"It's going to get worse before it gets worse."

[Tybee Island]

Re: "It's going to get worse before it gets worse."

I remember sitting in the office of a managing director for a well known bank in New York in 2000 (representing a very large public homebuilder) when MBS was just still a relatively new concept and asked the same question as they were preparing to sell the securities made up of our bundled mortgages.

I was laughed out of the room for thinking market values could possibly go down in the future................been there, done that.

[medved]

Re: "It's going to get worse before it gets worse."

May I remind you that Printing-Press Ben runs the Fed and his clone, Carney runs the Bank of Canada. Monetary policy is now in INFLATION-mode. If you sell your house, what are you going to do with the money? Save it at 0.25%?

Monetary policy was in inflation mode for the last decade, yet, starting from about 2006, RE went nowhere. How do you explain it?

Also, why do you think the newly-created money will go into RE first (like it did since early 2000s)? We are a lot of other areas to pump up before we turn to RE.

Right now I am saving a big chunk of my money at 0.0000% (under the mattress and in Tbills). Works great.

[Starving Steve]

Re: "It's going to get worse before it gets worse."

Monetary policy was in inflation mode for the last decade, yet, starting from about 2006, RE went nowhere. How do you explain it?

Also, why do you think the newly-created money will go into RE first (like it did since early 2000s)? We are a lot of other areas to pump up before we turn to RE.

Right now I am saving a big chunk of my money at 0.0000% (under the mattress and in Tbills). Works great.

You might be absolutely right. My mother has the same viewpoint as you in U.S. dollars and so does my carpenter who runs a construction company here in East Sooke, BC, the latter individual saves beaver bucks. Both are very smart and shrewd people. Both get a negative rate of real return on cash--- except for their inflation-protected treasury bonds.

This matter is anything but resolved. However, it is hard for me to envision cash being any good as an investment with the current monetary policy of massive growth in the money supply, in every country, worldwide. How can negative rates of real return on cash be anything but bad financially? And then you have the currency de-valuation risk on top of that.

[medved]

Re: "It's going to get worse before it gets worse."

This matter is anything but resolved. However, it is hard for me to envision cash being any good as an investment with the current monetary policy of massive growth in the money supply, in every country, worldwide.

Yes, monetary base is growing fast, but money velocity is crashing, so assets go down and cash wins. I used some of my cash to do bottom-fishing and now am top-catching, selling covered calls and some of my shares and using cash to buy puts/reverse funds. Of course, I don't use all of my cash for speculation, a big chunk of it is waiting for further asset depreciation.

How can negative rates of real return on cash be anything but bad financially? And then you have the currency de-valuation risk on top of that.

We are in a serious deflation/disinflation right now. All the assets were inflated by debt, and they are going down together. Cash looks much better, than any leveraged asset, and RE is the most leveraged of them.

Don't forget, the "always-going-up-real-estate" was created by massive government intervention (including CB rate policies and direct propping up). Now these tools and the very idea of CBs came into question. You cannot rely on the experience of the last 100 years as an absolute.

Of course, the gov't will use newly printed money to support some RE sectors directly, but it will only apply to the low-end properties.

[Starving Steve]

Re: "It's going to get worse before it gets worse."

Yes, monetary base is growing fast, but money velocity is crashing, so assets go down and cash wins. I used some of my cash to do bottom-fishing and now am top-catching, selling covered calls and some of my shares and using cash to buy puts/reverse funds. Of course, I don't use all of my cash for speculation, a big chunk of it is waiting for further asset depreciation.



We are in a serious deflation/disinflation right now. All the assets were inflated by debt, and they are going down together. Cash looks much better, than any leveraged asset, and RE is the most leveraged of them.

Don't forget, the "always-going-up-real-estate" was created by massive government intervention (including CB rate policies and direct propping up). Now these tools and the very idea of CBs came into question. You cannot rely on the experience of the last 100 years as an absolute.

Of course, the gov't will use newly printed money to support some RE sectors directly, but it will only apply to the low-end properties.

But, as the assets deflate, including stoxx and real estate, the Putz from Princeton will print more and more and more, and his friends at the other central banks will do the same. Trillions and then tens of trillions of new dollars will be printed, on and on, and on, faster and faster.

The next few weeks NYSE and the TSE are going to tell me a lot. If we don't even get a re-test of the March lows, that will tell me some more.

Oil and energy prices will tell me more. Where all of this floating oil at sea goes will tell me more--- if it even exists in the quantities that are being mentioned. What OPEC decides will tell me some more. And how fast China continues to grow will tell me more. Another important piece of info will be if China takes another 1000 tonnes of gold from Ft. Knox or the WMF. How will gold react?

The Peoples' Bank of China buying gold quietly is a very crucial piece of info because it tells me that the gold standard could someday return. So gold could have a monetary future.

