03.24.2007 - Weekend Open Thread
This is your open thread for the weekend of March 24-25, 2007. You may post random links and off-topic discussions here.
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78 comments:
I realize that I'm probably the only one amused by the following, but, here it is anyway. I just zillowed the house I just rented in Ravenna. 509K. Hmmm, I'm renting it for under 1700, so it would list for roughly 300X rent! Either I've just got the single greatest rental deal in history, OR (especially considering the fact there was only one other interested party, and it had been on craigslist for a month)... there's a massive equity/housing bubble. You choose.
That sounds like a pretty good deal...however it depends on the location, size, and condition of the house. Where is it?
It's on 26th Ave., near 55th, near Ravenna park AND UW, where I'll be in grad school. We literally couldn't have found a better place for us. We love craftsman houses, and it's in terrific condition, with a completely and tastefully renovated kitchen (viking, bosch, blah blah blah - no granite). A little more urban than some would like, but it's completely removed from traffic and businesses. And most importantly, near Zoka coffee, where I'll likely spend three hours a day.
The larger point is that it wasn't hard to find, and the price is comparable to other houses near there. The day my wife and I were deciding on it, a woman was frantically trying to get to us, as she had a house in Montlake to rent for 1050. Not as nice a house, but Montlake's a nice neighborhood. I was just eager to be in the Ravenna school district for a number of reasons.
The gap between renting and owning just seems a little silly to me. 120 - 150X would mean that this house would sell for 200, 250. If that were the case, we'd buy. But 509? That's absurd. The rent wouldn't come close to covering the mortgage.
I just made an offer on a starter house for 30k below asking price (410k -> 380k). Going through inspection right now. House prices are already going down :)
I should have waited, but I got a low enough interest rate where I didn't care if it dropped down another 50k.
Once those interest rates go up, house prices are gonna collapse in a big way here.
I just made an offer on a starter house for 30k below asking price (410k -> 380k)
Can you provide an MLS#?
It's on 26th Ave., near 55th, near Ravenna park AND UW
Great location for a grad student!
Sounds like you're close to a lot traffic and frats though...the same house would rent for a lot more in Greenlake, Queen Anne, etc.
Daniel, I'm not even so certain that interest rates have to go up for prices to come down. I'm much more familiar with California stats. We're at 11.5X income for a median house ($570K) right now. That's totally unsutainable. The only way we could keep on that track is if people pretty much stopped buying anything else. Of course that might just have a little itty bitty negative impact on the economy. I don't know what the Seattle income to median multiplier is, but judging from my rental, it's probably pretty high.
Shug, I think you're right about Queen Anne. Too far from school to make sense for us, but the prices certainly seemed significantly steeper. I did find a number of nice rentals for 1600-1800 in Greenlake, but I was less familiar with the school district there, so that was a no go. Traffic, not so bad, as we are set back on a hill. Frats? I'll find out in September.
And again, it's not so important that it might rent for more in another neighborhood, according to Zillow anyway, the gap between renting and owning is much, much too great.
I actually looked at Ballard too. Great place. If it weren't for the distance from UW, we might have landed there. There are a number of terrific rentals in the 1500-1900 range there.
I don't know, Shug, sometimes I think this blog has become so contentious between you and some of the others that it seems like information isn't shared or respected at all. It just ends up being a pissing match.
I have mixed feelings about the bubble popping. My family owns a lot of property in both socal and nocal, so it doesn't really benefit is that it happens. On the other hand, I fear for a society where hard-working professionals can't afford a median home. That's simply wrong.
Whatever I feel about it, of course, is entirely separate from what will happen. I just can't imagine these inflated prices continuing to increasead infinitum. One thing I have learned about in grad school is the reversion to the mean.
Anyway, my apologies to everyone else for taking so much blog space.
Can you provide an MLS#?
I would prefer to not to post where I am going to be living on the internet. If the inspection reveals a rotting foundation and I bail out, I'll post the MLS.
In the mean time, I'll gladly email/phone it to you.
apologies if this was already posted, but I thought it was a good read for someone like me who is still learning about the credit bubble chaos. 1 in 3 ARMs end up in foreclosure, yikes.
Bummer on the ARMs Front
"anyone see Suzie Ormans investment portfolio-- SHE IS OR MUST BE THE BIGGEST BEAR AT HEART."
I don't think that is the case. Her portfolio is so big that it generates more than enough income to meet her needs. In addition to that she doubtless has substantial income from her employment/performance activities.
