Generally, those neg amortization loans are ARM's. Just another albotross to throw around the neck once the downtrend gets strarted.
chasinfla, that's an interesting way of looking at real estate. I was first introduced to that (P/E) concept by Alex Doulis, a Canadian author. He also flips the P/E ratio to get a "yield". I wonder how many people do that kind of calculation befoe buying? [rhetorical] btw Doulis also calculates a P/E for bonds and compares them to stocks. A novel approach (atleast for me).
I second that great article. I wonder if the over priced housing in the Bay Area could be caused by rent control. An interesting phenomenon has occurred around here. Many landlords couldn't take advantage of the boom (by charging higher rents) because of the rent controls that exist in San Francisco. As a result, when people started moving away (and places started becoming vacant), landlords took that opportunity to drastically hike up the prices (perfectly legal under the rent control rules, if no one is currently renting the apartment). So there are often scenarios where a person worked in SF during the boom and paid say $900 a month (when the market value was $1600), and then they moved out say May 2001 and the landlord is now offering the place for $2000 a month so that they won't be caught under the prohibitive rent control in the future. Now we have situations where people are making 50K a year (50% of their previous salary) and paying 18K a year in rent, because the perceived value of these rentals has gone up. Furthermore it seems like the renters are in collusion because rents jumped nearly 100% during the boom, but only retreated 20% after the boom (a little fishy). I can't help but think that this is caused by the artificial manipulation of the market caused by rent controls. My friends in Dallas, where there are no rent controls, tell me that rents have fallen drastically. Apartments that were renting for $750 are now renting for $500 (equal to the amount that apartments increased during the boom for Dallas). So maybe the perceived P/E ratio in the Bay Area is just as artificial as the rent control. Just a thought.
Matt: After looking thru all of those listings in Plano, TX and then hearing that rents are at $500, the situation down there must be very serious...How bad are things for people in Dallas right now? You said guys who were formerly making six figures are delivering pizzas...this is insane...I can only figure Dallas may foreshadow things to come in other metropolitan areas in the next 6-9 months
The last place I would expect market rates and other evidence of sanity is the Bay Area. Other than isolated cases, like you MJC.
That's a tough one. My knowledge is skewed because all my friends worked in telecom and software. Texas still has very viable industries in oil and large defense contracts. Additionally, it seems like every major company has started to open an administrative arm in Texas, because it cost less to employee people down there than most other places (due to cheep real estate and no state taxes). When I drive around in Texas, I don't feel like the situation is as desperate as it is here in SF. I have one friend in Texas that works in construction, and he just bought a house and had a baby in the last year (actually his wife had the baby). He hasn't noticed any difference in his business (which kills me). How could construction continue strong as ever? BTW: the people that are delivering pizzas were making about 60K - 80K a year (probably equivalent to 100K in Other cities).
So, so kind. I'm actually not very sane today (I caught the WCOM news holding two biotechs long, ouch). Oh well, it's only money.
hey matt, well im no expert and i dont know if it was sarcasm about how can construction be as strong as ever, but i get the feeling that this might be one of those last burst in buildout to accomodate the percieved demand for housing. I think thats why his business is still going strong, but for how long, you know it might be like a blow off rally, they'll go out with a bang. But like i said, im no expert but this could be part of the reason. BTW, awesome thread, i was thinking about this, and buying a house, but now im not so sure. I live in florida (orlando) and heck you can get 4 bdr 2bath 2k sqft for about 130+ easily, so i wonder if its already happening or not, but i know 5 years ago that house would go for 90k. Maybe i'll take some money and buy a house in europe, with euro moving to the country in the future i figure it might drive the prices up a bit, might not be a bad purchase. Who knows, but lets keeps this thread going, interesting stuff.
The only real estate that I would be investing in right now would be prime locations (downtown) in major Argentinian cities. I think they will sort out the mess but it will take them a while. Consider it a contrarian move.