Housing Bubble Bursting?

[DTB]

Pamela,

Some have been beating a steady bubble drum for MANY years on the forum. How is that not trying to convince people that they are correct.

My recent posts on this thread started with the question; Any bubblologists selling at the top if they are certain of the bubble?

Only one appraiser indicated he did.

While I certainly understand the emotional appeal of one's home, how does a valuation professional ride the bubble down, if they believe that is what is happening?

I am really curious how one does that, while presenting themself as valuation experts.

 

[Dee Dee]

Glut of Unsold Homes - Rocky Mountain News

http://www.rockymountainnews.com/drmn/real_estate/article/0,1299,DRMN_414_4602670,00.html

Rising mortgage rates, aggressive refinancing in which owners pulled out all or most of their equity, and homes bought with no down payments are driving foreclosures, said Ed Jalowsky, owner of Classic Advantage Realty.
"It's almost been a perfect storm," Jalowsky said.

He said many buyers of homes priced under $300,000 who locked in adjustable rate mortgages within the past few years are finding their monthly payments rising by $100 or $200.

"When they go to sell the home, they're finding that their home is worth less than their mortgage," he said.

Kelly Posiviata, a broker with K P Properties, Metro Brokers of Arvada, agreed that the glut of homes is being exacerbated by foreclosures hitting the market.

"A lot more (foreclosed) homes came on the market at the end of February and the first part of March, and I think that this nonstop flood of foreclosures is just pushing up the unsold inventory," Posiviata said.
She said home buyers who took advantage of huge incentives by home builders thought they were getting great deals. But if they've owned their homes for only a couple of years, they're finding that the market value is less than the sales price.

 

[Randolph Kinney]

I believe the term "bubble" is misused to describe a period of time where sellers, if they have to sell, are going to get less than favorable prices comparatively to a prior time and buyers, if they choose to buy, are going to get more favorable pricing relative to that same comparison.

Profit or loss is a matter of timing your selling. If you don't sell, you have not captured a profit nor have you suffered a loss.

 

[George Hatch]

Mike, there you go again. You're assuming we all be worse off than we are now at the bottom of the cycle. That assumption is unfounded. It uses the one unit of comparison (already faulty), and it presupposes that our our own entry points are between this high and the next low. You don't seem to have much of a grasp on the meaning of a PITI payment that is a lower than the market rent for the same property and the fact that there are some people in that position. Think about this concept of a fixed housing cost vs. rising rents - isn't it one of the pillars the RE industry uses to motivate people into buying RE whether they can swing it or not? How can a valuation professional who gives advice to others possibly be so ignorant of the fact that when the lock is on the use of fear or uncertainty as motivation no longer works?

Another thing you're assuming is that a valuation professional has to be investment oriented in order to be any good at what they do. I'm not investment oriented and yet there isn't a shadow of a doubt in my mind that I can out-appraise you or anyone you're personally associated with. So that's another assumption of your's that is obviously unfounded.

Mike, your own tag line of "substance over presentation" is good advice - I highly recommend you take it. Either that or disavow it because you can't have it both ways. "It hasn't happened yet" isn't what I'd call substance (especially when it has happened), and yet that's the only thing you've ever put out. Tell me, do you have any original analysis of your own to support your position or is it all a Xerox of the stuff they handed out at your last investment club meeting?

Oh, I forgot, it's a secret. You don't want to share your macro analysis on an open forum because someone might be able to beat you to the punch on one of your deals. Like anyone here cares about what happens in Chicago. How convenient for you. Hey, I have a substitute for gasoline that can be made out of water, but you'll just have to take my word for it that I have it because I don't want the oil company to get it. But I'll trade you my secret gas-substitute for your secret analysis of the fundamentals - that should be a pretty even trade.

 

[DTB]

George,

If you are referring to form filling lender work, I would gladly grant you a spot at the top of the heap. Go for it!

The difference is a lot of what I'm appraising is my OWN money in play, perhaps you don't have a good grasp on that concept.

I don't belong to an investment club or follow any certain format. I do partner up on occasion.

I really don't have a "secret formula" other than being able to pull the trigger more often than not. I guess Chicago real estate isn't as relevant as Carlsbad. People scoffed at previous posts that said the money is made on Mr & Mrs. seller's sofa. Now Doug in NC is trying to make a living doing that amongst other things.

Low PITI comes 2 ways, low value property which would equate to low rent substitute or low LTV which equates to a ton of equity which according to you, you are willing to watch dwindle as the bubble comes to a town near you. You've been espousing how rents haven't kept up with prices, haven't you?

Take a look back and see how "fixed" your home ownership costs have been. Taxes gone up, repairs costing money, insurance gone up? The offset was appreciation right? Now you don't have it, according to you. It is not about investing, it is about personal economics.

 

[moh malekpour]

Just for edification purposes, an appraiser who uses their knowledge and ACTS to make large sums of money is inherently consumed with money, greedy, doesn't appreciate the finer points of life, sacrifices all in the pursuit of money. Do I have it about right?

One can not have it all, or can they?

When an appraiser uses their knowledge to point out the foibles of others who pursue a financially successful path, they are elevated with Zen like qualities to a pious status among their peers.

When one reads the threads of how investors are evil, can't possibly sustain their gains, all AMCs suck, LOs are idiots, HOs lie through their teeth, blah, blah,blah....

It becomes clear how that disposition is like a ray of sunshine and must be spread. Anyone from outside the business would have quite a different view me thinks.

