11 replies to this topic

[jawndissedi]

The following post appeared yesterday on a board dedicated to bashing NFI bears and short-sellers. When bullish sentiment finally breaks, it breaks hard. By the end of this year, I expect to see messages like this one about many sectors of the market all over the web:

"This will be probably my last writing here. Like most long NFI investors, I am shell-shocked after the conference that took place yesterday, and quite annoyed that I participated in the collective hallucination that led so many into such a disaster. Yes, hallucination, or more to the point, collectice delusion, a variant of the latter. It felt really like being in a bad dream, mixed up with a series Z film.
The worst is to realize one is immune to the herd behavior, and then to discover it's not so. In the most painful way. I feel no big motivation to maintain this website now, and I suspect that it will be difficult for some time to find someone has the stamina to do it. So long folks, I wish the best to all of you."

Website

[OEXCHAOS]

A cursory glance seems to show a site dedicated to fighting anyone who disagreed with the Bullish case and to blame "adverse" market action on "nasty, manipulative short-sellers"! Sheeze. I wish I'd seen that earlier...except I probably couldn't borrow stock.

[arbman]

I have to tell you, I don't know how many NovaStars there are out there, but this company's losses are not in several billions, a couple hundred millions is really drop in the bucket for the challenges the economy went through so far, so I don't see how this lending business will effect the overall economy. True, they dealt with people having no financial responsibility and got what they deserved. In terms of housing, I think there has been an added bubble effect because of these deals, but I am not sure what the additional damage will be as a percentage. I know the subprime mortgages are around 12-13% of the entire mortgages issued over the past 2-3 years, but I am sure not every ARM or sub-prime mortgage deal will default either. I am not trying to sound bullish, I am just trying to say I am not convinced that only this crappy segment of the housing within the overall economy will take the market and the rest down. I believe about 30-35% of the mortgage defaults are from the subprime mortgages, the rest is the reseting ARMs and others. The overall slowdown in the housing is another issue though, it directly correlates with the GDP. If the economy slows down in the months ahead, these people will benefit since the rates will likely go lower. The other possibility is the economy might continue to accelerate and these will become no issue too. As long as the USD stays strong, you can count on the Fed that they will try to inflate these problems away... - kisa

[OEXCHAOS]

Kisa, My read is that while there is some real weakness out there, a not insignificant portion is simply attitudinal. Anyone who's not aware of the "soft real estate market" is too dumb to buy a house. Thus, many who make up the marginal demand are sitting tight. Sooner or later, though, those folks are going to stick their heads up and when they don't get shot off, there'll be some demand. I'll tell you, in some areas, savvy investors are going to be or already able to buy some neat properties in improving areas for very attractive prices. A lot of the excesses of the sub-prime market are just re-distributing wealth back to the deserving. Mark

[jawndissedi]

Kisa,

I'd be interested in having your critique of the analysis linked below.

"If 4% of all American homeowners fall into foreclosure, could that "small number" cause a collapse in the entire housing market? The Pareto principle says: yes."

CHS

[jawndissedi]

Kisa,

My read is that while there is some real weakness out there, a not insignificant portion is simply attitudinal. Anyone who's not aware of the "soft real estate market" is too dumb to buy a house. Thus, many who make up the marginal demand are sitting tight.

Sooner or later, though, those folks are going to stick their heads up and when they don't get shot off, there'll be some demand.

I'll tell you, in some areas, savvy investors are going to be or already able to buy some neat properties in improving areas for very attractive prices. A lot of the excesses of the sub-prime market are just re-distributing wealth back to the deserving.

Mark

As a connoisseur of sentiment, you should be able to appreciate this. Below you will find several excerpts from a New York Times story about a disastrous Florida real estate speculation. (I've also included a link, but you may need a subscription to use it.) What impresses me is the stubborness of the folks who got involved in this very stupid deal. It reminds me of the attitude of tech investors after the first wave down in 2000 -- they were certain it was gonna go right back up because tech was the wave of the future, etc, etc. IMHO, we are years away from the bottom in real estate and, when we get there, you'll see lots of very obvious capitulation similar to what you've seen on NFI (down another 9% so far today ).

