New ghost towns everywhere

Discussion in 'Economics' started by turkeyneck, Mar 3, 2008.

  1. Feb. 29 (Bloomberg) -- When Quinn Cuthbertson looks around his new neighborhood in El Dorado Hills, California, he sees rows of empty homes and barren hillsides. A promised new school and a clubhouse haven't materialized.

    Cuthbertson paid $460,000 for a four-bedroom house in this northern California town named for the mythical golden city. He now suspects his neighbor spent $45,000 less. Nearby, 87 of 98 Toll Brothers Inc. home sites are undeveloped.

  2. Is he living in this house or speculating in real estate markets? Trying to catch tops and bottoms? An average house doubles in value every 10 years just look at the past data spanning 70 years
  3. pitz


    Doubles in value? Hardly. The long-run rate of appreciation in real estate is just slightly above the rate of inflation. The past 30 years has been a combination of interest-rate related repricing (in stocks..we call this P/E multiple expansion), small amounts of inflation, and of course, the most recent speculative top.

    As interest rates rise rapidly, as they have been in the past few months, I'd expect house prices to continue going down, and the speculative premium will very quickly dissipate.