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The decline in craftsmanship started well prior to the bubble. There was a time when home ownership held considerable prestige. However; with all of the access to easy money and our mobile society no one in the "trades" is too concerned that you don't give them high marks. There have been a number of instances here in the Portland, OR area where homes only a few years old have had to go through extensive repairs due to mold/mildew. Another aspect of the problem is that fierce comp. has brought on the use of unskilled labor w/o much supervision. I can understand if a builder bit off more than he can chew but the sudden wealth effect means that these guys are snowmobiling in Idaho or scuba diving and can't be bothered! The bubble has only made it worse.
When my wife and I sold in late 2003 I thought the RE market had gone completely insane! Since part of my job deals with tax issues I felt there was no way that the FED or the Administration could let this madness go on and that they would raise rates much earlier. Since rate hikes have done little to quell the madness we have had to take on more drastic measures. Well it is now upon us. There is finally a serious and sober debate that should have started a long time ago. The 500K exclusion was designed originally for empty nesters to be able to downsize w/o being punitive and be able to enjoy their retirement, not to be a substitute for a properly planned retirement for failed techies and daytraders. If there was any temptation on my part to think that the coast was clear the tax change debate has put me back on the sidelines until the full impact is known. The fact that we're even talking about doing away with the "free ride" has RE agents reeling!
Iceman, when it's all said and done I've gotta believe yours is the correct call. I was talking with a realtor over in Bend, OR and he freely admitted that 98% of the 2nd homes in the "rental pool" require feeding. I'll take that to mean negative cash flow. He was quick to add that none of these speculators care because these holdings are appreciating at 2% a month. Really? Many times we will see homes that are listed by owner first then with a realtor and finally with a "For Rent" sign, (usually the generic type bought at the hardware store). We probably sold a little early and in the fall of 2003 there few rentals were available. We now live in a luxury condo for $850, water, sewer and garbadge included. When the couple below moved out to their newly built dream house the property mgr. advertised their unit for $900. It remains empty. My latin is weak at best but I know there is a phrase that translates, "Let the facts speak for themselves".
I fear that soon I will find myself in the "Heaven or Hell" scenario but my wife and I have found the resolve to move if needed. We made a reasonable offer on the place we now lease and the owner, (at the time I feel bubble intoxicated) flat turned down our offer. The condo he owns below us has been vacant for about a month and people have been telling me that would give us more leverage. The tuff part will be presenting our new offer which will be lower than what we initially offered and less than what we know he paid. I understand that the thrust of your question addresses affordablity/advisory issues, and I'm certainly not oblivious to that. In a way the larger question may be, do bubblesitters have the audacity to totally dismiss what someone else paid and establish a whole new "baseline" as a starting point for negotiation?
I recall an interview with Stephen Roach on Bloomberg's T.V where the line of questioning started with the the housing bubble and the interviewer tried to move on to the next topic and Stephen just kept on hammering away at it! That was classic, he felt so strongly that it was obvious that he felt that everything in our economy today centered around it. There is also a great article that Patrick posted that goes something like "The United States of Real Estate". It was hysterical! The author went on about, why don't we all just quit our jobs like (like day traders in the 90's) and just flip houses to each other all day long without adding any value whatsoever! I guess that is the part that has bothered me the most about all of this, as bearish as I am about R.E even I can understand paying a premium if the prior owners have made meaningful improvements. Added a pool? New tennis courts? Major additions? I refuse to pay a premium to someone that considers taking out the trash and cutting the lawn once in awhile "home improvement" and then gets offended when market just doesn't want to jump through hoops to make their dream come true.
When our questions as potential buyers (not that I'm looking in earnest) are met with the language described above it really should be cause for alarm. This is exactly the same type of spin we were given by people on Wall Street even when it became clear that stock prices could not be justified. Realtors have more control because there isn't a "ticker tape" scrolling behind them. If they were smart, rather than expending effort pretending that a bubble doesn't exist they would be much better served to acknowledge it, look at things from the buyers perspective and put in low ball offers and get this thing over with. Their customers that bought at the top of the market will never trust them again anyway, let alone provide referrals. If they were ethical, rather than try to "prop" up prices they should own up to the mistake and go back to the people that they put in at the "top" and begin discussing exit strategies to put that customer in a better position and minimize the damage. Perhaps discount commissions or fees to offset the damage. They will not get praise initially but when prices have crashed they will in time come to thank you. All of these are strategies used by people that have long term careers in mind. If your realtor isn't willing to own up to their mistake it should be obvious that they only intended to make a quick buck and get out. This is known as "Hit and Run" sales.
