[Diego Mamani]

Yes, MANmon, proof your writing. It is website, not “web sight.” And you did miss something: this is the Off Topic subforum.

[Diego Mamani]

Yes, impeachment. And Cheney and Rumsfeld should be tried for crimes against humanity. Their unprovoked, lies-driven invasion of Iraq has caused countless deaths (over 100,000). Even today, there’s almost daily carnage there. All that chaos was unleashed by the real axis of evil: dubya-cheney-rumsfeld. Saddam was a crook and a dictator, but he was no madman, and he kept order in his country.

Now we are in a Catch 22: we are damned if we stay in the hell we created in Iraq, but if we leave, the Taliban-style fanatics will take over. Either way we are infinitely worse than had Saddam stayed in power. And hatred of the USA increases by the day, because of these injustices. This certainly makes us less secure, for decades to come. Satan (if he or she exists) should be very proud of this axis of evil (see above).

BTW: The 100,000 deaths are based on conservative and scientific estimates published by The Lancet, a highly respected British medical journal.

[Diego Mamani]

Asianautica: I know what you mean, whether it’s bottom plus 10%, or x%, we’ll be in the dark until a long period has elapsed.

Powayseller: Your dictum I believe I can time the real estate market is a precious little gem! Now, seriously, the last time the market hit bottom was 1996, but we didn’t know that until the 1998 summer house buying season was over. Perhaps it took until the spring of 1999 for smart people to realize that 1996 had been the bottom. And even then, no one was 100% sure because appreciation in 1998-2001 wasn’t as steady as in 2002-2005. And you are telling us that you will know for sure when the bottom was only 2-3 months after the fact? That’s tantamount to claiming supernatural powers. You should run your ideas by John Talbott, but he’ll probably tell you the same thing.

Medieval chemists dreamed of manufacturing gold (didn’t work). Some time later, physicists dreamed of building perpetual moving machines (didn’t work). Today we dream of being able to time the real estate market. And that’s fine, as long as we know that it’s just a dream.

Have a good weekend.

[Diego Mamani]

You think inflation is high now?
You should look at these Historical Inflation Rates.

Inflation now is at 4% (core inflation is below 3%). Historically, such numbers are not high at all. We’ve had double-digit inflation in 1974 and again in 1979-81, with rates well over 5% in the intervening years. For stagflation we would need high inflation and slow growth. We may have the latter in the near future, perhaps, but we are really far from high inflation.

[Diego Mamani]

It makes sense to have some of your funds in euros or swiss francs, for diversification purposes. But keep in mind the transaction costs that you will incurr, especially if you want to trade often, or convert a few euros into dollars every month. The bid-ask spread is not negligible, and your financial institution will likely impose fees on top of that. There are fees for transferring money in and out of your account, plus fees for convertng foreign currency. And because of the bid-ask spread, you will start in the red (at a loss).

[Diego Mamani]

I’m glad he’s not Viet Cong Jim.

I agree with the NOD argument. In a slow market it may take more than 3 months to sell, even in you pick a realistic price. Add another 5 weeks for escrow to close, and it becomes clear why the defaulting homeower (sic) can’t sell the house himself fast enought to avoid foreclosure.

[Diego Mamani]

PS: High inflation is defined as a sustained increase in prices (wages included). One-time jumps in oil prices, for instance, don’t result in sustained price increases.

Stagflation in the 70s was a result of a desperate and failed attempt of improving the economy by printing money. Fortunately, the Fed today is light-years ahead of their predecessors back then.

The only way for inflation to be a problem in the next months is if the economy picks up, exerting pressure on limited resources (labor, capital). To the extent that the Fed saw minor symptoms of am economic slowdown, it decided to pause its (short-term) interest rate increases. That’s precisely the right thing do. Unnecessary monetary tightening would create a recession, which nobody wants.

[Diego Mamani]

SMFJ, you were priced out, but only temporarily. And, anyways, a single person in her twenties shouldn’t be buying a house. In the last few years we saw many single people buying houses because they thought it was a good investment, or because of the tax break, or because they thought they would be priced out forever. That’s all balloney as we well know.

