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powayseller
ParticipantI’m not able to see the comment I made either. I have to select “make a comment” to see it. I notified ZipRealty of this bug.
ParticipantNorth County Jim – Could you give more info about deflation? Maybe we need a thread on that topic. Dr. Faber says we can have inflation and deflation. I don’t know what we have for sure: I see prices rising all around me: inflation. Then you make a good point about credit contracting: deflation. I know Bernanke is worried about deflation, and Mish at globaleconomicanalysis.com is sure about it too.
How will we know that we have deflation? Wouldn’t prices have to start falling?
Bugs – why will the lenders go under when foreclosures rise? Didn’t they sell the loans to investors? I think the lender problem has more to do with falling sales, but I am not sure. Which lenders keep their loans?
ParticipantBugs, I would like your input on how you would time the real estate market. These metrics haven’t been around too long, but is it possible to do a chart of months inventory going back to the 1970’s. Also, how do you explain that the SD price/income chart goes up and down so smoothly, without any intermediate rallies? Is this because real estate is a slow moving ship (using Rich’s term)? Once it turns, it moves in one direction only, with some noise here and there?
ParticipantIt does sound deflationary, doesn’t it. Do you read itulip? Erin Janszen has a KaPoom Theory, where he predicts deflation.
I know nothing about buying foreclosures, NOD laws, or bank REOs. I don’t know how homeowners and banks will interact in this area. Perhaps someone else can help us out here.
ParticipantChris, could you expand on how the large institutional investors “bullshit John Q public for their own gain”? It puzzles me that they have not sold off more of the stocks by now. Also, you are expecting a rally in the fall, just as we are heading into a recession, and the earnings numbers and economics reports coming out around that time will keep getting weaker. Who will buy into the stock market in a scenario like that? If it’s the big guys, then is this rally part of a game too? I know you will play it right, but you (and hopefully some of us here) will gain at the expense of the suckers. Who will end up buying into that rally and losing? John Q Public?
Participantjg – what kind of paper do money markets hold? I’ve always been given vague answers, like short term corporate AAA paper, etc. They could be holding 50% of Fannie Mae’s AAA paper, which is really worthy of a D grade. For this reason of vague disclosure, I don’t see money markets as a safe vehicle. Why would I get a money market at 5.5% when I can go FDIC insured or government backed Treasury for that same rate?
Thanks for the info on gold mining stocks. Now I see why Bill Fleckenstein is bullish on Newmont Mining. I get all my commodity signals from Zeal Intelligence, since I don’t have the time or interest to do this research myself. I have a subscription to Zeal.
ParticipantAN – Yes, I will buy 10 houses and rent out 9, at the bottom of the market. Not now.
Daniel and VegasRenter – did you track the months inventory for these cities and times, as well as the multiples of housing prices as rents and wages? We need to look at months inventory, changes in inventory and sales, HAI, and a return to a true values (multiple of wages and rents in line with history) and combine that with the experience of realtors in the field.
What you both provided is interesting, but in the absence of data, does not dispute my method at all. Perhaps the price changes you noted were just statistical noise in monthly home sales.
Check out the historical price/income charts on piggington’s Bubble Primer. You can see home prices move in one direction from top to bottom , without rallies or false bottoms/tops as you find in stock charts.
I had not heard of false rallies in housing markets. Do you have any charts? Or are these rallies just monthly noise? I will not buy on monthly noise, or a temporary blip. It doesn’t matter to me if prices dip down one month or two. I am looking at the fundamentals: home prices vs. wages and rents, and demand measured by months inventory.
Just curious – when are you planning to buy a house, and how do you plan on making your decision on timing?
ParticipantThe only reason I sold my house is because I priced it at market value. My buyers got a 5% discount off the summer’s price, citing a “softening market” in their offer letter.
If I were to list that house today, I would have to lower it even further. So your statement that my house was “overpriced” is incorrect. It was priced at the market price, and that’s why it sold.I believe that every home listed at market value will sell. The people not selling are priced too high, and need to lower their price.
Telling them to lower is actually helping the seller. You see, if they don’t lower their price, they will chase the market down, and end up getting less than if they just priced it right today. As the market price keeps moving downward, sellers have to keep lowering their prices.
My suggestion noted above is helpful to both buyer and seller.
As far as whether the market price is equal to the intrinsic value: not, it is not. I have tossed this around with the appraisers on this forum, and there isn’t much you can do about it. Houses and stocks are sold on market value, not fundamentals or intrinsic value.
Schahrzad Berkland
ParticipantRrising foreclosures will NOT halt the price slide. You are forgetting about buyer psychology. When the NASDAQ lost half its value, did people suddenly rush in to buy up the cheaper shares? Of course not. After the frenzy dissipated, they realized that earnings mattered. Likewise, by next year, people will realize that fundamentals matter, that mortgages made with exotic loans are not sustainable, and that houses should be worth a reasonable multiple of that city’s wages and its underlying rental income stream.
Above, several people proposed that dropping prices will increase demand, saving the housing market. They are basically saying that prices and demand are inversely related: as prices drop, demand picks up.
The fact is, it doesn’t work that way in an asset bubble. What we find is the opposite: as prices rise, demand increases as people are in a frenzy state to get in before prices rise further. When the bubble pops, demand falls, causing prices to drop, making demand fall further, in a vicious cycle. Buyer fear leads to fence sitting, as they are afraid to buy today in fear that prices could be lower tomorrow.
Prices will keep falling until they return to their fundamental value, and then people will start getting interested in buying homes again.
