RE crash 'will get much worse before it gets better'
 

Top investor sees U.S. property crash
Wed Mar 14, 2007 12:59PM EDT

By Elif Kaban

MOSCOW (Reuters) - Commodities investment guru Jim Rogers stepped into the U.S. subprime fray on Wednesday, predicting a real estate crash that would trigger defaults and spread contagion to emerging markets.

"You can't believe how bad it's going to get before it gets any better," the prominent U.S. fund manager told Reuters by telephone from New York.

---------full article-----------

http://www.reuters.com/articlePrint?articleId=USL1470530620070314

I agree.

This will certainly be a disaster, rippling through the entire economy.

And I think there's a good chance that this will the biggest, deepest economic disaster of our generation.

good article.

He's been saying a major re crash for awhile.

finely ...
 

... I'll be able to afford a house !

Sorry for those who loose, but it's a BUBBLE, which means it isn't good for a healthy economy either !

Re: finely ...
 

cash might be king again?

Screw the speculator. If the seller lives in the house he can trade for similar price and maybe pay less cap gains.

I was a homeowner through a 35% price drop in the early 90s. Didn't affect me at all, since I had no real interest in selling.

Wow. Would you look at that! Greenspan, then Bernanke, kept the US economy artificially pumped up on the equivalent of horse steroids while "fixing" "our" problems in the middle east.




What, we gotta pay for it? No way dude!

Yup.

Greenspan keeping rates so low for so long to allow the bubble to grow to astronomical proportions (while RIDICULOUSLY denying that any real estate bubble even existed!) was criminal and is going to cause a lot of pain for a lot of people.

"What Alan Greenspan says about intrest rates don't cut no ice with me. You want the loan at 180% or not?"
Jim

Re: finely ...
 

Don't count on it unless you have about $100k in liquid assets and an 800+ FICO. Lenders won't be interested in looking at anyone else before long.

Well I suppose I can just watch the parade go by. My house is all but paid for(of course I no longer have a tax deduction) but re-sale doesn't worry 'cause the next time I move the only thing going into a box is ME!

do you have stats for that?

the stats that I've seen for year over year sales prices show most of orange county, ca zip codes down around 20% already.

I typed in "Orange, CA" into Zillow, zoomed into what looks like a central area of the City of Orange (off what looks like Chapman Blvd), and picked one house at random (2737 Burly Ave, Orange, CA 92869), this is what it shows:

http://forums.pelicanparts.com/uploa...1174260702.jpg

"As of November, the median sales price of an Orange County home is down about 7% from its all-time high of about $729,000 set in April, according to the California Association of Realtors."

http://www.ocbj.com/industry_article_pay.asp?aID=15961659.71767802.140 8251.5439366

Link:

http://www.ocbj.com/industry_article_pay.asp?aID=15961659.71767802.140 8251.5439366

Though I earn my income from real estate, I'm not worried. I'm not buying "The market", I'm simply buying one property at a time, and looking at it's potential as an individual piece of property.

Whatever the market does as a whole, there are always bargains that come along occasionally. A house that that needs "lipstick and nail polish" usually has potential for profit on its own, no matter what is going on around it.

I'm buying some commercial stuff right now, and in a bit my time should be freed up a bit, and I may start looking for fixer-uppers again, just for fun.

What color is the sky on your world?

Right now, the economy is doing well. Unemployment is low, inflation seems in check and the stock market has been solid except for some volatility in the last week or so - these are the reasons why the recent housing slump hasn't affected the overall economy much.

After the 2001 recession, the delinquency and foreclosure rate of subprime adjustable rate mortgages rose to 10%. Today, we are at about 5.6%, but we also have twice the number of subprime adjustables out there.

If we go into a recession, the housing market will probably ensure one of the largest downturns in our history, IMO.

http://homepage.mac.com/drew1/.Pictures/HousingBoom.jpg

You just proved your own statement wrong.
That house you picked (at random) is down to $668k from $680k.
Thats what, about 2%? Where's the 20%? it doesn't exist, no matter how much you would like it to. The sky just is not falling. That house you picked is old town orange, where many of the houses are close to 100 years old. Kind of neat but not typical of Orange, and certainly not typical of Orange county where the median price is well above those numbers.

Also, your second quote says that "As of November, the median sales price of an Orange County home is down about 7% from its all-time high of about $729,000 set in April, according to the California Association of Realtors."

OK, so what? You are comparing last November to Last April. What's your point? Comparing spring to late fall/winter is also silly, seasonal price fluctuations happen everywhere, even in sunny California. Prices are typically a little lower in the winter than thay are in spring or summer. That cannot accurately be used to indicate a market trend beyond the seasons.

I was comparing this March to last March.

Twist, twist, twist.

BTW, your fitst link is no good and the second requres I subscribe. Aint gonna happen.

