Thursday, April 28, 2005

"They Better Buy Now"

In Tucson the realtors have been doing so well, they have become arm-chair economist in order to explain their good fortune. "'It's public confidence in the economy, and the feeling that prices are going to escalate, so they better buy now,' said Judy Lowe, Tucson Association of Realtors president. 'Also, it's believing that real estate is the best investment.'"

"Richard Kenney, an agent, said people are losing confidence in the stock market and looking to real estate as the better place to put their money. 'People like the idea of having something they can see and touch and rely on themselves, rather than the paper money and the stock market.'"

One agent senses something is wrong. "Our buyer demand far outstrips the number of available houses out there. It's kind of scary," said Michael Smith.

30 Comments:

At 11:31 AM, Anonymous Anonymous said...

I have a feeling that the stock market will collapse first. I am expecting inverted yield curve this year and lower interest rates thereafter. My point is-be very careful shorting homebuilders since housing could go higher because 1. Lower interest rates 2. Perception that housing is better than stocks. These two things should (if things play out as I expect them to) push housing higher.

However, end game is the same-housing will collapse destroying idiots who are buying now or over the last few years. It just might be from a higher base. MHO.

 
At 11:32 AM, Anonymous historylessons said...

Disdain (and fear) of the stock market certainly plays some role in the housing runup. We've seen this before. The stock market got cut in half in the early 1920s. This was before the late 20s runup to 1929. That early 20s bear market coincided with the crazy property boom in Florida ("swampland in Florida"). When the property boom burst, the stock market got hot again.

We also saw this in the '70s. The market went nowhere from 66-72, pretty much trading in a range and topping. Then we had the savage bear market of 73-75 when the market got cut in half again. A property boom ensued from 76-80. Then the stock market took off in 81-82 and property declined from 80-85.

Again in the late '80s: the '87 crash scared out a lot of investors. And the property market went nuts from 86-89. The stock market took off again in 91 and property declined from 91-95.

Same old, same old.

Will we see the pattern again? Why not. We could see property begin its' well-earned decline this year and the stock market could take off again next year. It's happened many times before.

That's why it's kind of funny to see inexperienced, highly-leveraged "investors" flocking to real estate right at the top. I guess that's how it should be.

 
At 11:38 AM, Blogger John Law said...

those realtors should know, that's probably what their customers tell them all day.

those accounts seem a lot like the first-hand accounts written in newspaper article bye RE purchasers.

 
At 11:41 AM, Anonymous Anonymous said...

Same game same lame

 
At 1:23 PM, Anonymous Anonymous said...

Here comes the herd Tucson !! Can't you just see the gullible fiends with their loans approvals in tow bidding up Tucson R.E., good luck with renting out those homes folks !

BTW, my plumber asked to buy my house today, looking for a "flip" opportunity.

The end is always so exciting !!

 
At 1:38 PM, Anonymous Anonymous said...

Has anyone even thought of the notion that there currently are NO good asset classes to invest in at the present moment? It sure as seems that way to me but I have been told that my view of the world as a dark place are extremist. Cash is king right now.

TheGuru

 
At 1:46 PM, Anonymous Anonymous said...

Sure, lots of people have considered that cash is the place to be. It really boils down to whether you think the Fed is going to sit by and tolerate high inflation like in the 70's. I don't think so. Listen to all the noises they've been making recently about raising interest rates regardless of housing. But anyway, if you think inflation is on the way, then get out of bonds and get into housing, commodoties and maybe stocks. If you think the Fed is going to hold the line on inflation, then cash is probably the place to be. If you're sure of low inflation, then long T-bonds is best. I'm pretty sure of low inflation, but not totally sure, which is why I'm all cash myself.

 
At 1:56 PM, Blogger Chris H said...

Who is buying these houses? Investors.

I've been considering moving to Phoenix from California for the past couple of years. While doing some research, I read an article in the middle of last month on azcentral.com saying 1 in 4 houses being bought are by "investors" and "all the California investors that were in Las Vegas are headed to Phoenix." I'm sure the same thing is going on in Tucson. The newspaper articles in Arizona about home prices sound just like the California articles. If this bubble doesn't burst for awhile and they run up Arizona prices, where do you think the next market is they'll hit?

