Reality setting in on real estate

GlobalMacroScope ^ | September 2006 | Max Fraad Wolff

[A CA Guy]

It was the massive gains and losses of the stock market before that led to people investing in Real Estate.

Now RE is over valued and it appears to be flowing back somewhat to the stock again.

It's the way it goes.

I look first for the complete collapse in town homes and condos since they are the last to benefit from gains and the first to loose.
Next look at large rentals 8 or more units to take a hit by those who speculated with poor financing.
They will foreclose to the bank which in turn will make other near by places hard to rent and then most unit rentals will have depressed prices.

The end game is that this RE attitude about buy buy buy went beyond our nation and went international.
Usually we just get a big recession from all this and would maybe have to bail out Fannie Mae who has 95% of the loans, but we could see a world wide recession in the least. A world wide depression at most.

There is a supposed insurance backer for Fannie Mae, but that will fold like a stack of cards once there is any moderate hit to Fannie Mae IMO and then our treasury get the bill.

This is going to be one miserable ride down IMO. A world wide one at that.

[A CA Guy]

When a whole market collapses and the nation hits a bad recession/depression, are you in danger of loosing your job, having your pay reduced or job ended?

If you are the owner and have a lot less business and have laid off people, are all your possessions in more danger than prosperous times?

[GodGunsGuts]

All good points. I have a lot to say on the subject. Unfortunatley, I have to leave to go see a play. More when I return...

[Forgiven_Sinner]

Heh. I saw that chart on Yahoo stock boards. Look at it closely:

Note in the early 90's the housing prices collapsed (courtesy of the 1987 tax changes, which led to the S&L collapse.) Also, we had a recession in 1991, thanks to a tax increase. Yet the stock market climbed for 10 years to 2000. This does not indicate a cause effect relationship, as implied by that chart.

We bought our 2nd house in 1988 for $73,000 in Peoria. The market here was just picking up after a locally depressed economy. The house has more than doubled in value since then (4 bedrooms plus a family room on a 1/4 acre). We've refinanced twice, paying for a new roof and furnace, the last time getting a 15 year fixed rate loan at less than 5%. We have 11-12 years left on that.

As an earlier poster said, real estate is all location. If it's prime location, the value will not go down. If it's not prime location, it may go down--it depends upon the general economy. After the extreme run up of the last few years, real estate prices are due to level off for a while. I don't expect a "bubble" to burst and cause a recession, as this author seems to think.

[MrNatural]

..When a whole market collapses and the nation hits a bad recession/depression, are you in danger of loosing your job, having your pay reduced or job ended? ..

Absolutely. And losing my job would affect my ability to keep making a house payment, to say the least. But it would also affect my ability to make a rent payment if I were a renter.

I'm old enough to have seen a number of these real estate cycles. Some people who buy at the top without much margin do get burned when prices fall back, and they unexpectedly have to sell. But most people just weather it out. People who had planned on selling put it off a year or two, or rent the place. Most homeowners are not even selling their property at a given time, and are unaffected, like me.

I guess what I'm trying to understand from this thread is what is the special danger of owning real estate.

[muawiyah]

And because the 1 year ARM is just about the only kind "advertised", many people are unaware that there are 2, 3, 4 and 5 year ARMS ~ and they all have different rates, and didn't all come due for revision this year.

[Polybius]

I guess what I'm trying to understand from this thread is what is the special danger of owning real estate.

See Post 53.

There is no danger in owning real estate if you bought at a price that offered good value with financing terms you can afford.

The problem is buying at today's current prices that are being artificially inflated by buyers that are being offered large and very risky interest-only ARM loans.

Let's assume that Tony the Loan Shark has just loaned me $1 million that I can never hope to repay and I am offering $800,000 to buy the three bedroom house that you want to buy.

Rather than borrowing $1 million from Tony the Loan Shark yourself and outbidding me with a bid of $900,000, it would be better for you to wait until Tony the Loan Shark has me sleeping with the fishes, no fools are offering $900,000 for such a house and the price has dropped to a level you can afford with a fixed rated conventional mortgage.

If you just say "No" to ridiculous prices that you can only afford with risky mortgages, you have no danger.

[muawiyah]

That'll simply clear up a lot of property for redevelopment at a profit.

[MrNatural]

Re: Your post 87

That all makes sense. Some of the other posters were making it sound like anyone buying real estate was just throwing their money away. Thanks.

[A CA Guy]

A lot of people speculated in second home buying and leveraged it with the equity in their own home.

