37 replies to this topic

[Mike McCarthy]

(Otherwise, I hope Rogerdodger is right and this crisis is overstated by the Carlton Sheets factor. Maybe this crisis is more like the mess you make on the stove when the pot boils over, and the smoke detector goes off, and there's a big spill to clean on top of the stove but, once the heat is off and the boiling subsides, you notice that very little soup actually boiled over. You clean up the mess, and then have your dinner.)

Great analogy!

Not to "pour ice water" (pun intended) on the analogy but, the amount of people foreclosing isn't the issue. It's the amount of foreclosures and what affect those foreclosures have on home prices. The amount of foreclosed homes on the market in such a short span will lower prices for many years and put many responsible homeowners "under water" (no pun intended) for many years.

> will lower prices for many years

Are even responsible owners owed endless appreciation? Where is the value added? Where is the productivity? The idea that permanent appreciation is baked into the real estate cake just because you bought a fixed asset in the exurbs needs examining.

One of the recurrent themes in this forum is the lack of real productivity growth for a generation: no one really creates, they just consume (I'd challenge that, but for the sake of these remarks I'll just quote it). OK, if you grant that, then how is "buying a home" any different? That home should quadruple?....should increase 10-fold in a lifetime? Net inflation? Why? Where's the increased productivity rationalizing that appreciation? (I'd argue there comes a point where sprawling out metro areas and abandoning urban neighborhoods is actually negative productivity.)

And now markets are doing what markets do: revealing the real value of an asset. Folks who bought a house thinking, "There, I'm done. No need to work for retirement." are getting a rude awakening from Mr. Market. Homes ARE actually worth less than they think.

[Rogerdodger]

The white haired guy on Bloomberg just said that 7,700 people are losing their homes every week. My figures show his math may be fuzzy...but it sounds good.

[U.F.O.]

Rog. Question. All these housing borrowers that are walking into the lender's office and throwing the keys on the desk.....where are they going to go to live? ...........Answer...apartments, by the millions. Occupancy rates nationwide for rent/lease units are likely to go to all-time highs, approaching 100%. How can we, as speculators, make money on this? We need to ID the biggest apartment developers and buy them. Who has the clout in that market? It used to be Trammel Crow and Fogelman, but I haven't paid a lot of attention to that market in years. Any ideas? U.F.O.

[milbank]

Mike, the problem is, homes were allowed through relaxation of lending rules, laws and fraud to become speculative commodities. Responsible people buy homes as domiciles not as investments. When housing started to become another investment/trading game, the problems arose. So did the prices. Even responsible people looking for domiciles had to pay what the market demanded. Now they will be at the effect of the collapse in prices inflated by the game. No matter what their intentions are or were, they had to buy at market and will have to sell at market. A lot of people are going to be upside down, lose tens of thousands of dollars due to the drop in prices even if they can pay the mortgage they agreed to.

[ed rader]

I know several people who own real estate in California who are gonna capitulate or foldm in the next few months. They are ready to throw in the towel. I think there are many folks who are trying to hold out but will foreclose this year. So we aint see the bottom yet.

i know a few people who are just hanging on. the worst is definitely yet to come. just wait till the big lay-offs begin.

the good news is this is one of the rare times in this area that you can save fast enough to buy a home .... if you still have a job .

ed rader

Edited by ed rader, 12 April 2008 - 08:20 PM.

[Mike McCarthy]

Mike, the problem is, homes were allowed through relaxation of lending rules, laws and fraud to become speculative commodities. Responsible people buy homes as domiciles not as investments. When housing started to become another investment/trading game, the problems arose. So did the prices. Even responsible people looking for domiciles had to pay what the market demanded. Now they will be at the effect of the collapse in prices inflated by the game. No matter what their intentions are or were, they had to buy at market and will have to sell at market. A lot of people are going to be upside down, lose tens of thousands of dollars due to the drop in prices even if they can pay the mortgage they agreed to.

Understood. You are saying what I've been saying all along.

It's very unfortunate that responsible people bought after speculators ran the prices up (ie, in recent years), and that they got sucked in at the wrong time in history, but I'm talking about folks who bought 10 and 20 and 30 years ago and feel somehow they've now been ripped off because their extraordinary appreciation has settled back to mere ordinary appreciation.

Many of those folks have already spent those extraordinary gains and now, after markets adjust, they are left with a hot tub, a $40,000 kitchen, a photo album from their cruises, and no equity.

My sister-in-law bought a house in San Diego when she and her husband got married in 1982. They paid $150K. It appreciated to $750K in just 20 years, a $600K increase. They pulled another $400K out of that (just an extra $16K a year....that's not so bad?) living beyond their means, including just writing a check for all their childrens' college educations. Their incomes grew, and they covered the increasingly higher payments on their 2nd and 3rd and 4th mortgages.

