the economy isn't as bad as you think IMO

General Real Estate Investing
21

What I try to remind myself is THIS HAS JUST STARTED. The entire real estate down turn is at BEST 18 months old. We’re talking about a market that appreciated for over 6 YEARS!!! Even the so called experts were arguing over the possibilty of a recession. Until warren Buffet acknowledged that WE’RE IN ONE.

I wouldn’t start thinking this is anywhere NEAR over or won’t get a WHOLE LOT WORSE. The problem I see IS THE ECONOMY. Anyone see those jobs numbers today?? The FED figures there’s 500,000/ month who just STOP trying to even find a job.
As the economy weakens the real estate slide will continue and ACCELERATE. This is basic economics.

Rumors are FLYING on Wall Street that CITIBANK may go under!!! That’s MING BOGGLING.

There are so many negatives out there right now trying to find something positive to talk about is getting difficult.

I think your right in some respects Roger, the media is having a field day with this stuff AND as you correctly point out NOT EVERY place in the U.S. is going to be hurt by this. I see nothing but misery in the Northeast so it probably tilts my opinion, but I have to tell you, I watch some pretty obscure national economic data and NONE of it is good.

22

So in light of all the negative press about the economy; Is this a good time to be buying RE? It seems that as long as there are no other driving factors, like condo development and/or house flippers renting houses until the market returns, there should be plenty of renters looking for apts. I’ve heard investors say that they stick to their criteria no matter what the economy is doing. The reason is because apts. are the last stop before the street. I personally feel that bargains should be readily available when things look their worst. Perhaps if you can get a property cheap enough, you can afford to rent it for cheaper and still cashflow $100/unit (sorry Propertymanager for stealing your formula but I couldn’t resist! :biggrin). That’s how I’m seeing it at this point anyway. I feel like I’m on the right track, but please correct if I’m wrong.

23

Your 100% on the right track.

Remember what Roger said…I can talk all I want about this economy, some of the things I say will come true, some won’t. As he points out “no one really knows.” The bottom line is the MAJORITY of regular Americans are RUNNING AWAY from anything that has the word real estate in it. In my 20+ years experience…THAT is the EXACT time to BUY!!!

As long as you follow Mike’s 50% rule your going to have cash flowing properties. If this down turn gets REALLY bad it might take you longer to find tenants. MAYBE / MAYBE NOT.

Roger, You add a good dose of optimism to my gloomy theory’s. As far as your point about data and numbers??? Your right, we can make them say what ever we want. Keep your posts coming and I’ll do the same, between the two of us we probably have this thing figured out if we take both our thoughts and split them down the middle! :beer

24

I think you guys missed my point. All of the big shot analyists are presenting skewed data to teach the average investor that the United States is incorrigible. THIS IS FAR from the truth. The big media businesses who are most definately controlled by greed and ouside forces are forcing more **** up our asses. How much do you think it would cost to rebuild a bank like citigroup which has a market cap of 108 billion dollars. How much do you think the citi brand is worth? What about fannie mae? WHEN YOU INVEST, YOU INVEST WTIH SOME INCOMPLETE INFORMATION. No one will know when the complete bottom will hit until after we have hit it. The problem is that people are impatient for the future.

25

Here’s some data that’s VERY HARD TO AGRUE ABOUT and is certainly NOT skewed…

www.1stmillionat33.com/posts/06-09-12/house_his.gif

Note the RUN UPS followed by DROPS. NOW LOOK WHERE WE ARE :shocked Also, pay particular attention to our current postion on this chart. To my eyes it looks like a fall that is just about to pick up a VAST amount of SPEED!! This isn’t rocket science. It’s called a MARKET ECONOMY.

