14 replies to this topic

[OEXCHAOS]

That's about what it is when it comes from me...Bull. That said, it dawned on me that it could appear to some that I'm a Bull on real estate. Let me say, I am only selectively Bullish on real estate, and that only longer term. My interpretation (and observation) is that nationwide, there has been lots of irresponsible and/or immoral and/or illegal r/e lending going on. This is an issue that will have ugly problems associate with it and which will in any number of instances have undue effects on other real estate values and liquidity in many markets. I also have seen and read about folks who know nothing about realestate making outsized returns in residential real estate---the types of properties which historically barely keep up with inflation, net and often depreciate net of improvements from time to time. This is an anomaly and when it corrects, it's going to cause some pretty serious pain. In fact, I think it already is. I expect that the best case scenario for this sector is continued illiqidity for some months, perhaps a year, and then very, very sluggish groth--below gnp and perhaps below inflation for some years. I believe that this experience will drive those who still want to speculate and invest in real estate to focus their attentions on true investment opportunities and honing classical real estate accumen. That is, finding cheap, improvable properties in improving or readily improvable locations. Over the coming years, I expect urban real estate to do well and in some cases thrive. In fact, I perceive this to be part of an ongoing "re-urbanization" of many mid-size cities. All the factors line up--cheap and pretty bricks an sticks, high fuel prices and the fear thereof, local incentives, the new generation of urban dwellers combined with an older generation that no longer wants a yard but does like the notion of living in the city, and other factors. I have experienced enough market "disequilibrium" in my life to know that the coming/current real estate "Crash" is so well advertized that it will be less deep and less disruptive than most Bears imagine. It'll be painful, but mostly because the stagnation lasts so long. It should look a lot like our current slow return to fair or cheap P/E's. Take a peek at what has happend there for an analogy: I predict that many, many millionaires will be made from exploiting downside of the foolish speculation over the coming years. It is as it has always been. Money finds its way "back into the hands of its rightful owners." The bottom line is that I think real estate is and will be a negative for our economy for a while. It may even drive an honest to goodness recession. Even a bad one, but I believe that the worst of the doom and gloom is just not going to remotely come to pass. Mark Young

[jawndissedi]

The yield on the 10-yr Treasury determines the accessibility of fixed-rate mortgage financing which is the key to stability in residential real estate. The chart of ZN below suggests that we may be heading significantly lower:

[IndexTrader]

The yield on the 10-yr Treasury determines the accessibility of fixed-rate mortgage financing which is the key to stability in residential real estate. The chart of ZN below suggests that we may be heading significantly lower:

Actually, the key to stability in residential real estate has always been jobs, not interest rates. Maybe it's different this time.

IT

[OEXCHAOS]

IT, aren't they related? High rates can kill jobs. Low rates can make up for some job losses. Is it linear? I doubt it, but I don't think you can look at one without a glance at the other. Mark

[jawndissedi]

The yield on the 10-yr Treasury determines the accessibility of fixed-rate mortgage financing which is the key to stability in residential real estate. The chart of ZN below suggests that we may be heading significantly lower:

Actually, the key to stability in residential real estate has always been jobs, not interest rates. Maybe it's different this time.

IT

There's no maybe about it. Foreclosures are soaring and unemployment is close to record lows. Read and learn:

Foreclosures up 51% nationwide

[IndexTrader]

IT, aren't they related? High rates can kill jobs. Low rates can make up for some job losses. Is it linear? I doubt it, but I don't think you can look at one without a glance at the other.

Mark

Related? Sure, I think they are. You get high enough rates, choke the economy off, and presumably employment declines.

But, do you remember what the interest rates were when oil hit what (???), $8 a barrel back in the 80's? That decline in oil crippled the Texas, Colorado, Wyoming economy, creating massive job loss. Remember the saying...last one out of Houston, turn the lights out. That decline in employment caused a huge decline in RE prices.