Deductive reasoning allowed some to see the faults in housing, but it doesn't enable one to predict the future or time the market.
jurgen

I picture an upside-down parabola when I think of the impending RE downturn. I think we are at the leading edge where momentum is starting but the rate of acceleration is still low.

I wish I could figure out how this will affect my local market (which saw appreciation of 6% a year at the height) so I could figure out when it's a good time for me to sell.

So, true. See ya back at this thread in a year.

Here is what Zillow shows for City of Orange, Orange County, California and the US. Something very, very good would need to happen soon to reverse the trend of the last year.

Historical Value Trends % Annualized

Orange / Orange County / California / United States

1 year -1.5% -1.1% -2.1% -0.8%

5 years 20% 19.6% 19.7% 11.2%

10 years 13.5% 13.4% 13.5% 8.3%

Decent housing in my area is dependent on Wall Street money.

It's the ripple down effect.

O.C. is going to be in deeper schit than a lot of places - it'll just take a bit longer for the crash to catch up with it. There's a LOT of investment money down there - if/when this economy tanks and goes into a prolonged recession (which I believe it will), those people will subsist for a few months but then be forced to sell off as investment income plummets - just like everywhere else.

The smart ones that are well-diversified might be okay, but it looks like "safe harbors" are going to be very difficult to find in an impending slowdown. The scenario where ALL the markets go into decline (burning the well-hedged as alongside the not-hedged) is not unreasonable. . .

Here's an interesting chart, based on sales data.

Note the inflation line, and housing prices in relation, up to around the beginning of 1998.

These gains are going to be retained in So. Cal.??? That seems a bit unrealistic.

Prices have crested and all the data shows a downward trend now. Even a reversion *halfway* to the mean is a huge drop.

http://www.housingbubblebust.com/OFH...aphs/SoCal.PNG

Put your predictions in now, we'll recheck the chart in a year. Where will it be? My guess is that it continues the current direction in an almost perfect bell curve.

Scary - when you realize how far out of whack things are today it even makes the "crash" of the early 1990s out here look like barely a bump!

Hold onto your butts people. . . The bottom is starting to fall out and this one's gonna' be fugly.

I lived in Cal during the 90s.

The thing that made the downturn remarkable, which people seem to have so quickly forgotten, was how prolonged it was. It wasn't so much of a "crash" as a very prolonged funk.

I remember in '89, people were saying the exact same thing they are saying today - "not making real estate anymore," "this time is different," etc.

But for many areas, if you bought at the end of 1989, your house steadily decreased in value for a long time, and you didn't come to break even until right around 2000.

That's a long time, during which many, many people bought a house and sold at a loss, even after holding it for many years.

The crash of the early 90s was a 30% hit on my house. That may have been a fluke limited to my zip code, but if something similar happened nationwide, it could trigger the deepest recession wev'e seen in our lifetimes.

Here's a national view on relative pricing:

http://www.nationalcity.com/corporate/EconomicInsight/HousingValuation/default.asp?WT.mc_id=100206

Tech, some areas in the US have gone way ahead of inflation, but others have not. The ones where the prices way out stripped inflation, will "crash" the hardest. Look at the chart. The prices should come back down to the aprox inflation adjusted number from 1980. That is exactly what happened during the last bubble.

Look at the appreciation slope here in Texas. Note that it has been basically following inflation since around 1988. In So Cal, you get these massive peaks and retreats, but the prices come back to the inflation adjusted line.

http://www.housingbubblebust.com/OFH...aphs/Texas.PNG

I looked at the graph for San Diego, and from Nov 2001 to Jul 2004, there was an appreciation of 76%. This is just about how much I made on my Townhouse in San Diego. Here in Houston, the prices have gone up 17% in 3 years. This is much more reasonable and anti-bubble.

Housing is supply and demand. Population up, land down, prices up. The gloom-and-doomers in the media can't change that.The big secret is the housing market is doing just fine in much of the country. Why not, with 5.8% mortgage rates. Just don't watch your TV and Iraq every night. It's bad for investing.

I wonder, though, how long money is going to remain cheap, with Bush's deficit spending and prolonged war-mongering. What the country needs is a fiscal conservative and some foreign diplomacy. Diplomacy is a lot cheaper than warring.

True dat, as vacant for-sale inventory hits record highs each quarter, new home inventory trends at record highs, and for sale inventory climbs, I'm sure housing prices will continue to ascend. Oh, wait... nevermind. ;)

There are two issues here: one is what you're referring to -- about the relative rise in prices. The other is whether the collapse in places where the bubble exists will pull down the overall economy. It's all about the velocity of the drop in values.

Is there a connection to Climate Change/Global Warming?;)

http://www.koshland-science-museum.o...storical03.gif
http://www.koshland-science-museum.org/exhibitgcc/historical03.jsp

Is there a connection between cow farts and no-doc loan applications?

home prices are still too expensive . a RE bear market can last 5-10 years.

