Guest Post by Martin Armstrong
Cycles are based upon two element – (1) nature and (2) human nature. Some regions will be prone to natural disasters while others are not. Ironically, many of the best ports where cities grew such as Tokyo and San Francisco just as examples, were great harbors because of earthquakes. The landscape in California is strikingly beautiful compared ot the flat plain in Oklahoma, again because of earthquakes. The rocks that appear in Central Park in New York City are there because an earthquake fault runs through New York City making the harbor what it was. Hence, there are cycles that impact only on a regional basis due to nature.
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal
-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)
With regard to Greeks walking away from inheritance because they cannot pay the tax, this is inherent to all societies when government goes too far. They imposed harsh laws in Vancouver against foreign real estate buyers and the market crashed. Because it was a local law, they moved to Victoria and Toronto. In Australia, they are seizing properties own by foreigners and selling them off. All of these types of interventions are reactions to events set in motion externally.
That said, this is the US cycle for real estate as a national whole. I just bought a house in Florida at about 50% of its 2007 high value. Trophy spots for the high end where people are just parking money we warned would make new highs going into 2015.75 – but that is not the bulk of the market. Why is the US market (minus trophies) down hard when that is not the case in other countries? The difference is the regional issue. In the USA, many people have 30 year mortgages. In Canada, the best you can get is a 10-year fixed mortgage. In Germany, you can get up to a 15-year fixed mortgage.
We must understand that property values are LEVERAGED, so if the money for fixed rate loans dries up because of interest rate hikes and political uncertainty, then real estate prices MUST fall. This is all because of the leverage that was deliberately injected into the real estate market during the Great Depression for property fell in value so far, only cash buyers could buy anything. Farm land fell in value to below what it was sold for by the government more than 80 years before.
Real estate is different from stocks and gold. Yes it is a place to park money. However, be careful because without mortgages available, it falls further than other tangible assets because it has been LEVERAGED! Moreover, it is a fixed asset meaning you cannot leave with it. Therefore, people are forced to simply walk away when (1) the tax burden is too high and (2) there is war and the region is being invaded.
Not mentioned in the article, but stated by Armstrong many times in other real estate articles he’s written, is the problem of property taxes.
In Illinois there are suburbs where you cannot sell your home due to the inordinate amount of property taxes percent wise to the price of your home. Some of these areas in the collar counties of Chicago have actual property tax rates well above 4-5-6% of the actual sales price of the house! And, as property taxes continue to rise, the equity you have in your house will continue to drop – sometimes dramatically.
In our area, property taxes rose 50% in one year. In my case from $8600 to $12,900. Took us over a year to sell but we finally got out – at a much reduced price.
http://lakecountygazette.com/stories/511079966-analysis-soaring-property-taxes-eviscerating-home-equity-in-lake-county
http://www.wirepoints.com/suicidal-property-tax-rates-and-the-collapse-of-chicagos-south-suburbs-wp-original/
I live in IL as do two of my three sons.
I worry a lot about the inveterate criminals my neighbors repeatedly return to the IL State Legislature simply destroying the value of property in the state by continuing to go along with the insanity of the public pension system.
I say this even as my wife accrues her pension in the Teacher’s Retirement System. I hope that no matter what, we can at least get her contributions out someday, but fear that it really will behave like a Ponzi scheme and that when it blows up, the cupboard really will be bare.
I structure my financial life around the notion that she’ll get stiffed on her pension and I’ll get stiffed on mine (with a Fortune 50 corporation.) I also carry the value of my home on my “books” at ZERO, so worried am I that when the time comes to sell, it will be valueless.
I also assume I’ll get stiffed on Social Security.
We sail into utterly uncharted waters.
PS: I pay about 3% year in and year out of my home’s market value in property taxes. Illinois has, I believe, the second highest combined state tax system in the USA, and has far from the second best state government to show for it. The difference is GRAFT. The state is run by open crooks.
Madigan would look so damned good swinging from a lamp post.
The only cycles that cause me any real fear tis girlfriends,was the original reason started prepping.