end of housing boom -- how ?

[Ext User(drocillo)]

I have always wondered about the mechanics of the end of the housing
boom in Australia (houses are overevaluated by 100-200% from their
fundamentals in Sydney and Melbourne, 100% in Adelaide). I have read
lots of the Internet resources about housing bubble in the US.
Essentially, a large proportion of Americans took on "interest-only"
loans at the limit of their paying capability. When the Federal Bank
increases the interest rate, those people cannot afford the payments
and will have to sell. The glut of properties on the market will cause
the drop in price at downward spiral. This will be the main reason why
the housing bubble in the US have to burst eventually, as is written
well in http://www.counterthink.org/016241.html .

In the same website, it is said that as soon as the market value of the
house drops below what people owe to the bank (this will happen very
soon for those who bought property at the boom's peak and borrowed
close to 100%), the bank will want to recall their loan from the house
owner. Essentially, this means that the owner will have to pay the
difference between the boom-high price he paid for the house, and its
new dirt-cheap price. I presume that Americans will want to walk away
from their house if its market value drops below what they owe to the
bank. Morgage conditions generally allow that. Perhaps, this is the
reason why banks will want to recall the loans soon after the burst of
the housing bubble, in order to get their money back. I do not know if
morgages in Australia allow people to walk away, and if it is in the
Australian psyche to continue to pay the morgage even if what they owe
to the bank higher than the current house price. Generally, it is
beneficial for a bank if the morgagee continues paying the morgage. But
if Australians want to "walk away", the banks en masse will recall the
loan. Can anyone enlighten me ?

According to another well-writen website
http://patrick.net/housing/crash.html , many (most ?) of the Americans
have their morgages re-financed. This means in case they default on
payment, they cannot just return the house to the bank and thus become
"clean". When people do re-fi, they have to return the specified sum of
money, not the house. I do not know if most of Australians have
re-finianced their house morgages on similar conditions as Americans
did.

In other words, what is the likely scenario of unfolding of the housing
bubble bust in Australia taking into account the local specifics ?

D.

[Ext User(Heretic)]

On Wed, 01 Mar 2006 18:32:40 -0800, drocillo wrote:

> I have read
> lots of the Internet resources about housing bubble in the US.

You are not required to believe everything you read on the Internet.

[Ext User(EskWIRED@spamblock.panix.com)]

In sci.econ drocillo <droci11o@yahoo.com> wrote:

> In the same website, it is said that as soon as the market value of the
> house drops below what people owe to the bank (this will happen very
> soon for those who bought property at the boom's peak and borrowed
> close to 100%), the bank will want to recall their loan from the house
> owner.

So long as the payments are made, the bank has no right ot do a damn thing
(assuming that standard loan documents are used).


> According to another well-writen website
> http://patrick.net/housing/crash.html , many (most ?) of the Americans
> have their morgages re-financed. This means in case they default on
> payment, they cannot just return the house to the bank and thus become
> "clean". When people do re-fi, they have to return the specified sum of
> money, not the house.

Generally, no such right to walk away exists either in the case of
a purchase-money mortgage or a refi. The Borrower signs a promissory
note, which obligates him to repay all the principal, and any accrued
interest. The mortgage is a security instrument, which gives the bank
rights in the collateral in the event of a default under the note. If the
note gets paid off at the foreclosure auction, everything is cool. If
not, the borrower still owes the difference. There may be exceptions in
some jurisdictions, but I am not aware of any.

If Australian law is based on English Common Law, the results would likely
be the same in Australia.

--
A nation of sheep will beget a government of wolves.
--Edward R. Murrow

[Ext User(Terry Collins)]

drocillo wrote:
> I have always wondered about the mechanics of the end of the housing
> boom in Australia (houses are overevaluated by 100-200% from their
> fundamentals in Sydney and Melbourne, 100% in Adelaide).

lol. You should stop reading such absolute rubbish.

[Ext User(Rod Speed)]

drocillo <droci11o@yahoo.com> wrote

> I have always wondered about the mechanics
> of the end of the housing boom in Australia

Taint gunna happen anything like you claim, you watch.

> (houses are overevaluated by 100-200% from their
> fundamentals in Sydney and Melbourne, 100% in Adelaide).

Nope, you watch.

> I have read lots of the Internet resources about housing bubble in the
> US.

Taint gunna happen there either, you watch.

> Essentially, a large proportion of Americans took on
> "interest-only" loans at the limit of their paying capability.

Wrong, it was never a very large proportion.

> When the Federal Bank increases the interest rate, those
> people cannot afford the payments and will have to sell.

Mindless pig ignorant silly stuff. Most americans dont even
borrow at variable interest rates, let alone interest only,
and fuck all are stupid enough to borrow right at their limit.

> The glut of properties on the market will
> cause the drop in price at downward spiral.

How odd that that hasnt happened when their interest
rates have been increasing for quite a while now.

> This will be the main reason why the housing
> bubble in the US have to burst eventually,

Have fun explaining why that hasnt happened when their
interest rates have been increasing for quite a while now.

> as is written well in http://www.counterthink.org/016241.html .

Just another mindless pig ignorant steaming turd.

> In the same website, it is said that as soon as the market
> value of the house drops below what people owe to the bank
> (this will happen very soon for those who bought property
> at the boom's peak and borrowed close to 100%), the
> bank will want to recall their loan from the house owner.

