Are Speculative Germs Being Cleansed In Your Market?
What are you observing in your housing market this weekend? Here are some from across the US, starting with posts from the topics thread. “We are down 5-10% here in Northern Virginia / DC Area suburbs. I have friends selling a townhouse in Ashburn asking 400k when similar comps from fall of 2005 were 430-450k. Who knows what the closing price will actually be? It has been on the market for about 6 weeks.”
“We will see a much better downward trend in a few months because it takes awhile for the comps to be updated. New homes are also starting to be reduced to similar to the asking prices on existing homes on MLS. A few more price reductions and we will see new home pricing undercutting the existing inventory. This is more pronounced for the exurbs where lots of huge developments are underway and inventory is piling up.”
From LA. “Depending on the area, I’ve seen (smaller) price increases, stagnant prices, and price decreases. It seems like this whole thing only started to ‘turn’ last fall, and is only now starting to pick up steam.”
From Florida. “Florida is in a transition period now, David Lereah said. ‘Sales are coming down, but prices are staying up. So don’t get that false sense of security. A cleansing is taking place,’ Lereah said. ‘(The market) is getting healthier. We are getting rid of the germs, speculative germs.’”
“‘The market is being cleansed,’ Lereah said. Lereah predicts prices will slip in many parts of Florida as a buyers’ market takes hold and sellers revise their expectations downward. ‘Someone always takes the punch bowl out of the party.’ Lereah added. ‘We’re not supposed to go crazy in the real estate world,’ he said. ‘We’re supposed to go crazy in the stock market.”
From Denver. “Foreclosures have had an impact on the home selling market by driving housing inventories up to record levels. By most accounts, it’s a buyers market in metro Denver. There’s a record 29,000 homes for sale. ‘If you’re a seller you’ve got to put your best foot forward,’ (broker) Jim Hatfield said. ‘You’re house needs to be tricked out and detailed out and landscaping needs to be fresh and the paint needs to be fresh and you need to have a competitive price.’”
From Nebraska. “The U.S. real estate market is clearly slowing, especially in areas that used to be the hottest, Berkshire Hathaway Chairman Warren Buffett said Saturday. Buffett said at the annual meeting that ’significant downward adjustments’ in house prices are possible, especially at the high end of the real-estate market and in situations where homes were purchased as investments.”
“‘We’ve had a bubble to some degree,’ he said, noting that Berkshire has a good view of the market through the thousands of real estate agencies it owns. ‘We see a slowdown every place.’”
A poll in California. “Is this a good time to stay away from real estate? Are people scared away from the housing market due to these factors? An informal Los Angeles Business survey asked this very question this week.”
“An overwhelming majority, 67 percent, said that, yes, the low sales and high prices are keeping them out of the housing market.”
“Comments from readers backed the results: ‘Absolutely. The real estate market is overdue for a massive correction, particularly condos and single-family homes.’”
“‘Absolutely not the time to buy a home! Climbing interest rates, high prices,low rental income; the investment isn’t even long term, it’s potentially disasterous at this point.’”
“‘The high price of housing was one of my top 3 reasons why I moved out of the state of CA. I was looking in the condo market, but I was pushed out of that market by people who were pushed out of the single-family home market. So the high price of housing also created a domino effect for some buyers like me.’”
Buffet always has some great pearls of wisdom:
“What the wise man does at the beginning the fool does at the end,” Buffett quipped.
At the start of the party, the punch is flowing and everything’s going well, but you know at midnight it’s all going to turn into pumpkins and mice,” he said. “People think they’ll be able to get out just before midnight, but everyone else thinks that too.”
I like
“It’s not until the tide goes back out that you get to see who was swimming naked”
If that’s the case we are looking at alot new nude beaches in the very near future.
>>> “Comments from readers backed the results: ‘Absolutely. The real estate market is overdue for a massive correction, particularly condos and single-family homes.’”
