[4plexowner]

I’m expecting entry level housing in Clairemont to be around $275K at the bottom

[4plexowner]

Bugs – what do you think of this scenario – instead of doing a fraudulent appraisal to overvalue the property, we find a distressed property in a decent area and ‘overlook’ the reasons it is distressed

For example, there is another post talking about two houses in San Marcos that back up to the train tracks and yet they recently sold for $710K

Couldn’t an appraiser value these houses against the rest of the development and assume that the train tracks are a non-issue? Aren’t appraisers supposed to use their personal judgement? At what point does personal judgement become fraud?

This scenario is essentially the “buy the worst house in the best neighborhood” philosophy being applied in a declining vs rising market.

[4plexowner]

FormerSanDiegan – I had never looked at bubbles in the way that you present – ie, one every 2.5 years – the frequency certainly bears looking at

That’s a lot of bubbles happening in a short time!

I wonder how the frequency correlates to the date 1971 when Nixon closed the gold window – I would suspect that bubble frequency increased after that point

Perhaps when all the countries in the world are using fiat currencies (as they are today) it isn’t appropriate to focus on individual asset bubbles – it may be that the bubble to focus on is the credit/debt bubble – ie, individual stock market and real estate bubbles are only pimples on the back of the giant planet-wide credit/debt bubble

~

The magnitude of money/credit/debt creation going on right now is truly mind-boggling – the US is creating new money/debt at an 11-12% annual rate – China is doing so at an 18% rate – all the other central banks are doing their part also – supposedly the global rate is around 12% right now

This newly created ‘wealth’ has to go somewhere – it appears that it is flowing from one bubble to the next

~

What is the end game for all this credit/debt creation?

One of the theories that intrigues me is the Kondratieff Winter (Google search it if you care)

Kondratieff was a Russian economist who discovered a long-term cycle in Western economies – the cycle is more than 50 yrs – Kondratieff divided the cycle into 4 parts and correlated them to the seasons of the year

The Kondratieff Winter is when all the financial excesses are washed out of the system – most paper wealth disappears – businesses/enterprises that are economically non-viable fail – asset prices return to their fundamental basis – etc

Essentially, the K-Winter resets the economic system so the next cycle can start

~

I have mixed feelings about long-term cycles – I suspect they may be like statistics in that you can prove anything you want if you focus on the right data and exclude everything else

With that said, these are some long-term cycles that I find interesting:

1. Kondratieff – depending on whose interpretation you use, the bottom of the next K-Winter should fall in the 2010-2012 timeframe

2. Kress 120 year cycle – bottom in 2010-2014 timeframe

3. Fourth Turning event due 2005’ish – Fourth Turning is a book by William Strauss and Neil Howe which says that every four generations there is significant turmoil, usually war or disease or both

4. collapse of exponentially expanding fiat currency due 2016’ish – George Ure (www.urbansurvival.com) theorizes that no fiat currency can be expanded for more than 83.5 years – at that point the interest on the debt goes parabolic and the whole mess collapses under its own weight

~

Bottom line inre bubbles is “Who knows?”

They are certainly interesting to consider

[4plexowner]

bgates – I don’t really consider myself an expert in anything

I am an aerospace engineer by education – I graduated with honors from one of the nation’s top universities

I am a software developer by profession

I have read a bunch of material about real estate and financial manias/bubbles

I learned enough about real estate to increase my net worth by a factor of 100 (that’s factor not percent) investing in San Diego real estate (and selling it before the bubble burst)

I have read almost everything I have come across about 9/11 and I have watched all the video clips too – I find that what the government is telling us doesn’t add up

The biggest ‘smoking gun’ in my mind is this: prior to 9/11 no metal-framed building had ever collapsed due to fire – there had even been several high-rise buildings that burned vigorously for hours without collapsing – and when the first metal-framed building in the history of the world collapses due to fire what happens? – the metal supports are taken to recyclers who agree to quickly process the metal instead of being taken to engineers who could analyze them and determine how we could prevent more metal-framed buildings from collapsing due to fire in the future

Glad I could provide you with some entertainment today

[4plexowner]

Cool map from Wall Street Journal – it shows the market declines yesterday in all of the world’s major markets – check it out

http://online.wsj.com/public/resources/documents/info-marketdrop0207.html

[4plexowner]

Raybyrnes – how about spit-balling what some of these options might be?

I agree that finance people can come up with new products that will allow uninformed, unintelligent, unqualified buyers to continue buying houses

But what does that accomplish?