So far, real estate appears to be a bit stronger here in the Victoria, BC area, but this could be just the annual seasonal push.... All this going on around me tells me things.

The grocery and gasoline prices are another important clue. Gasoline is steady to a few pennies up. Groceries are a shocker but slowing in their rate of upward push, perhaps because of the summer season coming in. And everything else in my monthly bills is going higher, faster than I have ever seen before.

The old $16 oil change is now $40 at Wal-Mart. Ferry fees to get on and off Vancouver Island have been jacked-up. Everything is going up. This is all that I know. Even the real estate looks stronger, but what do I know?

[c1ue]

Re: "It's going to get worse before it gets worse."

Tybee,

Thank you for sharing your experience and views.

I had a couple of questions:

1) Are you investing with your own cash, other's cash (consortium etc), borrowed money, other?

2) Should we see a severe inflationary or hyperinflationary scenario - how would this affect your plan?

The dilemma I see is that while it is possible to buy real property for lower prices right now, it is equally likely that significant real positive cash flow from such an investment won't start until after the inflation.

This could be years.

[Tybee Island]

Re: "It's going to get worse before it gets worse."


1) Are you investing with your own cash, other's cash (consortium etc), borrowed money, other?

Cash raised from private investors as well as my own. No leverage at any time.

2) Should we see a severe inflationary or hyperinflationary scenario - how would this affect your plan?

I like the quote that what lies ahead is that "Everything we need will cost more, and everything we own will be worth less." My model assumes no upside for the investment, other than cash flow from rental revenue with a very, very conservative model assuming high vacancy and well-below market rents. I call it the the "Doomsday is Everyday model." At some point in the future, I anticipate post 2012 or later, we will see if we are successful in converting renters to owners at very low entry points.

If I can't buy at a cap rate that fits my model, I don't buy. I have patience and will not modify the model if prices don't fall lower to meet my bid.

The only constants that I rely upon is that people will continue to seek shelter from the elements. Absent that and "Houston we have a problem."

I expect that tents will sprout up under every available overpass and that multi-generations will huddle together under one roof to minimize expenses.

Latley, I have been doing my own survey of the enourmous upswing in RV and mobile home parks. They are busting at the seems. People are leaving their homes and moving into their campers once reserved for Summer road trips. I have noticed $150,000 luxury RVs side-by-side with modest little pop-ups and everyone tells the same story, "we sent the keys back to the lender." A typical monthly rental rate for a mobile home (just pad) is $150 per month $375-$450 per month for home and pad. An RV-Park depending on how you negotiate your rate could be as low as $75-$125 per week with water and sanitation hook-ups included. There is generally a laundry on premises and many have swimming pools and playgrounds. No property taxes, no HOA fees and lots of space to walk the dog and fire-up the BBQ.

I see tents, teepees, mom's basement and campers as my competition..............and it may be fierce.

Best,
Tybee Island

[Sapiens]

Re: "It's going to get worse before it gets worse."

If I can't buy at a cap rate that fits my model, I don't buy. I have patience and will not modify the model if prices don't fall lower to meet my bid.

The only constants that I rely upon is that people will continue to seek shelter from the elements. Absent that and "Houston we have a problem."

I expect that tents will sprout up under every available overpass and that multi-generations will huddle together under one roof to minimize expenses.

Latley, I have been doing my own survey of the enourmous upswing in RV and mobile home parks. They are busting at the seems. People are leaving their homes and moving into their campers once reserved for Summer road trips. I have noticed $150,000 luxury RVs side-by-side with modest little pop-ups and everyone tells the same story, "we sent the keys back to the lender." A typical monthly rental rate for a mobile home (just pad) is $150 per month $375-$450 per month for home and pad. An RV-Park depending on how you negotiate your rate could be as low as $75-$125 per week with water and sanitation hook-ups included. There is generally a laundry on premises and many have swimming pools and playgrounds. No property taxes, no HOA fees and lots of space to walk the dog and fire-up the BBQ.

I see tents, teepees, mom's basement and campers as my competition..............and it may be fierce.

Best,
Tybee Island

How long before squatters become a problem in America?

Do you have a rough time line in your above outlook?

[ThePythonicCow]

Re: "It's going to get worse before it gets worse."

A typical monthly rental rate for a mobile home (just pad) is $150 per month

The mobile home lot rent is $300/month in both the senior living mobile home park where my mother lived in Florida, and in the decently kept up park where I live in Texas. That covers real estate taxes on the rented land and sanitation hookups. It does not cover property tax on the mobile home itself.

You can buy a new mobile home for about $35 to $50 per sq foot for middle of the road quality. I sold my California ranch home in 2006 . That home topped out over $600 per sq foot, and is probably down close to $400 now. That same site-build ranch home in Texas might cost $100 to $150 per sq foot, from the little shopping around I did late last year.