That would be a candle burning on both ends IMO.

[MrNatural]

..A lot of people speculated in second home buying and leveraged it with the equity in their own home..

Anyone doing that really needs to have everything go right.

There do seem to be a lot of get-rich-quick real estate seminars out there that want to teach you how to do stuff like that. I always figured if it really worked, and they knew how to do it, they'd have done it, and become too rich to need put on seminars :)

[A CA Guy]

All the get rich quick people like the "Rich Dad Poor Dad" author make all their money from seminars and sales of books or DVDs.
They often have had to file bankruptcy several times.

[goldstategop]

I live in the Carson Park Area of Long Beach. My home's value has decreased by $20,000 since February and it won't fetch higher than comparable homes in my neighborhood since it has only 1 bathroom. Plus at under 1,000 square feet, its a small house.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

[goldstategop]

ARMs are fine if you'll live in a house less than 10 years. If you won't live it in long enough to enjoy it, its better to just pay the interest until you sell. When you do, it should be enough to pay off the mortgage balance thanks to real estate appreciation. On the other hand, of you plan to stay in the home the rest of your life, a conventional fixed rate mortgage is definitely the route to take. There is no single mortgage product any more since every home buyer's needs are different.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

[mrsmith]

Max Fraad Wolff

His "housing is doomed" article from last year: "Curtain call for housing
April 14, 2005 " http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=42272

His father's "CURRICULUM VITAE
AND
LIST OF PUBLICATIONS"
http://www.umass.edu/resnick-wolff/Wolff_curriculum_vitae.pdf
Look at the stuff he and his mother wrote with his father! No wonder the guy is such a screwed up little marxist. Like his parents.

[rwilson99]

Do you have documentation that Robert Kiyosaki has filed for bankruptcy?

If not, a retraction of your comment would be in order.

[osideplanner]

could you look at a couple of southern california listings for me and let me know what they're "really" worth. Right after you renew your broker's license, I look forward to your attendance in an econ class.

[Polybius]

ARMs are fine if you'll live in a house less than 10 years.

Unless you bought at an inflated priced fueled by money that interest-only ARM's put into the hands of people who cannot afford those prices.

Interest-only mortgages were designed for wealthy families who used the loans as cash-flow management tools and could, if necessary, pay off the entire sum by liquidating some stocks and bonds. ........Trouble is, the sheer numbers indicate that the loans are also being taken out by a much bigger sector of the public -- people who are struggling to get into a rising housing market and feel that they couldn't get the properties they want any other way. ........"In most of those cases, buyers have no idea how they're going to pay" the higher payments that will be owed once principal payments begin, says William J. Pulte, founder and chairman of Pulte Homes

Then, even if you have cash in the bank to purchase a house outright, you are getting poor value as the price is being artificially elevated by the irresponsibility of others.

If you won't live it in long enough to enjoy it, its better to just pay the interest until you sell.

However, the artificially inflated prices are making it impossible for many people to afford the payments on a fixed mortgage when the people bidding against you are getting easy money from interest-only loans.

The choice for new buyers is now either a risky interest-only loans with low monthly payments (until it blows up in your face and drives you to foreclosure) , a conventional loan with prohibitively high monthly payment or, as buyers are now doing, saying "No" to prices that they can only afford by putting themselves in either one of those two bad financial positions.

Once the interest-only grace periods begin to expire by the tens of thousands, the foreclosures will begin and the seller will have the choice of either losing money or bankruptcy.

[A CA Guy]

False statements in Rich Dad Poor Dad by Robert Kiyosaki
http://www.johntreed.com/false.html

What Kiyosaki is really doing is operating a cult of personality.
http://www.johntreed.com/Kiyosaki.html

The making of a financial genius
There are probably many ways to became a financial genius, but Kiyosaki has certainly chosen an unlikely route:

• flunked sophomore year of high school and had to repeat
• U.S. Merchant Marine Academy
• 3rd mate oil tanker (or was it “Love Boat” type cruise ship as he said in one of his books?)
• Marine helicopter pilot (or was it fighters?)
• refused to return to ship when it was ordered to return to combat (or just missed the boat)
• Xerox salesman
• failed businessman (nylon surfer wallets)
• failed businessman (rock and roll memorabilia)
• failed author (1993 book If You Want to Be Rich & Happy, Don’t Go To School?)
• failed MBA applicant
• homeless person
• bankruptcy (or maybe not)

[Petronski]

Behold Au, the Gold Bull,
the face of their shiny metal god: