R.e.a Share Discussion Threads

[energyi] 27/5/2005 20:46

THIS NOW...
is a proper Last Hurrah we are seeing!

[goatbreath] 27/4/2005 20:28

If you've ever wondered why there is going to be a global crash - here's the answer:

For those that think it will be a buying opportunity: think again.

[energyi] 14/4/2005 22:02

The HARRAH is over... it seems
despite the slight drop in US bond yields - Funny move this: TELLING?

[energyi] 12/4/2005 20:06

Moving today...

Hurrah?
has it started?

[energyi] 11/4/2005 09:01

thnx.

Yes that rally of the last week or so was very short-lived.
And Resistance at HGX-490 is still intact.

[theberg] 11/4/2005 08:07

E,

Come the DJIA Peak at 11,078.97 will these be better or worse shorts than Freddy Mac and Fannie Mae IYO?

Berg(;-)0

[scarface01] 11/4/2005 03:51

trouble is though, there's many shorts in the builders allready and it looks like the top has been put in. might wait for a squeeze.

[energyi] 10/4/2005 19:23

I would like to get the timing right for A BIG SHORT on the Builders.

But since that has proven so hard to do,
I will plan to buy some Puts instead.

Maybe with some help here, we can all improve our timing.

T.,
From your link, I came up with the idea, of running a Ratio of
HGX-to-Gold. Here's a link to a chart:


When it drops below 1.10, that may be a sign that HGX is breaking down

[wernluck] 10/4/2005 17:04

Hi Energyi,
fascinating reading..
a crash may be on the cards.
looking at daily PnF chart..got to break bullish support at 384
for me to become a bear

[techair] 09/4/2005 18:22

Hi Energyi

Are we going to get the summer highs?

Source is a


The guy who posts/owns the site is very bearish on property and usually digs out some very good info.

Regds

[energyi] 09/4/2005 17:54

nice chart, T.
What is the source?
Can you explain it

[energyi] 09/4/2005 08:02

Little sign of that "Last hurrah" so far,
as HGX fails to punch thru HGX-490

[energyi] 09/4/2005 07:52

How we got here (into this Bubble)


The Foundation...
Recently in our subscriber portion of the site we reviewed the US homebuilders. When we look at housing price change numbers as you see above, when we look at current sentiment regarding housing, and look at the number of non-primary residential homes sold last year, it's not hard to understand why the homebuilding group continues to move higher. That and the large short positions in the stocks that are continually being squeezed, which is certainly helping the upside cause. It's not hard to understand why residential housing has taken on mania like characteristics these days. But, as always, trying to call an end to any asset class mania is one tough job. Who knows, perhaps the rate of change price charts above from the OFHEO data tell us that peak rate of change pricing in residential real estate has already been seen. But we believe one of the keys to the future of the residential real estate price inflation party can be found in the financing infrastructure. If you ask us, the financing mechanism is the foundation to the current price mania. We see mainstream commentary after commentary questioning whether or not there is a bubble in US housing.

We suggest an alternative and perhaps broader view of life:
. . .
It's the asset backed securities market that was responsible for the bulk of US home mortgage financing for the year ended 4Q 2004. It wasn't the banks. It wasn't the S&L's. And it wasn't even the GSE balance sheets proper. It was the conduit ABS market that was generating the bulk of the liquidity. Furthermore, there is absolutely no question in our minds that the Fed is fully aware of these dynamics. They are fully aware of the circumstances surrounding the turbocharged change in residential real estate mortgage liquidity.
. . .
Twenty years ago, the ABS markets didn't even exist. Ten years ago, the ABS market was a rounding error in the greater scheme of systemic credit and liquidity creation. In 2004? Well, the ABS issuers simply took center stage when it comes to the US residential real estate market, now didn't they? On a combined basis, the GSE-backed MBS (mortgage backed securities) pools and the ABS pools make up a whooping 53% of total US financial sector debt outstanding and 17% of total US credit market debt outstanding as of year end 2004.
. . .
So, just who do we find when we pull back the curtain on the ABS and MBS markets? Folks with solid financials like GM and Ford, to mention just two of the larger participants. Non-traditional mortgage lenders are big players. Moreover, as we mentioned, credit expansion in these markets simply would not have been possible without the supposed financial risk management backstop that is the interest rate derivatives markets. As a very quick tangent, we believe it is very telling to note that US banking system notional derivatives exposure as of year end 2004 stood at just shy of $88 trillion

...MORE:

[energyi] 04/4/2005 07:52

Sure, there are others to consider:

CFC, FNM, FRE

Banks:

BAC, C, JPM, etc

You will have to get your timing right to make money on any of the Puts.
The Big money on Builder puts will require superb timing. I believe it is early

[scarface01] 03/4/2005 23:51

puts on the house builders are so expensive though, wall street never has liked housing stocks. maybe its better to buy puts in companies that will also see the repercussions of a crash.

