A while back I posted some charts of publicly traded vehicles that stand in stark contrast to some of the "opinions" expressed here. In short, the opinions expressed in this thread have been harmful to your financial health up to now. In fact, while you were reading some of the views you should have been buying almost anything housing or real estate related. But don't take my word for it. Below are links to a chart on the Housing Index, the Real Estate iShares, and Toll Brothers, one of the country's largest builders. http://www.ttrader.com/mycharts/display.php?p=29153&u=oldtrader&a=OldTrader's%20Charts&id=1300 http://www.ttrader.com/mycharts/display.php?p=29154&u=oldtrader&a=OldTrader's%20Charts&id=1300 http://www.ttrader.com/mycharts/display.php?p=29155&u=oldtrader&a=OldTrader's%20Charts&id=1300 What's that old saying: Price talks, BS walks? All of the lnks above will take you to charts that are all trading at new all time highs as we speak. OldTrader
Old Trodder you are looking backwards. Hope you didn't trade on the floor that way. I assume you are an old floor trader so I give you credit for knowing that field much better than I ever could. RE you don't know like me. I've spent my life in it. So stick to what you know and learn something. My credentials (and I don't know if you have any): My Father and Uncle taught me building. My Father was partners with a group of Hollywood Execs and Producers who built homes to put their money to work. Two of the partners: John Wayne and Billy Wilder. They were the small fry. My Uncle was a big builder on his own. He was Pres of the CA Home Builder's Assoc. for over 15 yrs. At my most successful I was a member of a 6 unit Patnership called the Builder's Group in Denver. I was a small partner who built custom homes. The only big big Partner was MDC Homes. I didn't get my position there by being stupid or not being able to find the road. I also ran a subcontracting biz that was the biggest of its' kind in the State of CO. My last "job" was helping put together the new Denver Fast Tracks light rail system. Just passed the vote. Imagine the people I know in this field. My first realtor was a lady who was twice realtor of the yr in the Western States. I think once she was tops in the Nation. Later I sold my own thru my staff. Soooo. I'm taking time out to try to help some folks. There is absolutely know way under the sun that you know RE like me and we're the same age. You just don't. Accept it. No pride lost, you don't have my history how could you. There is a saying: "leave a little at the top for the stock Gods". I like it. And I think it works in RE too. That sure felt good......... Cheers Old Trodder. Yea that did feel good. Thanks. Off to my Church Xmas party.
BillBuild: Lets hope you read your charts better than you read my name. That would be "OldTrader". Let me also say that I would never be too presumptious about someone's qualifications. Again, I would hope you don't "presume" in your trading as you have in this post. I've been active in real estate investments for almost as long as I have been trading. I started in real estate investments as a way to gain some security outside of the trading field. I took the profits generated from trading and started buying small rental properties. I've been doing that for most of my adult life. At this point I hold a large number of rental properties....mostly houses and small apartment buildings....many of them free and clear. My wife and I manage the properties ourself...most of my involvement after the markets close. Building, subcontracting, etc.....none of these on it's own qualify one as an investor. It might interest you to know that my wife and I used to laugh at the worst possible tenants for our properties were folks from the building/contracting industry. Never had good credit, many had bankrupties, but always talked a good game....sales it seems is important to winning a new contract. BUT, as a real estate investor we don't know many builders in the category....they're always too busy working a job, trying to earn a living by building something. Now whether you fit in that category I can't say. But what I can say is that I am more than qualified to give well-founded, professtional views in the areas of real estate investment and stock and futures trading. As I say, I have done both for most of my adult life. Most of the large real estate investors