As a long time equity trader this is about as insulting as at gets. In spite of overwhelming evidence to the contrary you bought a home for 799K and now it's "appraised" 1.4 mil. La dee blanking dah! Then sell it! See, that's the tough part, anyone with a pulse can buy something. No one in America is going to stop you from spending money. Selling. That's a whole different story. There's an old saying in the stock market, and goes like this; "What do you call the people that get in at the exact bottom and out at the exact top"? Yeah, they're called liars. If you chose not to listen to Patrick because you're smarter than all of us combined bully for you! That's called a "momentum play". It's the exact opposite of bottom feeding. Here's another one for you. Momentum players are alot like dogs that chase cars. They make alot of noise, they attract alot of attention but unfortunately they don't last that long! The more money you put down, the less appealing this "iffy at best" upside looks. A 75% return in just a few years doesn't strike you as a little odd? I don't grudge anyone a reasonable profit. Really, I don't, but what exactly have you done to warrant a 600K+ profit? Done an addition? Put in a pool? Quit your day job to dedicate yourself to creating a masterpiece? Other than taking out the trash and cutting the lawn once in awhile what have you really done to merit this outlandish fortune? The bigger question is, what will our children be able to afford?
I've often wondered what a bail-out in this instance would look like. Seniors are reliant on "pass-thru" income from participation in mortgage backed securities so this will take the shape that we are taking food off of their plate. I have friends that deal in loss mitigation and they've told me over the years that it is the inflexibility of the lenders that creates the problems. Joe Homeowner can only come up with $999 of his $1,000 payment so the payment is rejected as it is not in keeping with the terms of the original loan agreement. The logic being, "If we did it for you, we'd have to do it for everybody". So the homeowner begins his slide into arrears, the lender gets stiffed and seniors wind up eating dog food. What I believe we will see is mass "loan modification" or re-negotiations. Lenders can "eat" a certain amount of bad debt so the early victims will not find much sympathy. As things spiral out of control the O.C.C or other regulatory board will authorize the loan mods. I realize this is all speculation but as evidenced in the daily articles we are in unchartered territory. Anywhere there is real estate,there is leverage. The challenge for lenders will be sorting out which borrowers are truly in distress and how to put a positive spin on all of this.
Many excellent observations posted here!
The ill advised notion of going through the motions to get a realtors lic. to complete one transaction just won't die! The same mindset for those that on-line/daytrade their own investment accounts. Subscriptions for just a few research sources can run into thousands per year (if making informed decisions is important to you). This is usually spread out over an entire client base, not the burden of one person.
Still and all, I'm the last person to rush to the defense of Realtors. Many that claim to be in the bus. for 10-15-25 years have actually been doing it "part-time" for that period. I don't want to beat this to death but I truly feel that any Realtor that has long term goals in the industry should embrace the "Crash". Get over the whole ego thing and bring value to your clients by presenting low-ball offers that will put them in a place (as buyers) where profitability is short term. Not burying them upside down where they might be stuck for 3, 5 or even 10 years before they can break even.
With friends like this who can afford foes?
What I've seen here in Portland has got to be the definition of the "greater fool theory". The Pearl District has been slapping up "lofts" like crazy. A friend of mine bought one a couple of years ago and it's about 500 maybe 600 sq. ft. He paid about $290 per sq. ft. Not long ago he had a great view of the river, Rose Quarter and bridges. Now he has a commanding view of other peoples abandoned balconies! It is so ridiculous, I've heard that they are now using a "lottery" system for new or converted units and they have people lined up to pay $400/500+ a sq. ft. What's more, the city is providing huge tax incentives that allow these speculators to flip the property 2/3 times before someone actually spends the night there! Think about it. If you have people foaming at the mouth to pay those kind of prices do we really need to subsidize this with tax breaks to boot? Like we're not subsidizing RE enough already?!
You've really nailed it here! This is the core structural cause on which the entire bubble is built. Originally designed as a way for empty nesters to downsize w/o being penalized it spun out of control to the complete debacle we are now confronting. Because this had the "hearth and home" appeal it was thought that Americans would not hesitate to do extensive home improvements w/o fear of incurring a huge tax bill when they ultimately sold. Enter greed. Now "ultimately" translates into 2 years and one day for tax free money! Can't wait 2 years? The formula was pretty simple and universal. Just do yet another re-fi, spend cash on anything you can take to your next house (to hell with improvements) then write off the points and additional interest! In times past most of us dreaded April 15th. Seems like lately people can't wait to get their turbo tax, then file electronically and have their returns, yes their returns, direct deposited into their checking accounts. What's not to like?! Who needs to save or invest in the stock market when you can spend your way into prosperity?