More mindless pig ignorant silly stuff. They cant even do
that as long as the borrower keeps making the payments.

> Essentially, this means that the owner will have to
> pay the difference between the boom-high price he
> paid for the house, and its new dirt-cheap price.

See above.

> I presume that Americans will want to walk away from their
> house if its market value drops below what they owe to the bank.

More fool you.

> Morgage conditions generally allow that.

More mindless pig ignorant silly stuff.

> Perhaps, this is the reason why banks will want to recall the loans soon
> after the burst of the housing bubble, in order to get their money back.

They cant even do that as long as the borrower keeps making the payments.
And they'd obviously rather the borrower keeps making the payments, stupid.

> I do not know if morgages in Australia allow people to walk away,

American mortgages dont either.

> and if it is in the Australian psyche to continue to pay the morgage
> even if what they owe to the bank higher than the current house price.

Corse it is. Otherwise they'd need somewhere to live, stupid.

> Generally, it is beneficial for a bank if the
> morgagee continues paying the morgage.

Must be one of those rocket scientist stupids.

> But if Australians want to "walk away",

They dont.

> the banks en masse will recall the loan.

They cant do that as long as the borrower keeps making the payments.

> Can anyone enlighten me ?

Not even possible, you watch.

> According to another well-writen website
> http://patrick.net/housing/crash.html ,

Just another mindless pig ignorant steaming turd.

> many (most ?) of the Americans have their morgages re-financed.

Thats another mindless pig ignorant lie.

> This means in case they default on payment, they cannot just
> return the house to the bank and thus become "clean".

They cant even if they havent refinanced.

> When people do re-fi, they have to return
> the specified sum of money, not the house.

Just as true when the house hasnt been refinanced.

> I do not know if most of Australians have re-finianced their
> house morgages on similar conditions as Americans did.

Corse they havent, and no americans have either.

> In other words, what is the likely scenario of
> unfolding of the housing bubble bust in Australia
> taking into account the local specifics ?

It aint gunna happen, you watch.

The most you normally see is the rate of INCREASE in house
prices pauses for a while. You dont usually see the price of
a particular house drop that much, let alone any bubble burst.

There is no bubble with capital city owner occupied housing either.

[Ext User(Michael Scheltgen)]

Rod Speed wrote:

>
> Taint gunna happen anything like you claim, you watch.
>
> Nope, you watch.
>
> Taint gunna happen there either, you watch.
>
>
> Mindless pig ignorant silly stuff. Most americans dont even
> borrow at variable interest rates, let alone interest only,
> and fuck all are stupid enough to borrow right at their limit.
>
> How odd that that hasnt happened when their interest
> rates have been increasing for quite a while now.
>
> Have fun explaining why that hasnt happened when their
> interest rates have been increasing for quite a while now.
>
> Just another mindless pig ignorant steaming turd.
>
> More mindless pig ignorant silly stuff. They cant even do
> that as long as the borrower keeps making the payments.
>
> See above.
>
> More fool you.
>
> More mindless pig ignorant silly stuff.
>
> They cant even do that as long as the borrower keeps making the payments.
> And they'd obviously rather the borrower keeps making the payments, stupid.
>
> American mortgages dont either.
>
> Corse it is. Otherwise they'd need somewhere to live, stupid.
>
> Must be one of those rocket scientist stupids.
>
> They dont.
>
> They cant do that as long as the borrower keeps making the payments.
>
> Not even possible, you watch.
>
> Just another mindless pig ignorant steaming turd.
>
> Thats another mindless pig ignorant lie.
>
> They cant even if they havent refinanced.
>
> Just as true when the house hasnt been refinanced.
>
> Corse they havent, and no americans have either.
>
> It aint gunna happen, you watch.
>
> The most you normally see is the rate of INCREASE in house
> prices pauses for a while. You dont usually see the price of
> a particular house drop that much, let alone any bubble burst.
>


["...As I recall, such arrogance, unbridled confidence in absurd
rationalizations, a complete disregard for logic, history and
time-honored, previously widely accepted investment prudence
typified the stock market bubble of the 1920's, 1980's (Japan)
and the 1990's..."]

Cavalier Expectations About Real Estate
Peter Schiff

Recently, I visited a house that was advertised for rent in the
Orange County Register. The house was approximately 15 years
old, 2,600 square feet in size, and located on a 10,000 square
foot lot in a gated community called Coto De Gaza, about 30-40
minutes inland from the Pacific Coast. They wanted $3,900 per
month in rent.

There was nothing particularly special about this place, it had
a nice view of the hills, but there was no swimming pool,
Jacuzzi, upgraded flooring, elaborate stonework or even an
in-built barbeque. This was just a typical middle-class
residence. When I arrived, the real-estate agent who was
representing the owner, and upon whose advice this property was
recently purchased as an investment, greeted me.