Let’s not forget what this HOUSE OF CARDS was built on??? This entire run up was fueled by SUB-PRIME, ARM’s and SPECULATION. Let’s review… Sub-prime…NIt Wits who ordinarily, coundn’t have financed at 10 year old DAWOO all of a sudden were BUYING HOMES. They bought them with NO DOC, INTEREST ONLY MORTGAGES. There was a VERY GOOD reason these IDIOTS didn’t own homes… THEY NEVER PAY BACK LOANS!! Now let’s move onto the SPECULATORS!! Can anyone say PRE-CONSTRUCTION FLORIDA CONDO’S or how about all the GENIUS “Flip this House” viewers? Yea, let’s all run out and buy homes that we NEVER INTEND TO LIVE IN!!! Yea, that won’t EVER come back to bite us in the @ss! Last but certainly not least…all our friends who couldn’t AFFORD the house THEY REALY WANTED so they bought it anyway with an ARM mortgage. Now that their house is no longer worth what they OWE on it, AND their payments have TRIPLED, they WALK AWAY, leave the key in the door, GONE!! This is a housing BOOM built on shifting SAND. BOOM is the PERFECT word for it.

Think I’m making too big a deal out of this??? Last week in SWITZERLAND a HUGE mutual fund was dissolved because of it’s exposure to SUB PRIME. This is a GLOBAL EVENT!!! Our own credit markets have basically ground to a halt. And Uncle Benny is SCREWED. He keeps dropping rates, which increases OIL prices, which leads to more bad economic data, which leads to more rate drops, and on, and on, and on.

I could care less what any of the “experts” are saying. I have a very clear picture about what is coming and I have made moves to preserve my capital and benefit from it.
I would STRONGLY suggest you do the same. If a major economic event DOES NOT occur explain to me how I get HURT being prepared for one.

The guys who get smoked in these scenerios are thinking IT CAN’T HAPPEN because there’s some big safety net out there that will catch everyone.
Don’t count on that. Count on your INSTINCTS and GUT feeling. I’ve been at this for over 20 years I go with my GUT on every decision I make because without exception EVERYTIME I’ve ignored it I have lost money.

You said in your original post that your young. Want to read about a kid who GETS IT??? Go to this site www.1stmillionat33.com and read about how a KID from ASIA came to this country in the 1990’s and worked his @ss off, saved his money, drove used cars, wore k-mart shoes and WIPED THE FLOOR with 99% of the AMERICAN born kids in this country. I can be done, but in my experience VERY FEW people will sacrifice what has to be sacrificed TO MAKE IT.

This is VERY SIMPLE…Our country is going to get it’s @ss handed to it because the majority of it’s citizens are MORONS who live like they won a lottery.
This BS game has gone on for so long that now REALITY is setting up for a BIG DOSE OF ATTITUDE ADJUSTMENT for these people. THEY earned it, now it’s PAY DAY!!!

Don’t blame the media… This was created right in our own backyard by people who wanted SOMETHING FOR NOTHING!!!

26

:shocked Dont you think this is factored in already? I sense that people who are on here and some other investing sites on the web portray people who work on Wall Street to be completely ignorant about the markets. You don’t think a 64% drop in the market cap fully justifies a decrease in value of a GLOBAL banking empire (citi)? Could perhaps tracking the 20 largest or some of the largest cities be flawed? All of these cities combined are less than 1% of the land in the United States? in the midwest houses did not increase 2x. in 1890 let alone pre-world war 2, rural areas were not developed as thoroughly as they are now. Consequently, houses in the city had to have been more valuable because they did not have an option to live in the rural parts of the country in terms of jobs and other logistics! no highways either! And also for houses who cares about inflation! In 1890 houses had to have been more expensive (moved back with inflation) because builders had less technology.Inflation does not thoroughly compensate for the new technology that we have developed. Oh…lets talk about house sizes too. Houses sizes have almost doubled…and they have been increasing in size especially in the last 10 years. I just don’t think a graphical average of house prices brought back to inflation really show the big picture. Too much crap going on for me to just allow cerebus parabus to kick in. I am sure there is a relationship…but you havent convinced me. In essence, How do you know that most of the “doom-and-gloom” is not priced in already? I mean stuff has been down 60%. I am just trying to understand your view and maybe a rebuttle on how you think Shiller’s graph is 100% accurate in telling the “sub-prime” story.

