Wednesday, June 28, 2006

Interview with John Rubino

This link was sent to me by Ken Kapple, writer for our local Home Owner's Economist site. It is an interview with John Rubino. This is well worth the approximate 28 minutes to listen to and it is worth listening to more than once. Here is what Mr. Kapple has to say about Mr. Rubino:
This guy is oh so very smart, as you’ll discern right away. I’ve read one of his books and he is, did I say, oh so very smart.

This is re real estate, moreover, how structured finance is rapidly changing the real estate profile, and, about the macro economy, easily explained, and why you need to pay close attention to what is coming for the preservation of your stuff. Whatever stuff that might be.

I’m thinking family, particularly for those of you who have people dependent on you. I’m thinking, don’t get caught holding assets that are sure to diminish in value. Maybe John will convince you.
Executive summary: People who should not have been able to get a mortgage loan were able to get such a loan (if you had a job and a pulse you could get a humongous loan with silly terms), especially on the coasts (e.g., California). Rate resets will hit us hard. In terms of its asset bubble, the US today is like Japan in the 90s. But unlike Japan, we have no one who can bail us out. A real estate crash is coming, not a correction, but a crash. All we will be able to do is to dramatically scale back our lifestyles, job losses, foreclosures, a stock market crash. Right now we are on the cusp of the turn in real estate. The next step in the cascade is that sellers will try to get out at any price in the hottest real estate markets.

The liquidity contraction that is going on right now is global in scope and will accelerate; interest rates are going up all over the world. History says a painful adjustment is unavoidable. We either get a global recession or a global currency collapse (due to a flood of fiat currency).


Blogger fredtobik said...

I bought my gold...
and a fixed rate,,,

I am still too much of a wimp to short stocks.

Good link a must listen for any "investor". thanks.

Jun 28, 2006, 1:39:00 PM  
Blogger palladium said...

You can always dip your toe into the short side.

Shorting 100 of Lennar or Hovnanian only uses $3000 in capital (for HOV). THat isn't that much exposure.

One alternative would be sure to sell most of your exposed USD stock assets that would get hurt in a RE collapse / recession (consumer discretionary, etc).

Jun 28, 2006, 3:46:00 PM  
Blogger Smudge11 said...

God i hope you are right! I desperately want to buy a home in Suffolk County, Long Island, New York. As i have waited the last 3 years, prices have gone up 100k per year and i look like an idiot having waited.

my boyfriend and i are about the throw in the towel and buy because prices just keep going up and we are tired of waiting.

wait longer? or not? thats the question... liz

Jun 29, 2006, 6:21:00 AM  
Blogger Rory said...

Your fearmongering is so sexy. You would enjoy the OCRegister's take on this. Perhaps a perspective about why people are so motivated to warn people of an impending crash may be better the point being, is since when has living in fear helped anything? Don't we all agree that anything worth wile involves risk. It does take effort, research and intellect to decide what amount of risk is acceptable. IMO

Jun 30, 2006, 8:02:00 AM  
Blogger rejunkie said...


Spoken like a true believer (I mean cheerleader, sorry, self-preservationist; that's not it -- REALTOR! that's what I meant to say).

How long have you read these blogs? Marinite is not fearmongering; he (she? not absolutely sure) provides mountains of data to support his thesis which is simply that the market in Marin is overpriced, the market is slowing and may decrease in value in the coming years. Given that everyone in your trade pumps up the notion of homeownership as a good investment no matter what the circumstances are of the economy or your clients, a little balance does not hurt.

Don't we all agree that anything worth wile [sic] involves risk.

Sure, but Marin RE is not worthwhile right now. Is it worthwhile in the long-term? I believe so otherwise I would not own 3 properties here myself. However, there are alot more worthy places to invest right now. RE is not the only game in town.

since when has living in fear helped anything?

It doesn't. But living in enlightenment and truth about your own situation and the market forces around you (which is largely what marinite opines about) DOES help you.

Spend some time looking at marinite's data and the posts that reference those data -- go back over the past 6 months. In other words, do your homework, which is something you should advise your clients to so.

Jun 30, 2006, 8:54:00 AM  
Blogger rejunkie said...


Just skimmed some of your posts. I like this one:

Are newspapers providing reliable information about the housing market? Are they just using tactics of fear mongering to sell more papers, and create a non-existant controversy

Again, if you had spent some time on this blog you would see our local rag is anything BUT mongering fear over real estate. In fact, since every local paper is beholden to its advertising base (and the classified is the LARGEST section of our newspaper, particularly on weekends), it makes sense that they would want to continue to earn advertising dollars from the RE industry. So why would the newspaper bite the hand that feeds them?

Listened to your podcast and you attack on the median home price statistics quoted in papers and statisticians in general but provide absolutely no alternative as to how to measure property values over a large area over time. I would suspect you were not blaming statisticians when OC was going up 20+% every year.

Jun 30, 2006, 9:05:00 AM  
Blogger marine_explorer said...

"Your fearmongering is so sexy."