Being curious, I asked the agent how much money his client had
paid for the house, to which he replied one million dollars. I
then inquired as to the annual taxes, homeowner's fees,
gardening, insurance, routine maintenance, and other monthly
expenses his client might incur as a result of owning this
house. He estimated such expenses to be no more than $1,500 per
month. I then pointed out that with a monthly rent of only
$3,900, and monthly expenses of $1,500, that after interest
expenses, $2,400 of net rental income would certainly leave
his client in a position of incurring se veral thousand dollars
per month of negative cash-flow. I than asked him why he would
recommend making such an "investment?" His reply was that since
his client had plenty of income from other sources, that this
particular purchase did not put him in a negative cash flow
position, and that since his client had plenty of other income,
he needed to keep buying more units. In reality, his client
needed to "keep buying units" like he needed a hole in his head.
What this agent really meant was that since he needed to keep
generating sales commissions, he needed to keep dispensing
bad investment advice. He also stated that some of his client's
other real estate investments, no doubt those made quite a while
ago, produced positive cash flow.

First of all, the fact that his client has income against which
to offset investment losses does not mean that his client should
actively seek such losses. I reminded this agent that each
investment must be evaluated on its own merit, that this
particular "investment" reduces his client's income and that
his having made some wise real estate investments in the past
did not justify making foolish investments now. At this point,
not surprisingly, the agent became defensive.

"Do you realize how much this property is going to appreciate?"
he foolishly exclaimed. "Why, it's in a community of
multi-million dollar homes and will probably be worth at least
1.5 million in just a couple of years!" he boasted.

The debate continued. How can you be so sure about that, asked?
What if the price falls? He responded almost in disbelief: what
do you mean, falls? Real estate prices don't fall, not here;
they're not making any more land you know (as it happens I drove
by miles of undeveloped, flat land, on my way to Coto de Caza).
I then posed the question: if this property produces a negative
cash flow now, with a million dollar cost, why would anyone buy
it for a million five, with an even greater negative cash flow?
His reply was that rent had nothing to do with it, and that I
obviously did not understand real estate investing. As proof of
my ignorance he referenced examples of houses his client had
bought last year that also produced negative cash flow but which
had already appreciated substantially. He also reminded me that
the rent could rise. What he failed to understand was that it
could also fall, or could be zero if the property were vacant,
as it was currently. He was right about one thing, apparently, I
just didn't get it.

Then again, perhaps I do. As I recall, such arrogance, unbridled
confidence in absurd rationalizations, a complete disregard for
logic, history and time-honored, previously widely accepted
investment prudence typified the stock market bubble of the
1990's. Dividends did not matter, earrings did not matter,
all that mattered was price, which could only rise. The only
mistake was to refrain from buying or, heaven forbid, sell. The
higher stock prices climbed, the more arrogant buyers became as
the nay Sayers, the people who just didn't get it, were
increasingly proven wrong with each up-tick, until the bubble
burst and all that remained were the memories of the paper
profits that were never taken.

Let's take a closer look at this property. Assuming this
investor had paid cash for the property (which he did not) and
was able to rent it at the full asking price of $3,900 per
month, his total annual return would be approximately 2.9%.
After tax, including an allowance for depredation of the
building, the net yield, assuming the investor is in the top
federal and state income tax brackets, would be about 2%.
Alternatively, he could have purchased general obligation bonds
of the state of Californian for an after-tax yield of 5%. Why
would a rational investor accept a 2% return for assuming all
the risks associated with paying one million dollars for a
property that appraised for less than half that value a few
years ago, and the other risks and potential aggravations
inherent with being a landlord, when he could earn 150% more by
simply buying general obligation municipal bonds? The answer is:
he wouldn't. Only an investor whose judgment was impaired by
the intoxicating effects of a bubble, or in this case by an
equally inebriated, over-zealous real estate broker would take
the plunge.

However, this particular "investor" used leverage, with the down
payment no doubt having been "extracted" from equity accumulated
in previously purchased properties, which, themselves, produced
negative cash flows. Therefore, instead of simply producing a
low rate of return, this "investment" produced significant
monthly losses. For now, the "investor" is able to use his
considerable current income to fund these losses, which in
effect amount to a rent subsidy paid to the tenant (similar
subsidies nationwide are temporarily suppressing rents, keeping
the core CPI artificially low) which the investor feels are
justified based on future appreciation. That this property was
already vastly overpriced, as evidence by its negative rate of
return, and would be even more so were it to appreciate, was
irrelevant.

The agent who so cavalierly boasted that this property would
soon fetch over $1.5 million did not even stop to think that to
justify such a price, given even moderately higher interest
rates, the property would have to rent for about $10,000 per
month! Could a typical middle class southern California family
afford that kind of rent? He couldn't care less, because in his
mind rents have nothing to do with real estate values Even if
rents were to rise, how high could they go? If rents increased
substantially, imagine the effects on the core CPI, which is 40%
rents. Such a sharp increase in the core CPI would certainly
mean much higher short-term interest rates, and thus much lower
property prices. Ironically, higher rents, the only factor that
might legitimately lead to higher property prices, will actually
cause lower property prices, do to their immediate effect on the
core CPI and their ultimate effect on interest rates.

The fact that this particular property was located among
multi-million dollar houses over-looked that such properties,
brand new five to ten thousand square foot structures on two to
five acre parcels, were themselves vastly over-priced.
Ironically, this agent, who had just advised his client to
purchase highly appreciated real estate solely on the
expectation of higher prices, insisted that he saw no signs of
speculation in the current real estate market. As proof he
offered the fact that the average mortgage in this area was
made with a 20% down payment, as apposed to the late 1980's,
which in his option was a bubble, when average down payments
were only 10%. In other words, he was convinced that this time
it was different, and relied on distorted statistics to produce
his desired conclusion. What he ignored was that the 20%
average had been skewed by all the million dollar plus homes for
which large down payments were financed by equity accumulated
through trading up. The mortgages for the starter homes, which
produced the equity funding the trade ups, and which form the
base upon which the current real estate pyramid rests, were made
with little or nothing down. Plus, the fact that 80% of those
making large down payments chose adjustable rate mortgages is
the most alarming example of speculation possible.

