[vcguy_10]

Well, of course, if you take the intersection of the San Diego and condo sets, you are going to look at the very segment that is falling first (and possibly fastest). But if you were to look at the union of the California and Florida sets (both SFH and condos), you’ll probably agree that overall prices still haven’t moved much.

Apologies for the set theory language.

[vcguy_10]

Has it crossed your mind that the ‘smart people’ were the one’s touting real estate as being an asset class that has never lost value that might be wrong.

I never considered them smart. They are just sales people (realtors, mortgage bankers) or their spokespeople (Lereah) looking after their own interests.

Or was it the “smart guy” Federal Reserve Chairman Alan Greenspan who stated people are better off with adjustable rate mortgages over a 5.25% 30 year fixed rate loan who definitely was wrong.

All Greenspan said is that if you’re going to live in a house for less than 5 years, then you’re better off with an adjustable mortgage that resets not earlier than 5 years. For young professionals who work in industries with high labor turnover (high tech, pharmaceuticals), this advice is actually smart.

I agree with you that the RE market is cyclical, that it probably peaked in 2005, that this last peak was unusually high by many measures, and that we are about to enter a downturn that may last many years. The point of this thread is that, as reasonable as I think my observations are, I may still be wrong.

[vcguy_10]

$800K for a house that, if it were for rent, would fetch no more than $2800 per month? I don’t think so. Take the highest monthly rent you can get for that house, then multiply that number by 130, and that’s the most I would be willing to pay. Otherwise, I’ll happily rent the house next door, for a fraction of owning, and save my cash for a few years.

[vcguy_10]

Conspiracy theorists will probably be disappointed if they take the time to look up the M2 and M3 definitions in a macroeconomics textbook. The short answer is that M2 is already so wide, that M3 adds little, or no information. There’s really nothing to hide by discontinuing the publication of M3 numbers, which were costly to assemble and pretty much useless.

This is a great answer from James Hamilton, PhD, a professor (meaning, full professor with tenure) at UCSD.

[vcguy_10]

Was this place called ‘Adelanto’ by chance?
More like Hesperia or Victorville, but I don’t recall now.

[vcguy_10]

He even got angry? Not entirely surprising. Early this year a young couple told me of their plan to invest in RE property in the CA desert (somewhere between L.A. and Barstow). They probably had heard of all that people making a killing in RE. I tried to convey to them, in a friendly way and not using direct language, that the RE party was over, that prices had shot up to ridiculous levels, and that we were about to start a downward trend in prices, like the one we saw following the last boom. Now I think that, in typical blame-the-messenger fashion, they dislike me for what I told them.

[vcguy_10]

The Fed primary goal is to ensure monetary stability and prevent inflation from getting any higher than, say, 3.5% or 4% per year.

Back in 1991-1992, Bush Sr wanted the Fed to go easy on money to help with his reelection efforts. We were in a mild recession, aggravated no doubt because of Persian Gulf War I. Greenspan is a registered Republican, so he would help Bush, right? Well, no, Greenspan did what was right and did NOT increase the money supply (through many of the monetary policy tools at his disposal).

Bernanke, the current Fed chairman, is a highly respected scholar who made his name in academia. He is far less likely than any of his predecessors to be influenced by the Administration or even the banking industry. The scenario you propose is virtually impossible.

[vcguy_10]

The first question, of course, is whether your uncle wants to be helped. Oftentimes, people in his situation don’t want help.

[vcguy_10]

Steve, back then, they thought that SD had just been “discovered” and that there was no limit to how valuable land would get. They were painfully disappointed, of course.

What we have today is very similar, only the magnitudes are somewhat different: 10x appreciation in 3 months in the 1880s compared to 2x appreciation in 4 years in the 2000s.

Many of today FBs’ grandchildren will probably one day say what you said today about past idiocy: “Grandpa, your house value doubled in 4 years, with no fundamentals driving it, and you still thought it could only appreciate more??? What were you guys smoking in 2005???”

