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

Quote from GetWhatUDeserve:


At some point every great culture declines. Every currency and economy declines. History teaches us this. If you don't believe this is so, take one penny, compound it at1% per year from the time Christ was supposedly born, and ask yourself why not one person has anything close to that amount of wealth today.
.
More...

Inflation?
 
SteveD, I'm semi-retired. I don't need to be "doing" anything. I just like to work. And yes I built my 1st home when I was 18 in 1970. In San Clemente, CA. That's where I grew up. Then to SB. I even wrote in my credentials. You don't need more than that, it's irrelevant to the ideas. We all get old. What do you do?

No bite on the Bubble probablility except Darkhorse and UDeserve.

I've realized I'm scaring some of you guys, sorry. I forget that people get emotional about RE. To me it is just another turn around the circle. I really have no emotional tie to a downturn, or UT in RE. I'm not afraid of my home's equity. It is all business. No emotion, after I sold my 1st house. Like a good stock trader, which I'm not. And I don't care what it does in the next year. I'm out. No risk. Now I'm in the way of a different kind of wave... energy and alt. energy. My philosophy is KISS. Just get in the way of a trend going up.

A bunch of people have written in Private who get it. Real Estate is a cycle. A 20-30% correction is bloody for some poor folks who believe the hype and get stuck. Wait too long and you've waited too long. The herd going in one direction will be too large. Stuck.

Here is one of the 3 problems. Today, Bloomberg:
QUOTE:

U.S. Trade Gap Widens to a Record $55.5 Billion (Update1)
Dec. 14 (Bloomberg) -- The U.S. trade deficit widened to an all-time high of $55.5 billion in October, boosted by higher oil prices and record imports from China, a government report showed.

The trade gap in goods and services followed a revised $50.9 billion deficit in September, the Commerce Department today said in Washington. The deficit reached $500.5 billion in the first 10 months of the year, surpassing the record for all of 2003.

Imported crude oil prices jumped 11 percent in October to a record $41.79 a barrel. Americans also bought more foreign televisions, clothing and stereos. Consumers and businesses, undaunted by higher prices for foreign goods as the dollar falls, keep snapping up imports as the economy strengthens. Exports also rose to a record.

``There is a fair pace of demand in the U.S., and add to that the price story and you get a big blowout,'' said James Shugg, senior economist at Westpac Banking Corp. in London. Shugg forecast a gap of $55.7 billion, the closest in a Bloomberg News survey. Still, ``we are close to the peak. The weakness in the U.S. dollar will help and the economy will be slowing.''
END

Nice that the economy will be slowing (recession) and the dollar falling (infaltion). 2+2. Trend is down. Inflation (the unspun numbers, is at 8% this yr.) Just need to sort thru the typical Bloomberg spin.

No one has to be afraid. Just get out of the way. Sell all houses to Convert.

A good thread needs some drama, and a burr. I guess I'm the burr. OK. I'm not in the drama part. Waiting for that, it hasn't come yet. Very nice to buy at the bottom.
 
I've been reading this thread thoroughly and I must say, it is probably the most useful thread I have ever read here on ET. I am A RE agent and trader in MA and here is my 2 cents:

The market has already slowed. I am in the middle of it everyday. Inventory has climbed steadily over the last four months and SF's have taken a 5-10 % haircut on the starter homes(these buyers are drying up). Luxury homes have been sitting on market so long that you can't accurately say how much value they lost The data that the RE bulls are using is ancient by the time you see it. Remember any sales data is only accounting for homes that have actually sold, not pendings or actives. A home can be pending anywhere from 1-3months on average in this area. Ahh, there is the lag.


My theory:

1. Fed rates have doubled, but mortgage rates are the same or even LOWER? Something's got to give.

2. Low rates and loose requirements allow buyers nto this market with 0 down 2yr. ARM's.

3. As prices deteriorate, lenders will not be so loose on lending money and simultaneously rates will be heading up.

4. So, the "smart money" will not lend anymore money to the "dead money". (Fiinally not a refi commercial on TV every 2 seconds).

5. In this declining market, many people that bought at the top with a 2/28 ARM finally reach the end of their prepayment penalty period, and call their loan officer to combine their first and second into one loan and are upset to find out that the lender will not touch them beacause well hmmmmmmmmmm. their LTV is 70%. Yes lenders have lended people up to 70% of their monthly income for housing. This is very toppy and crazy.

6. People will be upside down in their homes (esp all the 1st time homebuyers with 0 down).

7. A wave of foreclosures and bankruptcies (It wouldn't surprise me either if the bankruptcy law was changed right before this wave). BTW in my local paper there are 3X as many foreclosures in there as same time a year ago.