The masses are now slowly starting to get the picture that the run is over.
are you the same Robert Campbell who wrote this book?
http://tinyurl.com/n8ksr
i just clicked on your name and see it took you to his/your site so i will assume you are. i see your san diego chart on your site indicates a “sell” in late 2002. critics would say your model is off given what’s happened in the market since then.
i do like this:
“One never knows, when he boldly enters the investment arena and puts his hard-earned capital at the mercy of the market forces – all in hopes of creating a better life for himself — what tricks of fortune may eventually unfold. Every day creates a new set of circumstances; and around the next corner may be a turn of events - good or bad - that change everything.” - Robert M. Campbell, 1996
1. Every 7-10 years there is a period of excessive speculation that results in a severe panic or depression where borrowers are at great disadvantage and the man with cash stands like a tower of strength.
2. Market extremes do not last. No ladder is high enough to reach the sky. While “new eras” come and go – and while many incorrectly believe that government controls can now prevent economic downturns – the old laws of supply and demand still rule.
3. When real estate crashes occur, misunderstandings are so easy and so natural. Ruinous lawsuits are commonplace, whether they are justified or not.
4. It’s good to be an optimist, but always be prepared for the worst.
5. People borrow money in good times and pay it back in bad times. This is just the opposite of what you should do.
6. People ignore small problems that soon become big problems that later become impossible problems. Foreclosures flourish because people stick their head in the sand and say: “Maybe it will go away.” Usually it doesn’t.
7. The general public is as blind to recognizing the bottom of a downturn - or a real estate crash - as they are in recognizing the top of a boom. While there is no ladder that reaches to Heaven, neither does any ladder reach all the way to Hell. While the “doomsday” prophets may have their day . . . the U.S. economy is resilient and eventually comes back stronger than ever. - Robert M. Campbell - http://www.sandiegorealestatereport.com/whatlearnedarticle.htm
Gekko,
Yes, I’m the Robert Campbell that wrote the book “Timing the Real Estate Market.”
Regarding the chart on my website, it has not been updated since 2002. Since then my Real Estate Crash Index gave a “buy signal” in January 2003 and a “sell signal” in August 2005.
Thank you for acknowledging me.
with all due respect, you lose some credibility with me when you say your chart/index indicator went from a sell in late 2002 to a buy in Jan 2003 then back to a sell in August 2005. i was hoping you would have just said “I was just a couple of years early on the late 2002 sell call”.
best wishes regardless.
I believe no model could have predicted the onslaught of loose lending (both in qualifying standards, and in available loan products) that occurred at that point.
And 2002-03 was, AFAIK, a slow down in the market; just as post 9-11 was a slowdown (that particular slowdown was eliminated by FED’s beat-down of interest rates).
Agree with anoninCA. Our house, purchased in 1998, had more than doubled in price by late 2001. It was triple what we paid by 2003. At peak price, it was 4X our purchase price (we sold in 2004 at over 3.5X purch price).
The natural peak was in 2001/2002, IMHO. The rest was manic speculative play based on super-lax lending standards and suicide loans.
I agree 2002 was a logical top. We had people sleeping in cars to get homes. The toxitcity began shortly after that. The dollar has crashed, public and private debt has sky-rocketed.
We went from a normal boom/bust cycle, to an epic John Law-style fiasco since then.
robert,
I did enjoy your book. it’s contents was one of the datapoints I used in not jumping into the RE market in AZ when most everyone was going crazy in 04 and 05.
regards,
jeff
Robert,
Does Jerry Sanders get it? I keep hearing that he believe San Diego faces a severe housing shortage. Of course, that may be more closely related to where his campaign funding originated (RE sector firms) than what he actually believes.
GS
GetStucco,
Sorry, but I don’t follow politics. I’m non-partison, and frankly don’t believe much of anything that any politician says. All they care about is getting elected. They don’t care about doing what’s best for the people. End of rant on this subject.
Re: the economic myth of “housing shortages”
Unless there were price controls, the price of housing could never outstrip supply. This is because in a captialistic, free market economy, the forces of supply and demand determine the price at which anything is exchanged. Thus “price” is how a free market eliminates both shortages and surpluses.
