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EJ
07-30-06, 10:02 PM
I start this Quick Comment with a short trip down memory lane.
Dancing, Booze, and Overpriced Houses (http://www.alwayson-network.com/comments.php?id=10485_0_24_0_C)

The housing bubble is reaching absurd, bacchanalian heights, which can only mean one thing: it's getting ready to collapse.

06.01.05 by Eric Janszen - AlwaysOn Network
MIAMI, May 22—In the last month alone, you could salsa with dancers in fringed hot pants at Aqua, hear a drag queen D.J. at Cynergi or watch stunt men ricochet off a trampoline at Soleil.

Nightclubs? No. Carnival acts? Not quite.

These were launch parties for condominium projects, one of the stranger forms of nightlife in a city obsessed with real estate. Alcohol and music were abundant, but so were sales agents and brochures with statements like, "It is the impeccable aesthetic of textures and calming shades—limestone and blue marble—that further distinguish these voluminous spaces."

—Salsa Dancers and Stunt Men? Must Be a Miami Condo Project, The New York Times (http://www.nytimes.com/2005/05/23/national/23condo.html?ex=1154404800&en=bdc86b0bb662b48b&ei=5070) (registration required)
That's from a piece I wrote for the AlwaysOn Network a little over a year ago. In an earlier piece in late 2004, my research led me to conclude that housing bubbles, unlike stock market bubbles, don't crash like stocks but rather seize up:
Housing Bubbles Are Not Like Stock Bubbles (http://www.alwayson-network.com/comments.php?id=6472_0_4_0_C)

Unlike stock market bubbles, real estate bubbles don't pop. Collapsing stock market bubbles are characterized by a sudden collapse in prices because stock markets are highly liquid. You see huge volumes of transactions at ever lower prices during a stock market collapse. Collapsing housing bubbles, on the other hand, are characterized by illiquidity, a sudden collapse in transactions. Buyers and sellers seem to disappear. The reason is a reversal in the psychology of buyers that developed at the top of a speculative housing market. Buyers had been buying at prices they knew were too high but on the assumption that they'd be able to sell if they needed to. The thought was: "Ok, maybe it's overpriced, but at least I'll be able to sell it later for at least what I paid for it, but likely more." What happens on the way down is that houses go on the market and just about NO ONE shows up to look. That's because buyers weren't buying earlier primarily because they needed a place to live, but because they thought the price would likely rise and that, in any case, they'd be able to get out when they wanted with all of their money or more. On the way down, neither condition is true. So buyers stay home, so to speak.

But can't buyers be enticed by declining prices, by bargain hunting, you ask? No. Once housing sale transactions suddenly fall from, say, several hundred a month in a large community to, say, one or two a month, this creates fear and loathing about prices. Long periods of time pass when there are no transactions at all. Think of it this way. What's the comparable on your 3000 square foot home in San Mateo when the last sale was, say, seven months ago? Is it 10% less than the last sale of a similar home on the area? 30% less? This happened in Japan, and prices nationally are still more than 60% below peak prices in 1992, where real estate prices continued to climb for several years after their stock market bubble popped. Sound familiar?
Judging by the most recent entry on this thread over on Mish's Global Economic Trend Analysis, we've hit the seizure point, at least in Atlanta, Georgia. Lights Out in Georgia (http://globaleconomicanalysis.blogspot.com/2006/07/lights-out-in-georgia.html) is the diary of a couple who are Realtors and associate brokers. The series starts out as follows:
2006-01-04

Many of you know by now that my wife and I are both Realtors and associate brokers. We live and work north of Atlanta in the suburbs of Alpharetta and Roswell. I made the point in a post last month that I have always thought that our business gives us some unique insights into the economy, not just here in Atlanta, but across the country.

We are seeing an extremely high level of relocation activity. Our business last year was very solid, we closed twenty six transactions. So far this year, days into the year, we have two transactions pending, booked in the fourth quarter, plus twenty five prospects. If only two thirds of those prospects close, then we already have eighteen or so deals. They are evenly split, buyers and sellers, but much more importantly, nineteen involve relocations. This is a very high level of relocation activity, the highest we have seen in years.

More relocation prospects than any January in memory. The economy remains very strong.