The reason I have been placing the word "investor" in quotation
is that investors buy assets which generate superior current
rates of return. By that criteria, the purchaser of this
property can hardly be called an investor. In fact, even the
term speculator would not be appropriate because speculators
purchases assets based on the rational anticipation of price
appreciation. In reality, this individual is simply a real
estate fool, buying assets solely on the expectation of selling
to an even greater one.

The most likely outcome for this fool is that he and his real
estate equity will soon part. When interest rates rise and the
economy slows, not only will the cost of servicing his
adjustable rate mortgages rise, his other income, currently
funding the negative cash flows, will most likely fall. To
reduce this growing drain on his diminishing income, he, along
with many other similarly situated fools, will most likely try
to sell properties. However, in a week economy, with rising
interest rates and falling property prices, there will be no
fools left to buy, only those investors who had the foresight to
remain liquid during the mania, and who will only buy properties
offering superior rates of rental return. Given low rents and
higher interest rates, the sale prices necessary to attract such
investors is likely to be less than the outstanding mortgage
debts, resulting in bankruptcies, foreclosures, and distressed
sales.

While most accept that those who forget the mistakes of history
are doomed to relive them, few appreciate just how short
people's memories really are. Since even those remembering such
mistakes seem to repeat them, it is likely that history's
mistakes will repeat indefinitely whether remembered or not.

[Ext User(Michael Scheltgen)]

Rod Speed wrote:
> drocillo <droci11o@yahoo.com> wrote

>>When the Federal Bank increases the interest rate, those
>>people cannot afford the payments and will have to sell.
>
>
> Mindless pig ignorant silly stuff. Most americans dont even
> borrow at variable interest rates.

Really? Do you have a source for this?

[Ext User(droci11o@yahoo.com)]

Michael Scheltgen wrote:

> The agent who so cavalierly boasted that this property would
> soon fetch over $1.5 million did not even stop to think that to
> justify such a price, given even moderately higher interest
> rates, the property would have to rent for about $10,000 per
> month! Could a typical middle class southern California family
> afford that kind of rent?

Answer: Simple ! An average Californian family could afford $10000 pm
in rent in several years, because of inflation !

The government obviously does not want (cannot afford) to bankrupt the
average families (who bought the overexpensive real estate properties),
so the only way for the American economy to go on is to introduce a
hyperinflation !

So if you have stashed a bunch of banknotes somewhere, or even have a
savings account in a bank -- you have lost a large fraction of your
money, if not most !

D.

[Ext User(SKD)]

droci11o@yahoo.com wrote:

> Michael Scheltgen wrote:
>
> > The agent who so cavalierly boasted that this property would
> > soon fetch over $1.5 million did not even stop to think that to
> > justify such a price, given even moderately higher interest
> > rates, the property would have to rent for about $10,000 per
> > month! Could a typical middle class southern California family
> > afford that kind of rent?
>
> Answer: Simple ! An average Californian family could afford $10000 pm
> in rent in several years, because of inflation !
>
> The government obviously does not want (cannot afford) to bankrupt the
> average families (who bought the overexpensive real estate properties),
> so the only way for the American economy to go on is to introduce a
> hyperinflation !
>
> So if you have stashed a bunch of banknotes somewhere, or even have a
> savings account in a bank -- you have lost a large fraction of your
> money, if not most !
>
> D.

More of a worry for those Asian economies feverishly building up their
dollar reserves than individuals personally.

[Ext User(SKD)]

You are an optimist Rod Speed, will give you this much but got to work
on the emotional side, pretty unimpressive style of communication.

[Ext User(SKD)]

It ain't completely rubbish Terry, but I certainly hope there remains
still a sizable lot of you out there to keep things going for just a
little bit longer...

[Ext User(Rod Speed)]

Michael Scheltgen <mjs818@econ.usask.ca> wrote:
> Rod Speed wrote:
>
>>
>> Taint gunna happen anything like you claim, you watch.
>>
>> Nope, you watch.
>>
>> Taint gunna happen there either, you watch.
>>
>>
>> Mindless pig ignorant silly stuff. Most americans dont even
>> borrow at variable interest rates, let alone interest only,
>> and fuck all are stupid enough to borrow right at their limit.
>>
>> How odd that that hasnt happened when their interest
>> rates have been increasing for quite a while now.
>>
>> Have fun explaining why that hasnt happened when their
>> interest rates have been increasing for quite a while now.
>>
>> Just another mindless pig ignorant steaming turd.
>>
>> More mindless pig ignorant silly stuff. They cant even do
>> that as long as the borrower keeps making the payments.
>>
>> See above.
>>
>> More fool you.
>>
>> More mindless pig ignorant silly stuff.
>>
>> They cant even do that as long as the borrower keeps making the
>> payments. And they'd obviously rather the borrower keeps making the
>> payments, stupid. American mortgages dont either.
>>
>> Corse it is. Otherwise they'd need somewhere to live, stupid.
>>
>> Must be one of those rocket scientist stupids.
>>
>> They dont.
>>
>> They cant do that as long as the borrower keeps making the payments.
>>
>> Not even possible, you watch.
>>
>> Just another mindless pig ignorant steaming turd.
>>
>> Thats another mindless pig ignorant lie.
>>
>> They cant even if they havent refinanced.
>>
>> Just as true when the house hasnt been refinanced.
>>
>> Corse they havent, and no americans have either.
>>
>> It aint gunna happen, you watch.
>>
>> The most you normally see is the rate of INCREASE in house
>> prices pauses for a while. You dont usually see the price of
>> a particular house drop that much, let alone any bubble burst.

