patrick.net

I wish I posted that, but that was all Athena's work. As a verifiable Greek Goddess of wisdom, she is quite a bit wiser than me.

I'm sorry I had to miss the gathering. When the independent documentary "HousingBubble dot Com" comes out I hope to see many familiar faces.

"but fears of collateral damage to the economy are overblown"

This is the message we need to be getting out with more regularity. Since making money through the accumulation of debt was always more of a freaking HOBBY than anything resembling an actual industry how does FB's problem become mine? I don't wear an orange apron!

I disagree with the venerable RC on the Morgan Stanley research.

I don't think they're saying that the housing market is completely disconnected from the underlying economy. They're just saying that there is far too much pessimism built into those markets, increasingly coming from the housing slowdown.

There are at least as many strong underlying fundamentals as there are reasons to worry. Very likely a recession is in the future; but not economic nuclear meltdown.

Recessions are always investment buying opportunities for value investors.

SFWoman,

The common response we've gotten from housing bulls (now that a downturn is getting tougher by the day to deny) has been; "Be careful what you wish for, if housing goes down the tubes we're gonna take all the rest of you down with us"!

Consumer goods companies have rallied big time in the last month, (Johnson and Johnson, Proctor and Gamble, etc.). No surprise there. Our economy will press forward just without Home Depot getting the lion's share of the consumer's dollar and ALL of his/her attention. All of this "Real Estate RULES" was just fluff and hot air anyway.

They’re just saying that there is far too much pessimism built into those markets, increasingly coming from the housing slowdown.

There are some strong underlying fundamentals but I think not enough pessimism is priced into the markets yet.

SFWoman,

Every time my wife and I drive through an "up scale" subdivision I can't help wondering where all these toys come from either? "Move in day" looks like lottery winners and at the very least The Price is Right! Harleys, bow flex machines, all NEW appliances. And stuff, lots of stuff!

DinOR,

There's still some late sector rotation going on, no? Big funds getting defensive.

As for equities markets (I can't speak to bonds), I definitely think there are sectors that are significantly oversold at this point, depending upon one's horizon.

“Be careful what you wish for, if housing goes down the tubes we’re gonna take all the rest of you down with us”!

I've been hearing this a lot lately too. Both in professional circles and personal/family relations.

I write it off as a predictable, natural reaction. I have some very smart colleagues who bought near/at the top. These guys aren't very likely to get into financial trouble because of that decision. But still, they hate to think they weren't "smarter".

From our perspective, we see them as a herd stampeding off the cliff.

From their perspective, they see us deserters unwilling to fight along side them for their way of life.

Robert Cote'

Well, not entirely accurate. I'm not of the opinion that ONLY shelf stockers at Lowe's will be affected. There will be other pain to be sure. It's just that RE perma bulls seem to believe there's this "joined at the hip" MAD (Mutually Assured Destruction) relationship with RE and the balance of the economy!

New leaders will emerge. They always do.

These guys aren’t very likely to get into financial trouble because of that decision. But still, they hate to think they weren’t “smarter”.

Why do people like to think that they are smart? I am too dumb to comprehend.

RC,

Before banking on residential income property to fuel your golden years you'd do well to arm yourself with that Fed (SF) research study I linked in my last thread on my blog. Their predictive models show a high confidence probability of a secular, generation-long slide in real RE prices, primarily because of demographics + wealth concentration + future debt service obligations (implying taxation).

Randy H,

I'll have to check it out too! I suppose I've been looking to cash in on the "over-correction" as we attempt to revert back to the mean. (Which I suspect could be significant).

Randy H Says:

From their perspective, they see us deserters unwilling to fight along side them for their way of life.

I sense a "shoot the messenger" attitude from those who spout the "be careful what you wish for" warning. There's a palpable fear in the air around many of these folks.

If anyone uses “venerable” or “legendary” with my name again it ain’t gonna be pretty. Look, I’m just Robert.

But would "legend in his own mind" merit a special exception?

