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Fearful
Participant[quote=esmith]On the other hand, foreclosures continued strong through 1997, when the housing market was already recovering.[/quote]
The housing market was just beginning to recover in 1997. I’m looking at inflation-adjusted numbers, of course. Foreclosures were declining at that point.
That foreclosure surge lasted about seven years. No reason to expect this to last any less time, no? Barring, of course, some sort of extraordinary surge in the local, domestic, or global economies.
Esmith, thank you for your localized HPI blog. Along with everyone else here, I am stumped by the relative strength of Carmel Valley and other areas. Perhaps a significant part of it is the delayed wave of Alt-A and Option ARM resets.
Fearful
Participant[quote=esmith]On the other hand, foreclosures continued strong through 1997, when the housing market was already recovering.[/quote]
The housing market was just beginning to recover in 1997. I’m looking at inflation-adjusted numbers, of course. Foreclosures were declining at that point.
That foreclosure surge lasted about seven years. No reason to expect this to last any less time, no? Barring, of course, some sort of extraordinary surge in the local, domestic, or global economies.
Esmith, thank you for your localized HPI blog. Along with everyone else here, I am stumped by the relative strength of Carmel Valley and other areas. Perhaps a significant part of it is the delayed wave of Alt-A and Option ARM resets.
Fearful
ParticipantEconProf wrote You guys are way underestimating the true costs of being a landlord, and are thus overestimating potential profits.
Aren’t there standard metrics that professional real estate investors use? Don’t they typically look for cap rates in the 8-10% range? Merely covering the costs, as many of these posters have alluded to, is nowhere near sufficient; investors need to earn a profit as well to compensate them for the cash flow risk and the asset price risk. Given the risks involved, and the illiquidity of the investment, I would demand at least 20% profit.
The current crop of investors buying rental houses are “dumb” investors; they are assuming that eventually the asset prices will appreciate enough to overcome any rental losses. The owner of the house I am renting, for example, is losing money at a steady rate (8% to the realtor managing the property!); I wonder whether they have thought through the finances. I doubt it.
It will take a long time to purge the system. People still have faith that San Diego house prices go up.
Fearful
ParticipantEconProf wrote You guys are way underestimating the true costs of being a landlord, and are thus overestimating potential profits.
Aren’t there standard metrics that professional real estate investors use? Don’t they typically look for cap rates in the 8-10% range? Merely covering the costs, as many of these posters have alluded to, is nowhere near sufficient; investors need to earn a profit as well to compensate them for the cash flow risk and the asset price risk. Given the risks involved, and the illiquidity of the investment, I would demand at least 20% profit.
The current crop of investors buying rental houses are “dumb” investors; they are assuming that eventually the asset prices will appreciate enough to overcome any rental losses. The owner of the house I am renting, for example, is losing money at a steady rate (8% to the realtor managing the property!); I wonder whether they have thought through the finances. I doubt it.
It will take a long time to purge the system. People still have faith that San Diego house prices go up.
Fearful
ParticipantEconProf wrote You guys are way underestimating the true costs of being a landlord, and are thus overestimating potential profits.
Aren’t there standard metrics that professional real estate investors use? Don’t they typically look for cap rates in the 8-10% range? Merely covering the costs, as many of these posters have alluded to, is nowhere near sufficient; investors need to earn a profit as well to compensate them for the cash flow risk and the asset price risk. Given the risks involved, and the illiquidity of the investment, I would demand at least 20% profit.
The current crop of investors buying rental houses are “dumb” investors; they are assuming that eventually the asset prices will appreciate enough to overcome any rental losses. The owner of the house I am renting, for example, is losing money at a steady rate (8% to the realtor managing the property!); I wonder whether they have thought through the finances. I doubt it.
It will take a long time to purge the system. People still have faith that San Diego house prices go up.
Fearful
ParticipantEconProf wrote You guys are way underestimating the true costs of being a landlord, and are thus overestimating potential profits.
Aren’t there standard metrics that professional real estate investors use? Don’t they typically look for cap rates in the 8-10% range? Merely covering the costs, as many of these posters have alluded to, is nowhere near sufficient; investors need to earn a profit as well to compensate them for the cash flow risk and the asset price risk. Given the risks involved, and the illiquidity of the investment, I would demand at least 20% profit.
The current crop of investors buying rental houses are “dumb” investors; they are assuming that eventually the asset prices will appreciate enough to overcome any rental losses. The owner of the house I am renting, for example, is losing money at a steady rate (8% to the realtor managing the property!); I wonder whether they have thought through the finances. I doubt it.
It will take a long time to purge the system. People still have faith that San Diego house prices go up.
Fearful
ParticipantEconProf wrote You guys are way underestimating the true costs of being a landlord, and are thus overestimating potential profits.
Aren’t there standard metrics that professional real estate investors use? Don’t they typically look for cap rates in the 8-10% range? Merely covering the costs, as many of these posters have alluded to, is nowhere near sufficient; investors need to earn a profit as well to compensate them for the cash flow risk and the asset price risk. Given the risks involved, and the illiquidity of the investment, I would demand at least 20% profit.
The current crop of investors buying rental houses are “dumb” investors; they are assuming that eventually the asset prices will appreciate enough to overcome any rental losses. The owner of the house I am renting, for example, is losing money at a steady rate (8% to the realtor managing the property!); I wonder whether they have thought through the finances. I doubt it.
It will take a long time to purge the system. People still have faith that San Diego house prices go up.
June 11, 2008 at 10:20 AM in reply to: Interesting article on overestimating the housing “wealth” effect #221240Fearful
ParticipantThe author is an ignoramus, and I think the original poster was being tongue in cheek.
I managed to get a hold of the mortgage equity withdrawal raw data, and modeled what would happen to the economy if the ATM effect went into reverse. It all can be summarized as, what is the effect of reversing the growth of the pool of mortgage debt, which grew from 50% of GDP at about 1999 to 79% of GDP today.
Bottom line was growth was impaired by a couple of percentage points per quarter through 2008, assuming that the reversal happens over this year. Then growth resumes whatever underlying trend it follows, save for any change in the rate at which the pool of mortgage debt changes in size.
Incidentally, the pure “wealth effect” was estimated at 10%, and I did not include this in the calculations. I figured that the wealth effect was buried in the mortgage debt change, as the funding for wealth effect spending has to come from somewhere.
June 11, 2008 at 10:20 AM in reply to: Interesting article on overestimating the housing “wealth” effect #221337Fearful
ParticipantThe author is an ignoramus, and I think the original poster was being tongue in cheek.
I managed to get a hold of the mortgage equity withdrawal raw data, and modeled what would happen to the economy if the ATM effect went into reverse. It all can be summarized as, what is the effect of reversing the growth of the pool of mortgage debt, which grew from 50% of GDP at about 1999 to 79% of GDP today.
Bottom line was growth was impaired by a couple of percentage points per quarter through 2008, assuming that the reversal happens over this year. Then growth resumes whatever underlying trend it follows, save for any change in the rate at which the pool of mortgage debt changes in size.
Incidentally, the pure “wealth effect” was estimated at 10%, and I did not include this in the calculations. I figured that the wealth effect was buried in the mortgage debt change, as the funding for wealth effect spending has to come from somewhere.
June 11, 2008 at 10:20 AM in reply to: Interesting article on overestimating the housing “wealth” effect #221355Fearful
ParticipantThe author is an ignoramus, and I think the original poster was being tongue in cheek.
I managed to get a hold of the mortgage equity withdrawal raw data, and modeled what would happen to the economy if the ATM effect went into reverse. It all can be summarized as, what is the effect of reversing the growth of the pool of mortgage debt, which grew from 50% of GDP at about 1999 to 79% of GDP today.
Bottom line was growth was impaired by a couple of percentage points per quarter through 2008, assuming that the reversal happens over this year. Then growth resumes whatever underlying trend it follows, save for any change in the rate at which the pool of mortgage debt changes in size.
Incidentally, the pure “wealth effect” was estimated at 10%, and I did not include this in the calculations. I figured that the wealth effect was buried in the mortgage debt change, as the funding for wealth effect spending has to come from somewhere.
June 11, 2008 at 10:20 AM in reply to: Interesting article on overestimating the housing “wealth” effect #221384Fearful
ParticipantThe author is an ignoramus, and I think the original poster was being tongue in cheek.
I managed to get a hold of the mortgage equity withdrawal raw data, and modeled what would happen to the economy if the ATM effect went into reverse. It all can be summarized as, what is the effect of reversing the growth of the pool of mortgage debt, which grew from 50% of GDP at about 1999 to 79% of GDP today.
Bottom line was growth was impaired by a couple of percentage points per quarter through 2008, assuming that the reversal happens over this year. Then growth resumes whatever underlying trend it follows, save for any change in the rate at which the pool of mortgage debt changes in size.
Incidentally, the pure “wealth effect” was estimated at 10%, and I did not include this in the calculations. I figured that the wealth effect was buried in the mortgage debt change, as the funding for wealth effect spending has to come from somewhere.