The other thing to point out is that a lot of people are fond of saying this is not a nationwide bubble, but only in select markets. Well the problem is the people in those select markets have branched out with their equity and run up prices in other markets. Equity flush Californians have run up Nevada and Arizona.

 
At 2:06 PM, Blogger goleta said...

Anyone who says it's not a nation wide problem is full of %^@#. I've had several long road trips from southern california to vancouver and from Boston to Philadelphia the past two months, and the bubble is everywhere I've been too. more than 50% of the US population live in those 10 states and I didn't even count florida, nevada, arizona and other hot markets!

 
At 2:15 PM, Anonymous Anonymous said...

I have a somewhat different view. The economy is going into recession, in spite of the tremendous RE bubble. Forget all the garbage about soft patches. The gigantic deficit and dismal consumer confidence are beginning to outweigh the interest rate and asset bubble stimulus.

I believe this is the reason that the stock market hasn't been able to get going this year at all - too many negative fundamentals.

What will happen is the the stock market will be flat or down through the rest of this year. Because of staglation and the dollar, the FED won't be able to easily lower rates again. RE will start to tank with obvious signs in the summer and this will take the rest of the economy with it. There probably won't be a stock market recovery for several years until REAL growth begins again. This is a best-case scenario.

I understand the concept of hot money moving into different asset classes but there's not a lot of good news on the horizon in any market. At least until we can clean out all of the credit excesses that have been building since the mid 90's. Therefore, I feel comfotable shorting Tol, Kbh, etc. IMHO disclaimer.

 
At 2:25 PM, Anonymous Anonymous said...

One place I'd want to steer clear of, with respect to investing, is anything associated with risky loans. That would include bonds funds that have bought these crazy ABS's (asset-backed-securities) based on 100% no-money-down interest-only loans for overpriced houses. In the world of stocks, that would include banks with too many home-equity loans on their balance sheets, or any companies whose pension funds have invested in crazy ABS's, etc. There's going to be a helluva lot of bankrupticies and workouts coming up.

 
At 2:40 PM, Blogger Ben Jones said...

Chris,
Half the people walking around AZ are from CA. I live in N. AZ and many folks have already made the move you describe. BTW, do you know how hot it gets in Phoenix? I suggest a little more altitude. It can get cold in the winter, but the trade-off may be worth it to you.

Have you considered renting for a while? It's cheaper than buying and the repossessors may have a bargain for you in a few months. Good luck and let us know how it turns out.

 
At 2:43 PM, Anonymous Anonymous said...

Want to know the best place to park your cash? I've got mine in www.ingdirect.com where I'm currently earning 3% (likely to go up next week when the Fed raises rates) and it's FDIC insured. Your account is linked to your current checking account so you just transfer money back and forth. It really is convenient and considering you only get 4.2% by tying up your money in 10-year treasuries these days, a very competitive rate.

 
At 2:53 PM, Anonymous Anonymous said...

There is a forgotten asset: gold. Proven for centuries. Despite "new paradigm" gold will prove itself again. Investing in any assets class is matter of timing and this is right time for gold.
Disclaimer. I am professional real estate investor for many years and I am not gold bug. But this is seems to me obvious investment of the future. And because dollar is not any longer backed but metals: Cash is not King.

 
At 3:24 PM, Blogger John Law said...

I think foreign cash is king!

gold and silver are money, but in the coming deflation I'm not sure if they will not go down a long with other assest.

 
At 3:37 PM, Anonymous Anonymous said...

"I have a feeling that the stock market will collapse first."

I agree, but I think the SM collapse is going to trigger the liquidity problem and thus the housing crash.

If the stock market crashes, foreigners are going to stop buying US bonds. That will force US mortgage rates up and then trigger the housing crash.

I don't know where the best place is to invest right now. I sold off my stocks (again) on Monday, locking in a bit more profit.

I don't trust gold. All it would take is a country selling its gold reserves to depress the market and I'm not smart enough to figure out under what conditions that might happen.