1 in 3 ARMs end up in foreclosure, yikes. netween 2004-2006 and had an initial teaser rate of less than 4 percent.
That's actually a small percentage of ALL arms.
Hammer,
Do you even realize how silly you sound?
Someone shows that their rent is dramatically lower than the mortgage cost of their home -- you tell them that it's because they live near frat boys.
Someone else posts that 1/3 of ARMs ends up in foreclosure (a statistic that could probably be attacked on its own merits, incidentally), and you make the dubious, unsupported argument that sub-four-percent teaser loans aren't a significant portion of the market.
Meanwhile, what kind of evidence do you post? Articles from 2005. Newsitorials whose sources are exclusively employed by the NAR. Inaccurately-titled stories that claim one thing, but actually show another.
I could go on.
The reason that things have become so "contentious" for you, is that you behave like a petulant child. You don't listen to other arguments, you repeatedly spam the forum with the same inane links, and you are seemingly impermeable to logic and reason.
In short, you act like a moron, you add nothing to the conversation (other than blind dissent), and most recently, you've increasingly taken to a creepy and threatening persona.
Where is your credibility? Do you care, or are you simply seeking attention?
'Shug - I enjoy reading your comments. I don't think you act like a moron, and I certainly don't think you have a "creepy and threatening persona". I encourage you to keep posting, as it is nice to hear some perspectives different from the usual suspects on this blog.
Misterbubble - Thanks for taking a big 'ol dump on an interesting and respectful conversation.
Some points to keep in mind:
- Lionel said that his rent was far under the "Zillow value", not far under the mortgage cost of the home. Naturally, the Zillow value is a raw guess. My interpretation of Meshugy was he was trying to understand why the place would rent at such a discount. Frat boys and traffic would explain such a discount.
- The article says that 1/3 of ARMs with a sub-4% teaser rate end up in foreclosure. Meshugy claimed that these types were a small % of all ARMs. While unsupported, his claim is far from dubious (I personally would be surprised if his claim was wrong). Perhaps rather than attacking someone for posting an unsupported claim, you can refute their claim by citing some statistics. That would be beneficial for everyone.
- The Tim does a great job of posting very well-thought-out analysis and conclusions. Ad hominem attacks really detract from the effort that he and others have put into this blog.
I think the reason things have gotten so contentious around here is just a plain lack of respect. Because someone disagrees with your point of view doesn't mean they are a moron.
WOULD COME IN ABOUT 3,500.00 A MONTH
Not really...if you paid 20% down and got a 6% interest rate is would be 2398.20 a month.
Mike,
Forgive me if I'm wrong, but I don't think you've been posting here for very long; those of us who have are quite familiar with Meshugy's "reasonable" brand of argumentation.
"My interpretation of Meshugy was he was trying to understand why the place would rent at such a discount. Frat boys and traffic would explain such a discount."
He's not trying to "understand" anything -- he systematically advances this same line of argument every time someone points out the easily verifiable fact that rents in Seattle are nowhere near the same-property PITI. If it isn't frat boys, it's street access, traffic, proximity to a convenience store, whatever...when dealing with meshugy, there's always some deficiency in your data, but there's no limit to the questionable, unsupported drivel that he can spew.
Again, this is a pattern -- Meshugy sounds reasonable if you're new to the conversation. If you've been here a while, you realize that he never considers the counterarguments. He posts the same crap, again and again, and runs away when challenged.
"Meshugy claimed that these types were a small % of all ARMs. While unsupported, his claim is far from dubious."
Prove it.
"Perhaps rather than attacking someone for posting an unsupported claim, you can refute their claim by citing some statistics. That would be beneficial for everyone."
A) Sorry, but that's just not the way arguments work. You don't get to assume that something is true if stated by meshugy, until proven false by misterbubble.
B) I am unaware of a public source of information that would confirm or deny the "facts" that he has presented here. As such, I am quite confident that he's blowing smoke. But hey...if Meshugy can offer up some data to support his assertions, more power to him. His silence is deafening.
"Because someone disagrees with your point of view doesn't mean they are a moron."
Plenty of people disagree with me, and I don't automatically assume that they're morons. In fact, I tend to welcome reasoned, fact-based arguments from people who disagree with my opinions.
The thing is, Meshugy doesn't make arguments. He posts assertions, half-truths and propaganda, and more often than not, resorts to blatant deception to make himself heard. And lately, he's added threats into the mix, with his increasingly aggressive and unbalanaced insistence on obtaining personal information.
