Psychology of the Housing Bubble (and its collapse)

[wabmester]

Quote:

Originally Posted by Alex You have been calling for the collapse of real estate for at least the last year. maybe some humble pie is in order

I only tried to call the near-top, not the rate of decline. Given the overall decline to small increase in prices (none in real terms), and the falling sales, and the increasing inventory, I think this is still a slow-motion train wreck.

I would like a certificate or something to acknowledge my incredible prescience.

[Alex]

Quote:

Originally Posted by wab I only tried to call the near-top, not the rate of decline. Given the overall decline to small increase in prices (none in real terms), and the falling sales, and the increasing inventory, I think this is still a slow-motion train wreck. I would like a certificate or something to acknowledge my incredible prescience.

I do give you credit for consistency! I believe that some markets are nearly 'bubble proof' (ie. NYC, LA, SF). Time will tell......I live in LA, and I'm not worried, not even a teensy weensy bit.

[Texas Proud]

Quote:

Originally Posted by Alex I do give you credit for consistency! I believe that some markets are nearly 'bubble proof' (ie. NYC, LA, SF). Time will tell......I live in LA, and I'm not worried, not even a teensy weensy bit.

I disagree that areas are 'bubble proof', but maybe 'bubble resistent'... I was in an apartment downtown when 9-11 occured... you could buy condos down there CHEAP for a year or so.. I know someone who sold everything he had and bought as many as he could.. yes, he did well...

But, the areas you have mentioned (except LA) has a limiting factor on growth... there is not much vacant land in Manhattan... you must do a tear down and build bigger... but that is going on all the time... so the number of units to people remain tight... but if there were a recession, there would be a lot of people who could not make their payments and the prices would go down.. I think the reason we have not had a major correction is due to no recession... but that will come some day...

[haha]

Quote:

Originally Posted by Alex . You have been calling for the collapse of real estate for at least the last year. maybe some humble pie is in order

Let's not forget- what counts is the expectation of a bet, not how it works out in any particular instance.

Ha

[Alex]

Quote:

Originally Posted by Texas Proud I disagree that areas are 'bubble proof', but maybe 'bubble resistent'... I was in an apartment downtown when 9-11 occured... you could buy condos down there CHEAP for a year or so.. I know someone who sold everything he had and bought as many as he could.. yes, he did well... But, the areas you have mentioned (except LA) has a limiting factor on growth... there is not much vacant land in Manhattan... you must do a tear down and build bigger... but that is going on all the time... so the number of units to people remain tight... but if there were a recession, there would be a lot of people who could not make their payments and the prices would go down.. I think the reason we have not had a major correction is due to no recession... but that will come some day...

I'll go with "Bubble-resistant" as well. But I won't be holding my breath for a correction in LA or SF, Call me a contrarian. In fact, I am looking to buy some units right now while they are cheap.

[haha]

Quote:

Originally Posted by Alex I do give you credit for consistency! I believe that some markets are nearly 'bubble proof' (ie. NYC, LA, SF). Time will tell......I live in LA, and I'm not worried, not even a teensy weensy bit.

LA was never bubble proof before. LA has always seen house price volatility. Remember the early 70s when the aerospace industry hit the skids? Or how about the mid-80s?

Oh yeah, then there was the Valley after the 1971 earthquake. It was hard to find buyers for a good long while, especially since the aftershocks kept right on coming.

Ha

[brewer12345]

C'mon, Ha, get with the program: this time its different!

[yakers]

You don't need a big market crash to get an adjustment. What could happen is your house goes up 1%, your income 2% and inflation 3%, repeat for 10 years and you have quite an adjustment.

[Alex]

Quote:

Originally Posted by brewer12345 C'mon, Ha, get with the program: this time its different!

Key concept of Value investing: Buy out of favor assets. This little axiom has served me well over my investing career. So, you can laugh all you want Brewer. I've been laughing too! In fact, for the last twenty years I've laughed myself all the way to the 'bank'.

