Real Estate is dying? Investment-wise what is the next Asset Class Du Jour?

Spec8, I've kind of written a biography book here and it wasn't my intention at all.

Oneway is doing an xlnt job of showing you all the written truth. And also Q.

The little special questions on RE actually never stop even for me. In fact, I'm always learning. I love it.

I've got at least 250 pages of typed notes on my computer that are little known secrets that I've read from smarter guys than me.

So, sorry I've got to stop. The questions will never end. And all I am really saying is that we are very close to the top or have passed it and going down.

 

Very telling article written by David Berson of Fannie Mae Economics Dept explaining how some of the the bubble in real estate may be related to the increase of "investors" fueling speculation...owp


http://www.fanniemae.com/media/pdf/berson/weekly/101804.pdf

....."Still, job gains continue to lag previous economic recoveries so while they must have helped boost housing demand, it is unlikely that new jobs did little more than offset the negative affects of higher mortgage rates. There is one additional component of housing demand, however, and it has soared over the past three quarters: investor demand. Data from the Loan Performance database show that while the investor share of purchase mortgage originations had been edging upward over the past few years, it exploded over the past three quarters. As shown in the following chart, the investor share jumped from around 5.50-5.75 percent in the middle of 2003 to over 9.15 percent in July of this year



Moreover, the pickup in the investor share has been greatest in some of the areas with the largest rise in home prices (e.g., Las Vegas, San Diego, Monterey). (Note that this Loan Performance database does not include the entire market – it lacks, for example, Fannie Mae, government-insured, subprime, and some portion of depository institution portfolio loans. But we think it is representative of the entire market.)

We are working on a precise estimate of the portion of the recent acceleration in home prices that has been caused by the rise in investor demand, but a significant portion of the price gains have likely come from the increase in housing demand stemming from investors.

The downside of the recent increases in investor demand and home prices is that when investors decide to leave the housing market (as they always do at some point), demand growth will slow (indeed, the level of demand could decline) and supply growth will rise (as investors put their properties on the market).

We may be seeing the beginning of this today – as unsold inventories in California have risen sharply in recent months and some builders and other housing observers have reported that there has been some recent price weakness in Las Vegas and in a few of the California markets.

David W. Berson Fannie Mae Economics"

 

Some things have come to my attention that I ought to post. I could look like a real fool here.

Without going into everything which would take hours, this is it: Those who feel a little stretched financially had better sell their home or rental unit now!!

There are rumors that the dollar may suffer a very large blow in a short time.

The message is coming from several first rate analysts and insiders from several spots in the world.

You could always pull your property off the market if this doesn't happen. Or back out of a deal by not doing the fixing of the inspectors "problems". You don't have to do those things they are optional.

Yea, this is an alert. I've been alerted and will invest accordingly. Would I act on the advice of someone I didn't know? Nope.

I'd like to say this alert is just me sticking my neck out for the fun of it. So I will. My neck is out. But it doesn't feel fun. Something is up with the buck. Let's hope the PTB can put it out and we never even know.

But 2005 is going to be wild. 2006-7 wilder yet. Has anyone noticed that with all the Central Banks selling gold, the US hasn't sold any?

Check my post and link on USD. Who's left to sell? That is not the alert I received, but it tells the story.

 

Is it Motley Crue getting back together?

http://www.foxnews.com/story/0,2933,140712,00.html

Just kidding... I think the potential for a financial crisis is quite real, though still not far into double digit percentages. Too low to bet heavy on, high enough to keep the exposed from sleeping well at night.

 

Well, I suppose the alerts I got were based on the USG "borrowing" $1-$2 Trillion on SS. More debt, but this time not possible. Only way to get that money is to issue bonds and the USG print the money to buy them.

We already require 85% of the world's savings to finance our National Debt not to mention the personal or corporate debt. It will not be possible to borrow more from others. It isn't there to be had.