LOL- your friend without much brains starts talking about buying foreclosures (because prices still have much room to drop).

**BULL ON FRONT OF MAGAZINE = BEAR MARKET

**RE BUYERS EVAPORATING" = BEAR MKT.

**YOUR STUPID FRIEND BUYING FORECLOSURES= BEAR MKT.



RE is a market like any other. It is cyclical. Of course if you will hold for say ? amount of years so will not be so directly affected.
Funny how some people hold your RE like $500 QCOM. Just like any other market, it is hard to pick the top, but right now the mkt. is flashing a "sell" signal, at least in my area. BTW, smart logical posts by BillBuild. We all get what we want out if the markets.
 
Quote from darkhorse:

If only it were that simple. An interest rate shock would affect everyone, and I do mean everyone.

Once again, there is a bigger picture than simple supply and demand, and larger ramifications than a few guys having to make bigger mortgage payments.

The global real estate bubble is a largely macroeconomic event tied in to the fed's efforts to avoid the pain of the late great stock bubble.

In essence, the stock bubble was inflated by a perfect storm confluence of hot story (the new internet paradigm) , hot money (capital flows dislocated by the asian crisis looking for a new home) and fed fuel (major liquidity injection as just-in-case buffer for y2k). And oh yeah, a blissfully benign inflation environment.

After the stock bubble burst and the enron and worldcom skeletons came out of the closet, the fed was anxious to avoid a crash and burn, so the easy money kept coming to beat back the deflationary monster. And with interest rates at 40 year lows, where did this easy money go? Into the real estate market. Demand coming out of the woodwork. Banks making money hand over fist. Consumer spending through the roof. Everyone feeling flush. And that easy money is still coming. The spigot is only being turned off a little at a time.

You would typically expect a multi-year cycle of easy money to create inflation, especially if Friedman is right about inflation being an entirely monetary phenomenon. But we've enjoyed a (mostly) goldilocks scenario because all that free flowing cash got mopped up by the stock market... and then the baton was handed over to real estate. Hence the problem and the danger of interest rates today... Greenspan has seemingly done us a favor, but he's also done a great disservice- because the unsustainable debt levels associated with the bubble haven't worked themselves out. In fact, they've gotten worse.

While the bottom of a bear market is usually quite painful, it also has a purpose- a cleansing effect. Companies and consumers with excess debt are forced to take their medicine. Sacred cows are taken out and shot. Balance sheets are cleaned up, the garbage is taken out, and the process of saving begins again. Once consumers and companies have trimmed down and saved up (and the herd has been culled), the next positive cycle can begin again- with new net savings and favorable (low) valuations as the foundation.

We never saw the cleansing effect of the bear because Alan never let it happen. Companies and consumers alike are still loaded with debt. In fact, not only are we not in a position to build a new foundation with our savings, we've essentially doubled down on the debt load we were carrying from last time around. American consumers and companies are like the fat guy at thanksgiving dinner who ate five times too much - we are still gorged on debt, and we have yet to work it off. An interest rate shock will be the equivalent of sticking a finger down our throat... we'll be forced to puke it all up. Not pretty. See more here if you find the topic interesting (interest rates, not throwing up): http://hussmanfunds.com/html/debtswap.htm

When rates go up, Joe Blow not only has to make a higher mortgage payment... he has to start worrying about his job, because the corporation just saw their liabilities increase and their cash flow take a hit. He has to worry about his access to credit, because the banks are freaked out and they've started getting really tough for some reason. And he has to start worrying about his neighbors' spending habits, because if his business is related to consumer spending, a change in sentiment could cause a chunk of his biz to dry up fast.

Everything affects everything, and we are setting ourselves up for a vicious circle... a potential chain reaction with very ugly consequences. A sharp rise in interest rates would hurt consumers and companies alike, a downturn in consumer sentiment would hit company profits even harder, and layoffs would hit consumers yet again. Down we go.

The real nasty kicker is that we are highly dependent on low interest rates, and yet we are essentially buying those low rates on credit (by buying Asia's goods with borrowed money, our half of the deal). The more stuff we buy on credit, the more we need to buy on top of that- to compensate our bagholder as the bag gets bigger. Not sustainable arrangement. Must be unwound. Unwinding must be done verrrrry carefully.

Obviously this scenario is not good for home valuations. In fact it's pretty much in line with the pending disaster school of thought. Not a foregone conclusion... Asia still has good reason to play along, and the Maestro may be able to pull one last rabbit out of a hat... but it's no time to be complacent. (The Maestro had better be ambidextrous too, because he'll have to manage the dollar with one hand and stave off the potential threat of inflation with the other. Is it any wonder he tried to pass the buck -no pun intended- in a recent speech?)

