Multiple Mortgages ‘Juggled’ In ‘Cooling Market’
The Pioneer Press reports on the housing bubble in the Twin Cities. “Attorneys Katie and Paul Bergstrom never expected to be shoveling snow this winter at their previous home in St. Paul’s Cathedral Hill neighborhood. Last September, they moved into their dream home. But the Cathedral Hill home still hasn’t sold, even after the couple gradually lowered the price to $649,500 from $795,000.”
“‘You wake up at 3 in the morning and think, ‘I have to sell that house,’ she said.”
“A cooling housing market is forcing the Bergstroms and others to juggle two mortgages. Though no statistics are available to show just how many homeowners are in that predicament, what is known is that the overall inventory of for-sale homes in the Twin Cities area was 30 percent higher at times during 2005 than in 2004.”
“Real estate agents say the slowdown is causing headaches for home sellers in most price ranges. ‘No deal in this market today is easy,’ said Julie Papeleux, an agent in Roseville. ‘It’s a tough market. There’s a lot (for buyers) to choose from.’”
“Bonnie Cordy and her husband moved to Tennessee last year for his job. They rented an apartment until their new $325,000 house was ready in June. All the while they were making a mortgage payment in Minnesota. The Apple Valley town home they’d originally listed at $329,900 in December 2004 wasn’t selling, even after they dropped the price more than $20,000.”
“‘I felt nervous as we were finishing up the house down here,’ she said. ‘There was no way to swing it all.’ They dipped into retirement savings for the month or two they had double mortgage payments and taxes.”
“Then they switched to another agent, who slashed the price another $30,000. It finally sold at the end of August for $291,900, which was about $35,000 less than what they paid in 2003. She figures they lost another $5,000 in retirement savings. ‘It’s money we’ll never get back again,’ said Cordy.”
“For nearly 15 years, Charalyn Warman has been buying houses and town homes, fixing them up and selling them quickly without a problem, until last year. She and her husband sold their South Minneapolis house last March after they agreed to buy a condo that was under construction. Since their condo wasn’t ready, they found a duplex at 54th Street and Pillsbury Avenue and figured they’d fix it up and sell it until the condo was ready for move-in.”
“First, the closing of the duplex was delayed because of a glitch. They didn’t move in until May, so they weren’t able to fix it up in time to sell during the busy spring selling season. Then their condo was ready for move-in and they had to take over that mortgage Sept. 1.”
“Now, they’re living in one-half of the duplex, renting out the other half and they’re planning to rent out the condo. ‘I didn’t plan on having three mortgages at once,’ she said.”
“Meanwhile, the one-bedroom condo is for sale at $324,000 and the duplex is on the market for $650,000. They’ve used the profit on the house they sold as well as some borrowed money to cover the mortgages. ‘I’m sitting here hoping, hoping, hoping something will sell,’ she said.”
more proof that home prices never go down-
same as stocks
I don’t understand why these people don’t simply lower the price. They need to sell before the market prices drop even more.
The momentum of this “correction” is fairly mind-boggling. All of these people just thought that the free money machine was going to continue to spit out cash forever. Build a new house, sell ours, everything is great - living the American dream. Whoa, what? Our old house hasn’t sold yet? What do we do Mr. Realtor? Drop the price? What about all our Equity, our Profit for doing absolutely nothing other than live in this place for two years? You told us real estate prices would go up forever.
These situations reveal the true number of speculators in the market. There was a time when it would have been seen as risky to take on two mortgages. The lady who was fixing up homes is also an example of what happens to many speculators. They do well following a trend in one direction, then lose their shirts when the tide turns.
Multiple mortgages, that’s a classic. Those who remember the beginning of the 90s remember also the horror stories of people stuck with two mortgages while the prices crashed something like 50 percent around here (Finland).
Take a look at the iflation corrected house price index curve at this page:
http://www.stat.fi/til/ashi/2005/04/ashi_2005_04_2006-01-30_tie_001.html
Then imagine having that multiple mortgage situation when the bubble collapsed last time.
I feel sorry for these people, even if they are flippers. They will suffer dearly.
Just a reminder:
Real estate is inherently illiquid.
Regarding momentum, how long does everyone think it will take for enough stories like these, which are born out in lower future appraisals/comparables, before having to sell at a lower price becomes mainstream?
We’ve all given our own bit of anecdotal evidence on this blog (i.e. my old neighborhood is selling on average 20k lower than last summer (app. 8% reduction).
I’m beginning to see more references to ‘the bubble’ in the mainstream media and on the financial talks in the DC area. It has gone from ‘there is no bubble, prices never go down here’ to ’soft landing’.
Re: speculators. That is becoming more and more obvious to me. I’m glad I never knew I could take out these kind of home loans b/c I would have been very, very tempted.
For this market, it seems to me, even rents are very high. How it will all shake out here will be very interesting.
We have a lot of people here in Florida who have upped and moved here the past couple years.
Lately I am hearing more and more about people from New York, Boston, & the midwest who move here and are expecting to use the equity from their homes up north to pay a lot of the mortgage off here. Well the homes up north are not selling & they have a home here in Orlando or S Florida that they are paying on.
To top it off a lot of people move to Florida with the “promiss of great unemployment rates & job opportunities” and just up and move then look for work. Its a real sticker shock when they get settled in, buy that $300-400K home and go out looking for jobs, there is very little manufacturing and if you get a job there your looking at 9-11/hour. The average income last year for a family of 4 was around 55,000 a year.
Most of the job growth in Florida is either in housing, real estate or mortgage.
It will all end like “It’s a Mad, Mad, Mad World”.
People flying off palm trees and taking out picnic tables!
I wonder why it seems that real estate took a nose dive in 92 according to that chart. It seems that real estate took a worldwide dive in 92. I know that I lived in a foreign country where RE nosedived in 93-94, and did not recover untill 2002.
What worldiwide phenomenon happened. I remember Gulf War 1, and Perestroika.
“I don’t understand why these people don’t simply lower the price.”
I imagine a lot of these people may have very little to no equity in their homes at the present asking prices and that lowering them would mean bringing money to the closing table.
Alternatively, many people believe they have deserve to get the price they are asking because the neighbor or guy down the street sold his house for that amount last spring. They will continue to be in denial, especially if they listen to the realtor who is telling them that come spring, this market is going to turn around. I see a lot of people not selling because they think this thing will magically shift back in their favor in a couple of months, and end up having to stay put in their particular house for the foreseeable future, if they can afford it. The other number to watch is the default/foreclosure rate. The default numbers have been going up exponentially for quite a while in a number of places and only recently have been getting some press. If you can’t afford to sell, and you can’t afford to live there, just give the keys back.
Almost all trade up buyers are speculators:
“September, they moved into their dream home. ”
In the sense that they don’t need a dream home, and nobody needs your typical trade up to 3,000 sq. feet. They bought because they wanted more space and were confident they’d make more money by buying more house.
Now that prices are falling, this process will work in reverse. So not only will speculators be selling, trade-up buyers won’t be trading up, and add to that, many families will be trading down to smaller houses, and smart families will sell and rent.
However, it’s going to take a long time for the uninformed public that’s seen 70 years of rising real estate prices (even the 90’s bust was followed by new highs) to adjust to the new reality that renting is smarter than buying, and buying small is smarter than buyer large.
Bottom line: Look for a whole lot a sellin’ in the decades ahead.
Time to see who is swimming naked…
Come-uppance. It’s a beautiful thing.
No doubt these people were, at one time, bragging about their gains to those of us smart enough to see the bubble forming and pull our money off the table.
# dawnal Says:
February 7th, 2006 at 8:27 am
Just a reminder:
Real estate is inherently illiquid.
—————————————————–
Especially if expectations for future price appreciation have recently adjusted from +16% to -16%, which tends to make it a bit challenging to find buyers willing to pay the speculation premium a seller planned to charge.
rudekarl says…
“I see a lot of people not selling because they think this thing will magically shift back in their favor in a couple of months, and end up having to stay put in their particular house for the foreseeable future, if they can afford it.”
Yea, but what about their three or more investment properties?
just back from a whirlwind tour of the gulf coast. speculation is alive and well including the crescent city. in new orleans proper, there are speculators buying 10-15 houses at a time in neighborhoods that were completely submerged and are completely vacant. on the gulf coast people are “snatching” up gulf front lots for $500,000 (it doesn’t matter that the destruction goes back at least half a mile from there). signs for quick cash sales on homes are everywhere, although it looks to be lots sales (as almost all the homes have been scraped). if my intuition is correct, these clowns are catching a falling knife.
My prediction for 2007-
If any subprime lenders are still in business after the waves of lawsuits and settlements we should start seeing a whole variety of “bail-out” mortgage products offered.
Things like
50,60,70, 80 year or even longer loan products offered.
We might also see the government offer subsidesed loans (like some student loans where the government picks up the interest and you are responcible for the balence).
Are all bubbles popping at once?
TOL as noted
Gold down $14 today
Oil down $1.41 and 10% off its post Katrina peak
Could it be Bernanke is winning already?
In fact, 13 of the 19 commodities listed on Bloomberg are down today:
http://www.bloomberg.com/markets/commodities/cfutures.html
From Robert Marcin of thestreet.com
“The Commodity Bubble”
“If an energy/industrial commodity has an active futures market, it tends to be spiking. If not, it tends to be flattish. Hmmm. Aluminum spiking, steel not. Oil spiking, coal not. Is there a pattern here? Is the whole bleeping “shortage” trade just hedgies gunning commodities in the futures market? Interesting, very interesting.
Position: short oil”
I will one-up Mr. D. It’s not just the flippers or the trading-uppers who are speculators. Anyone who uses a mortgage and pays more in total cost to own vs. rent is a speculator, plain and simple. The only people who are not trying to ride a wave are those who purchase homes that are at or below the cost of renting.
“Then they switched to another agent, who slashed the price another $30,000. It finally sold at the end of August for $291,900, which was about $35,000 less than what they paid in 2003. She figures they lost another $5,000 in retirement savings. ‘It’s money we’ll never get back again,’ said Cordy.”
They got out while the getting was good. Psychologically, it is almost impossible to sell for lower than what you paid for a house. The natural “herd” inclination is to pull the house of the market and wait for the market to improve.
Most of the lemmings in Lemmingsville aren’t facing this problem yet.
Give it a year. “Gone Postal” will be replaced with “Flipped out” as maniacal speculators go on mortgage fueled rampages. Maybe that’s a stretch
but I wouldn’t want to get into an argument with my 27 year old friend with three mortgages at this point.
A cooling housing market is forcing the Bergstroms and others to juggle two mortgages. Though no statistics are available to show just how many homeowners are in that predicament
I know a couple who is in this situation. They are planning to sell in the presumed “spring bounce”.
“If any subprime lenders are still in business after the waves of lawsuits and settlements we should start seeing a whole variety of “bail-out” mortgage products offered. ”
**I don’t imagine a lot of lenders will want to throw more money at this problem. Say you’ve got a 100% financed $500,000 home that loses 20% of its value. To refinance, someone has to make a $100,000 unsecured loan. Maybe very high income people could get such a loan, but they aren’t likely to need to refinance in the first place.
peterbob Says:
I don’t understand why these people don’t simply lower the price. They need to sell before the market prices drop even more.
Human nature. Fundamentals aside, home owners, patting themselves on the back along the way, have become enamoured with their newly found price appreciation. It’s a number that dances around in thier heads as they contemplate their (wealth) along with the joy of bragging rights at cocktail parties and bar-b-q’s. To settle for less than this made up number would be unthinkable, “It’s my money afterall!”
This paradigm may have worked in the ‘feed the squirrles’ era but not any more.
It seems now that some of these sellers will be less and less likely to realize this magic number, and in the case of the couple in the article, may have to sell for less than they paid for their house. It used to be “bring on the bidding war”, now it’s likely to be “please God let me get out of this with my shirt”. In the months and years ahead it is going to come down to overcoming stubberness, greed and fantasy to see who comes out with anything and who chases the market into the abyss.
Ameriquest loan rules no cure-all
Can a one-sheet summary of loan terms save borrowers from themselves?
From the OC Register.
http://tinyurl.com/cbspr
More bubbles popping:
Not only are the commodity and housing bubbles getting hit, I forgot:
GOOG down 22% from its highs
AAPL down 21% from its highs
Dr. Bernanke off to a quick lead over bubble chasing speculators
boulderbo Says:
February 7th, 2006 at 8:50 am
just back from a whirlwind tour of the gulf coast. speculation is alive and well including the crescent city. in new orleans proper, there are speculators buying 10-15 houses at a time in neighborhoods that were completely submerged and are completely vacant.
—————————————————-
“Yea, but what about their three or more investment properties?”
Let me restate that: “Yea, but what about their 10-15 investment properties?”
We have friends who bought a new house last year and gave their realtor 30 days to sell their old house - it sold the first day on the market.
I was really happy for them, but it started a months long battle with my wife who got the housing envy bug really badly. In the mean time the local market, which was starting to slow when my friends moved, has really slowed down. Now, even our real estate agent friend (who is an optimist, but honest) has advised us to sell our house first, then look for a new one.
Besides, unless you’re rich, how do you know what you can afford if your first house isn’t sold?
Mr. D Says:
February 7th, 2006 at 8:55 am
Are all bubbles popping at once?
TOL as noted
Gold down $14 today
Oil down $1.41 and 10% off its post Katrina peak
Could it be Bernanke is winning already?
——————————————————–
The fat lady has sung, left the opera house, and is already at home, in bed and asleep. From here on out, BB primarily has to focus on letting the air out of the balloon without accidentally setting off any nucular explosions. The tricky part is administering enough methadone to prevent explosions, without tempting hedge funds to exploit the arbitrage opportunities created by Fed best-response-function interventions, which would risk perpetuating the conundrum indefinitely until an endogenously-untimely financial Armageddon.
Check out what is happening to the prices of some new-age “Nifty 50″ stocks, compared to the S&P500:
GOOG http://tinyurl.com/9ax2z
AAPL http://tinyurl.com/chmkx
TOL http://tinyurl.com/cjgpv
Yea, but what about their three or more investment properties?
GetStucco….Exactly!! Last summer I started thinking, “if these folks (speculators) can’t rent or sell their “investment” properties, their goose is surely cooked!”. Most of these people have pulled the equity from their primary homes (which we already know) and have bought 1,2, 5 (etc.) pieces of property. If ANYTHING changes in the family momentum (death, divorce, illness, etc)the income flow is dammed. They can’t pay the additional mortgage, and therefore their primary home is in jeopardy.
I’ll say it again….out of greed and seeing dollar signs in their line of vision, and listening to the ill-informed, non-thinking people, they can wind up losing the home that they are living in now and everything else they have. THAT is very sad…very sad.
When I was growing up in the 50’s and 60’s, my parents moved from a 3 bd apartment to a 2 bd house (w/full basement). My sister and I were really upset! We had our own rooms until my cousin came to live with us, then we had to share a bd. When we moved to the house, we STILL had to share a bedroom, and it remained that way until I moved out at age 20. As an adult, I came to realize that it was really a smart move on their part….the kids were getting older and would be moving out….they didn’t NEED the extra space. THEY were thinking ahead towards retirement. People now….they are thinking ahead to the next new house and next new toy they can buy with the HELOC.
As it’s been said before….this is going to end badly.
BayQT~
BTW, I have a hunch that -3% = PPT floor for daily drops in the TOL stock price. Any more air leaving the balloon would attract the Wall Street journalist pool’s unwanted attention.
Someone, always, has to be buying at or close to the peak, and while the knife is still falling. It is these unfortunate persons that are most likely to end up in a situation with multiple mortgages. It seems to happen every time in the RE cycle. The lemmings never learn.
GOOG gets a -6% daily PPT floor since they are more volatile.
“The lemmings never learn.”
Sure they do. A new generation of lemmings gets a learning opportunity each time a bubble peaks.
Wow, this is coming to an end. In OC, the inventory is rising rapidly.
I’m from Illinois, we pay about 2.1% per year of fully assessed value in property tax. How much is the norm in the Twin Cities? Are there a lot of high paying jobs in the Twin Cities to justify these high home prices? If your property taxes are similar to Illinois or Wisconsin, $700k homes equate to $14,000 per year in property tax alone.
It would almost make California homes seem reasonable as their property tax is only 1% (maybe a little melaroos for newer homes).
crazy.
“In the months and years ahead it is going to come down to overcoming stubberness, greed and fantasy to see who comes out with anything and who chases the market into the abyss.”
Well said. This thing is unravelling faster than I imagined, and those waiting for a spring bounce in ‘06 are going to be hemorrhaging money. A fool and his investment properties are soon parted.
MR. D- a commodity bubble? surely you jest.
speaking of the “spring bounce,” I don’t have access to sales data in my area since I’m not an agent. But I do monitor inventory using Realtor.com. We’re really spiking now. The for sale stuff listed on the service that meets the criteria: “at least 2 bed, 2 bath, $100,000 to $500,000 price range, zip code 33458″ shot up from 343 at the end of December to 371 by mid January to 393 at the end of the month. It then jumped to 415 yesterday and 421 today. That’s good for a 23% rise in about six weeks. Oh, and since last June, we’re up 176%.
But hey, not to worry. This is just more evidence of a nice, gentle soft landing. No bubbles here in South FL, where prices are up 100% in the past couple of years while incomes are up something like 10%. It’s all good.
Mr. D.-
The January 1980’s all-time high on gold was $850, a level which would now stand at $2,100 after adjusting for inflation. With gold now at $560, give or take, it looks to me like we have a way to go before gold is in a bubble.
Further, the reckless fiscal policies of the US government are just fueling more demand for gold.
Twin Cities housing info on increasing supply
http://www.benengebreth.org/housingtracker/location/Minnesota/Minneapolis-SaintPaul/
Trend 02/01/2006 1 month 2 month 3 month 5 month
Median Price $247,000 +0.4% -1.2% -1.2% -3.1%
Inventory 12,066 +10.7% -9.2% -15.1% -10.4%
Property Tax Increases:
St. Paul, Minn. – Property taxes in 2006 will increase an average of 10.2 percent ($588 million) statewide if proposed local tax levies are adopted later this year, the Minnesota Department of Revenue announced today.
The average is based on levy amounts proposed by local governments for annual Truth-in-Taxation hearings beginning next week. The projected growth could be smaller if December hearings result in a decrease in proposed levies.
“Governor Pawlenty and the Legislature had their Truth-in-Taxation hearing during the last session and now it’s time for Minnesota taxpayers to make their voices heard at the local level,” said Dan Salomone, Minnesota Commissioner of Revenue. “These increases are not set in stone and I urge taxpayers to attend their city, county or school district Truth-in-Taxation hearings.”
The largest increases in proposed property taxes are occurring among school districts. Changes by jurisdiction are shown below:
pt_barnum_bank, regarding property taxes in Twin Cities, MN, they generally run around 1%. I’m not sure what the exact formula is.
bearmaster, other westside waiters…….
we have very low inventory here in culver city. yet the “buyers” appear to be making a goal line stance. god bless ‘em all. they are taking the few homes available and completely ignoring them. what really is different here is the local economy. it is so hot you can’t believe it. the whole worlds wants to live/work in santa monica. all the big entertainment industry and the myriads of spin-offs have moved to the westside.
what i see is the correction is going to work its way in. san diego, oc, inland empire, sfv, santa barbara will be your leading indicators that it’s coming. don’t lose heart.
prophetically yours, cereal
“a commodity bubble? surely you jest”
Track the price history of commodities, and you’ll see they began their rise with the easing in 2001, just as housing did.