Mike,
You can consider yourself a lucky speculator but please don’t call yourself a knowledgeable person in real estate market or economy. You just have gambled and won just like many other speculators who have absolutely no knowledge in real estate market or economy and made tons of money in recent real estate fiasco. Are gamblers knowledgeable? No. Do they get lucky sometimes? Yes. Are they ultimately winners? No, They are all losers at the end.
The idea that real estate prices will go up for ever simply does not wash. Here is something that does. Long-term prices of houses simply cannot rise above people's means to pay for them. That is a simple economic fact. Here is another simple economic fact: Family incomes are falling. The negative savings rate and rising foreclosures are more proof of stress in the system. Real wages have fallen for 4 consecutive years and that includes some pretty fat bonuses of the Wall Street fat cats at the top end.
The fact is that home prices are several standard deviations above norm in terms of affordability in many locations.
At 6% appreciation a year home prices would double again in 12 years. That nifty 3 bedroom shack in California now priced at $800,000 would supposedly go for $1.6 million in 12 short years. That $750,000 condo in Florida supposedly would be going for $1.5 million 12 years from now. Sorry, I do not think so. Who could afford to buy them? Buyers are already stretched. If you can think about this and have a convincing answer, you can call yourself knowledgeable , otherwise call yourself speculator or gambler.

 

[DTB]

I MUST be lucky to be successfully doing it for 30+ years of my 46 on earth. LOL.

For a compelling argument all I have is about 50 years fo Chicago history telling me it works. Now if you have a compelling argument to the contrary, let's have it. Hint: it's impossible to continue doesn't count.

Do your rule of 72s with this puppy. Bought in 1956 for 14K sold in 2006 for 468K.

Remember to show your work.

Extra credit 88K in 1994 todays value 425K. You pick the decade, it don't matter to me.

 

[George Hatch]

Earth to Mike, Earth to Mike. I'm an AG who dabbles a little with residential (review) primarily so I can keep a hand in it for the benefit of my students. You're not even qualified to read the reports on some of the deals I appraise. You and I are on completely different levels in terms of technical competency. Just as we are on different levels in terms of marketing properties - you have experience doing it and I don't.

Tax increases in CA are limited (Prop 13), but the rate of increase for the other expenses is always there and I never suggested otherwise. Yet I'm still cash ahead on a monthly basis now over what it would be if I had to rent. None of that is by accident or luck. What part of that don't you understand? I'm not some dumb happy wanna-be homeowner that you can surprise with NARs famous rent vs. buy speel. Just save that for your clients.

If I sell now, I have some taxes due on the proceeds in addition to my annual income. Those proceeds are not net unless I want to transfer them to another property with a higher price and a higher property tax burden. How hard is that for you to grasp? Housing is an expense and inasmuch as I don't know how long I'll live my time now is worth more to me than my money. I'd rather have the lower expenses so I can have the freedom to do more (and say "no" more) with less work than to try and outrun the expenses it takes to live the wild life.

That's why Michael Jackson has money problems and I don't.

Sure, I'm making a compromise but all choices are compromises. "Having it all" is an illusion, and I'm old enough to know better than indulging in it. If it's important to you then by all means knock yourself out. I encourage it. Our economy needs eager consumers like you.

 

[DTB]

George,

I must have struck a raw nerve, I apologize for it getting personal.
You have me all wrong. The economy hates guys like me, that's why I'm successful.

I buy a new car, maybe every 5-7 years and pay cash. In fact I have no personal debt at all ZERO. I do have mortgages on some properties, but not my residence.

I'm not telling anyone what they SHOULD do, just presenting what they CAN do. I've been very lucky to be exposed to these things as a teen. Many people have not. I want to share the possibilities, I make nothing from it. There are so many deals in my area, that I could NEVER keep them all.

My whole premise is this, I am BULLISH on real estate. Always have been, always will. Those who are familiar with 1 or 2 techniques, (buy and rent, flip) will have a hard time being bullish at all times. They must expand their arsenal and knowledge. Since I am bullish, I remain active in the market.

The point of challenging bubblologists is this: If you (plural) are so BEARISH about YOUR market, including using declining market etc., why are more not at least willing to agree with the economics of renting being more FINANCIALLY advantageous than owning in a declining market?

If one chooses to remain owning for any of a hundred reasons is fine, but it does not diminish the economic argument of renting. If one can not agree, I would certainly not want their opinion regarding my lending decisions.

 

[Randolph Kinney]

Mike, I don't pretend to know as much about real estate as you or George. However, I do know something about investing. For the most part, all investing in whatever type of markets have cycles of ups and downs. There are traders who specialize in trends and either buy long or sell short, engage in arbitrage using puts and calls, proxies, etc. You seem to favor being a trader. You look at renting versus owning as means to trade on a market trend.

George was explaining how he does not view his home as a trading vehicle. There are costs associated with trading. Taxes are part of that cost, cost to execute, and the risk. You also have a hassle factor of moving and adjusting your life to accommodate your investment philosophy as you would practice it. The potential gain is not worth the hassle or cost or risk.

If you want to be driven by maximizing your profit, you should be selling your real estate holdings in one state and moving to another state that has a better tax policy, cost of living, and real estate trend. But, we choose to live where we live because we like it and it meets with our criteria for what we choose to or can afford. Personally, I do not choose to live where you are no matter how great the opportunity is for real estate. It is just a matter of personal choice. It is okay to live where you choose to live and how you choose to live, rent or own.

Just another thought; when you have enough wealth, you can practice being independent. Some people never have enough. They stab themselves all over with pain in the pursuit of more wealth.