One final thing: I don't need to defend my "big ol' dump" on your polite, tea-party conversation. I have as much a right to make comments here as either you or Meshugy. I also happen to have greater context on his argumentative tricks than you do, and I'm choosing to call his bluff.
Lionel said: "I'm not even so certain that interest rates have to go up for prices to come down."
I completely agree. In fact, my guess is that interest rates will head down even lower than anything we've seen in the last 10 year: for anything that is of low risk, that is.
As the global economy heads south, I expect to see a rush to "safe" investments like the sovereign debt of industrialized nations, and super-safe borrowers. All other kinds of debt will only be had with a HUGE risk premium.
For example, someone with a 750 credit score, putting 40% down might be able to get a 4% 30 year fixed mortgage, but someone with a 650 score, wanting to put 5% down would need to pay 25% interest.
In short, the spreads between investment, and junk, grade credit will rise dramatically. Central banks can lower their rates all the way to 0, but I predict we will reach a point where the fear of borrower's ability to repay will cause lenders to hugely tighten their loan criteria.
At least these are my current thoughts...
Shug does in fact, act like a moron. He posts the same b.s. all day long, he has been doing it for a long, long time. When actually called for statistics to back up his claims, he ignores your comments and instead posts 2 year old articles.
He skirts the boundaries between truth and fiction, and more recently has exhibited crazed stalker like behavior, seeking to know everyone's address or MLS listing on this forum that posts an anecdotal story.
Misterbubble - I've been reading this blog semi-regularly for I think about 8 months now. So, I'm very aware of what different people tend to post on this blog.
My assertion is that you should attack Meshugy's arguments, not him. And out of respect for others, you should (in my opinion of course) try to keep it civil.
You said: You don't get to assume that something is true if stated by meshugy, until proven false by misterbubble.
I never said that, and I never assumed his claim was true. I did say that his claim sounds reasonable. And I said that if you disagree with his claim, proving so would be beneficial for everyone. I'll futher claim name-calling is useless for everyone.
I am unaware of a public source of information that would confirm or deny the "facts" that he has presented here. As such, I am quite confident that he's blowing smoke.
Are you saying that if Meshugy states a fact that you can't find data to support, the fact is not true? This is a classic "Ad Hominem" logical fallacy.
Meshugy doesn't make arguments. He posts assertions, half-truths and propaganda,
As do a lot of other people who post on this blog. The only difference is they are all housing bears, and Meshugy is a bull.
I have as much a right to make comments here as either you or Meshugy.
You're right. You can post here whatever you want. Remember though, you reap what you sow.
I also happen to have greater context on his argumentative tricks than you do, and I'm choosing to call his bluff
Careful there. You don't have any idea how much context I have.
ron, stop flooding this thread.
first of all, just because you only know a handful of people, it does not reflect the actual population. In fact, the latest number estimates that ~35% of home owners do not owe any mortgage, therefore 20% down is not unusual.
second, mortgage rate is nowhere near 7%.
stop posting.
Tai,
20 percent down is not unusual? Do you have any statistics to back this up? Everything I have heard from those in the mortgage business state otherwise.
Great location for a grad student!
Sounds like you're close to a lot traffic and frats though...the same house would rent for a lot more in Greenlake, Queen Anne, etc.
I live on the top of Queen Anne hill in a nice restored craftman and rent a 4 bedroom, 2 bath house for $2,000/month. Not very different than Lionel. The Zillow estimate is $616,000, but based on the heavy research I have done in Queen Anne, I suspect that the asking price would be north of $700K.
I live on the top of Queen Anne hill in a nice restored craftman and rent a 4 bedroom, 2 bath house for $2,000/month.
Cool...where?
Stalker!
I'll add to the "rents not covering PITI" crew.
I rent a 3/3.5 Townhouse 2 blocks from volunteer park. Very nice neighborhood.
Zillow value is $628k. I rent it for $2100/month. Owner bought it it 2005 for $587k. If they are cash-flowing, it is only because they put down a lot and locked in at 5.25% - which could happen back then. I am too lazy to calculate actual PITI. Others with more time or interest may choose to do so.
However, I do they aren't making it up on "equity". A zillow-paper profit of $41k in 2 years ain't much to write home about. Won't even cover the comm/taxes.
As far as shuggy goes, I'm glad he's here. Stirs the pot. I just wish he'd throw a hardball once in a while instead of the whiffle-ball pitches he usually comes up with!
I'll speak to the power of this blog and the posters on it. Other than the bulls (hello...econ 101). They finally were the "other voices" that saw the same thing coming and I had been talking about for a long time.