Randy,

I think there are potential opportunities in residential housing, especially if much of the current run up gets wiped during a period of relatively high inflation. As you've mentioned before , rents in the Midwest stayed relatively high even as the houses' real values fell. Even if RE becomes less and less valuable compared to wages, there are still plenty of money to be made there.

(Been actually getting work done this past week or so)

I just wanted to echo an earlier observation about Labor Day weekend traffic. I was watching traffic.511.org from Modesto last afternoon expecting things to get ugly for the run back to the BA. But, the entire map stayed green![0] When I finally headed over, I was able to maintain ideal cruising velocity straight through. Spooky.

[0] Excepting token blips for the closed portion of the bay bridge, and a blip of yellow by livermore.

requiem,

It's interesting how your observations directly contradict those of our friend Fake P from 2 threads ago... Since you provide data (sort of), I'd tend to believe your observations.

astrid,

Just being able to build a rental portfolio that actually shows positive cash flow and normal appreciation would be a relief at some point!

RC, Astrid et. al.

My conclusions from the Fed study are only related to the asset appreciation side of RE, not the cash-flow operations side.

It is quite likely that, if current trends continue for a while, purchasing residential RE as a long-term, income producing capital investment will prove profitable and cash-flow positive. The warning is more along the lines of not relying on real-asset appreciation for some 10-25+ years.

And I've said before that running a cash-flow positive rental RE business is hard. It requires a strong handle on the local area, including regulations, politics, demographics, etc. It also requires the ability to make long-term, strategic capital budgeting decisions, including tax-planning, debt planning, and depreciation planning. Such businesses are hard to scale; and usually only a very few succeed at doing so sustainably.

I think a lot of rental operators in recent times have offset mediocre or bad operations with capital appreciation due to booming prices. A great example is the guy we rented from for years in downtown Chicago. This guy owned 1 3 flat for about four years, and did pretty well. He then took out tons of debt, and bought six more in less than 18 months. After a couple years he was losing quite a bit per month, so he started selling the buildings to condo/loft conversion developers. He retired soon thereafter. I'm not sure he was so much a genius as lucky. (I know for a fact this wasn't his plan; initially he intended on running the business until retirement.)

It requires a strong handle on the local area, including regulations, politics, demographics, etc. It also requires the ability to make long-term, strategic capital budgeting decisions, including tax-planning, debt planning, and depreciation planning.

It also requires the luck to have non-destructive tenants. (You know a prospective tenant is bad... Can you turn him away? Will he sue you under "fair" housing laws?)

Bears are carnivores when there is meat available, and eat other foods when it is not.

Bears also eat hunny. I learned that from Winnie.

Heard this advertized on the radio today.
http://www.californiahousing.org/

Huh?

"It also requires the luck to have non-destructive tenants. (You know a prospective tenant is bad… Can you turn him away? Will he sue you under “fair” housing laws?)"

It's definitely worthwhile to do background checks on tenants. There ought to be a strong preference for tenants who cares about his or her credit history. To some extent, it helps be have a proven ability to judge people's characters. Acquire properties that can be marketed to people who care about their credit history (young childless professionals, retirees/empty nesters, mysterious single losers who can't get it on with the opposite sex). Don't get greedy and leave yourself a margin of safety.

If you have more than 10 properties, you can probably spread out the risk and add premiums for presumed risks.

Being a slumlord can be very profitable, but it's a lot of hard work.

Most people here are willing to buy if RE prices were low or even just reasonable by historical standard. I'm about as pessimistic as bears come and I can see myself buying multiple properties if the prices are low and the potential rewards (in rental income and appreciation potential) are high.

Intel to cut 10,500 jobs to save $3 billion a year

http://www.iht.com/articles/2006/09/05/business/chips.php

WTF? 300K per employee axed?

It’s definitely worthwhile to do background checks on tenants. There ought to be a strong preference for tenants who cares about his or her credit history. To some extent, it helps be have a proven ability to judge people’s characters.

Perhaps. Is it illegal to discriminate a prospective rented based on his/her birth location, date, and time but not age and national origin?

