housing crash

[risktaker]

Recently, I was told that some lenders are making RE loans to people with *very* low credit scores.

But to get these borrowers somehow qualified or perhaps to reduce the risk, they require a "pool" of people with good credit to (somehow, I don't have all the details) guarantee/cosign on these loans or something like that.

As I understand it, the "guarantors" are being enticed to sign up because they will earn monthly fees for the life of the loan for doing this. No assets are required on the part of the "guarantors", just good credit!

Anyone hear of anything like this?

 

[BlueHorseshoe]

Quote from OldTrader:

Lots of possible reasons why the price of [TPL] has gone up, to include oil and gas royalties as the prior poster pointed out to you. Royalties were 54% if revenue, and obviously that portion of their revenue has risen sharply.

The point is that at least one major factor this stock is up has very little to do with "real estate". Lets just hope you're studing real estate with more detail that this attempt to debunk real estate with a company benefiting from oil and gas royalties.

OldTrader

Ok, so let's take a look through the last 10-Q, which is for calendar 3Q04:

Income 3Q04 3Q03
Rents & Royalties, & Sundries 2.0m 1.8m
Land Sales 19.4m 0.6m
Interest 0.2m 0.2m
Total 21.6m 2.7m

Ok, so clearly income is surging because of land sales, NOT energy royalties as you so casually assume and chastise me for.

But what does the mgmt say re: the value of their land??

"Land sales may vary widely from year to year and quarter to quarter. The total dollar amount, the average price per acre, and the number of acres sold in any one year or quarter should not be assumed to be indicative of land sales in the future. The Trust is a passive seller of land and does not actively solicit sales of land. The demand for, and the sales price of, any particular tract of the Trust’s land is influenced by many factors, including, the national and local economies, the rate of residential and commercial development in nearby areas, livestock carrying capacity, and the condition of the local agricultural industry, which itself is influenced by range conditions and prices for livestock and other agricultural products. Approximately 99% of the Trust’s land is classified as ranch land and intermingled with other ownerships to form ranching units. Ranch land sales are, therefore, largely dependent on the actions of the adjoining landowners."

So, land values and sales are driven almost exclusively by the value agricultural ranch land.

But what about that huge 0.2m jump in Rent, Royalties & Sundries?

" Easement and sundry income was $280,789 for the third quarter of 2004, an increase of 80.3% from the third quarter of 2003. This category of income is unpredictable and may vary significantly from quarter to quarter.“

Oh, so the increase in Rents, Royalties & Sundries was in fact 'sundry' revenue that is unpredictable. But what about energy royalties?

"Oil and gas royalty revenue was $1,662,328 for the third quarter of 2004 compared to $1,559,361 for the third quarter of 2003, an increase of 6.6%. Oil royalty revenue was $1,058,843 for the third quarter of 2004, an increase of 3.0% from the third quarter of 2003. Although crude oil production subject to the Trust’s royalty interest decreased 25.3% in the third quarter of 2004, this was more than offset by a 47.8% increase in the average price per royalty barrel of crude oil. Gas royalty revenue for the third quarter of 2004 was $603,485, an increase of 13.6% from the third quarter of 2003 on a volume increase of 23.3%, which more than offset a price decrease of 8.0% compared to the third quarter of 2003."

Oh, so energy royalties barely budged. Oil production actually FELL 25..3% and Gas prices were actually lower than the prior period by 8.0%

Wherefore your premise Old-dude?

You jumped to conclusions by reading a Yahoo Profile and then chastised me for not doing my homework.

I just don't have anything else polite to say on the matter.

 

[Smart Money]

Hey I have a question that I do not know the answer to, so I'll throw it out there. And this question is not about California. Those guys won't move out of an area that is rife with earthquakes, wildfires, mudslides, etc. Nature is trying to kill them and it doesn't phase them. God bless them, but if they want to try to get rich selling the same properties to each other, that is their perogative. I'm talking about the "other" states in this question...

From what I observed in my bread and butter area in a "flyover state", the value of my real estate climbed almost exactly 30% in the last 2 years, though for the last 6 months of that period, its been dead in the water, and may have even dropped a few percentage points. (Yeah, I know there is a lot of local economic effects in that price rise).

