patrick.net

Real Estate only goes up. I am a real estate mogul, see these 4 condos? Do you think they give these to just anyone?

"2006 is already in the bag, ladies and gentlemen," Gary Watts told a group...

Hmmm. If by "in the bag" Gary means that he'll likely soon be brown-baggin' it on the corner with a bottle of M/D 2020 (or perhaps Night-Train Enriched Wine) in his fancy new real estate digs in an SF Tenderloin alley, well then maybe he's right on!

Mr. Vespa, after reading that article, thanks by the way, I now realize there are significantly more people to be added to my aluminum bat upside the head club.

Median home price in San Luis Obispo county falls nearly 12% in December.

Whoa! There's a surprise...what happened to all those boomer retirees?
I thought everyone wanted to live coastside...

I predict S.L.O. (SLOw?) market will soon be rescued by “MIRAGE” (Moneyed Immigrants, Rich Ancestors, Generous Expatriates).

SLO? I predict* the return of 20% appreciation for the next 1000 years when houses are purchased by CHUMPS (Cunning Hard-eyed Ultr-savvy Market ProfessionalS).

* Not a prediction

"When you spoke of “brown bagging” I believe that Night Train is considered a “fortified” wine not enriched, that’s what someone told me. I really wouldn’t know." --DinOR

Actually "fortified" rings a bell. My experience with that vile liquid is that I was force-fed more than I care to remember as part of a hazing ritual for an athletic team (lacrosse) during my freshman year in College. Actually I mean "team building" ritual of course. Hazing is against NCAA regulations. :)

"Median home price in San Luis Obispo county falls nearly 12% in December."

Not to worry. As everybody 'round here keeps telling me, prices may fall everywhere else, but they will never fall here because all of the retirees from the Bay Area will sell their homes and buy here for cash. So you see, we are quite safe from price drops. ;-)

Too bad prices in SLO are only perhaps just a few percentage points maximum under BA prices! Oh yes lots of people paying cash alright ;-)

Re: HedgeStreet

It is a toy.

I am waiting for Shiller's MACROS to come online. It is about time.

If I thought you were a troll your comments would have been gone. ;) Don't worry, we welcome all opinions that respect readers here.

As it relates to taking in advice, be aware that each of us (pyschologically and physiologically) can not help but think and speak in away that attempts to justify decisions that we have made.

I did recommend staying put though. :) One must decide independently for each different situation. I need no justification for my actions/decisions because past decisions are no longer relevant. Only the future matters.

Also, how long must i rent, I do not see a bubble for homes around 2M in the Bay Area.

In Fremont(94539) area code I have been searching for about 5+ years now for between 450k and 900k. So far I do not see a huge difference in the listings about 40 homes listed. The price has appreciated 20+ % for atleast last 3years. Those who are familiar with that area do you expect to see more listings there and a eventually a price drop?

I fail to see the material difference between HedgeStreet and TradeSports. Except that the latter is both more fun and more liquid.

To me, HedgeStreet is too illiquid and too inflexible. It is difficult to trade at meaningful size and they only have short term range or 0-1 contracts. It is very difficult to effectively hedge with these contracts.

Let's see if from a different angle. If HedgeStreet is a viable hedging instrument, we should expect to see a whole new breed of home equity protection products from _insurance_ companies. There is no such product yet.

I do not expect individual homeowners to hedge their homes using HedgeStreet or MACROs. But I do expect new insurance products.

I fail to see the material difference between HedgeStreet and TradeSports. Except that the latter is both more fun and more liquid.

Me neither. I rather go to a Sports Book in Vegas. At least there are peanuts and cocktails.

I do not expect individual homeowners to hedge their homes using HedgeStreet or MACROs. But I do expect new insurance products.

Pretty much any legitimate *hedge* (as opposed to speculation) always suffers from being more expensive than the implied volatility (as measured by std dev). In other words, I agree.

Another question: what does it take to get a bet listed on TradeSports? It seems like they should put median home prices per region up there...would generate a lot of bets.

Pretty much any legitimate *hedge* (as opposed to speculation) always suffers from being more expensive than the implied volatility (as measured by std dev). In other words, I agree.

