[powayseller]

Although his system is not perfect, he brings attention to the fact that real estate is cyclical. Just like summer, fall, winter, spring, real estate goes up and down.

As far as writing the book, I think that only makes sense. Now he is in a Sell signal, so once he’s sold all his properties, what can he do to make money over the next few years? He can sell his books, give seminars. According to him, the next chance to make money will be at the bottom of the market, which is probably 5 years away he says.

[powayseller]

This is what I think: Campbell is missing the inventory part of this. He’s got sales, he’s got price, but he doesn’t have inventory. So he generates a buy signal in January 1996, but then generates a false Sell signal in 12/01, which turns again into a Buy signal in January 03. However, I can’t criticize his approach too much, because it’s the only published buy-sell method I’ve seen, so he sure gets credit for coming up with a system.

I’m surprised the OFHEO price index is fairly flat. In Campbell’s book, he says prices rose 150% from 1982 to 1990, and fell 30-40% untkil 1996. But the blue line doesn’t show that.

Why do sales decrease from 1999 to 2001? This surprises me,because I bought my house during that time, and the market was HOT. People were making offers on homes without even having seen them. Realtors had to check the MLS every hour. Once, my realtor called me to tell me about a house that had just been listed a few minutes before. I rushed over to see it, and as I arrived, darn it, a couple was already there. I asked them if they were looking at it, and if I could join them and see it too “Oh no, we’ve already made an offer”, they said. That is how it was. Houses were sold within hours of being on the MLS. The house we ended up buying had just been put on the MLS a few hours prior to our offer, and there were several backup offers going late into a Friday evening. It was absolutely crazy back then.

A friend told me the night he listed his house, a couple came over at midnight and woke him, to make an offer on his house; they had not even seen it. He sent them away, and called his agent at 8am ruefully the next morning. “Don’t worry,” said the agent, “I’ve got 4 other people on their way over to look at it”. So how could sales be down in that time period?

[powayseller]

From my limited knowledge of loans, ARMs adjust when the teaser rate expires, or when the mortgage balance exceeds a certain amount, i.e. your unpaid interest is high enough to trigger a new amortization schedule. Is it possible that ARMs can reset if the market value of your home drops below the mortgage amount? Even if it is, I doubt any lender would force significant amounts of their loans to go into a delinquent state. That doesn’t help them at all.

[powayseller]

He sees a recession as imminent because we are seeing such a large drop in GDP, just as we did in 2000-2001. GDP went from over 5% to just over 2% quarter over quarter, this year and in 2000. Read his blog from last month. The GDP growth is slowing rapidly, and that is what happens in a recession.

[powayseller]

ottnott, you mentioned something that is rarely discussed. Once demand for labor and inputs for housing drops, the prices of those will go down too. After the builders finish the houses currently in the pipeline and lay off their staff, construction materials, labor, appliances, commodities (copper,lumber), and everything needed to build a house will go down (less demand). It will be much cheaper to build. If I were doing a home remodel, I would definitely wait a few years…

[powayseller]

The charts I referred to in Campbell’s book were for the San Diego market.

[powayseller]

I admire Campbell for being one of the only people to write about selling real estate. You can find hundreds of books about buying RE, but how many are about selling it?

He writes about the cycles of real estate from his own experience, since he lived through 3 cycles himself. Campbell emphasises timing is more important thatn location.

Unfortunately, his index is not quite reliable, for it generates sell/buy signals at wrong times, and did not generate a buy signal for the current bubble until January 2003. He uses what he calls 5 Vital Signs: housing sales, building permits, loan defaults, foreclosures, and interest rates (weakest correlation).

He doesn’t use the metrics I discussed before, and doesn’t even mention them, so I don’t know if he tried them and found them useless or just didn’t have access to them.

He makes a convincing case of real estate’s cyclical nature, and by the time you finish the book, you realize that real estate cycles are as much a fact as night and day, winter and summer, rain and sun. You realize that people do follow the crowd, and that you make money by going against the crowd. Timing, not location, is the most important.

Campbell is certainly a trend setter in a field usually filled with rah-rah cheerleaders.

[powayseller]

Thanks davelj, for your response. I stand corrected: it is general consensus that the stock market price is a leading indicator of the economy.

[powayseller]

I started reading Nouriel’s blog about a month ago. He predicts a recession in Q1 07. That’s all I know about his recession call.

[powayseller]

I’ve read that Texas has the highest rate or number of foreclosures in the country, quite opposite of what this Inman article states. Texas has strict foreclosure laws; you get only 27 days to get caught up on your late mortgage. Why do trust deed investing? What’s the return they are promising, and what is the risk you are taking on?

Personally, I am saving my cash to buy real estate at the bottom of the cycle. Why risk losing the money in trust deeds? I expect a national housing slowdown in 2007 – 2009, as $ 1.5 tril of exotic loans reset. I know I’ll get slammed for saying this, but I think most of those borrowers with adjusting loans will default.

[powayseller]

Josh, I think this is worrisome too. I think these lending guidelines will be more about tighter underwriting guidelines, rather than eliminating these loan products. What concerns me is that the OCC has jurisdiction only over some banks and thrifts, and not private lenders like H&R Block’s Option One. So banks like Wells Fargo and Washington Mutual will cut back on these loans, and Option One and others will pick up the slack.

On a related note, do the appraisers and realtors have any comments on how much looser the lending guidelines are getting? I say this because WaMu’s neg-am income increased 10x from Q1 05 to Q1 06. It seems the lenders are lowering their lending standards, in a desperate attempt to keep up volume as sales and loan volume is declining.

[powayseller]

Can someone go and write an analysis of it?

[powayseller]

bigtrouble, my inside sources tell me you are a big troublemaker. That’s all there is to discuss about that thread.

[powayseller]

jg, I just received my copy of Campbell’s book today, and just a couple chapters into the book, I am a devout fan. I can’t wait to finish it. So far, I think the guy is brilliant.

Anybody who says you can’t time the real estate market, needs to read Campbell’s book first. I don’t blame you for not believing my prior posts, claiming I could time the real estate market, because I have not given you the graphs yet to show my method will work. But Campbell has! I can’t believe I didn’t get his book last year…

jg, could you post your graph. Use the “add image” option below the Comment box. That takes you to a new screen, where you can give the name of your file.

I drew a graph to picture your description, but I am not sure how the price and sales change on the way up, so a more detailed description, or a graph, would be helpful to me.

On the way down, it sounds like prices lag sales by 2 years.

[powayseller]

I don’t know anything about 1st or 2nd deed trust investing, but I do know the housing prices have dropped year over year in the entire country, except the South. Nationwide, median yoy home prices are up only .9% this year. This real estate bust will be nationwide, so there is no safe place.

Read Robert Campbell’s Timing the Real Estate Market. Learn how you can make money buying at the bottom, when fear reigns, and buyers are scarce.

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