Guys, and Gal, (SQT)
This one is such a lay up. We can have the party at SpendingUrRent's house! Perhaps at one of his many "cash flow positive" rental units. I've never trashed a rental and in fact take better care than many "owners" but in his case I'm willing to make an exception. I'll take out the jockey, then park in the front lawn. Bring Your Own Favorite Real Estate Bull, (BYOFREB). I'm feeling the Holiday Spirit with childlike anticipation! Get a clue Spaulding (I mean "Spending") this is the last Christmas your going to be able to live it up on equity "extraction". Provided you did your cash out before Labor Day and didn't have to feed your alligators (rentals) with it! Then again, maybe my place because we all know it's just a proven fact that Californians are soley responsible for the disconnect between Oregon home prices and our 38th in the Nation wages and 1st or 2nd spot in unemployment during the entire recession!
I love the "Homeowners Relief Act of 2007"! During Harvey Pitt's brief tenure at the SEC he attempted to restore faith by "making corporate accounting transparent". Yet another lame attempt at fabricating safety nets. The list goes on and on, FDIC, SIPC, etc. etc. In the end, all of the regulatory agencies and all the kings men couldn't put daytraders back together again. The RE Bubble has been given numerous advantages over the stock market bubble, not the least of which, it's close chronology. Rates and tax codes were more than accomodative to give the American Public just what they wanted after a stock market crash. The question is, now that these "kiss me" no risk, no fault, no way to lose parameters have become the norm how can the gov. just step aside and permit fast, loose and easy lenders and their borrowers get exactly what they deserve? Reg. agencies were hardly forgiving when it came to pursuing Wall St. wrongdoers (think Elliot Spitzer here). However when it comes to hearth and home, my guess is that we'll see the gov. bend over backwards to bail out and comfort bruised lenders and "homeowners".
For all the Bulls,
What's bulls have glossed over to a large extent has been the "sea change" in the habits of the American consumer. Consumers first, workers, well a distant second. Work ethic is scoffed at, along with company/employee loyalty. The housing boom held the promise of "Every Man a King!" A veritable Magna Carta. Liberation from the duldrums of the 40 hour week, just as the tech bubble promised. Many bestowed upon themselves a level of sophistication normally reserved for "old money". "What?" You're 45 and still working? It's fairly common knowledge that the koi ponds and SUV's were paid for with cash-out refi's. Home prices only needed to "flatten out" to derail the boom and become a bust. With this source of instant liquidity evaporated the party ended quickly.
Kudos on the 5 stages, and I've been through them not once but twice! Once in the stock market and I've happily sidestepped the housing crash. Starting over once in life is enough, and I suspect that is what the bulls are grappling with. They didn't get to retire at 45 and now they're upside down in a McMansion until doomsday. I too love the smell of desperation in the morning!
I hope all in attendance had a wonderful time! I on the other hand, wound up at a neighbor's party where the topic was the dominated by RE bulls. Several realtorsTM and a boastful lawyer that no sooner had he introduced himself started telling me how he "made" an obscene windfall fortune. You could readily tell the guy was as full of it as he was full of himself. The usual blather about how he's "made" more in the RE market than he ever did in the stock market yada, yada. My wife always (and I do mean always) accuses me of being judgemental in social situations. When someone tells me they now only "cherry pick" law suits/clients and have this unreal stream of income because of all of their positive cash flow and RE "deals" but doesn't have the slightest idea as to what the Alternative Minimum Tax is I tend to get skeptical. If most of your income is now "passive" and very little in the form of earned income one of two things must be true. Either this guy is full of it and is able to pocket some coin by "serial refinancing" and leaching equity out or (2) he hasn't filed in years. There may be other possibilities but I'll leave that to your imagination. Needless to say I really dread the social function aspect of the holidays. Let's all have a great week watching what Andrew LaPage at the SAC Bee cites as a dissapointing January as more sellers decide "06" is their threshold of pain! Here's to the holidays and more desperate sellers!
"It will probably work in the early stage of the crash"
I've really wrestled with this one, the co-worker described here that is upside down can rationalize his actions by saying, "I just did what anyone in my situation would have". Or, "I just did what was prudent at the time".
I'd really like to get on board with that but the truth is the "prudent" thing would have been to keep it in your pants (rent) but nooooo! The buyer was motivated by the greater fool theory and now he's upside down and he doesn't give a rip who eats the negative equity.
What usually happens when we have negative eq? Yep, nearly every time we trade in a car. They just tack it on to the new loan! This what should happen. Will it? I hope so, what we should want to see executed is a "No Personal Soft Landing Clause". The market around me is crashing but with some slick moves I can evade the pain and "walk away" unscathed.