From the Flagstaff AZ paper:
‘Another master-planned community, this one with as many as 1,500 housing units, is in the works for Flagstaff, and the public is invited to weigh in on the proposed project.’
There are already over a thousand homes approved in the area and the classifieds are full of FSBO flippers. The density for the new project is 7 units per acre.
Please Public beg them not to build.
Are you kidding? Beg them to build, the more crap supply there is the cheaper the gems will be in a few years. Condos to the sky everywhere, as long as I don’t own them.
The only thing is the projects might become ghost town type projects, and to me that’s a waste . There is nothing good about vacant houses sitting for years ,or developers going belly-up with 1/2 completed projects. Better that the builder doesn’t build until real demand is there .
It will be a huge waste for a long time, just like the Railroad system, fiber optic system, a whole bunch of biotech research…) If not for bubbles we wouldn’t have much infastructure that wasn’t provided by the government.
Besides just because no one is living in the ghost towns doesn’t mean they don’t drive down prices in the city. There has been an amazing amount of construction more than an hour from Washington DC. Once the speculation dies out of those, there empty presence is what will drive down prices closer to DC after all if a condo in DC is $500,000 and a huge SFH with an hour commute is $50,000, many more people will be consider the commute worth thier time (at $200,00 for a home in DC not so much).
Besides most of the bears are big into commodities (I’m not sure they realize how much of the commodity cycle has been driven by the building boom). Once construction stops things get interesting.
I think you are right about the commodities being tied to the US housing boom. The commodity bulls are saying that it’s all to do with China and India. Some of it may be, but most is to do with US housing. It takes some time to work it’s way through the pipe. In the worst case, homebuilders will abruptly cancel materials orders, materials suppliers will cancel raw materials orders, commodities prices (and stocks) will go off a cliff. It will not take much either.
The multiplier effect on commodities stocks that works so well when they are going up, works even better when they are coming down. Unfortuantely, that great valued copper stock with a P/E of 6 will be no bargain even if the copper price only corrects by 20%. If it corrects by say 50%, it will be a bloodbath.
I generally agree with you, but …
I hate to see historic neighborhoods, houses, buildings, landscapes, views and skylines razed to the ground to build cardboard crap that no-one really needed to live in in the first place.
I majored in Economics, and I generally believe in the Market System, for lack of a rational and viable alternative. But, sometimes you just have to shake your head in disbelief with all the overproduction and waste.
The economics for builders are interesting. They own a ton of land, some of which is now underwater, market price wise. Most probably isn’t (purhased years ago). What are they supposed to do? They have debt to pay, they need cashflow.
So they build houses. Even as inventories explode. Why shouldn’t they? If htye can put a 200K house on one of their lots and sell it for 300K, then they’ll do it! If that brings the market price of other houses down from 400K to 300K, then so be it. They’ll take market share away from existing home sellers, flippers, whatever.
I think it’s cool.
Anyone have any idea of the probability the Fed Funds goes up 50 basis points instead of 25 next week?
No way, not with the weak jobs report. That’s why the dollar took a beating again yesterday.
That’s one report. And jobs are a lagging indicator. As manufacturing expands they hire more. 75,000 less jobs in one month is not that much less than expected. It’s not a big deal
If BB had any cojones he’d raise 50. The market thinks he’s a wimp.
Gold goes up $10 a DAY. Someone isn’t taking him seriously.
‘They own a ton of land, some of which is now underwater, market price wise. Most probably isn’t (purhased years ago). What are they supposed to do? They have debt to pay, they need cashflow.’
It varies from company to company, but much of the land was added in the last two years. Toll just paid over $2 million/acre in Las Vegas.
I am skeptical of their prospects. Keep in mind all this land was bought with borrowed money. With skimpy cash flows, how can they afford to sit on it? As they are eager sell homes and land, even more inventory becomes available and puts pressure on prices. This may explain why construction hasn’t slowed much and is some areas is as frantic as ever.