We all know the fed. flooded the financial system with excess liquidity. Where that excess liquidity went is now obvious. It didn’t build factories, because there were already too many factories. But, you can’t print gold or oil, so too much money chasing too few commodities, caused massive price spikes. Note, it was excess liquidity, not end user demand that caused prices to spike, and that’s what makes it a bubble. In fact, higher prices have caused end user demand to fall.
Sure these assets have some fundamental story behing them to excite the public, but the bottom line is that they (commodities, gold, and housing) are all reflation bubbles. Now that the fed.’s mopping up excess liquidity, they will all fall.
I suppose you think oil prices are up because China’s surging demand? Think again:
from Bob Marcin at thestreet.com
“China, the source of “infinite” demand growth for every commodity, consumed 6.6 million barrels per day in 2005. That was up from 6.4 million in 2004. Not very impressive.” (3% increase)
Is it possible all this gold activity is not really gold speculators but possibly oil rich countries barred from lending using gold and forwards to create synthetic money markets with a free gold option?
“The January 1980’s all-time high on gold was $850, a level which would now stand at $2,100 after adjusting for inflation. With gold now at $560, give or take, it looks to me like we have a way to go before gold is in a bubble.”
True, but in my opinion, irrelevant. If easy money caused prices to rise, and clearly there was a correlation, then tight money should cause prices to fall.
“Further, the reckless fiscal policies of the US government are just fueling more demand for gold.”
Gold’s rise hasn’t mirrored a drop in the $US, so that theory is hard to prove. Now, you could say it’s a loss of confidence in all currencies. That I’d buy.
But, I wouldn’t buy gold until the fed. begins to reflate, and that’s only a hope in gold bug’s eyes.
My, oh my, the music has stopped and I see only a few empty chairs for thousands of very anxious sellers. This is going to be pure pleasure to watch these greedy ba$tards a scramblin’ for those chairs. The flippers are finally getting their due.
Silence is Golden.
Gold down $14 today
Oh no! Did they report poor earnings??!!
I sold my TOL puts and may take my money off the table with GLD as well. This is going to be a weird spring.
I will one-up Mr. D. It’s not just the flippers or the trading-uppers who are speculators. Anyone who uses a mortgage and pays more in total cost to own vs. rent is a speculator, plain and simple. The only people who are not trying to ride a wave are those who purchase homes that are at or below the cost of renting.
Sorry, have to disagree on that one. I bought in 2003 and pay more than the cost of renting. I have a fixed mortgage, however, and intend to own for the rest of my life. I knew there was a bubble then, but was willing to pay a premium to own my home. I did not expect the price to rise in the near term. I do not, in fact, care if the price dropped by half… that would be good in fact, I could pick up another place or two!
That premium to own has since gotten even crazier, but I knew I was paying it and accepted it because it was the right thing for my soon to be family.
“Gold down $14 today
Oh no! Did they report poor earnings??!!”
Not bad earnings, instead, the word is out there’s a new sheriff in town, goes by the name of Big Ben Bernanke
“Big Ben, Big Ben
Every mornning at the fed., you could see him arrive.
He stood 5 foot 10, weighed 145
Kind of narrow at the shoulders, and narrow at the hip.
And everybody knew you didn’t give no lip to Big Ben.
Big Ben
Big Ben
Big Bad Ben
Nobody seemed to know where Ben called home
He just drifted into town and stayed all alone.
He didn’t say much, kind of quiet and shy
And if you spoke at all, you’d just said hi to Big Ben.
Somebody said he came from Princeton,
Where he got into a fight over helicopter drops,
And a crash and a blow from a 14 rate hikes,
sent the California flippers into repo land.
