One method of home sharing and ownership that is often proposed by late-night infomercials is the “equity sharing” program.

In it’s simplest terms, this is an agreement between two people to share in the money or labor and to share in the profit. The idea is often advanced as a method for handling the party facing foreclosure. It is a bad idea. If you’re going to be sharing a title with people who are constantly in financial hot water, you are asking for trouble. 

The most important rule of investment is so simple, it’s easy to be taken lightly: You decide what will happen with your money. What it can do for you is up to you.

What to do with it

The moment you receive money, you have to use it. Whether you can’t let go of it, need to keep it close by, or can easily trust others to borrow it, you always have something to gain or lose. Here are the main choices.

Spend It

You can buy things with it (always the crowd favorite).

As the housing market completed its 11th consecutive quarterly decline and the residential slump extended into its 4th calendar year, the pace of the slide accelerated at the end of 2008. New housing starts fell 15.5% in December to 550,000 units. Single-family starts, off 14.2% in November, fell another 13.5% to 398,000 units in December. In the 50 years that these data have been compiled, December marked the lowest level of activity recorded. Additionally, the 64.8% annualized pace of decline in Q4 was the most rapid quarterly decline ever. The momentum of recent housing declines has increased in response to the overall economic weakness inherent in the steep recession. Finally, single-family starts in December were off 48.9% from a year earlier, the largest year-over-year decline of the current collapse.

• U.S. housing is important for two reasons.
• First, it is the cause of U.S. economic woes and the credit crunch due to excessive sub-prime lending in recent years.
• Second, it is the most leading of leading indicators for the U.S. economy, and thus serves as an important bellwether for both the bond market and the economy.
• The U.S. housing market is in a dismal state, and should remain a drag for several more months.
• It is important to note that residential construction is now less than 4% of GDP (Source: BEA), and so this by itself does not spell doom for GDP.
• Its impact also spreads to sentiment and the multiplier effect of housing on the overall business cycle.
• The weakness in housing is driven by higher mortgage rates, poor affordability, high debt-service ratios and tightening lending standards.
• Even more fundamentally, some Americans were able to purchase homes without the obvious means to afford the homes if house prices ever ceased to rise at a robust pace, and are now facing foreclosure.
• The largest set of sub-prime mortgages were issued over the past few years, constituting roughly 20-25% of all mortgages (Source: Mortgage Statistical Annual and Inside Mortgage Finance). Many mortgages offered an initial teaser rate followed by a sharp increase in rates. These higher rates will hit quite hard over the next year.
• For the U.S. housing market (and thus economy) to improve, one first needs to see substantial improvements in affordability which will in turn boost home sales (it is estimated a further 10-15% drop in home prices). As a result, inventories will begin to fall. Finally, construction activity will pick up again. This means an improvement no sooner than late 2009.
• In the meantime, although the direct economic impact of the housing slowdown is clear – further bank losses, less construction activity, diminished furniture sales – there is also an equally important potential indirect impact. This is via a reduced wealth effect and mortgage
  equity withdrawal that affects consumers.

Home prices still high in real terms

Using the S&P Case Shiller index for 20 major cities, US house prices in October were back at April 2004 levels and down 23% from their peak in July 2006. But bear in mind that October’s data is for deals agreed over the summer, mostly before the post-Lehman panic and the sharp deterioration in the economy. Deals being done today are likely at least another 10% cheaper though we will not have the data until the spring. The question is where might the bottom be? One approach is to look at house prices adjusted for consumer prices and ask how low house prices could go if they return to previous cyclical lows. Unfortunately, with consumer price inflation very low and falling, almost all of this adjustment will need to come from lower nominal prices. Assuming the market is today down 33% from the peak, (10% lower than the October level) there is potentially another 17 percentage points to go, which translates into about 25% off today’s level.

Some say I am biased becase I live in the area. However, even if I don’t live in the area, I will consider this disparity between highest wage and moderate home price, combined with long term local supply shortage as a strong foundation continued home price appreciation. This new report reinforced such trend.

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Friday, January 18, 2008 - 9:46 AM EST
D.C., Arlington home to highest wages
Washington Business Journal - by Joe Coombs Senior Staff Reporter
The District and Arlington County are neck-in-neck in the latest survey of high-paying jobs among the nation’s largest counties.

What time is the best time to buy a house (if you still have buying power) ?

From studying history, I find that the best time is not pre-recession (Jan 2008). It may not be in the middle of recession, end of 2008 or end of 2009 (we don’t know how long this recession will last). The best time is when recession is passed (at least officially), when unemployment reached its highest level, that would be sometimes in 2010. I know you don’t have such patience to tame you desire for that long, but let’s throw our emotions aside, that’s the best time to pull the ‘buy’ trigger.

1) From market value appreciation angle: both land and structure will appreciate in its initial 2-3 decades, the structure value may flatten or decay after that, although very slowly.

2) From IRS tax point of view, they only think of structure depreciation. Over the period of 27.5% years, the value of the house will be depreciated to zero. That’s about 1% a year decay.