Inflation Or Deflation?
Economists and investors have been arguing the debate between inflation vs
. deflation for the past year. Most Americans support inflationists like legendary Marc Faber and Kiyosaki with a rising tide of spooky deflationists like Mish Shedlock and Henry Dent driving people to bury what little money they have in their backyard or converting their investments into gold.
Take a deep breath, step back and evaluate the inflation vs. deflation scenarios. First, real estate is a hard asset that does well during rising inflation. Unlike gold, however, real estate requires maintenance in order to maintain its value. If purchased right and in the best location, location, location, real estate is able to provide a return on every dollar invested and in most parts of the country this still holds true.
Few investors, or for that matter economists, would argue that asset prices have had a dramatic downturn, especially real estate in California which is down by 30.7 percent from its lofty unsustainable perch in 2006 giving pause to deflationary concerns. If you have already written off the investments in foreclosure and short sale real estate as an unstable investment, it is a good idea to consider how long any "deflationary" period might last before discounting these properties completely.
To begin, dollars are not very safe right now. Duh! Foreign investors are already expressing public concern over buying our dollars. As demand for dollars continues to evaporate, expect a flight to safety into hard assets, other currencies or alternative investments. Weak dollars translate into higher prices for all commodities and hard assets over the long term.
A really scary thought... the United States has printed more dollars in the past year than at any time in our nation's history. Supply and demand concepts have been thrown under the bus with little restraint anticipated in the near future. Spending our way out of financial trouble seems to be the Obama mantra.
The situation is so awful that Marc Faber recently suggested, "the American economic system could collapse within 5-10 years." Now there is an uplifting thought. In the New York Times (9/28/09) the president of the World Bank said: "America's days as an unchallenged economic superpower might be numbered and that the dollar was likely to lose its favored position as the euro." Do any of us need reminding that this also applies to the renminbi, Chinese currency, or that investments by China in the United States are currently on unstable ground?
Lending standards have dramatically changed... ask anyone in real estate or those currently applying for a mortgage. It is like asking Attila the Hun for compassion. Billions of dollars from the original $700 billion bailout are being hijacked by the Obama administration with few real investments that have created jobs.
My cynical guess is that a major portion of these billions will not be spent until the summer of 2010... in time to stimulate the economy before the next election. Or do you consider the government spending $5 million dollars for highway signs that announce a construction project as part of the "Stimulus Plan" a worthy cause? Imagine how many foreclosed homeowners could have been helped with $5 million dollars. imagine, too, it will cost the taxpayers another million dollars to eventually pull down those signs.
Combined with rising unemployment and reduced consumer spending the squeeze on small business owners is having a major impact. Most experts agree that this trend is with us for the foreseeable future. It is therefore anticipated that manufacturers will reduce their capacity as well as their inventory-eventually leading to shortages that will spur on increased prices instead of continued declines.
What does this mean for the average investor or short sale buyer? Tighter lending standards will make it difficult or near impossible for households to obtain a mortgage in the future. Add to this unpleasant thought will be the expected rise in the cost of materials. Without a doubt the "green" movement will increase government regulations adding to the cost of building a new homes.
Considering all of this doom and gloom, this is the time to buy... people are in a "back to the good old days" mentality where home, family and security were more important than a new Mercedes Benz, a world cruise or vacations to luxury spa destinations in foreign countries. If Europeans no longer want our dollars then it is time we spend them here at home.
Consumers need to go back to tried and tested real estate investments that can yield the best results over an extended period of time. The days of flipping property are over. REO's (bank repossessions) and short sales make it possible to get started with less of an investment. This can be good for many first-time buyers.
by: William Dorich
Tips To Installing A Burglar Alarm In Your Home 10 Tips To Get Rid Of Ants In The Home Keep Your Toiletries Together With These Bathroom Organizers Space Saving Shoe Organizers Homes For Sale In Los Angeles California When We Think About Furniture Ee Think About Upholstery Setting Up An Inexpensive Home Gym Tips For Kitchen Remodeling In Arizona How To Enjoy The Outdoor With Your Pet Fractional Aircraft Ownership - Consider Your Benefits Fractional Aircraft Ownership - The Best Option Absolutely Fractional Aircraft Ownership - The Primary Benefits You Will Enjoy Help for Homeowners Facing Foreclosure