that I know are not unloading all their property. Given my current position for example that would be completely foolish. I have sold some things at prices I thought were more than adequate. I have not added to my holding in the last couple of years. But understand that when you are sitting with a low cost basis, you lose huge amounts to taxes when you sell, not to mention the high fees from closing costs and realtor commissions. So that the net impact is that the price of real estate would have to drop significantly just to equal what you just paid out in costs and taxes. Investors don't do that on a wholesale basis my friend, especially based on some of the outlandish comments I've read here. I think I mentioned that my market (real estate is local in nature) probably has peaked. But that does not carry any implication as to the extent of any forthcoming drop in price. That projection takes a "leap". But real estate as a market does not "trade" the way stocks trade. And frankly most of the folks like yourself would now need a huge drop just to get to the point where they first started predicting the drop. Those links to charts have some degree of importance. If real estate were about to "collapse" there would be some sign in the charts in areas related. Where is it? Prices do not "collapse" from new highs, never have, never will. The purpose to the charts is simply to let you know that while you pontificate there is one final arbiter....price. And price, for the moment, is heading up in all of the real estate related areas. By the way, that warning the other day about the Dollar was absolutely priceless. You caught the absolute low. That's hard to do. OldTrader
Old Trader you are a hobbyist at RE from where I sit. That is fine that you hold the view that you know RE from dabbling in rentals. OK, I don't presume to know that you were a good floor trader. Maybe you were lousy and I would be better. I don't really care. And renters? What are you talking about? Never mind you've retired your brain. If you could read and understand, you would see my post on the dollar was from analyst sources I buy. They were not my ideas. I passed them on. You are simply losing your mind to old age, IMO. You can't understand deeper thoughts any longer. Fold it up. You are deluding yourself and have grown tiresome to me. And it seems you cannot see an OB chart or market. Don't bother posting me. I have better things to do. Your mind doesn't work well enough for me to be interested in your thoughts. Now IMO, others should read Vhehn's post. There is a very interesting dynamic going on there that will lead to some very interesting consequences. This is the big issue at this time. Which way will this very complicated subject turn? The dollar looks OS and should find support at 80. There are simply too many shorts on the dollar. Speculation is too high. If the shorts are right, then the dollar falls to about 75 and then probably 50. Based on head and shoulder rules. But that may be way too simple. Vhehn has hit the note we need to consider for the near term. Vhehn, your link is what I've been thinking about for days. There are many nations very mad at us at this point. Something will break loose. Our level of consumption must cease and our savings increase (recession), or the dollar will fall very low causing a potential currency war. This IMO. It is a very complicated situation. A nation that holds a lot of our debt could start selling the debt and cause a very bad scenario for us. Does the US give up consumption at this rate or risk a currency war? I sure don't know. Is our populace ready to quit spending and start saving to strengthen the dollar? Somehow I doubt it. But the dollar is so oversold!!! Time will tell.
I dont think its the long term established real estate investor that is the problem in a downturn. Its the new guy who doesnt cash flow that gets taken out. Given enough time at these prices things will get financed at rates of return that wouldnt make sense without the appreciation speculation. Then if we get a downturn in either rental rates or appreciation this type of speculator gets taken out. That in turn puts pressure on prices as these deals are unwound. Its just like the stock market. The late buyer with the high cost basis on margin that gets sold out. When it will happen no one knows. It will take some kind of an event to set it into motion.