I get accused of being vindictive w/regularity so it's likely true. I do hope that lenders become alert to this tactic early on and not look the other way while these "victims" put the new house in their wife's maiden name or their folks or whatever fancy footwork they're contemplating. This would create more stress than GSE's could survive. My guess would be that the skater would contend that he/she is making a genuine effort to sell their former home and that there is nothing they can do about this darn slow market! Understand, they're not turning their backs on their obligations (I am buying another house). After all they can't be expected to make 2 mort. payments forever. "I had to move for job related reasons!" Yeah, but you're at the same job and the new home is a longer commute!? Tap dance, hem and haw. Let's all make a firm commitment to not allow this to happen!
Just a few quick notes:
A friend of mine from the "old neighborhood" got in touch with me recently and said he and his wife have been living quite well of late. They pay a stipend to live in mansions as a "staging" couple. They make sure the lawn and home stay presentable and bring their own furniture. Seldom a showing to disrupt their privacy. Now that's what I call bubblesitting!
SQT, just a general financial planning observation: For many years the general rule of thumb was that if you had 40K in your ret. acct. at age 40 you'd be fine. Mortality tables and inflation have shifted those numbers but I hate when I see people frantically trying to play catch up, be it in the stock or RE market. Your husband knows what he's doing and you're right to not fund someone elses retirement one mortgage payment at a time.
Joe, I too am an RIA and I see people with ridiculous mort. payments relative to their income. Talking sense to them is like holding an AA meeting in a tavern! Much luck. What people that went IO fail to realize is that no matter where they live if they are going IO in order to not be "priced out" it's over.
Lastly, for the few remaining bulls: It may be possible, even preferable to continue to rent up until the very day you decide to retire provided you've made appropriate plans. I am buying a rental with my IRA (yes my IRA) where I intend to retire. It can be quite legally done. My wife and I can continue to rent during the nicer months of the year in Oregon and have our permanent residence in Vegas. If it appreciates, great! If not, it won't disrupt our long term plans a bit.
Deo, Deo, Deo,
401K's were, and still are designed for "working" people. Please not the emphasis on working. I'm running a business let's just say for instance, we make cardboard boxes. I don't need my employees trading options, hedging currency bets, doing strips, straddles, butterflies, shorting stocks, covering margin calls and telling me how they are smarter than Ben Bernanke. I want them making and shipping cardboard boxes. If you still don't get it, then we'll call it a "Savings Plan" not a "Git Rich and Git Gone Plan". Every Man a King! We make boxes here people!
I'm not looking to go toe to toe with anyone on the whole 401K/Herd Mentality issue. I just felt things had gotten more than little ridiculous with blue collar and middle management types obssesing about their 401K selections and having to drag people out of their cubicles to attend a meeting. Tell them I'll be there in a minute! I just want to see if my Stop Loss Order gets filled! Clearly this was not the intent of offering employees a retirement plan.
If we look at the sentiment on Capitol Hill we can reasonably conclude that in the near future we will all be responsible for our own "benefits package". That's why I've always advocated people contribute to their own accounts (IRA or taxable) in addition to participating in the "Company Plan". I'm not a spokesman for the Mutual Fund Industry but if we were to take you at your word than no one should save for retirement because they won't let you daytrade in the "Plan". Bad idea. If you're not a fan of Mutuals, great just keep it in cash. But while we're in the workforce it does reduce pre-tax income and when we ultimately leave (or are forced out) at least we'll walk away with something, (vesting schedule not withstanding).
Many of the investment vehicles you talk about simply aren't allowed in retirement accounts, period. Company sponsored or otherwise. Even if you took your rollover to E-Trade you can't margin it. Covering a call would constitute an excess contribution. Can't short either, downside can be unlimited. I'm not unaware of the alternatives you discuss it's just that there is a reason they're not allowed in retirement accounts. Back to the crash!
Can you back that up?
I agree. I'm nearing the point of exhaustion chasing fundamental analysis to measure the extent of the boom/bubble etc. Does M3 matter? How much of the yield curve is under water? Anyone that has tracked the housing markets in even a casual way over the last several years has been presented with reams of data and yet many remain unmoved, unconvinced. In that case there is very little that can be done for the true believers.
If we take the author of Another F'd Borrower at his word don't look for any sobriety from the lenders! He shares horror stories of management telling the sales force they now have "Zero Aging" on BK's and late payments etc. This reminds me of when the Lehman Bros. had a lofty target price on Enron just prior to the ultimate demise. Then again why shouldn't they? They just made a huge underwriting spread handling their most recent bond offering so they had a vested interest to prop up the stock price. News flash: It didn't work!
