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davelj
Participant[quote=urbanrealtor]
1: Vantage point units will totally sell.
A landlord with a pre-mapped building that cash flows positive is in no hurry to fire sale them but I would expect that at some point in the next few years, the nominal prices will cause selling to make more sense than renting.
Further, VP can sell them off slowly and at its leisure (while still pulling rents). The only question in that strategy is the cost of HOA obligations for the project owner.[/quote]I’m not even thinking about VP… Zell (ERP) rarely sells his apartment buildings. I don’t think this will be an issue for downtown supply for so long into the future that it’s not even worth contemplating.
[quote=urbanrealtor]
3: The mean rate (taken over the course of the year) for closings in downtown is about 75/month.
The instantaneous rate of change on this is highly correlated to season (about 50 per october to march and about 100 per month april to september) but it works out the same. About 900 per year. Currently, there is about 400 active for sale in 92101 with roughly translates to about 5 months of inventory.
In a distress-heavy area, that is an impressive mean closing speed.
There are currently about 139 pendings listed in 92101. That means there are approximately 3 units for every one buyer as of today.
If you ask Jim Klinge about this, he will probably tell you that this is a healthy ratio with a just a hint of tilting toward a seller’s market.
[/quote]I just wonder how much inventory is *really* out there. Again, I think most of the specuvestors are gone or will be gone by year’s end (2011). Now we’re seeing some unemployment-related foreclosures and short sales, but those are slowing down. So, my REAL question is how many new, unoccupied, un-owned units are sitting in downtown’s inventory. For example, how many units in Bayside have been purchased (to use just one example)? I wouldn’t be surprised if there are 1,000 new units sitting in inventory downtown. Having said that… I just don’t know. I’m pretty sure that I can get my hands on that data soon, though. But if you know these actual numbers, by all means… inquiring minds and all. I’d love to be wrong about this.
Participant[quote=urbanrealtor]
1: Vantage point units will totally sell.
A landlord with a pre-mapped building that cash flows positive is in no hurry to fire sale them but I would expect that at some point in the next few years, the nominal prices will cause selling to make more sense than renting.
Further, VP can sell them off slowly and at its leisure (while still pulling rents). The only question in that strategy is the cost of HOA obligations for the project owner.[/quote]I’m not even thinking about VP… Zell (ERP) rarely sells his apartment buildings. I don’t think this will be an issue for downtown supply for so long into the future that it’s not even worth contemplating.
[quote=urbanrealtor]
3: The mean rate (taken over the course of the year) for closings in downtown is about 75/month.
The instantaneous rate of change on this is highly correlated to season (about 50 per october to march and about 100 per month april to september) but it works out the same. About 900 per year. Currently, there is about 400 active for sale in 92101 with roughly translates to about 5 months of inventory.
In a distress-heavy area, that is an impressive mean closing speed.
There are currently about 139 pendings listed in 92101. That means there are approximately 3 units for every one buyer as of today.
If you ask Jim Klinge about this, he will probably tell you that this is a healthy ratio with a just a hint of tilting toward a seller’s market.
[/quote]I just wonder how much inventory is *really* out there. Again, I think most of the specuvestors are gone or will be gone by year’s end (2011). Now we’re seeing some unemployment-related foreclosures and short sales, but those are slowing down. So, my REAL question is how many new, unoccupied, un-owned units are sitting in downtown’s inventory. For example, how many units in Bayside have been purchased (to use just one example)? I wouldn’t be surprised if there are 1,000 new units sitting in inventory downtown. Having said that… I just don’t know. I’m pretty sure that I can get my hands on that data soon, though. But if you know these actual numbers, by all means… inquiring minds and all. I’d love to be wrong about this.
Participant[quote=urbanrealtor]
1: Vantage point units will totally sell.
A landlord with a pre-mapped building that cash flows positive is in no hurry to fire sale them but I would expect that at some point in the next few years, the nominal prices will cause selling to make more sense than renting.
Further, VP can sell them off slowly and at its leisure (while still pulling rents). The only question in that strategy is the cost of HOA obligations for the project owner.[/quote]I’m not even thinking about VP… Zell (ERP) rarely sells his apartment buildings. I don’t think this will be an issue for downtown supply for so long into the future that it’s not even worth contemplating.