> ["...As I recall, such arrogance, unbridled confidence in absurd
> rationalizations, a complete disregard for logic, history and
> time-honored, previously widely accepted investment prudence
> typified the stock market bubble of the 1920's, 1980's (Japan)
> and the 1990's..."]

Mindless stuff when he has got all the details of how loans work wrong.

Reams of turgid shit flushed where it belongs.

[Ext User(Rod Speed)]

SKD <sherkd@hotmail.com> wrote

> You are an optimist Rod Speed,

Nope, I've been doing it for over half a century thanks.

> will give you this much but got to work on the emotional
> side, pretty unimpressive style of communication.

Go and fuck yourself.

[Ext User(Michael Scheltgen)]

Rod Speed wrote:
> SKD <sherkd@hotmail.com> wrote
>
>
>>You are an optimist Rod Speed,
>
>
> Nope, I've been doing it for over half a century thanks.

For half a century? Well, that explains your glowing optimism.
You haven't been "doing it" in Japan and obviously not during
the last depression (or even California in the 80/90s).

If it's been the last half century you also haven't considered
the implications that changing demographics (aging and death)
and inheritance will have on real estate prices. You're running
out of fools who will buy your house.

A house is just a place to live and unless the property has some
value aside from a place to put a house, it should be worth very
little. But home ownership, like Gold, is very psychological.
Gold bugs let me introduce you to the Land bugs.

The Baby Boom: Predictability in House Prices and Interest Rates
Robert F. Martin, November 2005

http://www.federalreserve.gov/pubs/ifdp/2005/847/ifdp847.pdf

In the next decade or two there will be all sorts of good
property available in cities for a fraction of their current
(REAL) price.

[Ext User(Rod Speed)]

Michael Scheltgen <mjs818@econ.usask.ca> wrote
> Rod Speed wrote
>> SKD <sherkd@hotmail.com> wrote

>>> You are an optimist Rod Speed,

>> Nope, I've been doing it for over half a century thanks.

> For half a century? Well, that explains your glowing optimism.

No it doesnt and the only 'glowing optimism' is your fantasy.

> You haven't been "doing it" in Japan

I was however never stupid enough to bother with Jap housing.

And that is completely irrelevant to what the OP was asking
about anyway. There market is completely different to ours.

> and obviously not during the last depression

I did however notice that while there were quite a few of those
in the 19th century, that was the only one seen in the 20th
century here, and I have noticed that the first world has
worked out how to avoid those for 75+ years now, and that
you didnt get the effect he was mindlessly pig ignorantly
hyperventilating about during that depression, and that a
depression now would be nothing like that one anyway.

> (or even California in the 80/90s).

Didnt get the effect he was so mindlessly hyperventilating about then.

> If it's been the last half century you also haven't considered
> the implications that changing demographics (aging and death)
> and inheritance will have on real estate prices.

Wrong again, I keep considering those factors and keep
being amazed at what real estate prices have continued to do.

> You're running out of fools who will buy your house.

Mindless pig ignorant silly stuff. You clearly havent actually
got a fucking clue about what drives the real estate market.

> A house is just a place to live and unless the property has some
> value aside from a place to put a house, it should be worth very
> little. But home ownership, like Gold, is very psychological.

Like it or lump it.

> Gold bugs let me introduce you to the Land bugs.

Wota fucking wanker.

> The Baby Boom: Predictability in House Prices and Interest Rates
> Robert F. Martin, November 2005

> http://www.federalreserve.gov/pubs/ifdp/2005/847/ifdp847.pdf

> In the next decade or two there will be all sorts of good property
> available in cities for a fraction of their current (REAL) price.

Easy to claim. He'll get egg all over his silly little face, just like all
the others that have claimed that in the past have done, you watch.

[Ext User(zzbunker)]