[vcguy_10]

A gem! Extracts from the 1907 San Diego book relating the 1880s boom (the first of many bubbles to be seen, including the last one that just ended in 2005):

Land advanced daily in selling price, and fortunes were made on margins. A $5000 sale was quickly followed by a $10,000 transfer of the same property, and in three months a price of $50,000 was reached. Excitement became a kind of lunacy, and business men persuaded themselves that San Diego would soon cover an area which, soberly measured, was seen to be larger than that of London. Business property that had been selling by the lot at $500, passed through the market at from $1000 to $2500 per front foot. Small corners, on the rim of the commercial center, sold for $40,000, and for the choicest holdings the price was prohibitive.

Then as now, psychology played a role:

Those who participated in these events and still live here, look back upon them with varying emotions. To some the memory is painful. “The boom,” says one; “Well, that was the strang­est thing you can imagine. There seems no way to account for it now, except as a sort of insanity. All you had to do was to put up some kind of a scheme and the people who came here would put their money into it by the barrel.”

Of course, as happened in 1979-80, 1990, and 2006, the party came to an end, and many greater fools were caught holding the bag:

The great boom collapsed in 1888, the first symptom of strin­gency in the money market coming early in that year. Those who were speculating in margins threw their, holdings upon the market, first at a small discount, then at any price, and before the close of the month of January, there was a wild scramble and confidence was gone. The establishment of a new bank in March did not have any immediate effect in restoring confidence. “Save yourself” was the sole thought of those who had been foremost in the gamble for the “unearned increment.”

What were the net results of the great boom? To a few indi­viduals, pecuniary profit; to many more individuals, loss and disappointment; to the real estate market, years of stagnation.

The boom, of course, would not have been complete without the David Lereahs of the day:

Of the literature of the boom, it would be embarrassing to even attempt to describe it in all its richness and variety. The best writers in the land were brought to San Diego and gave their talents to the service of the real estate dealers. One of the ablest of these writers was Thomas L. Fitch, known as “the silver-tongued orator.” Mr. Fitch easily outdid and outdistanced his fellow scribes in the glowing fervor of his panegyrics upon bay and climate. To this day, the old San Diegans break into sunny smiles when yon speak of Fitch and his boom literature.

[vcguy_10]

Obviously, Yamamoto-san makes his money selling $360/yr subscriptions. If he had a system for making money in the stock market, he wouldn’t waste his time selling “advice”.

Shorting has a high risk/high return profile. Too risky for me. Our friend Soros made a billion dollars shorting the sterling pound and Italian lira in 1992, but people who are no less smart than him lost their shirts (and more) trying to do the same thing before or after him. You can clean up if you’re lucky, but if not, there’s no limit to your losses.

Beware of charlatans and market “timers” who may heed your call and come knocking your door. Sensible people know that the higher the return, the higher the risk.

[vcguy_10]

I couldn’t help but chuckle when vrudny mentioned having a “friend”… China is a communist country, and there’s no transparency whatsoever. Even Japan (not communist) had a serious problem with obscure and hidden banking practices that were part of the asset bubble bursting there in 1990 that hasn’t recovered yet 16 years later.

As for Roubini’s relic commment, I think he was being sarcastic. I wish he would read what he posts before pushing the ‘submit’ button: all those grammar slips detract from his credibility, not to mention his overbearing tone. I bet his scholarly papers are nothing like that thanks to the peer review process.

I saw your postings in his blog. I think he’s Italian. Not all surnames ending in “-ni” are Persian.

[vcguy_10]

Thanks ybc!

[vcguy_10]

I agree with the relationship advice given here. Regarding the financial situation, consider this. A house’s price should fluctuate between 90 and 120 times its monthly rent. (Meaning, a house that rents for $1800 a month should be worth about $200K, give or take 10%-15%). That relationship has held historically in California, the rest of the country, and in most non-communist countries as well. Today, house prices in So Cal are at a ridiculously high 290 times monthly rent. As it happened in 1990-1996, house prices will drop and continue dropping (and rents will increase somewhat) until they get to a resonable level.

And if you have a nice place to live in, as you do now, what is the hurry? RE is cyclical, it has ups and downs, and right now we are at the peak. The fastest road to financial ruin is to buy high and sell low.

[vcguy_10]

ybc: Do you have access to the Case & Shiller Op-Ed piece in yesterday’s (Aug 30) WSJ?

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