Just now learned that the in-laws "home w/2 of everything" was orig. selling for 539K. 9 months later it was evident that it was "priced to sit". The in-laws actually offered 430K! Over a 20% nose dive! Mind you this is in Oregon (where there is no bubble) and the "builder's own" home! (Whatever that means).

The orig. offer was about set to have the clock run out and they were just about to call with a higher offer when the builder's agent called and said they would take a few more bucks AND also agreed to finish several of the "extra" rooms! So it pays to wait. I just need to wait a little longer!

DinOR,

Yah know, $430K sounds pretty damn cheap for 3500 sq ft and a second kitchen. BA probably hasn't seen prices like that since 1990.

I just found out that my parents' nasty ex-slumlord got $480K for their dilapidated and horribly laid out townhouse. I'm not sure whether to pity the fool who bought that dump or hate that buyer for making the slumlords $270K richer.

On the bright side, the slumlords did dump their money into at least two more RE purchases in the boonies. Maybe they'll do some more flips with the $270K tax free gain.

Or perhaps I’ve just had good luck.

Never underestimate luck.

There's not much we can do about our luck, but there's plenty we can do as financial transaction due diligence.

There’s not much we can do about our luck

Really? I thought luck can be changed. There are branches of knowledge in many cultures just to deal with this topic.

WTF? 300K per employee axed?

Many were managers. That is the total burdened expense, which is 2x - 3x per head, depending.

I find that trusting my gut has led me well.

That is a gift. Intuition and "luck" are closely related.

My intuition is not bad but I have a nasty habit of questioning it at the wrong time. I am probably going to buy a house at the peak and watch its value cut in half. :(

The majority of renters are people who want a decent place to live, affordable rent and on time repairs. But there is a small minority who are financial or emotionally unable to make good tenants. There is also a tiny minority who are basically scam artists who never intended to pay rent.

It's these bad tenants that you HAVE TO exclude. I've heard some fairly awful stories about bad tenants doing tens of thousands of dollars in damage and taking a huge amount of time to evict. You also have to be extra careful about renting to people with pets and small children. Some of these people are really unsanitary.

"Suggestions of the repeatable variety are requested."

Would "Hot Stud" be repeatable?

Or perhaps "The Studly Curmudgeon".

astrid,

Oh I'm sure the BA hasn't seen prices like that since AT LEAST 1990! What I found so very telling is we live in one of the few communities that has actually seen a solid influx of Californians. Granted on a much smaller scale than Bend, OR but b/c our scale was less grand (and the mania more subdued) it was widely thought that we wouldn't see much if any of a "correction" here!

Well I think this is one pretty glaring example that:

A. It's NOT special here.

B. It's still possible to "over build" even in smaller communities.

C. Just b/c you haven't seen as big of price run-ups in your neighborhood or area doesn't mean you're not going to take your turn in the barrel!

If Portland and Bend are 2nd tier markets, we don't even show up on the radar (yet we're seeing price reductions left and right). I just never thought "outposts" like us would get to participate in the downturn. I am most pleased.

Muggy,

Found that quote over at Ben's, along with some other gems: "Piling On More Proof The Housing Boom Is Over"

Comment by SouthOCRenter
2006-08-24 09:20:00

They arent making any more buyers.

Almost forgot about those hilarious "Bubblefucius" sayings from Rainman18 --definitely worth honorable mention:

Bubblefucius say:
Man who get risky loan sure to suffer broken ARM.

Bubblefucius say:
Condo flipping like swift kick in the scrotum. Both painfull and you left holding the bag.

Bubblefucius say:
Low-ball offer today look much higher tomorrow when you are on knees.

Bubblefucius say:
Housing comps like instant coffee; both good until the last drop.

SP,

Your colleague is lucky to work in a relatively weasel free environment. Some scam artists are very good at faking while some good people may seem sketchy on first appearance. It's always more pleasant if you can implicitly trust the person you do business with, but I doubt many landlords have that luxury.