Mish and I would seem to have very different points of view on what 2006 holds in store. I am basing my forecast on what I am seeing, and what I am seeing is a strong economy.

There will be no recession in 2006.
There are many posts along the way as the couple experiences the "cooling" real estate market. Fast forward to the most recent post:
2006-07-20

Most of the regulars here know that my wife and I are a Realtor team associated with one of the major national firms here on Atlanta's north side, out in Roswell and Alpharetta. It's been a “character building year” as another agent in our office put it the other day. What makes it more stunning, at least to me, is that it started out so well. We ended the first quarter with nine deals pending or closed, which is a very solid start. Then we hit a brick wall with only three deals in the second quarter and that would make it our worst second quarter ever in our twelve years.

Then it got worse. Normally, over the years, about one in fifteen deals fall out, that is, they fail to close. Usually it's over the inspection contingency amendment but not always. At any rate, two of our three second quarter contracts failed to close. Unbelievably we booked and closed only one contract in the second quarter. So here we are, July 20th, with only ten deals for the year. What a mess.

How those two contracts failed just might tell a story about this years' market and the economy in general. First, one of them was indeed over the inspection amendment. Most of you understand that after going under contract, the buyer is entitled to have a qualified home inspector do an inspection. The buyer then presents a copy of the inspection to the seller along with an amendment to the contract asking for the repair of defects affecting safety or the structural integrity of the home. In this instance, the buyer went far beyond that, asking for, at least in my opinion, cosmetic items and home improvements. Our sellers' response, I thought, was more than fair, but the buyer would not yield. Normally we can work these differences out but not this time. Looking back, it is clear that the buyer was determined to wring additional concessions out of the seller or not close. We had a failed agreement and both parties signed a termination and release as required. That listing is back on the market.

Then the other failed contract was even more unusual. We had been working with relocation buyers from Cincinnati for several months. We found them a great house and went under contract. Ten days before closing they called to say they had decided they did not want to move. [Instead] he is leaving the company [that was] trying to move him to Atlanta. My take on this is he was afraid they would move him down here and then let him go. His company is facing a management reshuffle. But, who knows? At any rate, it cost him $5500, his forfeited earnest money.

So here we are with ten deals and needing a total of about twenty to meet our cash flow needs; personal and business plus taxes. The last year we failed to “make a living” so to speak in real estate was about 1994. Without a strong finish we just may be looking at that again. What are our chances of pulling it out? It's still possible. We have several buyer prospects plus we have ten listings and listings are the life blood of any real estate business. We will, with certainty, get one more listing by month's end. On the other hand, we have a listing that expires at midnight Monday and we don't expect them to renew. They have had two lowball offers and have refused both. My take is that they can't reduce without going under water.

What do you do if you owe more on your home than you can sell it for? Apparently, you just decide to sit on it and hope for a better market, at least for now.
Yes, sadly, sit they will.

The mystery to me will always be the repetition of the same mistakes. If we hadn't just experienced a collapsed stock market bubble, you could chalk it up to the fact that the experience of suffering by the victims of a severe bubble collapse rarely span a generation, that the grandchildren of the generation that suffered before were doomed to repeat the errors of that older generation. But the stock market bubble was tough on a lot of people, so you'd think the population in general would be more sensitive to the signs. Likely the explanation is that the housing bubble appeared so quickly after the collapse of the stock market bubble, and the stock market so quickly re-inflated with rate cuts and deficit spending that the lesson never sank in.

In any case, no need to re-invent the wheel to understand where we go from here in the housing bubble. The dynamics of a collapsing speculative bubble was stated elequently in John Kenneth Galbraith's, The Great Crash (Houghton Mifflin Company, 1954):
From the foregoing it follows that the crash did not come—as some have suggested—because the market suddenly became aware that a depression was in the offing. A depression, serious or otherwise, could not be foreseen when the market fell. There is still the possibility that the downturn in the indexes frightened the speculators and led them to unload their stocks, and so punctured the bubble that in any case had to be punctured some day. This is more plausible. Some people who were watching the indexes may have been persuaded by this intelligence to sell, and others may have been encouraged to follow. This is not very important, for it is the nature of a speculative boom that almost anything can collapse it. Any serious shock to confidence can cause sales by those speculators who have always hoped to get out before the final collapse, but after all possible gains from rising stock prices have been reaped. Their pessimism will infect those simpler souls who had thought the market might go up forever but who will now change their minds and sell. Soon there will be margin calls, and still more will be forced to sell. So the bubble breaks.
Now the Giant Margin Call on Real Estate begins, followed by a ten to fifteen year correction (http://www.itulip.com/forums/showthread.php?t=132).

