Housing is not an investment but what if market behaves like it is?

NEW -> Contingent Buyer Assistance Program
<p>Sarge - When xsocal says that most folks waiting to buy will miss the right time, he is correct; whether it is a scare tactic or not. The masses are almost always wrong. That is why there was a bubble and why it is now deflating.</p>

<p>But, you do not need to be afraid. You will not wait too long, and you will not miss out on a good time to buy. You have been watching and educating yourself and will not go along with the masses. You will go against the crowd and buy when most are saying real estate is terrible and there is no bottom to price declines.</p>
 
<a href="http://www.southoctracker.com/2008/01/lets-playmatch-game.html">Blog post </a> where I compared stories from the OC Register in the early 90s to news stories from now. Bottom line is none of the trends going on now are really all that novel...





<strong>The past stories:</strong>


<em>OC real estate slump putting thousands of sellers out of jobs</em>


Date: Jan. 15, 1991


"As many as 5,000 people have dropped out of the home-selling business in Orange County during the past year, according to reports from local real estate associations and the state trade group's employment estimate for 1991." ...





<em>J.M. Peters reports loss of $7 million</em>


Date: Dec. 22, 1990


"Home builder J.M. Peters Co. on Friday issued its weakest quarterly report since becoming a public company in 1986, reflecting a downturn in home sales and added costs from trying to sell its existing inventory." ...





<em>Hopeful home sellers sweeten the bait for buyers</em>


Date: Aug. 11, 1990


"Orange County homeowners haven't taken to riding hippos or elephants but, like some used-car dealers, they might gladly saddle up if they thought it would help sell their houses.





"This summer, with homes in some parts of the county staying on the market longer than at any time since the early 1980s, sellers are turning on charm and creativity to move their homes." ...





<em>Europeans prefer Southern California</em>


Date: June 14, 1990


"California is the No. 1 state for real estate-related activities, according to executives of European firms in the United States. Los Angeles is the No. 1 city, they said."





<em>Housing report hints at end of OC slump</em>


Date: March 28, 1991


"The county's new-home market caught fire during the first 2 1/2 months of this year, as sales shot up while inventory went down.





"If both trends continue, real estate analysts said the county's housing slump could be over by the end of this year."





<em>Credit crunch now hitting homebuyers</em>


Date: March 26, 1991


"The 'credit crunch,' long decried by real- estate developers, is now moving toward homebuyers, threatening to disrupt the economy.





"...underwriting standards are tightening steadily and mortgage- interest rates are rising relative to other rates, Jolson wrote in a recent report."
 
<p>awgee</p>

<p>Thanks.</p>

<p> I think by now you know I wouldn't be dumb enough to attempt to 'scare" anyone here nor would I do it with my clients. That is just a fact of human nature as is not selling when things are going up. It is tough to go against the mainstream due to greed and fear of loss.</p>

<p>BTW I went to Barrett-Jackson and took a couple pix of your favorite car. </p>

<p>They are really small in person. Interesting auction since the big dollar guys still spent big bucks but some of the mid range cars flattened out sold lower than expected. </p>

<p>Still a big crowd when you think that 10,000 bidders spent $400-$500 to get a bid card. General admission was $55.00 for Saturday.</p>

<p>Trooper</p>

<p>You know this country boy wouldn't try to scare anyone. That just wouldn't be polite.</p>

<p>Enjoy!</p>

<p> </p>

<p> </p>
 
<i>"Interesting auction since the big dollar guys still spent big bucks but some of the mid range cars flattened out sold lower than expected."</i><p>




Hey xsocal - Do you know what the total was compared to last year? I watched some of the auction and taped or Tivo'd or whatever you call it, the rest. What struck me was those times when Mr. Jackson was telling the audience that a car was worth more than the highest bid. I hadn't seen him do that before. You would think that he would know that the car is only worth what a buyer is willing to pay and a seller is willing to sell for.
 
For a good academic discussion of housing as a consumption good and as a component of an investment porfolio, seehttp://www.socsci.uci.edu/~jkbrueck/course readings/flavin-yamashita.pdf



"Simply by virtue of its magnitude, housing

plays an important role in both the consumption

bundle and the asset portfolio of the household.