My dad's talking to a Realtor this week about putting his house on the market here in L.A.
I'll keep you posted.
Tim...you rock.
7503 Jones ave was purchased in December for $410K and popped up on Craigslist for $1500/month.
That place is kind of a dump...very small, kitty corner to 24th which has tons of traffic. It would be a huge drop in quality of life for me to move into a place like that. I'd rather pay $900 more a month, have more space, a nicer place, no adjacent traffic, and be earning equity.
This exactly what I'm talking about, usually the rentals are the least desirable houses and aren't kept up very well. If you do get a really nice place in a good location, you pay for it.
I'd rather pay $900 more a month, have more space, a nicer place, no adjacent traffic, and be earning equity.
Shug, you don't earn dinky-doo until you sell. It isn't sold until you walk out of the closing with a check in your hand. That check is worthless until it is cashed.
Mike:
"Are you saying that if Meshugy states a fact that you can't find data to support, the fact is not true? This is a classic "Ad Hominem" logical fallacy."
No it isn't. Ad hominem means "to the person"...a personal attack on another to counter their argument. To wit:
"Meshugy is a moron, therefore, his argument is wrong."
...which is not what I said.
Suggesting that an argument should not be believed without support is basic logic. It's not personal, and it's not specific to Meshugy.
Because someone disagrees with your point of view doesn't mean they are a moron.
Well...sometimes it does. Case in point:
Anyone that thinks that renting out a $600K house for $2K/mo is not playing with a full deck. Let's look at this.
House goes for $600K
Rent goes for $24K/yr
Management fees are $2400
Property taxes are $7500
Insurance is $600
Maintenance is $6000
Occupancy rate is 21 months every two years, or 87.5%
That leaves you with a whopping $4500/yr on your investment. That is assuming you paid cash for the house, and Mr. Bankster is out of the equation.
For those keeping score, this is called the "cap rate" or EBIT, and for this specuvestment, you get .75% Notice the decimal. That is less than one percent.
That is assuming you get $2K/mo, and your house is only vacant 6 weeks per year, and nothing major happens to your house. It assumes your tenants don't trash the place and pay on time.
OK, let's cash flow this dog.
Assume 5.75%, 30Y fixed, with 80%LTV. P&I run $33649/yr. Add in the $4500 returns from the previous exercise and an average principal paydown of $8061/yr over the first 10 years, and you cash flow...
drumroll please...
-$21,088/yr. That is a negative cash flow of $1757/mo.
But wait, it gets better.
You put down $120K (as if!), and that $120K would have earned 6% in a brainless, short term CD, which averages $820/mo over the same 10 years.
Your negative cash flow just jumped to $2577/mo, or $31K/yr for the first 10 years.
Keep in mind that these assumptions are skewed to show a positive outcome on the property. In reality, the outcome would likely be worse.
I feel very comfortable conferring a title of moron on anyone that thinks this is a good investment.
Yessiree! Burning $31K/yr so I can have an EBIT of less than 1%, and spend a bunch of free time writing checks to keep the place maintained, and the taxman happy, not too mention all the anxiety of getting and keeping renters that gross $72K/yr in verifiable income and hoping nothing major goes wrong with the house, or the property market doesn't take a headder...
Sounds like a great investment to me.
It is much better than that CD that pays 8X as much, without all the negative cash flow or worries.
Where do I sign?
Is there any wonder why the lenders are all going under? They loaned money to morons.
My rental is listed on zillows at 650k. The house around the corner recently sold for nearly around 750k. Zillow may be undervaluing my place in today's market.
I pay around 1750 in rent. That puts me at 370X. Who can beat that?
(I am near downtown Bellevue, Meshugy)
This is my first post here, but I’ve been reading the blog for about 2 months. I’m currently renting and was thinking of buying a house last summer, but after 2 failed attempts, I decided to sit still for a while.
The purpose of my post it to point out an anomaly I found, in a pretty good location. It's true the house is listed as Fixer-upper, but I was not sure if that explains the downtrend. Here is the address and the sale history (as reported by Redfin):
12106 NE 66TH ST, 98033-8433
03/29/2006 $679,000
01/30/2007 $582,550 => (582,550 - 679,000) / 679,000 * 12/10 = -17.05 % / year
03/30/2007 $547,900 (if it were to sell then for list price) => (547,900 - 582,550) / 582,550 * 12/2 = - 35.69 % / year
Zillow estimate is $739,158…
I don’t know what’s wrong, but the sale on 01/30 this year does not seem to affect Zillow. This house is probably a good example that buying/flipping has its risks and Zillow’s estimate can be pretty inflated.
matthew,
google it around, you should find that 20% down or more is actually not that unusual. all the bad publicity around subprime and alt-a loans is why most people find it difficult to believe. The latest number released by mortgage banker association says that ~35% of home owners do not have any mortgage.
