Monday, January 23, 2006

A Local Bear

The Home Owner’s Economist is a web site maintained by a local Marin realtor with a decidedly bearish outlook. How rare! Here is what they have to say about real estate (among other things):
According to the California Association of REALTORS® (C.A.R.), the percentage of households in California who can afford to buy a median-priced home is at 14%, which compares to 19% a year ago. Is this a bubble. Well, Yeah! If you’re holding residential investment property, all we can say is: WHY?

Quite astonishing to realize that well under 20% of average households can not afford to buy a medium priced California home. Does this mean that house prices are inflated or merely “appreciated”? Does this mean there is a housing bubble, or, merely that there is “good value” in homes? Does this mean – well you get the picture.

We’ve maintained for a year that the day will come that the only buyers left will be high school seniors who hope to get a job in June. It appears that the federal regulatory agencies have pushed down some tighter regs on lenders. Perhaps, their tightening will require that high school senior to also have to promise that they’ll get married and the oncoming spouse will have to promise that they also will try to get a job after graduation, foregoing babies, new cars, rock and roll concerts and the like. They will agree to make music at home, but, not too much. Won't be able to afford the expense of darling little ones.

According to the Commerce Department, the rate of construction of new housing units slowed 8.9% in December following a 3.4% rise in November. In 2005 about 2.065 million housing units were started. This was second only to 1972's record of 2.357 million starts. Annualized, December's starts only amount to 1.933 million units. This is not up, and likely to continue decreasing. Yet, yet, yet, longish bonds being down, the 30 year Fixed rate came in at 6.2%, which will embolden buyers who are already out of high school. Residential investors should find these people who are looking for a “good deal,” and give them a “great” one. Quick!!!
And some prudent advice -- protect yourself and your family by reducing positions in over-valued assets (e.g., houses, assuming you can find a high school grad):
Wonderful Opportunity
That is so if investor’s learn to act for themselves, for their best interest; BEFORE they are liquidated by GeoPolitical events by others, for other’s best interests. If calamitous events occur, Greenspan can and will say, “I told you so.” And, he’ll be correct. What he will not say is that simultaneous with his obscure warnings he (arguably single-handedly, with a cheering crowd daring him on) created the liquidity, the easy, the funny money, the Credit Bubble, that Wall Street put to work inflating all assets, as they naturally would do. There ought to be a law. And, there may well one day be one – when it’s too late.

Self-preservation is the way to protect families. The Wonderful Opportunity alluded to above will come when "... blood is running in the streets." This is the History of Civilization. Don’t go all angry or weepy on us. Protect your family. Take Action to reduce positions in over-valued assets. Keep your powder dry in the gold room, and re-enter markets when they've cooled.

6 Comments:

Anonymous Anonymous said...

I have a feeling this blog is run by the president.

He must be thinking of retiring in Marin.

The scare tactics are very similar to the thing in Iraq

Jan 23, 2006, 4:20:00 PM  
Anonymous by_palladium said...

whatever....

It was a really well written post that also made fun of the increasing down-market participation. He just states the bear case from the industry perspective. What does he have to gain by pumping the bear case?

Marinite - thanks. You have an excellent blog with lots of interesting content. I look forward to checking it out every morning when I should be working.

Jan 24, 2006, 8:35:00 AM  
Blogger HomeOwnersEconomist said...

by-palladium said:

What does he have to gain by pumping the bear case?

The truth.

Best, Ken

Jan 24, 2006, 4:49:00 PM  
Blogger Marinite said...

homeownerseconomist -

I'm glad to see you participate in this blog. I hope we see more of you.

Jan 24, 2006, 4:58:00 PM  
Anonymous rejunkie said...

homeownerseconomist-

How do you justify the costs of disposing of investment real estate, including realtor's commissions and capital gains tax? Depending on one's gain, one would have to be anticipating a minimum of 6% (with no gain) up to a 30% maxiumum (assuming a fully depreciated property) drop in prices to justify cashing out, as opposed to 1031'ing, a rental property.

Or are you going to make me pay for a subscription to find out :-P

Jan 24, 2006, 7:41:00 PM  
Anonymous homeownerseconomist said...

yo rejunkie:

You don't have to pay for a subscription, but, you can send me a cheque if you like. grin

You mentioned 1031's. Why would one immediately step back into an over appreciated asset class when one had the good sense to get out (for a while)?

Re cost of getting out. Cap gains, sales costs, etc. Good point!

However, if home prices tumble significantly, and, you're out, you may recoup some or all of those costs if the market (even in Special Marin, where we love to live) tumbles drastically as the current account deficit, real inflation, price of energy, turmoil in Washington (so many many etceteras) continue to exert pressure on interest rates, which may force many ARM folk to walk from underwater mortgages, putting For Sale signs all over your block, and forcing all home values down, as they have gone up.

Physics, what goes up must come down.

If it becomes a rout, and I believe it will, better out, than sick to your stomach.

Gold up nearly 25% in EIGHT MONTHS. That's a bull with legs. And, a place to go and be. Gold up because of international fear of rapidly decreasing dollar and inflation, which pushes negatives mentioned above to increase in velocity. Your call of course. And, Great Good Luck. All above are merely my opinons based on observable and relatively objective facts.

Best, Ken

Jan 26, 2006, 10:34:00 AM  

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