Deutsche Bank - Equity Research

According to printed reports today, an announcement on the sale of the New Frontier Hotel & Casino is forthcoming, with an expected price tag of $1.5bn, or an astonishing $39-$43m / acre for the site. Separately, we are hearing from industry sources that the price tag could be closer to $30m / acre. The site is an assemblage of numerous parcels totaling 34.5 to 38.2-acres (depending on which parcels could be included in the transaction and ex the 3.5-acres of Trump residential). The New Frontier is located directly across the LV Strip from Wynn LV and immediately
south of the BYD Echelon Place development (Stardust). At $39-$43m /acre, this would represent about 2x recent comparable transactions: 1) $17-$23m / acre for the 17.5-acre Sahara site and 2) $20m / acre for the 18-acre Imperial Palace site.

While unconfirmed (and almost hard-to-believe), such a transaction could have a profound impact on valuations of LV Strip operators with significant land holdings, including operators with large contiguous undeveloped parcels like BYD and WYNN (87 and 142-acres, respectively).

For instance, we had been valuing BYD's 87-acre parcel at $15m / acre (prior to moving forward with Echelon) and still value Wynn's 142-acre golf course at $15m / acre, resulting in gross per share values of $15 (BYD) and $19 (WYNN), respectively. Clearly, should the Frontier transaction come to fruition (at $43m / acre would be nearly 3x our current assumption), existing valuations Strip-wide could prove quite conservative. By way of example, at $30-$43m / acre, we believe an argument could be made to value BYD's land at $30-$43 / share, with the WYNN golf course at $38-$55 / share.

http://www.ftportfolios.com/Retail//Research/ViewResearchArticle.aspx?ID=288

The Lion that Squeaked
Brian S. Wesbury; Chief Economist
Robert Stein, CFA, Senior Economist
Date: 3/19/2007


The way the story is being told, the US economy is about to get eaten alive because some unscrupulous lenders goaded some unwary homebuyers into taking out loans they couldn't afford. The fear is that "subprime" loan default rates will soar, further weakening the housing market and making it more difficult for financially healthy borrowers to get loans. And as the housing market goes, so goes the US economy.


We disagree. While poorly structured loans will result in many foreclosures and bankruptcy for some lenders, the impact on the overall US economy should be negligible.


First, US GDP growth rates are not directly reduced by a shift from homeownership to renting. Renting or owning are both counted as consumption of housing services. Foreclosures do not cause homes to disappear, nor do they remove the spending power earned by workers. The asset price of homes may change but the real value of housing services rendered by the housing stock (rentals and owner-occupied homes combined) will barely budge, if at all. And while construction or mortgage-related job losses may rise, the adjustment will take place over time, limiting the damage.


Second, the days of limited financial choice are long gone. Years ago, when local banks found themselves holding bad loans (often based on local economic conditions), they had to limit all lending, including to creditworthy borrowers - and those worthy borrowers had nowhere else to turn. Now, interstate competition and even international competition have made it almost irrelevant if a particular lender goes belly-up. There are always other healthy financial firms ready to seize market share from troubled ones, or buy assets at fire sale prices. Moreover, the world is awash in liquidity, interest rates are low, and the Fed is still accommodative - not tight like it was in 1999-2000 prior to the stock market crash.


Third, the increase in mortgage payments associated with non-fixed-rate mortgages is relatively small. Total US residential mortgage debt is about $10 trillion - with about $7 trillion fixed and $3 trillion in adjustable-rate products and other exotics, such as interest-only and negative amortization loans. About $600 billion of these non-fixed-rate loans will have major re-sets in 2007, going from the teaser rate to the full rate or going from interest-only or "negative am" periods to full amortization. These major re-sets should boost annual payments by about $15 billion - slightly more than 0.1% of GDP - a relatively small amount that is not enough to draw blood, much less mortally wound, the US economy.


Another fear is that real estate price declines might impinge on consumer net worth. To assess these risks we use a model of residential real-estate prices based on rents, after-tax incomes, interest rates, and the stock market. The model suggests that on a nationwide basis, owner-occupied homes were probably about 5% overvalued at the end of 2006, versus 10% overvalued at the end of 2005. This likely means that some markets are significantly overvalued, but most are at or near fair value. In other words, this is not the dot.com bust all over again. Falling to fair value overnight could require a loss of $1 trillion in household net worth (5 percent of total owner-occupied housing assets of $21 trillion). But even this loss is small when compared to the $3.8 trillion increase in the net worth of US citizens in 2006. The most likely outcome is for rents and incomes to gradually grow to justify the current average level of home prices. This lion won't roar.

I think Rogers should have qualified that with "You can't believe how bad it's going to get" with "for SOME people". Losing a house is not a small loss. It's going to sting the ones that lose them. But it's not that bad for sensible and responsible people.