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Old 12-08-2007, 07:28 PM   #21
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Are the metrics (GRM OAR GIM) predetermined or are they the result of market activity?

My vote is market activity. Why do you think otherwise?
Which came first, the chicken or the egg?

Market participants, like you and me, look at a myriad of factors. You're looking at hoped-for appreciation. I'm looking for pocketable cash flow.

At the top of the dot-com bubble, the NASDAQ P/E peaked at an incredible 165 times trailing earnings. That was obviously market determined, and the market was full of hopefull honobob's willing to wait 165 years to get paid back for their piece of the earnings pie.

Does that mean a P/E of 165 was fair value? It wasn't for some market participants, like me, who sold. Eventually, there were more guys like me than there were guys like you, and the market settled down a bit.

So, to answer your question, the current multiple reflects market activity. But there are rational actors in the market who will look at the risk premium and decide whether they are a buyer at the current multiples. I am not.
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Old 12-08-2007, 08:13 PM   #22
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Originally Posted by twaddle View Post
Which came first, the chicken or the egg?

Market participants, like you and me, look at a myriad of factors. You're looking at hoped-for appreciation. I'm looking for pocketable cash flow.

At the top of the dot-com bubble, the NASDAQ P/E peaked at an incredible 165 times trailing earnings. That was obviously market determined, and the market was full of hopefull honobob's willing to wait 165 years to get paid back for their piece of the earnings pie.

Does that mean a P/E of 165 was fair value? It wasn't for some market participants, like me, who sold. Eventually, there were more guys like me than there were guys like you, and the market settled down a bit.

So, to answer your question, the current multiple reflects market activity. But there are rational actors in the market who will look at the risk premium and decide whether they are a buyer at the current multiples. I am not.
WTF?
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Old 12-08-2007, 08:37 PM   #23
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WTF?
Dude, that's exactly what I've been saying! Isn't it great when it finally hits you? Now get out there and sell!
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Old 12-08-2007, 08:40 PM   #24
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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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Old 12-08-2007, 09:40 PM   #25
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Which came first, the chicken or the egg?

Market participants, like you and me, look at a myriad of factors. You're looking at hoped-for appreciation. I'm looking for pocketable cash flow.

At the top of the dot-com bubble, the NASDAQ P/E peaked at an incredible 165 times trailing earnings. That was obviously market determined, and the market was full of hopefull honobob's willing to wait 165 years to get paid back for their piece of the earnings pie.

Does that mean a P/E of 165 was fair value? It wasn't for some market participants, like me, who sold. Eventually, there were more guys like me than there were guys like you, and the market settled down a bit.

So, to answer your question, the current multiple reflects market activity. But there are rational actors in the market who will look at the risk premium and decide whether they are a buyer at the current multiples. I am not.
Ok You're mixing pork and chicken. I thought we wuz talkin real estate. If you are "not a buyer at current multiples" then you do have some affect on the market that is obviously DIMINISHED by the active (real) market participants. Just because you wrongly choose(again) to not participate at the current market multiples does not invalidate your hundreds of thousands of dollars loss or my hundreds of thousands gain.
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Old 12-08-2007, 10:11 PM   #26
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I'm not trying to invalidate your gains. The market will take care of that.

Well, you do have a chance to make more gains in the housing market as long as there are still buyers left who think like you do. Frankly, I think you're the last housing permabull left -- practically a national treasure.
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Old 12-08-2007, 10:22 PM   #27
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I'm not trying to invalidate your gains. The market will take care of that.

Well, you do have a chance to make more gains in the housing market as long as there are still buyers left who think like you do. Frankly, I think you're the last housing permabull left -- practically a national treasure.

Then why don't you put up or shut up? Or at least confine you remarks to the FAQ.
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Old 12-08-2007, 10:52 PM   #28
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Don't be mad. I did call you a treasure, didn't I?

Maybe you can find a way to sell your houses to yourself in order to keep prices high. You know, sort of how the wall street guys "paint the tape." I think it would be more effective than your one-man crusade to rally the market based on talk of your unrealized gains.
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Old 12-08-2007, 11:00 PM   #29
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Don't be mad. I did call you a treasure, didn't I?

Maybe you can find a way to sell your houses to yourself in order to keep prices high. You know, sort of how the wall street guys "paint the tape." I think it would be more effective than your one-man crusade to rally the market based on talk of your unrealized gains.

oh no you dint!

Still! put up or shut up! I ain't selling (why would I with 9% -11% appreciation)? Did you see Kauai up 40%?
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Old 12-08-2007, 11:05 PM   #30
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There are a lot of valuation metrics. Discounted cash flow. Price/Rent multiple. Cap rate. Price/Income multiple. Debt/income ratio. I'd be happy to see any of them make sense again.

Just for fun, here's San Diego's median home price / per capita income with a projection for how long a correction might take....

12 years to reach average valuation for San Diego sounds about right. If I remember correctly, in the last real estate bust it took about 9 years to reach average valuation in San Diego County. The current bust appears to be far worse in its intensity.
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Old 12-08-2007, 11:11 PM   #31
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12 years to reach average valuation for San Diego sounds about right. If I remember correctly, in the last real estate bust it took about 9 years to reach average valuation in San Diego County. The current bust appears to be far worse in its intensity.

Can you define average valuation? Can you provide support for for that value? Can you provide support for your determination that "current bust appears to br far worse in its intensity"?
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Old 12-08-2007, 11:47 PM   #32
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I owned a house in San Diego County from 1987 to 2006, when we sold and moved out of state. If my memory serves me correctly, we had a major real estate correction in 1990. I believe that Median prices for single family residences did not return to Pre-1990 median prices until 1999. I could be off by a year or two. The current bust which started in approximately August, 2005 is far more severe in its scope and intensity, because banks financed homes with teaser interest rates with no down payment for anyone who had a pulse. San Diego County home prices have dropped 9.5 % in the past year. No one knows where the bottom is, but we do know it won't be anytime soon. A projection of 12 years to return to Pre-2005 San Diego County Median home prices for single family residence would be a very reasonable estimate.
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50% Loss in 1988 in Houston after 3 years ownership
Old 12-09-2007, 03:31 PM   #33
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50% Loss in 1988 in Houston after 3 years ownership

We bought later in 1997 and the house is still valued at our purchase price. The company moved us every three years and we bought each time. In hindsight it may have been better to have rented. It looks as thought we hit two bad real estate markets.
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