Big Ben
Big Ben
Big bad Ben
Then came the day the bubble popped,
when TOL stock cracked and men started crying.
Condo-flippers were praying, and hearts beat fast
and everybody thought they had breathed their last
cept’ Ben.
Through the dust and the smoke of this man made hell,
walked an averaged sized man that the speculators knew well.
Put on another rate hike and gave out with a groan,
and like a giant oak tree he just stood there alone, Big Ben
Big Ben
Big Ben
Big Bad Ben
And after all of his rate hikes were done, he gave a mighty cut, then another one as well,
And a speculator yelled out, ‘theres a light up above!’.
And the condo-flippers scrambled from a ‘would be’ grave
now theres only one left down there to save, Big Ben.
With option arms and I.O. loans, they started back down,
then came that rumble way down in the ground.
And as smoke and gas smelched out of that subdivision,
everybody knew it was the end of the line….
Hey Feeps,
Would you mind elaborating on your TOL puts? Not asking for your personal story (unless you care to) but a general gist of the investment/yeild one could have had if they had pulled the trigger. (I feel like having a coulda woulda kind of moment).
thanks
Would you mind elaborating on your TOL puts? Not asking for your personal story (unless you care to) but a general gist of the investment/yeild one could have had if they had pulled the trigger.
Sure. In December I purchased the option to SELL 1000 shares in JANUARY 2007 at $37.50. I had recently gotten rid of the options I had for JANUARY 2006 because that date was rapidly approaching…
So I owned the RIGHT to SELL at $37.50. I think the stock was around $36.00. I paid $5.80 for the options, so it cost me about $5800. The reason you pay so much is for the time value. Anyways, fast forward to today. TOL is at about $30.00. I sold those options for $8.80 a piece… or $8800.00… a greater than 50% profit or $3K in less than 2 months. TOL has dropped further and they are now at $9.20 each. WOW!
I had done a similar thing with JAN 06 puts and I think made around $2600.
Keep in mind options are volatile and they must be treated very carefully on the purchasing side. I have had 100% losses on options and treat them with kid gloves. I will not put a lot of money in them and only buy when I see what I feel is a pretty sure thing. We all know the housing market…
It’s still hard when you make 50% on a trade and realize how quickly you could retire if you did that repeatedly…
I expect TOL will probably bounce back a bit and I may pick up more options then. It may not. Either way, I’m good. I would have loved to buy options on GOOG… but there was just no telling WHEN that stock would break. Krispy Kreme too. And TASR. Perfect opportunities… but the timing is key.
By the way, suggesting Gold posted poor earnings was a joke.
Regarding puts on homebuilders - I would not touch them if you are new to investing. Options are mostly a suckers game and you will probably lose all your money. The premiums on homebuilers are very high. I used to play options and realized I lost 100% of my money 75-80% of the time - about the average for all options investors. I’ve now realized the real money is in selling options to sucker retail investors.
If you have the dough, go with a straight short. You won’t be throwing money away on time value and volatility.
It’s strange this is happening in the Twin Cities.
I thought everyone wanted to live there. Afterall, it’s “frost locked!”
on gold:
Tony Crescenzi street.com
“The price of gold has fallen sharply today, which could well be due to news out of Japan. There was chatter last night that the Bank of Japan might consider ending its zero-interest rate policy — possibly as early as April — in response to indications that Japan’s deflationary episode might be nearing its end. A concerted effort to raise interest rates globally could have a detrimental effect on commodity prices, including gold.”
# indiana jones Says:
February 7th, 2006 at 10:25 am
Mr. D.-
The January 1980’s all-time high on gold was $850, a level which would now stand at $2,100 after adjusting for inflation. With gold now at $560, give or take, it looks to me like we have a way to go before gold is in a bubble.
Further, the reckless fiscal policies of the US government are just fueling more demand for gold.
—————————————————–
Indiana,
Didn’t anyone tell you that Alan Greenspan retired?