You can't lend your way out of a hole. The way I see it, this serves two purposes for the lenders. (1) It generates immediate business in a challenging environment. (2) This practice helps to "stabilize" home prices and lessens the impact of loss mitigation, default and foreclosures by providing even more unwarranted liquidity.
As far as I can tell this has become what Bulls are becoming increasingly dependent on. We can lend our way out of this thing boys! Now quit being such a whiney little wuss and get on those phones!
You bring up some good points. I've met with and spoken to many money managers over the years and the longer they have been around (business cycles) the less conviction they seem to exude. I do know this though; pure "chartologists" generally don't last long. Managers that take the time to weigh fundamentals at least thought about it before taking a position. Chart guys have everything set up for automated trading, so they are having orders filled based on the movement of indexes or pre-set parameters. If you're like me you've made (and lost) money with both.
The difference (in my mind anyway) is that I would rather be the manager that has to go back and explain to clients that when we bought this property/stock for our REIT/Fund it really was a well researched and thought out investment. It just didn't pan out the way we envisioned, vice the guy who explains that based on their "computer model" it was added to inventory.
I don't want to be accused of "Deo Bating" but the truth is that most money managers are "road show salesman" and spend little time with either school of thought. Like Deo needs any MORE ammuntition!
What's with all the Vegas bashing?!
Portland has it's share of undesirables, believe me. Tune in and you'll find plenty of "Cops" episodes filmed here. The Mayor had to come out right before the shopping season and reassure people ( in spite of numerous random shootings) that downtown was safe! The difference is that in Vegas you can have REAL fun! Whatever that means to you. I could never picture myself as a full time resident but when you haven't seen the sun in Oregon for six weeks?
I love San Francisco, really I do. Portland for all it's efforts will never be in a league with S.F. No matter your vocation you'll get paid less for doing it here! Up until recently our RE prices reflected that dynamic. Thanks to free money and greed we now rank in the Top 10 least affordable places year after year. Buy my home posted on Craigslist before I list with an agent in the spring!
Yeah, I don't get what Steve is up to either. A $500 round of golf? Try explaining that to the accountant, and from what I've been told you can't actually see the course itself. It's blocked from the prying eyes that can't afford $500 outings.
Recently a client asked me if I could help out a friend that was in arrears on a "resort property" up in Idaho. Coming up with "hard money" lenders in the 11th. hour isn't really my bag but I said I would try. These guys are more plentiful than I'd imagined and it only took one phone call. Long story short, the guy in arrears starts giving me this sales pitch about what an up and coming area this is and how "the billionaires are moving the millionaires out"! Sheesh! That seems to be Steve's message but I'll translate that to mean millionaires that WISH they were billionaires. We can't have the "riff-raff" in here now can we.
Pricing "other" people out has been a large part of the appeal of the housing bubble as many flocked to fake "gated" communities. I'm an ambivert (I'm told most of us are) but even in my best years I never thought I was better than anybody else.
God love you good sir!
Your comments are very much at the core of this issue. We took the low road every step of the way. Should we,
Stimulate the economy through investment in cap. ex. to assure our leadership role in the global economy? (High Road) or
Spend our weekends at Home Despot (TM) mimicking what we say during weeknights on Trading Spaces? (low road)
Confront our economic and tax policies? (High Road) or
Shop for a ridiculously priced RV? (low road)
I won't beat it to death but you get the idea! Whenever we've been confronted with chioces over the last several years we've plunged headlong towards the low road. Now that our very currency is in peril we're out of low roads to take. Bulls like to point out that the FED could lower rates if their precious bubble deflates too quickly and I suppose that might be an option as long as you don't mind paying $5.75 for a gallon of gas!
Hap Hap Happy New Year All!
Southsiders (Suze Orman included) didn't want this year to end! It is now 2006, and with it, ominus realities. While I hope it's not another 88 years until we have something, anything (1959 AL Champs) to celebrate I do believe that 2006 will go down as the year of the "reckoning"! One of the articles Patrick posted blandly observed that "there is nothing left to do but to sit back and watch". MAN! This is GUHRAND! I'm savoring this more than waiting 46 years to wear a White Sox ball cap without getting grief! Yes; all good things in time and yes, all "crash" fans will be WELL rewarded! Mind you BULLS, this is not the same as the guy on the street corner waving a "THE END IS NEAR" sign. You no doubt will be eager to point out that yes, eventually, even this bum will be right. You won't have to "haunt" Vegas to see subdivisions unfinished. Ya see BULLS, being a builder is risky even in the best of times. The meter is ALWAYS running. Bridge Loans don't have sick days. When "in-fill" and smaller builders can't move inventory their first concern will not be "Mister You can't go wrong with RE"! It will boil down(rather quickly) to saving their own hyde. There will be NO friends during the crash. Realtors (TM) will turn on buyers, sellers, their employers and yes, their own young! Mortgage brokers will turn on their lenders. Borrowers will turn on brokers and "appraisers" and this whole thing will look JUST LIKE Elliot Spitzer and his "Witch Hunt". Everybody looking for someone to blame! Unlike the "Tech. Wreck" which seemed to unravel before you could say SELL!, The RECKONING will be televised! In glaring, harsh, unflattering and protracted light. Enjoy.