[Tybee Island]

Re: "It's going to get worse before it gets worse."

It is already fast becoming a pervasive problem in Florida and Georgia, I can confirm for you.

Florida is having a very large problem with militant groups breaking into foreclosed homes and laying claim on them for displaced/homeless families.

Manipulated markets may temporarily mask the fundamentals and make for nice sound bites on the evening news, but it doesn't do anything for the hungry mob.

I suspect, that we are going to hit a brick wall of reality in the very near future. At some point people will be asking for maps to the greenshoots that Obama claims he sees so they can clip them and boil them for food.

[Tybee Island]

Re: "It's going to get worse before it gets worse."

Not sure if you were isolating lot rent with or without mobile home. Nonetheless, my experience here differs from yours, there are dozens of small parks throughout Florida, Georgia and South Carolina, some no larger than 4 or 5 mobile homes per site that charge $150, and sometimes less for a pad. I have seen rates for $300 per month for mobile home (older models and not pretty) and pad rental.

I have 15 deals for Mobile Home parks for sale on my desk today that are in this range. The closer a park is to an established city/MSA the higher the rates will climb. Perhaps your Mother and yourself are in older parks where major city centers grew up around them and they have become bargains for local residents. There are several like this in Atlanta, Jacksonville, Tampa for examples.

I am finding that the current market for new mobile homes is highly depressed and exiting mobile homes, almost always sold in place on a rented pad are trading for pennies on the dollar.

[Sapiens]

Re: "It's going to get worse before it gets worse."

It is already fast becoming a pervasive problem in Florida and Georgia, I can confirm for you.

Florida is having a very large problem with militant groups breaking into foreclosed homes and laying claim on them for displaced/homeless families.

Manipulated markets may temporarily mask the fundamentals and make for nice sound bites on the evening news, but it doesn't do anything for the hungry mob.

I suspect, that we are going to hit a brick wall of reality in the very near future. At some point people will be asking for maps to the greenshoots that Obama claims he sees so they can clip them and boil them for food.

Thanks for the update. One more thing, in your opinion, how soon before the municipal tax authorities begin to feel a serious hit on their tax revenue collections?

[Tybee Island]

Re: "It's going to get worse before it gets worse."

We certainly have all seen the recent tax revenue numbers fall off a cliff as numbers were just released. The same is occurring here locally and Statewide.

Interestingly, Georgia passed a very aggressive new law at the end of April on Property Tax assessments. They mandated that all sales must be considered when calculating Fair market Value, including foreclosures and any that meet the definition of distressed sale and imposed a moratorium that property taxes could not be increased for the next two years. They can be lowered however.

This places the burned on the local municipality property appraisers to reappraise properties going forward and makes them vulnerable to any challenges by tax payers who are appealing their property tax bills.

Where they will find the revenues to replace the loss remains to be seen.

[Sapiens]

Re: "It's going to get worse before it gets worse."

Where they will find the revenues to replace the loss remains to be seen.

That will not be pretty, that's for sure.

We sold all RE and have been waiting for an entry point after the Municipalities tax receipts either collapse and/or reorganize.

So a waiting game it is...

[bill]

Re: "It's going to get worse before it gets worse."

With no pressure applied to banks from regulators they will not be forced to liquidate.

http://www.bloomberg.com/apps/news?p...d=aPz0hsBTTR4A

Oct. 12 (Bloomberg)
Under U.S. accounting rules in place since 1995, banks are supposed to report the value of their mortgage-servicing rights on a fair-market basis, or roughly what they would fetch in a sale. A bank must record a loss whenever it sells MSRs for a price below where they’re marked on the books.
Because there’s no active trading in the contracts, there are no reliable prices to gauge whether banks are valuing the rights accurately, analysts said.
“It’s an accounting game,” said Richard Bove, an analyst at Rochdale Securities Inc. in Lutz, Florida. “The deeper you get into the subject, the more items you find that are impossible to determine, and therefore it becomes a give up. Whatever they want to show, they show.”
.
.
Banks say there is no liquid market for the securities, as the volatility of the rights has pushed some smaller firms out of the market and record delinquencies have led others to shun mortgage assets. The banks list the rights as Level 3 assets, an accounting term for securities whose value is unclear, and they rely on internal models to determine their value.
“About 75 percent of residential MSR assets are owned by 10 firms, so when you’ve got that supply-demand dynamic that changes, there’s not going to be a whole lot of trading,” said Daniel Thomas, a managing director in asset sales at Mortgage Industry Advisory Corp. in New York. “When the market is dry like it is as far as trading volume, these guys have a lot of latitude for a Level 3 input valuation.”