[powayseller]

HTML code:

Thanks for asking. It makes the threads easier to read, and prevents those wide pages when posters use links.

At the bottom of each Comment box,to the left of “preview comment” is a link titled, More information about formatting options

Experiment, and use the Preview Comment option to make sure it came out correctly. That is how I learned to do it.

Please use the option where you put the name of the link after the URL, because posting only the URL results in those wide pages, where you have to scroll the page sideways.

[powayseller]

3-5 years from now, if history repeats.

[powayseller]

The problem with rate cuts is that it will probably devalue the dollar as foreigners find more attractive options elsewhere. Other FCBs are raising interest rates. When foreign investors are faced with lower rates in the US, coupled with a recession and IMF warnings about the deep recession, and they see higher rates and better fiscal restraint in Europe, I think they will start moving their money into euros. Italy moved a chunk of dollars to British pounds recently, and China has been talking about diversitying for some time now.

Once money moves out of the US, the long bonds are going to be cheaper, raising interest rates even more. It’s only a matter of time before the conservative foreign investors leave our country: I’m talking about insurance companies and pension funds. China’s FCB will be the last to pull out, but let’s remember that other countries have been publicly talking about getting out of the dollar. Gee, if the US lowers interest rates, the dollar is going to take a serious tumble. I should post this on Roubini’s blog, to see what he says.

[powayseller]

SD Realtor, I also believe that a good agent will help you find a better property at a better price. They know what makes a superior property, they can check the comps and tax records which right now only they can access and make sure the buyer doesn’t overpay, they can show you properties that are fresh on the market and not yet showing up on the realtor.com and ziprealty (which updates late). It might be helpful if you and the other realtors give some examples that show your client saved money by using a realtor. Let’s leave the commission structure for a different discussion.

[powayseller]

If rates hit 15%, then there are much better ways to profit than owning a house whose real value will shrink rapidly. Think bear funds, gold, and the euro. That’s were the real profits will be. Again, this is a few years out, maybe 2 -5 years, so selling a house now is still a smart move. Take the cash, and be ready for these other opportunities.

[powayseller]

Bugs, could you tell us more about the variability in price/rent in various areas, since you do that in every appraisal already. Also, can you tell us more about the last downturn? Someone told me there were foreclosures all around Poway High School, which is one of the best areas of Poway. Did you see any of that? Why do you think we reached the peak inventory of the last downturn in year 1 – is it because our population has grown? What are your observations in regard to people leaving San Diego, and the percentage of appraisals done for refi vs. purchase? Are refi appraisals more lenient? Thanks for all you’ve written so far; you are a wealth of information, and you explain it all so well. Oh, and do you believe as I do, that the new lending guidelines are going to bring sales to a screeching halt?

[powayseller]

It makes perfect sense that the price/rent ratio is higher in more desireable areas. If you want to get a house with a ratio of 4 or 5 (just a guess), move to Kansas. What does your wife like so much about La Jolla?

[powayseller]

I’ve talked with several realtors about these lending guidelines, and none of them knew anything about it. I was surprised that they are so poorly informed about something that could potentially bring real estate transactions to a screeching halt. The spouse of a lender had not even heard of the guidelines, one realtor didn’t know that the lender is now required to verify income via IRS tax records (she said that stated income will still go no, but that’s not true), and the other had heard nothing about it. I thought the NAR keeps their realtors informed, but I think all they do is collect dues and sell forms.

[powayseller]

davelj, I am counting on very high interest rates in a few years, as investors start selling their Treasury notes, thus lowring their prices and raising their yields. 15% – 20% is the range I’m expecting. iTulip.com’s KaPoom theory…. check it out, and tell me what you think. The guy is briliant, and he retired off the money he made in selling and buying into bubbles between 2000 and 2002.

[powayseller]

From today’s Bill Fleckenstein rap:

” Turning to the economy, I’d like to share some data from the always-insightful Liscio Report. For those who don’t know, Liscio monitors (among other statistics) sales-tax receipts by state around the country, as that’s obviously a good barometer for expenditures. Here are some quotes from their weekly commentary:
“State sales-tax collections continue to fall, relative to budgetary projections. In September, just 37% of the states in our survey met their forecasted sales-tax collections, down from 51% in August. . . . [There is] “a growing weakening in consumer spending. . . . The slide that began in January has continued since, and our contacts believe it’s real.”
Liscio attributes the slowdown in consumer spending to the weakened housing market. (The report includes an informative chart that shows the continuing decline in the rate of equity extraction.) According to Liscio, people are walking away from downpayments, and some of those who’d like to put their homes for sale cannot do so, because they’d have to “bring a check to the closing.”
Sunny Skies, Sullen Realtors
Continuing on, Liscio quotes one of its contacts in formerly hot South Florida: “The market has evaporated. Even the affordable stuff can’t be given away. Desperation among developers, bankers, and speculators is palpable.” As to those folks pointing to the recent uptick in mortgage financing generically, Liscio says that it’s related to people trying to “avoid painful resets on kinky mortgages, and not to monetize depreciating equity (as equity seems not to be appreciating anymore).”
The report sums up: “We’ve noted in the past that this expansion was the most consumption-intensive in modern U.S. economic history. . . . That’s changing, and dramatically. . . .Retail sales are clearly in a slowing trend.” So, for those folks who think that the stock market rally means the economy is on the mend (before it has even really weakened), I offer up the Liscio Report as food for thought.”

