HSBC, NEW CENTURY, LAND SALES DOWN.... I think today was for real estate, what April 2000 was for the internet bubble.....You have all these cnbc analysts telling everybody about 'inventory' that needs to be worked off and that the real estate market is 'a little soft"....Hogwash!! IMO ..Today was D- Day for Real estate.... any one else get that feeling? The hits will keep coming and the defaults will be right behind!
Liquidity is contracting. Residential real estate is in deep trouble, and as a result, lenders are going to tighten the screws. That equity that previously existed in real estate was huge, and helped fuel consumption and investment, and is now drying up - that rocket fuel is gone - again, from the lending and 'paper existence' standpoint. When liquidity contracts, consumption goes down, even fewer investments are made in houses, condos, and everything purchased to fill them (furniture, flat panels, carpeting, etc.). When people see their home equity tap out, they are less confident and spend less. When banks are unsure about the stability of real estate values, they tighten the lending standards. When people have borrowed against the value of their homes in record amounts since 2000, and they can borrow no more, and there is any drop in the value of their home, there is catastrophe. Even if the value stays flat, they can no longer borrow additional amounts. When stocks are at all time highs, those vested with capital gains, seeing all of this, will be tempted to sell and lock in profits. Liquidity contraction = taking away fuel. Taking away fuel = stalled engine. Stalled engine = decelerating EPS growth at companies. Decelerated EPS growth = higher P/E multiples. Higher P/E multiples = Expensive stocks. Expensive stocks = reduced stock purchases. Reduced stock demand = lower stock bids. Lower stock bids = correction. Round and round we go.
Agree. Looking back I think we'll see another leg down began in Jan and the lenders and Fed damn well know it right now. Hope guys that want a place to get started are paying attention these next 12-36 months out. Save up, keep your sights modest, plan your move carefully. RE mayhem and deals only come around every half generation or so.
amazing to me how Greenspan has managed to implode the stock market and real estate market in one decade, yet gets no blame!!!..WTF? He replaced one bubble with another, only in this bubble explosion, people, families, get thrown out on the street.
A very plausible analysis. I commented to my wife last night that this might be the end of it for a while, as I was dining at some upscale restaurant and wondering if it would still be here 3-4 years in the future if we really hit the crapper. I keep trying to get my hands around how maintaining current interest rates on the short end might take out liquidity from the consumer side while repos add liquidity to the banking side to keep the financial sector solvent in light of the bad & irresponsibly made loans to the subprime market. Don't forget that as conditions worsen, good loans also can go bad and drop in credit quality. I don't think that the decline is imminent, but there are clear signs around - circuit city closing stores, real estate inventories out of whack, condos not moving and the very jittery subprime lenders. Collapse=regulation and that usually doesn't do what is intended, making things largely worse. One thing I keep thinking about was last spring-summer's debacle which keep everyone in the press saying their "sell in may and go away" mantra. What happens this year if people actually do that? Waiting patiently.
thats the problem....a lot of them should not have been in a mortgage......100% finance, no money down , and nor principal payments for 5 years.....al you have to do is be able tomake that balloooooon payment five years from now, or make enough to cover 5 times your current payment!!..... In 2003, you could not take 10k of disposable income and get 4:1 leverage and buy and sell intraday because of PDT rules... In 2003, people were taking 10k and buying million dollar condo's in Fl. hoping to flip them for a 200-300k profit .....No restrictions! they could also put 10k down and easily by a 200k home out right....20:1 leverage.....and pay about 600. per month in int. only... crazy....Greenspan f$cked up the market so badly that he over did it the opposite way and basically printed money.
I agree Im 38, single and my home in Los Angeles has gone up ~55% in the past four years. I am listing it on the market this coming Tuesday ( beautiful house in a great area) and I will take the cash and invest it for the near term. I believe with 100% conviction that the prices in Los Angeles will correct at least 10% in the next couple years. Im going to rent an apartment and let my money work for me so when prices stabilize I will get in again.
Anu, don't forget, 10% would be mild. Between 1987 and 1993, prices in Cali and New York fell 37%. My uncle is a developer in Cali (OC) and lived through it first hand. The banks were taking spec homes back from the builders, and whole new subdivisions were left unfinished for several years, with the lots growing weeds. Used homes took 2 years or longer to sell, after many markdowns. History always repeats itself. Always.
I would be thrilled to see a 30% drop ... puts me back in a siimilar home down the road for only slightly more cash and in the mean time I have several hundred thousand dollars working for me in investments. I cant speak for the rest of the country but here in LA a starter home is now beyond the means of most people and my home has been appraised at over $800k last week and really..what percentage of the population can afford an $800k home ? Not much...so Im getting out while the gettings good !