As for the true cost of mortgage, I can list them for you. On a $500k loan, title is roughly 600 - 850, escrow about 700-800, appraisal 400, processing 400, underwriting 500, tax prep 80, and misc another 100. Altogether around 3500-4000 in closing cost. With the low rate right now, you can easily get a 30 year fixed at 6% without paying any origination, and perhaps even some credit for the closing cost.
APR, which includes all the cost associated with the closing of loan is 6.08% for 500k loan with 4000 closing cost. So explain to me again how is it 7%?
Zillow estimate is $739,158…
Yeah, this is why zillow, despite their apparently meteoric rise to dot-com start-up superpower (yeah... right) is more or less garbage...
Had a friend who had her place on the market in the Central District at $379,000 (close to the z-estimate at the time), didn't sell for about 5 months, knocked it down to $365,000, still didn't sell until finally ended up renting it out...
z-estimate today? $418,000
Zillow's pretty worthless
Tai,
I have done some googling, and I still don't see where 20 percent down is common. In fact, it seems like it is not common at all. Chances are the 35 percent of people that own their houses outright have been in that house for a considerable amount of time, and are probably not the people that have been taking out loans the last couple of years.
From my research it would appear that the majority of loans the last 2 years have had very little money put down. Do you have any evidence /stats to show otherwise?
People are paying 700-800 in escrow fees for a $500K loan? Are you quoting just a first or a 1st & 2nd?
Tai, explain to the viewers how you can receive a 6% 30 yr fixed with no origination fee and/or some credit to the borrowers closing costs. I'd like to review the GFE, so that consumers here, when they do decide to buy or refinance, can consider that mortgage broker or lender and understand the true costs associated with originating a loan similar to that. Consumers should understand that loans with rebates (selling the consumers a loan at a higher interest rate)to reduce out of pocket expenses utilized to pay for closing costs are not free.
I agree with you 20% down or more is common. This month, our office has not closed too many large cash down purchases. YTD 50% of the purchases have been 100% financed and and some of them were Option ARM's, some with prepayment penalties. Again, in EVERY case of a 100% loan close through our office,the purchase price was increased over list price to offset buyer paid closing costs. A couple of those were Option Arms for new construction. This is only our office (Snohomish Co) and other offices nearer Seattle proper may have a different data.
S-Crow
Legacy Escrow Service, Inc.
Once upon a time, Tim deleted the posts with the personal attacks.
Eleua said:
I feel very comfortable conferring a title of moron on anyone that thinks this is a good investment.
No, that doesn't mean moron. That does means a very high tolerance for risk. The reality is that if that property appreciates at 15% yoy for a few years, and the person sells, this was a profitable investment. And this has been the case in seattle for the past 4-5 years; bubble or not, if you timed it correctly, you made out very well.
Moronic? No. But there are certainly other places to put your money with much nicer risk/reward outlook (like T-bills).
Misterbubble said:
No it isn't. Ad hominem means "to the person"...a personal attack on another to counter their argument.
Perhaps you are correct. You said previously:
I am unaware of a public source of information that would confirm or deny the "facts" that he has presented here. As such, I am quite confident that he's blowing smoke.
I interpreted this as
"A states X AND X doesn't have immediate support, therefore X is false".
Which is ad-hominmen - the "A states X" part is "to-the-person".
You could very well have meant:
"X doesn't have immediate support, therefore X is false"
which could be restated as
"X is true OR X is false, therefore X is false"
I think you'll agree that this is nonsenical.
And just to add something productive and relevant to the convesation:
My "apartment" is a recent condo conversion, located on captiol hill. 2br, 1 bath, 2 garage parking spots, granite, stainless, hardwoods...
It was purchased for $270,000, taxes for 2006 were $1300, and I'm guessing HOA dues are about $2400/year.
I rent this from the owner for $1300/month.
The monthly costs for the owner are:
Taxes: $112.50
Insurance: $112.50
HOA dues: $200.00
Assuming an 87.5% occupancy rate, the cap rate here is 3.17% (if I did the computation correctly). No idea if this is cap rate is good or bad.