It is great to have the WEB to be able to post my opinion and facts, as I know them. You don't get this stuff on the news. The WEB is becoming the best source of news.

But, I don't think any of us are dumb enough to swallow another's post hook-line-and-sinker. I respect each person's sincere posts. Only a few do I fully accept.

It's just important to get opinions out so we can pick and choose or just be aware. Maybe the analysts I pay are off the wall. I sure hope that's so.

It is one thing to speculate and another to have an event look imminent.

 

today from http://piggington.com/

"12.7.04 - Interest Rates to Stay Low... For Now

The New York Times has a good article on the Asian central banks' dollar buying. In short, the article maintains that no dollar selloff is imminent:

"Japan and China hold too much American debt to be able to diversify discreetly [and thus avoid a further dollar decline in their remaining dollar holdings]. Instead, they are urging the Bush administration, in public and private, to get the American budget into better balance and to improve American saving rates."

Good luck with that!

Which is to say, while I agree that this is the plan, I also believe that this plan will fail miserably. What the Asian bankers apparently fail to realize is that neither this administration nor the American people will stop borrowing until they are forced to do so. If they would quit spending so much time staring at their jewel-encrusted globe the Chinese central bankers might notice that Congress just raised the federal debt ceiling by almost a trillion dollars. Maybe they'd also notice that, emboldened by the false "wealth effect" of their overpriced housing, American consumers have allowed the personal savings rate to slip to an all-time low. Do these sound like the actions of a nation that is preparing to tighten the fiscal belt?

Regardless, for now it seems that the Asians might stay the course, and this is good news for the short-term health of the San Diego market. While I continue to believe that the San Diego market has already peaked, low rates will allow the bubble to deflate slowly and steadily. But if the Asians ever go to Plan B and start dumping US debt, the resulting interest rate spike could devastate San Diego housing prices.

It is interesting (by which I mean frightening) to note that in an environment where a moderate increase in mortgage rates is likely and a huge increase is possible, 82% of San Diegans' October mortgages had an adjustable rate.

One last comment on the NYT article, which states:

"By helping keep mortgage rates from rising, China has come to play an enormous and little-noticed role in sustaining the American housing boom."

...little-noticed by the New York Times, maybe… but not by the long-suffering readers of the Econo-Almanac!"

 

County real-estate speculation jumps
Number of homes resold within six months roughly doubles from last year.

By HANG NGUYEN
The Orange County Register

The home purchase is complete. But the moving van never rolls around.

The residence sits vacant because the buyer bought it purely as a short-term investment. Within months - or weeks - the home is resold in the hopes of bringing the owner a nice profit.

This tactic, dubbed "flipping" in the real-estate trade, is relatively rare in Orange County. But its recent growth has industry experts concerned about the future health of the local housing market.

"That's artificial demand," said Jay Moss, president of KB Home's greater Los Angeles and Orange County divisions. "That's not true demand."

Nearly 4 percent of the O.C. homes sold in April had been owned for six months or less, according to market tracker DataQuick. That's about double the flippers' share of sales from a year ago.

More flipping, coupled with the very low affordability rate in Orange County, worries Lisa Grobar, an economist at California State University, Long Beach. "The two together suggest to me that we may be nearing the end of the current housing cycle," she said.

History might be repeating itself.

In April 1989, 3 percent of buyers sold properties they had bought less than six months earlier. Before 2004, that was flippers' busiest April in DataQuick's 17-year database.

The next month, May 1989, annual appreciation of home prices hit 24.1 percent - the cycle's biggest gain. But by September 1990, home prices were falling, and the decline continued for seven years.

FAST MONEY

Roy and Sandra Wilder of Fullerton watched home prices skyrocket. So the couple bought a three-bedroom, two-bath Fullerton residence for $725,000 in late January as an investment. Four months later, it resold for $830,000.

"It's great, but on the other hand, it's scary too," said Roy Wilder, 55. "It's like buying stock. You never know when you buy it, if the stock will continue to go up or it will bottom out."