[powayseller]

The guy’s story is an improper analogy. First, he places a more expensive car into a lower range price, whereas in reality buyers overprice and not underprice. Mr. Sell A Lot, if he were a like a home seller, would price his $1.95 cars at $1.95 to $2.50, so of course he should be offered only $1.95. Second, Mr. Sell A Lot is not the only toy dealer in town, and the kid in the story would have gone to Toy Lots across the street which had 15% off those same cars. Mr. Sell A Lot is on his way to being Mr. Sell Nothing, since he refuses to have sales or lower his prices in any way.

Por favor, waiting hawk, please put your links in html brackets, because the long links make the pages too wide and very difficult to read. link instructions . This page is so wide because of your long url above.

[powayseller]

The money is coming probably from foreign investors. The bigger our trade deficit, the more foreigners are investing dollars. To keep their currency from appreciating, they must reinvest every dollar we send them. The more we consume, the more money comes back here to rally our bonds and stocks and Tnotes. With oil prices so high this summer, oil money is finding its way back here, so we could just be seeing the Saudis in the stock market. However, as soon as they start to lose their confidence in our stock market or economy, or anticipate a recession , or can get better or less risky returns elsewhere, the money will start leaving, and the rally in stocks/bonds/Tbills will end. Again, it’s amazing how long a bubble ran go on. I’m hoping I did not buy my bear funds too early.

[powayseller]

So owner equivalent rent is a homeowner’s knowledge of the rental market? Seems like a crazy way to measure something, but the two measurements are similar. They are up 60% and 66% in the last 10 years.

Bugs, I also find it implausible that rental rates would climb at double digit rates. Rents track wages as far as I know, and something that I need to confirm. When rents exceed wages, people exercise their options and leave town, as they are already doing. The Fed Sept. 04 study concluded that price/rent ratio would normalize by prices stabilizing, not by rents rising. In my bearish view, I’d say by prices dropping.

I agree with Bugs that interest rates can rise. Some good arguments have been made for a rate as high as 15% of more in a few years, as we need to make our interest rates attractive to retain the $1.5 TRILLION of foreign investment in our country. If foreign conservative investors like insurance companies start to worry about the dollar losing value and pull out even a tiny bit of their holdings, like 10%, it would have a catastrophic effect on our economy. So the Fed has to keep the interest rates and dollar high enough that we are more attractive than other options, and with the Europeans now raising rates, it’s getting tougher. Inflation is also getting higher, and with rents rising, CPI has to keep going up (rents are 40% of the CPI).

As far as prices being down 20% nominal, we’re half way there and we haven’t even hit the loan resets yet. I’m excited for the big drops when the loans reset, in 2007 – 2009.

Bugs, thanks for the GRM explanation. I think jg annualized it because the OFHEO data is quarterly.

[powayseller]

What’s the difference between “owner equivalent rent” and “rent of primary residence”? The Fed in a recent report calculated the US price-rent ratio using the OFHEO existing homes sales index / BLS owner’s equivalent rent. Does anyone even use rent of primary residence? (The report concluded that the recent spike in the ratio would be normalized by a stagnating house price, and not by rising rents).

[powayseller]

FormerSanDiegan, my apologies; I was taking the info from a book that was published this summer. My Zeal newsletter shows the PE of the S&P500 is 19.4, Dow 30 is 17.8, and the NAS100 is 34.3. According to Zeal, they are overvalued by 3%, 9%, and 28%, respectively. Are you long the market?

SDAppraiser, what are your investments now?

As far as the broadness of the rally, I don’t know much about it other than what I read from The Big Picture and from you. Barry Ritholtz says the Dow Transports and many of the major Dow stocks are not part of the rally, and that is a bearish sign. For me, the broadness of the rally is not relevant; I am more interested in whether the rally is based on improving fundamentals, and in my opinion the fundamentals are declining.

I do enjoy this conversation, because we all learn more if we can consider the opposite points of view.

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