I think what they want to do is buy more lots (this time much cheaper) and build ever more houses. It’s all they can do. So they’ll lose money on most recent lot purchases, but they’ll make up for it on the new lower priced lots. What else can they do? If they do nothing the high priced lots don’t go away, and they still have to pay interest on them.
Best way to get it off the books is to add more houses, sell them and keep the cycle going.
They wrote off $20 million in options on land in the last 30 days(source:CBSmarketwatch.com).No big deal for a billion $ company but it could be the start of a trend.
Considering the pause that everyone is expecting, It seems a possibility to me.
Anyone have any idea of the probability the Fed Funds goes up 50 basis points instead of 25 next week?
I doubt we’ll see it happen next week, but it could happen soon. Rising commodity prices will eventually force producer and consumer indexes up, and it will probably be a sudden, sharp rise that will catch the Fed off guard. The Fed is foolishly ignoring the money supply and instead watching production capacity as the inflation warning-ometer. Rising commodity prices threaten to spark an inflationary vicious cycle: commodity prices drive consumer-price inflation higher, which sends drives more investment dollars to commodities as an inflation hedge, which drives consumer-price inflation higher. Once this cycle gains momentum, it will be very difficult for the Fed to rein it in without drastic measures.
I don’t see how general price level hyperinflation is possible. Not with stagnant wages. Something has got to give, and it’s not wages. Most likely hedgefunds will tank, and gold and oil with them.
I do agree with you, Max, that commodities will implode just like RE, taking down hedge funds with them. The question is, will this happen before or after rising commodity prices kick off an inflationary spiral?
I also don’t expect Weimar-like hyperinflation, but inflation is definitely possible in the absence of wage gains. In fact, it has been going on for a while, in energy, healthcare, home prices, and just about everything else that the Fed says doesn’t count as “inflation”. Inflation is a monetary phenomenon and not necessarily tied to wage growth.
The latest “Economist” has broad US money supply increasing @ an annual rate of 4.7% - so at least one factor is against hyperinflation.
No. My guess is two more 1/4 point bumps, then the Fed has the luxury of sitting out by default. They’ll watch for a month then decide. A non-decision decision.
My subjective probability the FF rate goes up 50bps is very close to 0. Wall Street has already set up BB as the fall guy in case of any “missteps,” such as tightening by 50bps instead of 25 or 0, which would inevitably precipitate a large downside correction.
Volcker had the temerity to remove the punch bowl in the face of Wall Street’s kibitzing, but I am highly skeptical the same will prove true for BB, who came into his position with a stated intent to try to fill his predecessor’s boots (remember the guy whose name is associated with the Greenspan put?).
No Way ! Credibility for BB would be lost and ugly blood bath would start the roll over of a lot of markets.
When I posted those discounts, I missed the entire second section of the RE ads in the Post today, which had even greater discounts (today’s paper: total of 48 pages of RE ads)
Brookfield Homes: “Savings of up to $100,000+!”
Beazer Homes: “With Savings of up to $125,000, These Are the Prices You’ve Been Waiting For!”
Richmond Homes: “Receive up to $30,000 When You Purchase Your Dream Home By May 31st!”
K Hovnanian: “This Year’s Savings 4.75% Last Year’s Rates - Act Now!” [full page ad with 16 reduced townhouses, most marked down ~$50K]
VanMetre: “No Worries, We’ve Got up to $70,000 Savings on Inventory Homes”
Atlantic Builders: “7 Opportunities to Save $71,000!”
Brookfield Homes: “Your Choice Included $40,000 Shopping Spree”
VanMeter: “This Weekend Save Up To $70,000!”
The first thing I think about is what are the builders basing the discount on : the new inflated 2006 price or last years price or what .
Not sure, but anecdotally, there’s a townhouse complex a few blocks from us They’re actually very attactive Italian-style architecture, and large (4000+ sf), but overpriced. They were on the market in late 05 in the mid-800’s; in today’s Post, marked down to the mid-600’s. They’ve been coming down gradually, but this weekend they came down another $75K in one shot.