27

This isn’t about anything other than EXCESS. The government has been printing money that is based on NOTHING for more than 30 years to support their socialist global spending. Giving everything to everyone has become the political thing to do in this country and it has DESTROYED the country (even though we haven’t seen the final result yet). You can’t simply print piles of money for decades and pretend it won’t have an effect. Our money is backed by the full faith and credit of the government. Unfortunately, our government is NOT credit worthy and certainly can not pay back what it has borrowed.

Is all this factored in? NO! Taking a 60% haircut is meaningless IF YOU’RE BROKE! The government is doing EVERYTHING it can to keep a collapse at bay, but I don’t think they’re going to succeed. I fully believe that we’re going to wake up one morning and there is going to be word that a major bank (maybe CITI) has failed and there will be a HUGE drop in the stock market (maybe 2,000 points in a single day). After it happens, all the idiot talking heads and government officials will talk about how they knew it was inevitable!!!

Mike

28

OK…let’s forget about the graphs and the data for a moment.

I’ve said this at least 100 times here…NOT EVERY MARKET WILL BE AFFECTED THE SAME WAY.

OK…we’ve established that… AGAIN.

Answer the following questions in your own mind.

Do you think the tightening lending standards are going to effect peoples abililty to buy housing?

Do you think that 9,000,000 homes possibly going into foreclosure in 2008 will ADD VALUE to this market or DE-value the market?

In 2007… $200 BILLION in ARM mortgage re-adjustments sent the housing market AND CREDIT MARKETS into a tailspin.

In 2008 $900 BILLION in ARM mortgages re-adjust FOR THE FIRST TIME!!!
If $200 Billion created this mess what will 4 1/2 TIMES AS MANY DO???

These people will face the exact same realtiy their 2007 peers did. THEY CAN NOT re-fi a house that they paid $250,000 for that is now worth $200,000!! That’s a FACT. Those stats are available at a number of goverment, private, and academic web sites. The question then becomes do these people watch their payments INCREASE as their equity DECEASES and STAY in that home with a mortgage that doubles or triples. To the MAJORITY there is no choice. They took those mortgages with the HOPE that their home would actually be worth MORE a few years later THEN they could refi into a fixed rate. Not only has the EXACT opposite happened, they now find the economy in recession, and NATION WIDE tighter lending standards.

Let me bring you a little reality form my market (Southern New England)
1985…2 bed/1 bath single family home in good condition sells for $40,000

1989…we have a real estate BOOM… Same house, not one LIKE IT, THE same house. sells for $100,000!!! That would prove to be a VERY poor purchase for that buyer. Housing crashes here, and across the country as we went into a severe recession in the early 90’s.

1993…THE same house sells for $51,000 at the height of that recession.

2005…The same home sells again…this time at the height of our countries real estate boom!!! Price this time???

2005…$225,000!!! :shocked

THAT my friend is a MANIA!!!

Mania’s are followed by CRASHES!!

I OWNED this house 2 times so I know EXACTLY of what I speak.
Based on that home and the 100+ or so I’ve bought and sold over 20+ years. I can tell you in NO UNCERTAIN terms that MR. SCHILLER’S chart
is not only accurate, but is also one of the scariest things I have ever looked at. The potential losses that the chart COULD represent are nothing short of MIND BOGGLING!!

Throw in… an economy that according to WARREN BUFFET is ALREADY IN RECESSION, a WORLD WIDE CREDIT CRUNCH, spiking inflation, $100+ a barrel oil, the worse jobs report we’ve had in 6 years this week, and Walmart reporting the worst January sales month in 40 YEARS!!! Thats 40.
And you got my attention!!!

