[Daniel]

Could anybody recommend a futures broker who trades CME housing futures based on the S&P Case-Shiller index? My discount broker can’t do that.

I am very seriously interested in this, and I would appreciate any feedback on the issue. I know the trading volumes are very low, but I’ve traded in iliquid markets before. And anyways, I’m not planning to open a large position (about 15 contracts, perhaps).

Thanks very much,
Daniel

[Daniel]

Price declines are about in line with what I expected, and I still think prices will continue slowly drifting down for a number of years (until about 2011). I believe construction and sales will probably start recovering much sooner (as early as late 2008 or 2009).

[Daniel]

Kev374:

I’m gonna throw my hat in the ring on this one: I believe the US dollar is about to bottom here (against the euro, for example). The dollar sentiment is more bearish than ever, and this is usually a telling sign. Also, by “here”, I don’t mean today or tomorrow. Let’s just say I believe 5 years down the road the dollar index will be higher than it is today. Perhaps much higher.

PS: I have no money riding on this; it is just my opinion.
PPS: it’s likely the dollar will still go lower against the yuan, as China will have to revalue at some point.

[Daniel]

Cashman,

The moral of your story (if there is one) is “never rent a house that you wouldn’t buy”. I’m very happy with my rental, and I would buy the house I live in if I felt that the price was right. Anyone who intends to live in a cookie-cutter tract home (like me) should easily find an equivalent rental. But if your preferences are very specific, then renting is probably a bad idea. OK, it may save you money, but you give up quality of life for that. I’ll say it again: never rent something you wouldn’t buy.

PS: of course, the comment above applies to those who rent by choice (like you). Those who rent because they can’t possibly afford to buy don’t have this luxury.

[Daniel]

Depends on ARM. LIBOR is pretty common, and so are short-term Treasury rates. Not the fed funds though (as far as I know).

[Daniel]

Ummm, Portland… Remember another paper, think it was called “Debunking Portland: The City That Doesn’t Work”. No kidding, this was the title. Maybe I read too much…

[Daniel]

Well, of course incomes have something (a lot) to do with prices. But I guess I interpreted the original question to be directed more towards an apples-to-apples type of comparison, like San Diego vs Austin (not SF vs. Hidalgo County, wherever that poor county might be).

In an apples-to-apples comparison, the explaining factor for high prices is usually land use/zoning. Whenever a city adds people (and both San Diego and Austin have grown mightily over the past decade), an inelastic housing supply (restrictions, regulation, NIMBYs, zoning, etc) inevitably results in a price spike. An elastic housing supply (light regulation, fast approvals) will result in sprawl, but also low prices. Texas is the poster child of very light (non-existent?) regulation, enormous sprawl, and consequently, very low prices.

[Daniel]

I second surveyor’s opinion. The single biggest factors in housing prices are land availability, regulation and zoning laws. It’s not weather (Seattle and Boston are expensive), and it’s not quality of life (Bakersfield and Barstow, anyone?).

Think of cars: how about if you wanted to buy a Honda, but before buying it, you had to ask every neighbor a mile around if they liked the color of your car, and you had to get the city to approve of your purchase? How about if Honda, before building an Accord, had to wait 5 years to get approvals for it? Do you think they would still sell it to you for $20K?

Edit: for those who like math and finance: google “Zoning’s steep price” to find a pretty interesting old paper about the implicit cost of regulation on home prices.

[Daniel]

SD Realtor,

Could you (again) post your e-mail address in this forum, please? I would like to contact you regarding possible representation. I’m not planning on buying anything real soon, but perhaps in a year or so.

Thanks,
Daniel

[Daniel]

The guy in question was Nobel laureate Milton Friedman, and he died a few months ago. He was famous for many things, among them for arguing that the Great Depression was primarily caused by the disastrous policy of the Fed at the time (the Fed sharply raised rates as markets tanked!). Friedman compared the 1930s depression, the Japanese crash of the 1990s, and the US stock crash of 2000-2002, and concluded that the vast differences in outcome were primarily due to central bank policies. From catastrophic (1930s Fed raised rates) to so-so (1990s Japanese central bank lowered, but not fast enough) to brilliant (2000s Fed slashed rates to 1% extremely fast, resulting in only a mild recession). Now, I know that Greenspan & Co don’t have many friends on this board, but I believe they did the right thing, and we dodged a very big bullet. True, they probably kept the rates low for a year or so too long (they should have started raising in mid-2003), but hindsight is 20/20.

[Daniel]

I don’t want to interfere much in your Iraq discussion, folks, but I couldn’t help but notice a common opinion among posters here: that corporations somehow are the evil force behind pretty much everything in the world.

Not only I don’t subscribe to that opinion, but, on the contrary, I believe that corporations are behind almost everything that is good in the world, like progress, technological advance, wealth creation, and, yes, even wealth redistribution to the poor. Private foreign direct investment in the last 20 years in China, India, and the rest of South-East Asia has lifted way more people out of poverty than all the government spending over the last century.

I feel it is terribly shortsighted to blame corporations for everything. Business-bashing has become widely accepted political rhetoric. It used to only come from the left, but it now comes from both left and right. As an example, I think that the ridiculous congressional hearings of oil company executives in the wake of Katrina were a low point for the US Congress and our country.

[Daniel]

Diego,

Total long-term returns for both stock market and real estate are actually very similar (about 10% nominal, or 7% real). For stocks, the total return is capital gains plus dividends, and for real estate is capital gains plus rental income minus expenses (insurance, maintenance, etc). Rental income could be actual rental income (someone is paying you money to live in your house), or “owner’s equivalent rent” (money you don’t have to pay to someone else because you live in your own house).

The well-known argument that housing “only appreciates 1%/year”, although factually correct, is quite misleading and incomplete. Yes, empty housing only returns 1%/year (probably negative if expenses are factored in), but that’s not the point of real estate, is it now? Hotels wouldn’t be very good investments if they sat empty, right? Historically, rental income delivers most of the returns for real estate, while capital gains usually return much less.

Naturally, since San Diego rental yelds are very low now, it means that local real estate is overpriced. But I guess that’s not news to you or anybody else here.

Finally, there are many differences between stocks and real estate investments (liquidity, leverage, minimum investment required, and tax treatment), and it is true that these can influence actual returns a lot. I agree with you, for regular folks stocks are a far easier investment, because they’re liquid and can also be bought a little at a time.

Daniel

[Daniel]

If this was arson (and at this point there is no evidence of it), I would think extremist environmentalist groups would be the likely suspects. Or some disgruntled employee.

I find it really, really hard to believe that a developer would do such a thing. If the project fails, the bank forecloses and they lose money. Big deal. But arson and insurance fraud convictions would result in losing everything they have and also going to jail for a long, long time. Nobody believes that insurance companies would just roll over and pay without thoroughly investigating the cause. It just doesn’t make any sense for the developer to do anything like that.

[Daniel]

Thanks for posting this, Perry. I also wonder how the UTC converters are doing nowadays.

[Daniel]

6.875% to 7% sounds about right (if you pay no points). If you are willing to pay a lot of points, you can get it much lower, of course. E*Trade (www.etrade.com) has instant mortgage rates for multi-unit rentals, among others, so you can get an idea for what to expect.

[Author]

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