The Wilders consider themselves amateurs when it comes to investing in real estate. Roy Wilder owns a handyman business for a living. Sandy Wilder is a housewife.

There are big barriers to flipping, such as having enough cash to do it, Roy Wilder said. The couple had to sell their investment home shortly after buying it because they couldn't stomach the $3,500 monthly mortgage.

But the Wilders aren't new to flipping. They bought two O.C. properties in 1989 that they sold for a profit less than six months later.

"I just have a knack for sniffing out good deals," he said.

One 1989 deal was a close call, but the Wilders were able to sell it shortly before the home's value fell below what it cost them to buy.

Despite such risks, Roy Wilder won't stop flipping anytime soon, even though he said it seemed "like we are right at the peak of the real-estate market."

'ANTISPECULATION' PAPERS

Development company John Laing Homes, based in Newport Beach, noticed last year that as many as 30 percent of the homes in some of their Orange County projects were snatched up by flippers.

"As soon as they close escrow, they put up the for-sale sign," said Steve Kabel, Laing's Southern California regional president.

So Laing in January began requiring buyers in its developments to sign "antispeculation" papers, saying they'll own the home for a year.

"An investor will not want to tie up their money for that long," said Antonio Fiorello, a Laing sales manager.

If the homeowner breaks the no-quick-sale promise - and hasn't gone through a death, divorce, job transfer or severe illness - the contract says a flipper must turn over the profit from the sale and any rental income to Laing.

Laing isn't alone.

Robert Gilmore, district manager for Southern California for the Department of Real Estate, has been taking calls a couple times a week from home builders who need the department to approve antispeculation clauses. These provisions - introduced to the market about 18 months ago - are most common in Orange and San Diego counties.

Builders say that flippers are bad for business.

These investors clearly aren't interested in developing a sense of community, an amenity builders actively promote. And the debatable demand from flippers can force builders to pay for extra land they might not truly need.

Gilmore says builders also see flippers as competition. Both groups are often selling to the same wave of future buyers.

"We don't like" flipping, KB's Moss said. "It's not creating neighborhoods we want. We want to build homes for families. We're not Wall Street."

But are the builders' antispeculation provisions enforceable in court?

"It depends on the circumstances," said Camellia Schuk, partner at Cox, Castle & Nicholson.

LESSON FROM THE '90s

Speculation is a sign of an overheated market for any asset, including real estate.

Normally, home-price increases are based on economic fundamentals such as jobs, mortgage rates and inflation.

But sometimes, perception takes over as some people buy homes simply because they think housing prices will continue to go up.

However, at some point, "buyers' and sellers' perceptions start to diverge," said Keitaro Matsuda, senior economist at Union Bank of California.

Then, home shoppers balk, and homes sit on the market. That forces sellers to lower prices, and the market's bubble bursts.

While the recent increase in speculative buying in Orange County raises a flag for Matsuda, he said he'd need far more detail to be worried.

His main concern would be with a growing number of amateur home-price gamblers. Bets from sophisticated investors who understand the real-estate market wouldn't be a problem, Matsuda said.

Even though flipping was more common in April than it was shortly before O.C. housing prices fell in the last cycle, Matsuda is still not worried about the real-estate market.

Still, he hopes 1989 will serve as a deterrent for the average person thinking about speculative buying.

"A lot of people watched others get burned" when housing prices fell in the early 1990s, Matsuda said. "We have that lesson from history."

 

This article points to a real problem. We can't sell our 10 yr Bonds abroad. We are probably printing the money to buy our own bonds. That is a game that won't last long at all. 10 yr bonds are the proxy for mortgage money. We all knew foreigners would opt for the best return on their money someday. Sorry the chart won't copy. ARTICLE:

Diabolical Debtor’s Delusions

Dear Reader, this is a summary of all US government 10 year auctions so far this year. For your reading enjoyment I have included the date of auction, amount auctioned, high yield accepted, aggregate foreign bids tendered, foreign percentage of total bids tendered, total bids tendered as well as bid to cover ratio [B to C].

