patrick.net

SP500 falling knief hurts housing markets? I hope it does.

One year ago I said here that I was waiting for house prices to drop another 25%, now I only have to wait for the remaining 10%. Yes!

Hey guys,

Peter Schiff is still saying we'll have a great depression.. But then hyperinflation soon after... So we are all screwed... Your money in the bank will be worthless in the end. The only way to make out will be two options.. Live in a home you can afford now and RIDE OUT this downturn until hyperinflation kicks in and owning property is far better than owning worthless dollars.

Or time things perfectly as to buy tons of property at the absolute bottom.. (which will probably prove alot harder than many on here think). All kinds of crazy laws and restrictions will be passed... A great depression would be a chaotic situation... THen hyperfi

Los Angeles Renter says

hyperinflation kicks in and owning property is far better than owning worthless dollars.

Have thought of changing your name to "Los Angeles Owner"?

Does anyone really know what the hell happens to property owners in a scenario of hyperinflation? It isn't pretty.

From the article:

For the S&P 500, a measure called the forward price-to-earnings ratio has fallen to about 12, well below its long-term average of 16. That means that investors who buy now are paying less for each dollar in profits.

Wrong. A low Price-to-Earnings ratio means investors pay less for each dollar in profits, by definition. A "forward" PE ratio is the PE ratio using bullshit numbers instead of the real ones you can look up.

There is no law in nature stating that what you expect things to cost in the future will be accurate. In fact, what you expect isn't necessary what other people expect.

bubblesitter says

E-man says

BUY, BUY, BUY!!!

That's was I was told in 2006. LOL.

thats what a lot of people did in 2006.

FYI, the real PE ratio for the S&P500 as of last year was 20.70 according to multpl.com.

From that site:
Current S&P 500 PE Ratio: 20.70 -0.01 (-0.06%)
Mean: 16.42
Median: 15.80
Min: 4.78 (Dec 1920)
Max: 44.20 (Dec 1999)

From Gold Eagle "The historic rule of thumb is that the S&P500 is correctly valued with a price/earnings or PE ratio of 14."

commonsense says

Does anyone really know what the hell happens to property owners in a scenario of hyperinflation? It isn't pretty.

What are you saying happens?

Property owners will be hit with a windfall tax in hyperinflation scenario.

It can't help.

NJ says

commonsense says

Does anyone really know what the hell happens to property owners in a scenario of hyperinflation? It isn't pretty.

What are you saying happens?

Hyperinflation.. ? I dont see anyone getting raises anytime soon or unions going on strike demanding higher wages.

Shadow inventory will remain in the millions until the holders fail (IF the taxpayers stop their bailouts). ONLY because values are too high. DUH ? (now that so many of those highpaid techies are gone, the rest of us are left to reset real property values) America's bad credit report added with inflation and quantative easing should cause interest rates to rise. The monthly payment on a $400k mortgage at 5% is $2150. the same amount at 9% is $3200 pr mo. Housing values will continue to retreat until they find their PHENOMENAL balance of 2.5 times the buyers annual income.

thomas.wong1986 says

Hyperinflation.. ? I dont see anyone getting raises anytime soon or unions going on strike demanding higher wages.

If the government manipulates the market and pushes interest rates lower somehow... Even with the credit rating downgrade. What will happen? The US govt is bashing Moodys and credit rating agencies now... They are basically attempting to discredit credit rating agencies in general.... If home prices drop much further... I would guess 50% of home buyers in the last 10 years would squat and default... People with 800+ credit scores would realize having good credit isnt worth losing all their wealth... Credit scoring systems will continue to be discredited and maybe regulated by the us govt... Another 30% drop... 70% from thr peak would lead to 80% of the population having undesirable credit scores... Lets me realistic... The majority of renters have crappy credit... Only a select few renters on here maintain a high credit score. A depression will just make things worse... If home prices drop to 2.5x incomes what is to stop all FHA buyers in the last 10 years from squatting... Saving enough cash to practically buy a new house with cash! Maybe a smaller 1-2 bedroom condo... But still i know a lot of homeowners with 500k houses who if it dropped to 250k... Which is 2.5x incomes..could squat and save up enough to buy a nearby smaller condo with cash in a matter of a few years.