Whoa! Sounds like Ameriquest’s bail. Those are major get-out-in-front reductions. Must make the re-sale bunch sick.
How would you feel to be one of the $850K fools? $200K underwater in 1 year and I bet an adjustable mtg that needs to be refi’d. Ouch!
Big Drops in Centex List Prices: >100k on some condos
substantial on TH and SF
Sample
http://www.centexhomes.com/Washington-DC/N45954.asp
Current
http://www.centexhomes.com/Washington-DC/N45954.asp
From google cache : 29th april
http://72.14.207.104/search?q=cache:htY4DGibm8wJ:www.centexhomes.com/Washington-DC/N45954.asp+&hl=en&gl=us&ct=clnk&cd=1&client=firefox-a
BTW These condos started at 544k a few months ago
I now personally know people (couple - techies - DINKS - make about 200K together ) who had invested in three TH - @400- 405 k (Oct 05 - too late!) wanted 470k for each now reduced to 440k. The list price from builder was 458k some time back. Today its 385k. Cant even guess how much they will loose. Mixed feelings about this on a personal level though since they are very good friends. Wont sink them but..
Very interesting links, thanks for pointing them out.
The builders ability to chase the market downward says someting about how high the profit margins SHOULD have been over the past few years.
Good point and all along for those years they were putting out propaganda about how much materials and labor costs were eating into their profits. WTF…how do you discount $479,000 to $379,000 to start, and still have a margin? These guys are full of it and we now know it. Let um’ pound sand. One shovel at a time.
The builders ability to chase the market downward says someting about how high the profit margins SHOULD have been over the past few years.
Centex is one of the largest homebuilders. They are leading aggressively trying to get in front of the price curve to move inventory. In Northern VA almost all of the models are “available for immediate move in.” Prices are most definitely lower now than in 2005. Single family in Sterling or Ashburn for mid 500s now were going for mid to high 600s last year. It appears that Centex is lowering prices more than others although not offering as many incentives. No finished basements or upgraded kitchens with the advertised pricing.
It will be interesting to see
1) Centex 370K (and nothing says they wont go down more) 1600 sf, 3 BD condos in fairlakes do
a) to existing 2 BD condos (say 2-5 year old) on sale for 300+
or say
2) 360 k , 1900 sf 2 car TH in Gainesville while people are trying to ‘flip’ the same model for 420+ (I even saw one for 460 in Sunday WashPost)
“Florida is in a transition period now, David Lereah said. ‘Sales are coming down, but prices are staying up. So don’t get that false sense of security. A cleansing is taking place,’ Lereah said.
prices are “staying up”?
Does NAR have any idea of the public relations nightmare this asshole Lareah is creating for them? Right at the very time you’d expect NAR to announce something closely reflecting reality, they wheel out this idiot Lareah and he spews some inflammatory BS that further cements the suspicion that their business is three species lower than used car salesmen.
Lereah isn’t stupid, he’s making a ton of $$$, he just lacks the gene that prevents you from sleeping at night after misleading thousands to financial ruin.
There’s a difference.
Good for him, if people are so dumb as to leap toward financial ruin I hope he soaks them for all they are worth. There are approximatly 0 sales people who care about your financial well being more than theirs (they are sales people after all).
Hey, don’t get me wrong, I’m a die hard capitalist myself, but there are two types of capitalists. Those that profit from common misconceptions and those who prefer to educate consumers enough to make ‘em realize that theirs is the best product.
I remember when companies actually tried to have the best product. Now its all marketing and spin.
when i was in sales it was like this. They are going to go bankrupt, either you he;p them or someone else will.
Oddly enough, there IS such a gene, or at least such a personality type. This type feels no guilt, usually about anything. It just isn’t there. So their behavior is governed strictly by reward and punishment. It used to bug me, because I thought it was a correctable trait; apparently it is not.
We call such people sociopaths.
Dennis Quattrone anyone? Buy buy buy Telecom stocks. Buy on MCI.
