patrick.net

Cover of barrons:

http://online.barrons.com/public/main/

Cheers,
prat

@mp

It is a tale/ Told by an idiot, full of sound and fury,/ Signifying nothing

SQT, quoting Shakespeare?

I swoon.

Cheerio,
prat

Prat

Here's another one that's appropriate. Shakespeare's the master for a reason.

@mp
Asses are made to bear,/ and so are you

I'm certainly not a fan of MP's style, but my YoY prediction would be similar to his.

Face

You actually have a point. I am certainly not one to give MP any pat's on the back since he drives me nuts. But his predictions are reasonable for a housing bull. I don't necessarily agree with him, but I'd be willing to give him credit if he's right. I guess it really does come down to a style issue. If he could mellow out he would find people on this site would be willing to debate the issue w/him.

October may mark the begining of the crash... but the "interesting" stuff may come in April because...

April is the cruelest month

I am seldom wrong. Don’t forget to record this post, and not just delete it b/c it goes against what everybody else predicts on this board.

We will record it. I am glad that you are not saying 20% per year appreciation for 2006. :)

BTW, I am seldom wrong on my pessimistic predictions (like market crashes). I am always wrong on my optimistic predictions though (like cancer/AIDS cures). As a result, I have decided to become a bear.

(God, at this rate, if I lose I could be buying dinner for 20 unbearably correct bubbleheads!)

A dinner for 20 at French Laundry will cost literally thousands. (I have not eaten there myself.) :)

If we are to dine there in June 2006, we better make reservation in April. Just kidding! Wendy's is fine. Let's hope that there will be no human finger in our food.

Let’s hope that there will be no human finger in our food.

Ewww. To be fair, that was a scam.

Ewww. To be fair, that was a scam.

I know. That Wendy's is very close to my apartment.

NCAL
(-)0-9% San Francisco
(-)0-9% Santa Clara
(-) 10-20 % Sacramento
(-)0-9% San Mateo
(-)0-9% Alameda

I'm calling for more modest losses until June 2006. I think 2007 is going to be a bloodbath.

hymie, every day, we see more and more signs that informed participants are in retreat. The end is indeed near.

The beating that housing stocks have taken recently.

I think the top is almost in for these stocks. But I am still very reluctant to short them at this time. I have a feeling that we will still see some short rallies before they begin a secular down trend.

(Not investment advice)

Hymie
I absolutely think your scenario could happen. My husband is/was working in stocks during the tech boom, and people would take HUGE risks and then try to blame the broker who tried to talk them out of it. On the flip side, there were unscrupulous brokers who were encouraging clients to invest solely in tech and then just raked them over the coals. Those brokers are no longer in business, but they didn't care, they just wanted a quick commission. I'd be interested in how many are now in RE. I think the over-riding theme here is that no one wants to take responsibility when things go bad.

Case in point. My husband had a client who worked at Intel and was day trading on the side. Initially, the guy made over $250,000 and thought he could do no wrong. My husband kept cautioning him that what he was doing was risky, but the guy was arrogant and wouldn't listen. He then lost somewhere in the neighborhood of $500,000 and started hinting that he might sue my husband because he didn't stop him. He even blamed his wife because she didn't stop him either, but he NEVER blamed himself for his losses. My husband sweated it out until the guy was on the plus side again and fired him as a client. He KNEW that when the guy lost it again he would definately sue. My husband has seen so many people take huge risks with their money that he keeps meticulous records of transactions and advice given at meetings. He has learned to cover his a**.

