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    Friday, April 22, 2005


    The Economist on the Housing Bubble

    I don't hate houses or housing but I keep mentioning overvalued housing because most people have the majority of their net worth tied up in houses. According to the economist, using a rent to home value metric, houses are overvalued "by at least 60% in Britain, Australia and Spain, and by 46% in France." and "America's ratio of house prices to rents is 32% higher than its average value from 1975 to 2000".

    The study of behavioral finance predicts that people will make all sorts of excuses for why their house is a good investment. Everything from "real estate can't go down in price" to "I need a house to live in so the price doesn't matter". If you own a house that has appreciated significantly in value, then make the effort to move into rental accommodation for a few years. If you think that's ridiculous, would you do it for $50k a year? It could be worth even more than that AND you can get into the next housing upswing at the bottom.
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    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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