Sunday, March 27, 2005

Every Week Is Crazier Than The Last

Maybe its just me, but I swear the stories about the housing mania are getting nuttier every day. Check out the LA Times story for several examples. One guy buys a mobile home park sight unseen; another sells his stock and buys a piece of desert based on a photo.

But the last example is the most telling. "Kim Kaul, a 36-year-old San Diego homemaker, was an unlikely player..with four young children and a rented apartment. Kaul saw a posting on the Internet..He sold the contract to Kaul for $8,500, money she took out of the family's meager savings.. the Vegas market caught a chill."

"She found a tenant, who pays $1,250 a month. But her mortgage was $3,000. When her husband lost his job, the situation became dire. The couple paid the January mortgage with borrowed money, then gave up."

She still has the fever! "I'm sure the market's going to pick up, but I can't hold out that long. This is kind of a bummer."

19 Comments:

At 12:36 PM, Blogger Dan said...

This may sound cold and heartless, but I really can't wait until all of this is flushed out!

Stupidity should become painful again.

 
At 12:46 PM, Blogger Ben Jones said...

Dan,
That sentiment is not a negative one. The housing bubble must come down, if only for future generations. Pay has not boomed therefore millions have been priced out of a home permanently.

I feel bad that a lot of folks will get hurt financially, but I feel worse for all of us that will go through years of a wrecked economy.

The stupid will lose more than the dotcomers. IMO...Ben

 
At 1:18 PM, Blogger Dan said...

Ben,

What is your prediction, both in percent price decline and in the timing of this correction?

 
At 1:55 PM, Blogger Ben Jones said...

Dan,
My crystal ball is in the shop, but it seems reasonable to say that the bust won't be evenly distributed. When I rode out the oil patch bust, houses fell 20% to 40%. I bet it will be at least as much this time. What was more damaging was the long period of time before prices recovered.

Sometimes I try to imagine what a post-bubble landscape will look like. What scares me is the crazy lending that is going on; it really is criminal that the regulators are not stopping it. So prices could go down more than anyone thinks. This is new territory, sad to say.

My favorite timing story was when Jim Rogers responded to my email in the first week of January, 2000. I wrote him asking if I should short the Nasdaq. He said I was probably right, but had to have lotsa $ in case I wasn't. Needless to say I would have lost my entire position well before the tech sell off started in March, 2000. I think the timing will end up surprising us, because it is a psychological function.

The top may already be in, in states like Texas. California seems closer to a top than Florida, sentiment wise. For that matter Australia is several months into its bust and England is in the process of topping. Pakistans' stock market is collapsing and RE there won't be long behind it.

In my older posts, I saw a top in 2003, if you looked at total mortgage production. From that stand point, everything else is just falling into place. But I never guessed the frenzy going on now would develope..Thanks for asking Dan. How about your predictions? Ben

 
At 2:59 PM, Blogger Dan said...

Ben,

I must admit, I feel quite foolish. You see, back in 2002, my father begged me to invest in RE with him in NYC.

My father (who is in his 60s), wanted to take most of his life savings (about $250K) and buy a two-family house (basically a duplex). He even found such a house but he needed me as he was having a problem showing sufficient income.

I insisted that prices were too high and with the declining economy (I'm in high tech), property was likely to go bust.

The rest is history. I do not make predictions anymore.

 
At 3:51 PM, Blogger Tim said...

I'm telling you, today's homebuyers are morons:
http://www.ocregister.com/ocr/2005/03/22/sections/business/housing_smarts/article_451761.php

 
At 4:58 PM, Anonymous Tim said...

I take that back - today's homebuyers fall into two groups - morons (see previous post) and otherwise perfectly reasonable people who have now completely lost their ability to think clearly - what is commonly referred to as the "madness of crowds".

 
At 6:54 PM, Anonymous Anonymous said...

Toronto homeowners seem to be in debt over their heads:

http://www.canoe.ca/NewsStand/TorontoSun/Money/2005/03/27/973640-sun.html

 
At 6:57 PM, Anonymous Anonymous said...

