[Bugs]

I learned Mandarin almost 30 years ago and other than being able to order in some of the restaurants and follow along with “Crouching Tiger – Hidden Dragon” without most of the English subtitles it’s done me no (economic) good whatsoever.

There are reasons why English is the dominant language of business and other languages like French and Japanese aren’t. Verbalized Chinese has an extremely limited number of syllables, so to “produce” new vocabulary they either have to adopt it outright from another language (“sofa” is an example), or string a bunch of existing characters together. The chinese word for “thermostat” is 5 characters long.

It’s not like learning Mandarin would make you an insider there. A native would still be able to slip into their home dialect if they didn’t want you listening in and there are literally dozens of those in regular use.

Spoken Mandarin is more pleasant for me to listen to than Cantonese or Hakka or Vietnamese or Japanese, but I’m sure that’s just a personal preference. In my ear, spoken Mandarin tends to be more melodic and moderately paced – there’s a lot less tendency to slur or mumble because the tones are so much more distinct. Not as distinct as what you’d hear at the operas but still pretty clear.

I would advocate learning Mandarin if you or your kids were considering living there or doing a LOT of business there. Otherwise, I think Spanish is still going to have more application here in the U.S. Much easier to learn, too (similar linguistic and cultural roots). The overseas Chinese will invariably assimilate and learn English. Not every group shares that priority.

Just my opinion.

[Bugs]

Dare I say it? Professor Piggington!!

[Bugs]

Oh yeah, I should have modified the title. It’s not “price correction”, but “value correction”.

Obviously.

[Bugs]

I mostly appraise commercial properties, not residential properties. The two types of owners are indeed very different in their outlook and their level of sophistication. That only makes sense if you think about it. A home does fill certain functional needs (shelter), but then again so does a rental apartment; so that’s not it.

The difference is that a “home” also fills certain emotional needs, too. You know the bombastic Mercedes commercials where the current tagline is “around here, you have to LOVE what you drive”? What they’re really saying is “around here you ARE what you drive”. The same is also true when it comes to homes. There are a lot of people who define themselves by what their occupation is, what kind of car they drive, and what kind of home/where they live; and not necessarily in that order. I don’t mean that as some sort of criticism because emotional needs are a part of life too. I’m just sticking it out there as an explanation why residential real estate is not generally considered to be just another asset.

Telling someone their home isn’t worth as much as they think is exactly like telling them that THEY aren’t worth what they think. They aren’t as smart as they think they are and they don’t have as much social standing as they thought they had.

People often take that kind of information very poorly. I have often seen that wounded expression on their face, as if I’d punched them in the stomach.

In my opinion the ride down is going to be as traumatic emotionally as well as financially for those people who are forced to actually take the trip.

[Bugs]

A penny saved is a dollar earned right about now.

Little tidbit here. I was looking over the recent sales figures from one of the Lennar projects at Bressi Ranch last week and I noticed that although that project hadn’t changed its base prices from 3rd qtr 2005 it had stopped adding all the “options and upgrades” onto the sale prices. The base prices for that project now include what used to be at least $40,000 worth of extras. The final prices for the sales currently closing are lower than they were in 2005, the high point being the beginning of the 3rd quarter.

[Bugs]

THere’ll be lots of opportunity to make a buck at some point, but it’s not going to be in 2007.

[Bugs]

Market psychology is one of the fundamentals that built this house and it will probably be a big player in it’s remodeling.

I don’t think we can overestimate the effects of the unforseeable on the market psychology. A real good oil scare or another WTC event here in the US could exacerbate any pre-existing prediliction for decline. I think it almost doesn’t matter what type of catastrophe; almost anything could act as the tipping point for a fragile market.

Excluding that… The swings of the trends seem to show the same rates of decrease on the way down as they’ve shown on the way up. I don’t think the downswing will start in earnest for another 6 months or so. Come October I think the data reported for the prior quarter’s performance is going to be the final straw. Then the declines will start to rack up in earnest and it’ll take 3+ years before they reach the historical trendline. It may not overcorrect as it has every other time in the past but I kinda doubt it.

[Bugs]

Asking prices may be going up (or not), but one thing I’m seeing is that the number of sales that are closing below the listing ranges is increasing. So also is the margin between the sale prices and the low ends of the listing ranges. I’m wondering if maybe the increase in listings includes more people who are only marginally motivated to sell.