The other scary factor is that so much of the wealth effect enjoyed by these higher values is a complete illusion. Why is a house that was worth 300K four years ago at a million today? Because people say it is, and the bank confirms it by giving you an equity loan on it or a mortgage to buy it for that much. But when the bids dry up, much of that supposed "wealth" will actually just disappear - poof. Just like when Pulte or whoever those builders are down in Vegas decided to shave 100K or so off their suggested asking price because foot traffic dried up. A handful of leveraged speculators found themselves six figures in the hole - instantly (you can buy a half million dollar house on 4% margin don't you know). Doh! No warnings there. When the bids dry up because the credit got crunched and the sentiment turned sour, we could see hundreds of billions in wealth effect just... disappear. Bye bye. Air pocket city. Just hope we get to come down slow.

(Victor Sperandeo has a great story about two cajun farmers trading a horse back and forth. They keep bidding the price up on each other, making different deals -a cart here, a bridle there etc.- until finally they are trading at multiples of ten from where they started (and on credit from the bank of course). One day a Wharton MBA drives up, does a few quick calculations on the appreciation, and buys the nag for $147,000. The second farmer says 'Pierre, you eediot! Why did you sell? We were making a great living on zat 'orse!")
More...

This would've been a great article before the bubble burst in '00. Today, none of this applies. Companies are flush with cash, ie MSFT issuing that huge dividend payout.

And rates move very slowly over time. There are no shocks.
 
Quote from Billbuild:

SteveD, I'm semi-retired. I don't need to be "doing" anything. I just like to work. And yes I built my 1st home when I was 18 in 1970. In San Clemente, CA. That's where I grew up. Then to SB. I even wrote in my credentials. You don't need more than that, it's irrelevant to the ideas. We all get old. What do you do?

No bite on the Bubble probablility except Darkhorse and UDeserve.

I've realized I'm scaring some of you guys, sorry. I forget that people get emotional about RE. To me it is just another turn around the circle. I really have no emotional tie to a downturn, or UT in RE. I'm not afraid of my home's equity. It is all business. No emotion, after I sold my 1st house. Like a good stock trader, which I'm not. And I don't care what it does in the next year. I'm out. No risk. Now I'm in the way of a different kind of wave... energy and alt. energy. My philosophy is KISS. Just get in the way of a trend going up.

A bunch of people have written in Private who get it. Real Estate is a cycle. A 20-30% correction is bloody for some poor folks who believe the hype and get stuck. Wait too long and you've waited too long. The herd going in one direction will be too large. Stuck.

Here is one of the 3 problems. Today, Bloomberg:
QUOTE:

U.S. Trade Gap Widens to a Record $55.5 Billion (Update1)
Dec. 14 (Bloomberg) -- The U.S. trade deficit widened to an all-time high of $55.5 billion in October, boosted by higher oil prices and record imports from China, a government report showed.

The trade gap in goods and services followed a revised $50.9 billion deficit in September, the Commerce Department today said in Washington. The deficit reached $500.5 billion in the first 10 months of the year, surpassing the record for all of 2003.

Imported crude oil prices jumped 11 percent in October to a record $41.79 a barrel. Americans also bought more foreign televisions, clothing and stereos. Consumers and businesses, undaunted by higher prices for foreign goods as the dollar falls, keep snapping up imports as the economy strengthens. Exports also rose to a record.

``There is a fair pace of demand in the U.S., and add to that the price story and you get a big blowout,'' said James Shugg, senior economist at Westpac Banking Corp. in London. Shugg forecast a gap of $55.7 billion, the closest in a Bloomberg News survey. Still, ``we are close to the peak. The weakness in the U.S. dollar will help and the economy will be slowing.''
END

Nice that the economy will be slowing (recession) and the dollar falling (infaltion). 2+2. Trend is down. Inflation (the unspun numbers, is at 8% this yr.) Just need to sort thru the typical Bloomberg spin.

No one has to be afraid. Just get out of the way. Sell all houses to Convert.

A good thread needs some drama, and a burr. I guess I'm the burr. OK. I'm not in the drama part. Waiting for that, it hasn't come yet. Very nice to buy at the bottom.
More...

Still posting garbage.

ppiyoy.gif


In the real world, Nov PPI 0.5% (5.0% yoy), core PPI 0.2% (1.9% yoy).

In Bill's world, PPI 8% yoy. Sell your homes, live in caves, buy gold, bottle water and guns.
 
Quote from Covertibility:

This would've been a great article before the bubble burst in '00. Today, none of this applies. Companies are flush with cash, ie MSFT issuing that huge dividend payout.