Well, I think Aug '05-June 06 is a short period before we see anything really big. My guess is we'll see a lot of market indecision, the beginning of a panic, with shorter term gains and losses...like the tech market before the high-dive. Investors might hold longer, blithely hoping it will go up yet again. Additionally, I think we'll see most losses in the median to lower (condo) markets, which will eventually bleed upward into the higher-end properties (top 20%). I think most of the damage will happen in

Monterey (-) 10-19%
Santa Cruz-Watsonville (-) 20-29%
Santa Clara (-) 20-29%
San Mateo, SF (-)10-19%
Marin median+condo (-)20-29%
Marin Novato SFH (-)20-29%
Sonoma (-)20-29%

Elsewhere...
Seattle Metro SFH (-) 10-19%
Seattle Metro condo (-) 20-29%
90 Corridor Condo-Median (-) 20-29%
Kitsap/Bainbridge Condo (-) 20-29%
Kitsap general SFH (-) 10-19%

Peter P,

People have been talking about construction stocks taking a fall for at least two years, and they have instead been market leaders. Many people have lost money shorting the housing stocks. It has to happen at some point, but it is very risky to bet against the tide – even when the turn appears to be at hand. You can lose a lot of money before you are finally “right.” Remember, when investing (speculating/betting) on cyclical events, it’s not so much about what will happen as when.

"So this is your precdiction “before anything really big” happens? Very bold."

Well...perhaps. But, there are some really high valuations too. With such high growth, it's fairly easy to see moderate downturns. Taking Robert Schiller's estimation that the bubble began in '97 (I think earlier), then adding 5% each year (without the usual flat spots), I see current "values" as grossly optimistic. Especially given our rather flat ecomony since tech's fall. Napa and Sonoma are especially suspect with 200% of an annual 5% increase, Marin and SF a bit below that. I must stress these are just arbitrary numbers, but they suggest to me something is very wrong, especially given the divergence of median housing prices from the median salary. Lastly, I think many of us who finished college during an inflationary period in housing (possibly a response to the Black Monday of '87), have been numbed to this dynamic; we simply don't know what normal housing prices are. Housing is a commodity in most areas, and I think we'll see a major correction--eventually, perhaps closer to 2007-2008.

Zephyr, you are very right. I will never short against the tide. I will wait for more confirmation, which is not there yet. Even so, I will focus on risk aversion.

On Ben's blog, many people have apparently shorted the homebuilders too early and are incurring large losses. Even my wife is pushing me to short them soon...

BTW, do you have a shorting philosophy?

Looks like I am not the most bearish person here regarding Mid 2006. :)

Additionally, I think we’ll see most losses in the median to lower (condo) markets, which will eventually bleed upward into the higher-end properties (top 20%).

Kurt S, in this case, don't you think the overall median price will be higher in the beginning because of the drying up in the lower end?

Peter P, I never short anything. I enter and exit markets and specific investments. I only make the “long” bets. I don’t like the risk involved in shorting. You have to be right about too many things for it to work. When I make my bets I don’t have to be right about the specified timeframe. I will make money even if what I expect to happen is significantly delayed.

Having said that, I do engage in market timing, and I have had uncanny luck with my market timing during the last 30 years.

I think it is ridiculous for the blame to fall on real estate agents when people purchase a home. Consumers need to spend some time educating themselves. Buyers should always practice due diligence and become informed about the markets, trends etc. Most realtors don't tell people, 'you are guaranteed a profit when buying a home' - that is speculative thinking on the consumer's part due to recent events. Of course, if the agent is telling clients " this property is guaranteed to go up in value, real estate never goes down etc" that's another story -but most agents are not allowed to say anything to that effect. I think the reason for this new clause is to protect agents from sue happy clients who bought at the wrong time and need to blame someone for their mistake.

Cattle, I would be very interested in hearing ideas and strategies for profiting from a general decline in housing prices.

Shorting stocks of builders and their suppliers, appliance makers, furniture industry, etc. is one way but with great risk. I would like to something more than just wait for the bottom.

Zephyr, one thing I do notice is that option premium is very low right now. The market appears to be underpricing volatility. It may pay to buy some put options. (I know, I used to write options when they were way expensive and I have laughed at option buyers who just could not win.)

Do you trade options?

From anecdotal evidence (mostly from SactoQt), money may be flowing from real estates back to stocks. Perhaps we should also look at what kind of stocks will benefit from this monetary migration.

Homebuilders more "land banks" than builders. So we should treat them as such.

(Not investment advice)

@ Zephyr

Cattle, I would be very interested in hearing ideas and strategies for profiting from a general decline in housing prices.

1)Generally not holding property.

2)To see the future, look to the past.

