Housing Bubble Bursting?

[Terrel L. Shields]

"The appraisal scandal will explode soon in the mainstream media"

hmmm.

 

[Steve Owen]

This is nice bubble read from the contrarian investors who predicted the collapse of the Soviet Union, the massive migration within the US and the rise of terrorism in the West. Mogg & Davidson missed with their 90’s crash prediction, but for the long haul, they’ve been pretty accurate. For those who know the world will end locally, there is always an option, move.

http://www.isecureonline.com/Reports/DRI/WDRIG100/

None of those things were terribly hard to predict. They're right about this, though:

Fannie Mae and Freddie Mac are the giant mortgage lenders behind $4 trillion of housing loans. These institutions are guilty of manipulations that make the folks at Enron look like a bunch of Boy Scouts. They've cooked their books, concealed huge losses, paid off politicians, and lied to investors every which way from Sunday.

 

[JSmith43]

Oh BS. So CA slides into the ocean and FL sinks below sea level and Nevada implodes? Iowans will still grow corn and most Americans will need a place to live.

I see price adjustments and a relatively orderly market retreat or flattening, for the most part. Enron stock has far less utility than a home that people maintain.

You might see extended families and unrelated families, room mates, etc under one roof more than in the recent past

For most people, it is an unbearable lifestyle change to cut back on fancy dinners down town. This blood on the streets talk is relative.

I'm thinking about quitting my tennis club, myself. Maybe I should take less vacations?

 

[Steve Owen]

Oh BS. So CA slides into the ocean and FL sinks below sea level and Nevada implodes? Iowans will still grow corn and most Americans will need a place to live.

I was kind of thinking the same thing when I got to this part, Roger:

In fact, your house is probably losing value and you don't even know it. The truth is being hidden from you. In a few months, it will be official and everyone will have to face it.

And, the reason I was thinking that, is becuase I still need a place to live.

And,

Everybody, including me, looks at a home as an investment. There's nothing wrong with that. Home values have gone up for decades, and most of us have made good money.

Well, not quite everybody. When I was selling insurance, a wise mentor told me "a home is not an investment, it is an expense... you need a place to live, and assuming the expense of buying and maintaining a home is one of the best ways to meet that need, because in owning, you are building equity and recovering part of your expense. A home is not an investment, it is a store of wealth within an expense. If you want to invest in real estate, don't try to live in your investment."

The guy is right about what he says concerning ARM's, interest only, and people who have no self-control. But, what percentage of the market are they? In my neighborhood, most people own their homes, as opposed to renting them from the bank.

 

[Randolph Kinney]

You all know the funny thing about the housing market today: Just like the great depression where people lost their homes, farms, businesses, etc., the people may not have been in those structures any longer however, the structures remained after they left. Just like times past with the national economy in distress, so too the houses of today will be left behind. Not to worry, the government will step in as they always do. There will be a change of ownership and losses will be charged off. Investors holding the wrong mortgage paper will be left holding the bag.

Foreign investors who still have confidence in our government and its policies will buy up available real estate or take over the real estate in default as the lien holder.

If every thing goes to hell, maybe France can buy back the Louisiana land purchase of 1803. Or they can have it a piece at a time as they have the winning bid at the real estate liquidation auction.

Did anyone catch what the futures market is predicting for the value of real estate?

The Chicago Mercantile Exchange and a company run by Robert J. Shiller, a Yale University economist, operate a futures market for home prices in 10 big American cities. While trading is light, investors are betting that home prices in all 10 cities will be lower in May 2007 than a year earlier; the expected declines range from 3 percent in Denver to 7 percent in San Francisco.

 

[JSmith43]

expected declines range from 3 percent in Denver to 7 percent in San Francisco.

That is less than the normal spring increases in lots of places for a few years in a row BFD

 

[Randolph Kinney]

That is less than the normal spring increases in lots of places for a few years in a row BFD

Roger, may I guess that you don't understand the nature of a future's contract? Or what they represent? Let me show you the latest chart put out by Reuters News.

The underlying index is based on recorded values in home sales transactions. Because of the lag between negotiation and closing, the May 2007 contracts probably reflect expectations of where pricing will be in late 2006, when contracts for sale will probably be signed for deals whose completion is likely to be reflected in the May 2007 index.

Who are the players in the housing futures market?

Would you believe the home builders? Here are the some of the businesses that are interested in housing and risk mitigation:

1) property and real estate developers

2) banks

3) mortgage lenders

4) foreign investors

Here are businesses seeking exposure to an uncorrelated asset class

1) hedge funds

2) commodity trading advisors

3) pension funds

4) foreign investors

So Roger, why do the players believe that all 10 of the major cities in the indexes are going down? They must have strong beliefs because they are putting their money where their mouth is. Maybe the only sure bet here is the direction is down and the only argument is by how much, how soon? :icon_idea:

 

[Bobby Bucks]

When I was selling insurance, a wise mentor told me "a home is not an investment, it is an expense...

Steve I’ve heard variations of that advice from different sources over the years and I suppose it may apply to someone not in this business. The guy who told you that was in the insurance business, correct? He probably relies on URARs for underwriting homeowner policies. If one lives in an over improvement in a no growth neighborhood maybe it holds true; however, if your primary residence is appreciating at a rate that more than offsets any additional expenses incurred ,it could be considered an investment. Furthermore, if one exercises that part of the IRS tax code occasionally which permits a gain on your primary residence with no tax, it can be an excellent investment vehicle. Maybe the secret is not living in bubbleville.

 

[JSmith43]

Roger, may I guess that you don't understand the nature of a future's contract? Or what they represent? Let me show you the latest chart put out by Reuters News.

You could guess that I don't understand the nature of a future's contract, but it may not reflect well upon you

Maybe the only sure bet here is the direction is down and the only argument is by how much, how soon?

It may be a likely bet, even highly likely in some areas. But Nothing is a Sure Bet.

 

[Steve Owen]

The simple fact is, Bobby... you cannot live in the house if you cash in the investment. Therefore, for a SFR owner occupied, the property primarily represents an expense for housing. The fact that you get back equity, if you pay down fast enough or the house appreciates fast enough, makes it also a store of wealth; unlike renting, some part of the total you paid should be there at the end of the term. If however, you count on the increase in value to be much above inflation it starts to take on some aspects of investment. In such a case, you are counting on a much larger amount than what you paid (interest, principle, taxes, insurance, maintenance, etc.) to be there at the end of the term.

The fact that the IRS treats borrowing on the home favorably, so you can write off interest expense for your new SUV, is a large part of how we, as a nation, got into the trouble we're in. But, that does not make it an investment in the truest sense of the word. For the average homeowner it is primarily an expense and most people with good sense treat it that way.