I would rank the scenario as "possible". What makes me say "possible" is that it's equally possible that during a rising rate scenario people may have greater difficulty selling houses, and therefore the supply of rental houses "may" increase as sellers give up trying to sell. This increase in supply may offset to some degree the increase in renters that is equally likely in this rising rate scenario. That said, the theory I use in acquiring rentals is to "make my profit going into the deal". Meaning, I try to buy at a price, and on terms, such that I have a positive cash flow from the beginning. I don't want to count on increasing the rent, or on appreciation. That one rule has worked well for me. What this means then is that you're looking for a seller who is motivated by his circumstances to grant you terms that make your deal work for you. Otherwise, you pass. In other words, you're looking for a type of seller rather than a particular property most of the time. OldTrader
Is a Home-Price Decline Crossing the Atlantic?: John Wasik Jan. 17 (Bloomberg) -- A recent decline in U.K. home prices may be a harbinger for still-hot markets in the U.S. What's more important than the possible spreading of this trend is how it's developing, a pattern worth watching closely if you are investing in any torrid residential market. The U.K. slowdown is marked by a drop in mortgage approvals, which dipped to a four-year low in November of last year, according to the British Banker's Association. Mortgage applications declined because interest rates rose and home values eroded. The synergy of both events likely has quelled housing purchase demand. ``There is little to suggest that mortgage applications will change in the near term, given the noticeable slowdown in the housing market,'' stated David Dooks, director of statistics at the banker's association. While U.S. Federal Reserve Chairman Alan Greenspan and most U.S. real estate industry groups deny the existence of a housing bubble, there's evidence that some markets are overheated. Bubble-Prone Areas A Jan. 12 report by Michael Youngblood, managing director of asset-backed securities research for the investment banker and broker Friedman, Billings and Ramsey, identified bubbles in 27 U.S. cities covering almost 20 percent of the U.S. population using third-quarter figures from last year. The bubble-prone metropolitan areas included Boston, New York, Los Angeles, San Francisco, San Diego and Riverside, California. In Youngblood's study, 20 of the likely bubbles were in California. Youngblood defines bubbles by measuring the ratio of median home prices to per capita income in each city, then taking the top 5 percent of those ratios. ``We do not expect the house-price bubble to burst in any city until economic activity has contracted for a minimum of four quarters,'' Youngblood stated. ``The economic expansion under way generally and individually in the 27 cities that are experiencing bubbles postpones the deflation of home prices.'' Overheated markets often recede when investors en masse sense that returns won't be effortless or automatic. Higher financing costs typically damp demand and cool housing values. While it's too soon to say if a bubble is bursting -- bringing about 20 percent price declines or more -- it's worth watching. U.K. Decline In the U.K., for example, home prices fell in December 2004 for the second time in three months, according to the Nationwide Building Society, a major mortgage lender. Five interest-rate increases, spurred by the Bank of England's efforts to chill the market, likely spurred the decline. Will the feverish U.S. market, which may see mortgage-rate jumps due to continued Federal Reserve Bank rate increases and inflation, follow the British trend? New home sales fell 12 percent in November 2004, according to the U.S. Commerce Department, the biggest decline in more than a decade. While existing home sales rose 2.7 percent in the month, mortgage applications fell in the week ending Jan. 7, after dropping 10.6 percent in the prior week, reports the Mortgage Bankers Association of America. Another way of gauging home-price movements is to measure the risk of large declines in specific markets. In other words, high local volatility may telegraph a greater likelihood of a housing dip. Measuring Volatility Francis Parisi and Scott Mason of Standard & Poor's, the financial research company, have developed a housing volatility index that tracks several major U.S. markets. They examine current home prices and mortgage rates to see where residential markets may be headed. The markets that Parisi and Mason predict will ``likely to suffer declines over the next two to three years in the event of an economic downturn'' based on U.S. housing data through the second quarter are a who's who list of sizzling U.S. markets: Los Angeles, San Luis Obispo, Orange County, Santa Rosa and Ventura, California; Brockton, Barnstable, and New Bedford, Massachusetts.; Fort Pierce and Miami, Florida; Nassau-Suffolk, New York; and Monmouth-Ocean and Jersey City, New Jersey. If home prices plunge in any market, there will be widespread reverberations. The Fallout Due to the wealth effect, a stagnant or falling housing market may signal to consumers to curtail spending. When consumers feel flush -- and their home prices give them sweat- free appreciation -- they tend to spend more in the larger economy, including buying more real estate. Should the trend reverse, it would curb spending. Abiding by that theory, a large retrenchment in home prices would also hobble national economies. A July 2004 Goldman Sachs report on housing prices in the second quarter of that year titled ``House Prices: A Threat to Global Economy or Part of the Necessary Rebalancing?'' gave some estimates of what a housing price pullback would mean. ``If prices overshoot (are overvalued) in line with past experience and (mortgage) rates rise by 1 percentage point, the total impact (decline) on consumption in the U.S., U.K. and Australia would be 2.4 percent, 1.9 percent and 3.1 percent respectively,'' the report summarized. Word of Caution It's notoriously difficult to predict when any housing market will turn. If you're investing now, it will help to have a long-term focus of more than five years. For short-term investors, it would be useful to watch consumer spending and income figures in tandem with mortgage applications, paying special attention to sharp drops in personal income and job growth. Other local indicators of a slowdown are properties staying on the market for several months and sellers not getting their asking prices. The conventional wisdom tends to focus on mortgage rates and home sales, though the psychology of the market may be a more important indicator. Unfortunately there's no reliable index for mass home buying mood swings. For that, you'll have to keep an eye on selling conditions in specific areas. While non-U.S. residential trends may be significant, like politics, all real estate is still a local matter.