Now I would like to draw your attention to the 10 year auction of September 9, 2004. As one can see, Dear Reader, someone apparently forgot to invite the foreigners to the debt bash on this particular date – or they simply forgot to show up? The day these bonds were auctioned, these 10-year bonds were trading in the when issued [wi] market at markedly lower rates than 4.195%. In fact, those very bonds were trading much closer to 4.10% the morning of the auction. It would appear to me, that 4.10 % did not seem very attractive to the kindness of strangers who finance our lifestyles and buy our debt – it appears that they voted with their check books and their money – and stayed home! We wonder if these blokes have been reading too much Catherine Austin Fitts? In fact, in bond circles, this auction was referred to as a complete disaster. I would suggest to anyone who wants to listen that this was a “shot over the bow” by the kind foreigners from Europe and Eastern Asia.

Could this possibly have something to do with a warning that American profligacy [monetary childishness that you can’t have a 10 cent ice cream and a nickel Coca Cola, if you only have 8 cents?] will not be tolerated much longer by the kindness of strangers. It appears the foreigners may be on a different streetcar, and it is not in New Orleans or San Francisco. Oh, but there is Desire at the FED to keep the con game going, isn’t there!

I would like you to take note that back in March, foreigners bought in excess [no, not the Rock Group] of 21% of the bonds auctioned, while tallying 12% of the total bids – and the bid to cover ratio was an anemic 1.81. What this means, is that the government [of the USA] received 1.81 worth of total bids for every one dollar of bonds they auctioned. Having worked a few years in the bond markets myself, I’m well aware that a bid to cover ratio less than 2 is nightmarish for the entity trying to raise money [Dear Ole Uncle Sam and his compadres]. In the case of the US government, it becomes even more compellingly nightmarish that if a “weak” bid to cover number is coupled with anemic foreign participation in the auction – It has a way of putting the “Fear of God the Almighty” into the bond community as the specter of a failed auction begins to weigh-in on people’s minds. In case you don’t know, failed auctions are the types of things currency crises are made of – think Latin America or Brazil if you can get your head there.

Good Luck in US Real Estate and Financial Markets to you Latinos down there in Buenos Aires. You all might even be able to beat the IMF at their own Fraud, at lending money to countries that can’t pay it back. Wonder if the IMF will bail out the USA when it is delegated to Third World Status? Gee Whiz! The reverse split on the US Buck peg destroyed the real estate market in Argentina, since their mortgages were denominated in US Bucks. Gee, ain’t paybacks fun!!!

So, instead of Andrew Lloyd Webber and Evita!, I give you Mr. Truman playing the Missouri Waltz in the right hand, and Waltzing Matilda in the left!

As I look at these numbers, I can see that kind foreigners generally buy between 22% and 68% of the bonds the American Treasury usually auctions – with an average somewhere around 40%. What I’m having so much trouble with deciphering is: if kind strangers who usually buy 40% of the bonds you auction fail to show up at the party – would you anticipate a bid to cover ratio in excess of “2”? Personally, if things were really on ‘the up and up’ – I would have anticipated a bid to cover ratio under these circumstances of something in the neighborhood of 1.5. In fact, I find a bid to cover in excess of “2” for this auction offensive and incredulous! It sticks out like an extremely bloody, swollen sore thumb – and is completely incongruent with the two ‘golden goose eggs’ denoting lack of foreign participation in the same row! In bond land, Ladies and Gentlemen, a bid to cover ratio of 1.5 with zero foreign participation [when you are the US Government] is a “kissing cousin” to a FAILED AUCTION.