Does everyone remember what happened?
Dennis Quattrone is to Telecom what
David Lareah is to Real Estate
As I said, the NAR and National Association for Homebuilders should be regulated.
Yeah, because politicians are much more competent and trustworthy. People will take their lumps and they will learn, all without the need for more bureacracy.
A good, meaty slap in the face from the invisible hand is all that’s needed.
“Florida is in a transition period now, David Lereah said. ‘Sales are coming down, but prices are staying up. So don’t get that false sense of security. A cleansing is taking place,’ Lereah said.
prices are “staying up”?
Does NAR have any idea of the public relations nightmare this asshole Lareah is creating for them? Right at the very time you’d expect NAR to announce something closely reflecting reality, they wheel out this idiot Lareah and he spews some inflammatory BS that further cements the suspicion that their business is three species lower than used car sales.
Oh don’t you know , its the “germ” that crashed the market . That flipper disease that hit the nation like the bird flu . As if the NAR didn’t know that a high % of purchases were short term flippers . Back in the old days ,( that people don’t like me to talk about ),lenders would back off from projects that had a high investor to owner occupied ratio .Some lenders wouldn’t allow more than 10% ,others 25%. I still think that the old time underwriting rules had merit ,(rules from 15 to 25 years ago ).Anyway , To many investors creates a false demand verses supply market which drives up the market . Now where are the long term buyers ….better know as the greater fools ?
I created a spreadsheet to evaluate potential investment opportunities for an entry point when the shiit really starts to hit the fan. I know that timing the bottom is impossible, but I figure you can throw some math at it to help your odds.
Numbers here are hypothetical.
Any other ideas? What do you think?
Dowload spreadsheet here:
http://www.files.bz/files/11251/RealEstateValuationMethods.xls
Generally the major advantage of spreadsheets is that you minimize your assumptions and do as many calculations off of all of them as you can. I’d try to shift most of your left column to being calculated off the price or square footage. While it is important to calculate the opportunity cost of your downpayment, I would probably make that or LTV as an imput and calc it from that rather than make it an assumption.
let me clarify that all three of those methods (and the hypothetical numbers listed) stand alone and are not necessary related. also, the opportunity cost of the down payment was simply ($400K * 20%) = $80K Downpayment * 3% Conservative Return = $2,400 annual return (net tax).
It was good that you popped in the opportunity cost (it’s very frequently ingnored). Just that it would be nice if you made all of them calculate off the house price (so that if I plug in a $300,000 house price the numbers all update).
What type of housing is this for spec or existing
existing for all - but you could use the “cash flow/rental” model on a spec I guess.
It’s a good spreadsheet. I just saw it was for house rentals. The commercial guy in me wanted to ask about vacancy factors, cash on cash rate. Rate of Return after taxes etc etc. I also think your appreciation rate is kind of low even for pre-bubble value. But for what it is it’s good.
you can plug in whatever numbers you want - ie appreciation - and it of course will be geographic dependent. the numbers in blue are the input cells.
You might want to look at my spreadsheet
Buy vs Renting. Its not set up for investment, but for the “do I buy or do I rent, knowing I will sell in X years”, both on a per month cashflow and a sum savings approach.
The numbers are for taking adavntage of the “Bargan” price of 400,000 that the developer will sell my apartment to me for, as is, so it s a full apples-to-apples comparison.
(Comments to nweaver@gmail.com)
CNN is really going all out to put as many real estate slowdown references in the headlines as they can…wonder who lost $ on their flip there?
http://tinyurl.com/ozyyu
I LOVE IT that he’s singled out Broward County. I just sent that on to my poor greedy friend who will never be able to sell his place now for anything close to what he could have gotten last summer when I was begging him to sell to the idiots knocking on his door. Oh, and he NEEDs to sell now but so do 20 other mullets with identical units! Ooops!
Yes, I’m a sadistic bitch. LOL
So what? We all learn much from the liks you refer. Great reads! Thanks so much.
And he seems to be a masochistical (if that is a word) loser.