[quote=urbanrealtor]
3: The mean rate (taken over the course of the year) for closings in downtown is about 75/month.
The instantaneous rate of change on this is highly correlated to season (about 50 per october to march and about 100 per month april to september) but it works out the same. About 900 per year. Currently, there is about 400 active for sale in 92101 with roughly translates to about 5 months of inventory.
In a distress-heavy area, that is an impressive mean closing speed.
There are currently about 139 pendings listed in 92101. That means there are approximately 3 units for every one buyer as of today.
If you ask Jim Klinge about this, he will probably tell you that this is a healthy ratio with a just a hint of tilting toward a seller’s market.
[/quote]I just wonder how much inventory is *really* out there. Again, I think most of the specuvestors are gone or will be gone by year’s end (2011). Now we’re seeing some unemployment-related foreclosures and short sales, but those are slowing down. So, my REAL question is how many new, unoccupied, un-owned units are sitting in downtown’s inventory. For example, how many units in Bayside have been purchased (to use just one example)? I wouldn’t be surprised if there are 1,000 new units sitting in inventory downtown. Having said that… I just don’t know. I’m pretty sure that I can get my hands on that data soon, though. But if you know these actual numbers, by all means… inquiring minds and all. I’d love to be wrong about this.
Participant[quote=CA renter]What I’m referring to is the cuts in wages and benefits that the public employees will be taking. It is, essentially, a tax on them, in order to pay for the misdeeds of the financial industry.
[/quote]Allow me to make a counter argument using California as an example. The reason we have so many public employees (with associated benefits) right now is because of the inflated tax revenues that came in during the late-90s (high tech/stock market bubble) and the mid-2000s (real estate/stock market bubble). Were it not for these bubbles, many of these public employees would not be employed by state and local governments, nor would their comp and benefits be where they are today. The money wouldn’t have been there. Consequently, I could argue that a lot of these folks got jobs and compensation that they never should have gotten in the first place – that is, they received a free lunch courtesy of the bubbles – and that now it’s time to go back to doing whatever they would have been doing had those jobs not been available. That’s the glass is half full argument. Your argument is that the bubble jobs and comp should be continued for the mere reason that they were created in the first place, and anything less than this is an unfair burden placed on public employees. That’s the glass is half empty argument. Which I don’t buy.
My glass is typically half full even when I’m bearish. But that’s just me.
Participant[quote=CA renter]What I’m referring to is the cuts in wages and benefits that the public employees will be taking. It is, essentially, a tax on them, in order to pay for the misdeeds of the financial industry.
[/quote]Allow me to make a counter argument using California as an example. The reason we have so many public employees (with associated benefits) right now is because of the inflated tax revenues that came in during the late-90s (high tech/stock market bubble) and the mid-2000s (real estate/stock market bubble). Were it not for these bubbles, many of these public employees would not be employed by state and local governments, nor would their comp and benefits be where they are today. The money wouldn’t have been there. Consequently, I could argue that a lot of these folks got jobs and compensation that they never should have gotten in the first place – that is, they received a free lunch courtesy of the bubbles – and that now it’s time to go back to doing whatever they would have been doing had those jobs not been available. That’s the glass is half full argument. Your argument is that the bubble jobs and comp should be continued for the mere reason that they were created in the first place, and anything less than this is an unfair burden placed on public employees. That’s the glass is half empty argument. Which I don’t buy.
My glass is typically half full even when I’m bearish. But that’s just me.
Participant[quote=CA renter]What I’m referring to is the cuts in wages and benefits that the public employees will be taking. It is, essentially, a tax on them, in order to pay for the misdeeds of the financial industry.
[/quote]Allow me to make a counter argument using California as an example. The reason we have so many public employees (with associated benefits) right now is because of the inflated tax revenues that came in during the late-90s (high tech/stock market bubble) and the mid-2000s (real estate/stock market bubble). Were it not for these bubbles, many of these public employees would not be employed by state and local governments, nor would their comp and benefits be where they are today. The money wouldn’t have been there. Consequently, I could argue that a lot of these folks got jobs and compensation that they never should have gotten in the first place – that is, they received a free lunch courtesy of the bubbles – and that now it’s time to go back to doing whatever they would have been doing had those jobs not been available. That’s the glass is half full argument. Your argument is that the bubble jobs and comp should be continued for the mere reason that they were created in the first place, and anything less than this is an unfair burden placed on public employees. That’s the glass is half empty argument. Which I don’t buy.