Michael Scheltgen wrote:
> Rod Speed wrote:
>
> >
> > Taint gunna happen anything like you claim, you watch.
> >
> > Nope, you watch.
> >
> > Taint gunna happen there either, you watch.
> >
> >
> > Mindless pig ignorant silly stuff. Most americans dont even
> > borrow at variable interest rates, let alone interest only,
> > and fuck all are stupid enough to borrow right at their limit.
> >
> > How odd that that hasnt happened when their interest
> > rates have been increasing for quite a while now.
> >
> > Have fun explaining why that hasnt happened when their
> > interest rates have been increasing for quite a while now.
> >
> > Just another mindless pig ignorant steaming turd.
> >
> > More mindless pig ignorant silly stuff. They cant even do
> > that as long as the borrower keeps making the payments.
> >
> > See above.
> >
> > More fool you.
> >
> > More mindless pig ignorant silly stuff.
> >
> > They cant even do that as long as the borrower keeps making the payments.
> > And they'd obviously rather the borrower keeps making the payments, stupid.
> >
> > American mortgages dont either.
> >
> > Corse it is. Otherwise they'd need somewhere to live, stupid.
> >
> > Must be one of those rocket scientist stupids.
> >
> > They dont.
> >
> > They cant do that as long as the borrower keeps making the payments.
> >
> > Not even possible, you watch.
> >
> > Just another mindless pig ignorant steaming turd.
> >
> > Thats another mindless pig ignorant lie.
> >
> > They cant even if they havent refinanced.
> >
> > Just as true when the house hasnt been refinanced.
> >
> > Corse they havent, and no americans have either.
> >
> > It aint gunna happen, you watch.
> >
> > The most you normally see is the rate of INCREASE in house
> > prices pauses for a while. You dont usually see the price of
> > a particular house drop that much, let alone any bubble burst.
> >
>
>
> ["...As I recall, such arrogance, unbridled confidence in absurd
> rationalizations, a complete disregard for logic, history and
> time-honored, previously widely accepted investment prudence
> typified the stock market bubble of the 1920's, 1980's (Japan)
> and the 1990's..."]
>
> Cavalier Expectations About Real Estate
> Peter Schiff
>
> Recently, I visited a house that was advertised for rent in the
> Orange County Register. The house was approximately 15 years
> old, 2,600 square feet in size, and located on a 10,000 square
> foot lot in a gated community called Coto De Gaza, about 30-40
> minutes inland from the Pacific Coast. They wanted $3,900 per
> month in rent.
>
> There was nothing particularly special about this place, it had
> a nice view of the hills, but there was no swimming pool,
> Jacuzzi, upgraded flooring, elaborate stonework or even an
> in-built barbeque. This was just a typical middle-class
> residence. When I arrived, the real-estate agent who was
> representing the owner, and upon whose advice this property was
> recently purchased as an investment, greeted me.
>
> Being curious, I asked the agent how much money his client had
> paid for the house, to which he replied one million dollars. I
> then inquired as to the annual taxes, homeowner's fees,
> gardening, insurance, routine maintenance, and other monthly
> expenses his client might incur as a result of owning this
> house. He estimated such expenses to be no more than $1,500 per
> month. I then pointed out that with a monthly rent of only
> $3,900, and monthly expenses of $1,500, that after interest
> expenses, $2,400 of net rental income would certainly leave
> his client in a position of incurring se veral thousand dollars
> per month of negative cash-flow. I than asked him why he would
> recommend making such an "investment?" His reply was that since
> his client had plenty of income from other sources, that this
> particular purchase did not put him in a negative cash flow
> position, and that since his client had plenty of other income,
> he needed to keep buying more units. In reality, his client
> needed to "keep buying units" like he needed a hole in his head.
> What this agent really meant was that since he needed to keep
> generating sales commissions, he needed to keep dispensing
> bad investment advice. He also stated that some of his client's
> other real estate investments, no doubt those made quite a while
> ago, produced positive cash flow.
>
> First of all, the fact that his client has income against which
> to offset investment losses does not mean that his client should
> actively seek such losses. I reminded this agent that each
> investment must be evaluated on its own merit, that this
> particular "investment" reduces his client's income and that
> his having made some wise real estate investments in the past
> did not justify making foolish investments now. At this point,
> not surprisingly, the agent became defensive.
>
> "Do you realize how much this property is going to appreciate?"
> he foolishly exclaimed. "Why, it's in a community of
> multi-million dollar homes and will probably be worth at least
> 1.5 million in just a couple of years!" he boasted.
>
> The debate continued. How can you be so sure about that, asked?
> What if the price falls? He responded almost in disbelief: what
> do you mean, falls? Real estate prices don't fall, not here;
> they're not making any more land you know (as it happens I drove
> by miles of undeveloped, flat land, on my way to Coto de Caza).
> I then posed the question: if this property produces a negative
> cash flow now, with a million dollar cost, why would anyone buy
> it for a million five, with an even greater negative cash flow?
> His reply was that rent had nothing to do with it, and that I
> obviously did not understand real estate investing. As proof of
> my ignorance he referenced examples of houses his client had
> bought last year that also produced negative cash flow but which
> had already appreciated substantially. He also reminded me that
> the rent could rise. What he failed to understand was that it
> could also fall, or could be zero if the property were vacant,
> as it was currently. He was right about one thing, apparently, I
> just didn't get it.
>
> Then again, perhaps I do. As I recall, such arrogance, unbridled
> confidence in absurd rationalizations, a complete disregard for
> logic, history and time-honored, previously widely accepted
> investment prudence typified the stock market bubble of the
> 1990's. Dividends did not matter, earrings did not matter,
> all that mattered was price, which could only rise. The only