As the products of US treasury are downgraded, the Federal Reserve will have no choice but to increase the interest rates. This will plunge the already battered house market into oblivion, shrink the buyers pool who depend on bank loans to afford a house and finally provide a good opportunity for the "real" buyers who have cash in hand.
However, I am truly afraid of a complete bankrupcy for our country because we were not responsible with our spending for so long.

More pain due to today's market collapse. How is this going to help housing market. Any bulls?

E-man says

It's time to refinance to lower my mortgage payments and put more money in my pocket.

I see, so you get a break on the payment but the very same break is wiped out very next year due to decline in value. Good math. Keep it up. :)

Buy.........i did as an investment. Look back at history. What goes up must come down but also vice versa.....I have purchased a REO property in florida right on the beach. I intend to rent until things improve.....trust me...in 10 years you will be kicking yourselves for not jumping in. Don't wait for rock bottom because once that happens there will be heavy competition with those investors who decide they better get a piece.

faith says

I have purchased a REO property in florida right on the beach. I intend to rent until things improve.....trust me...in 10 years you will be kicking yourselves for not jumping in.

I am in the best part of South Florida, and in all honesty in ten years I don't want to touch down here again, either body or investment.

Why?

Los Angeles Renter says

Peter Schiff is still saying we'll have a great depression.. But then hyperinflation soon after... So we are all screwed... Your money in the bank will be worthless in the end.

I feel like I have read some interesting stuff from LA renter before, but not I am afraid I must click 'Ignore'.

My Mother in lawn owned southern coastal real estate and sold it. Why? The insurance on the thing was ridiculous. You couldn't pay me to own land anywhere near the Southern coast.

My insurance is only $450/yr and that includes flood.....that's less than internet per month.....do you consider that expensive?

commonsense says

Does anyone really know what the hell happens to property owners in a scenario of hyperinflation? It isn't pretty.

What isn't pretty? I've been an owner during multiple periods of inflation. With a fixed rate mortgage, my housing payments stayed stable, while income went up. Rents go up during times of inflation. Obviously other expenses go up as well. But those costs go up whether someone rents or owns. Inflationary periods are the most advantageous time to be an owner.
Or is there something I'm not understanding about this comment?

Exactly....that's what I intend to do on florida. Rent and wait. I'm almost fully booked for winter/spring of 2012.....thank you!!

faith says

My insurance is only $450/yr and that includes flood.....that's less than internet per month.....do you consider that expensive?

Her's was $4,500 a year. But that aside, I helped her maintain the house for 3-4 years. The salt air accelerated corrosion of everything 5-fold. Light fixtures, air conditioners, paint, wooden decking, nails, hardware, and even interior metal components just rusted away. It was an absolute nightmare of a house to keep care of. After you've been there enough times the allure of being on the ocean gets old too: There was NOTHING to do there except sit around and watch old farts from NY and MA bumble around.

Anyway, she sold the thing at the peak of the market after having owned it for 30 years. She bought it back when getting to the area was difficult thus the land was cheap. She did quite well for herself. But after that experience there's no way I would buy a house on the Southern coast.

E-man says

Don't be a loser and buy now.

Thanks for the tip.

E-man says

All I know is someone like you will be paying off my mortgages.

But I am free and not a debt slave. I don't have few middle guys IRS,renters to make my finances. Good luck on your endeavours. By the way this a bear site, you must be hanging around here for your post purchase rationalization. :)

E-man says

Don't be a loser and buy now.

Just how you think you are a smart investor guided by your instincts,so do I. I'll know when to buy. After all it matters who wins the race at the finish line.

Your friend got ripped off with insurance. What? How could the ocean get old? Yes, things do corrode a bit over time. But so what if you have to replace the odd faucet or doorknob? Everything is so damn cheap down there to buy....And those old farts are the ones who pay my rent...lol

I came of age in Southern California around the time Prop 13 was passed. That was not a period hyperinflation and we have yet to see hyperinflation in this country, on the levels of other parts of the world (at least not yet.)

bubblesitter says

I'll know when to buy. After all it matters who wins the race at the finish line.