It seems that when one expresses some disagreement with your ideas that you enter into attack mode. You attack credentials, you attack one's ability to think. Unfortunate. And lacking in class. You attacks caused me to re-read your qualifications. Interesting that you mention your Dad's qualifications as a builder, his association with movie starts, your Uncles position as President of the CA Homebuilders Association. I suppose we are to believe that some of your families qualifications rubbed off on you. Then we read about your building associations, all the people you must know, etc etc. No where do I read anything about your "investments". We all know that builders build. They supervise carpenters, plumbers. But that is not "investing" where I come from. This is kinda like the printer who prints stock certificates claiming stock market expertise. He may well have some, but it isn't evident from his background as a printer. Nonetheless, we have strayed from the original purpose of my post.....which was to post several charts which illustrate the stock markets view of real estate at this time. The idea behind price action by the way is that all currently known knowledge is reflected in the chart. Those who believe that real estate is headed lower have either sold out, or are short. Their opinion is represented in the picture. Those who have more constructive ideas about the stocks are reflected as well. The total sum of all of these views is reflected as of now in new all time highs in each of the charts I posted. That's it. Now, we can all pontificate about what is about to happen in real estate, but the reality is that so far the charts do not reflect that. I suppose it is well beyond your thought process to believe that real estate prices may reflect the idea that dollars are becoming worth less and less every day, and that something "real" is an effective investment in that climate. Perhaps real estate is simply discounting the coming inflation. But again, I don't spend alot of time pontificating about these things. A more productive tactic is to simply observe what IS happening. OldTrader
It's distressing to see two wise old hands who have built community respect through their experiences and their posts slip into a flame war. In some important respects I think you are both right and both wrong. To say that real estate is on the verge of going to hell in a handbasket is overkill; on the other hand, to pretend that everything is hunky dory just because the charts look good is pollyanna also. Charts have a lot to say, but they can't tell you about the underlying health of a market or the buildup of catastrophe risk. Think Victor Niederhoffer, LTCM, and countless other premium sellers who have smooth uptrends right until they blow up. The surface is only the surface. Real Estate has major exposure in the form of interest rate risk, which in turn is driven by currency risk and political risk. I don't know of any real estate bull who can credibly deny this. In order to deny it, they would have to be solid in macroeconomics as well as RE. Decades of owning and refurbishing don't mean a thing here. IF the dollar goes into a severe freefall, US rates will rise sharply and there won't be a damn thing we can do about it. Thus the problem in today's markets: massive exposure to interest rate risk via leverage, right down to the average joe. The maestro, Greenspan hiimself, has justified his no bubble view by saying valuations are reasonable vis a vis current rates. And that is precisely the problem. If today's interest rates go higher quickly and painfully, valuations go in the tank just as quickly via pocketbook damage - and it won't just be speculators leveraged up to the eyeballs who get killed. It will be many average homeowners as well, who "bought as much house as they could afford," just as the financial community told them to, and suddenly find their ARMS strangling them. And it will be banks of all sizes, from moms and pops to the big money centers, who are betting so heavy. Hell, even the Chinese have skin in the game via big purchases of CMOs. And an interest rate shock via collapsing dollar would not just attack homeowners and speculators through ballooning mortgage payments. It would also slam the brakes on our economic expansion. Improving corporate circumstances would go from sunny to stormy in short order, corporate debt burdens would get much heavier, and we would be looking at new rounds of layoffs, which in turn would hammer consumer sentiment. This in turn would put more homeowners underwater, creating a vicious circle. Leverage amplifies the circle. It makes good circles that much better and bad ones that much worse. We have RE leverage in spades right now. Thus, to say that the real estate market is hunky dory only because the charts are still all pointing north is myopic imho. The problem is the shifting currents below the surface and the risks we are running. Fannie Mae pushing 40 year mortgages is irresponsible, plain and simple. Wells Fargo running radio commercials suggesting you treat your house like a credit card is irresponsible, plain and simple. The real estate market is facing the risk of a blowup through catastrophic circumstances, with the same profile as a premium seller: looking good on the surface level, serious issues beneath. The problem is not seasoned owners who know what they are doing. It is precisely with the people who have no idea what the hell they are doing: namely, overleveraged idiots (of which there are enough to be a true danger b/c of the size they are wielding) and naive homeowners who have made major bets on low rates and ongoing appreciation without even