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The Housing Bubble - To Die or Not to Die


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#31 Fartpolio Manager

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Posted 19 December 2002 - 08:01 PM


Even if home prices are rising at what many consider unrealistic rates, Lisa Grant and her husband, George Vail, were not deterred from selling their house in the Silver Lake area of Los Angeles and investing their sizable profit in a $340,000 duplex in nearby Echo Park.

Real estate "is your best bet as an investment," said Grant, 29, an actress. "We feel pretty confident."


Southland Home Prices Soar, Defying Sluggish Economy

"Typical are people such as Nestor Lopez, 34, who recently paid $260,000 for a three-bedroom house in Reseda. Lopez, an accountant with the Braille Institute in Los Angeles, said he wanted a home with a yard for his 2-year-old son. Lopez sold some stock -- at a loss -- to get a down payment.

"I don't see housing falling like stocks did," he said"

Oh this sounds soooo Nasdaq 5000.... I love it.

#32 EasyAl

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Posted 19 December 2002 - 08:11 PM

Fart:

The herds mentality is so strong. While many people do some comparison shopping and wait for sales to buy small appliances and clothing, a few consider carefully before they make major purchase such as stock and house. Many people buy them just because the price goes up and their friends and neighbor are doing it. I guess human nature never changes.

#33 Hypertiger

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Posted 19 December 2002 - 09:47 PM

When it implodes, it will be sickening beyond belief...

I bought at 100,000 sold 5 years later for 135,900, But in better locations I've seen people that have doubled their money in 2.5 years.

Now I am in goverment low income housing. When it "happens" I will be one step ahead of the mob...

I can now live with my wife and 2 children for $650 U.S. (That includes everything total cost of existance on planet earth.) a month with a big screen T.V. to watch the other unfortunate victims of the fractional ponzi scheme nightly, sob stories...

How can I live so cheap? Years of conditioning. years...

The mob don't have years, they will be finished overnight.

They are putting up subdivisions so fast here that it is almost like a real life sim city...
"We are completely dependant on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money (at the request of the consumer) we are prosperous; if not, we starve. We are absolutely without a permanent money system.... It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon." --Robert H. Hemphill, Atlanta Federal Reserve Bank,1938...

#34 Guest_AssMaster_*

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Posted 20 December 2002 - 04:40 AM

My buddy that closed on the deal to sell a house to a lady that went bankrupt last year ( she got financing!!) told me my fixed up cottage is worth 150 g's.

Should I sell, and if I do.. could I move into a fellow stoolies tool shed or abandoned septic tank and frolic naked all day in a bathtub full of gold eagles .


That is hilarious! Oh, the mental image...ack!

I was thinking of refurbishing one of those old missile silos in Idaho or something and, later, being on "This Old Bunker". Guns, gold and Spam, Spam, Spam!

#35 Guest_yobob1_*

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Posted 20 December 2002 - 08:03 AM

Hyper I'm close to your cost of living, but not quite there. But then I have a 2 bedroom apartment overlookling a golf course and a garage. I actually wanted to rent in a complex closer to work, but I discovered they were all government subsidized facilities and I couldn't rent there at any price lest the owners lose their government subsidy. Isn't that a form of governmental discrimination? I'll sue I tell ya! :lol: They were only a hundred a month cheaper and they didn't have the view or the garage.

This week on "This Old Silo", Steve and Norm review a multi-million dollar revnovation of a late 50's silo into a weekend getaway home. Be sure to tune in next week when Steve and the gang visit Podunk Idaho where a similar project is underway. The Podunkian's plans are slightly more modest what with being constrained by a budget consisting of "whatever we can sell those two pigs for and the $10 bucks a night our teenage daughter earns working late nights at the truck stop".

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#36 alborz

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Posted 20 December 2002 - 09:52 AM

The government has a vested interest in maintaining high real estate prices. I think of it as the new-age feudalism. By extending credit to finance purchase we increase people’s ability to buy and that in turn raises the housing price. Higher housing prices forces the peasants to work harder and provides a higher tax basis.

Our government is in debt to the tune of $6 trillion and spending like there is no tomorrow. Manufacturing has already left the US and now there is labor arbitrage on a grand scale. There are hundreds of millions of educated English speaking professionals ready to be hired in India for 35% of what it costs to hire an American. $ must devalue so debt can be paid back at half price. The only problem is what the lower $ price will do to the price of oil, and that is being worked on as we speak.

If the war-for-oil is prosecuted well and $ is devalued then jobs will come back. Housing will become less affordable as interest rates rise but prices will not fall relative to $. At some point, if need be, we open the door to immigration to spur the housing market growth. There is enough misery in the world that third-worlders will jump at the opportunity of being a peasant in the US – and they will buy that over-priced house. It will not look over-priced in comparison to their home country.

