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davelj
ParticipantLeaving pricing aside, the principal advantage to owning versus renting is that your “rent” can’t, for all intents and purposes, increase on you if you have a fixed-rate mortgage. That’s not to say that you should pay today’s ridiculous prices in lieu of renting, but as a general rule you should be WILLING to shoulder a higher all-in monthly housing payment (mortgage, taxes, insurance, etc.) versus renting. The monthly premium you should be willing to pay should reflect net tax advantages, the fact that rent can’t be (meaningfully) increased on you (again, for all intents and purposes), and “intangibles” such as peace of mind, etc. LESS maintenance costs. That’s why it’s completely logical to be willing to shoulder a meaningfully larger gross all-in monthly cost of owning versus renting. But 50% to 100% higher (as is the case currently) makes no sense whatsoever.
ParticipantI would be very curious to know what percentage of today’s house flippers also lost their arses daytrading back in 2000/2001. Very curious. I’ve found that people who seek “easy” riches never seem to learn that there’s no free lunch (or, at least, very few of such elusive tasty morsels).
This listing shouldn’t read “NEED PROFESSIONAL AND CREATIVE HELP!!!… it should read “NEED CASH AND A REVERSE LOBOTOMY!!!”
ParticipantFor a good case study, see the ’70s. Corporate profits were actually pretty good. The reason stocks traded at 5x-8x earnings was inflation. Why take equity risk when you could buy a risk-free long-term treasury yielding 12%? Why indeed…
ParticipantWhile the earnings of equities are somewhat protected against inflation (much like real estate due to higher rents), what you’re ignoring is the negative impact that inflation has on the valuation placed on equities (and real estate) because the discount rate applied to the cashflows increases. So, your earnings may increase but your valuation will probably still decline.
To use your example, in the first instance the discount rate applied to the $10 in profit might be, say, the professorial 10%, comprised of 3% inflation and a 7% risk premium, for a value of $100.
In the second instance the discount rate applied to the $12 in profit might be 27% (20% inflation plus a 7% risk premium), for a value of $44.44.
So your earnings go up, but your valuation declines. So, your cashflow increases but your principal declines… so you’re not really protected are you?
ParticipantWhat’s the surest sign of a bubble? Brainless nincompoops are effortlessly making a boatload of dough.
Think about it… the Daytrading Internuts of 1998/1999… the 0%-down Condo Flippers of 2003/2004… and the Subprime Mortgage Brokers of 2004/2005. Few of these clowns ever really knew what they were doing, but sheer market momentum carried them into temporary riches for some period of time.
Of course it all has to end badly. After all, unless you’re REALLY lucky you can’t outperform your accumulated human capital for a long period of time. It’s just not how markets work.
So the vast majority of these mortgage broker bozos who made $500K – $1MM for a few years and levered up their lifestyles accordingly will soon be back down to their “natural employment habitat”… scrambling for marginal work and liquidating assets…
ParticipantI believe the Fed will drop rates and soon. Although it won’t be pleasant.
Yes, foreigners (China and Japan, mostly) will buy short-term paper with (even) lower yields. And they’re still buying our longer-term paper with crappy yields that are barely above short-term yields. Why, Grasshopper, why? I’ll explain…
Yes, by all rights, our currency should continue its descent into the crapper. But remember that it takes two to tango. And the governments of China and Japan (etc.) need to export goods to the United States of Spend-ola – we’re by far their largest market. Consequently, there will be enormous political pressure for them to keep their currencies from appreciating too much relative to the dollar and thus curtailing exports. At the end of the day, these governments would rather hold a bunch of low-yielding paper and keep their economies humming along rather than practice “prudent investing” and watch their export-driven economies implode. It’s a trade off and history suggests which route they’ll take (that is, the one I’ve just described).
So, look for the Fed to lower rates to 3% or so over the next two years. Look for our currency to depreciate but not implode. Look for domestic-driven inflation to fall (due to housing and its ripple effects) but for import inflation to rise, albeit not dramatically. [Net/net “real” inflation (as opposed to the “make believe” inflation number the government provides to us) may actually decline a bit over the next few years.] And look for long-term rates (and long-term mortgage rates) not to move a whole lot – give or take 75 bps in either direction.
Just my two cents, of course. And worth exactly what you paid for it.
ParticipantRepeat after me: toast. burnt.
ParticipantMy headline for Bill Miller:
“Investors Rejoice as their Chosen Coin Flipper Improbably Advances Another Round”
(Miller isn’t in the same ballpark as Buffett… not even the same city… nor is he even close to being second.)
