Friday, April 08, 2005

Philadelphia Housing Index seems to have peaked

Daily Reckoning

You can't lose money buying good stocks and holding for the long run. That's what Peter Lynch used to say. Lynch made his reputation running America's largest equity fund - Fidelity Magellan. He had a winning streak and retired a rich genius. Investors, naturally, mistook his good fortune for good sense. They piled into Fidelity Magellan only to watch the price drop 23% over the last five years.

They might have done worse. USA Today reports that the 50 hottest selling funds of 2000 have lost investors an average of 42% of their money in the last five years. Investors were "fooled by randomness," says our friend Nicholas Taleb. They saw something go up; they figured there was more to it than dumb luck. They were wrong. Fidelity's Aggressive Growth fund, for example, had $23 billion in assets in March of 2000. But if you'd invested $10,000 back then you'd have only $2,697 today, a loss of 73%. How's that for aggressive growth! The fund will have to go up 271% just to get even. It will probably be a long time before that happens. Another popular fund, Janus Worldwide, lost investors 67% of their money. Even if you avoided all the popular funds and just put your money into any old fund you could find, you still wou
ld have lost money in real terms. The average fund is up only 1% in the last five years. Adjusted for inflation - that leaves a substantial negative number that we're not going to bother to figure out.

Of course, there's still real estate. You can't lose buying residential property, right?

But what's this? An article on Richard Russell's website tells us that the asking price for condos in San Diego has gone down from $1,005,161 in June of 2004 to around $800,000 today. Could this be true? If you had purchased with 20% down... it means you've been wiped out.

Speculators typically buy 30% to 40% of these new condos says the article. The buyer never moves in and doesn't even bother to rent. He just pays the $700 a month homeowner's fee and waits to flip his condo at a profit. But how can you make a profit when prices are going down?

And why are prices going down? Because builders noticed prices soaring and tripled the supply. Now, there's an oversupply...and prices seem to be falling. "Unsold Homes Pile Up in Some Areas," says a Wall Street Journal headline.

Russell points out that the Philadelphia Housing Index seems to have peaked out too. This could be the end of the housing boom, he thinks.


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At 9:58 AM, Anonymous Anonymous said...

Hmm, hopefully it hasn't peaked quite yet and that it's just slowed down for the winter months. For additional Philadelphia real estate listings, check out


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