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powayseller
ParticipantBugs, could you elaborate on the poor construction of 2×4 tract homes. The house we built was 2×6 construction, and we watched it go up and knew it was well built. But without seeing your home built, how can you tell the quality? Are these low quality homes limited to low income areas, or do they exist also in the expensive areas? What are the ramifications of buying such a house?
ParticipantGold must follow the fake inflation, the CPI, not the true inflation. Inflation has been rising for the past few years. Maybe that’s why gold started its most recent run. If gold followed the true inflation, it would still be rising. So I think it follows the CPI. Any comments on that Chris? I am waiting for a good buy spot to put 10% of my net worth in gold. I am scared holding dollars. I don’t see how dollars can stay strong. As soon as the Fed lowers rates, in our recession, the dollar will weaken again. What do traders and FCBs buy whenever the dollar weakens? Any data on that, Chris? Do you have friends who are currency traders?
Somebody should make a true inflation number. Just take about 50 things that we all buy, like housing, insurance, tuition, music lessons for our kids, and don’t strip out the steaks (for the meat eaters out there, I’ll stick with tofu) and gas. Track this over time. I read a funny blip on The Big Picture, about a bunch of traders that kept a trader CPI. They kept track of price changes in a trader’s basket of goods: dry cleaning, WSJ, martinis, golfing. No matter how you set up your index, you will come up much higher than the government CPI, which minimizes the weightings of things we consume, and strips out the rest.
So the question is: does gold track true inflation, or just the government doctored numbers?
ParticipantAs I reviewed this page, several things jumped out. First, an experienced real estate investor, with 40 years in San Diego entitlement planning, tells us that coastal San Diego property values will keep climbing:
“I see coastal California values (especially in San Diego) staying flat or even increasing a bit over the next several years. The west coast is the edge of America and there is a lot of wealth chasing a very limited amount of livable land near the coast (especially in th prime coastal areas), not to mention the tremendous pressure by environmentalists to limit development in the coastal zones, which will continue to exert upward pressure on values.
I’ve lived on the coast my entire life (58 years) and I have never seen a correction that even comes close to 50%. To the contrary, I have seen values steadily increase, albeit very slow.” – docteurThen, an appraiser, saying a 50% drop is possible.
“It’s strange that as a society we seem to be able to comprehend the 300% increase ($200,000 home increases to $600,000 current price), but we can’t wrap our minds around a 60% correction ($600,000 decreases to $240,000). ” – bugsWhat is so difficult about imagining prices going back to 2001 levels? That would be just be a continuation of a trendline, i.e. if we had never had a bubble.
I can tell you why this scares people so much: because the equity created since 2001 has been spent. Thus, a return to 2001 levels is not just a popped bubble (disappointing but can be accepted), but a popped lifestyle, as the equity has been turned into debt.
When the stock market lost $7 trillion, the government didn’t hand people back their money. It was mainly the middle class and rich who lost money there. Now, homeowners, from poor to rich, will lose even more in equity as the housing bubble pops. What can the government do to stop it?
I’m glad we had a poster from Coimbatore to reinvogate this thread. It is just as valid today as it was back in May.
Regarding coastal values: I would need to research how much they went up, to say how much they will fall. How much did they rise since 2001? Does anyone know? Then I can correct docteur’s assertion that coastal prices will keep rising. They won’t. An exception could be a very unique property. docteur once posted that he would buy one of only 6 available homes in the county with boat docks. Such a property is unique enough that it can conceivably hold its value. But the rest of the everyday homes, builder tracts, will go back to 2001 prices, and the percentage drop just depends on how much it rose. Back to 2001 prices, that is my best guess.
Participanttickets, how do you turn one mortgage into layers of various credit ratings? How can a $400K mortgage be broken into a $100K AAA MBS, a $100K AA MBS, a $100K C MBS and a $100K D rated MBS? These are just numbers I’m making up. Who buys the C and D tranches? Who insures them, who pays for the insurance, and who will be left holding the back when the mortgage isn’t paid? If the owner is upside down, who pays off the MBS? I suppose the upper levels get paid off first.
