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Hey prock--you're still bearish on the real estate industry, right?

What do you think of SRS, an ETF that inversely tracks double the inverse of Dow Jones U.S. Real Estate Index? (e.g., when the index goes down 10%, SRS goes up 20%).

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  • I dunno what the DJUSREI is, but I can tell you what my expectations are with respect to RE. Downturns typically last for a period of 4-6 years, with the middle years seeing the steepest decline in prices. Unfortunatly, much of the price declines occurs in real terms instead of nominal terms. This is part of the reason why you see so many claims of housing values never going down. The nominal prices don’t go down very often, but the value of the dollar does. On the other hand, we are in the middle of the greatest housing bust ever, so we are in fact seeing nominal prices go down.

    I expect the real values to fall in the range of 25-40% depending on local conditions, but nominal prices are much more difficult to predict. Right now we’re down around 10% overall, but inflation could step in an cap nominal declines at a level around 15-20%. It may take anouther three years to get there.

    So depending on how the index works, you’re looking at about a 15% return over two, maybe three years? Doesn’t seem like a bad spot to put your money, but you might be able to find better spots.

    • I should also note that I expect this summer to be a real bummer, but being summer prices tend to trend higher as there is more demand for housing purchases in the summer. So you’ll get a weird effect where homebuilders weaken while prices seem to decline less. Next winter could be hideous.

      But really, I don’t drink so much tea, so my leaf reading ability is fairly low.

    • but inflation could step in an cap nominal declines at a level around 15-20%

      I hope so. I hope that next year at this time or a little further, I will be able to snag five acres down closer to the mouth of the Delaware for $60k.

    • So depending on how the index works, you’re looking at about a 15% return over two, maybe three years? Doesn’t seem like a bad spot to put your money, but you might be able to find better spots.

      Ah, but SRS tracks double the inverse of the index, so if the index drops 15%, SRS goes up 30%.

      I bought 10 shares yesterday. Today, it’s up 8.48%. :-)

      • I guess that’s a perfect example of me not knowing what SRS/DJUSREI is. I’m almost 100% certain that housing prices didn’t fall 4.24% in 24 hours.

        • From here:

          The Dow Jones U.S. Real Estate Index measures the performance of the real estate industry of the U.S. equity market. Component companies include those that invest directly or indirectly through development, management or ownership of shopping malls, apartment buildings and housing developments; and real estate investment trusts (“REITs”) that invest in apartments, office and retail properties. REITs are passive investment vehicles that invest primarily in income-producing real estate or real estate related loans or interests. It is not possible to invest directly in an index.

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