And rates move very slowly over time. There are no shocks.
More...



Amazing. Can't make this stuff up folks
 
Quote from Covertibility:


Inflation? No, with the flurry of refinancing the past few years, many have locked at a lower rate. With $50 barrel oil, we didn't get squat in terms of rising inflation.
More...


- copper +100 %
- steel +100%
- health care inflation in the double digits.
- College tuition up anywhere from 8 to 15 % per year
- Oil +40%
- Significant decline in the value of the dollar.
- Food prices are up close to 30 % in couple of years
-Transportation costs are up.
- Property taxes in my area +12% in one year.
- NYC tunnel and bridge tolls, subway fares much higher
- Restaurants raising prices for first time in years
- Hotel room rates are through the roof.
- Money supply +8% per annum
- Gold up 70% in a couple of years
-All forms of insurance up sharply.
-Plywood up 61% year over year.

Those are just based on my personal experiences. Also many businesses struggle with increased costs.

If that is not inflation i don't know what is.
 
Isnt the one thing that is different this time that the risk of making home loans has been transferred to the us taxpayer(fnm)? That makes the mortgage brokers more aggressive since few hold the loans any more.
 
Quote from SteveD:

Most new home loans today are on FIXED rate loans. They will not be affected in any meaningful way by an increase, or decrease, of current interest rates.

Some high leveraged speculators will get burned. But, the vast majority of people buy a home for a place to live.
More...

Please show your data on most loans being fixed and that the VAST majority of people buy for a place to live...this does not appear to be true.

"It is interesting (by which I mean frightening) to note that in an environment where a moderate increase in mortgage rates is likely and a huge increase is possible, 82% of San Diegans' October mortgages had an adjustable rate."

I have seen figures that show up to 30% of real estate in coastal bubble areas is speculative flipping. This amount of activity is more than "some high leveraged speculators".

http://piggington.com/
 
Moresize, Thank you, thank you, thank you, very much for shedding some more experienced light on this. Good grief this was getting silly. Monkeys and coconuts. And like OWP and darkhorse, a few wise people.

What you and I know is that sellers get house proud. Even realtors do!! And that is weird. I've seen realtors burn their own home listing. The trade laughs. Then of all things, Architects are the worst bozos. Design a "work of art" that doesn't fit neighborhood and won't listen to what realtors know the public wants. "Castle to their egos". I know, not all Archs this dumb.

So we have the public caught with bright light in their eyes, frozen. Do realtors enlighten them. How do you sputter and laugh in print? Who helps them? Really no one. They are going to slaughter. That is why I have stayed on this thread. I feel real bad when good people are hurt.

And Old Trader has been a real problem. Not him personally, the example of someone with such a low basis that it would be tax stupid for him to sell rentals. Even if he can't rent them. Yes, that does happen!!! I'm not lying. I'm trying to help you all. Old Trader, you're in a spot few are. Keep that in mind when you think about other's positions.

Mike805 is by far in the most interesting position. Such a solid market in SB/M, CA. Sitting on the wealth of LA. But way overpriced. Stupidly overpriced. But in that area, boy? I told my sister to sell 1-1/2 acres in Montecito and she choked. "I'm getting ready to build". But Mike has property where I've built for a longgggg time--Colorado. Joke in 80s here: "2 things you can't get rid of, Herpes and a condo in Vail". I can hear the moaning now, but...... The joke came after Vail was a big name town, not before. Mike has to hope SB will hold up everything else. Mike is the wealth in LA strong enough to do that?

What looks impervious can tank as the circle spins. Don't go to the slaughter house. You won't like it. You are VERY lucky that a few have taken the time to post here to enlighten you. Why would we waste our time lying? Believe it or not Moresize and I (and a few others) are trying to help you. Again, with caring: Trying to help you. No one else is in the biz to help you, you're on the high seas with no pro guide at all. Most are trying to pull you under cause that is how they make their living. There's nothing else in this for us. We're already safe. We're moving on to the next asset de jour.

And SteveD, what do I really do? When I am here I'm trying to pass on my experience to those that care to hear it. And in the process, be insulted by people who's only fault is they are concerned, in doubt and may have a wife who'll skin them if they talk selling.

Fairly soon, Just watch from high ground when so many innocent people go under. And feel the money still left in your pockets. At that point you'll feel a little sad and a lot happy. Cash will be king.

For those that feel motivated to preserve capital, the time to act has just passed, but there is still a little time. 70% LTV is here. I'll stick around if anyone needs advice. Otherwise I'm buying energy juniors, energy cargo, uranium, LNG, Nat gas plays, Vanadium battery load levelers and a little oil--------stocks of course.
 
You must log in or register to reply here.
Back
Top