What's the federal government going to give us this time? More tax cuts? More deficit spending? Seems like those bullets have been spent. What happens when you cut interest rates when oil is trading at $75 versus $20 as in 2001 and you have wars raging across the Middle East?

Fasten your seat belts. It's going to be a weird ride.

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jk
07-31-06, 08:02 AM
i'd like to add one observation about the psychology of buyers during the real estate run up. your note accurately describes the speculators, who came to occupy an ever increasing part of the market.

but there were genuine buyers, not speculators, who got caught. their thinking was that they had to buy sooner, not later, or they wouldn't be able to buy at all. as prices continued to rise they would not even be able to stretch to make the payments. so they decided to stretch and buy as soon as possible. their hope was not that the value of the house would continue to rise, though that was their assumption. they planned to live in the house, not flip it. their hope was that their INCOME would rise so that the stretch to make payments wouldn't be so painful. but incomes haven't risen, and perhaps one member of the purchasing couple has been, or will be, laid off or had work hours cut. those folks have my sympathy because their difficulty was caused by naivete, not greed.

WDCRob
07-31-06, 11:01 AM
I'm still grappling with a very basic question in all of this. The collective wisdom here says:

"Raise rates now, in the face of a declining economy and you risk recession/deflation.

Cut them now (or soon), and you get stagflation. Which will eventually be fought with interest rate hikes. Presumably leading to recession/deflation."

So...if rate hikes are eventually in the offing, what exactly does the Fed hope to gain by waiting? Time for something lucky to happen? A US takeover of the world's oil fields? Fiscal restraint from the next government? Or is it as simple as punting the problem down the road because they don't know what to do?

EJ
07-31-06, 11:46 AM
i'd like to add one observation about the psychology of buyers during the real estate run up. your note accurately describes the speculators, who came to occupy an ever increasing part of the market.

but there were genuine buyers, not speculators, who got caught. their thinking was that they had to buy sooner, not later, or they wouldn't be able to buy at all. as prices continued to rise they would not even be able to stretch to make the payments. so they decided to stretch and buy as soon as possible. their hope was not that the value of the house would continue to rise, though that was their assumption. they planned to live in the house, not flip it. their hope was that their INCOME would rise so that the stretch to make payments wouldn't be so painful. but incomes haven't risen, and perhaps one member of the purchasing couple has been, or will be, laid off or had work hours cut. those folks have my sympathy because their difficulty was caused by naivete, not greed.

jk, This site does not criticize those who get caught up in the various bubble belief systems we cover, not even the speculators. In a speculative market, it's hard for anyone to say where speculative buying ends and naive buying begins. I'd believe a continuum of buyers exists in these markets. The important thing is that the market has become speculative, no one in a position of authority has announced this fact or taken any action or responsibility to deal with it -- at the Fed, or elsewhere -- therefore market participants de facto become speculators, whether they want to or not. It's out of their control. If you HAVE to buy a house in a speculative market, because you are moving there for a new job or to get away from a marginal school system because your kids are growing up, for example, you have become an unwitting speculator.

Ann
07-31-06, 09:43 PM
jk, This site does not criticize those who get caught up in the various bubble belief systems we cover, not even the speculators. In a speculative market, it's hard for anyone to say where speculative buying ends and naive buying begins. I'd believe a continuum of buyers exists in these markets. The important thing is that the market has become speculative, no one in a position of authority has announced this fact or taken any action or responsibility to deal with it -- at the Fed, or elsewhere -- therefore market participants de facto become speculators, whether they want to or not. It's out of their control. If you HAVE to buy a house in a speculative market, because you are moving there for a new job or to get away from a marginal school system because your kids are growing up, for example, you have become an unwitting speculator.