How many people read this blog, Ben ? Is the server (and your wallet) up to it being referenced by some of the big sites, like MSNBC or CNN Money ? I think it is high time people started reading this stuff and acting on it.

 
At 7:27 PM, Blogger Ben Jones said...

last anon,
I am going to switch some my blogs over to my own domain but this one will stay as-is.

 
At 11:44 PM, Anonymous lee said...

That LA Times story sure had some great quotes which will be referred to in the years ahead as we look back at this mad period. I still have a number of magazine articles and analyst reports from the dot-com era as souvenirs of that crazed time. My fav: a major Wall Street analyst report on Drkoop.com from 1999 which estimated that the company will have $5 billion in revenues by 2004. The company, of course, is gone but the stock still trade on the bulletin board. Has a market cap of $16,000.

I particularly feel for the folks (mentioned in the LATimes) who are cashing in their mutual funds to buy scrubland in Nevada. How insane. The guy's rationale? "I'm willing to bet it's going to work out. I've got a good feeling." Wow.

And the Calif guy who bought a Texas mobile home park sight unseen via the Internet? "This is so insanely simple. I didn't have to attend a seminar. I didn't have to read a book." Good on ya, mate.

It's interesting that most of the major real estate manias over the past 100 years have taken place right after stock market crashes:

---The Dow lost 50% of its value from 1920-21. And the great Calif and Florida RE booms took off right afterwards.

---The Dow got cut in half again from 73-74 and stocks treaded water for the next 8 years. We had a RE boom from 77-80.

---Lots of folks were scared out of the market after the 1987 crash and we had a RE boom from 86-89.

---Then the market cratered from 2000-2002 and we have had the mother of all RE booms since then.

Coincidence? I think not.

 
At 8:02 AM, Anonymous Anonymous said...

Ben,
What do you recommend doing to prepare for the inevitable? Is cash still king, or given the weakness in the dollar do you recommend something else? I go back and forth between accumulating cash and making double payments on my house. What are your thoughts?

Thanks!

 
At 8:05 AM, Blogger anonymous said...

Ben,
What do you recommend doing to prepare for the inevitable? Does it make sense to accumulate cash, or make extra mortgage payments (for those of us who bought more than 3 years ago), or something else? I know what's going to happen, but how to benefit from it seems a little harder to determine.

Thanks!

 
At 8:06 AM, Blogger anonymous said...

Sorry for the double post. I didn't think the first one went through.

 
At 8:30 AM, Anonymous Anonymous said...

Here is another bearish analyst. "Within a stone's throw of the top"

http://biz.yahoo.com/tm/050328/12480.html

Here is the thing: when the analysts/media get on the bearish side, the public will get "educated" and when that happens their actions can't be far behind, ie they start selling to lock in profits.

I think the market is about to deteriorate in a serious way.

 
At 9:20 AM, Blogger Ben Jones said...

from lee;(Coincidence? I think not.)
I agree, wow that is a lot of great info. I am sure everyone appreciates it lee-thanks

(What do you recommend doing to prepare for the inevitable?)

Cash, in Swiss Francs, I have zero debt and I rent.

(I think the market is about to deteriorate in a serious way.)

Real tough call but it does seem to be topping. Thanks..Ben

 
At 11:28 AM, Anonymous Anonymous said...

Ben,

Can I ask where you buy/keep your Swiss francs? I know about Everbank, but in these circumstances I like knowing exactly where my money is and how strong the bank is. (I'm in dollars in a local bank with a good Weiss rating.)

Thanks for all your time and effort on this blog!

 
At 12:39 PM, Blogger Ben Jones said...

(Can I ask where you buy/keep your Swiss francs? I know about Everbank)

I have been with Everbank for a couple of years now, they haven't disappointed me. If you know of a problem with them, please let me know.
PS-If things get hairy I would probably pull out of all banks. Thank you for the kind words! Ben

 
At 4:08 PM, Anonymous Anonymous said...

I just want to mention that
Everbank is a big mortgage lender itself...

 

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