This role is complicated, and made more interesting,

by the fact that most consumers choose

to hold a single level of residential real estate to

satisfy both the consumption demand for housing

services as well as the portfolio demand for

housing, rather than use rental markets to disentangle

the two aspects of the problem. To the

extent that the household?s holding of real estate

is determined at least in part by its consumption

demand for housing services, the consumption

demand for housing places a constraint on the

portfolio problem. Using PSID data and the

Case-Shiller repeat sales transactions price data,

the paper estimates the risk and return to ? nancial

assets and residential real estate, and calculates

the optimal portfolios and constrained

mean-variance ef? cient frontiers for various

values of the housing constraint.

The model implies that households which are

ex ante identical, in the sense that they have

identical preferences toward risk and identical

perceptions of the risk and return to different

assets, will nevertheless hold quite different

portfolios of ? nancial assets because each

household is optimizing their portfolio subject

to a constraint on housing, and this constraint

varies across households."
 
awgee



They usually compare day to same day last year and they didn't do that so I would guess that each day was less. I will see if I can find the overall of both years.



You are correct that they pushed hard to get to certain numbers then said it was undersold or bought well. FYI they upped the buyer premium to 10% and seller to 8% so add 18% plus tax to those numbers. Pretty steep cost of sales.



Have a great evening!
 
The panic is on in San Diego:http://piggington.com/november_case_shiller_hpi_gets_spanked



3% a month looks like the rate.



I bet it's on in the IE too, but I'm not aware of a Case-Shiller breakout to confirm.



Coming soon to a neighborhood near you. 3% a month all the way to the floor.



So now the question is: where's the floor? My predictions:

Job centers (like OC): Rent saver levels (not fair investment value). 160-180 GRM (up a bit due to low interest rates)

Commuter regions (like the IE): Investor levels. 120-130 GRM

Exurban areas: (Hemet, Indio, etc.) : no floor. Many neighborhoods will become slums.
 
<p><em>"So now the question is: where's the floor?"</em></p>

<p>I don't think that is the question. The floor is too difficult to see without benefit of hindsight. The question is: 'What is the trend?'</p>
 
<p><em>I bet it's on in the IE too, but I'm not aware of a Case-Shiller breakout to confirm.</em></p>

<p>It's totally on in the IE. Look for Temeculaguy's posts on Piggington's. He felt safe buying at nearly a 50% off in a decent area earlier last year. Now realizes the 50% off is looking like the starting point. The leading edge down is already pushing $100/sf.</p>

<p>


</p>
 
<p>Let's continue to add fuel to this fire. I'd call it a dead horse, but it looks like it has a long way to go before it actually dies.</p>

<p><a href="http://mortgage.freedomblogging.com/2008/01/31/loan-production-dismal/">http://mortgage.freedomblogging.com/2008/01/31/loan-production-dismal/</a></p>

<p>From blogger benDover</p>

<p><em>A giant wave is soon to hit the shores of the OC.</em></p>

<p><em>Jan. 1,2008</em></p>

<p><em>Foreclosures / Preforclosures</em></p>

<p><em>San Deigo County


Population 3.10 Million


3162/ 9104


Ratio 35%</em></p>

<p><em>LA County


Population 10.35 Million


6736/ 21759


Ratio 31%</em></p>

<p><em>Orange County


Population 3.10 Million


1940/ 13829


Ratio14%</em></p>

<p><a href="http://bubbletracking.blogspot.com/">http://bubbletracking.blogspot.com/</a></p>

<p>This is the data that I needed to confirm my opinion that IR's graph isn't nearly steep enough. Now the party starts in earnest. </p>

<p>and <a href="mailto:LOL@benDover">LOL@benDover</a>:





"Ben? Nice to meet you. Irving Fletcher here!"</p>
 
<p>And to add more fuel to the smoldering fire that has become of "Irvine Renter is Far Too Bullish in the Shape of his Curve"</p>

<p>http://lansner.freedomblogging.com/2008/02/13/oc-home-prices-plummet-to-april-04-level/#comment-49128</p>
 
<p>I like nanowest's comment on that link.....he says:</p>

<p><em>"This is great news, the correction is moving ahead very rapidly. We have another 30 % decrease in home prices before volumes pick up enough so that realtors have enough income to be able to afford to live in OC".</em></p>

<p><em>"Any realtors out there want to see the prices fall sooner rather than later so they can get back to work" ?


</em></p>
 
<p>I think I read somewhere that Greenspan said a swift correction is better than a slow one.</p>

<p>The reason being that while waiting for the correction, a lot of resources (ex. idle construction workers, empty decaying homes) go to waste. The sooner the prices drop, the sooner those resources can be put to good use (ie. build again, or people can live in those empty homes).</p>

<p> </p>
 
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