A tiring thread for me. I don't just talk the talk, or invest my extra money in RE. I don't piddle around in a rental hobby. That is chicken scratch. And the rest is mostly blind people trying to understand an elephant by feel. I've made my whole life's living from RE. To read some of this is very irritating. For me RE has been like being a day trader for 35 yrs. Then to read some of this baloney by amateurs is ridiculous. I hope the fools who can't see a RE move unfold get creamed. Steve D and people like him deserve to see a real downturn. I find it extremely satisfying that I know you will. Old Trader is partially right, but a rookie. He's blathering about something he has just the faintest grasp of. And the laugh is he actually thinks he does know this field. It is foul to read. BlueH and Ratboy have it right. Don't know if they know diddly about RE, but they understand the dynamics that move it. When will the crash happen? When it wants to. And a 20% fall will trigger a bigger fall. A drop doesn't have a nice stopping point. It is driven by macro issues and events and job income. Real Income has been falling for 2 yrs now. First time since WWII. The record twin deficits will trigger much higher int. rates. 2+2=4. Close this stinking thread down. Why help these nuts? Let them drown. They are too dumb to wise up. Blue H and Ratboy and others like you, just let these guys tank. Why help the stubborn fools. The greatest satisfaction will be seeing their kind bobbing around broke.
Frankly I'm a little tired of hearing these expert opinions issuing forth from a guy who supervises carpenters and plumbers. I'm equally tired of these childish insults regarding my qualifications, knowledge, and activities. Says a great deal about who you are and what you're about. Either way, the market in the end will tell it's story, regardless of what your opinion may be. It is still just an "opinion" isn't it? Or do you have some special pipeline to the Almighty as to what the future holds? OldTrader
Well, it causes me some pain to see Build-dude and Geezer-dude going at it given that each of you add so much value here. Can't we all just get along? To Build-dude: You might take a look at your posts and see whether you want to argue ideas and crticize people, or just stick to ideas. If someone pisses you off enough just put them on ignore. The ignore function is a beautiful thing - try it. And besides, nobody gives a rats a** whether you win the argument. All that matters is your P&L and nobody will see that but you anyway. Sure you have a lot of industry experience, but in my not insignificant experience it has often been the people most inside, most 'in-the-know' who miss the big picture, i.e. lose the forest for the trees. Finally, there are many people who picked the Nasdaq top too early, and wiped themselves out before the turn ever came. Soros fired Drunkenmiller for the same position. My point is, not all of us take your industry experience as necessarily making your argument any more or less accurate, so there is no need to beat us up with it. Definitely more valuable for being different, but not necessarily for being more right. As for Old-dude well, can't say that I've ever had a problem with his posts per se. He doesn't seem open or receptive to different ideas, but perhaps his own approach has worked for so long that he has been conditioned not to change or adapt. That's fine - his skin not mine. I come here to develop and test ideas, and appreciate the input of both of you. Now, go kiss and sin no more.
Well its a bummer that my opinions aren't controversial enough to call me out by name. I think I'd rather leave a big wake behind than no wake at all. My feeling is that there is more to learn by arguing than if we were all in agreement. I've learned a lot here. For example, I had never though of the concept of people renting their houses because they can't sell it until joining this thread. SM
Williams Lyon, Chairman of William Lyon Homes (WLS), bought 656,000 shares of common stock in the company for approximately $44 million. I presume he is not expecting a collapse in the near term. And, I presume he must be at least as qualified in real estate as Billbuild. OldTrader http://finance.yahoo.com/q/it?s=WLS
There's no mass exodus from a lot of these homebuilders in terms of insider selling that was seen in techs during that bubble. Only a fool would expect a housing crash or high inflation or even high interest rates.
Have you checked insider sales over last 6 months?? CTX 100,000 shares sold zero purchased LEN 131,136 shares sold zero purchased DHI 4,000 shares sold 1,000 purchased RYL 303,000 shares sold 1,000 purchased MDC 745,000 shares sold zero purchased MTH 250,000 shares sold zero purchased NVR 265,000 shares sold zero purchased TOL 2,364,000 shares sold zero purchased BZH 239,000 shares sold zero purchased SPF 170,000 shares sold 1,000 purchased HOV 408,000 shares sold zero purchased Total shares sold 4,979,136 shares Total shares purchased 3,000 shares KBH guys sold another million.
Old Trader, why don't you get on a real estate site and forum and see how your ideas come across. You're too smart to embarass yourself. Steve D you too. Learn something. Or better yet don't. Tell them how big a 2X4 is. OT said 1-3/4 X 3-3/4. It isn't that dimension. And when someone doesn't even know that, when my grandkids do, it is like admitting you don't know what the DOW is. Little words, tips, phrases, etc. tell a pro that they are dealing with an amateur. You are wise enough to post among people who don't know the field. But you are not going to a RE site and trying to talk like an expert. You can only "try" to get away with that here. But it is so obvious to me who doesn't know beans. What makes OT, Steve D, and Conv. so obnoxious is that they are bullheaded enough to think they know something they don't. I don't get on a trading thread here and pontificate on something I only have a minimum working knowledge of. I keep my mouth shut and learn. To the rest of you guys: this is going round and round nowhere here. Blue H, Ratboy, OWP and others have already said it like it really is. The END. Why beat a dead horse. You guys are right. My 35 yrs in this business says trust yourselves and don't listen to the other tripe. Preserve your wealth. Those other guys are going where Risk way outweighs Reward. What you should be discussing is how to move and preserve your money. Forget the if....