Giant Margin Call on Real Estate Begins

[Chris Coles]

Re: Giant Margin Call on Real Estate Begins

Yes, agreed. But that is still working within the range of built-in profit. What I mean is that those that can, sit still and wait. In a boom, as we have had were in the UK twice since the mid nineteen eighties, (we are still in the second), the vast majority of sales are investment related rather than simply job, divorce, disease or death related. Here there are now many who, before, had no reason to move home, now actively trade in houses. They must sell to maintain income. Those are the vulnerable and are not the "old fashioned" home owner who are happy to sit still and wait for better times. I have a friend who made a million simply by selling their £60,000 home bought in the nineteen sixties. Those that sit and wait prosper.

[SeanO]

Re: Giant Margin Call on Real Estate Begins

I agree that nominal home prices will certainly rise for those that sit and wait. Historically though they have risen at about the rate of inflation, so there is no gain in real terms. That said, your friends likely did see a real gain by selling at one of the most significant peaks in history.

[BK]

Re: Giant Margin Call - Helocs and Equity extraction

Sean,
Even with still relatively high there are plenty of folks who have extracted lots or all of their equity. Friends of Mine just purchased a home in Massachusetts that was originally on the Market for $650,000 - after a year and many mark downs. The price got to $540,000 - my friends hope to talked the seller down to $500K - but, a little researched revealed the Owner(?) had $500K in Mortgages to pay on the - a home they had owned for 10 years.

Many have been utilizing their home equity to finance a business or to build their dream home prior to selling their old home.

[nikki]

Re: Giant Margin Call on Real Estate Begins

Did you see Mish's update today? Even more from Sonnypage...

[EJ]

Re: Giant Margin Call on Real Estate Begins

I want to re-inforce one point made by BV over at AlwaysOn:

"On the way to the bottom, outsiders come in and buy up severely depressed homes through new speculation. Some flame out because they misjudge the timing of the bottom."

It is unwise to try to catch a falling knife. I can't tell you how many of my friends, even savvy and supposedly contrarian insiders in the VC industry, were buying after the initial correction in 2000 because we'd "hit bottom" and there were "bargains" out there. The bargains came much later.

Careful not to jump back into the RE market too soon.

One additional point: this is not a joking matter, and that's one of the reasons for the more serious tone of the new iTulip.com.

I have friends who were ruined in the dot com bubble. Bad things happen to good people. Relating this back to the current stage of the decline in the housing bubble, I pass on the word of wisdom I learned years ago from observing commodities traders.

Making money trading commodities is the toughest business there is, in my opinion. Everyone has instantaneous access to the same information you have. You win by the advantage of being more inuitive, quick, decisive and unemotional than your enemy, the army of guys who are after the same pot of money. The intuition comes from obsessive observation of the market and how it is changing. Obsessiveness, quickness, decisiveness and unemotionality are personality traits. If you don't have them, you're not a commodities trader. But these same rules apply to other markets when they become speculative, because these markets at those times have everyone's attention, and thus the motivation to gain the advantage of price information is high.

And here's the rule:

"Your first loss is your best loss."

[jk]

Re: Giant Margin Call on Real Estate Begins

the slow pace of deflation in real estate should be very helpful in keeping you from buying too early. it's going to take a long time going down and then it's going to have a long base. there's no rush to jump in.

[jk]

even the coastal prestige markets are being hit

from bloomberg http://www.bloomberg.com/apps/news?p...UMM&refer=home

Hamptons Real Estate Sales Slow as Rising Rates Sideline Buyers Aug. 4 (Bloomberg) -- New York's hottest summer spot for investment bankers and movie stars is cooling as mortgage rates climb. In a year of record Wall Street bonuses, home sales in the Hamptons fell 18 percent, signaling the end of a five-year boom.
A total of 1,727 homes were sold during 2006's first half in the Hamptons on the eastern tip of Long Island where billionaire investor Ronald Perelman and movie director Steven Spielberg own summer estates. That's down from 2,106 a year earlier, according to data compiled by Suffolk Research Service Inc., a property records company in Southampton, New York. The drop compares with a 4.3 percent slide nationwide.



my favorite passage:



Still, the wealthy continue to buy waterfront mansions, said Diane Saatchi, a broker in Corcoran Group's East Hampton office. Buyers want Hamptons estates to complement collections of vacation properties that typically include a ski house in the U.S. Rocky Mountains, a mansion in a warm climate such as Bermuda, and a foothold in Europe, she said.
``The $20 million Hamptons houses are still selling because those buyers are immune to interest rates,'' Saatchi said. ``A terrific $4 million house is harder to sell because that's the middle of our market where you see interest rates and higher energy costs squeezing buyers.''



so it's really only the mid-market, areound the $4million range, that's being hit. still, everything i've read has implied that the prestige markets will hold up.