As far as FACTORED IN??? Factor in WHAT??? Even the banks themselves have no idea how deep this goes, credit markets which normally willingly loan money to other members have STOPPED because they have no idea what the other guy is holding. It’s not a matter of thinking Wall St. is ignorant… IT IS IGNORANT!!! Cripes THEY created this mess. Did you happen to see the Senate testimony this week by all the Wall St bank Presidents?? The LOSSES these guy’s are dealing with are astronomical. Are you implying that they KNEW this would happen??
Come on man, this is PURE GREED… Greed from the mortgage brokers who had BS appraisals done so people THEY KNEW couldn’t afford these homes GOT THEM. It’s GREED by Wall St. banks who lumped good loans in with CRAP and sold it as AAA. It’s the RATING agencies who rated that GARBAGE as AAA and NOW admit they have NO IDEA what it is.

NONE of this matters my friend… the end game is here… if you think we’re gonna come out of this without a historic correction, that’s OK. It’s an opinion, that’s all it is. NO different than mine.

Don’t take what I say too seriously…I enjoy trying to figure out these complex economic issues. I’ve had my fair share of success doing so. I tabulate that success based on the MONEY I make by lining up investments in the past to take advantage of these once every 10 years or so cycles. My advice to you is this…

Think what ever you want…but ACT on what is LOOKING YOU IN THE FACE!

29

:beer I am just taking the persepective of the other side of this issue. The people who think that we will turn around from this. At this point, I do not really need to act beacuse everything just keeps on going lower and lower in waves. We just crossed that 12,000 point support in the dow and I think that was significant. This will be a very interesting time no doubt about it. I really do have no clue what could happen from here to be honest. I am not an expert I just am against those who think that the United States is doomed forever. I don’t see how a depression would be good for anyone here either.

30

I agree with you 100%

This too shall pass…

The GREAT thing about this country is that our people have the shortest memories of any species on EARTH.

10 years from now you and I will be selling all the stuff we purchased during the BUST to dopes who forgot it even happened. And.they’ll all be OVER PAYING FOR IT! :beer

31

The current economic “crisis” is a set up. Everything is starting to fall into place for our entrenched political system to make the following occur:

Massive Tax Reform: It will include:

  1. Elimination of the mortgage interest deduction on primary homes
  2. Re-structuring of tax tiers to eliminate AMT
  3. Further movement of tax burden from corporations to individuals
    All of the above is outline in Bush’s Tax Reform Advisory Panel from 2005: http://www.taxreformpanel.gov/

Privitization of Social Security: The first step will be upheaval of Wall Street rating systems (currently provided by Moody’s, Fitch, and Standard & Poors).
Following that will be the collapse of at least one Investment bank and one Commercial bank. The ensuing fiascos will justify that individuals get control of their retirement and entitlements as the government and large GSE’s will be blamed for the falls.

Because the majority of the population is so uneducated about American style capitalism, the way money works, the global corporate system, and the true “market,” the above will come to pass. There will be a recovery of sorts, followed by an even bigger and more lasting economic collapse.

In 30 years, the typical American household will look like this:

A husband, a wife, their one child and 6-7 of their elder relatives all living under one roof, which will be a small 2-3 room condo in a massive 60 story housing complex in the middle of the city. Water will cost more than gasoline does now and the children won’t taste a fruit or vegetables that can’t grow within 300 feet of where they live.

32
A husband, a wife, their one child and 6-7 of their elder relatives all living under one roof, which will be a small 2-3 room condo in a massive 60 story housing complex in the middle of the city.

I’m already seeing this in the rental business. Several generations of family are starting to live together because they can’t afford to rent on their own. The only thing I’m not seeing is a husband and wife with one child. I VERY RARELY see a married couple (people are just shacking up) and rarely one child. Reality is more like 4 or 5 kids with 4 or 5 different men, all of the kids supported by you and me (the taxpayers, or more accurately the funny money printed by the government out of thin air)!!!

Mike

33

A husband, a wife, their one child and 6-7 of their elder relatives all living under one roof, which will be a small 2-3 room condo in a massive 60 story housing complex in the middle of the city. Water will cost more than gasoline does now and the children won’t taste a fruit or vegetables that can’t grow within 300 feet of where they live.

