Page 2 Tuesday, March 10, 2009 The Public Record
OPINION
BYMIKEMCDONALD
Housing –
A Year Later
One year ago I wrote an article in The the curve like they did in the 1992-1996
Public Record about where home prices period? I think we should; these negative
might find support. The article asked a feedback loops are hard to stop. Prices
simple question, “Where would home can sometimes go 10% to 15% below the
prices be had there been no bubble?” norm.
Home prices in California normally rise What does all this mean? I’ll be very
about 5.6% per year. Using data from the direct with my answer. I think the second
Federal Housing Enterprise Oversight half of this year will be the greatest
(www.ofheo.gov) we showed that in buying opportunity of home real estate of
December 2007 California home prices the next twenty years, especially for the
were still 28% above the normal 5.6% Coachella Valley! I have very specific
growth curve (see top chart - price in reasons for saying this.
thousands of dollars). As shown above, home prices are finally
back to their long term norm and will
probably undershoot this year, creating
huge bargains.
The government wants and is holding
mortgage rates extremely low. This is
artificial and cannot last forever. As a
general investment rule, anytime you can
borrow long term money cheap, whether
a business, homebuyer or investor, you
should do so.
All this government stimulation (printing
money with no value or production
behind it), with more to come, guarantees
we will have very high levels of inflation
and soon. Home prices are one of the best
hedges against inflation! That’s because
the 4 to 1 ratio of down payment to
borrowed money, financed with record low
INPUT WELCOME
mortgage rates, can produce spectacular
Th
returns once inflation begins.
e Public Record welcomes letters to the editor and
The article stated that there were two This expectation, along with the first
guest editorials. All submissions should include your name,
ways for prices to meet the normal 5.6% point above, creates a unique moment – in
occupation or business affiliation, address and phone
price curve. The first was for prices to my opinion, a unique, lifetime moment of
number. simply fall 28%. The second was for the very low risk, high reward. We reserve the right to edit letters and guest
editorial
vernment to actively support prices at It is my belief the Coachella valley is
columns for length, grammar and
go
to ensure that
copy
or near their high levels until the normal the right place because of pent up
remains within the bounds of good taste.
S
curve could catch up in about three or demand. The demographics of home
end all correspondence to bob@coachella-valley.com.
four years. These two possibilities were buyers wanting to come to the desert are
shown in the chart by the two dotted lines. huge but they’ve been frozen out waiting
In the article I assumed the government to sell their homes. Once that dam breaks
THE PUBLIC RECORD (ISSN 0744-205X), is published weekly for $59.95 per year by The Public Record, 303
N
saw the immediate danger of foreclosures the flood of homebuyers into the area
. Indian Canyon Drive, Palm Springs, CA 92262, (760) 771-1155, FAX (760) 771-1188. Periodical postage paid
at Palm Springs, CA 92262. Postmaster: Send address changes to The Public Record, 78-370 Hwy 111, Suite
triggering a negative, self perpetuating should be huge.
250, La Quinta, CA 92253.
price decline and would actively try to All the important forces are coming
The Public Record is an approved newspaper of general circulation for those required by law to cause publication
of
prevent it. What I didn’t fully appreciate together. I call it “the perfect storm of
legal notices. The Public Recordwas adjudicated by the Superior Court of the State of California for the County
of Riverside, Case No. 49271, Filed March 31, 1987. The Public Record is a newspaper of general circulation
was how long it takes the government to opportunity.” In my opinion real estate
ascertained and established in the City of Palm Springs in the County of Riverside, State of California, Case No.
RIC
actually do anything. So, with nothing to along with tangibles and commodities
358286, Filed June 8, 2001. The information contained in The Public Record is taken from public records.
The Public Record assumes no responsibility for errors or omissions. The original public records are open to
prevent it, home prices simply tumbled will be the best investment classes of the
public inspection and should be consulted before any action is taken on information contained herein. The material
published
triggering the mechanism many people next ten years, outstripping stocks or
in The Public Record is compiled at a substantial expense for the exclusive use of subscribers. The
Public Record is available through UMI in one or more of the following formats: microform, electronic or paper.
feared. Only now, after the reinforcing bonds. Expect a repeat of the inflationary
The material cannot be republished, resold, recorded, or used in any manner, in whole or part, without the consent
of
price decline has begun, is the government seventies.
the publisher. Any infringement will be subject to legal redress. Opinions expressed in guest editorials are those
of the author and do not represent those of The Public Record, its owners, or its employees.
trying to support prices and shut the
Copyright © 2009 by The Public Record.
Publisher and Editor Contributing Writers
mechanism off.
Robert Marra Alex Altman
Kathy
Where do we stand today? The bottom Michael McDonald is managing partner
Gottberg
Production
Eric Harmon
chart shows the situation as of December of Glengarry Advisors, a registered
Cynthia
Kay Hazen
Gunn,
2008. In one year prices tumbled and are investment advisor. He can be reached at
Creative
Christine Iger
Services
Andy Montgomery
now finally back to the normal curve! mjm@gmanalytic.com.
Dr. Stephenie Slahor
Sid
Should we expect prices to undershoot
Smith
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