My question is, during that same time period, how did the price of Gold move?

My theory is that we're in a more inflationary period than the CPI measures because it seems like a lot of that stuff is made in China, which is tied to our dollar. Essentially, the failure of "doodads and Chinese gizmos" to rise in price is masking true inflation, which may be best measured by commodities and services. Note that a house's value is directly related to the cost of commodities and labor.

If one of my townhouses was worth $105K 2 years ago, how many ounces of gold could I have traded it for? Now that its worth $135K, how many ounces of gold could I get for it now?

The way I see it, whether the price run was the leading edge of a bubble or not, the price of real estate is now paid for with dollars that are worth substantially less than they were two years ago. Maybe the bubble, if there was one, has already deflated because the value of the dollar dropped out from under it.

Or maybe we're in a gold bubble. Run for the hills!

One more (unrelated) thing: To the guy who asked for advice about whether to drop his interest only mortgage for a fixed one. Yes. Get a fixed one. Rates can't get much lower, IMHO.

SM

 

[ratboy88]

Quote from OldTrader:

.........Either way, what is important for you and the other posters to this thread to know is that residential real estate does not trade like a stock. People live in houses, and they have to live somewhere. This is not to say that prices cannot decline...but it should be obvious that if you want to sell your stock that is completely different than selling your house. Until you understand that difference you're going to keep trying to compare houses to the NASDAQ index. And most real estate professionals do not make that mistake...............


OldTrader

LOL LOL LOL....... thanks for clearing that up for me about RE not trading like stock.

yes, people do live in houses but we may see a lot of consolidating in the near future. there are a lot of singles out there with their own homes...not to mention over building. might have a little glut hit us.

and yes i will compare the nasdaq bubble with the RE bubble. because the underlying dynamics are the same....HUMAN PSYCHOLOGY !!!!!!!! are you saying there is no speculation occuring in the RE market??? every buyer is the occupant?....sorry i don't agree.

and before i insult the RE professionals again i ask you to qualify your statement regarding their discernment in not mistaking the nasdaq for the RE market. please expound on this dynamic.

 

[ratboy88]

Quote from Smart Money:

.........My question is, during that same time period, how did the price of Gold move?

My theory is that we're in a more inflationary period than the CPI measures because it seems like a lot of that stuff is made in China, which is tied to our dollar. Essentially, the failure of "doodads and Chinese gizmos" to rise in price is masking true inflation, which may be best measured by commodities and services. Note that a house's value is directly related to the cost of commodities and labor..............

SM

i don't think gold is anywhere close to being in a bubble. if you adjust the price of gold vs the euro i doubt there is any appreciation in the past 2 years.

granted outsourcing has tempered inflation, i think it is probably more useful to see how cpi numbers are measured. the govt loves to tamper with the rules of calculation. do a search there was a very good thread that spoke to this matter. it is important to realize that the last thing the govt wants to do is increase social security payments across the board. they just don't have the funds to do so....instead they cook the books (cpi #'s)

but what they can't hide is the loss of value of the dollar...and that my friend is the key. commodities have increased (inflation) due to the loss of value of our currency. so gold at $400 plus and gas @ $2 a gallon are due to currency valuations. they will not go down till we raise interest rates and stabilize the dollar.....but when we do this, RE valuations will take a hit. so it comes down to picking your poison...raising rates or the dollar tanking. either way inflation will come.

the real problem comes down to using a fiat currency and having private banks profit on the drudgery of the american people...but that is another thread.

 

[OldTrader]

Quote from BlueHorseshoe:


Wherefore your premise Old-dude?

You jumped to conclusions by reading a Yahoo Profile and then chastised me for not doing my homework.

I just don't have anything else polite to say on the matter.

It is true that I read the Yahoo Profile which I quoted. Goes to show you should always do your own homework.

For instance, you quote the 3Q of 2004 in order to make a point. However, if you go back to look at the last entire year....2003.... in the 10K filing with the SEC you will find the following:

Oil and Gas Royalty Income $5,411,681
Land Sales $1,629,191
Sundry Income $1,462,729

Note that the Sundry Income is settlement of some prior oil and gas royalties. The point being for the year 2003 the oil an gas royalties or income derived thereof DWARFED Land Sale income.

