Real Estate is dying? Investment-wise what is the next Asset Class Du Jour?

I am quite pleased to see the "Housing is Doomed" crowd come out of the woodwork. I thought the "trailor park and eastern europe real estate is the place to be" people were going to take over.

Now if only the Weimar Germany inflation nuts would make there appearance, all will be well in the world.
 
Convert,

You won't hear anything until it is too late. Why should they tell you? It will be Monday morning quarterback talk that we hear later.

I see Builders issuing bonds all the time now. I see the FED warning about Freddie and Fannie.

I see the financing perk schemes. Just like the '80s.

It is obvious if you've watched it before. Like buying stock at the top on euphoria. I've done that. I'll try not to do it again.

But, I'm not a fortune teller. I'm just trying to preserve capital based on experience.

LOL
 
Quote from Billbuild:

Convert,

You won't hear anything until it is too late. Why should they tell you? It will be Monday morning quarterback talk that we hear later.

I see Builders issuing bonds all the time now. I see the FED warning about Freddie and Fannie.

I see the financing perk schemes. Just like the '80s.

It is obvious if you've watched it before. Like buying stock at the top on euphoria. I've done that. I'll try not to do it again.

But, I'm not a fortune teller. I'm just trying to preserve capital based on experience.

LOL
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You can see trouble in the earnings statements. Kinda like when Enron was reporting great forecasts but what the hell was going on with that negative cashflow? There's always signs of trouble early on. But I guess some can't read.
 
Quote from Covertibility:

There was a news out of one of the homebuilders in the Midwest requiring the home buyers to actually live in the home for a specified period of time to protect against flippers, speculators. Rates are low and I haven't seen anything saying banks are cautious in lending.

Never heard anything about auto's. I'm picking up some auto bonds next week.
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You haven't heard about what the auto manufacturers are doing? What world are you in?....if you haven't heard about the car makers, then forget about "hearing" anything about the builders...good luck bro.
 
Convert,

"I am quite pleased to see the "Housing is Doomed" crowd come out of the woodwork. I thought the "trailor park and eastern europe real estate is the place to be" people were going to take over."

To answer this I'd like to say that housing is not doomed, it is cyclical though. I'd much rather have a healthy housing market forever going up. That is how I make most of my $. RE is not liquid so investors must act ahead of the impending move. That is my point.

I am not coming out of the woodwork. I like woodworking. I like everything about building a house. It is my passion.

I've spent untold hours on the job. I've been in the back rooms with the movers of all sorts and have heard what the "trade" really thinks. Then seen what they tell the public. I have few doubts about what I know.

At one time I was a "partner" in a venture with MDC Homes. I know the owners personally.

I sometimes think that if I had been in the stock world, I'd have been something like a floor trader or specialist. I'd know the biz from the inside.

Convert, one last thing to possibly help you and others: KBH has not told the public or shareholders (to my knowledge) that they have been in violation of EPA rules. It is rumored and has been reported in a couple of newspapers that they are now talking with the EPA and State agency. I hear the rumors thru the NAHB grapevine. It is fairly well known, but you won't find it on TV. Parts of it are in the newpapers and in EPA violation files. CWA 301/402, 2003. Try Texas where I found it. People, me included, will know the seriousness of the fines when it is too late to matter. They may be nothing or very large. Walmart just paid $3M.

One Link: http://www.rockymountainnews.com/drmn/state/article/0,1299,DRMN_21_2923929,00.html

KBH violations are a matter of public record, but still very quiet. Check a performance chart with all major builders. Check recent put action and strikes. DD.

I do know something about Homebuilding. I'm just trying to help those who know less. I could use some help on trading. HELP.
 
Quote from Billbuild:


The Builder becomes a financing entity now. The Builder's goal is to get rid of inventory. Any number of shemes can now be used as the bond holders are the risk takers instead of more cautious banks and big lenders.

I see this as a huge red flag. The banks are scared and are increasing rates and qualification requirements. The Builder is stuck with a long term project and inventory. How does the Builder get out of this bind?

Create their own firesale with their own financing. The perks get tremendous. Qualification is easy. The newest safety requirements for lending, have been largely circumvented.

If the Builder can just sell the necessary number of houses to get out clean then they have won. They are safe and the new bond holders may be safe too. The downside is moving in buyers who should never have qualified. They are the first to go to foreclosure if a big slump does occur. If a big slump does occur, then there is a spiral downward that feeds on itself.

The Builder goes into a shell. The bond holders took their risk. The newest homeowners bought at the top. There are no guarantees here and I would say "look out below".

I called this the top because the banks have backed off. They think the risk is getting higher. At the same time the Builders are lowering requirements on lending. A disconnect. I consider it a scam on the Builders part.
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Interesting. It doesn't sound like builders are scamming to me but only rational, self-interested conduct of business. Sounds like the real dupes are those that buy these bonds, which begs the question. If as you said, the market has seen these cycles before, the relative riskiness of these bonds should be understood and priced accordingly. This would lead to higher interest rates on them, lower priced bonds. Thus, the home-buyers are getting above market rates or the builders are subsidizing the bond interest rates and thus surreptitiously lowering their net selling value?! Wow, that would be clever.