Well, let’s give credit where it's due. I also seem to recall fear has been an effective tool to sell homes in the past few years: ”Buy now before you’re priced out forever”.

Some fear leads to impulsive behavior, and some leads to well-advised caution.

Jun 30, 2006, 9:56:00 AM  
Blogger Marinite said...

junkie -

But living in enlightenment and truth about your own situation and the market forces around you (which is largely what marinite opines about) DOES help you.

Wow! Thanks. I'm touched. You "get it" (I knew you did but this is the first time you have "voiced" it AFAIK).

Sure, sometimes I get a bit too preachy as I have emotions too, but this site has always been about trying to provide the data that the real estate industry is loath to share and countering the real estate industry's propaganda (their anti-truth).

I would suspect you were not blaming statisticians when OC was going up 20+% every year.

Thank you for pointing out that hypocrisy which is, unfortunately, all too common in the real estate industry. It's better if a reader points that out than me.

marin_explorer -

I also seem to recall fear has been an effective tool to sell homes in the past few years: ”Buy now before you’re priced out forever”.

Again, thanks for pointing out that hypocrisy. Yes, the fear mongering of the real estate industry is one of the things that so moved me to start this blog. It really angers me.

The real estate industry's behavior and statements over at least the last few years has been all about their profits, their commission, not a fair and healthy market. It's that simple.

Jun 30, 2006, 11:07:00 AM  
Blogger rejunkie said...


Frankly, a realtor that comes in plugs his site is bad enough -- the fact that he would do so AND criticize the blogger is just plain stupid and a very poor PR strategy. Not sure what he was trying to accomplish there, so it rankled me.

I would say that when I first started reading your blog, I was probably overly optimistic about RE but you have worn me down, or perhaps opened my mind ;-)

I will freely admit my last purchase in 7/2005 was hastily done and based on fear of "rates and/or prices will only be higher in the future" so I staked my claim thinking it would only be more difficult in the future. I bid under asking and asked for alot of concessions but it is a safe bet the price of that house has not budged since.

My previous purchase in 2002 was done based on analysis on rents vs after-tax cost of ownership and it was clear to me that buying that made sense at that time, even though at that point I had to bit out 7 competitors and overbid by $28k to get it.

Somewhere between 2003 and 2005, things in Marin became unhinged. Do I think we might slide back to 2003 prices (the last time I thought home prices here compared to rents were in line)? Yes, probably through a combination of a slight drop in nominal values with inflation eroding the rest of that 2003-2005 gain. We may still be talking about a $900k Marin median in 2012 (or $720k in 2003 dollars, which is about where the median was in 2003) before any strength returns to the market.

I have said this before but if you are an owner-occupier, I really don't think there is much point in selling and returning to renting if you thin Marin is your long-term home. If you have a 5-7 year view of remaining in the bay area, it might make sense to cash out, put the money in the bank and rent.

As an investor I think I am overexposed BUT the costs of the transaction are significant, I have very cheap financing on everything, and I think I can hold it for the 7-10 years it will take for things to firm up again. I am confident that 15 years from now, prices will be double what they are today, though bear in mind at an CAGR of 4.8% that is lower than our past appreciation rates. So I think if I can sit tight for 15 years (sigh), the short-term roller coaster ride will be worth it. Any investor with a shorter horizon should contemplate selling, especially since CGT is relatively low right now. I think only a fool would consider buying an investment unit now, especially with non-owner-occupier loans approaching 7%.

Even with the strengthening rental marketing (high single digit rent raises in SF last year for instance), rents have to go up at least 60% over a very short period of time, with flat prices AND interest rates, to make investing in a rental a halfway logical idea, which is not likely.

So, yes, I am bearish on RE over at least the next 5 years. Ironic given my moniker.

Jun 30, 2006, 3:25:00 PM  
Blogger marine_explorer said...

I started considering the possibility of a bubble while researching to buy a vacation home. I began getting concerned because once I scraped the surface of the market, contrary indicators would emerge. That was enough for me to opt out of that plan altogether.

Something I appreciate about this particular blog is the wealth of data and participants from a wide range of backgrounds and opinions, without the usual trollish polemics.

Jun 30, 2006, 5:42:00 PM  
Blogger Marinite said...

junkie -

FWIW I tend to agree with your long-term outlook but I would have to say that it's the next 0 to 10 years where buying for investment reasons makes no sense, not 0-5 years like you say.

I am confident that 15 years from now, prices will be double what they are today

That seems like fanciful thinking to me unless incomes can double in that time or ultra-cheap credit returns by then.

I mean, the reason why historically house prices increase and keep up with inflation (plus an additional 1-2%) is because wages have historically increased with the rise of inflation. House prices are tied to wages plus whatever is going on with credit/financing and not inflation itself per se or so it seems to me. We have seen over the last few short years that wages have not really been keeping up with inflation so it may turn out to be that the house price-inflation connection is broken. But it's too early to know.

Jul 1, 2006, 10:26:00 AM  

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