Housing Rolling Along 2

[onewaypockets]

Quote from kowboy:

There is a huge difference between 1980 and today and dissimilar circumstances. Back then Volker is credited with ending stagflation by limiting the growth of the money supply and abandoning targeted interest rates. Thus the squeeze on interest rates and the subsequent slow down of the real estate market.

http://www.federalreserve.gov/releases/h15/data/m/fedfund.txt

Today the fed has favored a different policy of allowing inflation at the expense of devaluing the dollar so as not to slow down the economy. Under present day politics, we may not see much more tightening of the money supply or increase in the interest rates. The fed would rather see inflation than a slow down of the economy. Conditions which are all favorable for mortgage rates and real estate.

Will there be a real estate bust or just a slow tapering off of real estate prices and activity? Whenever the correction happens it will probably be due more to the revaluation of Arms and interest only mortgages. But I would not expect the severe correction seen in 1980.

I would agree that the interest rate environment was related to the bust from 1980-85. The later bust (1990-95) was pinned to a job loss environment.

Busts always have to be "explained" by people and the media. Humans need to find answers, but IMO simple explanations like these are not the only answers. I believe when price action goes too far, too fast, too unaffordable, that things are ripe for a correction. The "pin" that pops the bubble can be many things, but when there is a bubble there is always a pin that comes along eventually to find it's mark.

It will be interesting to see what the "pin" is, historically speaking, that will be attributed to popping this current asset bubble. Things have indeed gone too far price wise to be sustainable, a change is in the wind.

I agree it might be something like the "ARM", lo-doc, stated income, no money down, lax lending, etc. that has an big effect on this market getting way ahead of income, and I believe there will be a significant correction in the next few years.

 

[vulture]

I posted this a year ago, but I figured I'd post it again since it adds a bit more background to the Ben Stein except.

People Magazine, August 30, 1982

LAND SLIDE
After years of soaring prices and huge profits, the Hollywood housing market fizzles

UP FRONT
NEOCOLONIAL ON ACRE IN BEL AIR
3 bedrooms, maid’s quarters, kitchen and 5 baths need work, brook and white wood bridge, was $2,200,000, now only $1,350,000. Oil tycoon Forrest Shumway.

CHARMING HOUSE BEVERLY HILLS VICINITY
2 bedrooms, 2 baths and powder room, 40 ft living room, brick courtyard, pool, media room upholstered for acoustics with video recorder and giant TV screen, 360 degree view of L.A. Behind gates. $1,500,000. Owner, Kristy McNichol.

NEW ENGLISH TUDOR IN BEL AIR
6 bedrooms, 5 ½ baths, maid’s room w/ bath, vaulted ceilings, marble fireplace, brick and copper kitchen, library off master bedroom, Jacuzzi, circular driveway, electric gates w/ intercom. Was $2,300,000, now only $1,550,000. Built 1981, never occupied, for sale by builder.

BEVERLY HILLS ELSIE DEWOLFE DESIGN
2 bedrooms, 2 baths, plus 1 bed sitting room w/ bath, step-down living room, den with sunken bar, 2 maids’ room w/ baths. Pool and outside bar, guest house w/ bedroom, kitchen, bath, gardens. Was $2,900,000, now $2,100,000. Once Rosalind Russell’s home.

BARONIAL HOLMBY HILLS MANOR AND GUEST HOUSE
7 bedrooms, 6 baths, tennis ct, pool, Nautilus room, media room, pinball arcade, library, 1 ½ acres. Guest house w/ bedroom and bath. Behind electric gates. Was $5,500,000, now only $4,500,000. Owner, the late recording czar Neil Bogart.

BEVERLY HILLS MEDITERRANEAN
6 bedrooms, den, family room, bar, large pool, room for tennis court, circular driveway. Was $2,500,000, now only $1,750,000. Owner, talent manager Jack Rael.

BELAIR MODERN
6 bedrooms, guest apt, 3 baths, living room, gourmet kitchen, gardens, solarium, electric gates, on 1 acre. Was $2,500,000, now only $1,575,000. Formerly Sylvester Stallone’s residence.

COZY BELAIR HIDEAWAY
5 bedrooms, 6 baths, swimming pool, .80 acre. Was $2,900,000, now $1,900,000. Owner, Mike Douglas.

Elaine Young looks sadly out at her beleaguered community and sees a once-thriving town ravaged by the vagaries of the depressed US economy. She sees a once-proud people bowed low. “I have friends calling me saying they’re thinking of committing suicide”, she says. “They have no money and their house is their only asset, and no one’s buying. They can’t meet their payments. They have no money. I’m a soft touch and I’ve loaned money to some of them.”

