Faber on Real Estate

Faber On Real Estate:
I think another avenue is to own farmland. I think that real estate prices in the US have come down – OK, they may go down another 10% – but relatively to other countries and internationally, after having declined, if you can find a house you like, it may not be a bad time to buy a house in the US. It may not go up in value, but it may preserve its value.
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I know quite a few extremely well to do people who have second thoughts about life in big cities and security in big cities if the unrest in the middle east were to also spread to developed countries. And they also know that we might have problems with modern warfare that would include cyber war, or switching off of the electricity or biological warfare – terrorism – that would touch the big cities. So, they want to be safe. They buy islands and they buy farmland in the middle of nowhere.
We’ve suggested in the past that real estate has not yet hit bottom – and we maintain this position. We could see housing collapse another 30% from here, perhaps even more. However, the decision to purchase a home at this point comes down to value.
If you are looking to flip properties as a business like many did leading up to the real estate detonation, you’ll be hard pressed to generate significant revenue. But if you have other intentions and goals, it might not be a bad time to consider purchasing.
Farmland, for example, is a real estate asset that produces commodities. Unlike a suburban home with no real possibility for production unless you’re willing to do the work, farmland allows a family to generate their own food, as well as their own energy – essentially eliminating the necessity of the ‘grid’ on which most people depend. Not only that, but outside of major cities you’ve got an extra layer of security in the event of war, economic collapse or other disaster.
Additionally, if the US dollar continues to be debased, which it will given historic trends, we can expect interest rates on homes to start rising – significantly. In the 1980′s rates exceeded 15% in some cases. The following example demonstrates why it might not be a bad time to buy now if you expect interest rates to rise:
via Mortgage Calculator
Home Price: $200,000
Current Rate: About 5%
Monthly Payment: $1073.00
Total Payments Over 30 Years: $386,500
or, waiting until rates rise and prices decline 30%:
Home Price: $140,000
Rate: 10%
Monthly Payment: $1228.00
Total Payment over 30 Years: $442,000
Unless you plan on paying in cash after the next leg down in real estate, it may be to your benefit to buy now and lock in a decent interest rate, even if you expect a massive decline in prices. Additionally, you may end up paying less simply because of inflation and (hopefully) a future wage adjustment or earnings increase.

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