buy gold - because cost of extraction is some 300 odd dollars and rest 1200 dollars is just speculator's premium. But value investors rarely make spectacular returns.

    As a realist, when currency debasement is all around, especially in India, buying gold in a no brainer. But 3-5 YEARS is the time frame
    CommentQuote
  • I had written about this a couple of days ago ...

    Originally Posted by realacres
    News Headlines

    Btw, OPEC has said yesterday that they will ensure that the oil remains in $ 80-100 range. Don't know whether this will help global economy to recover a bit faster.



    This looks like it was a bad move on the part of Obama / EU politicians who have taken up a war with OPEC simply because they are unwilling to address the real problem - too much debt and spending by them.

    All OPEC has to do is to reduce production by the amount of oil to be released and stabilise price. Then, when the relese gets over, they can remain at the same lower level of production and get the speculators to jack up prices even higher than previous high since the US/EU have to replenish stock at some point - besides catering to ramped up summer and then winter demand!!:o

    Of course the US can counter by releasing more oil, but it will soon become a political issue with criticisms that Obama is using Emergency supplies to take care of his personal political survival!:D This argument is already out there and is growing.

    So, I assumed that oil will become stable around $85-90 and regain its %95 price basically making the entire release thing a failure.

    Interestingly, within only a few days of the news, Nymex Crude has risen back to $94 and Brent to $109/110. We now need to see where oil prices will go from here.

    The danger to us comes when / if oil goes back to $125 and one more rise in Diesel / Petrol is required. Then all hell will break lose as our inflation levels are on an edge and interest rates are already unberable. We could easily be pushed into a steep slowdown quickly.

    Let is see.

    cheers
    CommentQuote
  • Originally Posted by bhuvang
    Sir ji, sorry for disagreeing with you.

    Why sorry man?? We agree to disagree & we all like to know both sides of the coin :).

    Developed nations central banks (US, Italy, France, Greece, Germany etc.) hold majority of there reserves in Gold (60% - 80%).

    I can inform that US has secretly sold several tonnes of gold without official declaring it. The Fed knows it well. Infact, there have been cases where tungsten bars are gold plated & kept in the reserve so as to show all is fine. In reality, it is not the case. Several countries in west are doing this.
    CommentQuote
  • Originally Posted by realacres
    Why sorry man?? We agree to disagree & we all like to know both sides of the coin :).


    I can inform that US has secretly sold several tonnes of gold without official declaring it. The Fed knows it well. Infact, there have been cases where tungsten bars are gold plated & kept in the reserve so as to show all is fine. In reality, it is not the case. Several countries in west are doing this.


    Any credible source of this news ?
    CommentQuote