A real doomsday scenario…The water issues we are experiencing around the world are deeply troubling but I would bet that the earth’s weather pattern has turned a corner…I would expect to see precipitation pick up drastically in the coming years…

34

Wow. You guys could depress a $20 Million lottery winner!

Seriously, the model presented has flaws, most notably, where is the data taken and how big of chuck of market are we talking about? That said, using it as the example, the only comparable boom to the current housing situation is directly after WWII. If you’ll notice, the market only ‘suffered’ about a 10-12% drop in value during it’s decline, not back to “pre-boom” figures, as suggested. Holding that, you’d surmise that the MAX adjustment in this market should be only 20-24%. If the top markets are already at 18% drops, then the bottom is near, correct?

And please, no flames. I’m not saying that this IS what is happening, just showing that based on the model, that is the evidence presented.

It not worth getting into the whole “world is ending” argument again. Quite frankly, it’s all wild, rampant speculation based on skewed data. Yes, skewed. Data only becomes important once you know WHO is presenting it and WHERE the information came and HOW much of the information obtained was actually used. The problem that I’ve seen with most of the data provided any ANY of these theories is that they are grossly leaning toward a particular viewpoint.

While a major bank collapse is possible (anything is possible) it’s highly unlikely. Fdjake, you mention that “Entire divisions of goverment were set up to keep a COMPLETE economic collapse from ever happening again.” I believe that I had used the word “safeguards” once before and was severely critized for it, but I digress. :biggrin Anyway, one of those ‘divisions’ was setup to keep large banks from going under. Why? That was one of the major reasons for the 1929 collapse.

So, if a big bank is failing, either the gov’t, another big bank, or possibly even foreign funds will more than likely come in to “save the day.” Maybe even a combo of all three.

More concerning to me is actually the smaller banks which wouldn’t have the same “focus” on them. And I see signs of some major problems with them.

Most noticeable is that I am constantly getting calls from my lenders now on the 3rd of the month if they haven’t received my payments yet. The 3rd!, boys and girls. Now, if you’re not even late until the 15th, why bother people on third? “It’s just a friendly reminder about your payment. You can make it over the phone if you’d like” is what they say. What it means to me is that they need to collect so that THEY can pay somebody else.

Why this is bad? If smaller banks go under, they won’t get the same attention from the gov’t as a larger lender would. Also in this current economic situation, I believe that there would be far fewer larger banks willing and able to buyout/takeover the bank nor would they be able to handly the influx of new customers that a small bank closing would create. THAT is what scares me.

Raj

35

No, I don’t think the collapse of one or even two major banks will be the end of the world. It is however, the perfect setting for Tax reform and Privitization efforts that have been in the works for 10-15 years. With privitization will come the emergence of thousands of new financial products, rating companies, insurers, you name it. This will cause a short boom in stocks (the next bubble?) The biggest hurdle that Privitization will overcome is government regulation of entitlement programs across the board. Nothing like a little economic recession (or threat of one) to de-regulate the markets. It is this perfect storm, of 1) increased tax burden on individuals, 2) privitization of social security, 3) further de-regulation of markets, that will pull the country toward the doomsday stuff. It won’t happen overnight - more like a slow leak or bleed over the next couple of decades.

If you don’t believe me about what happens when banks/insurers/credit collapses, you may want to look up “LTCM.” It’s a little known story of a bank bail-out back in 1998 of a company called Long Term Capital Management. The de-regulation that resulted from that event, lay the groundwork of much of the bubble that grew over the last 15 years.

I guess what bothers me and others the most about the optimism of “They” won’t let big banks fall and “They” will always bail out the economy, is that “They” are really our childrend, grandchildren and their children for generations to come. Not only are workers unfairly burdened now with taxation, but that we so casually put the burden of today’s bail-outs on the backs of our decendants.