realizing it. Now, with that said, is it inevitable that the dollar is going to collapse? No. Is an interest rate shock a foregone conclusion? No, it is not. It's still possible that the situation will work itself out without catastrophic consequences. The dollar could decline in herks and jerks without crashing, and even enjoy long periods of bullish countertrend on its way down. The political backroom deals btw Asia and USA could hold together. China could see a return on their depreciating investment through long run trade concessions. Asia may be feeling inflationary pressures as we speak, bringing the situation into longer term alignment. We just don't know. We may even see a scenario where real estate doesn't decline much at all, because markets don't have to fall in order to go back to trend. They can simply flatline. It's possible that we hold it together and housing just gets dull as dishwater with no real upside or downside for the next decade. So, this is why I suggest you are both right and both wrong. I'm inclined to agree with Bill and OWP that the situation is genuinely dangerous. RE is about as stable as the guy working two full time jobs to maintain huge liabilities, keeping it all together but one paycheck away from insolvency. This guy could have perfect credit, but so what. Even if the number of high risk owners and speculators is proportionally small, the situation is still dangerous because of the potential for a chain reaction (think portfolio insurance in 87). Not to mention that numbers suggest something is a little wacky. Look at real estate appreciation in plain old percentage terms. Not just in the US but around the world. We're talking numbers like 20, 50, 100, 150 percent appreciation over the past five years. Right? Now look at long term average appreciation, covering decades. It's single digits, not far ahead of inflation. Add in the fact that interest rates have been dramatically low, artificially low, for the past few years due to extraordinary circumstances, and extraordinary easy money by the fed. It doesn't take a rocket scientist to see that these are major factors -the big picture didn't change in 5 years, the money flow did- and thus trying to attribute the recent runup to internal RE factors only (supply / demand etc) is just plain silly. On the other hand, I'm inclined to agree with Old Trader that you can't just throw up your hands and run for the hills, or expect everything to fall apart tomorrow. The situation may well resolve itself through nonviolent means. We could see a dip and then a modest but long decline, or a dip and then a long term flatline that brings real estate back to trend through an absence of appreciation even as inflation soldiers on. It doesn't have to all fall apart. We're talking russian roulette risk here, not "game over man we're screwed." Not to take away from the fact that Russian Roulette risk is serious. The position to hold, imho, is the clear eyed recognition that things could go very, very wrong in short order but that a catastrophe is not guaranteed. A 10-20% probability for the oh shit scenario is definitely high enough to be concerned when you consider what's at stake. There is tremendous risk beneath the surface here. But on the other hand, that doesn't mean it's a foregone conclusion that we're going over the cliff. If you plan to own your property (or properties) for the next few decades and you know you are financially solid even if the shit hits the fan, fine. On the other hand, if you are thinking about moving or selling anyway and you have already enjoyed massive appreciation, remember that bulls make money but hogs get slaughtered.
I agree with you. The people financed to the hilt will probably get hurt at some point. But it may interest you to know that non-owner occupant type loans are a fairly small part of the housing market. (Maybe 6-7% if memory serves). And of course, non-owner occupants are typically required to have larger equity positions to obtain a loan. I think there is little question that owner-occupants really drive the housing market (assuming that's the part of real estate we are talking about). This type of person does not function like an "investor". The house for him is a place to live. And one way or another, he needs a place to live. So for the typical home owner the only question is whether his employment is sufficient to pay the mortgage. There are regional differences. In my area of the midwest for instance rent is higher than the equivalent mortgage payment. So there is a market incentive if you will to own a house. In CA on the other hand, rents are well below the equivalent mortgage on a like property, and therefore a much different dynamic is at play. But in general, people have to live somewhere. The only question is whether you rent or whether you buy. It's clear that most people want their own place, and while that partly may because they believe house values go up, it may also be that they understand they get no where by renting. Given all of the dynamics houses do not "act" like NASDAQ for instance. But can they go down? Of course....we've all seen it in CA, TX, CO, etc As you say, it took an event which typically "changed" the employment situation temporarily. Like the oil bust for instance and it's impact on the oil industry in TX and CO, which resulted in severe pressure in the housing market. It will be interesting to see how it all plays out. My view has always been though that with a house you end up owning it in 30 years. Whether it goes up or down is almost irrelevant. In the long run the house is paid for and there is no more payment. That alone makes a house worth owning. OldTRader