I can't find a foreign currency that I trust enough to invest in. As far as I can tell, the Australian dollar looks to be a good candidate, but who knows how the shake out would affect them.

I'm almost thinking that silver would be a good hedge, but it is firstly a commodity and what will happen when industrial demand for it falls ?

 
At 3:39 PM, Anonymous Anonymous said...

the thing about gold is that it's built on even shakier psychology than the housing bubble. The firm foundation for gold, based on industrial appliations, is about $40/oz. Everything above that is based on speculation. That is, you don't buy gold for its true value, but rather because of what somenoe else thinks its true value is. Still, it is quite possible that the gold mania will get going again. Gold is very unpredictable and it does seem a good time for it.

Foreign currencies seem a very poor choice versus the dollar. The Euro might go up in the near future, but in the long term the prognosis is much worse for Europe than the US, I think. Same story for Japan. The Chinese remnimbi may eventually go up, or it may not. Definitely China is getting richer, but that growing wealth may not translate to a rising currency due to inflation in Chain. A climite of political stability and a willingness of a central bank to do what it takes to fight inflation are not things that develop quickly. It took ten years of inflation in the 70's before the Fed developed backbone. Same issue applies to all emerging market currencies--they lack a track record.

So I'm keeping my money in US dollars for now, but with a eye on gold, just in case.

 
At 3:54 PM, Blogger John Law said...

(he thing about gold is that it's built on even shakier psychology than the housing bubble. The firm foundation for gold, based on industrial appliations, is about $40/oz. Everything above that is based on speculation. That is, you don't buy gold for its true value, but rather because of what somenoe else thinks its true value is.)

no, gold is money. that's why it's in demand. it's rare and it's doesn't react to any metals...what better store of value! that's where it gets it value. money is supposed to be a store of value.

 
At 4:26 PM, Anonymous Anonymous said...

Money is what the government defines to be money, and that means dollars in the US, euros in Europe, etc. Gold fits in the same category as gemstones or artworks. All of these precious items have shown lasting value, but psychology could change at any time, so that the value suddenly disappears.

Gold mainly appeals to people worried about hyperinflation, but I think raw land is better hedge against that. Still, I am well aware of how fanatic people can be about gold (you are a good example of that) which is why I see gold as a very interesting asset class and one I continue to watch carefully. Goldbug mentality may be crazy, but it is a predictable craziness.

As for the incorruptible aspect of gold, that is what underlies the $40/oz industrial value, but this is irrelevant to gold's use as a store of value, other than slightly reducing storage costs.

 
At 4:32 PM, Anonymous ChrisH said...

Hey Ben,

Yep I do know how hot it gets in Phoenix. I already live in the desert here in California so I pretty much live it already. I actually like the desert and the heat. I'm just sick of the 155 mile daily round trip commute to work and how poorly this state is run. Our roads are crowded and run down and we have no electricity and nobody plans to fix it in the future. I already own a home with significant (temporary) equity. Probably what I will do now is take my equity out of my house and rent in Phoenix until things calm down. My problem is that although I have equity in my house, I am in a low cost (by CA standards market), so it looks like those with equity in high cost markets forced me out yet again. However, with all those Californians you mentioned in Arizona... who is going to buy the over priced CA homes? hehe...

 
At 5:18 PM, Blogger John Law said...

(Gold mainly appeals to people worried about hyperinflation, but I think raw land is better hedge against that. Still, I am well aware of how fanatic people can be about gold (you are a good example of that) which is why I see gold as a very interesting asset class and one I continue to watch carefully. Goldbug mentality may be crazy, but it is a predictable craziness.)

I dont think you understand, gold is money. so is silver, it's been that way for thousands of years. the metals individual properties, and the fact that supply can't increase forever, are the reasons why.
I'm no fanatic, that's just the lesson of history. gov't may declare what's money, but there will always be gold and silver. and paper money will ALWAYS depreciate over time.

you can't bring a piece of raw land and buy something at the store with it. that's another one of gold and silvers important monetary characteristics- it's divisibility.

is this jim rogers??!!! hahahahah. j/k.

