Nope Steve...there's not a guy here who understands real estate. They "think" they understand stocks, and they "think" that real estate acts like "stocks". I have this picture of millions of people panic selling their homes that they have sub-6% loans on, so that they can go rent somewhere...I guess driving prices down and rents up eh? A friend once told me that people ALWAYS are in the process of buying a house. It's just a question of WHO they are buying it for.....the landlord, or themselves. Evidently around here we have a group of guys who are shrewdly buying a house for the landlord. OldTrader
It's because everyone who is "long" real estate has an axe to grind and everyone who is "short" real estate (i.e. not homeowners) has an equally big axe to grind. Its the same bullshit we see around us on every topic under the sun. Senor Zen
http://story.news.yahoo.com/news?tmpl=story&cid=2026&e=5&u=/latimests/puttingstockinproperty Read that article. I cant imagine a more defined speculative bubble about to burst.. anyone thinking real estate is not a bubble that will end badly is just detached from reality. I live in NYC.. lets not talk about how these piece of shit houses in my area are on the market for $1.5 mil. In 2000 they were selling for $400k.
OldTrader, I would be interested to know why you see housing (a market) and the stock market as being fundementally different. Having been thru a couple of exuberances and crashes in both markets now I see them as very similar ... not exactly the same but very similar. Let me put up a straw man: Code: Stock Housing Fundamentals Retirement savings Population Growth Productivity gains Fads Biotech, Internet Seaside, farmlets, etc Irrat Exub. Everyone making it Tradeup, noone loses 2nd house buying cycles Failure. Few Buyers Few Buyers Developers presell opportunity Smartmoney sellers Smartmoney Sellers Civil servants buy Gotta buy or never buy get in Everyone sells People can't sell I think the housing failure takes longer. In my personal experience the "can't sell mechanism" can be sporadic and also drawn out (kinda like when you are long and it recovers a bit before dropping). Drawn out in housing can take 2-3 years where people may put their house on the market 3 or 4 times and each time fail to achieve the price that they refused the last time. Finally of course, they give in. The hardest thing with housing is that for the moderately smart amongst us its hard to "get out with a profit" because of transaction costs, difficulty in charting the market, and of course our deeply held affection for our spouses To Zen, yes, I do see an element of that in it. Being both long and short the market (different sectors) I find it interesting ... and a bit hard to get a really good handle on.
Probably the biggest difference is that we all need some place to live. Therefore, we are either renters, or we are owners. Most owners are owners regardless of price....until such time as they can't afford the place anymore. The reason they might not be able to afford the place anymore has to do with employment, loss of job, loss of income. The last thing to go is the house. We stop paying the credit card first, then one by one the other bills until we finally get to the house....because the bottom line is that we all need that roof over our head...we can't live under the park bench. People don't panic sell their house. The get the house taken away when they can no longer make the payment. Now you tell me....how does that psychology compare with a stock? This isn't to say that houses don't go down at times. They went down in Texas after oil prices collapsed, went from $40 to $8. Massive layoffs in the oil industry...people lost their houses. Get the picture? They didn't sell until they had no means to pay. They moved to "tent city". The last thing to go. Did you know that in the last 75 years the median house price nationwide has never gone down...not even once. I posted the link to that....maybe you can find it. But trust me...it's a true statement. That doesn't say that real estate can't go down either, but during that period we have had regional markets that had specific problems that went down....but never once on a nationwide basis. Interest rates? yeah, they went to 20% back in the early 80's. The median price did not go down. Houses aren't stocks. There's a tremendous amount of emotional attachment to your house because it's were you live. A stock? You're kidding me...no comparison at all. Think it over...there is no comparison at all. OldTrader
I agree to a point and it certainly provides a solid floor, but I think you might be underestimating the number of newbie investors in the marketplace. I know quite a few people speculating in homes who have no business "investing" in real estate. In Scottsdale, the house across the street has gone unrented for 8 months, but she won't sell it because she says, "I'll make it all back when I sell." In Houston, my ex-girlfriend purchased 5 houses last year (one for 500K). All on stated income, interest-only ARMs with 5% down. All are negative cash-flow (or no cash flow). If the market doesn't continue up, she's bankrupt. I think there are many many more weak hands out there than you're allowing.