If I were a betting man I’d put my money where the interests of the masses (and hence that of the US government) lies. It is ok to let housing take a hit in isolated markets but to let housing price drop across the board is suicidal. To me the signs point to stable housing prices, lower oil prices, lower $, and modestly higher gold prices.

Of course, that’s if all goes as planned.

#37 Guest_yobob1_*

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Posted 20 December 2002 - 10:14 AM

A significantly devalued dollar will implode the bond market and drive interest rates much higher while simultaneously destroying the capital held by other countries in the form of reserves, bonds and stocks. It would lead to dumping of foreign held US dollar denominated assets and converting them to something "safer", which in today's fiat world possibly means gold. A heavily devalued dollar would cause those exporting to the US (everybody else on the planet) to scream in agony and probably lead to continuous rounds of competitive currency devaluations to regain the edge. Higher interest rates would collapse the housing bubble rapidly on a broad scale, leaving few communities untouched. For now it's a slow motion train wreck just starting to veer off the tracks.

The planet as a whole has no interest in devaluing the dollar.

There is no easy, soft landing scenario. Everything that has been done to date to avoid a hard landing, has only increased the magnitude of the problems and ensured a harder crash when it finally comes. You had best have your seat belt fastened, helmet on (where's Lance when you need him?)and hopefully you have acquired a modern vehicle with a full body air bag system.

#38 megabear

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Posted 20 December 2002 - 12:20 PM

Great Thread. The bottom line is..the pendelum swings both ways. Call it a bubble or call it a pendelum, don't matter one iota. The market is not going up forever. The question is, when will it stop and how far will it reverse. We all know the FED has done everything inhumanly possible to get Tom, Dick and Jose to buy a house; my God interest rates at 40-year lows...who could resist? But, the interest rates have just about bottomed out and the unemployment rate is rising. Consumers appear to be snapping their collective purse shut. The time will come when housing will turn dramatically, if it hasn't already. In my area, I have friends that told me "not where we live, houses here sell in "minutes", and there are three people bidding the price higher than list". Honest to God, everyone has one of those stories. To make this long story short, these people were so confident that they went out and bought a fix-er-upper mansion; one that's costing a bundle to fix-er-up, and they didn't even bother to put their other house up for sale until they bought the massive joint. Now, they sit with two houses....the one they insisted would sell in minutes...or days at most, has been sitting for months with virtually no lookers; and the one they bought to fix up is sucking them dry. They are looking paler and more stressed every time I see them. Just wait, this movie will be coming to your area too.

#39 Hypertiger

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Posted 20 December 2002 - 01:23 PM

That's a $1000 Canadian to exist on Earth if I have to suck eggs for a year or two, but I have a mountian view out of the second floor and can see nothing but brown sun baked pastures, glad I'm not a farmer or a rancher...

Years ago I saw a dust storm. I wonder if the government will pay farmers to plant crops just to hold the top soil in place. Doubt it. 2003-2004 is crunch/dust bowl time here...
"We are completely dependant on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money (at the request of the consumer) we are prosperous; if not, we starve. We are absolutely without a permanent money system.... It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon." --Robert H. Hemphill, Atlanta Federal Reserve Bank,1938...

#40 EasyAl

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Posted 20 December 2002 - 10:04 PM

Here is an aricle from today's S. F. Chronicle on golden state's housing market:

California's housing sector contributes nearly $260 billion annually --
including $40 billion in new construction -- to the state's economy, according to a study sponsored by the building industry.


The annual GDP of the US is about $10 trillion. Calforinia's share of national GDP is probably $1.0-$1.2 trillion. If one takes building industry's number, one finds that the housing activity of Califorinia accounts about 22%-26% to the state's overall economic activity. If the building industry's number is correct, how can anyone say that the housing market in the golden state is not a bubble.

#41 subprime

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Posted 21 December 2002 - 04:05 PM

:D Heated dialogue...I love it! I work for a lender as my moniker indicates. Here are a couple of points I would like to make.

Yobob. The house you sold probably went up in value since you sold it. That is the case in the rest of the country. You lost out on the appreciation and the tax write off. Since you are not in the McMansionn category, what are you worried about? The lower end of the market will be the last to tank if it tanks at all. The first guys to get crunched will be the builders. What hot money is left is chasing real estate and equities as opposed to just equities. I agree this is a bubble, but it is not over yet, real estate is market specific, we are not in a depression(not yet anyway) and there continues to be downward pressure on rates.

Are lenders making stupid loans? Yes

Fannie Mae is starting to tighten up and Freddie Mac will likely follow. Fannie just raised there minimum score back to 620 from 580

FHA is experiencing @ 12 delinquency rates. All time high. This program is essentially government sponsored subprime lending. Look for them(using our tax dollars) to take it in the shorts. This program is beginning to tighten up on credit and income standards which will hurt people in the low and low middle income categories. That is bad for already depressed neighborhoods, but not the middle, middle upper and upper income brackets who don't qualify for the program.