[brewer12345]

I think there's lots of times and places that RE investors were not laughing. If and when we transit a point in time when lots of RE investors are not laughing, that's when I will be buying.

[cute fuzzy bunny]

The sacramento CA area isnt looking so hot right now for people who bought recently.

Basically the area has a tremendous amount of open land available to build, inconsistent infrastructure for high growth and a large base of expensive high density communities to draw from for prospective buyers (SF bay area is the big one).

Subdivision build outs have been going up so fast its hard to believe. I took a drive through my old town on sunday and I simply couldnt believe how much new real estate, stores and road work had gone on in the year or so since I last went through there.

Prices aint so good though. I sold my mcmansion 3.5 years ago for about a half mil. A little over a year ago I probably could have gotten about 675k. Right now maybe 575-600. My new house went for $250k 3.5 years ago. I could have gotten 400k a little over a year ago. Maybe 330-340 now.

Oddly (or maybe not), the prices now are close to what Zillow has for its z-appraisal. There was at least a 25% gap between sales and zillow prices a year ago.

I'm still not whipping out my checkbook to buy some real estate, but i've told a couple of realtors to keep their eyes open for some distress sellers over the next year. Theres a bunch of short selling going on right now, more than a few bankruptcies, and a lot of people under water...some figuratively and some maybe literally, as in all the excitement a bunch of builders landed a huge development on a levy protected flood plain with Sacramentos blessing, only to have the army corps of engineers come in the minute they were done and decertify all the levy's and put the homes in a flood hazard zone. By the way, they didnt stop building yet...

Most folks around here are looking at at least another declining year, which would put the area I live in somewhat of a bargain for the region, which it should be.

[tryan]

I am not sure the speculators have been driven out of this market yet.

Watching one of my nieghboring properties. Bank owned (3+ years vacant). When I looked at the property, even deeded to me for nothing it didn't have any chance of a decent (20%) profit.

Young buck buys from Fannie Mae; asking 93k (that's what's owed on the foreclosed note); not sure the closing price and it doesn't matter ... it's a tear down. Building condemned. Town will make you start from scratch. Small lot. Lucky to build 1100 sq ft 2 bedroom. At $150/sqft that's $165K construction cost. Add the tear down cost 15k and you're at 180k. Last 4 closings in the neighborhood - similar size houses - $180-190 k. Even with the land "free" ... no way to make $$ here.

I think our young buck has finally seen the light ... last week he put FSBO sign in front. No way any bank would have financed this ... he must have $$ from other hits.

[cube_rat]

Here's a nice piece of cr*p bargain in Daly City for 650K. A complete tear down job with a rebuild of a house would run ~$150 a square foot (that's cheap). A 300K construction loan ON TOP of buying the existing structure.

A duplex might be the answer, but then the numbers don't work unless you've paid off the construction loan or rolled the debt into mortgage if you refinance. Of course, one could "renovate" for alot cheaper after fumagating the house.

Sorry, situations like the picture below are for the savvy contractor or real estate investor. I do mean savvy. Not the arm chair, I read a few "make millions now in real estate" book readers. Even then, the savvy contractor and/or investor is taking a huge risk. The difference is these folks know more of what their doing then the average joe.

Yep, there sure are bargains to had in the Bay Area.....think I'll go get an ARM

[2B]

Just to stir the pot up, DW just signed a contract on my in-laws tear down. We priced it about 10% over market and got overwhelmed with offers in the first week. The accepted offer was just over our asking price. If it all goes through, the selling price raises the comps by almost 15% in 6 months. Hopefully, it will go through.

I was left with the feeling we underpriced it but based on the data we were wildly optimistic.

[honobob]

Quote:

Originally Posted by wab Call it whatever you want, but do you think your house will appreciate over the next few years at a faster rate than say, CASH?