In terms of "parking" I wish some people could get it straight! If life was as simple as Paul Farrell on CBS Marketwatch contends (and boy does he beat it to death) then the only criteria used in investment selection would be the FEES! Not that it's going to do any good but for the last time, Fees are the tail wagging the dog! If a money manager brings me 20, 35 or 70% returns why would I care if it takes him 200 bps to run the damn thing? Capital always seeks it's most efficient use, so if the fund manger falls out of your parameters FIRE THE GUY! It's really no big deal but please tout Index Funds someplace else.
Right On! Nothing starts the year off on a sour note quite like barnyard stud! Hey Chuck, most of the people here have owned homes over the years. I consider myself a "veteran" homeowner. If it can break, I've fixed it. Roofing, decking, water heater, well, septic, wiring, painting etc. etc. etc. My wife and I finally got tired of dedicating our entire weekend to keeping some guy at Home Despot employed. I never minded "a" weekend project but when it becomes an "every weekend project" forget it! In short, I've paid my dues. The last thing I need is some newbie telling me about the virtues of "home ownership". I have other RE holdings, even some overseas, but I'll be damned if I'm going to listen to some new recruit ramble on. Chuck, the "idea" is to use the llama to ride to town and thennnnn
Until this past long weekend I had never actually seen the show "Flip this House". The Discovery Channel was having a marathon. Now, I'd heard quite a bit, but this is just something you have to see for yourself. Talk about garbage-in/garbage-out! Most of the episodes aired appeared to be from So Cal in the spring of "05" complete with the usual assortment of unemployed and unemployable following their vision of, well, EASY MONEY! One episode showed some guy that used his friends on the weekends to schlock together a home that didn't look all that bad to begin with. To further cut corners the guy used meth addicts to do the roof and they slopped gobs of roofing tar down through to the open garage door below. The garage door should have been replaced, that stuff leaves a residue FOREVER! So what did my wife and I learn?
Novice; lacking the skills of a stoned high school shop class:
Enlists reluctant help from even more novice soon to be ex-friends:
79 trips to Home Despot:
Pay roofing crew in meth:
Find Realtor TM (also on meth) to list low to start bidding war = ?
EASY MONEY! People, if that doesn't spell CRASH I don't know what does.
I've never heard of the inv. club your co-worker refers to above but I'm sure we've all been to a "tent meeting" just like it at some point. They get novices all hot and bothered but then the club decides that in order to make this "bullet proof model" to work they need to go over SLC and Dallas? What does that tell you right there?
I am by no means a lic. Realtor TM and confine most of my activities to equity trading but clients come to me w/regularity on RE issues. I take great pains not to portray myself as a RE expert but they seem to appreciate a "Bear's" take on things. "I'm being pressured on all sides, PLEASE talk me out of this"! I am currently working with a client that is trying to make sense of positioning a "rental portfolio". We have been through the math you describe above repeatedly and just can't seem to make rentals pencil out, and that's in Oregon! Wrongly or rightly I've always described aquiring a rental or business, say, a laundramat more like "buying a job" than an investment. Have I been wrong all these years?
That's something I just can't hear enough of! Why work, innovate or otherwise create value when we can have a perfectly "viable" economy just flipping properties back and forth to one another? Sounds like a hawker at the carnival, everyone's a winner! Patrick posted a great article and you might have to go back a bit but I believe it was called "THE UNITED STATES OF REAL ESTATE". Very funny author. I have no problems with an individual that employs professionals and COMPLETES a meaningful restoration on a property with the expectation of a reasonable profit. Sadly that's become the exception. What I've seen more times than not (judging from experience) has been half-assed attempts where it was obvious that this is where the money ran out so we just pulled the plug and put it on the market. Mostly superficial fluff done more with an eye toward curb appeal than any real substance or long term benefit.
Remodeling is an art! It takes years of experience and a lengthy and well mentored apprenticeship. It's a lifetime commitment not a weekend fling. What amazes me is how few Americans today can seem to tell the difference!
