patrick.net

Mt.ViewRenter,

O.K ya' GOT me! I stand corrected. (kidding)

Looks like a REIT and given they just got underway they may have structured it that way to turn away smaller investors and create a more long term investment strategy. It can be difficult to manage something illiquid like RE and have to deal w/constant redemptions (they add to overall expense ratios too).

We are putting together a smaller REIT but decided to have annual redemption windows instead.

One of the big misunderstandings about back loaded funds was that they were a way to compensate planners/brokers for bringing on smaller clients and still be somewhat compensated. When managed money had entry thresholds of 1 mil (later 250k) smaller investors were either left at the bank or placed in individual bonds. Without some form of compensation where was the motivation to keep the client updated on their holdings? Unlike RE sales there was (and is) ongoing service to the client. "You bought it, YOU name it" is the NAR's motto.

theotherside:

Oh oops, just re-read your post. The bet is only up to 100k. Not worth my time. Why don't you put your money where your mouth is?

From the reference list of your Paper Randy:

http://web.mit.edu/jcstein/www/housing.pdf

In its most general form, the
proposition is that when buyers finance the purchase of assets by borrowing, this can lead the prices of these
assets to become more sensitive to exogenous changes in fundamentals. ...
That is, over some regions, a fall in asset prices can actually lead to reduced asset demands, because
it impairs the ability of potential buyers to borrow against the assets–this is the key amplifying effect.

This was written in 1999. How many speculators in the Bay Area have borrowed against their paper gains to buy an "investment property"? This is the amplifying effect that the authors identified before this bubble even began blowing.

The other MIT paper that "The Other" cited a couple threads back suggested that investment purchases can perhaps explain why "it's different this time". Flat prices can remove the paper wealth gains which was in turn responsible for the rising prices.

DinOR,

There are a number of other funds too. But like the previous example mentioned, I think these funds usually have some sector-specific liquidity issues.

I never really understood the exact workings of the back load. When does the broker actually get paid, and how much do they pay him?

We had one REIT investment where they allowed quarterly redemptions only up to the amount of cash they had available. Thought that was an interesting gotcha since management alone determined the redemption price and the avaiable cash flow.

theotherside :

What you are asking us to do is similar to buying a deep out of the money put option. I do that very rarely, and with money I can afford to loose. In general I consider such way out of the money options pure gambling.

The thing is I am fine if the median does not drop by 20% in Jan 09. If that drop happens by 2010 or happens to be "only" nominal 10% by Jan 2009, I will still be fine.

Predicting the long term direction is much easier than predicting exact amount and length. And you may not agree, but the general direction for the housing prices is downwards.

The funny thing about these trolls is that if you've been reading this blog long enough, it's just the same crap over and over again. Some poor sap - either a homedebtor and/or realtor (tm) who probably just got wind of the "bubble" recently freaks out. (S)he finds this site, does a cursory read of one or two threads, and then comes out guns-a-blazin' with the usual litany of RE bull "talking points." The same arguments get rehashed over and over again - of course, they don't bother to look at previous discussions that have answered their "questions" many many times over. I bet if we culled over old threads, this story would be repeated at least a couple of dozen times. In the end, the poor soul fades away.

Maybe we should be less harsh on them so they'd be more willing to stick around and contribute constructively to the discussion after they've shot their wad...

The other thing I've noticed is that after a relatively troll-free period a couple months back, there's been a clear pickup in activity of late. Reasons? Perhaps more MSM bubble stories, perhaps increased generalized panic?

MtViewRenter,

Ahh, the age old question. Do want low expenses or daily liquidity? Or both? A lot of the Sr. Floating Rate funds had a qtrly. redemption window simply b/c there was no active secondary market (but had a higher yld.)

I don't happen to think there's anything inherently wrong w/a smaller REIT offering qtrly. windows or having redemption based on cash flow. The bottom line is either we have the faith to have given this guy/gal the $'s to manage or we don't. Why tie his/her hands when it comes to making you money? Just let them do what they do best.

I realize most of this is r a l l y dry for non-securities folks but the "pecker waving" on broker forms is just more than I can take!

Really? And how LONG exactly have been a member of "that" gated community? Yawn.

I agree Skibum. Maybe we should have a FAQ type list ready to throw at the trolls.

But being lenient doesn't always work. I have tried hard being fair to patrickm. Bu that person just keeps going in circles. First, renters have nothing, then RE always appreciates, then it's just a roof over my head. The unwillingness to engage in logical arguments casts a clear doubt on their motivations.