So you see developers scrambling to unload inventory? You are telling us the industry is saying this is a top? Thus we should begin to see apps for housing starts begin to fall? (Not that I've ever paid attention to that stat ...)

On the KBH EPA violations. That sounds quite immaterial, and immaterial matters need not be mentioned by management to anyone. On the bottom line, it just doesn't matter anyway(?) Regulatory fines are a normal part of business.
 
Blue, Yup the Builder is just trying to survive. They get caught with inventory and no way to move it. So they sell a line to the bond buyers while the earnings look great.

American Continental Homes' CEO and Founder went to prison for 2 yrs for doing this in the 80s. The prospectus wasn't up front on the risks the company saw.

KBH may face a fine much larger than you'd imagine. The EPA is sharp and hungry for money. The states are too. I saw a top 5 Builder fold over building violations dealing with foundations on just 2 tract sites.

This case(s) is fouling the water used later for drinking. In other words, the Cities and States have to do more processing because of the runoff caused by violations. This goes back aways. What will the EPA/DOJ do to compensate the agencies affected? I don't know.
 
Quote from Billbuild:

American Continental Homes' CEO and Founder went to prison for 2 yrs for doing this in the 80s. The prospectus wasn't up front on the risks the company saw.

That is cool. It adds a whole new dimension to the downside potential for homebuilding stocks should things really turn south. Do I smell a parallel to another industry sector??

You've already mentioned selling your home, and selling KBH. Other than generally selling homebuilders across the board, any other names or vehicles to play short? Do you know of any pure-play, sub-prime mortgage lenders?


KBH may face a fine much larger than you'd imagine. The EPA is sharp and hungry for money. The states are too. I saw a top 5 Builder fold over building violations dealing with foundations on just 2 tract sites.

This case(s) is fouling the water used later for drinking. In other words, the Cities and States have to do more processing because of the runoff caused by violations. This goes back aways. What will the EPA/DOJ do to compensate the agencies affected? I don't know.

You have a point, esp. the "hungry for money" part. Still, it is not like a CEO could just come out at this point and tell the market "We think the EPA and states are going to decimate us 'cause we poisoned your drinking water." All they can do is downplay the risk to the extent possible and hope/lobby for the best.
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Quote from Billbuild:

Blue, Yup the Builder is just trying to survive. They get caught with inventory and no way to move it. So they sell a line to the bond buyers while the earnings look great.
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I don't hear of any inventory build in new homes, and it doesn't show in the numbers. But hey, like you say, maybe the rest of us just aren't in the know with this "inside info".

In terms of that 75% decline you say you've witnessed a couple of times....I haven't seen that in my 30 years of real estate investment. Nor has there been any type of decline of that magnitude as nationwide. Even the decline in California in the 90's was "only" 40%.

Alot of people calling the top...they've been calling it now for the better part of the last 5 years. One thing I think I can say with some degree of confidence....if the "building industry" really believes that prices are about to drop, it won't. I would say that as a group the builders of the world may be some of the worst market timers on the face of the earth.

Finally, let me say that I own a variety of small investment properties which I have held for some time. I have no plan to sell any of it. By the way, I believe some parts of the country have already peaked, to include my own. Nonetheless, the question is how big of a drop is in store, and whether that drop is worth selling, paying the cost of sale, the taxes, etc. For me the drop would have to be a substantial drop to make it all worthwhile.

The big money in real estate has always been made by holding it...that certainly has been true in my case. I have done my share of buying and selling, very profitably I might add. But regardless of how smart all that buying and selling was, the property I held has made me much larger amounts of money through appreciation and loan payoff.

For those tempted to try to time real estate, just let me say that real estate does not now, nor has it ever traded like the stock market. Further, it trades more on a regional basis than on a nationwide basis. Give careful consideration to the regional differences before you act.

And finally, I will say that I plan to hold my house...not rent one. :D I don't view my personal house as an investment (eventhough it has turned out to be a good one)...it's the place I live. It's like the old story of trading fish, some fish are only for trading, some are for eating. Know the difference and don't mix the two. My advice to most traders would be to own a house, pay the mortgage off so that you lower your overhead. Low overhead is one key to security in an otherwise instable business. One thing you can guarantee yourself is that if rent, your rent will rise year after year, boosting your overhead as it rises. Sounds conservative, I know...but it's a solid base for speculative activities.

OldTrader
 
All I see here in Houston are 'sold" signs on empty lots waiting for the builder to get the house built. Now, that is in the basic starter market. Here that is generally under about $125,000.

Too many people confuse the real estate market with stocks. All common shares of Yahoo are exactly alike. No two pieces of real estate are alike.

As you said, your home was never meant to be an investment. Prior to the 70's most people just wanted it to be worth the original purchase price when they finally "burned the mortgage".

I am not aware of any major builders "inventorying land" which was the major reason they get in trouble.

Remember, the major production home builders, like KB, Lennar, etc are NOT in the real estate business.

They are in the manufacturing business. No different than Ford, GM except they only have to buy minimum amount of land to actually build a house.

Subcontractor (assembly workers) bring all tools and supplies to job site for them.

If they are smart and quick they could go "flat" , stop production, reduce office overhead and wait out soft market with cash in bank.

SteveD
 
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