Inflation? Rising rates? No sign of that on the horizon. While we have commodity inflation, the producers are having a hard time passing that on. A friend works at Quaker Oats and Tropicana is getting killed because the OJ market is so competitive and yet their costs of production are rising.
I don't know that the Govt is going to defend the dollar. That remains to me seen. What else could cause rates to rise? Exploding cheap exports will continue to put pressure on capacity utilization. A new bull market in equities? I don't see exports contracting or the stock market rising.

So while I agree with you that we are in a housing bubble, it has yet to burst. In the meantime, my house is going up in value, I continue to enjoy the writeoff and quickly building equity via a 15 year mortgage at @30% increase in payment over my 30 year mortgage. Call it investing in my mortgage vs the market.

I can appreciate your thoughts and reasons, but did it ever occur to you that you are at the opposite end of the extreme optimists? How about a middle ground at the likely realistic outcome of this financial bubble unwinding? There are thousands of new immigrants to Chicago every year. The ones that have been here a few years are starting to buy modest houses here. Often two families will buy a two flat together(or even a single family) and share the expense. They usually put down 10-20% and live well within their means. Those new immigrants, and those of us born and raised here as well, will be buying up those foreclosure bargains as is happening now.

So let the builders take it in the shorts. Let the McMansion crowd take it in the shorts. I just don't see the whole housing market imploding. Not here in Chicago at least.

Best,

Sub.

#42 K Wave Rider

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Posted 21 December 2002 - 04:25 PM

The RE market is in the final gasp of appreciation. In fact many "hot" areas have already cooled off substantially. As I have stated previously, I expected the summer/fall of 2002 to be the top of the market. The homebuilder stocks always lead the decline and peak 6-9 months before house prices start declining. Take a look at the monthly charts of the homebuilders. They are are clearly signaling that the top was made in summer 2002. By March of next year, home prices will begin deflating with authority. Just my take, as always.

#43 assteroid

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Posted 21 December 2002 - 04:53 PM

Subprime, You are the very voice of reason. I wonder if your middle of the road scenario will play out? You may end up poised beautifully in the middle of the road, while the rest of us fools are stuck in the ruts we've dug for ourselves.


If the present economy is viewed through a strictly numerical prism, with an eye to the swings and counter pendulum swings of the recent past, I'd be with you. However, it seems to me there are moral, almost mythical underpinnings here, that defy purely economic analysis. REal estate prices will be at the mercy of the sweep of history, in a scenario more befitting a Cecil b Demille film than dry businessman's educational film, put out by the American Economic council.

#44 subprime

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Posted 21 December 2002 - 04:53 PM

K Wave,

Were you the one messing around with shorting NVR last year? Too volatile for my taste. Personally I have shorted BZH and am looking to do so again in the next week or two. I am in general agreement that the housing cycle is or has topped, I just don't buy the idea of a general widespread implosion. If it does happen it will not be overnight and it will be market specific and vary by market as well. The doomsayers here don't realize that they are just as far out on the fringe as those still calling for a bull market in equities. When I see marketing times in Chicago go beyond 120 days, I will jump on their side. It has not happened yet. Housing as a primary residence still makes sense. I can own for what it costs to rent net/net. I have a nicer, roomier domain than an apartment, I AM getting appeciation and loan reduction(ie equity buildup) and the chicks dig it. :D

BTW, I have been short the market since Oct 00, so I do share in the general pessimism of the economy. I just see a grinding bear vs. an 87 style meltdown.

#45 Flaming Turds

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Posted 21 December 2002 - 06:25 PM

Well put assteroid.

It seems to me it all boils down to the credit market. What if no one is lending? Sure theyre lending now and it appears like they can always come up with more $ but at some point originations will dry up and write offs will sink them. At that point even people with great credit will not be able to get a loan. Thats when deflation in housing really kicks in. The bankruptcy of the state of california alone is going to cause all kinds of foreclosures, how could it not? Higher taxes, lower wages (if you even still get a wage) and poor prospects for employment do not create much support for real estate. We are going to learn the hard way that your home is not an ATM. The first wave or two may be absorbed by all those smart foreclosure shoppers but then they too will get foreclosed on in many instances, and then you wind up with a massive inventory of housing and lots of homeless people that are not allowed to live there. At certian points in economic history, it is a big mistake to base your future on past results.

Did anyone here ever watch the downside.com deathwatch? This guy had over 100 dot coms with a stock chart and description containing an exact death date based on his calculations of their balance sheets. With very few exceptions, each one died within a week or two of his date. Im sure the hopers at the time scoffed at him and you can bet he was never on Crapvision. However, if you had crafted a short strategy and hopped from one to the next you would have done very well. The point of this is that these things are not random as is the common belief. They can be quantified and calculated. The credit market takes quite a bit of study to get your brain around it but once you do it becomes clear that we are headed for a disaster. Hopers beware.





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