They thought they were OK. They had a 401K and they STILL had $200K equity in the house, and they expected the house would keep appreciating.... $900K, a million, a million and a half.....why not? It's San Diego, it's booming. Retirement was in sight: sell the house, buy something smaller, live on the proceeds.

You know the rest. Today, they'd be lucky to get $600K; their net equity is less than $50K. 25 years and they have basically nothing. Who's fault is that? Carlton Sheets? They lived their entire lives and raised (and educated) their children under the assumption that their extraordinary appreciation would never dry up. He's an engineer for Hughes, she's a medical transcriptionist. They lived an upper-middle-class lifestyle on middle-class skill sets and they financed the difference with housing appreciation. They almost got a away with it: they raised the family, educated the children, and almost got their retirement nut. Two our of three ain't bad, I suppose.

They're family, and I love them dearly, and San Diego is great, too, and the kids are wonderful, but as far as retirement goes, they already spent it. Their bad.

[ed rader]

Rog. Question. All these housing borrowers that are walking into the lender's office and throwing the keys on the desk.....where are they going to go to live? ...........Answer...apartments, by the millions. Occupancy rates nationwide for rent/lease units are likely to go to all-time highs, approaching 100%. How can we, as speculators, make money on this? We need to ID the biggest apartment developers and buy them. Who has the clout in that market? It used to be Trammel Crow and Fogelman, but I haven't paid a lot of attention to that market in years. Any ideas?

U.F.O.

rents have been on the rise here for a couple of years. i know a few property managers and it's good times for them but that'll change when the lay-offs start rolling and the demand for housing drops.

in 2000 we had less than 1% vacancy in the area. now we have much more capacity and more on the way. my guess is this bear will get a chunk of everyone's @ss before it goes back into hibernation.

ed rader

[U.F.O.]

"Mike, the problem is, homes were allowed through relaxation of lending rules, laws and fraud to become speculative commodities. Responsible people buy homes as domiciles not as investments. When housing started to become another investment/trading game, the problems arose. So did the prices. Even responsible people looking for domiciles had to pay what the market demanded. Now they will be at the effect of the collapse in prices inflated by the game. No matter what their intentions are or were, they had to buy at market and will have to sell at market. A lot of people are going to be upside down, lose tens of thousands of dollars due to the drop in prices even if they can pay the mortgage they agreed to."

Good points mil. Responsible people, however, buy homes as domiciles and investments. Always have. Many of the same people who are now crying buckets were riotiously laughing 3 years ago as their properties went up in value 15% per year. Housing didn't "start" to become another trading game until Greenspan lowered rates below the "critical mass" needed to correct the bursting of the Y2K/.com bubble he erronously created in the 1st place. Bottom line is this, IMO, is another major league f-up that will cost all of us some shekels to fix. What's the up-side of this disaster? As "free-market" traders we can place bets on whether or not this leaky boat will sink. I change my mind weekly about that.

U.F.O.

[cgnx]

Can't tell you how many times I heard the saying, "There's only so much land". Buy real estate". Houses are like Doritos, they can always make more. Even here in Nj where folks tell me there's no place left to build, is a joke. They can always build upwards. I still see plenty of farmland around. The greatest home selling opportunity has left the building. I told as many people to sell as I could. Nobody would listen. Answers like, then where am I going to live? spewed forth. Dumb answer. Or, I gotta live somewhere. With the amount of money the greater fools were throwing around to buy those homes you were a fool not to take it and run. A row house in Brooklyn selling for $500,000? What a joke. In a neighborhood you most likely will be found dead. I have no pity for the fools. All of them. Even so called innocent homeowners. The price of homes can fall for a long time. IMHO homes prices are like stock prices. Supply and demand forces rule. Stock prices can be manipulated more, but at least they are liquid. The current situation is very fragile. The straw that breaks the camels back is somewhere in the near future. If you look at stats of empty homes in various cities and towns you see numbers like mid single digits. How many more can sink a neighborhood? In Vegas their are 24000 homes for sale and 41% are foreclosures. Nobody wants a depression type psychology to begin. But can you avoid it by not mentioning it? Or is talking about its possibility a creator of its potential. People are so influenced by what the media says or picture it paints, imo. All I know is that home prices can drop dramatically. Perception of value is all it has to keep prices up and as I see it the number of homes available for sale is large and will continue to grow. The trade down effect is in play. Baby Boomers are retiring. The tax penalty of trading down was a big reason for folks to keep buying up and staying in overpriced homes. And as we know being stock folk the reason not to sell a stock should never be because you have to pay taxes.

[U.F.O.]

That $500,000 row house in 10 years is gonna be worth $750,000. The beat goes on........... U.F.O.