Participantdaniel and technovelist, you guys know a lot more about this than I do. Can you write more about how these products are packaged and insured, why investors are gobbing them up without demanding a risk premium, and how a possible financial sytemic crisis (FDIC and Greenspan’s words) is related to issuance of this debt?
sdrebear, I think you are right. GoldenWest was a big seller of OptionARMS in the last RE cycle, and they made money through the entire downturn. This cycle, they started lending heavily to subprime borrowers, but said, “We manage our risk well. Look, we didn’t lose anything in the last downturn”. They forgot to complete the sentence, “because at that time we made option loans only to high FICO borrowers, but we are scared to death of our portfolio at this time, so we are selling out entire bank to Wachovia. Wish you good luck with that, Wachovia,hahahahahahahahahahahah”. The Sandlers got the last laugh, and Earnest Rady was the bigger fool.
By the way, Rady was a sponsor of the UCLA Anderson Forecast conference in San Diego, you know, the one where Thornerbg is not allowed to mention exotic lending in their forecasts. A connection, or coincidence?
ParticipantThe NAR is not loved by the people they are supposed to represent. A realtor told me they are useless, the people on the board just bide their time, and their only function is collecting dues and selling forms (contracts, rental forms, etc.). I guess if they keep up the facade that real estate is a great investment, they can gather more dues from realtors joining the business, and sell more forms.
ParticipantHaving studied his reports, this is what’s new in the comments he made:
1) hard landing, meaning prices could fall. While at UCLA, he said prices would NOT fall, but remain flat until fundamentals caught up. He even had a bogus chart, looks like a Dataquick chart, with home prices back to the 1980’s, showing they are flat during our last 2 housing busts. No source cited, no data cited on that chart. The only chart in that entire report with no source!2) Recession possiible. Before, he said no chance of recession! Not a chance. Not according to him or Leamer.
Still, he fails to mention exotic loans. That is what made it worse this time. That’s what will make the downturn much much worse.
ParticipantDocteur, I regret you are choosing to leave this forum. I respect you greatly. You are wise, and I really like you. My previous comments were about your denial of the current real estate market, not you personally.
You made millions in real estate and I did not. You know a lot about real estate, and you had some grace of God too. Had your project taken 17 years to complete instead of 15 years, you would have sold your large entitlement piece in 2006 or 2007, and would get much less money, perhaps you would have lost everything, as you did once or twice before.
I wrote before, I wish I had known this was a bubble back in 2000-2003, and I would have invested money in real estate. I saw the tech bubble for what it was, but not the real estate bubble. I thought CA housing prices were different, and I had always stayed away from real estate investing, preferring to “dollar cost average”. The folly of these approaches was the subject of another post, where I explain how I missed out by following Wall Street advice.
If I were rich, I would live rent free in a home I built myself. Why not? Ultimately, I want to live somewhere, at retirement, where there is no rent or mortgage to pay. I am squarely middle class. For this reason, I cannot afford to lose 35% – 50% equity in my house, and I took advantage to double my net worth. Now, I am very happy with my choice. I love the financial security, living in the center of Poway, and the renter life. I hope I can stay in this same rental until I am ready to buy again (when I will buy rental property and a home, God willing).
You are right that I cannot predict the future. However, every asset bubble in history has reverted to the mean. This one surely will too.
What puzzles me is that despite all your experience in real estate, your observation of at least 2 cycles in San Diego, you think that a regular builder subdivision in Carmel Valley, which is nothing special by architectectural or real estate standards, would be exempt from this housing drop. I asked a couple realtors about your neighborhood, and they both said it was “nothing special”. Perhaps the unique areas of La Jolla, coastal areas, older neighborhoods with unique homes and large trees, Rancho Santa Fe, but the builder subdivisions are a dime a dozen.
I am also puzzled that a man with 40 years in the the real estate world, would go off-forum just because of this observation. Obviously you and your home have a deep personal attachment.
Yes, you do know a lot more about real estate investing. I do not know a thing about entitlements, buying foreclosures, rental properties, any of that.
I don’t have any regrets about my comments regarding Alan Gin. He violated his role as a leader in the real estate industry. He definitely violated the public trust. I doubt you are friends with him, but wonder why you would defend him. He and Gregory Smith are clearly violating the public trust with their inaccurate statements and forecasts.