June 11, 2008 at 10:20 AM in reply to: Interesting article on overestimating the housing “wealth” effect #221403Fearful
ParticipantThe author is an ignoramus, and I think the original poster was being tongue in cheek.
I managed to get a hold of the mortgage equity withdrawal raw data, and modeled what would happen to the economy if the ATM effect went into reverse. It all can be summarized as, what is the effect of reversing the growth of the pool of mortgage debt, which grew from 50% of GDP at about 1999 to 79% of GDP today.
Bottom line was growth was impaired by a couple of percentage points per quarter through 2008, assuming that the reversal happens over this year. Then growth resumes whatever underlying trend it follows, save for any change in the rate at which the pool of mortgage debt changes in size.
Incidentally, the pure “wealth effect” was estimated at 10%, and I did not include this in the calculations. I figured that the wealth effect was buried in the mortgage debt change, as the funding for wealth effect spending has to come from somewhere.
Fearful
Participantwaiting for bottom,
“The expense ratio is 0.4% which is less than the loss on a bid/ask spread or bank buy/sell rates.”
A bid/ask spread of 0.4% is high-normal, usually found in smaller cap stocks. For example, on a large cap stock, one might well see bid $100.00, ask $100.02. That is 0.02%
The ETFs have bid-ask spreads of their own. These spreads can be quite large for the small cap, thinly traded ETFs.
The fees are not one-time, as in the purchase or sale, but are annual. 0.4% is a significant rate margin. Yes, it is better than most mutual funds, even low cost ones, but it is still significant. If you are seeking 4% yields, and you lose 0.4%, well, that is 10% of your return!
If you attempt to actively trade bonds, you will endure a lot of transaction costs, and in this case an ETF or mutual fund would be better. If you buy and hold to maturity, and you can find bond dealers able to sell you bonds at decent YTMs (i.e. not taking too much margin for themselves), that is ultimately the best route.
Since you are holding in a tax-advantaged account, some would recommend buying mutual funds instead of ETFs. One headache of mutual funds is their distribution of capital gains, making tax reporting difficult. ETFs do not have that issue. On the flip side, mutual funds do not have the bid/ask spread, and on some thinly traded ETFs that can be a real issue. Also, there are many more international mutual funds than international ETFs.
A lot also hinges upon how large of individual transactions you are able to offer. If you can have a diversified portfolio with $100K+ transactions, you will probably be able to do better with individual securities than with funds. If slicing up your portfolio left you with $10K individual investments, you are probably better off with funds.
This is all regarding fixed income; foreign equities can generally be traded via ADRs; the capital does not need to leave the US$ at all.
That is about the extent of my knowledge of foreign investing. If I learn something significant I’ll post it.
Fearful
Participantwaiting for bottom,
“The expense ratio is 0.4% which is less than the loss on a bid/ask spread or bank buy/sell rates.”
A bid/ask spread of 0.4% is high-normal, usually found in smaller cap stocks. For example, on a large cap stock, one might well see bid $100.00, ask $100.02. That is 0.02%
The ETFs have bid-ask spreads of their own. These spreads can be quite large for the small cap, thinly traded ETFs.
The fees are not one-time, as in the purchase or sale, but are annual. 0.4% is a significant rate margin. Yes, it is better than most mutual funds, even low cost ones, but it is still significant. If you are seeking 4% yields, and you lose 0.4%, well, that is 10% of your return!
If you attempt to actively trade bonds, you will endure a lot of transaction costs, and in this case an ETF or mutual fund would be better. If you buy and hold to maturity, and you can find bond dealers able to sell you bonds at decent YTMs (i.e. not taking too much margin for themselves), that is ultimately the best route.
Since you are holding in a tax-advantaged account, some would recommend buying mutual funds instead of ETFs. One headache of mutual funds is their distribution of capital gains, making tax reporting difficult. ETFs do not have that issue. On the flip side, mutual funds do not have the bid/ask spread, and on some thinly traded ETFs that can be a real issue. Also, there are many more international mutual funds than international ETFs.
A lot also hinges upon how large of individual transactions you are able to offer. If you can have a diversified portfolio with $100K+ transactions, you will probably be able to do better with individual securities than with funds. If slicing up your portfolio left you with $10K individual investments, you are probably better off with funds.
This is all regarding fixed income; foreign equities can generally be traded via ADRs; the capital does not need to leave the US$ at all.
That is about the extent of my knowledge of foreign investing. If I learn something significant I’ll post it.
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