Assuming the owner put 20% down, 30-year fixed, and 5.75% interest rate, the P&I is $1,260. His totaly monthly expenses are $1685. Subtract from this the $1300 in rent to get a negative $385/month for the cashflow.
Is this a worthwhile investment? I don't know. I'll tell you when he sells.
Mike,
I set the trap for 'Shug, but you fell into it.
You NEVER, EVER, EVER compute investment ROI based upon the capital appreciation - NOT EVER!!!
That is speculating, not investing.
Yes, this is a very high risk speculation, and shows exactly how much a property has to appreciate in order to keep the speculators in the game. It doesn't even have to shift into reverse or stagnate for them to go underwater.
As this game progresses, specuvestors need a higher and higher appreciation just to stay in the game.
When it shifts, they will abandon the property at any price.
Classic bubble.
To clarify what I was saying earlier regarding the tightening in the market not being felt for 6 months or so, I was refering to housing prices, not people inside the business. I do not think that housing prices will really start to drop for another 6 months or so.
I understand that people in the mortgage biz and/or mortgage biz are "feeling" the tightening, however house prices tend to be sticky, and will not feel the impact for sometime.
I set the trap for 'Shug, but you fell into it.
You got me there. What trap did I fall into exactly? Confusing speculating with investing? I am certainly able to "invest" money in a speculative bet, am I not?
I think we're going to be arguing semantics here. Irrespective of how you define speculating vs investing, if you time it right, "investing" in a "speculative bet" during a "speculative bubble" can be very, very profitable. It can also be financially devastating. Caveat Emptor.
Nobody knows the size of the bubble or the timing of its implosion. Personally, I've been thinking it would pop from about 2004. If I would have bought then and sold in 2006, I would have raked a tidy profit. That's a fact.
I do not think that housing prices will really start to drop for another 6 months or so.
But you just said prices would go down in April. Have you changed your mind?
Shug,
For the final time:
Yes I think that prices will go down after April. However, I do not think that the effects of the tightening that is going on in the lending industry will be truly felt for another 6 months. Comprende?
Mike:
I agree that your interpretations of what I wrote were incorrect and nonsensical.
Meshugy needs to support his arguments, just like the rest of us. If he wants us to believe that the sky is orange, that his house is built on top of a diamond mine, or that teaser-rate ARMs are a small percentage of Seattle mortgages, then he needs to provide evidence. His word doesn't count.
"Irrespective of how you define speculating vs investing, if you time it right, "investing" in a "speculative bet" during a "speculative bubble" can be very, very profitable. It can also be financially devastating. Caveat Emptor."
I think you've missed Eleua's point. If you define an investment solely as "something that gives a good return on money," then a winning lotto ticket becomes a great investment.
You're right that there's no fixed line dividing "speculation" from "investment", but Eleua's point still holds for real estate -- it's folly to assume capital appreciation. For all you know, your capital could burn down tomorrow night -- it wouldn't be a very good investment then, would it?
In the context of real estate, it's generally accepted that you need a positive cash flow to have a true "investment". Otherwise, you're speculating; you're gambling that property values will rise faster than your carrying costs.
I agree with you 20% down or more is common.
I have no data to back this up, but I'm sure this is the case with most loans. What's probably more important is this:
How many first time home buyers are putting down 20% on a $450K home? (likely answer: almost zero) How many can even put 5% down?
(We're about to find out that it won't be that many!) The easy money is gone!
Credit expansion=easy/free money=wild consumption=asset bubbles
Credit contraction... well, you get the idea.
Imagine what happens when there is a tremendous expansion in worldwide liquidity resulting in asset bubbles in real estate AND stock markets.
See Japan 1985, USA 1927-1929, and SE Asia 1992-1997 (USA 1996-2006)
How can this not end badly?
Misterbubble said: it's folly to assume capital appreciation.
Tell that to everyone who made money speculating during the real estate boom.
Mike,
how many of those people that have "made" money speculating on the current runup, have actually realized those gains? How many of those people were smart enough to get out at the top? How many of those have sold all their properties and have liquid assets?
Answer:
Not many.
Misterbubble said: I agree that your interpretations of what I wrote were incorrect and nonsensical.
Perhaps you can clarify how I should interpret your previous statement:
I am unaware of a public source of information that would confirm or deny the "facts" that he has presented here. As such, I am quite confident that he's blowing smoke.