ParticipantThe permabulls will only respond to dramatic, real-time price change data. For example, if the median P/SF in San Diego falls by 10% (or thereabouts) this year (and next) – that will be real and undeniable. Anything else is just conjecture in their minds.
Lots of internut investors were buying the Nasdaq at 4500, thinking it was an opportunity to buy on the dip after the index had been at 5000. When it had declined to 2500, the permabulls were nowhere to be found. The same will happen with housing, albeit on a different magnitude.
ParticipantI loved this quote: Outside of the housing and auto industries, “the economy is strong,” Bies said.
Right, I mean other than the fact that I have cancer, my health is pretty good.
(No, I don’t really have cancer.)
ParticipantDuck, these subprime borrowers are a major issue. I’ll explain. First of all, if Countrywide’s most recent release is a good indication – and it should be, as Countrywide is one of the nation’s largest subprime lenders – roughly 20% of subprime borrowers are in trouble. So, assuming that subprime represents about 10% of the market, that’s 2% of the overall market. Which is to say that 2% of ALL mortgages are in trouble due to subprime ALONE right NOW. Well, what percentage of all homes with mortgages are are for sale currently? 10%? 5%? I don’t know the answer but I’d bet it’s somewhere between 5% and 10%, or thereabouts. You see where this is leading? Now you’re looking at that 2% number – which will likely be for sale either by either the owner or the lender in the not-too-distant future – relative to 5%-10%. So when you look at it this (the correct) way, it’s a HUGE issue. Now, I’m not saying this will cause prices to decline by 50%, but you gotta remember: everything important in pricing happens at the margin. You add 10%-20% more homes on the market by sellers that MUST sell and it creates real havok for pricing equilibrium.
ParticipantMy understanding is that they’re going to announce a Chapter 7 bankruptcy (liquidation) within the next 30-45 days. One of the challenges has been that virtually all of the bulge bracket investment banking firms that would otherwise handle NEW’s investment banking needs right now are prohibited due to conflicts of interest (they’re lenders to NEW and will thus be seeking reparations in the bankruptcy), so NEW has had to go a little further afield for banking services which has delayed things a bit. But the outcome will be the same… kaput.
ParticipantDell pre-announced a debacle; AMD just pre-announced a disaster this afternoon… if you’re long tech, people, you’re about to get absolutely slaughtered…
********** From my previous post***************
I will be shocked if the Nasdaq doesn’t close below 2000 in the next 12-18 months. Other than early-2000 (the year, to be clear) I’ve never seen valuations so high at a time when the fundamentals of both the economy and individual stocks – and particularly tech stocks, where inventories are absolutely through the roof – were deteriorating so rapidly.We just got what amounts to negative guidance from Dell. I’d expect pre-announcements and negative guidance from at least the following over the next several weeks:
TXN
QCOM
INTC
AMD
RIMM
MOT
AMAT… and many many others. This is going to be a bloodbath. Why? Everyone’s on the wrong side of the trade… as is the case leading up to all major dislocations…
Look out below, folks.
ParticipantI think we’ll see an 8%-10% decline in the median price/sq. ft. here in SD this year. The marginal buyers from the last three years are gone. These buyers were the speculators and the people who bought with little/no money down, stated income, and used ARMs. Most of these people will no longer qualify for loans under the tighter credit standards, thereby knocking out a huge portion of first-time buyers (maybe half?), which reverberates up the transaction chain. Now the people trying to sell their $500K house have half as many potential buyers so they will have a hard time moving up to the $750K house and so on.
I just looked at the community where I used to own (sold in early 2004 – too early, doh!) and there are two properties for sale. One is for sale at $319K, the second at 399K. (These units peaked out at $410K in summer ’05 and the most recent sales were in the $330Ks.) They are virtually identical condos – exact same size and layout. The difference in price is due to the fact that the owners of the first home bought in 1998 for $120K (and have a big built-in gain), the owners of the second home bought in 2004 for $389K, so the latter owners MUST sell for well over $389K or they’re going to lose money. I think that there are A LOT of people in this situation and they won’t budge until they’re forced to – they’ll hang in as long as they can which keeps the market from tanking in the short run. The problem is, of course, that your house doesn’t know or care that you own it, nor does the housing market…
Also, obviously, inventory is much higher than it appears due to all the builder units that don’t show up in the MLS. Yes, this year is going to be a doozy… and next year as well…
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