Stucco,
“Didn’t anyone tell you that Alan Greenspan retired?”
They don’t call his replacement helicopter commander Ben for nothing. Why you think he will be an improvement over his successor is a mystery to me.
This should make all of you gold bugs a little nervous:
“Drop in Gold Only Makes It Shine Brighter
By Jim Cramer
RealMoney.com Columnist
2/7/2006 2:09 PM EST”
Or, maybe late to the party, “church of what’s working now” Cramer is right this time.
But, his track record says otherwise:
“Bears Cry Wolf Again on Homebuilders
By James J. Cramer
RealMoney.com Columnist
8/5/2005 11:55 AM EDT
BTW, TOL was about $50 at the time
To be fair to Cramer, he did catch his mistake fairly soon:
“Trading Death Knell Sounds for Toll
By James J. Cramer
RealMoney.com Columnist
8/26/2005 8:31 AM EDT”
“Fed Made It Harder to Stay in Housing
By James J. Cramer
RealMoney.com Columnist
9/27/2005 4:09 PM EDT”
# Mr. D Says:
February 7th, 2006 at 1:59 pm
To be fair to Cramer, he did catch his mistake fairly soon:
“Trading Death Knell Sounds for Toll
By James J. Cramer
RealMoney.com Columnist
8/26/2005 8:31 AM EDT”
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To be fair to Cramer, he is smart enough to make enough predictions to cover all possible outcomes. Then later he can dredge up whichever prediction turned out to be correct, to prove again how he is too clever by half.
‘“Didn’t anyone tell you that Alan Greenspan retired?”
They don’t call his replacement helicopter commander Ben for nothing. Why you think he will be an improvement over his successor is a mystery to me.’
It will not be easy for Bernanke to print his way out of the mess, because that is what everyone like you expects. If he fails to quickly shed the Helicopter Ben label which has been unfairly branded on his forehead, and instead makes the mistake of behaving too predictably, speculators will soon destroy what is left of the US economy. I can guarantee you that this will not happen — the man is smarter than you realize. If you do not believe me, then I suggest you apply for graduate studies in the Princeton Econ Dept, where he recently was department chair.
Ponce Says:
February 7th, 2006 at 1:05 pm
Regarding puts on homebuilders - I would not touch them if you are new to investing.
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By all means — buy yourself some nice, safe, secure real estate investments instead.
I’ve now realized the real money is in selling options to sucker retail investors.
If you have the dough, go with a straight short. You won’t be throwing money away on time value and volatility.
I couldn’t agree more. My primary cash cow is selling covered calls. I would also straight short the sucker but I’m working in IRA accounts. No margin/shorts allowed.
The time value will eat you alive on the option purchase if you don’t have your timing correct.
feepness says…
“My primary cash cow is selling covered calls.”
Could you please elaborate:
1) What kind of IRA account allows this?
2) How does the strategy work?
3) Why is it “safer” than buying TOL leaps and hoping for the best?
1) What kind of IRA account allows this?
Every IRA account I’ve had allows it. You must sign the options agreement stating you aren’t an idiot though. I hate lying about that but what are you gonna do…
2) How does the strategy work?
You purchase a stock. Some other person thinks that stock will go up. You SELL the leaps. If the stock goes nowhere, you get paid to hold it. If the stock goes down, you have downside protection. If the stock goes up, you may miss out on some of the gain.
3) Why is it “safer” than buying TOL leaps and hoping for the best?
It is the opposite of buying LEAPS. It is selling LEAPS when you own the stock. If you sold LEAPS when you didn’t own the stock you could get caught if the stock skyrockets. Sell a LEAP when you OWN the stock COVERs you and it’s a covered call. The most conservative form of options use.
That’s what I believe Ponce meant when he said ” I’ve now realized the real money is in selling options to sucker retail investors.” I make 1% or so a month… I see the market as being flat to slightly down for a long time and that’s all I want. I let someone pay me to hold the stock.