Is U.S. Housing Set For Another Crash?

 | Dec 17, 2013 12:31PM ET

All that Glitters, is not Gold
 
 Once they start factoring in property taxes for 15 years on higher appraised values for their homes, and they always go up for tax purposes, and the fact that comps are artificially high because home owners have to make major investments in their homes to market these properties, thereby raising taxable obligations on all homeowners in the process even though most homes haven`t been upgraded. Many of these baby boomers are going to be forced to sell their homes, and turn to the rental market so that they can live off the home equity that they have built up over the years. 
 
This dynamic and macro driver would be very bearish for the real estate market, more supply means market saturation, and this leads to lower prices, which just reinforces the deflationary cycle causing other deflationary outcomes in the overall local economy. The baby boomer demographics are not favorable for the housing market, and this is a negative for the industry as a whole.
 
Final Thoughts
There are opportunities in the real estate market, but unfortunately most people don`t understand the importance of having cash on the sidelines waiting for these inevitable market crashes to buy at fire sale prices. Most investors get tied up in investments trying to get a return that they get stuck, and when the market crashes and properties are 70% off of their highs; this is the time to buy real estate. 
 
However, the trick is have the cash available, and not tied up in other illiquid investments. And investments can be illiquid for a myriad of reasons, such as usually liquid investments being heavily underwater due to the same market forces that are causing the housing market to crash. 
 
Cash truly on the sidelines is an undervalued investment principle, and one of the hardest long-term investment strategies to learn. Investors are always thinking about returns on an annual basis instead of sitting on cash and being in the position to buy when there are no buyers in markets.
 
Investors need to factor in the value of market timing in an investment strategy that focuses on long-term returns over a 10-year time period. Investors are so worried about 5% returns on their portfolios and beating inflation that they miss the 70% returns in 16 months type investments because they had no cash on the sidelines available for these market crash opportunities.
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Written By: EconMatters

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