 
At 5:27 PM, Anonymous punchbowl said...

Funny that someone else mentioned ingdirect. That's where we're parked too. Great rate, FDIC insured, etc. (I also like their attitude -- they actually encourage savings!) I'd like to buy a 1- or 3-yr CD, but with the yield curve flattening, it just doesn't make any sense. I'm in the camp that believes that the Fed will raise their target rate continuously for quite some time. I think for them to not do that would be to admit that they were wrong about the economy recovering, or that they were wrong about the housing bubble. If there's one thing I know about the Fed, it's that they don't like to admit that they were wrong. Especially given Kohn's recent comments, I wouldn't be at all surprised by a 50 basis point jump on May 3rd -- but I think the language is going to strengthen regardless. The place to be for me is short-term cash...

 
At 5:30 PM, Anonymous Anonymous said...

how Gold will fare really depends more on people in India, China, middle East, and other countries traditionally treat gold like money and also happen to have most of the money to save. Both India and China are getting richer from foreign trade. Middle East countries have the money from selling oil. Most of their elderlies still remember the hyper-inflation eras. If neither dollar nor euro can keep its value like gold, then gold is the logical choice.

 
At 7:07 PM, Blogger John Law said...

I thnk the precious metals may be underperforming because the big buyers, the central banks and etc, are buys buying US bonds and MBS.
I think it's possible any large scale dollar flight would see gold/silver go up.
if they have to stay in US dollars and secure supplies of commodities, buying a precious metals company isn't a bad idea.

 
At 7:47 PM, Anonymous Anonymous said...

"Listen to all the noises they've been making recently about raising interest rates regardless of housing. But anyway, if you think inflation is on the way, then get out of bonds and get into housing, commodoties and maybe stocks."

In the 1970s, owning a house was a great hedge against inflation. That will not be the case this time because back in the 1970s, people weren't leveraged like they are now. If inflation goes to 5%, interest rates will go to 10% or 12% just to make sure it stays under control. Suddenly all those high leveraged people with ARMs and floating mortgages are going to be under water and having to sell. The market will be flooded with houses. Prices will fall.

 
At 8:28 PM, Anonymous Anonymous said...

Yeah, but if we have high inflation, hamburger engineers will be making $100K/year and so a $400K condo won't be that unrealistic. A better argument regarding leverage is that the Fed just has to tap very lightly on the interest rate pedal nowadays to keep inflation under control, whereas in the 70's the lack of a huge debt buildup made it much more difficult to bring inflation under control.

 
At 9:41 PM, Anonymous Anonymous said...

Paper money (as well as stocks, bonds etc.) have value as long as people beleive it is so. Paper money come and go... Gold and Silver been around for thousands of years. When people around the world realize that US of A is a bankrupt nation - our Federal Reserve Notes will quickly drop in value close to the cost of paper it is printed on... Values of Gold and Silver change in relation to paper money, it might go up or down - but it will never become worthless...

 
At 12:23 AM, Anonymous Anonymous said...

2:15 PM Anonymous:

I agree with you. I think the problem is not inflation, but stagflation. This has been going on for some time, but nobody will say anything about it. Real wages have been going down, and prices have been going up. That is why we, as a nation, are all in debt. We can't live on our earnings. Now, things have been neglected for so long that the problem is accelerating. Think of a person who is maxed-out on thier credit cards, paying ever-higher interest payments which keep compounding. At some point, the consumer is overwhelmed with debt -- much of it from the finance charges alone -- and has to file bankruptcy. We are beyond that point now. Although the consumer has been spending (via home equity), and tax relief created extra cash flow for the corporations, nobody was hiring or raising wages for those same consumers.

 
At 5:39 AM, Anonymous Anonymous said...

It's time to dig up Howard Ruff!

 
At 7:50 AM, Anonymous Anonymous said...

Ruff Times I think was his book. As I remember, he predicted the liquidiity trap, but thought it would be brought about by the insolvency of Social Security. He may prove to be right, but just thirty years off.

 

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