[powayseller]

SDR, I remember you told me about this couple, and I thought it was so unfair. That was certainly an issue of procuring cause – you had worked with them so long, and they just dumped you. The listing agent was guilty of misconduct – I know that every time I went to an Open House or new house, the realtor would ask if I was already working with an agent. If I was, they are not allowed to try to recruit me.

Anyway, I can’t believe they are already maxed out on their payments.

What do you think is the latent demand for homes? Do you think a lot of people are priced out of the market and are renting because they cannot afford to buy? Versus renting because they are waiting for prices to come down to 2000 levels or below?

And how do you peg people like surveyor and DaCounselor who think real estate will go up in the long haul, and that the best way to get rich is owning real estate?

[powayseller]

surveyor, of course you are right, real estate is local. So the 30% median drop for the US means the heavily populated (and higher weighted areas) will fall perhaps 50% (CA, Northeast US), while the sparsely populated areas will fall less (Midwest). I supposed some areas could increase too, but I’m not clever enough to figure out where those might be. You’d have to find a place where hardly anyone used exotic loans, and that is immune from the ripple effects of this recession, and that didn’t use their home as an ATM. Hmmm…does anyone in this country fit that definition? Even Wyoming as a 25% Option ARM rate.

Besides the depreciation to reduce your taxes, how is real estate the best way to get rich?

[powayseller]

The Riverside/San Bernardino 2-county inventory is very high, about twice ours, considering the size of their population.

[powayseller]

AN, sometimes I don’t know if you like to just argue, because this is such a ridiculous comment you made. Even people with no financial knowledge know that cars are worth less when used than new, and that houses increase in value. It’s common knowledge. And you are a very smart guy, so you would be aware of this common knowledge.

It’s rare in this country that houses lose value. Historically, they climb with inflation. When they have lost value, it’s gradual. In SD’s last downturn, the biggest loss was 6% year over year in 1992 (LA’s biggest loss in the last downturn was 7% in one year). Since Dataquick kept records in 1988, we’ve never had anything greater than a 7% loss in one entire year in LA, and that was during the bottom of the last downturn during high unemployment and high foreclosures. So how can anyone expect their home to lose 20% of its value in just a few months in this current economy? Something’s not right.

[powayseller]

nsr, love your advice, LOL!

Doesn’t the rental property give them tons of depreciation tax write-offs (per the other thread), enough to make them practically rich?

[powayseller]

Dacounselor, this is where we disagree: I don’t believe we will see another real estate bubble like this in our lifetime. It will take decades to regain today’s prices, in my opinion. This is a once-in-a-lifetime opportunity to cash out, just as NASDAQ was in 1999.

In your lifetime, it is more likely that your homes will never recover to the peak prices, than it is that they will go back to it, or exceed it.

As I mentioned, many people say that real estate in CA always goes up and down, but each up cycle brings us higher than the previous cycle. That game is up.

The reason that prices cannot go higher is because the money to go so high came from export countries like China, Saudi Arabia, Singapore, Japan, that invested their surplus dollars into mortgages. They are losing interest in buying US assets. Americans’ highest productivity years are over, so we will not create another big boom on our own.

But if you think that the next up cycle will bring $ 1 million median homes, then you need to answer from where will come the money to fund these homes? High inflation leading to high wages (but then you’re not gaining anything in real terms). The Chinese are going to buy trillions in US mortgages (very unlikely). Where then?

I do thank you for your input on depreciation and tax deductions, and this may come in handy for me in 2010-2012, if I decide to buy real estate at that time. But I may decide that real estate in the US has a dismal fate, like that of Japan, and I can employ my capital better elsewhere.

People think there is such a thing as a high risk-free return. There is no such thing. So I think that people like you, who think that real estate buy and hold is the answer to riches, will be sorely disappointed, just like the buy and hold stock investors were left with empty pockets when all was said and done in 2001. Real estate’s glory days are gone for the next 5-10 years, maybe for the next 2 decades. I have no clue how long the downturn will be. Maybe it will be like Japan, where we go down for 15 years and then just flatten out.

[powayseller]

Yup, the CEOs of Lend and WaMu struck it rich selling stock options, and after their stock price plunges over the next few years, they’ll be long gone. The big banks, the Fed Reserve member banks, will go on as if nothing happened I suppose. They’ll buy up WaMu for pennies on the dollar. The rich get richer. The losers are the guy who lost his house, and the shareholders of the losing bank and the MBS holders who didn’t hedge or do swaps or whatever they do. This will just result in another distribution of wealth from the poor working fool and taxpayer to the rich people (CEOs, bankers, cash-rich investors who’ll snap up foreclosures). That’s how it’s starting to look. I’m not saying this was planned, because that would have been a very complex plan. But that’s how it’s turning out.

[powayseller]

Would you still come out ahead on your taxes if you buy today, and your investment house depreciates 10% a year over the next 3 years? I expect a 30% median decline for the US as a whole, after reading Roubini. Before I read his blog,I thought it would be only 10%.

This is probably a good strategy in 2010.

[powayseller]

The jobs lost are middle income jobs with benefits, such as pensions, health care, disability, sick leave, vacation, job training. Illegals don’t get those types of jobs. So we’ve got illegals working as hourly workers in gardening, cleaning, construction, farming, and those are jobs that used to be done by American teens or college students.

In addition, today’s service sector jobs don’t have those benefits, so the quality of jobs has declined a lot. I just saw a story on CNN this week about a mother who took a couple days off to care for her son who had broken his arm, and she was fired. Now she works part-time, but no benefits.

[powayseller]

You may have a case under “procuring cause”.

See our discussion, and my post near the bottom of the page here. I’m not a realtor, but I think you have a good case. Check out the checklist I gave at that link, and see how good your case is. Keep us posted.

[powayseller]

nsr, the consumption tax should apply to all items, new or used. In Arizona, you don’t pay sales tax when you buy a used car from a private party, but in CA you do. So the tax law can be such that you pay taxes on used goods.

[powayseller]

Where do you buy euro bonds? I called a few brokerage firms, and they said they don’t offer it. I would like to purchase german or swiss government bonds.

[powayseller]

Thanks for all the food for thought. I don’t read those magazines you mentioned; those ramblings are purely mine.

I just saw a CNN video on Abu Dhabi. One of the developers said that they had planned so well for their future, their worldwide investments returned as much as their oil, so they are no longer dependent on oil revenue. Is planning for the future really so bad? video on this page

What do you make of this analysis of the similarities between the Soviet and US collapse? Will the US come out of this recession stronger, or will we have an economic collapse like the Soviets? Be prepared, it’s an uncomforting read.

[powayseller]

Unfortunately, the data on housing is sparse, and even sparser from the past. Dataquick only started keeping data in 1988, and the NAR doesn’t even publish inventory data. Nobody is giving out data on loans, debt to income, etc., that I have ever seen. Some companies like First American Real Estate Solutions track this themselves, but they use it for their own purpose, and sell it for risk modeling. The media still relies on median as a way to gauge prices, and we know that it’s a fairly inaccurate.

[powayseller]

So the price of US made goods would double as well, but only because of too much money creation. Too many dollars makes each one worth less. I get that part. But if the value of the dollar falls due to less demand from the foreign exchange market (and not due to excess supply from the Federal Reserve creating too much money) is the outcome still the same, i.e. higher prices?

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