As am I…I too took much joy in that link.
Interesting that he had this to say about commodities. I posted a similar opinion, and feepness really took issue with it:
Buffett: “…in metals and oil there’s been a terrific [price] move. It’s like most trends: At the beginning, it’s driven by fundamentals, then speculation takes over. As the old saying goes, what the wise man does in the beginning, fools do in the end. With any asset class that has a big move, first the fundamentals attract speculation, then the speculation becomes dominant.
I take issue with you suggesting that I took issue.
I just like the discussion of where prices are going to go. I’ve learned lots and lots here and I do believe ultimately we will see an episode of brief but intense deflation across the board. Hopefully I won’t be a fool… but it’s happened before.
Sorry if I came off cranky.
OK, truce feepness. I know we’re both on the same page here. Whatever happens with gold, I do wish you luck with your investments. -John
no real price drops in west sonoma county yet,lots of new sfh and condos coming on the market,lots of new inventory in existing home market,midrange stuff at april 05 prices still moves…not many people at open houses,many small price reductions on exisiting homes..lots of stuff sitting,small spring bounce…..i expect more incentives,price reductions in june and july…the first real distress sales will start the screaming rush to the doors.soon.
“Florida is in a transition period now, David Lereah said. ‘Sales are coming down, but prices are staying up. So don’t get that false sense of security. A cleansing is taking place,’ Lereah said. ‘(The market) is getting healthier. We are getting rid of the germs, speculative germs.’”
Just wait till Hurricane season. David ain’t seen nothing yet.
What baffles me is this huge Florida runup has been ALL speculation. Now that they are exiting, prices will have to revert back to the mean before sane people plop down money on a house. With rising insurance, taxes, and real estate prices coupled with HOA fees, I don’t see anything picking up for a while.
Good point….Florida has been driven strictly through specualtion and “funny money”. This principle is irrefutable, funny money begets a frothy market and unless you continue to blend it, it goes flat. The commercial real estate market has always had creative financing through leverage of various kinds but the overall market was controlled through standards and controls built up over centuries. Another point is the fact that the commercial market was, in general, polulated by somewhat sophisticated investors. This last round of free money was like bananas to monkeys. Grab all you can and eat um’ quick or you may not get to eat. To hell with who’s gonna clean the cage.
Excellent points Jack…..
i posted this recently, but in an old thread - i’m reposting here so those interested see it.
—–
I recently read “Timing the Real Estate Market” by Craig Hall. Here’s a few quotes I copied down. Take them for what they’re worth - if anything. Enjoy.
3200. Seven Real Estate Trends - Three National - 1. Inflation, 2. Interest Rates, 3. Flow of Funds, Four Local – 1. Job Growth, 2. In or Out-Migration, 3. Path of Progress, 4. New Construction.
3201. Four Ways to Know it’s a Seller’s Market: 1. You can feel it. 2. Market data doesn’t lie. 3. Listen to others. 4. Sometimes you’ll know because it simply falls on you. Four Ways to Know Positive Momentum is at Risk: Prices on competitive properties stop going up or down. 2. The bid/ask spread widens. 3. The rental market softens. 4. “Pack Mentality”
3202. “Real Estate often lags behind national economic trends.”
3203. “Sell when everyone wants it and buy when there’s blood in the streets.”
3204. “When someone else wants something you’ve got, and they want it badly enough, let them have it.”
3205. “When the pay window is open, sell.”
3206. “It’s unreasonable to think that anyone can tell what the top is until history shows it to us. Hindsight is the best judge of tops and bottoms.”
3207. “There is no question that history repeats itself, but it rarely repeats itself exactly. You have to learn to trust your gut instinct.”
3208. “Gut instinct is merely putting together experience and knowledge with confidence. You develop intuition by doing the work and nurturing confidence in your own abilities to rationally understand a market and come up with ideas and plans of your own.”
3209. “All of our perspective is colored by today’s moment in time.”
3210. “The Two Greatest Lies in Real Estate: 1. “It will only take $X to cover needed real estate improvements on this property. 2. Real estate is a cash flow business.””