I have so many friends who decide to buy a house then I can see them justify the price later. They don't get to decide on the "when." The price has to be good because they do not have control over "when," the timing, of when they buy. The market is good, right? They ask. "Great!" I say. What am I going to say? I know they have no choice.

jeffolie
07-31-06, 10:59 PM
The response to buyers have no choice is that buyers can choose to rent. Renting now is far more economical and shifts many burdens to the owner. If you discover that neighbors are annoying or disgusting, then move again. Repairs belong to the owner. All you need is renter's insurance.

SeanO
08-01-06, 12:37 AM
I have so many friends who decide to buy a house then I can see them justify the price later.

It continues to amaze me that most people, hell most Realtors, still have absolutely no clue about what's happening. There's zero doubt in my mind that the margin call has begun as Eric states. I see it in my foreclosure business. Yet when I discuss it with friends and family they think I'm absolutely out of my mind. I think I'm where Eric was in 1999 when he was talking to friends about the equities bubble... perhaps they'll give me a little more credit next time too. ;-)

So far I see no change in people's psychology of wanting to be a homeowner, or believing that real estate prices only go up. What is absolutely gone from my market is any sense of urgency. Most people seem to think we will take a 1 to 2 year breather before prices take off again. As such those that "need" to buy are taking more time to look, and being more selective. Those who are simply upgrading, are holding.

I think this transitional period may still last for a while allowing people to continue to believe in the "soft landing". Possibly until the job market weakens.

BK
08-01-06, 10:04 AM
I have a friend in New Jersey buying a Condo from a Real Estate Agent who is having Cash Flow problems. It seems the Real Estate Agent can figure out why he's not sellling as many homes as two years ago...yes, amazing.

Of course, I've learned I can't tell my friend not to buy the Condo - that it may go lower - its a great deal.

I think most humans lack imagination. Many Real Estate Bulls bought their homes in 1993 are would never have Imagined that that Home Value would increase current price levels.

Likewise, people lack the Imagination to see the down side. They can never Imagine their Real Estate Investment going sour.

It takes me back to 2000 when I attempted to convince a family member to sell their $80,000 in CMGI stock (the initial investment was $500) - my advice was not welcomed.

jk
08-01-06, 10:39 AM
I have a friend in New Jersey buying a Condo from a Real Estate Agent who is having Cash Flow problems. It seems the Real Estate Agent can figure out why he's not sellling as many homes as two years ago...yes, amazing.

Of course, I've learned I can't tell my friend not to buy the Condo - that it may go lower - its a great deal.

I think most humans lack imagination. Many Real Estate Bulls bought their homes in 1993 are would never have Imagined that that Home Value would increase current price levels.

Likewise, people lack the Imagination to see the down side. They can never Imagine their Real Estate Investment going sour.

It takes me back to 2000 when I attempted to convince a family member to sell their $80,000 in CMGI stock (the initial investment was $500) - my advice was not welcomed.


i told someone to sell jdsu when it was over $90. a few years ago i ran into him and told him that whenever i hear of jdsu i think of him. he sincerely thanked me for thinking of him and said he had ridden it all the way down and was still holding it at a price, then, of about $4.

i told him i thought he should sell then, at 4, but he said, no, he was going to hold on to it. i just checked and it closed yesterday at 2.12.

i'm curious, bk, about whether your call on cmgi has ever been mentioned again.

Chris Coles
08-01-06, 11:02 AM
If you look at disaster theory, you will find that there is a long and fairly steady upslope until you see a period where, no matter how hard anyone tries, the upslope refuses to continue. As others have noted, anything may cause the final collapse.

A friend based in Switzerland once described their house price structure as; we wait until the price continues upward. No one I know has any record of cheap housing in Switzerland.

What is driving the boom is available liquidity in the banking system. Any business that never has to make any product, but can sell someone else's credit to another whose asset value increases day by day is going to put even more money it does not own into such a business model. So the real risk is about when the banking system runs out of access to those funds; not when will the investors take a pill and run. Again, any normal buyer is only buying the one property; so their risk only relates to that single transaction. The people that will get hit hard are the likes of an individual starting a new plot with say, 200 homes, and is already stretched beyond their limit and assuming the new sales will buy them out of their difficulties.

