house traders catching a falling knife

I wonder how many fools are going long housing thinking it is a great deal being fooled by the media pundits into borrowing to buy a still overpriced home only to end up house poor.

Check out this example chart of someone getting burned catching a falling knife. That tax credit of 8K means jack.

When you lose 23K in the process (not including commission etc.. you paid out)

 

In many places now its cheaper to buy than to rent. Obama has made it clear to everyone though. "If you buy a house and it goes down in value that you have two options....The government will give you a reduced interest rate loan(sometimes at 0%) or you can just walk away.

You would be a fool NOT to buy a house right now. If we start to have high inflation soon which many are predicting, then you make that much more money in equity. If House values stay flat, at least you are paying less than rent and building equity. If they go down, you can walk away or get a reduced interest rate to pay even less every month.

 

Wont stocks be a better safer bet? at least it is more liquid that a house with opaque pricing.

 

1) Stocks have "liquidity" with respect to real estate but you still have to be able to pull the trigger on losses. :eek:
2) Real estate can become "worth less" but stocks can become "worthless".

 

But with stocks you can hedge risk either by selling covered calls, using collars or just buying a put.

how do you hedge risk with a house?

At least stock you can buy some kind of insurance on and put in a price floor.

but a house what happens if you lose your job and have to relocate.


I still do not see how a house is better than stock like SPY etf.

 

not if the US government decides to close/suspend trading

 

Some people like to live in their house.

 

1) Yes, true.
2) If you believe the S&P-500 and real estate "correlate" closely, you can do the same with a house.
3) Yes, true.
4) ?....rent the house out, commit arson-for-profit, ask the employer to buy the house as a condition of employment?
5) A house can always have value as shelter. Stocks can lose all of the value. Their price can go to zero.

 

Source please. Other than the Federal Housing Tax Credit, which will expire at the end of this month, I don't recall anything of the sort you mention from the Obama administration.

 

Who's gonna buy the boomer's houses? There have been some people making the point that big cap stocks have been weak because the public has been selling for the last few years, and the public is in blue chips. Could be same for houses for next 20 years . . . More supply than demand.