It just takes us further down the road and postpones the inevitable reckoning with reality to a later day (and sucks some more people into the ultimate come-uppance)

Let’s have the financial reckoning today and get it over with

To quote “The Decider”, “Bring it on!”

[4plexowner]

The meltdown started in China – China is concerned about the rampant speculation occurring in their stock market – poor farmers are hocking their few belongings so they can ‘invest’ in the stock market (can you say ‘bubble’ or ‘mania’?) – China is taking active steps to curtail this behavior

Here are a few quotes from Stratfor’s Global Market Brief today:

> In January, the number of total traders on the Chinese exchanges grew by 1.38 million, an increase of 134 percent from a month earlier

> Third, trading in 800 of the 1,400 stocks on the Shanghai exchange was suspended during the sudden drops Feb. 27; they have a lot farther to fall, even without any engineered drops caused by panicky selling

~

Note in the first quote that the MONTHLY increase was 134%

That last quote makes me expect more declines in China’s market – trading was halted in 57% of the stocks today but there was still a 8.5% decline – what do you think will happen when trading resumes in those stocks?

[4plexowner]

The selection of 2 standard deviations isn’t arbitrary

It’s based on analyzing the 28 bubbles prior to their bursting and seeing at what level the danger zone started – 2 std deviations was picked based on this analysis

You make it sound like someone pulled ‘2 standard deviations’ out of their ass and decided to run with it – hardly the case here

Read Grantham’s work if you are really interested

“Extraordinary Popular Delusions and the Madness of Crowds” is another good book explaining bubble dynamics – it was first published in 1841 and is just as applicable today as it was then – bubbles haven’t changed any in the last 160+ years – the only difference is that today’s credit/housing bubble is the biggest bubble in the history of the world

[4plexowner]

davelj – thanks for your post – you make two excellent points that I think deserve repeating

1. ALL bubbles revert to the trend (OK, only 27 out of 28)

2. prices are set at the margin

~

point #1 is why I am confident that I will be buying San Diego real estate at 1998 prices

point #2 is why the rental market in San Diego is in for some hard times (if you are a landlord) – rental rates are also set at the margin

[4plexowner]

100 year mortgages in Japan:

http://news.bbc.co.uk/1/hi/business/2027576.stm

NewYorkTimes also has an article online but they require registration

[4plexowner]

Just last week one of my friends blamed the weak housing market on the housing bears – according to her the market would still be fine if we weren’t expressing our opinions in the media

~

Any psychologists out there?

Is anger and lashing out part of the process of accepting something bad?

For example, does a cancer patient get angry and lash out at the medical staff because somehow it is their fault?

~

I’ve also noticed the increased troll count this week

I’ve been chuckling all day about DesperateSeller’s post – what planet does that person live on? – this is the biggest credit/housing bubble in the history of the world but DesparateSeller feels a need to deny it

And then there is Raybyrnes who thinks that single guys with room-mates, gays / lesbians and retired military are enough to support the local housing market

I also noticed DontPanic’s post denying that WMC is going under – my immediate thought was “here’s someone who is affiliated with WMC trying to do damage control” – I tried to check how long DontPanic has been a poster but Rich doesn’t provide info about us (some sites would show how long a poster has been around) – DontPanic posted the first denial at 9am and then came back and did another denial around 5pm – was the 2nd denial to reassure us or to reassure DontPanic? (as an aside, I did a quick Google search and didn’t find anything about WMC going under except for Rich’s site – of course, if there isn’t anything in the media how does DontPanic know that WMC isn’t going under?)

[4plexowner]

Raybyrnes – I was surprised the first time I saw how little mortgage payments change as we extend the period from 30 yrs to 40 yrs

Here are the numbers for a $400K loan at 6% fixed:

30 yrs – $2398/mo

40 yrs – $2200/mo

50 yrs – $2105/mo

Since the Japanese were offering 100 yr mortgages before their market dropped by over 65% let’s consider that payment

99 yrs – $2005/mo

[4plexowner]

That’s cool, housingbear – best of luck to you

[4plexowner]

Thanks for clearing it up, DesparateBuyer

I understand now – this time it’s different …

[4plexowner]

No nerves here, housingbear

You did however stoke my curiosity – you start by acknowledging that now may not be a good time to buy but then you say you are probably going to buy anyway

I’d like to understand why an intelligent person who has access to Piggington’s would be considering buying a million dollar tract home right now

As a ‘numbers guy’ you should be able to understand that a 30-60% correction over the next five years means you will lose $300-600K

Do your ‘special circumstances’ make this loss acceptable or do you not believe that the correction will be significant?

[Author]

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