But wait. Don’t bundle old clothes and canned goods into CARE packages just yet. Elaine Young is not talking about unemployed autoworkers in Detroit or impoverished sharecroppers in Mississippi. Young, a Los Angeles real estate agent, is lamenting the slump in the luxury housing market in Beverly Hills. Entertainment superstars who paid millions for mansions in the late ‘70s, Young says, are now finding it difficult to peddle the properties for the traditional astronomical profits. “I have one client who put a house on the market a few months ago for $3.5 million” she laments. “I got an offer of $1.9 million cash, which he turned down. But after the house remained unsold, he called and said he was interested in the offer.”

Five years ago a house in Hollywood was worth its weight in cocaine. Although one-quarter of L.A. real estate deals are done on a cash basis, in the heyday of “creative financing” anybody who could scrape up the typical 25 percent down payment-and Rolls Royces, yachts and diamonds were acceptable-would buy a house, hold it for a few months, then sell at a killing. “People would tie up property for 90 days with a promissory note and no money in the bank and go to the Polo Lounge and try to find an investor,” remembers veteran realtor June Scott. In 1977 Scott bought a house in Beverly Hills for $340,000. In 1981, having remodeled it and added a media room, she sold it to actress Kristy McNichol for $1.3million. “Empty houses were bought, redone and sold for very high prices, “ says Scott, “and people were standing in line for them.”

 

[vulture]

continued:

In the glory days, Beverly Hills real estate agents were stars, not salespeople. Elaine Young, who was married for five years to the late Gig Young, now dates Frank Sinatra’s sidekick Jilly Rizzo. Super-Realtor Stan Herman, ex of actress Linda Evans, shares his $2.5 million Beverly Hills pad-and his cozy Malibu beach house-with his wife, former actress Denise Vandenburg. But the bubble burst with the rise in interest rates. “The loan market has dried up,” says realtor Mike Silverman. Lack of loans means a lack of buyers, at least for the more “moderate” mansions. “Now nothing under $1 million is selling, and the market for the $500,000 house doesn’t exist,” Herman laments. “Prices are coming down, and there are some real steals available.” He cites Gene Hackman’s Beverly Hills house. The actor moved out a year ago and put the four-bedroom, English country-style house on the market. He had bought it five years before for a little more than $1 million. Having made significant improvements, he was asking $2.5 million, but it wasn’t selling. This month the price was slashed to just about what he paid for it.

One-third of the buyers today are foreigners. Some are French millionaires who fled the socialism of Francois Mitterrand; others are wealthy Arabs or rich Iranians who fled the Khomeini regime. Iranian construction czar Iraj Azadi bought a four-bedroom home from actress Jacqueline Bisset for $2.5 million. “It was a Spanish-Mediterranean-style house on a flat acre in Bel Air-and that’s hard to find,” Azadi says. “The tennis court and the swimming pool and spa below were beautiful. That’s why we purchased it, not because it had been the home of a movie star.” Now that Azadi’s children have moved away, he finds the house “too big” and has put it on the market. The asking price is $3.2 million-just reduced from $4.5 million.

Still, most buyers in Beverly Hills remain entertainment figures; television actors, who can earn up to $40,000 per week, are among the few who can afford even devalued property. But they have proved to be very choosy of late. Real estate agents say that a house’s value no longer goes up simply because a star has lived there; indeed, ostentatious homes can actually decrease in value. “Buyers are looking for stability stripped of sham,” says Scott. “Ten years ago you had people buying houses who never had large amounts of money before. They hired decorators to give them instant lifestyle and a sense of security. The people who are buying today know how they want to live. They prefer less ostentation. They’re more accustomed to the understated elegance of a New York brownstone.”

Of course, understatement is relative in Tinseltown. Buyers still demand as basics a pool, tennis court, bidet, saunas, screening room and, recently, a video game room. But the latest demand is a more practical feature: security, Closed-circuit-TV cameras, menacing dogs and 24-hours guards are common in Beverly Hills. One resident went so far as to create a concrete-and-steel room as a sanctuary against intruders. “When they shut the doors,” says June Scott, “it’s like being encased in a tomb.”

Scott years for the good old days-and, even amid the gloom, there are a few signs that the traditional Hollywood excess is not completely dead. This year San Diego Chargers owner Eugene V. Klein sacrificed his Beverly Hills home for $8 million-$4 million more than the asking price. When Klein bought the six-and-one-half-acre property 12 years ago, he razed the existing English Tudor home and replaced it with a French Regency manse. The buyer and gone Klein one better: Besides adding a third story to the home, this new California seigneur, a transplanted Kuwaiti, is having a gaping pit dug where Klein’s front lawn used to be. In a few months the new owner will be able to look out from his palace on a true Hollywood status symbol-the only lake in Beverly Hills.