Oldtrader, If you see it "no comparison" and see the whole thing so "clearly" I guess Zen is correct about your perspective. It will be interesting to see our perspectives develop over the next decade.
I love hearing the mantra of the real estate bulls. "Everyone needs a place to live", and "there is no liquidity". If you can't make your payments then you don't get a choice as to whether you stay or go. You guys are right though it takes a few months to foreclose. Easy Al, or as I like to call him: "the devil" will soon escalate interest rates and hasten the destruction of the greedy.
"Danielle DiMartino: Bubble in housing will burst 09:44 AM EST on Monday, March 28, 2005 Someday, Merrill Lynch chief economist David Rosenberg will be considered the most prescient forecaster on the housing bubble we now face. "Just because it hasn't burst," he writes, "doesn't mean it doesn't exist." For the better part of a year, Rosenberg has been a self-proclaimed "bubble bear." No doubt, we both contend with the same criticisms, and for that, I feel for him. It's hard enough to stick to an unpopular position, especially when the data keeps putting the word "wolf" in your mouth. Pondering this uncomfortable position brought a more seasoned "bubble bear" to mind. Dean Baker, co-director of the Center for Economic & Policy Research, a Washington think tank, was one of the first to identify the bubble in the housing market. I asked him for guidance on holding my ground. My first question: Why the heck hasn't the housing bubble burst yet? "I've been surprised that interest rates have stayed as low as they have for as long as they have," he said. "[Federal Reserve Chairman Alan] Greenspan's in the same boat. It's a mystery to him as well." Another cause of the bubble's staying power, he said, is homebuyers' "willingness to use exotic forms of financing, despite low interest rates, to pay more than they would otherwise." Of course, he refers to the increasingly aggressive versions of interest-only, zero-down, adjustable-rate financing vehicles that homebuyers use to squeeze into the most house that money can't quite buy. No doubt, the housing boom has smoothed many economic hiccups in the last five years. It's contributed a full 25 percent of the economy's growth in that time. That doesn't mean the economy's been on a free ride. The longer that bubbles are allowed to inflate, the messier the cleanup after they burst. "What's changed in the last few years?" Baker asked. "People are much more in debt and there are a lot more who've bought into the bubble, which means a lot more people will be hurt." Then I asked Baker to address the popular notion that the bubble was limited to the coasts. "Sure, there are big areas of the country that haven't seen much in the way of appreciable house inflation," Baker said. "But the pockets that are undeniably bubbles are big enough to impact the economy as a whole." All strings attached to the housing bubble lead to how low interest rates have been and remain. That lands this reader question in my e-mail inbox with regularity: "What's the tipping point?" Baker said he figures 6.5-percent mortgage rates would do the trick. They're already above 6 percent now, so we may be close. But then, interest rates have flirted with these levels before, only to stage a retreat that sends homeowners into yet another refinancing frenzy. This back-and-forth is another inflator of the bubble, and gives the Federal Reserve one heck of a good reason to remain diligent in its rate-raising campaign. "Clearly people are stretching to get into these houses," Baker said. "I really don't think a lot of people know what they're doing, so I don't blame them. It's just unfortunate they're being purged by the real estate agents and lenders." Clearly, a good number of homes will be lost as a result of so many people being misled to purchase houses they can hardly afford. As to why lenders seem to have no qualms about their risky behavior, Baker says it's the moral hazard borne of the mortgage-backed securities market -- something that wasn't prevalent before the S&L scandal broke. There is literally no risk associated with lending these days as the mortgages are sold off the books to bigger financial institutions before the ink is dry. "You would expect lenders to be more responsible but they don't care; they're just throwing the loans into a big pool," he said. The unspoken consequence of many of these mortgages eventually turning bad is that someone will have to pay the piper. Baker is one step ahead of that inevitability as well. "If we weren't prepared to let the S&Ls go," he said, "we certainly won't allow the much bigger mortgage-backed securities market go." Danielle DiMartino is a financial columnist for The Dallas Monring News and may be e-mailed at ddimartino [at] dallasnews.com" Online at: http://www.projo.com/business/content/projo_20050328_28dimart.20487fd.html