Hello all, No I'm not going to flame around. Just looking and an idea. Interesting idea posed as a question to me at HBA Assoc. meeting. So I will pass it on. The 2 GSEs are in trouble and weakened. Bush wants to semi-privatize SS. Question to ponder: what if a great deal of that private SS money was directed into mortgages and helped (Fannie and Freddie too, by not going upside-down) stimulate additional reasonably priced mtg. financing? Solution could be to save possible collapse in GSEs and a soft landing in RE bubble. More of a tapering off in single-family RE prices. Or even a flat spot. I think some recent buyers might lose their homes. They would go back to rentals (where they belong). Rental property would fill back up with better tenants and also escalate in value while single family homes might go flat or lose a little $. IMO, a much better allocation of capital. Done correctly, SS money in rentals or housing would be pretty darn safe (better than in gen. fund). Especially would help in rental mkt. conditions if values went up because of the points Old Trader made. SS money is not phony money or game-playing monetization. SS money could be a sounder foundation for RE and good investment for taxpayers. All, IMO.
This may be getting off topic, but the real problem with social security is that we aren't calling it what it actually is: a welfare program. The wealthy aren't means-tested out for various political reasons, but it's probably only a matter of time. The idea of privatization is appealing in terms of long term return, just as a compound annual growth rate is appealing with all the volatility smoothed out. But in reality, I doubt the boomer generation could withstand the roller coaster. As soon as the markets (stocks or RE) entered another down cycle, people would be screaming bloody murder and opportunist politicians would be circling. An entitlement cannot qualify as an investment, imho, because an investment requires the actual bearing of risk on the part of the investor. From a libertarian perspective, the appealing principle behind SS reform is making people responsible for their own choices, for better or for worse. But "worse" would not be palatable in this day and age. Thus SS privatization would probably be, in some form or another, Uncle Sam playing the market one step removed. The other colossal problem with bailing out the GSEs is what economists refer to as "moral hazard." Moral hazard occurs when entities that are "too big to fail" take on disproportionately large risks in confidence that they will be bailed out (by the taxpayer) if anything goes horribly wrong. The cycle of risk taking escalates because they all know that if competitors are making the big dollars, they have to get them too, and moral hazard stokes the flame. By bailing out the GSEs with SS funds, moral hazard would be amplified not just for Fannie / Freddie but for all banks making a killing in the housing market by lending recklessly and playing the game to the hilt. New arguments might be trotted out justifying even higher nosebleed valuations, based on the presence of guaranteed players and guaranteed dollars. A hidden buffer of government bailout would become more and more imperative as the stakes were raised. If we go far enough down that road, we start jeopardizing our stance as a free market economy.
wow...and you guys think I am a bear! OWP http://www.siliconinvestor.com/readmsg.aspx?msgid=20869970 >>The end game is here Russ. You tell me what happens now.<< prices for toys, cars, houses and extras fall off a cliff. prices for the things that you need to live -- esp food and energy will go up more than most have thought possible. Inflation will be reported permanently without food and energy -- it won't be quoted both ways any more. If housing goes down fast enough they will roll housing into the inflation numbers with the rents to make things look good. Look for a large scale re-calcing of pensions about 3-4 years out.
Listen to OldTrader because you're really DUMB money. DUMB money talks the way you're talking when all of a sudden some schmuck luckily rides a bubble wave like that currently in RE. Just wait until rental vacancies hit you in the ass (I've seen them real BAD) and it takes months to rent anything, your property is totally *screwed* by some loser tenant, or you get your butt hauled into court on some lawsuit or discrimination charge while your *great* investment loses 30% (which more than wipes out your equity) and RE "FOR SALE" signs on every block, THEN you'll UNDERSTAND and won't be talkin' out of your ass as you are now. OH and 1 more thing...Did I mention RE has NO, NONE, NADA liquidity when it goes into the dump? So when you realize you're screwed and want OUT, guess what? So does everybody else and there ain't no DUMB buyers around to save your ass 'cause they're all filing bankruptcies due to losing their jobs and overextending themselves on credit and the banks are pulling in their lines of credit, not writing any more loans and tightening their "standards". It is *very* different from stocks, especially selling in a bad market.
The housing market in Hong Kong is another example. The property price there has been going up since 1971. In mid 1990's, everyone was talking about investing in real estate properties to get rich. When the housing market finally collapsed in 1998, it was really brutal. Many people had to file bankruptcy. A friend of mine's investment was up more than HK$6,000,000 in 1996. She used to travel to Europe frequently to buy the brandy and expensive stuff. Yet, she did not even graduate from high school. After bursting of the housing bubble, she fled to China. (The collection agencies in Hong Kong are very hostile, very different from the ones in US!!) However, the money she lost is nothing compared to a celebrity couple in Hong Kong. The husband is (or was) a single/actor. Each of them lost over HK$200,000,000 in the real estate market ---- one of the headline stories in 2002.
Well, tell me how you really feel... I do listen to Old Trader and I have learned some things from reading his posts. You're rude, but there are others here to may want to know the answers to your questions. So, I'll give them. First of all, home ownership is at an all time high on a percentage basis. That means that renting is at an all time low. We have already hit the low. Its really bad in commercial properties especially right now because everyone is building/has built, instead of renting. It *is* hard to rent my properties out right now, but I'm doing it. FWIW, I've noticed its getting easier since rates have come off the bottom. How do I do it? Some of it has to do with the town I live in, which has two universities and multiple state offices anchoring the economy. Some of it has to do with the fact that I work hard to keep them rented by maximizing curb appeal, focusing on cleanliness, and advertising in multiple forums. If there is ONE person looking for a place to rent, I want to maximize my chances of getting that person in my place. And quite a bit of my success is because I am picky about the locations that I purchase. 95% of my competition has locations that have either a longer commute, or a crappy school zone/area. Secondly, you paint a scenario where people aren't buying or renting. Pick one or the other, because they don't happen at the same time (unless the coal mine in coaltown closes, but lets not invent situations) I don't care if people aren't buying because I ain't selling. I do care if people aren't renting, but like I said, if anyone is renting, and the renters are making an informed decision, they will pick my properties every time. Thirdly, liquidity of an investment isn't such a good thing. If you sell everytime you run into trouble, you'll never make money in the long term. Real estate is a *long term* investment that moves in cycles, and the cycles in many of areas in the country away from the coasts (such as mine) are not such roller coaster rides and are more steady. I know enough about investing to know that I don't want to sell at the bottom. Fourthly, I lock into mortgages, so I am concerned about rents for my revenues. Show me where, and when, rents went down, where property values didn't go up. Really. I'll bet you can't. Like now, rents are lower than normal, but only because people are buying properties, so values are up. Only in bubbles like we're in, will you see rents move down. If you're a landlord and your rents are dropping, you're in a bubble, and you have the option to sell for a profit. Lastly, I don't discriminate for any color other than green. If people want to rent from me, they have to have a good job and pay their bills and that is all. FWIW, the first tenants I ever had were minorities and they were fantastic. My wife and I have observed first hand that upwardly mobile minorities were our best tenants. I had a young white couple living next to a minority couple who always had a disparaging remark about the minority couples. The irony is that the young white couple suddenly moved out on me with no notice, but the minorities are still there, paying sometimes a week earlier than they have to. And as far as lawsuits, I have a lot of insurance for just such a thing. But I run my rental business like a business. I minimize risk where I can, and most importantly, I treat my tenants with respect. I had a guy twist his ankle on my sidewalk. He was in a cast for a while, and lost his job because he was required to stand. He never considered taking me to court because he thought of me as a nice guy. Risktaker, you should stay out of rentals. You'll be selling at the bottom, and you'll get sued because you're rude and you've got a bad attitude. Stick to stocks. Renting properties take people skills, and you're lacking in that department.
I'm not good at reading graphs. I'm trying to figure out how much has the guy that is still living in his house which he purchased in 1990 at the peak of the market lost?
No, I'm not lacking in any dept., thank you. Your comment of "I'm in it for the long term" brought out many memories of cycles gone by. In stocks, the "smart money" was also "long term" at the height of the bubble. FYI, I've been in/owned/managed RE since '82 so I've been through a few good periods. Yes, it's always rosy at the top.
Always sounds funny when people who think they don't discriminate take the time to describe how they don't.