My glass is typically half full even when I’m bearish. But that’s just me.
Participant[quote=CA renter]What I’m referring to is the cuts in wages and benefits that the public employees will be taking. It is, essentially, a tax on them, in order to pay for the misdeeds of the financial industry.
[/quote]Allow me to make a counter argument using California as an example. The reason we have so many public employees (with associated benefits) right now is because of the inflated tax revenues that came in during the late-90s (high tech/stock market bubble) and the mid-2000s (real estate/stock market bubble). Were it not for these bubbles, many of these public employees would not be employed by state and local governments, nor would their comp and benefits be where they are today. The money wouldn’t have been there. Consequently, I could argue that a lot of these folks got jobs and compensation that they never should have gotten in the first place – that is, they received a free lunch courtesy of the bubbles – and that now it’s time to go back to doing whatever they would have been doing had those jobs not been available. That’s the glass is half full argument. Your argument is that the bubble jobs and comp should be continued for the mere reason that they were created in the first place, and anything less than this is an unfair burden placed on public employees. That’s the glass is half empty argument. Which I don’t buy.
My glass is typically half full even when I’m bearish. But that’s just me.
Participant[quote=CA renter]What I’m referring to is the cuts in wages and benefits that the public employees will be taking. It is, essentially, a tax on them, in order to pay for the misdeeds of the financial industry.
[/quote]Allow me to make a counter argument using California as an example. The reason we have so many public employees (with associated benefits) right now is because of the inflated tax revenues that came in during the late-90s (high tech/stock market bubble) and the mid-2000s (real estate/stock market bubble). Were it not for these bubbles, many of these public employees would not be employed by state and local governments, nor would their comp and benefits be where they are today. The money wouldn’t have been there. Consequently, I could argue that a lot of these folks got jobs and compensation that they never should have gotten in the first place – that is, they received a free lunch courtesy of the bubbles – and that now it’s time to go back to doing whatever they would have been doing had those jobs not been available. That’s the glass is half full argument. Your argument is that the bubble jobs and comp should be continued for the mere reason that they were created in the first place, and anything less than this is an unfair burden placed on public employees. That’s the glass is half empty argument. Which I don’t buy.
My glass is typically half full even when I’m bearish. But that’s just me.
Participant[quote=CA renter]Dave,
We had women entering the workforce en-masse, and Baby Boomers entering their peak buying years during the 70s and 80s. I think these things had far more to do with inflation than [insert whatever other choice] did. If not for those rising rates, we probably would have seen much higher asset price inflation than we did during that time.[/quote]
Yes, and for the past few years the number of new housing units (adjusted for demolitions) has been running at about 20% of the long-term trend, which was not the case in the 70s and 80s. My point is not that you’re wrong but that if you’re going to compare periods you have to look at both supply and demand. While existing supply is very high right now, that won’t be the case in a few years because there’s so new little new supply coming online. We can each trot out reasons that support our argument – that’s what makes a market.
Participant[quote=CA renter]Dave,
We had women entering the workforce en-masse, and Baby Boomers entering their peak buying years during the 70s and 80s. I think these things had far more to do with inflation than [insert whatever other choice] did. If not for those rising rates, we probably would have seen much higher asset price inflation than we did during that time.[/quote]
Yes, and for the past few years the number of new housing units (adjusted for demolitions) has been running at about 20% of the long-term trend, which was not the case in the 70s and 80s. My point is not that you’re wrong but that if you’re going to compare periods you have to look at both supply and demand. While existing supply is very high right now, that won’t be the case in a few years because there’s so new little new supply coming online. We can each trot out reasons that support our argument – that’s what makes a market.