[energyi] 03/4/2005 23:06

Another Repeat...

"It seems that `all people are most credulous when they are most happy'. Reputable public and financial opinion reinforces euphoria by condemning those who express doubt or dissent by warning of a crash."

[energyi] 03/4/2005 23:02

...and A CLASSIC...


A Short History of Financial Euphoria (Penguin Business)
by John Kenneth Galbraith

Bubble Story, July 2, 2001
Reviewer: Sergio Da Silva (Brasilia, Brazil) - See all my reviews
IN THIS SMALL but witty and well-crafted book, Galbraith chronicles the major speculative episodes, from the seventeenth-century tulipmania to the junk-bond follies of the eighties. The book was first published in 1990 and thus the recent dotcom-bubble burst is not covered. Nevertheless, the Harvard professor's book is still worth reading. A reason is that he claims to have identified common patterns in the history of financial euphoria. `In small ways the history of the great speculative boom and its aftermath does change. Much, much more remains the same', he predicts.
The perennial features are these. Some seemingly new and desirable artifact or development captures the financial imagination of a large number of people (say, group 1). The arrival of tulips in Western Europe, gold in Louisiana, the advent of joint-stock companies (corporations), real estate in Florida, or the economic designs of Reagan are all examples. The price of the object of speculation goes up. The object when bought today is worth more tomorrow. This attracts new buyers and assures a further price increase. Those in group 1 are persuaded that the new price-enhancing circumstance is under control, and expect the market to stay up and go up, perhaps indefinitely. The individual or institution that discovered the novelty (in group 2) is thought to be ahead of the mob. Fewer in number, individuals of group 2 perceive the speculative mood of the moment, try to get the maximum reward from the increase as it continues, and plan to be out before the eventual crash. The affluence of group 2 is wrongly associated, by group 1, with a miraculous financial genius. When something triggers the ultimate reversal, group 2 decides now is time to get out. Group 1 finds its illusion abruptly destroyed. Both groups sell or try to sell. The market collapses.

Galbraith observes that, in this process, `speculation buys up the intelligence of those involved'. The crowd converts the individual in group 1 from possessing reasonable good sense to stupidity. Those in group 2 also make errors of vanity by thinking they will beat the speculative game. It seems that `all people are most credulous when they are most happy'. Reputable public and financial opinion reinforces euphoria by condemning those who express doubt or dissent by warning of a crash. The celebrated Yale economist Irving Fisher, for instance, spoke out sharply against Roger Babson, who foresaw the crash of 1929. But the critic must wait until after the crash for any approval, Galbraith laments.

Despite the fact that common features in speculative episodes recur, history counts little because a financial disaster is quickly forgotten by a new, self-confident generation. Something is perceived as a financial novelty merely because the financial memory is short: `financial operations do not lend themselves to innovation'. Insightfully, Galbraith notices that all financial innovation involves the creation of debt leveraged against more limited assets. This is the case of banks, whose debt is leveraged on a given volume of hard cash. This is also the case of the holding companies created in the 1920s, whose stockholders issued bonds and preferred stock to buy other stocks. And this is the case, too, of the junk bonds of the mergers-and-acquisitions mania in the 1980s, when high-risk, higher-interest bonds were issued in greater volume against the credit of the companies being taken over. As Galbraith puts it: `the world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version'.

However a crisis may strike at any moment whenever a debt is perceived to become dangerously out of scale in relation to the underlying means of payment. After the crash, group 1 expresses anger against the `financial genius' of group 2. `Financial genius is before the fall', Galbraith prophesies. Group 1 finally realizes that having more money may mean that a person in group 2 is indifferent to moral constraints. Group 2 could have even gone beyond the law, as far as leverage is concerned. Incarceration of some individuals of group 2 may follow. Leverage is seen as morally disputable at last.

Talks of regulation and reform follow. However, the speculation itself or the aberrant optimism that lay behind it will not be discussed. `Nothing is more remarkable than this: in the aftermath of speculation, the reality will be all but ignored.' Why? Because it is easier for group 1 to blame one individual or a few individuals in group 2 than to take responsibility for its own widespread naivety. And also because there is a need to find a cause for the crash that is external to the market itself. After all, the market is believed to be `a neutral and accurate reflection of external influences; it is not supposed to be subject to an inherent and internal dynamic of error'. The deficit in the federal budget was, for instance, blamed for the 1987 crash. Another anecdotal account of Black Monday has been that the crash was caused by portfolio insurance computer programs which sold stocks as the market went lower.