So, for now, we see everyone playing the "Switzerland" game plan, sitting on their purchases or sale. So the break point comes from those that, in the end, are forced to sell by the banks, whose liquidity is threatened.

Unless there is an "event" that strikes the blow that starts the slide; I believe that all we will see is a stabilisation and hold. Time will tell if either EJ or me has the right call.

EJ
08-01-06, 11:30 AM
The response to buyers have no choice is that buyers can choose to rent. Renting now is far more economical and shifts many burdens to the owner. If you discover that neighbors are annoying or disgusting, then move again. Repairs belong to the owner. All you need is renter's insurance.

Yes, but try telling that to the average person who is looking for a place to live. It's like waving garlic in front of vampires. Consider my piece on the housing bubble correction that originally appeared on the AlwaysOn Network 12.20.05...
Housing Bubble Correction (http://www.alwayson-network.com/comments.php?id=P10732_0_4_0_C)

Fifteen Years to Revert to the Mean?

Note:

"Step D: Three years into the decline, marginal home buyers will learn what owning a home really costs, versus renting when housing prices are declining and jobs are more scarce. Rent is a fixed cost, whereas home ownership presents many variable costs, including increased interest payments on ARMs (http://www.palmbeachpost.com/business/content/business/epaper/2005/05/16/c1bz_armed_0516.html), and rising tax, insurance, and energy costs. Also, upkeep for the average home typically costs five to ten percent of the price of the home, annually. As prices fall, homeowners will have less access to home equity loans. Many will not be able to afford repair and maintenance expenses. Homes in some neighborhoods—and in some cases, entire neighborhoods—will begin to look neglected, further depressing prices."

This particular prognostication elicited the most vitriolic responses. AO member Hooker wrote the comment:

ericjanszen's stated step estimation is an nice Econ 101 project - but, beyond the several fictitious statements, too bad things in the real world aren't ceteris paribus as required by the factual aspects of his estimation. I won't even entertain the ludicrous thinking that renting will be more valuable or a wiser choice than owning a home (even ignoring the fabricated statement that rent is fixed and minus some very rare cases of house-poor stupidity of a handful of home owners this is just a ridiculous statement). Or the fact that it appears this estimation is based upon houses trading as easily or as frequently as a stock - even at a macro level the "transaction volumes" do not follow this estimation timeline (clearly it was easy for ericjanszen to simply piggy pack his dooms-day estimation on the dot-com bust model).

ericjanszen clearly mistook his assignment to write an editorial with writing a novel - maybe he just got done reading "State of Fear" and was inspired by the blending of data with fiction. But I am sure that was his goal – write what’s hot and controversial (selective facts exaggerated simply and loosely compiled to sell to the mediocre), vs. what’s factual or real to add real value to society (that’s just too mundane – I guess one does have to pay the bills and do what the editor and the reader base wants – pessimism sells).

To which I responded:

During the dot com bubble, the vitriol came from holders of dot coms stocks who were either too deep into the market to get out, or had taken a strong public position on the existance of a New Era in stocks, or were the kind of people who are generally inclined to see only beauty in the world. Maybe Hooker owns a few recently purchased properties, or he has a theory that we've entered a New Era in real estate, or he's the sort of optimist who sees only opportunity but no serious risk indicators in the 110 new highrise condo building permits that were issued in Las Vegas this year.

Maybe Hooker has his own theory he'd like to share with us about the future of real estate. If so, I'd like to hear it. After all, I don't care about being right about the housing market. I'm interested in arriving at a prognostication that has a higher probability of coming true than the predictions of real estate agents, bankers, Fed officials, and others who are talking their book.

That's the last we ever heard from Hooker.

The "idea" of renting is what bothers people, never mind the facts. AO member BV's comments were more constructive:

Yep. This is exactly the progression that followed the real estate bust in Texas during the 80's. The time span was a little shorter before the bottom was hit (about 7-8 years) and the recovery of value took 10-12 years (not taking into account inflation).