In any case, soon it’ll be pay back time for you. Once you get married and are ready to settle down, you will have many houses to choose from, and at prices that are lower than today (at least in inflation-adjusted terms). At the same time, your income will be higher as you acquire more skills and experience. The near future looks rosy for you.

[Diego Mamani]

Now, that’s constructive and non-sadistic!!

[Diego Mamani]

That’s very logical, A.N. Problem is, it’s quite possible that what you perceive to be “10% above bottom” may simply be a temporary reversal and that prices will continue dropping for a few more years.

Take So. Cal. after the bubble popped in 1989-90. Prices stabilized somewhat in 1991, and many bought thinking that we had reached bottom. Then prices continued their decline until 1996-97. Only when prices started going up steadily in the summer of 1998 and onwards, we learned that 1996 had been the bottom.

[Diego Mamani]

Schahrzad, thank you for sharing the article. I think you make many good points, but I have to disagree about your view that predicting the bottom is easy. If it were possible to time the market, we could make billions with little or no risk.

Market timing, which simply means being able to know when markets peak or bottom, is an impossible dream.

I think Toll’s (the builder) and Bredemayer’s (the appraiser) advice is somewhat biased because of their occupations. However, I agree with the general tone of the article: the house you live in should not be viewed as an investment vehicle. That sort of misguided thinking in the last 5 years resulted in many people buying more house than they could afford, inflating the bubble in the process.

Althugh we know that in areas like S.D. prices are heading down, the process won’t be monotonous: there’ll be drops, flat periods, some reversals (yes, it happens when people think they “see the bottom” and start buying only to see prices drop again). The bottom may be 3 years from now, or may be 15. We will know only after the fact, as has always been the case.

[Diego Mamani]

Liquidity of RE is quite important. Very interesting arguments in this thread. The speed of RE depreciation will depend on how liquid properties are. Traditionally, post-boom price drops have been very slow due to the inherently illiquid character of housing or land.

This time, however, it can be argued that housing will become (or is becoming) less illiquid due to:

(1) Highly leveraged buyers (I can’t call them homeowners, since they are really owers).
(2) Countless newbie investors who jumped in the bandwagon w/o really appreciating the risks involved.

Without some degree of liquidity, meaning, without a substantial number of transactions, prices wouldn’t drop and we would be stuck with the 2005-2006 comparables. That’s why I think that Powayseller’s (or renter?) argument of high illiquidity in the post-boom era contradicts the notion of fast housing depreciation.

I think that factors (1) and (2) above have different prevalence in different cities or regions, and therefore, the speed of housing depreciation will vary widely from say, La Jolla on the one hand, to San Bernardino, on the other. However, cumulative depreciation (in percentage terms), will be about the same across all areas by the time the cycle bottoms out.

[Diego Mamani]

Howdy neighbor! So, I guess you’re Ventura County Jim.

[Diego Mamani]

Bugs and Perry, thank you for sharing. I was a college graduate in my early 20s when I moved to the USA (and Calif.) in 1989. In the next few years I met a couple of people who told me how they had made money during the late 80s boom. It was essentially buy (preferably new construction), have the landscaping done, then sell at a profit and use the proceeds to buy an even bigger house. The formula worked well, up to a point of course, when they run out of GFs.

I suspect this time, price drops will be more severe in Midwest areas where job losses are severe. Next, price drops will be relatively fast in certain neighborhoods (in bubbly states) where lots of investors and lots of marginally creditworthy buyers purchased a lot of properties.

For instance, now I’m renting a house in an upscale neighborhood in Westlake Village (on the 101 fwy, right on the Ventura-L.A. county line). Most of my neighbors are owners who purchased brand new back in the late 70s/early 80s, most are retired, and they are not at all concerned with what happens to their property values (they’ve been through many ups and downs over the years, and probably carry very small, if any, mortgages).

It’s areas more like Riverside or San Bernardino, where I expect faster price drops, due to the larger number of marginal borrowers and investors.

[Diego Mamani]

She forgot to mention that the tax write-off makes it all worthwhile…

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