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EScroogeJr (< 20)

Bearish stance on housing: split personality?



April 03, 2008 – Comments (8)

When you ask any housing bear, "is it a good time to buy?", he replies: "No way! Prices need to drop 50% from here". But when you ask him, "so should we let prices drop 50% from here?", he replies: "Are you crazy? Property values have got to be protected!" Now, I point out that these two statements are irreconcilable. If property values will be successfully protected, then it's pointless to wait for lower prices because "property values" and "prices" are synonims. On the other hand, if the plan is to let property values drop all the way to historical averages, then why spend any effort protecting them when we are halfway?  Let them retreat all the way to your buy-in price, and protect it then. (Which wouldn't even be necessary because once they reach that level, they should stop going down anyway: the beauty of yielding control to market forces is that you don't have to do a thing, the invisible hand is doing all the dirty work for you). Do the bears realize that with a dual message like this, they come across as being totally insincere, and that the true import of their message as seen by an impartial observer boils down to this: keep renting and hoping for lower prices, and we'll make sure that you never get them"?

8 Comments – Post Your Own

#1) On April 03, 2008 at 11:24 PM, abitare (30.10) wrote:

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#2) On April 04, 2008 at 1:01 AM, DemonDoug (31.30) wrote:

Escrooge: What bear has said that we need to protect housing prices?  Name your source.

BTW, the rent to own cost for me, for a comparable place in my neighborhood, is 1:4.

The one thing I can give you credit for scrooge is that you have put your money where you mouth is, and placed a bet that the government would bail out their big-moneyed constituents.  You have been dead on about that to this point.

However, this post, like many of your others, makes no sense logically and has no basis in fact, and again cites zero sources for information.

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#3) On April 04, 2008 at 1:31 AM, EScroogeJr (< 20) wrote:

Read any post by alstry, who constantly keeps whining: the big bad SPF is driving down my property value. Read dexion10's comments, where he expresses his worry about "overbuilding", as if today's prices were so cheap that overbuilding would be a problem. Read all the various posts titled "my proposal to save housing", whose authors are too numeruous for me to keep track of, which all propose some measures intended to support prices. In fact, TMFBent is the only bearish blogger so far who has not supported any attempts to reinflate the bubble.


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#4) On April 04, 2008 at 8:09 AM, devoish (74.59) wrote:

I'm bearish on housing and I have not supported any attempts to reinflate the housing bubble. In fact "bears" would be people who have accepted as likely that the bubble would be popped. It is silly to think that there are only two groups represented here. There are bears who think the government is the problem. Bears who think the government should leave things to market forces. Bears who thnk the government should try to help (you are counting on them), bulls who think the government will help (you are one of them). Bulls who thought there was no problem. And my personal favorite, free market bulls who have cracked like a jonesing drug addict crying for help from mama government (Cramer, Kudlow).

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#5) On April 04, 2008 at 2:41 PM, ByrneShill (82.82) wrote:

It's not about making prices drop, it's about the prices dropping all by themselves.

Any attempt by the fed, the gov or the sec to modify the nature of the market movement will be trying to keep the prices high. The real capitalist just don't want any of these guys messing with the free market. The message is "Let the market sort it out, stupid!" If the bulls are right, houses prices will go up, if the bears are right, they'll go down. But neither bears nor bulls will decide where the RE market will go; they're simply betting on the direction.

You have to see it a bit like a game of roulette. The bear bids on red, the bull bids on black. Neither can decide where the ball will end. Right now I see 35 red for 1 black. While looking at the same board, you see 35 black and 1 red. I bid on red, you bid on black. When the ball falls, we'll know if it's a red or a black number.

I got really good sight. I'd guess better than yours.

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#6) On April 04, 2008 at 2:51 PM, ByrneShill (82.82) wrote:

And btw, your whole post is completely illogical. If your "rental yield" is 4% (which btw is completely dumb calculation), then for the love of god, buy treasuries and get the same yield without any effort!

Saunafool puts it really simple: If renting doesn't cover the mortgage, much less property taxes, insurance, or maintenance, the property is overvalued.

Maybe I would change it for: If renting doesn't cover the insterest on the mortgage, property taxes, insurance, and maintenance, the property is overvalued.

That 500k$ condo you're renting for 18k$/year will run you about 25k$ in interest alone (at a 5% rate). So unless you factor one heck of a huge jump in future rent, it's a money losing investment.

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#7) On April 04, 2008 at 4:03 PM, EScroogeJr (< 20) wrote:

"If your "rental yield" is 4% (which btw is completely dumb calculation), then for the love of god, buy treasuries and get the same yield without any effort!"

Yes. With the only difference that after you have collected that 4% yield for 30 years, the underlying investment will still be there to pay you that rental yield essentially forever, whereas the value of your treasury bond after 30 years will be exactly zero. So yes, a bond is somewhat like a house, but the kind of house that will be bulldozed 30 years from today :)

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#8) On April 07, 2008 at 11:47 AM, ByrneShill (82.82) wrote:

LOL, of course, after 30 years your invested capital magically disappear! Just like a stock pays dividend for 30 years then disappears.

You obviously have no idea wtf you're talking about. Case closed.

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