Participant[quote=CA renter]Dave,
We had women entering the workforce en-masse, and Baby Boomers entering their peak buying years during the 70s and 80s. I think these things had far more to do with inflation than [insert whatever other choice] did. If not for those rising rates, we probably would have seen much higher asset price inflation than we did during that time.[/quote]
Yes, and for the past few years the number of new housing units (adjusted for demolitions) has been running at about 20% of the long-term trend, which was not the case in the 70s and 80s. My point is not that you’re wrong but that if you’re going to compare periods you have to look at both supply and demand. While existing supply is very high right now, that won’t be the case in a few years because there’s so new little new supply coming online. We can each trot out reasons that support our argument – that’s what makes a market.
Participant[quote=CA renter]Dave,
We had women entering the workforce en-masse, and Baby Boomers entering their peak buying years during the 70s and 80s. I think these things had far more to do with inflation than [insert whatever other choice] did. If not for those rising rates, we probably would have seen much higher asset price inflation than we did during that time.[/quote]
Yes, and for the past few years the number of new housing units (adjusted for demolitions) has been running at about 20% of the long-term trend, which was not the case in the 70s and 80s. My point is not that you’re wrong but that if you’re going to compare periods you have to look at both supply and demand. While existing supply is very high right now, that won’t be the case in a few years because there’s so new little new supply coming online. We can each trot out reasons that support our argument – that’s what makes a market.
Participant[quote=CA renter]Dave,
We had women entering the workforce en-masse, and Baby Boomers entering their peak buying years during the 70s and 80s. I think these things had far more to do with inflation than [insert whatever other choice] did. If not for those rising rates, we probably would have seen much higher asset price inflation than we did during that time.[/quote]
Yes, and for the past few years the number of new housing units (adjusted for demolitions) has been running at about 20% of the long-term trend, which was not the case in the 70s and 80s. My point is not that you’re wrong but that if you’re going to compare periods you have to look at both supply and demand. While existing supply is very high right now, that won’t be the case in a few years because there’s so new little new supply coming online. We can each trot out reasons that support our argument – that’s what makes a market.
Participant[quote=CA renter][quote:davelj][quote:CA renter]Thanks for your response, Dave.
It just seems like it would be easier to manage in a stagnant/falling interest rate environment, not so easy in a rising rate environment.[/quote]
Why does it “seem” that way? (Because it’s your preference?) Please explain.[/quote]
It seems that it would be easier to manage a portfolio of loans in a falling rate environment because the borrowers who were likely to default would be more able to refinance to lower-rate loans, eliminating **some** of the default risk (to the new lender) as their monthly payments would go down. The original lender would be made whole by the refinance, so potentially lower/no losses there. Additionally, asset prices would likely be higher so that they would have the equity to refinance (yes, there are other variables).
It would also be easier to manage because the higher-rate loans could be sold off for a better price if the lender thought the default risk was greater than the benefit of holding those higher-rate loans.
Also, assuming the mortgages had rates that were fixed at those higher rates, the lenders could borrow at ever-lower costs in a falling rate environment, increasing their spread.
Essentially, I would personally prefer to hold and manage bonds in a falling rate environment, rather than a rising rate environment.
Yes, the counterparty risk on those swaps is also a great concern, IMHO. One thing I do NOT like about credit swaps (interest rate or default swaps), is that it distorts the price of money in the open market. If the swaps are not traded on the open market, and/or if the price of swaps (and swaps on swaps) is not somehow made transparent, it masks the price of risk in the open market, which increases that “systemic risk” that everyone supposedly worries about.[/quote]
Ah, I thought you were specifically talking about the asset-liability/swap portion of the portfolio management process… which is no easier or harder if rates are rising are falling. But, yes, I’d say the CREDIT COST portion of the process is more difficult if rates are rising, but recall that rents, inflation and interest rates have a very high correlation. If rates are rising there’s a very good chance that rents are rising (as they are beginning to do in the multi-family sector)… which makes home ownership look more attractive because you can lock in your cost of housing. Go back at look at housing prices and rents during the 70s. What you’ll find is that prices continued to rise as rates (and rents) rose dramatically. Now, if rates increased by 200 bps in one year there might be an issue, but if it takes 2 or 3 years I don’t think it’ll be a big deal because most of the excess inventory will have been cleared out.
It is far easier to manipulate the value of credit default swaps than interest rate swaps. The latter are far more straightforward from an accounting standpoint and have been around for a couple of decades now. There’s always risk but I’m not overly concerned about them.
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