When The Party Is Over

[moh malekpour]

but I don't see a catstrophic drop in values like you seem to think is coming.

MH,

This is what I said in my post:

I am not talking about the real estate Armageddon, real estate bubble or real estate speculation

I didn’t predict a catastrophe but at least a correction of 20% pull back. Do you agree with that? The market that has gone up 50%, 75%, or 100% in some area, a 20% correction is a pittance. But do you know with a 20% correction, what would happen to those ,and there are many of them, who bought homes with interest only loans and 100% financing? It wipes them all out and it would have the domino effect on the market. Don’t underestimate the effect of the psychology in the market trends like it has on the upwards now, it would have the same effect on the downwards later.

 

[Karl]

Here's a thought WHY is there ANY foreclousers in this "Out of control" Market Y wouldn't U just call any of the ads in the paper & say "HELP". Call the bank & talk to them bet they have "Investors" that would gladly help those in need. Y wouldn't the bank say while times are tuff we'll give U intrest only, I stick by the idea as long as U - I am solvent we don't see a CRASH or a falling Sky the only ones that do or will see it, are those that SHOULD NOT have purchased Real Estate in the first place, BUT due to creative Lenders & RE Agents there is a LARGE increase of buyers, home owner type & Invetors & speculators that will result in a LARGER Risk of not making payments than there is POOL of SOLID Investors that can absorb the REO's.


Back to the Stock Market the greedy drove up the Stock Prices took the Goods left those Investors that THOUHT they' knew more than those that had been doing stock for a LONG Time waiting for better days holding paper. Many of the OLDER Investors in this area have gotten into thier Golf Carts & waiting out the new breed. (Every thing I've learned in life of value I learned from experienced older people) As In stock check with those that have made a "Comfortable" living in Real Estate that have several years of experience both in "Good" & "Bad" years. Here in this portion of AZ the experienced ones are playing Golf.

 

[Austin]

Back in the late 1990's on another forum I got into a heated debate with a person that apparently worked for the NY Stock Exchange. I told him something like a price earnings ratio of around 30 or above was an indicated of a false market or bubble market because to justify that kind of P/E would require a compound rate of growth in both profits and capital growth of around 8% annually into the distant future and that in my view that was not possible over the long haul nor a reasonable expectation.

He said I was an ignorant hick that didn't understand the investment system. He said if I wanted to buy stocks with P/E ratios of around 10 there were plenty available but that P/E's at 30 or above were for the farsighted and enlighten people like him and his cronies and I could stick my head where the Sun don't shine. Who is the idiot now basking in the Sun?

I am waiting for a listing contract on a farm to come in the mail. This seller has a law degree and is in the global real estate marketing business. He was retired in the late 1990's, lost his butt in the stock market, and had to go back to work and sell some land. Next weekend I am going to Atlanta to visit my brother-in-law. His best friend lost his entire retirement in company stock, the same stock that my lawyer buddy was heavy into. I can't recall the name of the company but it is a telecommunications company that was a hot stock back in the 1990's. This dude worked for the company in Atlanta.
You see folks, I have played this game a couple of times before and won so excuse my negative view.

 

[george foster]

Originally posted by Kevin Shannon@Apr 8 2005, 11:11 AM


So anybody who's faster, more efficient and more capable than you is a fraud and incompentant sleazebag?

Maybe they're just faster, more efficient and more capable.

So what efficiencies do you speak of, Kevin?

The series of irrelevant narrative "one size fits all" canned comment notorious amounst the 24 hr. turnaround crowd? (A dead giveaway to a sharp lawyer lookin' to hang somebody)

Helps not to have a clue about what functional obsolescence is or any other knowledge of appraisal terminology...big tiime saver there. Just go with the irrelevant canned comments -see above.

Maybe delete the time adjustment. Underwriters always want back-up and documentation for that category. So to save time-let's just leave it out this time.

How about using the assessor's field card for dimensions, because the damn bushes and shrubbery get in the way, or there's too may outbuildings, so the extra half hour/45 minutes for measurements doesn't fit into 15/20 minute inspection schedules.

Downloading MLS pictures, so as not to compy with your Certification and Limiting Conditions statement that you've inspected every comparable? That's a biggy for the sleazebags in ME. Pretty time consuming to drive 150 miles for your 3 comp.

How about fudging on verification of data. Lots of town offices keep weird hours and access may not be convenient to a 6 bag a day habit. But what the hey-skip it...nobody will find out.

Maybe the efficiencies include making up comparables or using re-fi subjects for sales? Another biggy with the boiler-room crowd around here. Hanging offense though-only the most brain-damaged attempt it.