Well my 20% down ($120K) earned $30K in 12 months= big return. The history of 20 years of >10% annual increase in SF Bay and 30 year history of >9% annual increase in Honolulu and 12 year history in Vegas (of all places) that is also generating 9% per year! I don't even count my 2003 and 2004 Honolulu purchases that have increased in value over 15% per year. So I'm thinking hell yeah I'll do better than CASH.

If my figures are close you lost $100,000 in sales fees and maybe $200,000 to $600,000 since you sold your California properties in 2002-2003. Sound about right? What kind of earnings on cash do you need to make that up?

And everything I've bought has been retail, thru a REALTOR, conventional financing and I've never been able to go the assessor and request a reduction in taxes because my market value was lower than what I paid for it like you.

But that's just the way I see the facts. YMMV

[Alex]

Quote:

Originally Posted by honobob Well my 20% down ($120K) earned $30K in 12 months= big return. The history of 20 years of >10% annual increase in SF Bay and 30 year history of >9% annual increase in Honolulu and 12 year history in Vegas (of all places) that is also generating 9% per year! I don't even count my 2003 and 2004 Honolulu purchases that have increased in value over 15% per year. So I'm thinking hell yeah I'll do better than CASH. If my figures are close you lost $100,000 in sales fees and maybe $200,000 to $600,000 since you sold your California properties in 2002-2003. Sound about right? What kind of earnings on cash do you need to make that up? And everything I've bought has been retail, thru a REALTOR, conventional financing and I've never been able to go the assessor and request a reduction in taxes because my market value was lower than what I paid for it like you. But that's just the way I see the facts. YMMV

I too have made a small fortune this past year in both REITS (up over 30%) - and actual owned Real estate properties (I cashed out 140K of pure profit). This gets some people here very upset. Go figure. Schadenfruede, maybe

[honobob]

Quote:

Originally Posted by Alex I too have made a small fortune this past year in both REITS (up over 30%) - and actual owned Real estate properties (I cashed out 140K of pure profit). This gets some people here very upset. Go figure. Schadenfruede, maybe

Alex

This is the first internet forum I've participated in and when I read so much misinformed info on real estate I had to jump in and set things straight! Then I was trounced upon and I was very puzzled. At one point I actually thought there was a conspiracy to keep the "money machine" a secret but now I just realize that 1. Some people are just in areas that have not had a history of high appreciation and 2. Some people are just afraid of real estate and finally 3. there are the people who think they are so smart that when they "wheel and deal" and fail they blame the market because it couldn't be them.

It makes me wonder if any of the "investing" information is credible.
But the recipe's look wonderful.

[wabmester]

Quote:

Originally Posted by honobob Well my 20% down ($120K) earned $30K in 12 months= big return.

Honobob, I've underestimated you. You are a genius. You've discovered the top-secret winning technique called leverage! Based on your leverage, you've made 25% on your money!

Now, tell us your closing costs. Add this year's principal, interest, tax, insurance, and maintenance. Add to that what your selling costs would be.

OK, got all those numbers?

Great. Now, take a look at the appreciation of your neighbors in the bay area, and please tells us their leveraged investment returns.

Here's some data for you:

DataQuick Bay Area stats

[Alex]

Quote:

Originally Posted by wab Honobob, I've underestimated you. You are a genius. You've discovered the top-secret winning technique called leverage! Based on your leverage, you've made 25% on your money! Now, tell us your closing costs. Add this year's principal, interest, tax, insurance, and maintenance. Add to that what your selling costs would be. OK, got all those numbers? Great. Now, take a look at the appreciation of your neighbors in the bay area, and please tells us their leveraged investment returns. Here's some data for you: DataQuick Bay Area stats

Hmm, I'd say its quite a bit higher than the return on cash.....

[justin]

I don't know... I'm getting pretty much infinite returns on my cash right now. I borrow money from credit cards at 0%, then invest it in a money market at ~5.44% effective rate pre-tax. I put no money of my own into this venture.

25% returns in real estate? That's for dabblers and amateurs. Zero % balance transfer arbitrage - that's for da pros... :