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Better Than the Stock Market: Homes

Written by Gary North on April 11, 2012

Inflation drove up housing prices, 1965 to 2005. We are going to have more inflation.

The real estate bust has made millions of homes available. This has driven down housing prices by 40% in the last five years.

Mortgage rates are low. If you lock in a 30-year mortgage at a fixed rate, you can raise rents during any future price inflation.

Right now, you can borrow for 30 years at around 3.3%. After the mortgage tax deduction, for some people the net effective interest rate is nearer to 2%! That’s going to prove an awesome deal if we see inflation again.

We will see lots of inflation.

Supply is low.

The number of housing starts is currently lower than at any time in at least the past 50 years. Moreover, new construction is only about half the long-term average. Again, good news for investors in housing, since this means that new supply is growing very slowly.

Meanwhile, housing demand — based simply on demographic trends — should rise inexorably for years to come. Take the growth in households — driven by population growth — and apply a home ownership rate. Demographically, the US is still a growing country. By 2030, there will be 370 million Americans. Even using the long-term average home ownership rate means we’ll need 1.1-1.2 million new single-family homes per year.

By 2050, we’ll see 400 million Americans.

The leverage that a mortgage provides is the key to wealth, if you buy from a distressed seller.

Here are the average selling prices for existing homes in the 1970s, as inflation heated up:

1972 — $30,000
1973 — $32,900
1974 — $35,800
1975 — $39,000
1976 — $42,200
1977 — $47,900
1978 — $55,500
1979 — $64,200

Until we get monetary deflation and depression, housing will work as an investment.

For more reasons, click the link.
Most people will not buy investment houses. That leaves the deals to those who will.

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One thought on “Better Than the Stock Market: Homes

  1. awakenow says:

    At this point, it seems that the Daily Reckoning website is down, so I am not able to read the entire article. However, I would like to suggest that investing in homes that have been foreclosed on is, at best, a very risky undertaking. Why? Because the true ownership of the promissory note on these homes cannot be established for the majority of these mortgages.

    For a decade, the banks successfully circumvented existing local property recording laws for over 200 years, requiring the proper recording of all note transfers at the local level … something that did not happen during the housing boom and even during the years before the actual boom. As these mortgages were sold and resold, without the proper local government recording, the net effect is that no one knows who actually owns these loans.

    The banks are only acting as "servicers" to the loan, collecting payments, providing documentation of the loan payment and supposedly forwarding those payments on to each and every investor that bought an interest in them … hundreds to thousands of them, investors, for each and every loan. This also affects good standing loans, as they were bundled, packaged together and sold and resold just the same. The result is that for millions of people, perhaps as many as 60 million, the titles are very much clouded.

    Demand a complete loan paper trail on the payment of your loan to all those who own an interest in your loan from your loan "servicer" which is NOT the owner of your loan. Demand that your servicer provide the original "wet ink" promissory note (actual loan/debt amount) together with the deed of trust (collateral which is the actual home itself). These two original documents must be kept together. NO "allonges" (notice of lost promissory note).

    Understand that the banks received their money the very day the original documents were signed. As servicer to the loan, they continued to collect monthly fees for the duration of the loan, as well.

    In addition, the banks bought insurance on the possible default of these bundles of loans which they also collect on as the loans default. Upon foreclosure, the banks win again by creating a brand new loan on the same home they just foreclosed on … beginning anew the entire process over again.

    A caveat. Upon refinancing, good standing loans or not, all of the criminal activities of the banks (violating property laws, making the true ownership of loans unknown) is wiped out. with the creation of a brand new loan. After which, the banks can never be held accountable for the wrong doing they have done with the previous loan. This is one reason why they are trying to get good standing loans to refinance … so they will never be challenged in court.

    The banks must be held accountable for what they have been allowed to do … by a Congress/administration that looked the other way, no doubt, due to the heavy lobbying hand of the big banks who then reward Congress/administrations with campaign cash and "insider" information.

    The recent dog and pony show "settlement" of 25 billion is chump change and a mere slap on the wrist, amounting to just 5 billion for the five banks involved. The investors who bought ownership in these loans were sold a bill of goods as they now are realizing they bought worthless investments. The banks lied to the American homeowner who had no idea that the title to their mortgages is in no way clear.