Existing Home Sales Up 5.5%

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Stocks continued their dizzying seesaw today, with the Dow Jones Industrial Average plunging more than 400 points at the open.  The drop was due in part to nervousness over a possible severe global recession and the battering various stock markets had taken in overnight trading.  In Japan the Nikkei dropped 9.6 percent as shares of Sony, the electronics manufacturer, slid more than 14%.  Germany’s DAX index slid 8 percent as Britain’s FTSE 100 dropped 8.5%.   At noon the Dow Jones had recovered a bit and was down 267.47 to 8,428.49, the Nasdaq was down 34.54 to 1,569.37 and the S&P 500 was down 26.96 to 881.15. 

But some investors were pleased about the positive news from the National Association of Realtors this morning.  Existing home sales rose 5.5% to 5.18 million from 4.91 million in August and were up 1.4% from the 5.11 million in the year ago period.  Lawrence Yun, NAR chief economist, said a broader range of markets are seeing improvement over the prior year. “The sales turnaround which began in California several months ago is broadening now to Colorado, Kansas, Minnesota, Missouri and Rhode Island,” he said. “The South was hampered by much lower home sales in Houston in the aftermath of Hurricane Ike.”

Yun echoed the call by many Realtors and investors to remove the repayment of the $7,500 tax credit and bring more stimulus to help jump start housing.  “Additional housing stimulus would stabilize prices more quickly, which in turn would bring faster stability to Wall Street. Removing the repayment feature on the first-time buyer tax credit and permanently raising loan limits would bring more buyers into the market and further reduce inventory,” the economist stated.

Now on to our real estate investor education section …

Back to the Future Part II

Yesterday we took a little trip down memory lane to look at how home prices have held up over the years. The results were impressive to say the least. Critics would argue that hindsight is 20-20 and it is impossible to predict the future. While that is technically true, it is also important to understand three things:

1.     Inflation is caused by the expansion of the money supply and we can track how much money is being created.

2.     Inflation can work for or against you. Those that put it to work for themselves can create millions. Those that don’t will find themselves in the poor house at the end of their lives.

3.     Inflation has been constant for decades- it goes up or down but hasn’t gone negative.

The evidence is obvious. A median priced home in 1973 sold for $28,900. By 2007 a median priced home cost nearly $220k. Gasoline went from 35 cents to $3.50 a gallon. Prices for other goods and services did the same. Short Sellers understand the ravages of inflation and how to use it to build wealth. Wish you had a way to predict what homes will cost in the future? You can get a good idea by using a little simple math:

1.     Determine the average rate of inflation. You can use the federal estimate for CPI but realize the limitations. A more reliable indicator is provided by ShadowStats which tracks inflation via historical measures rather than the new limited model. Today, the government CPI is an estimated 5.5 percent while the alternative measure indicates something closer to 9 percent.

2.     Use the rule of 72 to calculate the cost of goods or real estate in the future. The rule of 72 is typically used to determine how long it will take an investment to double at a specific interest rate but you can easily modify for your own needs.

3.     Take the inflation rate (for example 9 percent) then divide into 72 [72/9 = 8]. This means at the current rate of inflation prices will double in 8 years.  Let’s say you want to know an approximate value of a property if you held it for 16 years instead…the entire amount would double again. For example, if you purchased a short sale property for 100k then it could double to 200k in 8 years and reach 400k in 16 years. Of course these are estimates since some years go up much faster than others…

 

More next week—have a great weekend!

 

See you at the top!

 

 

Chris McLaughlin, J.D., M.B.A.
web: http://www.shortsalesriches.com/welcome.html
e-mail: info@shortsalesriches.com

Phone: (800) 452-7627

P.S.: 

Interested in learning how to make over six digits a month flipping real estate short sales on autopilot? 

 

Join us next week on Tuesday, October 28th (Tuesday) at 9 PM EDT, 6 PM PST:

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P.P.S.: If you already have the system, are you ready to really take it to the next level?  Go to http://www.shortsalescoach.com to learn how.