Vail Daily column: Expert who predicted housing crash now predicts boom times
July 19, 2013
Have you ever heard of John Paulson? He is the Wall Street trader who made more than a billion dollars by predicting the housing crash. When things started to get funny in 2007 and 2008, Paulson made some bets that the housing market was going to crash, by selling short various mortgage-backed securities and stocks of major players in the housing markets. Within a few years, he reportedly cleared more than a billion dollars.
While his income tax bill no doubt helped the federal treasury to pay bills for a few hours, he was widely criticized as profiting from other peoples pain, but somehow I have a feeling that there would have been just as much pain whether he bet against the system or not. There is also criticism that he was involved in putting together a lot of the same deals he eventually bet against, and that is a valid criticism, but so far nobody can prove he did anything illegal and on Wall Street, if you make money on both ends of a deal, then much is forgiven in time.
So, one might ask, what does Paulson think of the current housing market? He gave a rare interview this week, and he thinks it's time to buy not only one home, but if you can swing it two or three. Paulson has also set up a fund to invest in real estate.
His reasoning is that not only is the population of the U.S. growing with more and more people reaching the age when they customarily enter the housing market, but that the economy is expanding and there is a pent up demand for housing from many who lost their homes that would like to own again or those who have waited for economic security before buying a home.
He also reasons that if inflation returns, then one of the best hedges against it may be real estate. While real estate values have their ups and downs, over the long run real estate has outpaced (in most markets anyway) the growth of other assets in value.
While here in the valley we all know of homes that can be purchased for 20-30 percent less than they were worth in 2007, those properties are still worth 200-400 percent what they might have sold for 20-30 years ago.
I look at my old house over in Sandstone as an example, I sold that for $225,000 in 1989, and a nearly identical home next door sold last winter for about $800,000, after probably getting close to a million in value at the peak. Another property I owned in the early 1990s is probably worth three times what I sold it for in 1993. Of course the home I bought in 2007 is worth less than what I paid for it, but in the past few weeks there have been at least four homes in my neighborhood to go under contract, and inventory is getting short, which will raise prices.
I'm not advocating that people start buying with the hope of making a quick flip, the market is not that far along yet for that to be realistic. But if you have been wondering if it's safe to buy, I think it likely is. But buy for the long haul, and hopefully in five years or so you will see a handsome return on your investment.
And while mortgage rates are higher than they were a month ago, they are still at historically low levels. Combine that with being able to buy a home at a substantial discount from its peak value and you have the opportunity to make a good investment, and one that you can enjoy proudly living in.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers.