Shorting bonds was mentioned previously. Suppose I only have an equities and options account at Interactive Brokers. Is there a way to hedge a house in this case (i.e., shorting construction stocks or something similar?). What other types of instruments might you use? Thanks, Carl
From this weeks Plugged In column in Barron's "Not a day goes by without some Northern California company announcing another round of layoffs....Siebal Systems last week said it would slash its workforce to 6,000 from 7,100. Strangely enought the housing market in the San Fransisco Bay Area continues to soar. Recently a rather ordinary three bedroom home in an unglamorous San Fransisco neighborhood was sold for over $1,000,000 after receiving a half dozen bids above the ask price. Of course this type of ridiculousness has been going on for years now, but such irrational exuberance against a backdrop of a Silicon Valley meltdown is somewhat surreal-especially when you consider what is going on out there." Without a job to pay the mortgage how can these prices continue to climb? Where is the money coming from? It just doesn't make any sense.
It's a bubble phenomena. Credit is still easy so people still get it. When the delinquencies rise, and lenders start taking the hits, and the foreclosures start hitting the auction block, well, let's hope we get a bounce to short before then.
I noticed the Dow Jones home construction index got slaughtered the last two weeks and is now actually down on the year. Do you think this was just part of the overall decline or is there more to it? I dont recall reading any bad news on home purchases as mortgage applications are still near record highs.
I think real estate is the next bubble to burst. Just my humble opinion. Stock prices always lead economic data. It is amazing to hear about the bidding wars still going on, even after the net worth of Silicon Valley is 3/10 what it was two years a go....but a bubble is a bubble.
After the tech collapse of the last two years and the resulting job losses in northern cal. how are these prices able to sustain such a sharp advance? Where are the people getting the money if they dont have jobs or stock options that are worth anything?
"Without a job to pay the mortgage how can these prices continue to climb? Where is the money coming from?" Liquidated equities, low interest rates, appreciation on the former house(pyramid), and easy credit for those that still have a job? One scary thing is that most of the easy credit is based on real estate equity. Equity means credit, credit means equity, but maybe no foundation. There has to be a solid foundation. Build a house 100 feet in the air and then "release" it to find its own level and you will end up with rubble.
can you say fannie mae??? when people lose their jobs and default on their mortgages then fannie mae will have trouble making interest payments on all of the derivatives their debt is packaged as. who owns these securities??? let's see...insurance companies, pension funds, mutual funds....i.e. it all trickles down to Joe Public. just like the tech bubble, joe public will be the guy buying the top in the real estate market, of which it looks like we are currently seeing. eventually the pyramid must crumble and all the neo-rich that refinanced to capture that equity will be so upside down that many will declare bankruptcy. btw, Fannie Mae and Freddie Mac are not required to register their shares or debt securities with the SEC.
This index has lost almost 25% of its value over the past two weeks. This with even lower interest rates and near record mortgage applications. Does somebody know something?