You left out a few other things that will likely happen.
- Rental rates start to fall once the glut of homes that can't be sold hit the rental market.
- Abandoned homes fall into disrepair and yards become filled with 4 ft tall weeds that the neighbors eventually have to cut down because they can't find the owners.
- The banking/mortgate industry takes a huge dive and needs the federal funds you mention to remain in business - agencies like Resolution Trust get created to hold the assets of the failed lenders (these assets look at lot more like homes instead of cash) and then start dumping homes through fire sales and auctions.
- On the way to the bottom, outsiders come in and buy up severely depressed homes through new speculation. Some flame out because they misjudge the timing of the bottom.

One question is whether this bust will be bigger/longer than other busts of the past. One of the factors driving this bubble is supply/demand (along with easy access to cash/financing, and out-of-control equity leverage). Even though we have a bust in the making, San Jose and NYC still have a fixed amount of surface compared to places in the southwest in the 80's. Whereas the recovery for existing homes in Houston, Dallas, Austin, et. al. in the 80s was dampened by the easy access to lots for new home construction, you'll have less of that in some of the current bubble communities.

Another factor will be the new bankruptcy laws - will they have a dampening effect on the number of people walking away and for those that still have to file, will the new laws require them to liquidate most of their savings and whatever retirement cushion that may exist.

And finally, in the 80's, FNMA had a pretty tight leash. That isn't the case in these times. How will increase in failures and extra scrutiny and control of their practices impact the rest of the country? It won't be pretty.

BK
08-01-06, 11:44 AM
I think my friend still holds the CMGI stock. This same friend has an American Fund that is up 50% in two-three years - I suggested this might be a CMGI Moment and liquidate while she is ahead.

Unluckily, her Financial Advisor who sold her the Fund as helped her understand how I am "nuts".

Free Advice is always Valued at its Price......Never- ever offer free advice.

bart
08-01-06, 03:14 PM
Yes, but try telling that to the average person who is looking for a place to live. It's like waving garlic in front of vampires. Consider my piece on the housing bubble correction that originally appeared on the AlwaysOn Network 12.20.05...
Housing Bubble Correction (http://www.alwayson-network.com/comments.php?id=P10732_0_4_0_C)

Fifteen Years to Revert to the Mean?




Good one, nicely put.

A favorite view of mine to help perspective comes from Schopenhauer:

"All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident..."

SeanO
08-02-06, 12:21 AM
Another factor will be the new bankruptcy laws - will they have a dampening effect on the number of people walking away and for those that still have to file, will the new laws require them to liquidate most of their savings and whatever retirement cushion that may exist.


At least in California I don't think the bankruptcy law changes will have a significant effect. California law does not allow the lender to go after deficencies if either the loan was used to purchase the property, or the lender uses non-judicial foreclosure proceedings. It is very rare that lenders spend the time and money to pursue judicial foreclosure (court trial), so upside down homeowners can usually just walk away without worrying about being forced to dip into savings or retirement accounts. At least to pay the lender... they may be less fortunate when it comes to paying the tax man on the forgiven debt.

To find out if deficiency judgements can be pursued in your state, check out foreclosures.com (http://www.foreclosures.com/www/pages/state_laws.asp).

SeanO
08-02-06, 12:38 AM
So, for now, we see everyone playing the "Switzerland" game plan, sitting on their purchases or sale. So the break point comes from those that, in the end, are forced to sell by the banks, whose liquidity is threatened.

Perhaps if the US were as small as Switzerland this would stand a better chance. Unfortunately job changes, divorce, disease, death, and many other things force distant moves and turnover of homes here. If you face one of these life events and bought more than a couple years ago, you can afford to take a 10, 20 even 30% "hit" from the peak and still walk away with a profit. This is happening now, and is certainly seen as a breaking point to those who bought last year.

Chris Coles
08-02-06, 04:12 AM
Yes, agreed. But that is still working within the range of built-in profit. What I mean is that those that can, sit still and wait. In a boom, as we have had were in the UK twice since the mid nineteen eighties, (we are still in the second), the vast majority of sales are investment related rather than simply job, divorce, disease or death related. Here there are now many who, before, had no reason to move home, now actively trade in houses. They must sell to maintain income. Those are the vulnerable and are not the "old fashioned" home owner who are happy to sit still and wait for better times. I have a friend who made a million simply by selling their £60,000 home bought in the nineteen sixties. Those that sit and wait prosper.