Galbraith's book is compulsory reading for economists, especially those working on behavioural finance or econophysics. Being an antidote to illusory financial euphoria, the book is thus of interest to the general public as well. Galbraith's own sense of déjà vu towards speculative financial bubbles enabled him to predict the crash of 19 October 1987. People really seem to be intrinsically unable to prevent getting stuck in the error-prone dynamics of bull markets, as in his `bubble story'. But perhaps they have already learned some minor lessons on how to better protect themselves in the aftermath of crashes. Indeed despite the fact that the Black Monday crash was nearly twice as severe as the stock market collapse of 1929, it did not trigger a depression. Likewise the internet-bubble burst of 2000 had a surprisingly modest effect on wealth. Will we finally learn to learn from history?

@:

[energyi] 03/4/2005 22:57

Let's REPEAT THAT...

Three of the largest mortgage purchasers hold or guarantee mortgages equal to between 71 to 116 times their total equity (Fannie Mae and Freddie Mac). Is government involvement and assurances preventing these companies from properly evaluating their risks? Fannie Mae and Freddie Mac are driven to increase earnings and increasing stock price. Fannie Mae and Freddie Mac have an implied government guarantee that encourages risky behavior.

[energyi] 03/4/2005 22:51

2/

THE COMING CRASH in the Housing Market

Higher interest rates and debt are significant factors, March 25, 2005
Reviewer: D. Nishimoto "Golden Lion" (North Ogden, Ut United States)

Many homeowners are highly leveraged in real estate debt. Furthermore, there is no good model for valuating a home's price except supply and demand. Price is a supported or resisted by the level of the market demand. Market demand correlates with investment volume and if people are buying then price is rising. However, reduction in consumer confidence dampers demand. The fed knows this and countered by reducing fed rates effectively creating lower interest rates for mortgages with the design to reduce investment barriers and provide a profit motivation to invest. The last few years have been a perfect time to invest in real estate and investors have realized double fold or more profits on their investments, but the opportunities for this type of leverage can not last forever as interest rates are expected to rise. For example, one third of 2004 real estate investments were second homes. People were taking advantage of the low interest rates, home price appreciation, and used their equity to make a second purchase. In a hot market it is perfectly rationale to buy with the expectation of making a profit. However, I encourage investors to start thinking about the ramifications of higher interest rates and stop believing low interest rates will last forever.

Does 34 years of progressive house prices increases provide the single convincing factor compel investors too make the jump into real estate ownership? In the last 34 years, home prices have increased eight fold. Is this a false sense of security? Who can say the house prices are overvalued? One can see that there are no historical facts supporting the claim that national home prices are too high; even though in the last few years have home prices have doubled with only one area of the country, San Jose, experiencing a price decline. One can not find answers by studying price movement alone. The unpredictablity factor makes investing in real estate seem very predictable. There just is not enough data on price to determine whether the price trend will damper in the next year or years. However, I think the following arguments are compelling reasons to reflect on whether one should strengthening their positions in real estate.

Why have home price increased so significantly? One answer is home have large amounts of square footage. The larger homes have the effect of driving up the cost. However, when looks at the ability to make the house payment then consider that price can not be expected to climb consistently faster than the home owners incomes and their ability to make the payment and at the point the economy can not support the price then a correction will occur. Leverage requires appreciating price and time. So, investors were willing too invest a small portion of their equity and get a loan. Suppose the investment was 2k and the increase over 34 years was 70 fold then the total money would be 140k.

Leveraging is a way to make a lot of money with very little investment. Take a more realistic scenario and suppose a home owner has 70k of equity in his home, so at age 45 he decides to purchase a second 300,000 dollar home; his cost will be 15,000 dollars down payment plus as much of the remain 55,000 dollars the bank can get its hands on. The positive side is that the home might double its value in a few years. One can see that the scenario seems rationale. If force to sell the second home the owner must face an appraisal price that may be aligned a different market and the 300,000 dollar home selling for 240,000 dollars, as the appraisal price. The claim is that the housing market is not a real economy. The scenario describe is similar to the way investors trade options using other peoples money to make money. Banks are not motivated to control risks, instead, they are motivated to loan money.