3211. “Yes, hindsight is indeed 20/20. And, if you stop and think about it, the thought that occurs just before “We could be in trouble” is “Everything couldn’t be better.” When you’re in the middle of a market in which prices are getting ready to decline, that’s when you’re most likely hearing good news and excitement from investors confident about the future. The irony is that we often get caught up in the enthusiasm without stepping back to look at the facts available about current trends.”
3212. “No matter how successful you are or how smart you think you are, there will come a time when your gut instinct, judgment, and even this book will let you down. Timing in real estate just like in all of life has a habit of surprising us every once in a while and just when we least expect it.”
3213. “Sometimes we do the best we can and things don’t work out, while at other times things work out in spite of us.”
3214. “Maintain your perspective and keep your humility.”
3215. “Relying on luck without knowledge and skill is risky business.”
Craig Hall went bankrupt in the 1990s and kept a lot of Dallas lawyers employed chasing him down trying to get their clients’ money back. Legendary deadbeat.
yeah - he talks about losing it all in his book - and his comeback.
From the Florida links:
‘Speculators drove prices up,’ Lereah said. During the boom, property in Las Vegas appreciated 52 percent in a year, along with Phoenix, which appreciated 48 percent. ‘We were booming too much,’ Lereah said. ‘Speculators drove prices up.’
That’s very interesting. I heard this same person say repeatedly that it was sound fundamentals that drove prices up. Hmmm.
Lereah is talking out of both sides of his mouth. I guess he has to when he has egg on his face and he’s gaggin on crow pie.
It is very sad to see people in supposedly responsible positions be so immoral and almost unethical.
Since we’re too scared to take on Mr. DiaLeareah on this blog, I suggest a heavyweight title fight…
DiaLeareh vs. Shiller.
On your blog.
Could be fun.
Here ya go.
http://www.googlefight.com/index.php?lang=en_GB&word1=lereah&word2=shiller
Hilarious! I loved the “My girlfriend vs Pamela Anderson”. LOL
‘If you’re a seller you’ve got to put your best foot forward,’ (broker) Jim Hatfield said. ‘You’re house needs to be tricked out and detailed out and landscaping needs to be fresh and the paint needs to be fresh and you need to have a competitive price.’”
Yes lower your price but for god sakes don’t dumb a bunch of money into the home. Affordability is the largest issue right now, keep the house in a fixer upper condition and price it to sell.
Maybe the folks in Seattle will bother now to vacuum and pick up the dog poop in the basement. Last August it was pretty much “take it as it is or we’ll take the next bidder CHUMP!”
My wife and I were dumbfounded at the arrogance of sellers up here. When we sold our place it was repaired, fixed up, and spotless.
I wonder if these latte-drinking, birkenstock wearing, Seattlites dress up when they go on a date, or to an event?
Maybe it is just a general cultural ambivalence up here.
Sure are a lot of real estate ads on TV and radio lately. “Getting a loan should be as easy as ordering a pizza” or “You can trust the NAR”……it is enough to make you wanna throw up.
http://sandiego.craigslist.org/about/best/sea/128483320.html
I’ve never lived in Seattle, but I disagree with this guy that “The liberal/progressive paradigm is virtually overthrown in the US.” They are alive and kicking, and trying to tax the snot out of me on every front.
If the Dems take over the House get ready for higher taxes. No cap gains on dividends, No AMT reduction, Higher brackets and so on and so on.
A deficit is just a tax you haven’t paid yet. Or a service to you that hasn’t been cut yet.
No that’s a bad idea but then my idea of a fixer upper maybe different then yours. It doesn’t hurt the cause to spruce up your place if you want a decent price especially in a down market.
I wonder how many people in Omaha for the steak dinner last night are stuck with condo’s? And I wonder how many after having listened to the speech are delaying a purchase? Mr. Buffet commands a tremendous amount of respect.
I live in Broward county, I’m so glad he singled out Broward and Miami-Dade counties.