> mistake was to refrain from buying or, heaven forbid, sell. The
> higher stock prices climbed, the more arrogant buyers became as
> the nay Sayers, the people who just didn't get it, were
> increasingly proven wrong with each up-tick, until the bubble
> burst and all that remained were the memories of the paper
> profits that were never taken.
>
> Let's take a closer look at this property. Assuming this
> investor had paid cash for the property (which he did not) and
> was able to rent it at the full asking price of $3,900 per
> month, his total annual return would be approximately 2.9%.
> After tax, including an allowance for depredation of the
> building, the net yield, assuming the investor is in the top
> federal and state income tax brackets, would be about 2%.
> Alternatively, he could have purchased general obligation bonds
> of the state of Californian for an after-tax yield of 5%. Why
> would a rational investor accept a 2% return for assuming all
> the risks associated with paying one million dollars for a
> property that appraised for less than half that value a few
> years ago, and the other risks and potential aggravations
> inherent with being a landlord, when he could earn 150% more by
> simply buying general obligation municipal bonds? The answer is:
> he wouldn't. Only an investor whose judgment was impaired by
> the intoxicating effects of a bubble, or in this case by an
> equally inebriated, over-zealous real estate broker would take
> the plunge.
>
> However, this particular "investor" used leverage, with the down
> payment no doubt having been "extracted" from equity accumulated
> in previously purchased properties, which, themselves, produced
> negative cash flows. Therefore, instead of simply producing a
> low rate of return, this "investment" produced significant
> monthly losses. For now, the "investor" is able to use his
> considerable current income to fund these losses, which in
> effect amount to a rent subsidy paid to the tenant (similar
> subsidies nationwide are temporarily suppressing rents, keeping
> the core CPI artificially low) which the investor feels are
> justified based on future appreciation. That this property was
> already vastly overpriced, as evidence by its negative rate of
> return, and would be even more so were it to appreciate, was
> irrelevant.
>
> The agent who so cavalierly boasted that this property would
> soon fetch over $1.5 million did not even stop to think that to
> justify such a price, given even moderately higher interest
> rates, the property would have to rent for about $10,000 per
> month! Could a typical middle class southern California family
> afford that kind of rent? He couldn't care less, because in his
> mind rents have nothing to do with real estate values Even if
> rents were to rise, how high could they go? If rents increased
> substantially, imagine the effects on the core CPI, which is 40%
> rents. Such a sharp increase in the core CPI would certainly
> mean much higher short-term interest rates, and thus much lower
> property prices. Ironically, higher rents, the only factor that
> might legitimately lead to higher property prices, will actually
> cause lower property prices, do to their immediate effect on the
> core CPI and their ultimate effect on interest rates.
>
> The fact that this particular property was located among
> multi-million dollar houses over-looked that such properties,
> brand new five to ten thousand square foot structures on two to
> five acre parcels, were themselves vastly over-priced.
> Ironically, this agent, who had just advised his client to
> purchase highly appreciated real estate solely on the
> expectation of higher prices, insisted that he saw no signs of
> speculation in the current real estate market. As proof he
> offered the fact that the average mortgage in this area was
> made with a 20% down payment, as apposed to the late 1980's,
> which in his option was a bubble, when average down payments
> were only 10%. In other words, he was convinced that this time
> it was different, and relied on distorted statistics to produce
> his desired conclusion. What he ignored was that the 20%
> average had been skewed by all the million dollar plus homes for
> which large down payments were financed by equity accumulated
> through trading up. The mortgages for the starter homes, which
> produced the equity funding the trade ups, and which form the
> base upon which the current real estate pyramid rests, were made
> with little or nothing down. Plus, the fact that 80% of those
> making large down payments chose adjustable rate mortgages is
> the most alarming example of speculation possible.
>
> The reason I have been placing the word "investor" in quotation
> is that investors buy assets which generate superior current
> rates of return. By that criteria, the purchaser of this
> property can hardly be called an investor. In fact, even the
> term speculator would not be appropriate because speculators
> purchases assets based on the rational anticipation of price
> appreciation. In reality, this individual is simply a real
> estate fool, buying assets solely on the expectation of selling
> to an even greater one.
>
> The most likely outcome for this fool is that he and his real
> estate equity will soon part. When interest rates rise and the
> economy slows, not only will the cost of servicing his
> adjustable rate mortgages rise, his other income, currently
> funding the negative cash flows, will most likely fall. To
> reduce this growing drain on his diminishing income, he, along
> with many other similarly situated fools, will most likely try
> to sell properties. However, in a week economy, with rising
> interest rates and falling property prices, there will be no
> fools left to buy, only those investors who had the foresight to
> remain liquid during the mania, and who will only buy properties
> offering superior rates of rental return. Given low rents and
> higher interest rates, the sale prices necessary to attract such
> investors is likely to be less than the outstanding mortgage
> debts, resulting in bankruptcies, foreclosures, and distressed
> sales.
>
> While most accept that those who forget the mistakes of history
> are doomed to relive them, few appreciate just how short
> people's memories really are. Since even those remembering such
> mistakes seem to repeat them, it is likely that history's
> mistakes will repeat indefinitely whether remembered or not.