On Friday December 3, 2004, on the CNBC Bubblevision I watched and listened to US Treasury Secretary, Sir John [of Snow job fame] being interviewed by Ron Insana. He was busy chirping away that he is a proponent of a “strong” but flexible dollar. I wonder if he has secretly become a proponent of “strong” but flexible Treasury Auctions? If you happened to see Snow job being interviewed – did he sound believable to you? I know I’ve met more convincing used car salesmen – none of which I would ever buy a car from.

If the truth be known, this auction, along with other things, like the Bureau of Labor Statistic’s reporting on inflation, has served to remind me of the utterances of another infamous used car salesman – none other than Sir Alan of Greenspan. In a speech he gave before the Bundesbank in Germany, on January 13, 2004, he stated,

“There is no simple measure by which to judge the sustainability of either a string of current account deficits or their consequence, a significant buildup in external claims that need to be serviced. In the end, the restraint on the size of tolerable U.S. imbalances in the global arena will likely be the reluctance of foreign country residents to accumulate additional debt and equity claims against U.S. residents.”

For the text of Greenspan’s speech to the Bundesbank see:

http://www.federalreserve.gov/boarddocs/speeches/2004/20040113/default.htm

If I were a betting man, Ladies and Gentlemen, I’d say some things, like the difficult measurements he mentions above, are perhaps beginning to get a whole lot simpler for Easy Al. I’d also bet a whole roll of uncirculated 1919-S Standing Liberty Quarters that these auction results were COOKED! What’s my question to you? How much do you want to bet they weren’t?

The numbers compiled in the table above are all provided compliments of the US Treasury. This trail of burnt breadcrumbs is publicly available at their web site found in these two links:

http://www.publicdebt.treas.gov/of/ofstathist.htm

http://www.publicdebt.treas.gov/of/ofaucrt.htm

 

You ever watch the markets at all?. If foreignors weren't buying or if there wasn't demand for US 10 years, the yield wouldn't be at 4.15%. The Fed already has done a couple of acutions and there was buying across the board, all along the yield curve.
Printing new bonds to buy buy back old higher yielding ones is called refinancing.

I think the scary thing about this thread is that these posters drive on public roads.

 

Convert you poor soul. You've missed the point, but have all along.

I don't expect most to "see" FED actions. If all people did the FED would be transparent and they are not. Do you think they are? Does anyone else here?

PPI at .5% for Nov. 1.7% in prior month. Most important, core intermediate prices at 8% in this last yr., highest measure of inflation since '81 and you've said no inflation. This is a leading indicator! Maybe you don't know what a public road looks like.

Name calling shows a lack of ability to deal with issues by being able to use some opinions or facts. You did earlier, but not on this last post of mine. My post was intended to pass on info. that the FED sometimes tries to hide. My post was to stimulate thought, not tell others what to do. It was an essay by bond traders, backed up by some facts, that I agree with for the most part. I rarely buy anyone's opinions hook line and sinker.

And since you didn't deal with the author's points, it is your loss. You have an agenda that is "somewhere". Actually, I do know where. But the dumbed down public view is needed as a measure to see how deeply the Spin Doctors have set their hooks. You're going to be caught without a chair when the music stops if you are not careful (unless you're a realtor). But keep posting so we can have that measuring stick. Your real views, not name calling, are very enlightening.

If you need it, I'll fill the thread with long lines of fact. Or maybe it's best to leave you where you are at. Do others want facts on inflation and interest rates and debt? But no Homebuilder or realtor spin, please. They are bias and need to be.

Like Japan, having a near 0% int rate, yet RE is way way down---for yrs. I can get the % down. I can bury Convert with enough facts to choke him if that is interesting.?? Is it? I'm assuming most read this stuff already. I don't mean to pick on Convert, it's too easy, but he's the only foil here and it allows me to pull out reams of data. Tedious, but informative.

Merry Xmas Convert, I know I've been too hard on you. It's not you, it is the spin we are asked to swallow by the FED and USG. I guess you've bought it.

A quick starter. Is the FED public or private and who were the founding players? Interesting stuff.