My guess is that the first group of buyers will be landlords, who wil pick up lower priced properties because the time is right to be cash flow positive on rentals. This will make the median drop further, as the low end sales will make up more of the solds. Once home prices are a multiple of 3x a person’s income, they will become interested to buy a house, since it will be affordable. So the necessary condition for psychology to turn is low prices that are back to fundamental values.
Another factor is lending and credit availability. Rising foreclosures and the new FDIC lending guidelines will tighten underwriting rules. Soon enough, borrowers will be qualified on the fully indexed rate, not the teaser rate. They’ll need to prove their income and make down payments. Bank defaults and foreclosures will lead to less money available for mortgages, so only the most creditworthy will qualify. This will reduce the number of possible buyers.
In summary, prices can only turn around once they are down to fundamentals and people can truly afford a mortgage based on traditional underwriting standards. Don’t look for any false bottoms or sucker’s rallies. Houses are not like stocks.
Schahrzad Berkland
Participantjg – this is a gem! Some questions: Why is Japan the major buyer of Treasuries, double of China? I thought we import mostly from China.
We need to note that the oil producing nations buy their Treasuries via other countries/dealers, so their actual purchase is not known and does not show up in the Treasury or Flow of Funds reports. You can bet they are ending up with 50% more dollars vs. 2 years ago, since oil is 50% higher vs 2004. What are they doing with all those dollars?
Why are Mexico and Canada doubling, and the United Kingdom tripling, their monthly Treasury purchases vs. last year?
A few countries lowered their Treasury purchases, but only by 5 or 10%. Most countries increased or kept constant their Treasury purchases through the period shown, May 2006.
Why are there such wild swings in the monthly inflow/outflow of Treasury bonds/notes? The other chart (last link you gave) shows a constant monthly purchase.
The second link shows $17.7 bil tendered, $9.9 bil accepted. Does that mean only half the Treasuries were sold?
ParticipantDiego Mamani, if you used the pre-Clinton era of CPI measurement, before they changed the definition of inputs to make inflation look lower than it really is, inflation has been at 7.5% over a year now. Chart. CPI, like the median, is another poorly understood number, because the media doesn’t adequately educate us.
Even with today’s measure, CPI shows inflation has been rising for 2 years. The economy is slowing, so inflation should be falling, not rising. Inflation will keep rising, because rents will keep going up as housing falls, and oil prices will probably reach $100 by the end of the year. This is mild stagflation, because inflation is only 7.5%, not 17%.
Participantjg, what is the treasury money market fund? Don’t you risk losing principal as the yield rises? Isn’t it safer to buy short-term treasury bills that you can hold to maturity?
Why the Precious Metals Fund vs. GLD ETF?
I want to find out where I can get Canadian, euro, and swiss franc government bonds. Any ideas?ParticipantWithout permits, a homeowner is not taxed for the additional space (since the County Assessor is not notified), but it is also not noted in the square footage at time of sale. For this reason, a seller ought be sure that figure is accurate. How can a buyer pay for a 2300 sq ft house if the assessor shows he has only 1800 sq ft. Buyers pay less for unpermitted additions. You just don’t know if it was done to code. The value of an unpermitted addition is less, in my opinion, as a buyer.
We used permits for all additions we ever did, and made sure our square footage was accurate, for resale reasons.
It is against building codes to make additions or other construction without building permits, and I would NEVER buy a house that was in violation of building codes. The reason our houses don’t crumble in earthquakes and kill thousands of people is the building codes. I am a fervent believer in building codes.
Some people are too cheap to build a house properly, so they don’t pay for the permits or the additional requirements of a building code. I won’t buy that guy’s house, but go on to a house properly built.
Just my opinion. As far as legal aspects, I am sure these people can get fined for violating code. You just have to turn them in to the building department.
Anyway, why mess with a house built without proper permits?
ParticipantWhy did it take you 2 years to realize the bottom had occured? This is like Alan Greenspan telling people you cannot recognize a bubble until AFTER it has popped. Perhaps back then people were relying on the median, which, as I said before, is a 1 – 2 year lagging indicator. Why are you so upset with my dictum? Timing a crawling asset’s price movement is not even related to making gold out of thin air, but more like making wool from sheep. It’s just a logical thing.
I think you are having such a hard time because we have been fed such poor information about real estate cycles. Nobody educates us about real estate cycles. They are infrequent, usually occuring only once every few decades, in a few cities. Few people have become experts at figuring them out. Furthermore, the MLS is relatively new, and doesn’t allow us to go back in time to look up the data we would really like, to prove our points.
I would love to chart months inventory from 1995 – 1996, and I am sure we would see a steady decrease in that measurement. I would also love to talk to realtors of that time, who would surely tell us that activity picked up in the summer of 1996, as investors came back in the market, and people got excited again about buying homes. During this time, the median would KEEP DROPPING, because the increase of activity in the low end would make the median pick up in the downward direction. As we know, the newspapers report the median. The median didn’t show prices picked up for 2 years, so that makes sense it would be 1998 before the public was aware of the shift.
Again, to prove all this, we would need the actual data. But from what we see today on the way down, my method definitely works on the way down. And that’s why I am so convinved, based on the logic, that it will work on the way up. I will use this method to time the real estate market for myself, and yes, if I had known about this method before May 2006, I would have made a ton of money in real estate. The market softened in 2004, so had I known about this method back in 2000, I would have been buying real estate until the March of 2004, when inventory was at 3,000 and started creeping up (months inventory went up). By June 04 inventory was 6,000, and by Sept 04 it was 12,000. Using months inventory, you would not be buying after March 04, selling instead.
I hope this has been helpful. The greatest disservice done to the public has been the use of the median, which has made everyone believe they cannot time the real estate market, when in reality, it is very easy to time. You just have to stop using the median.
Schahrzad Berkland
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