I think it's called "the dead cat bounce". You can throw a dead cat out of a window and when it hits the ground IT WILL BOUNCE, but that doesn't mean it's not dead (crude analogy, I know). Sometimes referred to as a "suckers rally". We'd seen a number of them on the NASDAQ in 2000. Seeing RealtorsTM doing a mad scramble in the 11th hour to me is reassuring. Like Peter P said, the boredom of certainty. The sheer conclusiveness of the articles linked today was pretty convincing even for the most skeptical among us.
A friend of mine in Perris, CA just wanted out, (have you BEEN there?) Originally he wanted to price below the market just to be able to move on, 3bd/2ba nothing special. Comps @ 360K, he wanted 300K for fast sale in the fall. After a "sale fail" the RealtorTM offered to buy it from him for the 300K figuring he could turn it quick. Now the REALTORTM has backed out and is offering to list/sell the home. My guess is that the Realtor was either over extended himself or thought the commission would be higher than the profit he could make flipping it. Just a guess. Que the Silent Spring theme music!
Ghost town mode? I love it! My wife and I cruise around on the weekends and are starting to see that evidence more and more often. In some of the subdivisions we find the "model" is the only one actually completed months in to construction!
The reason I felt that coining the phrase "Silent Spring" was such a landmark is that in a "normal" market, yeah, home sales tend to TAPER OFF in the Fall, not fall off a cliff! I think over the years I've written a few of these scripts. "We've hit a bump in the road". We've become velocitized, when you're used to doing 90 mph doing 55 mph feels like you're crawling" "Once we get on the OTHER side of Labor Day stocks begin to trade on next years earnings" Yada, yada. With home sale volumes seriously drying up Realtors TM will NEED a buying frenzy in the Spring to feel good about their futures.
The article "So many Lenders, So few Borrowers" said it all for me. For the bigger more diversified institutions the "retrenchment" means laying off a "few" people in their Mort. Dept.". No big, happens every day at the Bank. For the "niche" houses where their sole source of revenue is cranking out mortgages this downturn WILL be devastating! In the authors opinion the industry is overbuilt on a grand scale, "like a V-8 engine stuffed into a tiny ford focus".
SQT, another article cautioned buyers about being duped by stale comps! I've kept wondering where some bulls have drawn their faulty conclusions from and now I have "the rest of the story". If nothing in your area/price range has sold for gee, let's see now, 2, 4 or 6 mos. then the seller is leveraging ANCIENT history to bail them out! It just strikes me funny that bulls, doggedly defending outrageous run ups in prices by whatever means available refuse to acknowledge stale comps on the way down!
Just for example; if you, (soon to be John and Jill McMansion homedebtor) were to tell an agent a year ago "on the way up" that homes in this area where only selling for 999K just 6 WEEKS ago the agent would have laughed in your face and kicked you to the curb!
This cuts both ways people! If an agent were to tell me, "Homes in this area are going for 999K" I would want to know exactly what their definition of "going for" was! Going for 999K on what, Ebay, Craigslist, Wish List? Agents are leveraging the fact that most people do what they're told (although not here) and the ones that don't have lost the art of haggling generations ago. Like I'm afraid of being blacklisted!
If this is the "Investor Elite" I'm glad I hang out in the peanut gallery. "December 30th 2005 is the worst it's going to get". "Lending standards will get EVEN looser still". I could go on and (hasn't someone posted this link before?) This isn't Feliz Chuck again is it? Small matter. I tend not to place any credibility on an article written by some guy called "Ninja K".
I've always been told that if you're going to commit a crime plan it from the witness stand backwards. If I did (God forbid) take this "anger stage" tirade with even a grain of salt and place client assets at risk based on it I suppose I could always tell the Judge that I based my research on a guy called Ninja K. This way my atty. could fall back on an insanity plea, skip the sentencing phase and have me fitted for a straight jacket Ninja K.
The FED really can't lower rates from here, we've become so dependent on overseas investment as is. If rates of return were any less appealing investors (institutional) would flee for the exits. It's a RE Bull fanatsy. Besides, returning to a "free money" policy would be counterproductive to the balance of GDP (non-real estate investments). They've gotten about as much mileage out of RE as the FED is going to get. We can't continue to be THE UNITED STATES OF REAL ESTATE any longer.
This must be where a "corn belt" lower middle class upbringing and utter lack of creativity really shine through! I've never had a creative thought in my life, and I'm not about to start. Personally I'm not readily disposed to conspiracy theories. To imply that we are capable of a conspiracy tends to give humans more credit than we actually deserve.
