Market Decline

[Randy Beigh]

Bill

such as builders holding back in fear of declining prices, ridiculously liberal financing terms, false mortgage applications, inflated appraisals, media hype, decline in the value of the dollar overseas, as nauseum. We're not talking about the automobile market here.

Ok, let's talk about the automobile market.

The builders are holding back in fear of declining prices.

They have ridiculously liberal financing terms.

They have media hype.

There is a decline in the dollar overseas.

I think I just take a wild guess and say they have some folks that create false mortgage applications and/or inflate the value of their cars.

No matter what you say, you can't fool mother nature, or at least not for very long. The market will still take care of itself. Values will go and down on their own time frame.

 

[The Warrior Monk]

I just ran into a builder today that builds mid-high-end ($1,000,000-$2,000,000) homes out here in the Hamptons. He's shutting down his own company because he believes that a market correction is coming, and he doesn't want to be stuck holding inventory. His expenses are skyrocketing (e.g., insurance increase from $27K to $33K in the past year alone) and his profit declining. A few percent decrease in home prices, which could easily happen with a jump in interest rates, would put him in the hole 6 to 7 figures.

 

[Mike Simpson]

We'll eventually get to that point of critical mass. I have a friend that refers to it as the "100-monkey theory". As a trend begins, only a couple monkeys here and there are smart enough to see it. As it picks up, a few more monkeys see the examples set by the first monkeys and they follow it. Meanwhile every other monkey just keeps doing it the old way. But when the 100th monkey picks it up, that's when all the other monkeys notice what's happening and they stampede to follow.

I mean this to be quasi-facetious, and no disrespect to George:

Those "monkeys" should throw themselves a party...cause they've managed to pick the peak of the market 12 times now in the last 5 years!!!

Look...I rarley post or read here anymore, but when I do I notice the usual suspects are still complaining about the same ole things--not getting paid, stupid agents or loan officers, the looming housing bubble.

I refer to this phenomenon as the "herd theory"--now repeat after me; "there is no housing bu-u-u-u-u-ble."

You can make excuses or take action, but you can't do both.

Since I first started posting: I've learned to get paid EVERYTIME. I've nearly totally eliminated PRESSURE, and I invest & helped others invest who've made hundreds of thousands in profit--all the while the housing bubble debate rages.

I've asked the question, "do housing bubble (a.k.a. HousingCrash, housing decline, etc.) report in their appraisal reports of this impending doom? No one's answered because it's a loaded question. I suspect they ARE NOT including their dire predictions in their report under market conditions because, they'd put themselves out of business.

If Housing Bubble forecasters have been wrong long enough to raise a child to start school, and I'm making money while they're running for foxholes--do I win the debate...or do I have to wait another 5 years?

-Mike

 

[George Hatch]

I don't get into fortune telling in my appraisals; those have to be based on market evidence. My opinions on the future are not germaine to the question of the "as is" value in the here and now. Good thing, too, as my forecasts are not always right. I've admitted more than once on this forum that I never thought the prices would continue on this path past 2002, and yet the fact that it has (and that I've been wrong) is never ignored in my appraisal work.

Having seen a bubble pop before, albeit on a much smaller scale, I don't think I'm out of line to express my opinion about the possibility of it happening again on an open forum of my peers. As long as I don't let my personal opinions interfere with my professional work I should be okay, right?

Now for the big question - if the big metro areas do prove to have bubbles and those bubbles do end up popping, are all the bulls going to be willing to admit to the same degree of fallibility as the bears have had to do for the last 3 years?


As for making money, it's not how much you make; it's how much you end up with. If you lose everything because you don't modify your activity, does that mean we win the debate? Or alternatively, if you don't lose everything because you do modify your activity, do we get any credit for that?

 

[Bill Rose]

I hear ya Mike. Go away for a while and come back and what do you see? Change? No. I went away 10 years ago and came back only to find Pancho and the gang still run the town. Ya put a lot of time and effort trying to put some integrity into the business, meanwhile, the bad guys are buying another investment property and trading the '04 Lexus for and '05. And they're safe because even if they are tarred and feathered, they will get to keep what they stole. It's the American way. There is much more incentive to join Pancho than fight him.

As far as holding back for hear of a bubble, why hold an umbrella when the sun is shining?

 

[DTB]

Now for the big question - if the big metro areas do prove to have bubbles and those bubbles do end up popping, are all the bulls going to be willing to admit to the same degree of fallibility as the bears have had to do for the last 3 years?

Of the bulls wouldn't have the same degree of fallibility as the bears. If one predicts something long enough (housing bubble) and it evetually happens to one degree or another that doesn't make the prediction correct does it?

You could have that much success predicting that the next person crossing the street is going to get hit by a car. Eventually someone may get hit, so what?

Similar to a hypocondriac getting sick, see I saw the symptoms all along.

 

[George Hatch]

I'm not talking about a minor 5% or 10% price correction, I'm talking about a full-blown popped bubble situation where the recent buyers are losing all their equity and then some. Let's put an arbitrary number of at least 25% on it, and within the next 3 years.

Do you still feel that confident about the underlying fundamentals?

 

[DTB]

Absolutely, remember I'm spending my own money so I better know what I'm doing.

Let's put an arbitrary number of at least 25% on it, and within the next 3 years.

I'll go you one better. In my market I'll give you 20% and a 10 year window!

 

[Non Sequitur]

George, hasn't the S. Cali market been gaining 20-25% yearly for how long? So a correction of 25% is a popped bubble? Not in my opinion.

 

[Elliott]

Today I was talking to my brother who lives in Palm Springs.
He bought a house in a new Del Webb development....his
model was going for $250K, it got up to $500K late in 2004.
The speculators were starting to put signs up, not finishing
the yards and undercutting the developer. So the developer
dropped prices $130K to take the speculators out of the
market and is now starting to build back prices buy adding
amenity features.

So you had a 100% run up in prices, followed by a 25%
dip in the span of a year and a half.

elliott