Price value is a function of demand and supply and investment volume. Real Estate advocates argue location, location, and location which is another way of saying marketing and marketing is design too attract investment volume. Local investment means real estate price is a function of a healthy robust economy and the desire to own homes. Foreign investment into a community will increase investment volume and profit taking has the potential of money at the peak and leaving homes on the market with a price that local investment can not purchase. Suppose an investor purchases a home with the expectation of price appreciation, he knows the rent income will not match the mortgage payment but factors in tax deductions, inflation, and appreciation anticipating a profit. If the investor purchase while an investment volume is high leveraging his investment and then foreign investment profit takes and moves out causing the price too fall then the investor can not unload the home without taking a loss and holding onto the property represents a gradual month loss as the rent fee gap increases the pain. If the prices drop suddenly and drastically the investor takes on more debt to hold the property. It seems that in this case real estate becomes very similar in behavior to stocks. The killer factors against real estate are increasing consumer debt, higher interest rates, and price drops.

Interest rates will increase as a function of national debt, higher taxes, and inflation. Historically interest rate increases have been a function of inflation and higher taxes. Debt is the crushing force that destroys investment. Debt only works in a fast growth model. The problem with debt is that when the economy slows down, it can not be unload immediately and equally with the acquire amount. Some investors will become lucky and get out before a correction occurs. As home prices increase more people will prefer rental property. A shift toward rental demand will cause strong demand for construction of rental properties and eventually lead to oversupply and lower rental prices. The gap between the home mortgage payment and rental price for equivalent square footage is a good way to measure overvaluation.

Interestingly, industrial construction is slowing down suggesting that newer and bigger businesses are not being built, the heart of employment and salaries. Industrial construction trends are slowing down.

The end game of leveraging is foreclosure. Foreclosures of 1.2 are manageable but a 2.0 percent rate adversely affects the banking system. Banks have started to rely more on ATM fees and late fees for their income. Job loses and excessive debt cause foreclosures. The number of bankruptcies has exploded in the last few years. High priced homes and easy debt have caused a surge in the number of bankruptcies. Banks are seeking to hedge against their risk by making it more difficult for the consumer to declare bankruptcy and often force installment repayments after defaulting on the loan.

The trend has been sale prices increasing as a ratio of the owner's income and house payments taking a larger portion of the income leaving less for savings. The solution has been double income homes increasing working women to 60 percent and reducing working men to 80 percent.

A 35 year old could be expected to have 10k, 44 Year old 66k, 65 to 75 year old 150k. This fact seems to suggest that price reversal would destroy all of the 35 years old money and serious set back the 50 year old. Not everyone is making money in real estate.

A majority of mortgages are held by commercial banks. Bank loan ratios to equity are significantly prone to loss, if the real estate market becomes unstable. Three of the largest mortgage purchasers hold or guarantee mortgages equal to between 71 to 116 times their total equity (Fannie Mae and Freddie Mac). Is government involvement and assurances preventing these companies from properly evaluating their risks? Fannie Mae and Freddie Mac are driven to increase earnings and increasing stock price. Fannie Mae and Freddie Mac have an implied government guarantee that encourages risky behavior. Banks are experiencing an increasing number of foreclosures. Each year banks are charging off billions of dollars in bad loans each year. Commercial Banks hold $1.5 trillion in home mortgages but have aggregate book equity of less than $500 billion. Mortgage insurance is leveraged with 70 percent of the private mortgage insurance (PMI) market composed of five small firms who guarantee $530 billion of property with only $11 billion equity. PMI failure represents vulnerability for Fannie Mae and Freddie Mac.

Higher interest rates will make a crash likely.

@:

[energyi] 03/4/2005 22:48

TWO FOR THOSE WHO read/research...

1/

TIMING THE REAL ESTATE MARKET
I learned a lot from this book..., May 14, 2003
Reviewer: Karol T. Gajda (Sterling Heights, MI United States) - See all my reviews
First off, I just want to say that this is a wonderful book and has some really great concepts.
The essence of "Timing the Real Estate Market" is stated on page 6: "The Campbell Method asks you to look at the market objectively, not emotionally. It requires you to step away from your own personal beliefs, opinions and biases about what you would like the market to do, and focus instead on what the market is telling you to do."

Brilliant...this is not just great real estate investing advice...this is great investing advice...period.

Mr. Campbell went on to state (page 97): "Real estate timing is not about buying a home at what you "think" is a good time -- or what you "think" is a good price -- when the chances of the market rising higher in the very near future are only so-so. This approach is like betting on the spin of the roulette wheel. Instead, you want to use The Campbell Method to buy a home not only when prices are low, but also at a time when probability is high that home prices will appreciate almost immediately."

Then: "...once you buy a property -- whether it's a home you live in or a rental property, your entire focus must shift to the only thing that is within your control: knowing when to sell for the highest price."

Loved the book and I'm looking forward to utilizing the techniques.
--
Another Reviewer says: "...Existing home sales, building permits, foreclosures, interest rates, etc. must all be tracked if you are going to follow what he calls The Campbell Method..."
@:

[broker200] 03/4/2005 22:47

ikio, nickio, sankkio.