BTW SP saw right through patrickm's first post. Maybe we need Surfer-X back in these times of increased troll activity. It will save us a lot of time.

skibum,

I hear ya' and I've tried being generous only to take a "knee to the groin" later w/all the standard "none of this matters b/c you're all justabunchoff@ckinglosersanyway!" The minute some (not negative) MSM article hits print, everything you've shared in earnest is swept aside, their bravado renewed!

I never took Psych. 101 but isn't this called "rescuer's syndrome" or something like that?

I never took Psych. 101 but isn’t this called “rescuer’s syndrome” or something like that?

Actually, I think it's called being a RE bull f%cktard.

RC,

Yeah, uh it was just one of those moments where you're looking for the "un-submit" button! (I think I'm a few months older!)

FAB's link was funny but I didn't see Blanche (the douchebag) Evan's latest "Make Money in ANY RE Market" offering in there! Evidently it didn't meet the criteria as "flipping" wasn't mentioned in the title.

theotherside:

What do we use to adjust for inflation? I suggest the 3-month t-bill.

MtViewRenter,

You'll notice TOS specifically said NOMINAL price drop of at least 20%, not real, because even he knows that's a sucker bet. Hell, if we're talking REAL, then I'd even go to 30%.

skibum,

LOL! I'm going to the judges and they say...... they will accept that answer!

I thought it was when you picked someone up from the gutter, brushed them off, gave them a meal and a roof over their head and then "somehow" they wind up resenting you b/c they realize they may not have done that for someone else and can never repay you?

DinOR,

I agree with your point about trusting the manager to do their job. Most of our due diligence is about figuring out whether or not you believe management will do the right thing in bad times. Even if they have an impeccable reputation and brilliant track record, there're still ample opportunities for them to just take your money and run, especially when the going gets tough.

Back on topic. For the record, I would hate to own a house because of all the work involved in maintaining the place, but would love to own due to some weird nesting instincts. Of course, I can't afford a detached house w/o using some kind of voodoo loan, so I'm fence-sitting.

HARM:

He said "nominal"? Bah, must have missed that part. Yeah, nominal is a sucker bet.

(Note to self, stop skimming posts)

MtViewRenter,

Well I'm sure when you say "take the money and run" you're alluding to style drift or consolidating the fund and not outright fraud, right?

You may or may not believe this but there was a time when I actually enjoyed being a homeowner! I looked forward to some projects on the weekends b/c they were not all that mentally challenging and a welcome change. THAT is when homes were homes! Now that we all know they are investments first, and shelter a distant second...... the "pressure" is on! It no longer was about what vision YOU might want to pursue, it became about what's "hot" and what increases your resale value. Hence the koi pond rage.

FRIFY

Thanks for following the refs. There is no shortage of macroeconomic models predicting some fairly bleak things for the future of US-Style Housing. The irony is that my role here on Patrick.net has generally been one of skeptic's-skeptic. I don't share the worst of the doomsday predictions. I think that US-Style Housing will continue on for quite a few generations yet to come, only with ever narrowing constraints. I also think that cold, quantitative economic models tend to miss the primary "human" component of something often dismissed as irrationality.

In reality, when things start unwinding -- as I believe they are in the US now -- people react by changing the rules. This is actually when paradigms shift, fundamentals themselves change, and new winners & losers are generated. Who's to say that the economy just doesn't lurch through a reorganization over the next 50 years whereby the very concept of "Home Ownership" itself changes? There is precedent. A homeowner pre-depression is fundamentally different than a homeowner post-war. Debt, liquidity, even risk-free itself all had different meanings in pre-depression US.

Were I to guess, I'd say we're transitioning into a much more stratified society, with less social mobility. Isn't that true of every large modern society as it matures, and the haves get ever better at securing their position? But I also think we're stepping onto a very long tail, where being a have or have-not is not largely predicated by one's home-ownership status. More, it will be predicated on one's position relative to control of debt. Specifically, control over other peoples debts. I'll be that US home ownership rates dip only a little, then continue to climb. But meanwhile, the median wealth of the lower 3 quartile continues to shrink, even though they "own" their homes.

If I control capital, and you are indebted, then by extension I control you in a US-style market capitalist society. Democracy be damned. Vote "correctly" else I shift my capital and you lose very tangible standard of living -- like your house. And if you wish to go on consuming life's pleasures like taking Jr. to Orlando, then be compliant else I won't allow my capital to let you indebt yourself to me even further.

skibum,

See what I mean?

tos,

I perfectly agree with FormerAptBroker (who is one of the only one here that really knows what he is talking about) when he states that being a real estate investor NOW is crazy but does this apply to a personal residence!!

Why don't you ask him if he owns his own home? And if not, why not? Oh wait, maybe he can't know what he's talking about being he has an MBA too. Damn. You're just outta luck here, with all us morons fluttering about.

