My New Blog

Trying to remain positive these days takes a lot of effort, so I am constantly looking for topics that will give a "ray of hope" to all of us.  I recently read an article about the housing commodity from a Realtor magazine and felt it was so good that I would like to repeat it here:

"Over the long term, home prices tend to rise with commodity prices.  And with prices for commodities like oil, copper, steel, and cement commanding sky-high prices, the increasing costs of raw materials will push home prices higher.

With the risk of rising construction costs on the horizon, "now is a good time to buy" becomes insightful investment advice, not just a marketing catchphrase.  Housing, after all, is the ultimate commodity.  Every home is a basket of materials like steel, wood, and copper wiring that, when combined with the cost of land and labor, becomes a store of value for every commodity that's gone into the home's construction.  It's this tangible quality that ties the long-term price of a house to its cost of production and makes a home such a fundamentally different kind of investment than a stock or bond.

The current oversupply may be keeping home prices low for now even as the cost of raw materials rises.  But because home prices are grounded in hard costs, the long-term home price equilibrium will adjust at some point to reflect the price of production and the cost of land.  Once builders are in a position to pass on higher commodity costs, buyers will begin to feel the price pressure.

Investing in commodities is a time-tested way to turn inflation's lemons into lemonade.  And purchasing homes is a time-tested way to buy commodities.  If commodity prices continue to go up, as many experts anticipate, customers can stay ahead of inflation if they understand that, over the long term, home prices will go up. "

Courtesy of Lawrence Yun, Economist