I received an e-mail today about housing market:

Please talk about your predictions about housing market (both for buyers and sellers)….

I said on the show that I will post an article that analyzed this better than I can ever do… Here it is.

This very reliable information comes to you via Caseay Research:

Should You Buy a House Now?

By David Galland, Managing Editor, The Casey Report

Recently, we have had a number of queries about real estate, and it’s not surprising given the current market conditions. With real estate prices on the decline and interest rates close to zero, the prospect of investing in income-producing property at a lower cost is quite appealing to many. Real estate, being a tangible asset, is considered a safe investment, especially in uncertain times. If you’re considering making a move in the real estate market, you might find it helpful to explore location guides on your next house move to make an informed decision.

The following, from reader and correspondent Ross, considers the issue of home buying from an interesting angle.

• My wife and I have been considering buying/building a house for a while now. After long months of searching, we have had to ask ourselves about the “value” of a home. I say this because my parents in 1972 purchased a 2, 000 sq/ft home for $20,000. That was almost exactly what my father made per year at his job at the time of purchase. Is this ratio one to consider as a prudent homebuyer not trying to live beyond his means? I make about $150,000 a year and can’t imagine purchasing a house here in Pittsburgh for that price and being happy with that purchase.

• My parents sold their home in 2001 for $180,000, which is obviously 9 times what they paid for it. We are looking at homes in the low 300s to purchase, and I can’t imagine the sales price in 30 years being 9 times that price, which would be $2.7 million! So do you see my line of thinking?

Could hyperinflation cause the price to “appreciate” that same way over time? Is inflation what caused my parents home to return 9 times what they paid for it? The reason I wrote to you regarding this topic is that I thought maybe there was a future missive buried in this line of thinking. Maybe not, but if you have time I would love to hear your thoughts on home purchasing at this time.

In response, I have to point out the obvious, that all real estate markets are local. Simply, unless it’s a mobile home, you can’t pick your home up and move. So, for example, you could offer me a house in downtown Detroit for free, and I wouldn’t take it. But a house up the road from me just traded hands at over a million dollars (for the record, a 25% discount off the offering price). So where, and when, to buy will largely depend on local market conditions… and the value proposition of the real estate on offer.

That said, given the dismal outlook for the U.S. economy and housing in particular, if you’re going to buy today – you should only do it on your terms. Don’t let a real estate agent push you into a quick decision or into raising your bid. Someone might beat your offer, but with the large housing inventory, the odds are good another dream house is available just down the block.

Now, as to the inflation question. If you do the inflation calculation, then based strictly on the government’s debasement of the currency over the last 30 years, the $20,000 that Ross’s parents spent in 1972 is the equivalent of $107,000 today. That they sold the property in 2001 for $180,000 confirms that there was more than inflation going on.

As you can see in the chart just below, while they sold it early on in the housing bubble, by 2001 housing prices – encouraged by the Fed’s loose money policies and a collapse in lending standards – were already on their way to the stratosphere.

read on….