Friday, July 14, 2006

Alice must be around here, somewhere...

That's Alice of Wonderland I am referring to, in case you're wondering. I think she is alive and well, watching bemusedly as the Mad Hatter runs things world-wide, sort of a global Minister of Everything. He gets governments and their puppet central banks (or is it the other way around?) to run the printing presses day and night, inflating the money supply. He coaxes many of us to spend more than we earn. He convinces us that the party will never end, and that we will be prosperous forever. Buy, buy, buy. Get home equity loans to buy a sailboat, a cottage, and his and hers Rolexes. Things will keep on going up forever, and we'll all be rich, rich, rich.

That's not how things work though, folks. The worst time to be buying is when everyone else is buying. Have you looked at real estate prices lately? Unless you're living in Hog's Hollow or Podunk, prices for even the most modest homes are sky high.

The worst time to be selling is when everyone else is selling. And that is going to happen with real estate sooner than many of us might think. I have been through a number of real estate cycles in my life. At the end of each cycle, there has been a downturn. Each time, people who rushed in to buy near the end of the cycle got burned.

We are looking for a lot to build a home. Because we have limited time available before our home sale closes in early November, we may be forced to buy a home if a builder can't guarantee our required completion date. While we are looking for either a lot or a home we could comfortably live in, we are astounded at the prices. Because we are looking to move from a large home to a smaller one, the difference is relative, of course. We will be pocketing some cash, hopefully. But anyone purchasing homes these days is, in my opinion, taking a big risk. There are some areas of Canada and the United States that will continue to boom for a while longer, but eventually everything is going to grind to a halt.

That is my humble opinion. I have bought and sold a lot of real estate in my time, and have never been caught in a squeeze when the value of a property declined to less than what I paid for it. I shopped for real estate when no-one else did, and sold when everyone else was buying. It is better to leave the party a bit early and miss out on a few dollars of possible profits, than to be at the mercy of the mortgage holders.

After the inevitable shakeout, there will be a lot of real estate bargains available everywhere. Sit on your cash and wait it out. Maybe buy some physical gold, on price dips. The next five or ten years or so are going to be very interesting, maybe even dangerous. National debts are unsustainable. Where is the money going to come from to pay down the national debt, or even to pay the ever-increasing interest costs? People are getting tired of paying high taxes and getting nothing useful in return. Where is the money going to come from to pay for Social Security, as baby boomers and other old-timers like me retire? It is a mathematical impossibility to sustain all of this nonsense. Someone is going to pay the price, and the currency won't be in dollars. It will be extracted from us in hardship, sacrifice, lifestyle. Even when that happens, we will still be lucky, at least in relative terms, because people elsewhere are still dying from hunger, disease, bullets and bombs.

The world is an insane place, run by insane people.

Why do we put up with it?

Postscript: After I wrote the above post, I was reading the news and came across this article: US 'could be going bankrupt'.

Scary.

2 comments:

  1. Although I am a poor financial analyst, I concur with your comments and the article you posted.

    In my mind, there are two major problems with money today: greed and a lack of savings. Okay, this is far oversimplified, I agree.

    However, my generation seems to want it all NOW. Therefore, there is great debt with no savings.

    When we bought our home, we purchased it from the original owner, a woman in her 80's. She saved with her husband, living in an apartment until she was 40, to pay cash for this house they had built for themselves. Who does that anymore? She wasn't rich. She just was careful.

    Who saves? Who sacrifices for the future? It's no wonder we're in deep shit financially.

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  2. I love the first paragraph. And, the rest.

    Here in Alberta.. friends of mine just bought a 3 acre piece of land with a thirty-year old home on it, near a major urban center, with beautiful trees and privacy, for almost two hundred thousand and one and a half months later have sold it for just over three hundred thousand.

    My brother's home inside the city was sold to him before it was built, for eighty thousand less than it is worth now, at last estimate, just under a year later and without the garage having been built or the grass put it.

    These people were smart and a bit lucky and I was given the advice to get in about eight years ago from friends who had the resources to do so.

    I have no point, except to relate similar stories of the market and the relative success of a couple of people that I know.

    I think I'll wait for the next cycle, though. I can't afford the risk. Or the inflating prices of absolutely everything, here in Sunny Alberta.

    I hope you find the lot you are looking for!

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