Housing Bubble: The sequel
We’ll be seeing another short lived housing bubble from the further government sponsorship of homeownership.
Isn’t it enough that the government already gives a tax benefit to homeowners by giving deductions for home interest and property taxes, and essentially opening the deductions door to this group? (I am part of this group for this exact reason).
Homeownership levels skyrocketed to astronomic levels at 65% homownership rates back in 2007, and with recent foreclosures has likely dropped some. The new legislation – giving a $7,500 loan for first time home buyer purchases in most of 2008, and now a $8,000 credit for those purchased in most of 2009, is going to give even more HUGE incentive for people to buy homes who haven’t owned in the last 3 years.
This will create a short term bubble, and will probably last through early 2010. This will recede however, unless the economy has ‘recovered’ by then. The whole concept of the economy ‘recovering’ is flawed because the economy was a shadow economy, only based on consumer debt and speculation in the housing market creating wealth that was not real. This influx of trillions in value from the increase in home value felt like real GDP growh, but was really like an adrenaline high that leaves you weak and drained afterwards.
So, how will you capitalize on this?
If you are a seller: Wait until you feel that this bubbling has occured, and that the home prices have increased significantly in a short period of time. Sell your house and rent.
If you are a buyer: buy now and hold for 2 years to get the tax exclusion, and sell it then.
If you are a trader: Buy the IYR now and hold it for ~2 years.
In ~ 2 years short the hell out of the IYR it with the SRS.
I know both of these alternatives are a hassle but I am giving the best case scenario here and showing how to take advantage of what is going to be another shadow economy. Welcome to Paradise!
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