Mr. Matera, the retired contractor, learned about the chance to invest after a limousine driver, taking him to the airport for a Caribbean vacation, mentioned that his boss owned a part of a real estate company, Seashore Resorts in South Carolina, that helped people buy investment properties.

Mr. Matera did not blindly jump in. He said he visited Seashore and even hired a private investigator to look into the company. Later, he visited lots where the homes were to be built in the Florida towns of North Port and Rotonda.

The paved roads and empty lots reminded him of the affordable homes of Levittown that decades ago transformed Long Island into the suburban expanse it is today. Mr. Matera invested $12,000 in two homes. And his pitch to others persuaded 40 members of the Long Island Real Estate Investors Association and a half-dozen relatives and neighbors to invest similar amounts.

Mr. Matera acknowledges receiving a $500 fee for each client he referred to Seashore, but insists he did not pressure anyone. “I solicited no one,” he said. “People came to me. I’m not a salesman.”

Now, Mr. Matera is paying $4,800 a month on four properties near Sarasota that he cannot sell and that do not collect enough in rent to cover their costs. Two properties, which are complete, are under his name and have tenants. His mother-in-law and his sister each own one of the two incomplete homes that cannot be finished because they have liens.

In spite of the problems, Mr. Matera, for one, believes that real estate is a safer investment than stocks. “I would rather have a house that I can’t sell at the moment than a stock certificate,” he said. “I still have a house. It’s not what an owner of Enron stock can say.”

New York Times

[arbman]

That's exactly what I wondered, I need more time to absorb this...

In fact, from the article that Mr Da_Cheif ridiculed me below and I repeat Mr Berner have been correctly bullish all the way up here unlike Mr Roach at Morgan Stanley;

As always, a seemingly benign backdrop carries hidden risks. Near term, the risk is that economic data may continue to look weak. Fundamentals could also appear riskier. For example, fears are rising that the so-far-idiosyncratic bust in subprime mortgage lending will morph into a broader, systemic credit crunch as foreclosures rise, lenders grow cautious, and Congressional efforts to rein in predatory lending further choke off supply. I think such fears are dramatically overblown, but perceptions of a wider spillover into prime loans and other asset classes could escalate (see “Will the Subprime Meltdown Trigger a Credit Crunch?” Global Economic Forum, February 12, 2007). And as Chairman Bernanke and we agree, declining energy prices and decelerating rents could feed through to even lower core inflation readings.

The said article is at this link.

- kisa

Edited by kisacik, 23 February 2007 - 11:22 AM.

[arbman]

The Cranes of Dubai, fun read...

[jawndissedi]

That's exactly what I wondered, I need more time to absorb this...

In fact, from the article that Mr Da_Cheif ridiculed me below and I repeat Mr Berner have been correctly bullish all the way up here unlike Mr Roach at Morgan Stanley;

As always, a seemingly benign backdrop carries hidden risks. Near term, the risk is that economic data may continue to look weak. Fundamentals could also appear riskier. For example, fears are rising that the so-far-idiosyncratic bust in subprime mortgage lending will morph into a broader, systemic credit crunch as foreclosures rise, lenders grow cautious, and Congressional efforts to rein in predatory lending further choke off supply. I think such fears are dramatically overblown, but perceptions of a wider spillover into prime loans and other asset classes could escalate (see “Will the Subprime Meltdown Trigger a Credit Crunch?” Global Economic Forum, February 12, 2007). And as Chairman Bernanke and we agree, declining energy prices and decelerating rents could feed through to even lower core inflation readings.

The said article is at this link.

- kisa

Kisa,

Take your time -- I'd welcome your thoughtful, considered opinion. I've looked at the MS analysis and find it unconvincing: what I'm reading about individual lenders suggests to me that credit is being tightened dramatically -- and that delinquencies are increasing in the middle tier mortgage tranches (Alt-A) as well.

And I hope you won't let yourself be distracted by posts of pidgin' English and barnyard noises. Some people here are best ignored . . .