Conversely, remember the jump in interest rates to 20%+ back in the early 80s? That jump in rates didn't cause a "massive decline" in real estate prices in my area at least, and according the nationwide statistics that was more a flat period than anything else.

All I'm saying is that historically RE prices are much more influenced by jobs than by rates. As long as people can afford the payment they don't dump the house. The dump when they can't afford it...ie job loss. And this time we may have some dumping as those rates on the adjustables reset.

You know, I've spent decades buying so-called "distressed" RE. This means at trustee sales on the courthouse steps, from banks, from individuals when they lost their job, health-related issues where they could no longer afford the payments. I don't recall ever buying a property from someone who said the rate was too high. They hang in there until something really goes wrong in their lives.

IT

[IndexTrader]

There's no maybe about it. Foreclosures are soaring and unemployment is close to record lows. Read and learn:

Foreclosures up 51% nationwide

It think the word you used was "stability" wasn't it? I know you like to throw these headlines around, but isn't it true that foreclosures rose from what.....1.5-2.5%....gives you your dire headline, but hardly reflecting huge instability in the residential RE market. Actually, the percentage may not even be that high. And of course, you also don't mention (or perhaps know) that nearly 1/3rd of the homes in the US are free and clear.

Look, I don't know what the future holds for RE. I've made alot of money in RE without ever predicting it. And as Mark said in his original post, there will be fortunes made in this market by those who know how. That will be by buying RE as those who have to, dump it.

One thing that's obvious....there's been one helluva nice rally in TOL for instance over the last 8 months while you've been posting these dire articles/predictions.

IT

[jawndissedi]

There's no maybe about it. Foreclosures are soaring and unemployment is close to record lows. Read and learn:

Foreclosures up 51% nationwide

It think the word you used was "stability" wasn't it? I know you like to throw these headlines around, but isn't it true that foreclosures rose from what.....1.5-2.5%....gives you your dire headline, but hardly reflecting huge instability in the residential RE market. Actually, the percentage may not even be that high. And of course, you also don't mention (or perhaps know) that nearly 1/3rd of the homes in the US are free and clear.

Look, I don't know what the future holds for RE. I've made alot of money in RE without ever predicting it. And as Mark said in his original post, there will be fortunes made in this market by those who know how. That will be by buying RE as those who have to, dump it.

One thing that's obvious....there's been one helluva nice rally in TOL for instance over the last 8 months while you've been posting these dire articles/predictions.

IT

What you don't seem to grasp, IT, is that your experience scrounging for nickels and dimes on the courthouse steps of fly-over country is no macro-economic significance whatsoever. This is:

[pdx5]

Mark - Excellent analysis of real-estate paradigm. I have been asking myself, why did the housing market stopped appreciating?? Every one was having a grand old time. The speculators were flipping and getting rich. Home owners were happily cashing out from the ATM of appreciation. Mortgage rates were cheap. Loans could be had with no money down and interest only. Builders and finance people and real-estate sales people were having a party. So why did the party stop? Interest rates have not changed much for the worse. Unemployment is lower than in a long time. No terrorist attacks have happened. There is light at the end of Iraq tunnel, one way or the other, lose or win. So why why why??? The only answer I can come up which makes any sense to me is that the prices got so high that it priced a lot of people out of the market inspite of low interest rates and no money down. And once those who need a house were stymied, next came the speculators & flippers who put brakes on pouring money down a losing proposition. So, Mark has got it right....prices will go down for a year or so until houses become affordable to the average buyer. But prices will still be on a high plateau and it will be some time before price appreciation can beat treasury yields.

[IndexTrader]

What you don't seem to grasp, IT, is that your experience scrounging for nickels and dimes on the courthouse steps of fly-over country is no macro-economic significance whatsoever. This is:

You mean my 3+ decades of real estate experience is less significant than YOUR INTERPRETATION of macro-economic information that led you to short TOL at the lows????? Interesting perspective.

IT