In California it has too. Since California Real Estate Prices have
nothing to do with the cost of morons in Los Angleos houses,
but the cost of morons in Anchorage Houses.

[Ext User(Michael Scheltgen)]

Rod Speed wrote:
> Michael Scheltgen <mjs818@econ.usask.ca> wrote

>
>>For half a century? Well, that explains your glowing optimism.
>
>
> No it doesnt and the only 'glowing optimism' is your fantasy.
>
>
>>You haven't been "doing it" in Japan
>
>
> I was however never stupid enough to bother with Jap housing.
>
> And that is completely irrelevant to what the OP was asking
> about anyway. There market is completely different to ours.
>
>

Not really. The case of Japan's real estate bubble is
instructive. Japan had a stock market bubble in the 1980s that
was very similar to the U.S. stock market bubble in the 1990s.
As the Japanese stock market started to bust, the real estate
market continued to bubble. One general index of Japanese real
estate shows that prices rose for almost two years after the
stock market crashed with prices staying above pre-crash levels
for more than five years. The boom in home construction
continued for nearly six years after the stock market crash.
Prices for commercial, industrial, and residential real estate
in Japan continue to fall and are NOW below the levels measured
in 1985 when these statistics were first collected.

It has now been three years since the U.S. stock market crash.
Greenspan has indicated that interest rates could soon reverse
their course, while longer-term interest rates have already
moved higher. Higher interest rates should trigger a reversal in
the housing market and expose the fallacies of the new paradigm,
including how the housing boom has helped cover up increases in
price inflation. Unfortunately, this exposure will hurt
homeowners and the larger problem could hit the American
taxpayer, who could be forced to bailout the banks and
government-sponsored mortgage guarantors who have encouraged
irresponsible lending practices.

>>and obviously not during the last depression
>
>
> I did however notice that while there were quite a few of those
> in the 19th century, that was the only one seen in the 20th
> century here, and I have noticed that the first world has
> worked out how to avoid those for 75+ years now, and that
> you didnt get the effect he was mindlessly pig ignorantly
> hyperventilating about during that depression, and that a
> depression now would be nothing like that one anyway.
>
No. It would be more like the depression they've had in Japan
for the last 18 years or so.

>
>>(or even California in the 80/90s).
>
>
> Didnt get the effect he was so mindlessly hyperventilating about then.
>
>
>>If it's been the last half century you also haven't considered
>>the implications that changing demographics (aging and death)
>>and inheritance will have on real estate prices.
>
>
> Wrong again, I keep considering those factors and keep
> being amazed at what real estate prices have continued to do.

Those factors haven't occurred yet so obviously you haven't been
considering those factors at all.

>
>
>>You're running out of fools who will buy your house.
>
>
> Mindless pig ignorant silly stuff. You clearly havent actually
> got a fucking clue about what drives the real estate market.
>

More than you do apparently, but in case we don't, please
enlighten us.

>
>>A house is just a place to live and unless the property has some
>>value aside from a place to put a house, it should be worth very
>>little. But home ownership, like Gold, is very psychological.
>
>
> Like it or lump it.
>
>
>>Gold bugs let me introduce you to the Land bugs.
>
>
> Wota fucking wanker.
>

You ought to look in the mirror when you say that.

>
>>The Baby Boom: Predictability in House Prices and Interest Rates
>>Robert F. Martin, November 2005
>
>
>>http://www.federalreserve.gov/pubs/ifdp/2005/847/ifdp847.pdf
>
>
>>In the next decade or two there will be all sorts of good property
>>available in cities for a fraction of their current (REAL) price.
>
>
> Easy to claim. He'll get egg all over his silly little face, just like all
> the others that have claimed that in the past have done, you watch.

No one has claimed this in the past, and no he won't, demand for
housing is waning, you just watch.

[Ext User(Terry Collins)]

SKD wrote:
> It ain't completely rubbish Terry, but I certainly hope there remains
> still a sizable lot of you out there to keep things going for just a
> little bit longer...

What I was pointing out that I don't know of any house that is 100, or
200 or 300% over priced {:-).

Given that most houses are sold as house and land package and that the
land can regularly be the most expensive part of the package, the only
way the statement of "100,200,300% over priced" can make any sense is
that the poster fails to understand the "land" component. This is the
component that never goes down (unless the town gets nuked, or sinks,
etc), especially since world population is booming.


And in any case, my real estate agent (villa on market) is wringing his
hands that we won't follow his advice and drop our price even further.
They even accepted an offer of $190K and were a little bit shocked when
we said "No". Considering it was below the "you set the minimum and we
won't go below that" price.

So I don't really see your point either.

[Ext User(Terry Collins)]

Michael Scheltgen wrote:

> Recently, I visited a house that was advertised for rent in the Orange
> County Register.

Even in Australia, we know this is wanker land.

[Ext User(Michael Scheltgen)]

Michael Scheltgen wrote:

Anyone interested can read the entire article:

http://www.mises.org/story/1533

The case of Japan's real estate bubble is instructive.
> Japan had a stock market bubble in the 1980s that was very similar to
> the U.S. stock market bubble in the 1990s. As the Japanese stock market
> started to bust, the real estate market continued to bubble. One general
> index of Japanese real estate shows that prices rose for almost two
> years after the stock market crashed with prices staying above pre-crash
> levels for more than five years. The boom in home construction continued
> for nearly six years after the stock market crash. Prices for
> commercial, industrial, and residential real estate in Japan continue to
> fall and are NOW below the levels measured in 1985 when these statistics
> were first collected.
>
> It has now been three years since the U.S. stock market crash. Greenspan
> has indicated that interest rates could soon reverse their course, while
> longer-term interest rates have already moved higher. Higher interest
> rates should trigger a reversal in the housing market and expose the
> fallacies of the new paradigm, including how the housing boom has helped
> cover up increases in price inflation. Unfortunately, this exposure will
> hurt homeowners and the larger problem could hit the American taxpayer,
> who could be forced to bailout the banks and government-sponsored
> mortgage guarantors who have encouraged irresponsible lending practices.
>