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I am not going to buy a ton. I’m also fully versed on the risk. One thing I’ll never do, however, is go short.

[PD]

Are you talking rioting in the streets? I’m now having visions of high heeled she-men rolling over police cars.

[PD]

Powayseller, maybe we are twins and were switched at birth… are you 5’3″ too?
Or
My dad had a Ph.d. in Bionuclear Physics. I’ve heard that an unknown Bionuclear physicist donated many of times to a sperm bank. Maybe it was my dad and you are a long lost sibling…? 🙂

[PD]

I’ve been considering buying some Puts. I suggested the CD thing only as an example of safe investment for the other poster. I would not recommend shorting or buying options to someone who does not understand the stock market. I used to have a stock brokers license (altough I did not work as a financial advisor). People can get into big trouble with options. However, buying real estate puts seems pretty smart to me right now. I’m kicking myself that I didn’t do when I first started thinking about it.
I also think Home Depot and other home improvement companies are going down – as well as luxury goods and services.

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I would probably wait a year. Construction materials are very expensive right now because of all the building. Those prices might come down with a reduction in demand. Plus, I think there are going to be a lot of construction people frantic for work in a year.

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I think there could easily be some markets that drop 50% and others that may only drop 20%. Some areas were much hotter than others in SD. The highs also took place at different times. I had a house in Ramona. It looks like the peak there might have been late spring 2005. We have friends in Rancho Bernardo and their house peaked in late spring and has fallen from 650k to 590K already. Prices in Coronado peaked August/September while it looks like prices in Imperial Beach peaked later than that.

I know of a guy in Coronado who is trying to sell his house for 2.6M. I know for a fact that he had an offer in August that was only 20K away from his asking price. He walked away. His house has been empty since last summer and he has had to pay mortgage and prop taxes for an additional 9 months because of 20K difference. His house has been for sale for a year.
I know of another house that has been for sale since at least Jan 2005. They started out asking 3.2M. Then they raised it it to 3.4M. Then they raised it to 3.6m – 4.2M. Yesterday there was an addition to to the for sale sign – REDUCED.
How low are these houses going to go? How many people can afford 2.5M for a house? Not many. The smaller your pool of buyers, the riskier it gets.

[PD]

How low is it going to go? I’m quite happy I liguidated most of my investments. However, I still have a good chunk in the market. I’ve discovered that it can be easier to find a good investment than knowing when to sell it! I’m trying to get better at that part.

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There is some risk. However, if the house only goes down 15%, you don’t save only 15%. You will have access to all that cash, having it earn money during the interim. Your equity is currently invested in your house. Pull it out and make 4% in a long term CD (very safe).
Plus, how long will the house sit at the bottom price? You could have 5 years making interest on your equity instead of letting it stagnate.
I hate to sound like a salesperson…

[PD]

Could it be more than that?
When there is a downturn, the prices often go below the historical mean.

When housing crashed in LA in the late 80s, I knew a person who paid 850,000 (they had a lot of $) and when it was all over, the house sold for 400,000.

BTW, Powayseller, maybe we ARE twins.

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Using your equity to finance investments overseas is dangerous. Hedging does not always work. Further, what you are talking about is not even a true hedge.

[PD]

You aren’t chained to your house….yet.
The only people who can’t move right now are those people who are already in the red. If you are still in the black, sell and rent in your neighborhood. You still shop in the same places, hang out with the same friends and your kids still go to the same school.

The only difference is that you have potentially paid yourself hundreds of thousands of dollars to rent for a few years. How many hours would you have to work to make that much? How many hours will you spend on a move? I’m going to be generous with numbers.
40 hours to sell your house
10 hours to find a rental
80 hours to move and set up a new place
Assuming your house is worth 800k and it goes down 20% (a conservative number, I think), you have paid yourself $120,000 (realized after realtors fees).
That means you have earned $923.00 an hour for your trouble. Whow! What a great job.
If your house goes down 40%, you have paid yourself $2,769 an HOUR.
Plus, your monthly expenses are going to be much lower than your mortgage because rents are so out of whack with values.
I live a house right now that is worth 3 times the one I sold. The garage door just broke, a gate needed to be fixed and the stove top is being replaced. I paid nothing to fix these problems. Someone else had that burden.

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We have been watching housing in a neighboring city. A new house just came on the market with repossesion notices up in the window. The house is priced under everything in the neighborhood and is the 3rd cheapest house in the city, despite the fact that it is in a good neighborhood. It is priced to undercut everyone in an attempt to sell fast. When you start having a bunch of these, the prices will go down fast.

Lenders who find themselves with lots of foreclosed inventory and more on the way will be trying to unload as fast as possible. After the savings and loan debacle, you could buy land at unbelievable low prices.

When a lender goes under, what to they do with the inventory? Sell it as a bulk deal? The buyer gets it all for a song and can then sell each property at a heavy discount?

[PD]

I did not start reading any of the posts until last week. However, I did read the Bubble Primer articles some time ago. I read the articles on the Housing Crash page at Patrick.net every morning and frequently follow links. I’ve read so many articles lately, I could not retrace my steps.

I may end up wrong about my doom and gloom but if I’m right…. I’ve decided to tuck my money under the mattress.

This is an intersting housing link:
http://bwnt.businessweek.com/housing/2006/index.asp?sortCol=market_risk&sortOrder=DESC&pageNum=1&resultNum=100

[PD]

I’m Chicken Little.
I have been reading a lot of articles on how precarious things are for the US economy. The dollar is in bad shape and the world is moving away from using it as the main currency. We did not recover from the last recession in way that economists think was healthy or normal because of the low interest rates. Our debt, both personal and national is huge. People quit saving over the last few years because they didn’t think they needed to because their house was appreciating in such a crazy way. I think there is going to be a huge financial slaughter over the housing market when the dust settles. Many lending institutions are going to go under. In my opinion, the housing market is going to be a flash point for a big recession. Quite a few people are saying that oil could go to $100 or higher, depending on what happens with Iran. Then, if the bird flu hits….

I am in asset protection mode. After selling my house last year, I invested heavily in the stock market. I made a nice return. I sold 75% of my portfolio a week and a half ago. It goes against the grain to have all off that money sitting as cash but I’m having a hard time deciding where to put it. Everything has been on a bull run the last few years – housing, stocks, commodities. This very unusual. It seems to me that we could be looking a Perfect Storm.
For the first time ever, I’m considering buying some Puts.

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Most people who have an ARM right now were counting on appreciation. Without appreciation, many people are going to sink. It is true that lots of people moved up and put a lot down but that money is going to evaporate with retreating prices. It is all smoke and mirrors.
I believe that 80% foreclosure is a very high number. However, the foreclosure rate will reach highs never seen before. People with an ARM are paying into a pyramid scheme and are going to be left holding the bag.
I actually had a woman tell me recently that housing prices won’t decline because “so much wealth has been created in the last few years.” WHAT??!!

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