[WestCoast]

1. I never said anything is a sure thing, again you keep returning to my quote and took it to heart when i wrote it in passing. You are again angry at my typing style, if i wrote the following you wouldnt care

"IMHO i don't believe there is a asset bubble in housing and would buy single family homes"

But i didn't because i am dick, oh well.

2. If you can't buy a single family home you can buy a REIT. That is one of the of the best things you can do.
3. Go ahead and pull up DBLTX as well and over lay that on the bond funds... you'll see it has also outperformed the bond index.
4. I never guaranteed profits yet again you are putting words in my mouth the OP has my OPINION which is that people should buy them for example on what i mean by posting style:

"I think people are retarded if they don't own single family homes"
vs.
"I believe this rate environment will be fine for now and people should buy since yields are at 10% and book value is close to 1"

The above is what i typed out because i don't give a shit, the below is the same answer "buy it".

5. Of course reits get smoked when shit hits the fan, you are making money on the spread and its levered books at about 10x today. Again I said i believe things are fine and spreads are fine, if you don't believe me then don't buy them. I recommended this what 1 year ago sooo at least my opinion is where my mouth is. We can simply put a time stamp here too lmk if you want to go heads up on a bet on returns as of today, i will take that bet.

6. Your attacks on my "DCF" explanation are lame because most people here don't even know what a DCF is or how to make one. I made my OP simple enough for anyone to understand.

7. Houses as an inflation hedge is quite obvious. It is one of the main life tenants food, water, shelter... people need all three so when the govn't prints money asses such as homes get bid up as well. You know this.

So to sum up. It is my opinion one should own single family homes, if you can't afford that then buy up some reits. If you think shit is going to hit the fan then don't listen to my opinion and take the opposite trade.

So there you have it we can just put a heads up bet here then I say REITs all in return we'll just use REM will be up over NTM period deal? This way you can call me cupcake if you are right in 12 months.

I don't care about your opinions now, just take the bet or move on because if someone cannot manage their own money i am not taking their advice.

(05-18-2013 08:25 PM)Dexter Morgan Wrote:  

For the avoidance of doubt, the reason this thread is here is that the OP noted on another page that those that thought housing would go down as a result of Bernanke's "Quantitative Easing" program were simpletons. His actual quote was:

"Hahaha at all the guys talking about real estate bubbles again, that means they don't understand what the govt is doing."

I then posted this http://www.rooshvforum.network/thread-23985-...pid449054, and asked how this means that those who point to the possibility of another housing bubble "don't understand what the gov't is doing".

And so, after much too'ing and fro'ing, we have the above, uh, "analysis". Well, its a better than the "trust me" drivel we got on the other thread! But its still pretty weak. Point by point, in no particular order, here's where it is weak:

2) You refer to REITS, but the topic was whether investing in single-family homes/condos was called for in light of the Fed's actions. REITS, even residential REITS, are really a very different asset class, more akin to a stock than to real estate: The price correlation between REITS and other asset classes goes WAY up in a crisis. Single family homes don't do this. Chart CPT and AVB, two popular residential REITS, vs the S&P 500. You'll notice two odd things: First, they DON'T crash in 2006-7, like other real estate did. But they DID crash in late 2008, when equities did. In fact, if you graph the three of them together, you'll see a STRONG correlation. Meaning, buying a residential REIT is often more like buying the equity markets than housing! It trades like a security because it IS a security! This correlation goes up in times of stress - that is, when you most need the benefits of diversification. So, telling you to buy a residential REIT when the OP was talking about buying a home is bit off the mark.

Leaving aside the reference to fixed income investments, however, what's really weak about this point is the assertion that there is "low credit risk exposure". Credit risk may be lower now than during the last bubble, but that's only because there is so much lower housing activity now! Housing starts are ~700K per month this spring; in 2006, they were over 2.2M per month! That's because the LAST Fed-induced credit bubble was in full swing. And, of course, you know how THAT played out: The real estate bubble popped! Now, what has happened in the years since? Has disposable income of the average American gone way up? Is he richer today than in 2006? He's not. SO, the only way housing activity (not just housing starts, but household formation, and therefore the purchase of single-family homes) can increase is...wait for it...if credit is loosened! And that's exactly what QE is all about; see my original post.
3) REM is even a more peculiar choice - its a mortgage REIT. And DBLTX is a fixed income fund! I think most agree that the typical reaction of fixed income is to get killed if rates go up. In any event, this isn't really on point regarding housing, the post that brought us here.

So points 2) and 3)....don't really address your comment about housing and how people "know nothing". And 2) missed the mark on the loosening of credit entirely!

Now, let's look at points 1) and 4).

4) is the easiest to dispose of...it basically says that, because of the time value of money, a dollar today is worth more than a dollar in a few years, because of inflation. OK Anyone who doesn't know this, please stop reading immediately and go back to the 8th grade!

This leaves us with: 1) Inflation protection.

It's possible. But far from a guarantee. Sadly, other than a reference to Bitcoins (WTF??), the OP doesn't give any analysis WHY real estate is necessarily an inflation hedge. He just says so and we're all supposed to nod and believe.

It might be useful to remind people why real estate has any value at all: It generates income from rents. (Yes, I know, you LIVE in your home, but taht is also freeing you from paying the equivalent rent, i.e., it is avoided rent). Now, rents typically increase with inflation, and so the future value of the real esate would tend to increase with inflation as well.

The problem with reflexively proclaiming real estate as an inflation hedge is that the actual cash flow from rent eventually determines its future price. In the short run, prices can rise out of sync with expected future cash flows - this is what happened in the housing bubble. But eventually, that situation corrects itself (and we learned that lesson in the real estate crash!). If the cost of servicing an inflated mortgage associated with a rise in prices led by loose credit policy exceeds an equivalent rent on the same property, all in all, people will sell, pocket the cash, rent, and be way ahead of the game. The bid will drop and prices will crash. This is, of course, exactly what happened in 2006! That is, if cash flow in vs cash flows out move out of sync, WHAT FUNDAMENTALLY DRIVES THE INCREASE IN PRICES YOU EXPECT TO SEE FROM INFLATION? Its faulty logic to take it on faith that housing prices increase with inflation as a law, since ultimately prices are dependent upon the related cash flows, i.e., home values do not rise in and of themselves without cash flows rising as well. Unless there is speculation. And what leads to speculation? Too much credit chasing too few investments, as I discussed here: http://www.rooshvforum.network/thread-23985-...#pid449054 And that, i'm afraid, is EXACTLY what the Fed is doing. As it did in the last decade.

In a speculative bubble, where yields from cash flows are weak compared to other investments, it is not true that prices will necessarily move with inflation. They MAY, for a short while (we saw this briefly in the late 1970s) but it is FAR FROM CERTAIN in the longer term. We just saw, over the past decade, how extremely accommodative Fed lending practices can lead to a stock bubble, a housing bubble, and a credit bubble. In such an environment, its very possible that home prices may trail inflation at least until the underlying cash flows are competitive again. (Note that this doesn't mean home values will crash, it means there will be negative REAL returns, that is, returns will trail inflation).

Is this a sure thing? Nope; nothing in the capital markets are a sure thing. Is it highly possible? LOTS of smart people who fear that Ben Bernanke's fiat-currency, credit-expansionary monetary policy will lead to yet another bubble think so! Google any leading economics blog and see if you see similar views.

Then decide if you think there is merit in the underlying analysis, or are you more confident investing your money on the basis of "Hahaha at all the guys talking about real estate bubbles again, that means they don't understand what the govt is doing."