I am with you there. I too know when to buy something, and what to pay.

faith says

What? How could the ocean get old? Yes, things do corrode a bit over time. But so what if you have to replace the odd faucet or doorknob? Everything is so damn cheap down there to buy....And those old farts are the ones who pay my rent...lol

Trust me. It does. I live next to the ocean now and after a few years it sort of like ho-hum, and that's out there in California where its not a bazillion degrees, humid, and always under threat of hurricanes.

We had to replace ALL of the outdoor electrical fixtures every 2 years. They basically turned into a rusted crust. We tried aluminum. No luck either. Wood dry rots and disintegrates.

The local economy was totally driven by tourism. The entire population was transient- they were usually only there on vacation. That was a tad depressing.

Anyway, to each their own I suppose. Do whatever makes ya' happy.

My family's assets are not invested in real estate (and frankly if you have over 50% mortgage you aren't an owner (free and clear.) You don't own anything in my opinion until it is paid in full.) I have allocated cash reserves, credit lines that are pristine (in the past three months I've had three credit card rates reduced due to my credit history thank you,) absolutely no mortgage debt, no auto debt. I have invested in top quality furniture and antiques, decorative arts and fine art. End of the day I'll buy cash and I have a fortune in assets that are PAID. I am not into the Russian roulette debt game of real estate, which for some will never end.

I intend to vacation there like everyone one else.....not live there year round. Eventually the hope is that i can move from being at par with the books to a positive cash flow and use that money to travel other places along with florida....until of course i become an old fart in which case florida is fine by me.

commonsense says

I came of age in Southern California around the time Prop 13 was passed. That was not a period hyperinflation and we have yet to see hyperinflation in this country, on the levels of other parts of the world (at least not yet.)

Exactly. You can only build so much inflation out of phantom money. In the end you need real money to have a true hyper inflation. Until America and its populace payoff the current debt and then start over, this talk of inflation is BS. One don't need Phd in economics to understand this.

bubblesitter says

Until America and its populace payoff the current debt and then start over, this talk of inflation is BS. One don't need Phd in economics to understand this.

Precisely.

faith says

I intend to vacation there like everyone one else.....not live there year round. Eventually the hope is that i can move from being at par with the books to a positive cash flow and use that money to travel other places along with florida....until of course i become an old fart in which case florida is fine by me.

I dunno... I grew up in NC and we went to FL a lot when I was a kid. Not my favorite place but again- to each their own... Good luck with the property and your future vacations.

commonsense says

you aren't an owner

You ARE the owner. You have whats known as a bundle of rights. The right to sell, the right to make improvements to rent, etc. Unless you do not make payments as you promised.

faith says

trust me...in 10 years you will be kicking yourselves for not jumping in.

Are you suggesting there will be no bare land left to build a house in ten years ?

Florida already had its land grab years after the Tulip fiasco but years prior to the shortage of electricity. Our most recent Real Estate bubble was a direct result of the introduction and improvements to the most important and influential invention of ALL time known to mankind. (that thing you are reading this on) Real Estate prices spike when incomes spike. Real property values decline when JOBS are lost. Those millions of jobs lost were of the individuals involved in the introduction of the computer. Are those jobs coming back ?

E-man says

BUY, BUY, BUY!!!

Upton Sinclair wrote:
It is difficult to make someone understand something when their income is dependent on their NOT understanding it. Real Estate Agents, Mortgage brokers , Bankers, Politicians, NEWS MEDIA ! Anyone who will lose money as values retreat to their PHENOMENOL levels.
A good indicator will be when shared equity mortgages return.

TMAC54 says

You ARE the owner. You have whats known as a bundle of rights.

I hate to inform you that renters also have a bundle of rights, those rights you refer to still do not make you the outright owner.

TMAC54 says

PHENOMENOL

Phenomenol sounds like it should be an OTC "male enhancement" drug hawked on infomercials.