Is the following a fair generalization? "Meshugy said X. X doesn't have immediate support. Therefore, X is false"
I think that sounds like a fair generalization. Let me know if you disagree. I also think it is an illogical conclusion. Let me know if you disagree with that as well.
And just to keep things in perspective, I check out this blog for interesting & relevant info about the seattle real estate market - articles, anecdotal stories, opinions and the thorough analysis that The Tim does. I don't really enjoy reading personal attacks. I also don't really enjoy picking apart people's arguments to make a point. If I did make a point, I hope it is this: keep it civil and keep it respectful.
This has been fun, but I'm done. You can have the last word misterbubble.
Peace,
Mike
matthew said:
How many of those have sold all their properties and have liquid assets? Answer: Not many.
The question isn't whether or not they've sold *all* their real assets, but whether or not they've realized *any* profit from them.
matthew said again:
How many of those people were smart enough to get out at the top?
You don't have to get out at the top. You just have to get out for more than you paid.
Mike,
And how many of these people do you think have "realized" any of these gains? I would venture to guess that the amount of people that will be hurt by the bubble bursting will far outnumber those that reap any benefit from it.
BTW, taking out a HELOC and buying a H2, plasma, and trip to Mexico do not equal realizing gain.
Do you think otherwise? Do you think that the bubble is going to be beneficial to most?
matthew -
I think the bubble has been pretty beneficial to a lot of people. The downside is just now starting to show itself. We'll see how things turn out. Whether or not any individual makes out depends on when they bought, and what happens with prices before they sell.
Some people raked in cash on the way up. Some people are going to get screwed on the way down. That's the game.
Wall Street made out like bandits on the way up. And they'll probably make out just as well on the way down. Good for them.
To claim that "not many people made money on the real estate boom" is, well... I don't buy that statement in the least bit.
To address what type of loans are being transacted in our market place:
On 12 March 2007, Credit Suisse published a 67 page report on the mortgage, housing and builder markets. In this report they quantify the entire spectrum of mortgage product and include the geographical excesses. Seattle on page 37 of this report is shown as having 35% of loan originations 2006 were 100% ltv or had negative amortization. This is one of the reasons that the Puget Sound region will feel the pinch as lending changes back to realistic underwriting standards with full documentation and verification.
They also discuss the various foreclosure prospects and the recasting of the various types of loans including its impact on builders and particularly all of the publicly traded builders.
It is a great deal of material to read and digest. I can not do it justice in attempting to condense it for you.
Here is a link to a site that will allow you to download this report.
http://www.billcara.com/CS%20Mar%2012%202007%20Mortgage%20and%20Housing.pdf
Mike,
This thing has a long way to go before it unfolds. 42 lenders have already gone bust in 2006 alone. We'll see just how many people have made money when its all said and done.
Sure a few people are intelligent enough to jump ship before it starts taking on water. But the majority of the bulls will find their way to the bottom of the ocean.
Confused - thanks for posting the link to the csfb report. Interesting stuff.
all of you are way too serious...
http://www.youtube.com/watch?v=7MV4txjNwyI
I keep hearing about how the PNW market will only go up by 5-10%, and that is just fine for keeping everything together.
If you are losing $30K/yr on your "investment", how long can you carry it if it is appreciating by that amount? You are treading water, and have to pay out RE fees to get at the money.
You could refi/heloc, but lenders and interest rates are not as helpful as they once were.
The modern RE "investment" game works thusly...
Buy an overpriced home.
Rent out for a loss.
House appreciates faster than you burn cash.
Refi/sell, and repeat.
The problem comes when you can't refi, and you can't sell. You now find yourself burning cash, and soon you will be depleted.
Now, the cycle feeds in reverse.
This is a classic speculative bubble. There is no "investment" of any kind.
When you buy an asset that returns a dividend to you, that is investing. When you buy an asset and you need a buyer to make you whole, that is speculation.
The very first question you should ever ask when investing is:
"How long until I get my money back?"
That is the point that your initial outlay is paid back to you, and you still own the asset.
In the example we have been discussing, that point is never. You must sell to get your money back. Ergo, this is not investing; it is speculating.
Eleua said: When you buy an asset that returns a dividend to you, that is investing. When you buy an asset and you need a buyer to make you whole, that is speculation.
So by this classification, any stock that doesn't pay a dividend is a "speculation", not an "investment". I don't buy this.
I get your point you're trying to make: buying real estate for the appreciation is not a smart investment.
Believe it or not, I agree with you. I personally wouldn't touch real estate now.
However, that doesn't mean though that you can't make money speculating.
