I discovered Peter Schiff about a 9 months ago from a YouTube video, Peter Schiff was Right. Since then I have read his book “Crash Proof” at which point I became a believer. I frequent his website daily and on Fridays I make it a point to read his weekly commentary. Today was no exception. I had actually found this article last night from thestreet.com, but this edition comes directly from his website.
While economists and real estate investors “celebrate” the slight deceleration in the pace of home price declines in the recent data, a quick look at home price trajectories over the past 100 and 50 years reveals little to cheer about and much to be feared.
More significant than small month-to-month changes is the flow of home price patterns over decades. In his book Irrational Exuberance, Robert Shiller determined that in the 100 years between 1900 and 2000, home prices in the U.S. increased by an average of about 3.4% per year. These figures have not been adjusted for inflation. If they had, home prices would have outpaced inflation by only the slimmest of margins.
I for one and sick and tired of people calling their homes an “investment”, or worse those that expect their home to actually appreciate at 10% a year and NEVER depreciate. Americans fell in love with the idea that their home doubled as their ATM but those days where one large head fake and hopefully we will never see them again.
He continues…
The government, through deficit spending, stimuli and bailouts, is literally pumping trillions and trillions of new dollars into the economy. Once the bloated inventories of the boom years are worked through, this torrent of new cash will push prices up with across the board. Inflation, more virulent than the variety seen in the 1970s, will put a nominal floor under home prices. But the benefits of seemingly stable home prices will be illusory. What good is a $200,000 house if it costs nearly that much to fill the refrigerator? However, inflation putting a floor under home prices does nothing to increase real demand for houses. With the prices for stocks, commodities and food going up faster than the prices of homes, residential real estate will remain a lousy investment. As a result, be wary of those who have called a housing bottom and now recommend beaten-down homebuilding stocks.
I realize that some individuals have fallen off the Peter Schiff bandwagon because of the dollar rally of late ’08 and early ’09, but they will be back soon enough when our dollar is worthless and his long-term investment strategy proves true.
Enjoy the complete article here.