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(former)FormerSanDiegan
ParticipantThe simple answer is that when bond yields go down, the relative value of REIT dividends go up. So, REITS tend to move in opposite direction of bond rate or anticipation thereof.
Consider that REITS pay dividends in the 5-8+% range. The 10-year treasury has moved from well above 5% to < 4.8% today. So, the relative value of the REIT dividend stream has become more valuable. REITS may include apartments (rents have increased), commercial space, industrial space, some hold mortgages (yuck). The stock market has not assigned the same forward-looking pessimism to the commercial or apartment sectors that it has to the home builders.
ParticipantFirsy my biases …
1. I prefer to not buy new developments. I remember buying in mid-90’s and saw what the 80’s development looked like by then. Within a decade styles change and become dated and require updating anyway.
2. Prefer easy commutes to downtown/central SD job locations (e.g 15 min), and avoid I-15 and I-5 corridors (esp I-5 north of merge). If you work north of there you should have the opposite bias.
That said, I prefer older established central/ coast: Point Loma, Bay Park, Upper OB, Mission Hills, north PB, Bird Rock, La Jolla.
Almost forgot the rest of the “why?”
Coastal climate (A/C not required). Access to downtown, zoo/sea world (kid activities), beaches. Houses with views of Bay/Ocean. Short ride to airport. Decent dining options.August 29, 2006 at 10:03 AM in reply to: Biggest Drops in 2007 and 2008; housing will fall 50% nominal terms #33865ParticipantWhen the median price hits the bottom, the best deals are already gone…
Not really. 1995/1996 was a great time to get a deal in SD. Plenty of deals, buyers’ market. In April 1996 we looked at 30+ homes, asked for and got a 90-day escrow so that we could save up the remainder of the down payment 5% and finish our lease.
ParticipantI’m thinking I should take a break to return to being productive for my business.
Good luck
ParticipantPS – I agree that stocks suffer in recessions, that is not my point.
Your original post stated
This chart predicts the S&P500 will keep falling and hit 600 by summer 07.I have a problem with interpeting this graph to mean that when the HMI decreases by xx% (currently 50%) the stock market declines by xx %. Making a quantitative argument for S&P 500 dropping to 600, based on the false premise that the HMI index predicts stock market values 12-months hence is dangerous.
Now as for predicting a recession and a significant decline in stocks based on weakness in housing. I can agree with that general statement.
Once again, it’s the quantitative part that bothers me.
Good luck on your endeavor. Look forward to seeing the occasional thought provoking posts, even if they are more infrequent.
ParticipantPS –
I have no problem with the general assumption that housing downturns tend to lead recession.
My problem is in predicting a > 50% decline in the S&P 500, which I thought was the point of this thread.
Participant30% cash, 30% real estate, 10% gold, 30% stock
100% anything is speculation.
August 28, 2006 at 12:43 PM in reply to: “A History of Home Values” graph by Robert J. Schiller #33720ParticipantThis chart shows a ~15% real increase in house prices from beginning of depression to WW II.
Who would have thought that holding RE during the depression was “good” ? Not me.
ParticipantDuring 1992-1996 S&P 500 posted about a 50% increase including dividends, so many index mutual funds must have faired well.
ParticipantInvestigate further.
[img_assist|nid=1399|title=S&P and HMI|desc=Plot of S&P 500 and NAHB/WF HMI index.|link=node|align=left|width=400|height=269]
Note the >50% drop in HMI in 1994, which preceded the huge run-up in S&P 500.
Like the “journalists” that spew real estate mis-information you need to look at the rest of the story and question the assumptions.
Note: I plotted the S&P 500 Close price adjusted for dividends and splits per Yahoo finance
ParticipantBugs –
Let the people who contributed to the problem pay for it and please leave the rest of us out of it.
Unfortunately, a small fraction of the population caused the problem.
However, homeownership rate in the US is ~70%. In San Diego it’s somewhere around ~60%. The correction will affect a majority, whether it’s through inflation, asset value correction or a combination of both.
ParticipantActually $10 trillion is lost.
The $10 trillion is not lost, as it has been paid already to the former owners.
I beg to differ.
At the time the home is sold, it is simply a transfer of wealth, not a dissipation (agree with you here). However, when the house value drops, it is actually a real economic loss. Although the seller still has their 200K in the bank, the buyer has 200K fewer assets. Lenders on the loans have fewer assets to back their paper. That’s why a housing decline will bring on real economic consequences.
Unlike a ponzi scheme, when the price declines by another 200K, the value does not go into anyone elses pocket. It is a true loss.
If the $10 trillion is not lost, why would you and others worry about the ensuing housing-led recession ?
ParticipantWhen trying to determine relative value and where one would enter the market again, it seems to me that precision is quite important. If my estimates have an uncertainty in a range of +/- 30%, and my estimate for the nominal price drop is 30%, precision is important.
Otherwise, I generally agree with the initial analysis.
Anyway, here’s my latest numbers …
Based my analysis, I have concluded that the median price of a home in San Diego will bottom out to 50% of peak prices (with a margin of error of +/-175K).ParticipantBugs –
You are correct to a certain extent. But at some point when the cost of purchasing falls enough, relative to renting, people tend to buy.
At least that’s what’s happened historically. But maybe this time it’s different.
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