A money guy on why it's a bad time to buy
From Curbed.com
By Curbed.com, Tuesday, April 28, 2009.
LOS ANGELES -- This was sent in by a reader, someone with a financial background, so we're calling him Money Guy. This week we'll follow up with the argument on why this is actually a good time to buy. But today he has the floor so we're all learning about "coordinated currency devaluation." Better go get some coffee.
"I think it's a bad time to buy for a few reasons. Let me include the caveat that I expect markets to appear more buoyant for the remainder of the year with 2010 ushering in renewed economic weakness. I'll give you four points that are reality and two more that are speculative.
1. The supply of new construction, particularly condos, is staggering. Every time a Rowan et al goes to auction it provides a cheap entry to someone who maybe preferred West Hollywood or Pasadena but who'll now go downtown based on reduced price. The trickle-down effect. Koreatown, Hollywood, mid-Wilshire are all overdeveloped given demand.
2. As said supply segues from condo to rental it becomes another drag on resales. Who knows cost per month better than a renter looking to become a buyer? In this climate few folks are willing to swap $1,800 a month on a walkaway lease for $3,000 a month virtually forever, including quite variable HOAs and taxes. By the way: There's rumblings that the new tax bill will slightly penalize "jumbo" buyers by disallowing a full 100 percent interest deduction on upper-bracket filers.
3. It was bad enough a year ago when resale prices were stretched compared to rental rates (p/e so to speak), but what's happened since? Rentals have weakened -- which by the way is counterintuitive to the conventional wisdom argument that states former homeowners would then crowd the rental market. Hasn't happened. My best guess why the absence is because of unemployment. During the last housing downturn, job growth was actually increasing, so while L.A. was getting slammed '89-'96ish the employment situation from '92 on was improving … That's not the case this go around. There's no divergence. Job loss is pronounced, and asset prices reflect that reality.
4. Listen to the tape. Granted it plays a confusing tune. But look at that great-looking Silver Lake house you wrote up that sold for $1.8 million after just days on the MLS. By and large though, there's little activity on the ask side and it seems the only preponderance of buyers are those buying at distressed prices. Obviously, you too notice new sellers are pricing more aggressively. Trading 101: In bull market the offer trades out. In a bear, the bid trades. For now it looks to me like sellers outnumber buyers and once the "dip buyers" (i.e. the folks buying these auctions are done) there could be another leg lower.
Two "speculative" worries:
1. These huge global government borrowings could cause liquidity problems for long-dated paper. What do real estate prices look like if the 30-year Treasury ever goes back to 7 percent with mortgages 200 basis points over?
2. I think there's at least a 50 percent chance we're only in the 3rd inning of something really, really, really bad.
One macro bull argument and it's why gold is $900 and perhaps why real estate has yet to fall off a cliff: coordinated currency devaluation. I think it's a given, but I suspect it'll only occur in response AFTER deflation causes debt to be unserviceable in present notional currencies."
Copyright (c) 2009 Curbed.com LLC
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Submitted by Larry Whited Sr. on April 28, 2009 - 4:02am.
Our entire population will suffer at some level because of the unregulated high risk loan practices of this decade.
Unfortunately we will also suffer from our government’s overreaction and extreme regulation for the next decade.
We would not have to suffer through the latter if Wall Street and the Bankers had not perpetrated the former. Greed always has an ugly outcome in the end.
We need a new Glass-Steaglle Act to prevent this disaster in the future.
Everyone should do a Google search to understand the Glass-Steaglle Act and then tell their congress reps and senators how they feel about it.
Larry A. Whited, Sr., CRB, CRS, GRI
President & Founder
www.maxUnet.com & www.WebMLS.net
A Virtual Real Estate Franchise System
** Virtual Is the Future **
P.O. Box 757
West Chester Ohio 45071
Direct - (513) 543-2727 Fax - (513) 297-7497
Submitted by Gregory Schreiber on April 30, 2009 - 6:47am.
Larry,
I understand the Glass-Steagall Act but I don't understand how you think it could have prevented this crisis. Please explain. Thanks.
Submitted by Harry Ridge on May 1, 2009 - 9:02am.
I agree with everything you explained about the general market and it being a bad time to buy. There are pockets of strength around the country, however. The Plano Real Estate market, just North of Dallas, remains strong. Although inventory has increase a little prices have remained stable over the last three years.
Harry W. Ridge III
Member, Broker
Submitted by John Rakoci on May 3, 2009 - 6:08am.
One sure thing is obama cannot be trusted.He has lied once again. A 58 year old with a teacher pension of $2600 a month has been notified her FICA is rising $48 monthly. Maybe obama math multiplies 2600 X 12 to equal more than $250,000? Maybe he forgot he said pensions under $50,000 would not be taxed. The reason provided by the Teachers Retirement System is "The federal economic stimulus package, the "American Recovery and Reinvestment Act", included revisions to federal withholding tax tables.".
Submitted by Bruno Skopinich on May 3, 2009 - 11:37am.
If you want freedom or opportunity to gain... then you must also have freedom to lose.
One can Not exist without the other.
You can't regulate one without effecting the other.
In a free capitalist society (which I cherish) the economy runs in cycles.
Sometimes it is more severe (like now) than other times. Because we had a sharp rise... therefore a sharp adjustment.
Larry, wants to regulate the losses... why? Larry you have too many credentials to title ... now try and get some common sense! To balance it out :)
Unless you want to live in a much regulated closed society.. where everything is controlled.
Have you noticed how many pages our real estate contracts are now... compared to 20 years ago. When I stared we had a One Page Contract... now some areas like California have over 15 pages.
Is there less fraud because of it? Are there less losses because of it?
No Larry... we do Not need more regulations... we just need to use what we already have.
Submitted by john whiseley on August 15, 2009 - 8:32pm.
My feeling is just as I feel towards most Americans that overpaid for a house or home that was truly overpriced and now the value depreciated when you had expected it to keep appreciating and reap the benefits. I just don't know why you can't make the current house be of adequate size to accommodate your family. Then just make the payments until such time as the market adjusts and then place it on the market or keep it.
Earn Cash Fast|Roth Ira Investment
Submitted by emma watson on September 4, 2009 - 8:14am.
In my opinion people should no use the cash advance facility because it bounds them in debts and never let them go.
Submitted by emma watson on September 4, 2009 - 8:16am.
In my opinion people should no use the cash advance facility because it bounds them in debts and never let them go.