Of course. ;)

If you hedge your money perfectly, your net worth will be assigned a half-life.

One, of the many ironies here, is that i have made a fair sum of passive income by sharing the premise over a year ago.

Funny that, and you are here to what, share the wealth with us? your comment was directed at SF, under the premise that we've dealt with over and over again with the trolls who indicate what a value PRIME SF real estate is when the reality of it all is that is far cheaper to rent than to buy in virtually all areas of California, especially in SF. To rely on appreciation to make money in residential real estate is a fools game akin to the dot.com wheel of fortune of a few years back. Fuck the money, I’d rather have a good time.

I do not trade in "home price hedging" as I believe that only vile bottom dwellers do such. There is a long time poster on this blog whose clients are in real estate, however unlike the billions of self-made residential real estate moguls, only deals in commercial, positive cash flow properties. I am not interested now and not in the foreseeable future in flipping a house for profit. Now here's where we obviously differ, the main focus of your life seems to be making ever increasing amounts of money. Mine is trying to minimize the work I do, while maximizing the time spent catching waves. Good luck with your cash flow Mr. McDuck. I hope you have tons of cash to spend and I am sure by doing so you find yourself spiritually, mentally and physically enriched.

We tried home equity insurance and the problem was getting passed each state’s regulatory agency.

Some went for the derivatives side (Bob Shiller) and some went for institutionalizing the long side (Tom Skinner) and some swapped the equity for high yield debt (me).

Very interesting. Can you share some of your knowledge? Can you explain further? Thanks! :)

"Things just couldn't be better, said Bill Clinton near the peak. He was right. Now they will be worse."

How about a mortgage that cannot go under-water? It can be synthesized once a viable hedging instructment comes online. It is like an insurance but it is not, so it should not be subjected to state-regulations.

ProFunds SRPIX goes short on Real Estate.

ProFunds SRPIX goes short on Real Estate.

First, it is not regional. Second, it is basically a short REITs fund, so the correlation to the residential housing market may not be good enough.

One can also short IYR, the RE ETF.

NOT INVESTMENT ADVICE

sorry for this but how do i italicize so that i can post properly?

<i>italicize this</i>

I'll be very interested in a derivitave product to securitize my home value and sell it at the current price (with me pocketing the cash of course)without me moving out. If someone knows of such a product, please kindly let me know.

I’ll be very interested in a derivitave product to securitize my home value and sell it at the current price (with me pocketing the cash of course)without me moving out. If someone knows of such a product, please kindly let me know.

Not yet... not directly anyway. Many a time the hedge can be more dangerous than the asset itself.

However, imagine a mortgage that cannot go upside-down, arbitrary lease-to-own programs, targeted retirement home sale programs... the possibility can be limitless.

Anyone here making money in foreclosure game today? Not months from now…today?

Is ScottC here?

I heard that the foreclosure game is not easy and is full of traps. Good hunting!

As ScottC would demonstrate without admitting (actually whilst denying), foreclosures are a hugely insider game because of information asymmetries. There have always been people making money on foreclosures, because there are always foreclosures. But these profits go almost exclusively to insiders who have access to guarded information. Just the inverse problem of residential RE transactional inequities we've discussed.

By the way, there was a company we discussed a while back (based on a friend of a cohort of mine) which was attempting to create a quasi-derivative product for homeowners to "write calls" on their future equity upside value. Our debate here concluded that such was possible but would probably reduce to a second-mortgage equivalent obligation but with an underwriter promising some special contract stipulations. The problem would be that when this underwriter failed, the homeowner would be stuck with the accrued downside plus the residual claims.

How can rates on treasury securities increase enough to remain attractive to foreign governments, yet not crush U.S. consumers, mired deeply in debt?

A 600K condo should rent for about 1800 - 2000. A 750K townhouse should go for around 2300.

Managed apartments cost a bit more.

If renting is not much cheaper, I would not be doing it.

However, imagine a mortgage that cannot go upside-down, arbitrary lease-to-own programs, targeted retirement home sale programs… the possibility can be limitless.