[Bugs]

Speaking as someone who’s occupation involves developing opinions about other people’s work, the way we approach it is that the workproduct stands on it’s own. None of us are any better than our last piece of work regardless of what kind of work we do. A person can be a genius for the last 30 years but if their latest deal is poorly done then it’s poorly done. Same thing for the idiots. Even an idiot can be right sometimes. A thinking person does not blindly follow – they may trust but they’ll also verify.

It’s good to identify the sources of the information and analyses from the standpoint that it helps to identify any biases that might have affected the work. However, I think the work itself should always be judged on its own strengths and merits. Whatever credibility Rich has or hasn’t developed is based solely on his work, not his qualifications or experience.

But that’s just my opinion.

[Bugs]

I think I’ve said this before on this website – Denver is a market that we should always watch because it is a canary for the coastal markets. It’s always the first in and first out of the trends, whether they’re up or down. They’re 2 years into their downswing right now and I think they’ll be 2 years ahead of us when they turn around, too. If people still have a stomach for RE investing after this, I think Denver would be a good place to start.

[Bugs]

Thanks Rich.

I like this site because data talks and B.S. walks.

[Bugs]

I do believe we’ve milked this thread for all it’s worth. Perhaps it’s time to call this one quits and move on.

[Bugs]

I think it very much depends on their position. Someone who’s property taxes and mortgage are based on a pre-1997 $200k purchase price would have a hard time getting back to such a position if they sold out now and hoped for a decline. They’d also have a tough time renting something equivalent at the same payment as their current mortgage.

If this really is the big one coming on right now, who knows when long term financing rates will be this low again? Then there is the prospect of capital gains to consider.

[Bugs]

This article basically parrots the “New Paradigm” model; prices will reset and start a new trendline from this point forward because the old trendline no longer applies. We will henceforth have new relationships between pricing and the underlying fundamentals such as supply, effective demand, wages and population. People will henceforth always be willing to spend in excess of 50% of their gross income for their housing, even when there is no short term upside.

Not.

They used so many assumptions it is mind boggling. They use the historical average increase of 3% but then they apply it to the current price spike rather than to the trendline upon which that average was based. Duhh. They make assumptions about financing continuing on at sub 6% rates when we have always known that to be an historically low rate that is inaccurate as of right now. They make assumptions about price stability that we can now see have been proven to be unfounded.

In a nutshell, if I ever submitted an income forecast for an investment property that relied on so many unsupported and historically unfounded (as in, demonstrated to be false) assumptions my license would be subject to discipline from the state. For the NYT to quote this superficial and incomplete analysis from some minor league academic lightweight in their article puts them on the same level as any local rag.

But that’s just my opinion.

[Bugs]

I think all cycles play out a little differently. But I also think that past predicts the future.

I remember in 01/1990 seeing a real softening in most of the residential markets. For about 3 months it was real spotty and inconclusive. By about 03/1990 most of the appraisers had figured out that the market was in decline. It took the newspapers about 6 months before they picked up on that and by then it was way too late for some of the “last fools”.

The residential markets here started to decline and the foreclosures started to rack up. As the lenders’ reserves got quickly eaten up by foreclosing, then selling the foreclosed properties under quick sale conditions, the feds would close them in order to stem the losses. That only made it worse. More lenders went down, more properties came on the market as “bank-owned foreclosures”. Believe me, when potential buyers see that sign on a property they know they can lowball the offer even more because the lender is under pressure to sell and they have to liquidate. It sets the market because at the same time the prices are declining that decline is contributing to the rate of foreclosures which in turn swell the inventory and cause further declines. This is the flip side of the “real estate never goes down in value” line that has been so popular these last few years.

As the declines picked up speed, it affected almost every price bracket, but especially the middle ranges. The bottom end lost a bit, but the middle and top price ranges collapsed like an accordion. At one point there wasn’t a whole lot of price differential between what would have previously passed for a $350k home and a $150k home.

The subdivision developers had to finish their projects and get out, no matter what, so they had to cut their pricing. That made selling their homes even harder, and on top of that it spurred some lawsuits from previous buyers. The developer had basically undercut their purchase prices leaving them upside down. People were suing because a $50k loss was enough to ruin them. There were a whole lot of people who were basically trapped in their homes for a good 6 or 7 years, until prices caught up in the 1996-1997 time frame. Those who could hang made it through and those that didn’t added to the inventory.

All that happened in a market where the peak had topped out about 25% – 30% above the long term trendline. Now that we’re 60% above the trendline I don’t think I am capable of overestimating how bad it can get. We only wish we were looking at $50k losses. Heck, that one model in Bressi Ranch has basically lost $70k and things haven’t even started going south yet.

[Author]

Posts