DORIS KLEIN BACON and
PETER CARLSON

PEOPLE MAGAZINE, AUGUST 30, 1982

 

[Covertibility]

Pretty graphs of the long run

Boohoo. Looks like we're going back to low single digit increases.

 

[Copernicus]

How about few graphs from areas where big bubbles have formed, CA, FL, AZ, NV, and the northeast

 

[onewaypockets]

Quote from Covertibility:

Pretty graphs of the long run

Works out nice...as long as you can buy the fictitious house that averages price values from the nation as a whole.

Price history is much different when you look at the coasts...and as well price action for the homebuilder stocks historically is proving once again that they are totally POS.

Oh, BTW...Toll just guided down AGAIN, orders it seems are off 21% and counting. How can this be with the housing shortage and everything???


The stock is off over 4%, your fav DHI off over 3%. And that's just today...

Once an old man told me "Bub, whenever you stand in line for anything you are getting screwed" And for all the Einsteins that bought at the market highs outbidding each other and camping out at new subdivisions, sometimes getting in fistfights, this has never been truer...OWP

 

[Covertibility]

Quote from onewaypockets:

Works out nice...as long as you can buy the fictitious house that averages price values from the nation as a whole.

Price history is much different when you look at the coasts...and as well price action for the homebuilder stocks historically is proving again that they are POS.

Oh, BTW...Toll just guided down AGAIN, orders are off 21% and counting. The stock is off over 4%, your fav DHI off over 3%. And that's just today...

OWP

Just for a laugh why not tell us where you work if your so called private company is so honorable. Are you ashamed at where you work? Calling publicly traded companies a POS while private companies are honorable is quite amusing. People retire nicely on market returns of the public companies. If your going to acknowledge DHI and TOL with me, make sure you point out the doubling of stock price where I first pointed it out and you calling it a POS. Afterall, this is a trading site where wannabes like yourself are always welcomed for a laugh.

 

[onewaypockets]

Quote from Covertibility:

Just for a laugh why not tell us where you work if your so called private company is so honorable. Are you ashamed at where you work? Calling publicly traded companies a POS while private companies are honorable is quite amusing. People retire nicely on market returns of the public companies. If your going to acknowledge DHI and TOL with me, make sure you point out the doubling of stock price where I first pointed it out and you calling it a POS. Afterall, this is a trading site where wannabes like yourself are always welcomed for a laugh.

Most every publically traded company is an earnings whore to a more or lessor extent. When earning start to slip company behavior gets ugly. Hardly a week goes by when we do not hear about crap like that...I could cite hundreds of examples in recent news.

In today's market it is difficult to "retire nicely" on market returns. And although some of the homebuilder stocks did double, they have also lost 50% in the last 6 months. This does make my case for being against long term investing.

I thought you told me that I was a "burger flipper" and that you were retired at 30 years old...or something along that line?

Todays investors are Lemmings in search of a cliff...OWP

 

[prt_systems]

Quote from vulture:

[B..... Although one-quarter of L.A. real estate deals are done on a cash basis, in the heyday of “creative financing” anybody who could scrape up the typical 25 percent down payment-and Rolls Royces, yachts and diamonds were acceptable-would buy a house, hold it for a few months, then sell at a killing. “People would tie up property for 90 days with a promissory note and no money in the bank and go to the Polo Lounge and try to find an investor,” remembers veteran realtor June Scott. In 1977 Scott bought a house in Beverly Hills for $340,000. In 1981, having remodeled it and added a media room, she sold it to actress Kristy McNichol for $1.3million. “Empty houses were bought, redone and sold for very high prices, “ says Scott, “and people were standing in line for them.” [/B]

This brings back memories of a southern california that is long gone ..... Things are so much different today ....but apparently the real estate market is still the same ....

 

[onewaypockets]

Quote from prt_systems:

This brings back memories of a southern california that is long gone ..... Things are so much different today ....but apparently the real estate market is still the same ....

I haven't heard some of those names in a very long time...Kristy McNichol lost her a$$. lol

The "standing in line" comment in the article seems to be a common theme in asset bubbles, this time too.

In last spring's market top people not only stood in line, they had to compete with other buyers, sending pictures of themselves and their families to sellers, agreeing to feed the backyard squirrel in perpetuity, swooning comments over how much they loved their home, etc.

I am sure now when they lose their ass on their option ARM loan the little rodent can fend for himself...OWP