I don’t buy that you know more than I do about real estate cycles because you have millions and I don’t. Many a rich man lost it all in real estate, as you have before. Many a poor person made millions too. Hopefully time will kind to us both, and the real estate investments you make now, if any, will be fruitful.
The people on this forum are far from lemmings. Lemmings are the people out there who own homes now they can’t afford. The people here are forward thinking, independent thinkers. I think your comments are an insult to us all. Nobody follows me. They take advantage of me, if anything. I spend hours researching and writing here, and they read it all for free! If I stop writing, they don’t get their free contrarian real estate news any more.
Those of us writing about real estate dropping, are getting attacks from readers. I cannot respond to these attacks, but allow you the space to make them. This is a highly emotional time for owners of real estate, who are seeing their net worth and financial security erode, and feel jeopardized by the falling value of their home, mistaking their home’s net worth with that of their own.
I hope time will be kind to your home, your family, your investments.
August 19, 2006 at 7:21 AM in reply to: Iraq is like the housing market – but not like you think #32385Participantbgates, thanks for that answer. I was looking for something to help me figure out what was really going on, and that did it.
rankandfile, I don’t like Iranians (shhhh). That’s why I haven’t gone to Iran. Although I have met some nice Iranians, so I am coming around. I get my political info from my brother, who is biased against the US foreign policy. He spends hours every day researching politics (media only, no feet on the ground experience at all). At the risk of being politically incorrect, I have little interest in politics and history, and abhor the Middle East news stories, because it’s all about a bunch of people fighting about God and who is right, and can’t get along. A bunch of spoiled brats! No wonder my husband is turned off to religion. More deaths are caused by adherence to religion than anything else. Maybe if they stopped believing in Allah, they’d find some other reason to quarrel. Who wants to keep track of all their quarrels. Boring….. I know, this is close minded, but I’m being honest. And I represent the average American in this view, I am sure.
The media is full of sensationlist stories, so I know there is scant interest in foreign policy. 20/20 used to be a serious news show a decade ago.
North County Jim, thanks for the correction on the newspaper, and I did miss the Mike Wallace interview. What did you think about the interview?
ParticipantChris, from your view, gold could even go back to $300, couldn’t it? There is a real lack of interest now in gold. Whatever caused it to rally up to the 650s, went away. Why?
August 18, 2006 at 8:49 AM in reply to: Iraq is like the housing market – but not like you think #32313Participantbgates, I’ve wondered the same thing. If the media can be so wrong on housing, so wrong on stock market reporting (linking 2 unrelated events and implying causality), then how can I trust them on political reporting?
My brother says the media is hopelessly biased due to the views held by the owner of that media. Most media owners, and most Americans support Israel and Israel’s view.
Did anyone notice the german magazine Spiegel interviewed Iran’s president? Did a US media ever do this? If not, how can we expect to know anything about Iran? Second hand reporting about Iran is less accurate, as we all know. Bush telling us that Iran wants nuclear weapons could be self serving, to rally us behind his next war (which he desperately wants), and is like David Lereah telling us that now is a good time to buy houses.
Do you think NPR is any better? They seem to be independent and do their own coverage.
ParticipantIt’s because he charges for the newsletter, so he won’t discuss this for free. Makes sense to me. It wouldn’t be fair to me, a subscriber to his newsletter, if he gave away all the info on a forum.
Rich used to have a premium content site, and I subscribed to that. He didn’t make references to that part, to try to entice more members to pay, because he was not active much in the forums. He was low key in regard to getting more sign ups.
Chris, how can I get more info on Robert Campbell’s strategies?
Participantforeign central banks.
Interesting piece written by Richard Duncan today, at John Mauldin’s website. He says the bond conundrum was caused by regulatory tightening of Fannie’s portfolio, causing them to cut back on issuing MBS. Private ABS issuers like Countrywide picked up the slack, issuing 3x as much ABS in that one year period, as usual. He’s got all the charts there to show it. Foreign central banks who wanted AAA+ paper, bought ABS AAA+ paper instead of GSE debt, but if they wanted government debt they were forced to buy existing Treasuries. This pushed up the price, and down the yield, for the period Q1 04 – Q4 05. Interesting stuff.
ParticipantFormerSanDiegan, I am so impressed when people put data into spreadsheets and paste the images on a forum. I hope I can figure out how to do that.
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