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The Housing Market Is A One-Sided Investment Cycle

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I just didn't anticipate the scenario of QE, low IR, asset inflation - leading to a massive inflation of prices at a time when all common-sense would indicate they should be falling.

Everyone I know is broke - with the exception of a few London downsizers - but they can't downsize from London again this year.

This ZH article interests me a lot:

http://www.zerohedge.com/news/2014-01-05/brian-pretti-worlds-capital-now-dangerously-boxed

I think what we have got going on here in housing is we have got an investment cycle, not an economically-driven housing cycle, from the standpoint that really, never before have 40 to 50% of all residential real estate transactions been for cash. We have never seen that in prior cycles, absolutely not. You know, what is driving that? Well, in one sense – and it is not a point of blame, but more a look at the unintended consequences of what the actions of QE are – when you lower these interest rates and you take away safe rate of return in alternative assets. Five years ago you could have got 5% in a CD, a Treasury bond, even a money market fund. Well, for a lot of those people who had been savers and investors in safe assets, they do not have rate of return any more. What do they do? They take their $300-$400 thousand nest egg out of the bank, and they turn around and buy a rental property where they can theoretical get the 6%, 7% cash on cash rate of return. And all of a sudden that becomes their rate of return.

... we are herding capital into a very, very small sector of asset classes.

Are we about to see a massive rotation in to the next asset class? Commodities are 'low' again, as are precious metals.

I don't see how housing is going to provide any further material return in next couple of years - all the low hanging fruit must have been acquired now. Investors need something else.

It could be that we were right about 2009 - but just expected it a few years too early. Are we watching musical chairs 2 seconds before the music stops?

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Good article.

But it just goes to show how complicated the act of buying a home has become. You now need to understand the flow of global capital. I can just imagine the conversation guys are having with their partners about that very thing.

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Low hanging fruit is the floored interest rates.......how much lower can you go, have reached saturation point......without fairly hefty wage rises, housing costs have nowhere to go......unsustainable. ;)

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