[OEXCHAOS]

All realestate is local, and I think we all saw the Fla. speculation problem coming a long time ago. What's funny is that it has happens over and over again down there, too. There's always a greedy sucker, however, who thinks he's got the key to the lock. Once he's caught, he's going to talk up his investment in order to try to get out from under.

It doesn't tell us much about the total real estate market sentiment nor does it reflect the huge regional disparities. Between the coasts, there are far fewer excesses. Further, there are a surprising number and growing number of properties that can be bought and lived in for less than rent. The sub prime fiasco has, in some markets, taken fairly priced propreties and given them a big haircut. Savvy speculators are going to make out like bandits.

In any case, my understanding of real estate "investors" is that they aren't exactly known for their timing, and as far as I can tell, most of the less sophisticated crew are likely to be stubborn. I can't tell you how many times I've heard folks say, "You can't lose money in realestate, right?" in the past 25 years. I've not found sentiment, as such, to be a timely or useful tool in this sector.

I guess my total read is that I have no business calling real estate in any market but my own. I've been far too pessimistic on some overvalued properties and far to optimistic on some "under valued" properties. I was super Bearish on Ca RE a long time ago. Meanwhile it just got more and more expensive (by a magnitude).

I "THINK" that areas Fla, Ca, and a number of other hotter markets are a long way from bottom. I'm also thinking that midwestern urban RE is likely to be a huge upside surprise for many. I don't get suburban real estate, but my guess would be that it'll suck wind for a while (depending on specific markets), and then just revert to appreciating at the rate of inflation, as it has for many decades.

Mark

Kisa,

My read is that while there is some real weakness out there, a not insignificant portion is simply attitudinal. Anyone who's not aware of the "soft real estate market" is too dumb to buy a house. Thus, many who make up the marginal demand are sitting tight.

Sooner or later, though, those folks are going to stick their heads up and when they don't get shot off, there'll be some demand.

I'll tell you, in some areas, savvy investors are going to be or already able to buy some neat properties in improving areas for very attractive prices. A lot of the excesses of the sub-prime market are just re-distributing wealth back to the deserving.

Mark

As a connoisseur of sentiment, you should be able to appreciate this. Below you will find several excerpts from a New York Times story about a disastrous Florida real estate speculation. (I've also included a link, but you may need a subscription to use it.) What impresses me is the stubborness of the folks who got involved in this very stupid deal. It reminds me of the attitude of tech investors after the first wave down in 2000 -- they were certain it was gonna go right back up because tech was the wave of the future, etc, etc. IMHO, we are years away from the bottom in real estate and, when we get there, you'll see lots of very obvious capitulation similar to what you've seen on NFI (down another 9% so far today ).

Mr. Matera, the retired contractor, learned about the chance to invest after a limousine driver, taking him to the airport for a Caribbean vacation, mentioned that his boss owned a part of a real estate company, Seashore Resorts in South Carolina, that helped people buy investment properties.

Mr. Matera did not blindly jump in. He said he visited Seashore and even hired a private investigator to look into the company. Later, he visited lots where the homes were to be built in the Florida towns of North Port and Rotonda.

The paved roads and empty lots reminded him of the affordable homes of Levittown that decades ago transformed Long Island into the suburban expanse it is today. Mr. Matera invested $12,000 in two homes. And his pitch to others persuaded 40 members of the Long Island Real Estate Investors Association and a half-dozen relatives and neighbors to invest similar amounts.

Mr. Matera acknowledges receiving a $500 fee for each client he referred to Seashore, but insists he did not pressure anyone. "I solicited no one," he said. "People came to me. I'm not a salesman."

Now, Mr. Matera is paying $4,800 a month on four properties near Sarasota that he cannot sell and that do not collect enough in rent to cover their costs. Two properties, which are complete, are under his name and have tenants. His mother-in-law and his sister each own one of the two incomplete homes that cannot be finished because they have liens.

In spite of the problems, Mr. Matera, for one, believes that real estate is a safer investment than stocks. "I would rather have a house that I can't sell at the moment than a stock certificate," he said. "I still have a house. It's not what an owner of Enron stock can say."

New York Times