@Peter P while your whole Hedgestreet/MACROs/TradeSports exchange with Randy H was very interesting and informative (if incomprehensible to a non-broker/daytader type), I'm having a difficult time with the concept of how adding MORE bizarre financial instruments to the residential RE mix can somehow "improve" it, or can fully insulate homeowners from market downturns.

Your "foolproof" mortgage-hedging strategy sounds an awful lot like a free lunch to me. Isn't this pretty much impossible, sort of like a "foolproof" stock investment strategy? Isn't a big part of the problem right now the fact that so many exotic mortgage products (and outsized risks) are being offered to so many sheeple? Sheeple who can't calculate simple interest on their existing loans, much less evaluate the complexities of a nuanced hedging strategy?

Hey, don't get me wrong --if you can find a relatively low risk way to profit from the bust (preferably at flippers' expense), then go for it. But, as you said yourself, "Many a time the hedge can be more dangerous than the asset itself." If the cause of the current bubble was excess liquidity and speculation, it's hard to see how adding more of the same (in a different direction) will somehow "improve" things.

Speaking as a non-day-trader Hedge fund guru (like Peter P & Randy H), I'd rather see a residential RE market that has a lot less financial gimmickry or gambling that simply reflects the sound, underlying long-term demand for HOUSING, not PROFIT. Call me old-fashioned, but my main motivation for buying a house (when the time is right to buy vs. rent) will be having a nice a place to live at a reasonable price.

For a bit of humor, check out this "beach house" for sale on the Dublin coast--to the tune of €122,000*:
http://tinyurl.com/alsww

*around $145,000.

Your “foolproof” mortgage-hedging strategy sounds an awful lot like a free lunch to me. Isn’t this pretty much impossible, sort of like a “foolproof” stock investment strategy?

There is never a free lunch. I don't think anyone was suggesting that. It is quite possible to come close to creating a perfect hedge on stocks. It is very difficult, if not impossible to do so with less liquid markets like RE. But the catch with all hedges is that they cost you an amount equal or (usually) greater than the amount you stand to gain/lose. In other words, if you hedge a stock perfectly, you'll lose money.

Hedges are properly used by companies which seek to manage cash flows. For example, if you're an airline you want to hedge jet fuel supply. Of course the jet fuel will cost more hedged than unhedged, but you'll come out ahead because you won't have to borrow to cover unexpected spikes in prices (stylized example).

With RE, you cannot so easily hedge anyway because you can't readily find correlations that offset RE price movements, at least for residential RE.

Most daytrader types who play with derivatives don't do it for hedging, but for speculation. Some individuals will do hedging (but not perfectly symetrical hedging) with derivatives to "buy insurance" for things they're over exposed to, like stock options.

I'm not a daytrader, by the way, at least not by definition. They've never offerred me Power ETrade; I don't make near enough trades.

Your “foolproof” mortgage-hedging strategy sounds an awful lot like a free lunch to me. Isn’t this pretty much impossible, sort of like a “foolproof” stock investment strategy?

No free lunch. The consumer will have to pay a sizable premium to be protected, as for any insurance-type product.

One _possible_ _imaginary_ use case:

You buy a house of your choice with pergraniteel upgrades for 750K and then immediate enter a contract with some equity protection company.

If you sell within 3 years, you are not protected from any decline in price and you must pay an early termination fee.

If you see after 3 years, the home value is protected up to 700K.

You will also have to pay an entrance fee and/or monthly fee to be protected.

BTW, I am not a guru. I am a rugu. I bright darkness to light. :twisted:

Also, Randy is 100 times more knowledgeable than me.

@Peter P & Randy H,

Ok, now I see where you're going with this. Yes, having a form of "bubble implosion" insurance could be very helpful --especially to recent buyers. Sort of like PMI for the buyers. I also like the idea of a 3-year stipulation to exclude flippers, though in practice I'm skeptical that such a rule would hold for long.

Heck --look at the Homestead exemption. You get the full 250/500K tax-free gains on TWO houses, and you get it proprated starting the day you buy, fully maxing out after year 2. Then of course there's also the 1031 exchange. These basically constitute a tax-free license to flip, but (of course) were sold under the guise of "promoting the American Dream".