Sane theories to be posted elsewhere, so here goes!
Let us follow the money, banks suck period! Remember when your Dad complained endelessly about having a 20 YEAR mortgage? That's right! It was the standard for years. Now we have a developed nation banking/debt system with a soon to be Hondouran wage. Bankers/Developers/Lenders all knew that all they had to do is dangle that McMansion with jet skis in the garage in front of our eyes and we would mindlessly sign up for the "In Debt up to our Nay Nays Program". In the end they'll be able to claim that we brought on ourselves, to wit. the recent lobby to change BK laws.
You mean a UPS Driver with a wife that works "part time" at the hospital shouldn't live in a mansion? No disrespect toward responsible UPS Drivers!
Great having you back! I haven't spent a great deal of mental energy trying to quantify the "China" syndrone for many of the reason you stated above. When it comes to capitalism, either you is or you ain't. You can't be just a little bit pregnant. Look, I never said "ours" was a PERFECT system, it's just OUR system, O.K! I've often heard of China referred to as "Marketing and Leninism". If you haven't already, check out the "Big Box Mart" on Jib-Jab. Someone else mentioned it before, but in case you missed it. Freaking hysterical!
A Best of Surfer X Rants? AWESOME!
I've had my fill of Harry Dent and Jimmy Kramer and their ilk. The problem with these types is that once they've enjoyed even a modest success they've unintentionally created an infrastructure that now needs to be fed! Hence the "serial" publications, newsletter subscription revenues, etc. etc. Jimmy Kramer's legendary fax machine throwing hissy fits utterly bore me. I've worked for guys like this in the past and it was a major factor in my going independent.
I call this; "That dog won't hunt". Once people get out of "production" the "bull-pen" or boiler room they will do anything and I do mean ANYTHING to keep from being thrown back in there. Look at your own place of business. Guys that get handed a "tie" will throw their own mother under a bus if it means keeping that desk! The investment world amplifies this factor many fold because of the dollars at stake. Once these guys get a taste of easy money (my personal favorite Vita Nelson) and her "buy stock direct through the company newsletter" has probably made a fortune peddling her BS. Anyone with half a brain can join the NAIC (National Association of Investors Clubs) for frickin FREE! Most do just fine w/o Vita.
If their "budget" and generic advice blows somebody up they just change their tune and come at it with EVEN MORE conviction. It's all about ratings and sales. When you're destitute in your old age try getting your money back from Harry Dent.
I've sat in on a number conference calls over the last several weeks and the over riding theme has been, "more of the same". At least where equities are concerned, so while not a great deal to get excited about it's good to see the market return to some semblance of fundamentals.
I will revisit "tech" for the first time in a long time. Mort. "Backed" Securities may well become the lead story in the debt paper arena. With so many "homeowners" commiting serial re-fi and "buying time" as ARMS/IO's reset how will investors ever be repaid? This will become a serious disruption to their income stream. Think "seasoned" loans if you need exposure to this asset class. Selectivity and "special situation" stocks will continue to provide the majority of the thunder. Don't be afraid to take concentrated positions. Be nimble!
For the consumer, I think Jimbo nailed it when he talked about an un-official recession and people feeling like they are treading water. Any prediction of YoY home price increases will not mean much to people that are underwater.
2006 will be about having OPTIONS! As consumers and investors. Those with liquidity will be able to exploit short term trades for respectable profits and those with an albatross (RE leverage) well, it will boil down to how to "dispose" of it and somehow save face.
Any discussion of "tightening lending standards" in 2006 will be moot. These are conversations that should've taken place in 2003. Damage control will be the order of the day and lenders/appraisers/sales will be subjected to the same level of scrutiny as the "Mutual Fund Scandal".
NOT INV ADV.
Good call! I've had my fill of Bulls trying to feed us that, "Yeah, there might be a bubble "here and there" but not here. Whatever. Everyone in America has pretty much the same access to mort. money and we've all been feeding at the same trough. Taking endless pains to quantify which areas are and which aren't in a bubble has gotten tedious. When you're getting a steady diet of hard evidence from places as far flung as Madison, WI? Some may be quick to ask what hard evidence?
Let's look at the fact that by virtually any parameter you so choose, things are either cooling or crashing depending on how much you were leveraged and where you bought. There was a time when folks that stayed in a home for the duration of the mortgage referred to it as an "investment" meaning that it was paid for! As in, "don't laugh, at least it's paid for". The impact on their retirement was primarily that they wouldn't be making mort. payments anymore and could afford to live on less. That "Old World" value has been totally dismissed. Now it's, "keep current on the payments for two years and you're retired baby"!