All sorts of ways to be more efficient...Perhaps you can enlighten us with your methods????????????

 

[Paul Ness MAI]

IMHO, as a national average, I don't believe there will be a 20% correction if you mean properties will actually decline in value by 20%. There will no doubt be pockets that will experience depreciation, but annual national appreciation may fall back gradually to around 3-4% in two or three years, from the double-digit national average appreciation of today. Again, I have to say that residential real estate markets don't "crash" over a very short period of time as can the stock market. The real estate markets and the stock markets are different in so many ways. Illiquidity is one primary difference.

 

[Terrel L. Shields]

Some markets are already flat. zero growth is a crash for those expecting to opt into the cash by buying whatever and expecting it to go up. That is the rationale of the zero principal, interest only loan. Go 5 years with zero interest then sell at a profit....

A 20% decrease in solds will translate into a flat or negative market, in fact, any time property prices are inflating at below the rate of inflation in wages, then it is a downturn...a slow downturn will create a soft landing.

Some expect RE market to do a Japan Inc.....stagflation...100 yr. multi-generational loans. Jim Rogers said, property has already had a super bull run. He sold all his stock and is into commodities, gold, oil, lead, copper, cotton, etc. He believes there is an 18 yr± cycle between commodities and stocks. Stocks tanked in 2000, commodities rule. The gas shortage is real....www.hubbertpeak.com..for starters. you are going to hear a lot about Dr. M. King Hubbert in the next few years.

And of all I have read, Jim Rogers seems to be the most sensible and logical...don't expect a cataclysmic crash, just a flat market, high foreclosure, lots and lots of scandels...Jim is very negative on Fannie and Freddie...the McMansions as he calls it.

 

[george foster]

Terrel

Good insight from Jim Rogers. I've read his books and enjoy his perspectives.
A savy, professional. down-to-earth individual.

 

[moh malekpour]

annual national appreciation may fall back gradually to around 3-4% in two or three years

Paul,
Suppose that the increase of real estate market is due to high demand and low supply. That is what some real estate agents, mortgage lenders and speculators are preaching right now in order to induce the public to buy more those over priced homes. Also, suppose that the demand and supply won’t change and all people have high paying jobs but one factor in the economy, the interest rate that is inevitable, would change. If the interest rate changed form 5.5% on 30 year fix today to 7.5% within next year or two, the person who is qualified to buy the X home for $400,000 today will not be qualified that home with 7.5% rate then. At that time, there would be two possibilities for the seller: 1- if the seller has to sell that home because the payments are late or for any other reason, then the price has to come down that the person who is interested to buy that home be able to buy it. 2- the seller has to take that home out of the market and not to sell it for lower price or just leave it on the market with no buyer for many years to come but there would be many homeowners who have to sell their homes or walk out.
1% increase in interest rate=8% decrease in house prices when everything else is equal.

 

[moh malekpour]

This is BusinessWeek Cover Story
http://bwnt.businessweek.com/housing_boom/index.asp#def

 

[Terrel L. Shields]

Moh - simplistically, if we assume the Realtors are correct and in the short term they are, demand is sky high. Why? Because, in part, people are buying second homes as investments not as vacation homes. They justify it because the dot.coms tanked and they are afraid of the stock market. And should be.

In the early 80's the Condo market in Colorado was red hot. Every oily in Denver bought into condos....and the market tanked along with the oil business. In my area, if you want to be a rent king, a 3 bedroom home will rent for $700 and cost $100,000. GRMs below 140 are rare. In 1992 when I first started, those same homes were renting for $450 and costing $50,000 or less. GRMs were 110. Older houses were 50-80. Savvy renters were saying they set rents at 100th the cost of the house. Today, they cannot get that except in the very oldest poorest condition properties or by packing them full of illegal aliens [we had a lady cited recently because there was less than 70 SF per occupant in one of her rentals. 20 people living in a 1,400 SF home!!]

With oil prices on the rise, the best places to buy property might be in the remote areas of the heartland that are near oil production and exploration like West Texas, the Rockies, Oklahoma, etc. Drilling will eventually pick up. If the economy stagnates the labor shortage among the oil patch will cure itself and these people will need homes.

So you have a second home. If you have good enough job and can pay for them go for it. But if you refi and interest suddenly drives YOUR mortgages too high, guess what? So it does for everyone else who is in the same boat. Suddenly, a ton of real estate comes on the market and people are going to have to borrow money big time interest rates. My original mortgage payment was $1140/mo. My mortgage with insurance today is $870/mo on the same amount. If I refi'd at 10%, what kind of shape would I be in? back to the 1000+ a month. $130+$100 for fuel cost rise...pretty soon a lot of people are hurting