housing crash

Quote from OldTrader:

Just thought I'd mention that there is a tendency on the part of human beings to ALWAYS fight the last war. The last war? Bubble. This word "bubble" is a word that was not heard of or used for most of my own investment career until the peak. Now we hear the word nearly every day describing every bull market, or any move up that anyone thinks has gone too far.
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Maybe you weren't listening to the right people. Malkiel devotes a chapter of "A Random Walk Down Wall Street" (first published in 1973) to bubbles throughout history. Newer editions catalog several stock market bubbles in the United States in the 20th century. George Soros published a theory of invesment bubbles in "Alchemy of Finance" in 1987.

I like your war analogy. If you think bubbles are the "last war," then maybe you would agree that World War 1 was the "war to end all wars."

Martin
 
Quote from OldTrader:

But it's a damn good thing that neither of you were so dumb as to get short the homebuilders around the time that the "real estate is dying" thread began....because had you done so you might have short Toll Bros. around 40...now around 74. That might have cost you just a little of that fortune you made getting short in 2000.
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A smart trader doesn't bet against the tape, as you said.

But a smart investor will get out of an overvalued market.

It is precisely because Toll Bros has been on a tear that people think there is a bubble. If the momentum players weren't making money, nobody would be calling this a bubble to begin with.

Martin
 
Quote from Sparohok:

A smart trader doesn't bet against the tape, as you said.

But a smart investor will get out of an overvalued market.

It is precisely because Toll Bros has been on a tear that people think there is a bubble. If the momentum players weren't making money, nobody would be calling this a bubble to begin with.

Martin
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The relative performance of Toll Brothers has literally nothing to do with whether there is a "real estate bubble". What people are talking about is house prices, not the stock price of a builder.

That said, I think market action would be considerable different if the market truly was discounting price drops in the housing industry. Obviously it is not.

OldTrader
 
Quote from Sparohok:

Maybe you weren't listening to the right people. Malkiel devotes a chapter of "A Random Walk Down Wall Street" (first published in 1973) to bubbles throughout history. Newer editions catalog several stock market bubbles in the United States in the 20th century. George Soros published a theory of invesment bubbles in "Alchemy of Finance" in 1987.

I like your war analogy. If you think bubbles are the "last war," then maybe you would agree that World War 1 was the "war to end all wars."

Martin
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Thanks for the education.

I wouldn't want you to miss the point though. The point is that every bull market is not a bubble. The idea of "bubble" has specially characteristics ie a certain mania, that then leads to an outsized or longlasting decline. Obviously every bull market is not then a bubble...only some are.

Obviously the term has been applied in the past...such as "South Sea Bubble", etc etc. But again, the term is not applied to just any bull market.

Let me see if I can state this more clearly: The last bear market was the unwinding of a bubble. Therefore, those who participated may tend to generalize that experience, and assume that every bull market is a bubble, and the aftermath takes on the characteristic of NASDAQ. In my view this will not be true. Every bull market is somewhat different, as is the subsequent bear market.

OldTrader
 
Quote from OldTrader:

The relative performance of Toll Brothers has literally nothing to do with whether there is a "real estate bubble".
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Literally nothing, eh?

Odd that you went on to contradict yourself in the next paragraph.

Martin
 
Quote from Sparohok:

Literally nothing, eh?

Odd that you went on to contradict yourself in the next paragraph.

Martin
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Perhas you'd like to explain that to me genius.

OldTrader
 
geezzzzzzz, where do i start???

i traded one tech stock over and over and over again during the tech bubble...made a lot of money. didn't care if i went short or long....at the end of the day i was flat and had caught some pretty good moves..... did that for about 2 years. at the same time i argued with other traders and family/friends that it was not a good time to go long as far as investing was concerned. didn't really take a genius to make that call.

the link was very relevant to my question, i am puzzled by your response. there is a good chance that fnm could implode..... if that happens the author feels like it is the "canary in the mine." the author surmises that much of the debt that fnm holds is made up of mortgages obtained by fraudulent means, i.e. high appraisals values. if the number of defaults become overwhelming then the insurers would go under and this would snowball into other arenas. buffet speaks of derivative weapons of mass destruction...just not sure which ones he is speaking of.

i don't disagree with your statement about employment trends affecting RE but the other factors you dismissed are hardly "dismissable." the problem with the monetary system is that it is a fiat currency, backed by nothing except the blood and sweat of the american taxpayers. deficits matter to the holders of our debt and right now they are shitting bricks. if they start dumping this debt then rates will spike and that is all she wrote for the RE market. it is almost as if the perfect financial storm is brewing out there. my fear is of hyperinflation then followed by a crippling deflationary depression.

btw, i haven't even begun to bring in the geopolitical aspects of this equation. anyways, i am not married to this scenario but i do know the fed has painted itself into a corner and i see no way out...i hope i am wrong. this scenario may take several years to play out so enough with the "toll bros" comments.... not talking about micro events right now.

anyways, i appreciated your views on the RE market of the past but feel you were a little arrogant with your most recent comments.
 
should i keep the interest only (which i pay off principle every month too) on the home ive made 30% on in 1.5 yrs in S.D or lock in a fixed?

what do you think?
 
Look, I'm well aware of all the bear arguments. Don't know how long you've been around, but I started hearing many of these types of arguments back in the early to mid 1970's.

For instance, in 1975 New York City almost went broke. It was in the news every day. Munibond rates went through the roof. The bears were quite vocal at the time.

I first read lengthy arguments about real estate collapses starting about 1980. This was just before rates went to 21%.

I could go on and on...but the US has a history of muddling through....not that the dire events that some predict can't happen. But if you were a betting man you'd be crazy based on history to bet on it.

I don't think anyone can predict what will take place with FNMA. After alot of gnashing of teeth, my guess is FNMA will still be around, still buying and selling mortgages. With or without them though, mortgages will still be around. I can tell you that at one point in the 80's as rates moved to 21% most people did not want to borrow at those rates, so a healthy private mortgage market cropped up with properties bought sold without lending institutions.

That said, I have not said real estate prices cannot go down. My argument is against a crash, not against some kind of a decline. My area has probably declined to an extent already. If you're looking at the odds, you've got alot of history betting against a crash.

OldTrader
 
Quote from Steelhead:

should i keep the interest only (which i pay off principle every month too) on the home ive made 30% on in 1.5 yrs in S.D or lock in a fixed?

what do you think?
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Personally I wouldn't have anything other than a fixed rate, amortizing loan.

OldTrader
 
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