Randy H Says:

> Here’s just some samplers from references
> I’ve read over the past 2 years: There are
> more formulae, datasets, and statistics therein
> than you can shake a troll-paw at–

I have not read anything that discusses three of the big reasons that I believe we will see a huge near term correction in Bay Area real estate (as the number of retail jobs, main jobs and support jobs shrink).

1. Technology making it easier to shop on line outside the Bay Area (buying items for much less from retailers who don’t have to pay high Bay Area rents or salaries and avoiding the high California sales tax).

2. Technology making it easier for many people to work from anywhere (I have friends with kids who have moved to big suburban homes near their wives family in small towns and their clients and often even co-workers who worked a floor below them for years have any idea they are not in the Bay Area any more).

3. Technology making it easier to send lots of work out of state or out of the country (I send work out of the US every night and have it ready for me to review first thing in the morning, my CPA sends data entry work outside the US and even my dentist is e-mailing dental x-rays out of the country for an inexpensive second opinion).

Hmmm Randy H. could you learn me sumtin? If I put 10% down on a "home" and say it tanks by 10% over 5 years, my 10% is gone. If I instead put that same 10% in some sort of investment and it went up 10% over 5 years, wouldn't I be in fact 20% behind had I chose the "home" investment option over the other?

DinOR,

I'm alluding more to semi-fraud where the manager starts rewarding themselves before seeing any kind of performance gain. It's quite hard to detect in a REIT, and it's also hard to get your money out when they have cashflow problems, generally stemming from the bigger paychecks.

Style drift is another problem altogether. There, you'd run into managers with subpar performance ramping up on high-risk investments to catch up to their benchmarks. But when/if their bets don't pay off, you'll again have trouble getting your money back.

I think my house-ownership aversion comes from when my dad bought a fixer when I was in high school. I spent a TON of time landscaping. Much more than I did studying (and I went to a top college). It was a nightmare of a backyard. I loved being outside working with my hands, but doing it day-in day-out just wore me down. Even after we fixed it up, it was still a lot of work maintaining the thing. And it wasn't even that big a yard. Like 1/6 of an acre or something.

Guess nowadays you can hire someone, but it just doesn't feel right to have someone else doing the work that you can do yourself. And, I'm pretty frugal, so it doesn't make sense in the $$ department either.

Can you eat koi? I don't want to grow anything I can't eat.

Here's a more realistic counter-bet for TOS:

If CA median real prices* fall at least 20% by January 2009, you must show up at the next blog party wearing a "dunce" cap and pose for photos with us.

If median real prices fall 30%, you agree to the above AND must buy Peter P all the sushi he can eat at a restaurant of his choice (trust me, this will be more costly than it sounds).

If median real prices fall 40% or more, you agree to submit to whatever punishment Surfer-X selects for you.

If median real prices go up 20%, I wear the dunce cap and write a mea-culpa "TOS was right" thread.

If median real prices go up 30%, I wear the dunce cap AND buy TOS dinner at a restaurant of his choice.

If median real prices go up 40% or more, I quit my job and re-dedicate my life to serving my new lord and master, Casey Serin, King of Floppers.

*for lack of something better, we can use the CPI to inflation-adjust

I have come around and believe that most men are fools. Their women make better decisions.

Women have better intuition. Men are usually clouded by the wrong kind of emotion.

I think (mentally healthy) women are more self aware and better intuned with their needs.

I think mentally "unhealthy" women have even better intuition. Too bad no one will listen. :)

If median real prices fall 30%, you agree to the above AND must buy Peter P all the sushi he can eat at a restaurant of his choice (trust me, this will be more costly than it sounds).

My understanding is that Masa's at the Time Warner Center in Manhattan runs about $300 per person. And that's for a normal sushi eating person.

Pretty OT, but are the Public Storage(TM) locations around here reputable? A friend has some stuff that needs storing.

I doubt I can consume $300 worth of sushi alone in the Bay Area, since I do not drink alcohol.

It is easier to spend that much in a Chinese restaurant.

Grateful Cheeta, back from the dead.

Glad to hear about the the D&Nsing. Any other Upgrde$ or are you just going to Phi$h with non-sek quiters? Razzle-dazzle?

Peter P,

What if you order only the expensive stuff, like Kobe beef & fatty tuna. Can you hit $300 then?

What if you order only the expensive stuff, like Kobe beef & fatty tuna. Can you hit $300 then?

Not easy. I cannot handle more than 10oz of beef and/or 5 slices of fatty tuna. They are good but just too... er... fatty.

Anyway, $300 is a lot of money for food.

