The referenced article does a good job describing the between-a-rock-and-a-hard-place in which we find ourselves.
The question here is whether this is symptomatic of the homebuilding industry in general, or whether this is more specific to DHOM in particular. My view would be that DHOM is one of the weak sisters of the publicly held homebuilding business. For instance, the latest report from D.R. Horton, who is the largest homebuilder in the US, says that sales are up 31% in their 1 st quarter of 2005, versus the year prior. They were up in all regions of the country. http://biz.yahoo.com/ap/050111/d_r_horton_sales_1.html Meritage Homes says business up 48% in the last quarter versus the last quarter of 2003. http://biz.yahoo.com/ap/050106/meritage_homes_outlook_sales_1.html My view is that DHOM is not only a weak sister, they've also turned over some of their upper management. Picking these guys out as a symptom of the industry at large is a poor choice. That said, I do think that in my area in the Midwest prices probably peaked last year....I've said this many times here. I'd say sales volume overall has slowed. I'd be careful about picking out a piece of information to suit your argument as Bluehorseshoe has done, versus looking at all the information before you decide what your argument is. Certainly looking at just the press releases for all homebuilders one would have a hard time coming to the conclusion that one gets from looking at DHOM only. OldTrader
i started to write responses to this post several times and each time i got frustrated because there are just so many variables. then i read the above link vhehn posted. it really sums up my thoughts so much better than what i was trying to express. the only thing i would add is that most of us are assuming certain standards of ethics. that most of the players are either looking out for our best interest or their immediate own self interest. most, discount any hostile participation, i think this is a mistake. but that is for another thread....and would probably end up in chit chat anyway. Vhehn's link: http://www.frontlinethoughts.com/pr...sp?id=mwo011405
Good post Cutten. I thought I'd address a few of your points. First, you're right...alot depends on how you define "crash". Alot of guys in this thread and some of the other threads have compared residential real estate to the NASDAQ in 2000. This is a point that I completely disagree with. I've seen predictions of 70-80% drops, not just 20%. Personally I could see a drop of 20%....especially in some of the more volatile types of areas like California. And certainly I agree that the guy that bought at the top is going to feel that drop because the chances are huge that he will be underwater. I don't happen to call 20% down a crash. Heck, in some parts of the country that doesn't even get you back to last years prices. Keep in mind these predictions of "crash" have been going on now for years, so for most of these guys to end up even half way right they need a much bigger drop than 20%. So that you know, home equity overall is much larger than 20%, so that overall the guy who is living in his home, a 20% drop takes away part of his equity, which a few years ago he didn't have to begin with. His lifestyle other than that doesn't change much. But let's talk a little about some of your points: 1) Rate rises: Back in the early 1980's we saw rates rise to 21%. They doubled. I bought a house just before rates doubled, and sold it a few years later while rates were still very high but down a little from the peak. I made some money even after the realtors commission. This was in the Midwest. Lots of predictions in those days of "crash"....it just didn't happen....because people either just didn't sell, or they sold using creative techniques that didn't involve the bank, and therefore could offer lower interest rates than say 21%. 2) Government action: Completely agree with you here. Who can forget the Tax Reform bill in 1986 which single handedly wiped out many investors at the time in real estate, the oil business, and others who relied on depreciation to make their investments. I'm not expecting government action in residential real estate, but of course if something negative happened on this front it would be a real problem. 3) Speculative bubble bursting: Unfortunately, the example you give is of the Florida land boom, which of course was not residential real estate but undeveloped land. We do have examples though of drops in value in real estate....California recently, Texas and other oil states prior to that. My view would be that these were more related to employment though than speculation. For instance, when the oil industry contracted because of a major drop in the oil price, people lost jobs, and therefore couldn't make the house payment. Finally, let me say that the guy who bought rental property isn't necessarily forced into "bankruptcy" if prices drop 20%. Alot here depends on what the income of the property is. Personally I don't buy properties that don't cashflow.....so what is important to me is the rent. In the situation that you envision, presumably we will see more renters around, more demand, and therefore it is possible that rents might rise. In other words, a landlord who entered into the property in the right way might not have the problem you envision. By the way, non-owner occupants always have to put more equity into the deal to get financing....they aren't financed like owner-occupants are. 20-25% equity has been a standard for non-owner occupants on prime loans for years. In the scenario you envision his equity would be wiped out, but if he has a positive cash flow he won't lose the property. Again Cutten, I've never said prices can't drop. I've noted that they are down a little in my area of the Midwest. My argument is against the sort of major calamity that some envision here. And too, understand that what happens in California is going to alot different in all probability than what happens in the Midwest. OldTrader
geezzzzz will you get off of the nasdaq reference. i don't think anyone is suggesting RE will collapse 70%. move on dude. at this point maybe you need to define crash/bubble in very exact terms since you are the one so caught up on this. i personally would consider a 30% decline very painful for many especially if it were quick. is there a bubble rule book out there........ please post a copy of the bubble max/min parameters.
Perhaps you need to go read some of the various threads regarding RE if you think it has not been compared to NASDAQ or this type of decline is not being predicted. But to directly answer your question: I'm not calling this a "bubble"....you are. I'm not predicting a 20-30% decline....you are. But here's the thing....I also believe that IF there is a drop, that 20% might be a "reasonable" sort of decline. I could see it....I'm just not predicting it. Look, you guys have got all sorts of reasons why you believe real estate will fall by varying amount 20%, 30%, 50%, etc. More power to you. These predictions have been going on now for the last 3-4 years...and ALL have been wrong. It's an easy thing to make a prediction, and who knows, if you make it every day perhaps it will come to pass. But what I would like to know is when will you know you are wrong? I'd like to see some degree of accountability other than just talk. Because right now that's all there is....a bunch of guys who presumably making an easy prediction. Look forward to you answer. OldTrader
you didn't directly answer the question. you say there is no bubble so what is your definition...what are the parameters? as far as time frame goes i was wrong for almost two years regarding the nasdaq and smart asses kept running their mouths....so i guess we can start the clock ticking right now...i just made my prediction so give me up to jan 2007 give or take a few months.
I don't have a "definition" per se of the term "bubble". To me it's one of those things that I think I'll recognize when and if it occurs. I do think that we may be at a spot where prices will do some resting, consolidating. I'm talking in general because of course real estate is regional. Finally, I don't know about you, but I spend my day "timing" what I do. I don't make a prediction and then give myself 2 years to be right. LOL. That's weak. OldTrader
i spend my day "day trading" so yes, timing is very important. i don't make predictions about my trading...if i need to change my opinion on a dime, then i do it. it is not about being right or wrong..it is about what i do when i am right and what i do when i am wrong. has nothing to do with making a prediction on a chat room board. LOL LOL LOL and believe it or not i am not married to being right about the bubble..... if we experience hyper-inflation then i would change my prediction in a heart beat. and btw, 2 years is nothing for a bubble....these things take time ya know. but bottomline we will never know how this plays out because you are afraid to go on the record and establish what you would consider a bubble. if we hit 25% you would say that is not enough.....30% who knows. i say get off the fence oldtimer and get some balls.