SeanO
08-02-06, 10:29 AM
I agree that nominal home prices will certainly rise for those that sit and wait. Historically though they have risen at about the rate of inflation, so there is no gain in real terms. That said, your friends likely did see a real gain by selling at one of the most significant peaks in history.

BK
08-02-06, 11:28 AM
Sean,
Even with still relatively high there are plenty of folks who have extracted lots or all of their equity. Friends of Mine just purchased a home in Massachusetts that was originally on the Market for $650,000 - after a year and many mark downs. The price got to $540,000 - my friends hope to talked the seller down to $500K - but, a little researched revealed the Owner(?) had $500K in Mortgages to pay on the - a home they had owned for 10 years.

Many have been utilizing their home equity to finance a business or to build their dream home prior to selling their old home.

nikki
08-02-06, 06:33 PM
Did you see Mish's update today? Even more from Sonnypage (http://globaleconomicanalysis.blogspot.com/2006/08/soft-market-debris.html)...

EJ
08-02-06, 06:52 PM
I want to re-inforce one point made by BV over at AlwaysOn:

"On the way to the bottom, outsiders come in and buy up severely depressed homes through new speculation. Some flame out because they misjudge the timing of the bottom."

It is unwise to try to catch a falling knife. I can't tell you how many of my friends, even savvy and supposedly contrarian insiders in the VC industry, were buying after the initial correction in 2000 because we'd "hit bottom" and there were "bargains" out there. The bargains came much later.

Careful not to jump back into the RE market too soon.

One additional point: this is not a joking matter, and that's one of the reasons for the more serious tone of the new iTulip.com.

I have friends who were ruined in the dot com bubble. Bad things happen to good people. Relating this back to the current stage of the decline in the housing bubble, I pass on the word of wisdom I learned years ago from observing commodities traders.

Making money trading commodities is the toughest business there is, in my opinion. Everyone has instantaneous access to the same information you have. You win by the advantage of being more inuitive, quick, decisive and unemotional than your enemy, the army of guys who are after the same pot of money. The intuition comes from obsessive observation of the market and how it is changing. Obsessiveness, quickness, decisiveness and unemotionality are personality traits. If you don't have them, you're not a commodities trader. But these same rules apply to other markets when they become speculative, because these markets at those times have everyone's attention, and thus the motivation to gain the advantage of price information is high.

And here's the rule:

"Your first loss is your best loss."

jk
08-03-06, 01:12 PM
the slow pace of deflation in real estate should be very helpful in keeping you from buying too early. it's going to take a long time going down and then it's going to have a long base. there's no rush to jump in.

jk
08-04-06, 07:42 AM
from bloomberg http://www.bloomberg.com/apps/news?pid=20601087&sid=a_Jp5LUSHUMM&refer=home

Hamptons Real Estate Sales Slow as Rising Rates Sideline Buyers Aug. 4 (Bloomberg) -- New York's hottest summer spot for investment bankers and movie stars is cooling as mortgage rates climb. In a year of record Wall Street bonuses, home sales in the Hamptons fell 18 percent, signaling the end of a five-year boom.
A total of 1,727 homes were sold during 2006's first half in the Hamptons on the eastern tip of Long Island where billionaire investor Ronald Perelman and movie director Steven Spielberg own summer estates. That's down from 2,106 a year earlier, according to data compiled by Suffolk Research Service Inc., a property records company in Southampton, New York. The drop compares with a 4.3 percent slide nationwide.



my favorite passage:



Still, the wealthy continue to buy waterfront mansions, said Diane Saatchi, a broker in Corcoran Group's East Hampton office. Buyers want Hamptons estates to complement collections of vacation properties that typically include a ski house in the U.S. Rocky Mountains, a mansion in a warm climate such as Bermuda, and a foothold in Europe, she said.
``The $20 million Hamptons houses are still selling because those buyers are immune to interest rates,'' Saatchi said. ``A terrific $4 million house is harder to sell because that's the middle of our market where you see interest rates and higher energy costs squeezing buyers.''



so it's really only the mid-market, areound the $4million range, that's being hit. still, everything i've read has implied that the prestige markets will hold up.