We'll see what it looks like on the upcoming filing for 2004. My guess is the percentages will be fairly similar.

The point is that there are many reasons that account for the value of this stock. And clearly in this case, it wasn't all "real estate related".

Sincerely,

Old-dude

 

[OldTrader]

Quote from ratboy88:

LOL LOL LOL....... thanks for clearing that up for me about RE not trading like stock.

yes, people do live in houses but we may see a lot of consolidating in the near future. there are a lot of singles out there with their own homes...not to mention over building. might have a little glut hit us.

and yes i will compare the nasdaq bubble with the RE bubble. because the underlying dynamics are the same....HUMAN PSYCHOLOGY !!!!!!!! are you saying there is no speculation occuring in the RE market??? every buyer is the occupant?....sorry i don't agree.

and before i insult the RE professionals again i ask you to qualify your statement regarding their discernment in not mistaking the nasdaq for the RE market. please expound on this dynamic.

Glad I could be of some service in clearing up something for you.

No, of course I'm not claiming that everyone who buys residential real estate is an owner occupant. In fact, I believe it's something like 5-6% of the new loans go to non-owner occupants.

To one extent or another some of these non-owner occupants are probably speculating. I'm sure that's also true for some portion of the owner-occupants as well. I mean think about it, buy the house on low interest, low cash down payment, and 2 years later sell with no taxes due. The Feds have made this a fairly attractive deal I would say.

By the way, I'm an owner of rental real estate. I wouldn't put myself in the "speculative" category though. I have owned rental real estate for years in an attempt to stabilize income from trading. So I'm in it for the income. But as it happens the real estate has appreciated significantly. Turns out it was an excellent investment...although capital appreciation was not my goal in the beginning.

And chances are high that the average homeowner feels about the same....they live in the home...it's their preference to renting. Some day they may own the property free and clear. They bought the house for living, not for trading. If it goes down they won't be selling either, because again, they are living there...it's their home. There is precedence for this by the way...we've had major declines in places like California recently, and in Texas prior to that. Those that had stable jobs and income simply continued to make their mortgage payment. They did not sell.

And therein is one of the major problems with the crash idea. As long as employment is reasonably stable, people aren't going to panic out of their house like they might panic out of a stock. They can panic on a stock, and still go home to eat, sleep, and live. But what do they do when they panic out of their house? Rent? They could. But I'm sure you're aware that in many parts of the country you can still buy on a payment basis for less than you can rent for. Not in California obviously. So the point is that in some areas of the country it would make no sense to sell the house if you had to make an equal or higher payment in rent. And again, you are going to have to do one or the other.

Then there is another question. Even in the areas where rent is higher than the equivalent mortgage payment, this does not reflect the tax benefit in the mortgage interest deduction and property tax deduction. For argument sakes lets say the mortgage payment after tax is 30% less. That means that it is much closer or maybe even lower than rent in many part of the country. Again, you either have to rent or own...not many other alternatives.

These kind of factors (and they aren't the only factors) argue against wholesale liquidation of residential real estate unless there is a major employment problem where people can't make the payments at all.

So again, sure...it's certainly possible for real estate to decline. But a crash just doesn't seem to be in the cards to me.

One other factor often overlooked: You can end up owning a house free and clear.....no more mortgage payment. Obviously the rent never stops...in fact, I've never seen rent do anything but increase. So when the mortgage is paid you are left with an asset, regardless of what it is worth, that takes nothing to live in other than insurance and property tax.

OldTrader

 

[BlueHorseshoe]

Quote from OldTrader:

For instance, you quote the 3Q of 2004 in order to make a point. However, if you go back to look at the last entire year....2003.... in the 10K filing with the SEC you will find the following:

Oil and Gas Royalty Income $5,411,681
Land Sales $1,629,191
Sundry Income $1,462,729

Note that the Sundry Income is settlement of some prior oil and gas royalties. The point being for the year 2003 the oil an gas royalties or income derived thereof DWARFED Land Sale income.

We'll see what it looks like on the upcoming filing for 2004. My guess is the percentages will be fairly similar.