Mike,
You are starting to catch on.
I never said you can't make money by speculating. I speculate heavily in finanace and tech options, metals, and mining companies. Did you hear that? I SPECULATE. I am not investing.
Buying a stock that does not pay a dividend may be called investing by Wall Street, but it is speculating. That is the whole point of the internet mania we had.
BTW, the stock market is wildly overpriced due to speculative behavior. It is largely speculating.
Investing has lost much of its meaning. It is now a generic term for putting money at risk for a reward.
(darned preview)...
I "invested" in an Airline Transport Pilot license from the FAA. It cost a lot of money and time. I have no intention of selling it to another party for a higher price than I paid.
I use it to derive a benefit from the various employers I have worked for. It paid for itself, over and above what I would have had without it back in 2004. I still have the asset and I still derive a dividend from that asset.
Last month I purchased some $20 put options on Accredited Home Mortgage. I paid about $65 per contract and sold them for $1500 per contract. That was speculation - pure, raw, naked speculation. I absolutely needed someone to purchase those options from me in order to get my original stake out and to show a profit. I received absolutely no dividend from those options (other than the giddy feeling of watching the housing market crumble).
I know it seems like splitting hairs. I am just trying to show the difference between the two behaviors.
BTW...
Lest anyone think I am bragging about my LEND options, let me just go on the record and state that I have lost plenty of trades - more than I care to count. Some have really hurt.
Ron,
You have a lot of posts where you are confusing 'their' and 'there'. This makes your posts hard to read.
That was speculation - pure, raw, naked speculation
I cleaned up on those LEND puts too! But was that really pure speculation? That was calculated risk wasn't it? While I wasn't 100% sure LEND would crater, I felt about 90% sure -- sure enough to buy 80 March, June and Jan PUTS.
Seeing the subprime debacle in advance was the direct result of following this entire story, was it not?
Isn't that different from someone that does no research but somehow feels the 'equity' train is leaving without them, so out of fear and greed they jump on?
Synthetik,
Using knowledge to exploit a situation for a capital gain is speculation, IMHO.
A blind crapshoot is gambling.
Speculation is not a bad thing. I just don't want it confused with investing.
synthetik- That Is I agree a LOT MORE on how you arrived at your decision to short when you did..
Timing with optoins is a real bitch. While the put contracts were all fairly cheap, the March ones were a steal. I bought some June and Jan 08's too just in case @ $20 strike price.
While I expected the stock to crash, it seemed like more of a risk since the general consensus was "Accredited Home Lenders (LEND) was the strongest of the subprime bunch".
Timing, as far as covering my LEND position was pure luck... I decided ahead of time that I'd cover my positions if the stock dipped down to $5/share - it actually went under $4/share, but I ended up covering at $5.50/share.
Much more experienced investors than I told me to expect a bounce, which turned out to be true... the stock is now trading near $12, possibly a target for speculation!
Now I'm speculating that Alt-A will be heavily affected, bringing down stock prices of companies like Countrywide, Downey Financial (DSL), Wells Fargo and some smaller regional banks.
This past week was horrendous in terms of my put option positions while the bulls drink all news/no news pretty, but at least I have until Jan 08 to ride them out.
Only time will tell.
"Is the following a fair generalization? 'Meshugy said X. X doesn't have immediate support. Therefore, X is false'"
Is that a fair generalization of what I said? No. Is it a fair generalization of your twisted interpretation of what I said? Sounds like it.
You're also (rather conveniently) leaving out the last two sentences of what I originally wrote:
"I am unaware of a public source of information that would confirm or deny the "facts" that he has presented here. As such, I am quite confident that he's blowing smoke. But hey...if Meshugy can offer up some data to support his assertions, more power to him. His silence is deafening."
Since you've done this three times now, I'm going to assume that you're either incredibly dense, or you're playing stupid to be provocative.
Either way, Meshugy still hasn't offered any evidence for his claims. As I said...his silence is deafening.
Troll on, mike. I'm done with you.
First time posting here.
Someone posted this link at fatwallet. Thought I shared it with you guys. Sorry if the chart has been posted here before.
http://www.autodogmatic.com/forum/viewtopic.php?p=1226#1226
Those whose Investment Stategies heavily rely on Speculation usually always end up loosing in the end
Mostly true. Slow and steady wins the race.
That's why I try not to commit more than 20% of my investment capital into speculative investments.
What's speculative at this point in the market? I'd content that 401K/mutual funds are probably at great risk at the moment. I'd rather be in all cash.
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