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BTW, I thought San Diego was cheap in 2000 and overpriced by 2004 without benefit of any statistics.

According to Global Insights SD was below its historical intrinsic value all the way up thru 2002, but was 25% overpriced by 2004. As of 2007-Q2 it is 18% overpriced, which is down from its worst of 39% in 2005.
FWIW, LA is at about 50%, down from its high of 61% in 2006.

-one muggle

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I’ve heard the technical details of this article before, from a wallstreet insider I know. He didn’t go into a gloom-and-doom scenario, but our conversations were from November(2005). He did mention a couple of other items of interest.
He said that the big boys ($100M+) saw the derivative market as a place for them to trade amongst themselves, without having to deal with the riff-raff online traders and SEC disclosure rules.
They saw (or see) the fat 401k pile as a target for making money, not just through fees, but leveraging off and in some cases, siphoning off these funds–we’ve seen the first two, will the third be revealed soon?
Lastly, he said that as technically smart as the analysts are, and as savvy as the big money managers are, nobody really had a clue what was the big picture–obvious today, it seems.
BTW, this same guy was bitching about an anonymous brokerage, who was also acting as a commercial lender and ignoring the supposed firewall–basically pushing bad bonds to 401ks to fund industrial partners. About a year later they got nailed, thus prompting that great commercial with the brokers saying “Let’s put lipstick on this pig”. The house got a slap on the wrists, which was surprising to me–I guess times were good and nobody cared. With an election year and the housing bust, I think if these guys get nailed this time, they’ll be the next Enron story.

-one muggle

[one_muggle]

..would you really get your advice from a blog?

LOL! Just digital ruminations. I am on a neverending search for evidence that RE won’t crash, in an attempt to avoid group think bias.
Though, if one were to try this tact, I think some property in a non-bubble area would be a requirement. I sold off my last property in SoCal about 6months ago and I’ve no appetite for the stuff these days. IMHO, even the 20% off numbers being tossed about are a bit like the “60% off jewelry” offers at Christmas.

Personally, I am thinking of snapping up some CRE, if things continue tanking there–but likely not for a couple years. Otherwise, I might just stake out a corner for selling PDA styluses.

-one muggle

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As though on cue, Treasury secretary wants to rise US debt limit to $10 Trillion (from $9 T). That is 1 followed by 13 zeros!

I think the next big investment idea is going to be designer wheelbarrows. All the fashionable people will need them to carry their cash for buying bread and gas.

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Just curious. How great does your portfolio look if you index it to the Euro?
Seriously. My conservative portions are running with huge gains, and my aggressive international stocks are all anywhere from 40-400%. I am smart enough to know that this is not due to my considerable jeenius. When I index it to the Euro, the portfolio looks more sane and less like a pre-bust Nasdaq stock.
For my CDs, I refuse to check their value versus the Euro…

Makes me wonder if NOW isn’t such a bad time to buy a house. If massive inflation really hits, a $500k loan at 6.5% might look like peanuts. Anybody got some old Jimmy Carter for Prez pins, that I can borrow?

-one muggle

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Holy cr@p! Shiller is predicting a housing downturn?
Next thing you know, women will get the right to vote.

;^)

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If you want international exposure for the more conservative portion of your portfolio, take a look at American companies with broad international reach, and/or some foreign companies with the same.
JNJ, BUD, Motorola, Coke, McDonalds, Toyota…
Part of the reason for the quick rise in the blue chips yesterday was the devaluing of the dollar, which made the international income from the big boys worth more dollars.
Companies like JNJ–all other things being equal (big assumption!)–likely will keep their US business steady, dollar for dollar, during a downturn. While their Euro income, and international growth will give you some hedge against the falling dollar.
While you are waiting for the recovery, learn a Chinese dialect Dongyi, you’ll be set for the new, new economy ;^)
Joi wooi

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How is the land cost sub-sonic? I have a feeling that a lot of these guys understate their true costs living in somewhat of a fantasy world. Was the land that he is building on purchased a long time ago?

Just outside of DC, around Vienna, VA, their are (or were) tons of lots with decrepit buildings or just empty space–amazing as it sounds. One day, you would be driving past what looked like just dead space, the next they would drag out trees and such–and reveal a buildable lot. It was really quite impressive as it happened quite a bit, and only 10 or 15 miles outside of downtown DC.
The guy I talked with would buy a ~15,000 sqftlot for (if I recall) ~$400k, which was a major increase for the area, and plunk down 8-10 2000sqft (multi-story) TH and a parking lot for about $2.5M. So $2.5 + 0.5=$3M cost total. So it’s 300-400k per unit. At the time, the things were going for $700-800k, and more in the hip areas. But I know the land was much more expensive in those areas.
Crazy.

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I drove a 5 year american made vehicle that I own free and clear. Heck sometimes I actually wash it. I have closed 3 transactions this year over $1.5M.

It’s great you can get away with it, but I still think you (or I should say one) is more likely to get estate contracts when one drives an impressive car–definitely in LA.
I’m not in an ‘impress-you’ business so I’ll drive my 8-yr old honda until the rubberband snaps. I have to say, I do find it funny when the maid or nanny come by and park their much nicer car next to my honda.

[one_muggle]

Two long-time realtors I know both own their homes and their (very nice high-end) cars outright. The reason is simple. They know that SoCal RE is cyclical, and to keep their $1M+ clients for the future they need to drive a nice car.
Fair or not, an agent driving a 4-yr old camry isn’t as likely to land a million-plus client.

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Wow – I guess if you are in the building business – especially as a small developer, you probably have taken all your profits and plowed them back into more projects.

This is merely anecdotal, but a townhome builder I spoke with in the N.Va/D.C. area ~2006 seemed more level-headed.
He said that his cost per home was about $300-400k, and he was getting more than $700k per. According to him, he could take a fair haircut in prices and still profit, as long as land prices remained sub-sonic, which they were.
Like the smart RE people I know, he seemed aware of the risks and had prepared for leaner times–isn’t there an Aesop fable like this?

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I remain very agressively short the stock market.<.cite>

Several analysts on CNBC agree with you, which is surprising since I find they lean bullward (?)
Their gist:
25bps likely, market expects (wants) 50.
If they get 0, calamity (at least short term)
If they get 25bps, (market down)
If they get 50bps, (no effect)
If they get 75bps, (utter panic)

Interesting nonlinear impact–signs of very volatile system.

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Check out South America. If you can afford the travel costs and speak the language there are areas worth looking into.

[one_muggle]

most people think that a fed funds rate has a direct relationship to mortgage rates. A 25 or 50 point bp drop in the fed funds rate may actually have no effect on long term mortgage rates

Greenspan said as much today (see CNBC interview), also I think your comment can be extended somewhat to the short-term rates (for mortgages) since many link to LIBOR.
What effect will the BofE bailout have on LIBOR…?

IMVHO (and a touch of insider info), I think the global finance markets have much less control than they’d thought when things were humming along swimmingly, and that they are just now seeing how little control they have over the big picture.

-one muggle

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Probably a junior loan foreclosed and that lender is carrying the house.

I’m no foreclosure expert, but I have seen a couple of these in the LA area, with houses foreclosing at numbers as low as $25k. However, I thought the second loan was subordinate and could not foreclose while the primary loan was holding the note…
Unless some newbie mortgage person screwed up, then I would say they would soon get fired, but they’ve probably already been laid off.

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