The point is that there are many reasons that account for the value of this stock. And clearly in this case, it wasn't all "real estate related".

Two points:


#1:
From the 3Q04 10-Q:

First nine months' Rents, Royalties, Sundry revenues:

1-3Q04: 5.6m
1-3Q03: 5.0m

A 12% jump in royalties doesn't justify a 200% run in the stock price.

#2

You said "The point being for the year 2003 the oil and gas royalties or income derived thereof DWARFED Land Sale income."

So what?　ＴＰＬ is being valued based on its land　ＨＯＬＤＩＮＧＳ, not its land SALES. In a real esate bubble there should be an INVERSE relationship between TPL's revenue from land sales, and it's market valuation. Hyperventilating speculators don't want cash, they want land.

But continue to rationalize all you want.

 

[MR.NBBO]

Quote from ratboy88:

i don't think gold is anywhere close to being in a bubble. if you adjust the price of gold vs the euro i doubt there is any appreciation in the past 2 years.

granted outsourcing has tempered inflation, i think it is probably more useful to see how cpi numbers are measured. the govt loves to tamper with the rules of calculation. do a search there was a very good thread that spoke to this matter. it is important to realize that the last thing the govt wants to do is increase social security payments across the board. they just don't have the funds to do so....instead they cook the books (cpi #'s)

but what they can't hide is the loss of value of the dollar...and that my friend is the key. commodities have increased (inflation) due to the loss of value of our currency. so gold at $400 plus and gas @ $2 a gallon are due to currency valuations. they will not go down till we raise interest rates and stabilize the dollar.....but when we do this, RE valuations will take a hit. so it comes down to picking your poison...raising rates or the dollar tanking. either way inflation will come.

the real problem comes down to using a fiat currency and having private banks profit on the drudgery of the american people...but that is another thread.

Correct on all accounts.
But maybe overpriced R.E. beats a worthless greenback?
R.E. is still a 'softer' hard asset. It doesn't typically evaporate like currencies. If everyone is calling bubble.....maybe we're at the very start. If USD is no longer the premier currency, why have faith in any fiate currency?

I could see rolling bubbles. First out of USD, into EUD & CHF, then dumped...along with all others, but this capital has to be parked somewhere.....hard assets. They're illiquid, but nothing is remotely stable in that kind of environment, might as well be tangible.
R.E. goes 10x what it is today, one of the few things that absorbe massive capital and IS tangible. THEN, the R.E. crash, it'll be as mind boggling as the CMGI rise and fall. We regain our heads, and put it all back together again. Buy battered currencies ...dump R.E.

Too many calling R.E. a "bubble" ...go long a 100,000 duplex, sell at 5,000,000. Don't know if i believe that. But too many calling "Top" & "Bubble"

 

[OldTrader]

Quote from BlueHorseshoe:

You said "The point being for the year 2003 the oil and gas royalties or income derived thereof DWARFED Land Sale income."

So what?　ＴＰＬ is being valued based on its land　ＨＯＬＤＩＮＧＳ, not its land SALES. In a real esate bubble there should be an INVERSE relationship between TPL's revenue from land sales, and it's market valuation. Hyperventilating speculators don't want cash, they want land.

But continue to rationalize all you want.

Interesting theory...the idea of an "inverse relationship" betwen revenue from land sales and it's market valuation.

An example of the exact opposite is the KMart story, where real estate is carried on the books at one value, but sold at another. Perhaps you've read something about Eddie Lampert. Had he had the same theory as you have he would have missed the central idea behind KMart.

Now, I haven't looked at the books on this company. But I think we can easily say that many stocks have had large jumps in value over the last year or two. An income stream from oil and gas royalties becomes more valuable as oil and gas prices rise. As you yourself pointed out....production fell, yet income rose. Hello? The land is probably carried at cost on the books....this is GAAP. So undoubtedly this is a factor too...although they state that they don't seek out buyers for their land.

Assets in general have become more valuable over the last couple of years...whether they be tangible like land, or intangible like stocks, virtually without exception. So I think it would be nearly impossible to attribute the entire gain in this stock to "hyperventilating speculators" that "want the land". I think that's a very large assumption...and probably an incorrect one.

Just doing a little more "rationalization".

OldTrader