My weapons stock pick (FRPT), if you remember, is now at $17.50. I recommended it when it was $3-4.

I heard that the US may be replacing 9mm pistols with .45 ones. Who is likely to benefit?

Argh, another comment of mine is in moderation. When did 2 links become the trigger?

Bah, Peter P, why do you encourage it?

Randy,

I agree that the demographic wave combined with growing inequality could provoke either a counter-revolution in how we currently handle the three big liabilities retirement/housing/medical-care. Two out of three of these are clearly headed for crisis. It's almost as if the bubble is meant to address the other two by enslaving Gen-X and new buyers with debt overhang. Is this simply our capitalistic system seeking a new equilibrium?

The human factor doesn't pop up in the dry economic models, as you say, but the models can often point out where the human factor is out of control . Bubbles appear when the infinite wants of man pull most strongly on the finite resources of the universe.

.45s have a lot more stopping power. They are generally more accurate over longer range, too, if you have good aim.

For short-range stopping power nothing beats the old trusty 12 gauge, though. Aiming is optional. Just point and shoot. It's just a bit bulky. But I've heard of intruders taking flight at first glimmer of the end of the barrel, though. No respectable farmer adjacent to I-71 in rural Ohio answers an unexpected knock at the door without one in hand. Never know who's come a traipsing across your corn field at 2am.

Surfer-X

Sorry I missed you last month when you were in town. I had to travel back east on short notice for a funeral.

You are correct in your analysis. The key is the notion of having alternatives -- specifically reasonably quantifiable ones -- at the time of making the decision.

Part 1: you earn X + (X*10%) in future value dollars.

Part 2: you realize (by selling)
Selling Price - (Purchase Price - X) + amortized principal; or
Selling Price - Loan Balance in future value dollars.

--Now you consider your alternative use of funds, or in this case what you forgo by not taking Option 1, so you subtract that from option 2.

Your real value of Option 2 is:
Selling price - Loan balance - Alternative Savings Return.

So the home buyer has to clear a hurdle, or she's actually losing money even if the home sells for more than her loan balance.

This is her discount rate. And we keep talking about that being the risk-free rate, T-Bill, CD, etc. But for *most* people their discount rate is much higher. Remember the consumer debt figures and number of people who carry a credit card balance. For someone with a credit card balance, they're paying 18%+ nominal, much higher effective. So they get to earn a risk-free return of over 20% simply by paying off their credit card. For them, buying a home is purely financial stupidity. People who buy crap with HELOCs that revolve aren't much smarter; they just get to play more games and have better rate structures. Is revolving home equity credit interest still deductible? That I don't know.

I’m bored with this now. I’m going back to work.

pa renter,

Let me just apologize now for all the other posters here who labeled you a troll a while back. Clearly that's not the case. The "you'll be priced out forever" THREAT is one of the usual realtor (tm) "talking points."

gentle cheetah,

Haven't heard from you in a while! I miss the interesting tangents. Did you ever get your Arc'teryx jacket? Have you had a chance to use it yet? Can you pack your .45 in the pocket???

Record foreclosures

Check out how this asshat uses words:

"It is a problem, a big problem, but it is not the worst it has ever been," said Chris Holbert, president of the Colorado Mortgage Lenders Association.

"If everybody groans this is the worst it has ever been, it scares people out of the home-buying market," Holbert said.

So in other words, lets make pretend all is well! Not that the tightening of credit has anything to do with it or the fact that prices are too damn high!

He said people who bought during the previous foreclosure crisis in the late 1980s, after the decline in energy prices, are the ones who have made the most money on their homes.

Yes, the ones that bought AFTER the bottom of the market, not at the start of the fall! ....If you feel this way, you should buy!, buy!, buy! If you don't buy you should shut the f@ck up! They should really treat these people the way they treat stockbrokers!

"The truth is, it is a better time to buy now in Denver than it was four years ago" before the current crisis began, he said.

Yeah, yeah, yeah, it's always a good time to buy, but it will be a MUCH better time to buy next year!

He also noted that a large percentage of homes that enter foreclosure do not complete the process.

In some of those cases, lenders accept "short sales," or less than the mortgage amount for the home, instead of going through with the foreclosure.

So in other words, we should go for one of these short sales where the price is 20% below the 300% marked up price. What a good idea!! :lol: It's funny how desperate people become when their business is in trouble.

I expect to see "Colorado Mortgage Lenders Association" go under in the comming months ahead. :evil:

2- you salary is not going jump from 263k to 323k, so use a 3% increase (you seems too bitter to have smelled a wall-street-like end of year bonus, do we have another hungry consultant???)

assuming a 40% total return over 3 years and a 9.3% rise in income to $328,000…