I have often asked older people (when I can) about what companies were successful during the depression period ~1930 - 1940.
Unfortunately the types of companies that exist now are very much different to then, relying on more technology for their competive edge.

However, people are people, and when times get hard, they usually turn to vices to overcome their misery.

Tobacco, alcohol and gambling, will probably rise.

Luxuries will more than likely take a tumble.

3) If property does cause global economic pain, then look at global oppurtunities where there will be less economic pain. This will probably give currency hedging as well as a place where hot money will try to find a safe haven.

4) There is one class of property that will probably have a huge demand in the next 15 years. I feel like a ghoul by suggesting this but cemetry plots will more than likely see huge growth.

New thread: On a Personal Note

I don't know the answer off hand, but I'll research it.

Mp

I can't believe this, but I'm actually going to answer your post. Mostly I was joking when I said 2007 was going to be a bloodbath. I don't expect the market to collapse in the next two years and I certainly hope it doesn't. I do know that a lot of ARM's are coming due in 2007 and I don't think we are going to see sustained low interest rates for another 2 years. And I especially don't think they're going to go any lower, so I think a lot of people could be in for a lot of pain. I think the numbers of people who have taken on risky loans is high enough to make 2007 a year to watch in terms of the RE market.

Since the RE market and the stock market historically move opposite each other, a moderate correction in RE would probably be good for my husband's business; and if the amount of business he's doing lately is any indication, money may already be flowing out of RE. If RE were to totally implode, chances are it would take most of the economy down with it and that wouldn't be good for anyone. If I had to, I most certainly would go back to work. I'd work 3 jobs if I had to, but hopefully it won't come to that.

"Are you going to start working again?"

MP, you can be a troll and still be a f**king gentleman. Nut up and pick on the men, eh?

prat

Re:” What percentage of owners bought within the last 12 months, one percent?….”

Took me a while, but I found it.

Merrill Lynch - "Housing: If Not a Bubble Then an Oversized Sud"
The graph on the last page (11) shows national housing turnover rate (%sold per year compared to total U.S. housing stock) 1968 - 2004:
tinyurl.com/daf39

Stayed within a 3.5-4.5% band from 1983-1997. Has really taken off since then. It's now above 6.5% per year. That's a lot of people buying at/near the peak of the market! If you think the current bubble could possibly give back 2-3 years of price gains, then it looks even worse. I've also read somewhere that DataQuick estimated CA turnover was much higher than national average --10 or 11%, but I can't find the article.

And, since 2007 is going to be a ‘bloodbath’ what are you and your husband doing to insulate yourselves? B/c, even though you guys are just renting, if it truly is a ‘bloodbath’, your husband’s business will go DOWN THE DRAIN. Are you going to start working again?

We should really try to profit from the bloodbath. This is more or less a zero sum game. The demise of the others is going to be our opportunity. ;)

Kurt S, in this case, don’t you think the overall median price will be higher in the beginning because of the drying up in the lower end?

Peter P--interesting thought. I'll be the first to admit I'm no expert at this...and I don't really know which segments are drove up the market in the first place, but I'd place my bets on the median-priced homes. I biased towards a bit towards higher losses in the condo market because I know a lot of investors bought in there because they're cheap, thought they'd be easy to manage and provide a cash flow.
It's just a big guessing game here like all of us--news+investor and realtor friends+gut instinct. Should be interesting.

MP, you can be a troll and still be a f**king gentleman. Nut up and pick on the men, eh?

Thanks for volunteering to take the hits prat. But gentleman and MP in the same sentence? An oxymoron if ever there was one.

Although, i do believe a ‘bloodbath’ in housing = a nasty recession in America, and depreciating stock prices.

A housing crash would be bad for everyone.
I would hate to see a 'bloodbath,' I really was being facetous.

I find myself bouncing between threads seeing if anyone's on tonight. MP is actually being civil. I'm starting to think I'm in an alternate universe.

_upbeat music here_

You say potáto I say potato..... or something like that.

We cant read MPs posts! I guess because they were just SO nice, Patrick wiped them away.

I guess that's what happens when too much joy comes through.

Nice alliteration Jack.