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alstry (36.27)

Why Most Homes Will Be Worth $0

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February 18, 2010 – Comments (27)

Ask yourself, how much home can a person afford if they have no income?

Then ask, how many Americans will likely lose their current jobs, and remain unemployed for a protracted period of time as America morphs from the Industrial Age to the Digital Age AND we contract credit from the biggest credit bubble in history at the same time?

Then ask, how much are homes worth if most of the homes in a neighborhood are in foreclosure or perceived that it will be that way in the not too distant future?

This is not the end of the world.....it is simply change......radical change. 

Laws will have to be changed.  Contracts adjusted.  Expectations shifted.  Outlooks will improve as me move forward....but the adjustment will be convulsive.

Many of the businesses currently operating will be bankrupt or gone relatively soon.....the model will simply not fit in a digitally delivered society......there are lots of buggy whip manufacturers out there right now borrowing massively from our pension funds and retirement accounts simply to keep the doors open.

The near term trend will be drive to efficiency.

One way we can start to drive BIG savings is consolidate government....merge two or three or five cities into one entity....same with counties and maybe even states......in doing so we could substantially drive down costs by removing redundency.

The problem will be dealing with the millions that lose their jobs and the resulting impact on real estate.....a primary driver of revenues to government.  In Concentric Contraction....each default has a counterparty or more impact......thus, multiplying the convulsive effect.....not too different than throwing a firecracker into a munitions shed.

We will have to adjust our perception on housing very soon......it will be forced upon us whether we like it or not.

27 Comments – Post Your Own

#1) On February 18, 2010 at 8:45 AM, alstry (36.27) wrote:

U.S. weekly jobless claims rise 31,000 to 473,000

U.S. Jan. PPI rises 1.4% vs. 0.9% expected

ANOTHER HALF A MILLION AMERICANS LOSE THEIR JOBS IN A WEEK....WEEK AFTER WEEK.....MONTH AFTER MONTH.....YEAR AFTER YEAR.......

AND NOW FEW ARE HIRING AS THE DIGITAL AGE IS A LABOR EFFICIENT ENVIRONENT........

ADD IN INFLATION AND CREDIT CONTRACTION........YOUR GUESS IS AS GOOD AS MINE WHAT IS AHEAD

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#2) On February 18, 2010 at 9:05 AM, wolfhounds (29.39) wrote:

I rarely read your screaming headlines copied from newspapes, however, I must agree with you if you live in south Florida. I happen to be vacationing here this month and decided to shop for a condo. In most places they can't give then away. Anything that sold for $350,000 3 years ago is asking $175,000; a unit in a beautiful development that sold for $250,000 at the top sold for $160,00 18 months ago and $110,000 2 months ago. That price is now under $100,000. Units that sold new in 1994 for $91,000, often with many upgrades, are now asking $65,000. This development of over 1000 units has almost no  foreclosures. As the broker candidly told me - the usually age bracket that buys seems to be staying away and buyers are wary of continuing falling prices.

To back that up, the Broward County Executive last week issued a report that 70% of all mortgages in the county were upside down. I don't dig for statistics so I can't comment on the rest of the country. But Florida property, and by extension it's banks, are in deep doodoo.

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#3) On February 18, 2010 at 9:09 AM, GNUBEE (24.16) wrote:

"drive down costs by removing redundency"

 - you mean fire people? That's not the solution to unemployment.....

62% of spending is on Soc. Security, Defense and Security and Medicare/Medicaid. You want the biggest bang for your buck? Start looking there first.

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#4) On February 18, 2010 at 9:09 AM, Superdrol (97.46) wrote:

There was this doom and gloom guy I knew who thought all last year the world was going to collapse and kept shorting the spooz (S&P 500 futures).  He lost all his money (95k) that was his life savings for the past 8 years during the course of that one year.

The market went up 70% from the lows and he went broke, lol.  Normally I don't laugh at people with such misfortune, but talk about seriously fighting the tape haha.  When I see reports where the world will end, it would be great if they were at least within a 5-6 month time frame because you start to lose credibility after that.

 

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#5) On February 18, 2010 at 9:24 AM, alstry (36.27) wrote:

GNUBEE....

Cut social security and medicare and you also cut jobs.....how do you think people get paid when that money is spent.

Every cut creates more cuts.......

Soon you will understand...at least half of current jobs will be lost in the not too distant future as we move forward into the Digital Age.

Why do you think that we should not be surprised if an external event pushes things along.....how long do you think the average person can edure Zombulation without understanding the cause or restructuring and not go crazy?

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#6) On February 18, 2010 at 9:30 AM, alstry (36.27) wrote:

Wolf,

People bought dotcom stocks all the way to zero....houses will be no different.

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#7) On February 18, 2010 at 10:36 AM, Entrepreneur58 (36.82) wrote:

Alstry, 

You miss the largest danger to real estate prices. 

See that long bond yield getting up close to multi-year highs?

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#8) On February 18, 2010 at 10:54 AM, miteycasey (30.29) wrote:

You're forgetting the 800lb. elephant in the room....the federal government.

They won't allow home prices to settle at 0.

1) low interest rates

2) tax credits

3) allowing banks to have them off balance sheet.

 

Prices will lower in the near future, bu tthat's becuase a bubble just popped.

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#9) On February 18, 2010 at 11:46 AM, anticitrade (99.66) wrote:

Ask yourself, Isn't Alstry the same guy who was wrong about 9/9/09?

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#10) On February 18, 2010 at 12:13 PM, GNUBEE (24.16) wrote:

Alstry,

How about cut costs in healthcare, not cut peoples jobsOr Renegotiate perscription drugs paid for by Medicare/Medicaid?

Or buy one less Stealth bomber, and employ thousands

Or allow personal investments rather than Soc Security?

That's where you get bank for your buck. Not arbitrarily lopping off a $ amount (and jobs) of the program.

c'mon use your head

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#11) On February 18, 2010 at 12:13 PM, alstry (36.27) wrote:

Home prices are ZERO in Detroit and many cities around the decaying Industrial Age rust belt......

Think of it like a spreading cancer.....and now spreading across the country into more and more areas....

Detroit is closing half the public schools.....Kansas City now too.....pretty soon more and more......

Most of your Foolish brains are stuck in the industrial age.....start to move forward as houses will be worth zero and dynamic knowledge will be where the value will sit.

Can you imagine being a farmer in the 1870s farming 40 acres with a plow telling Alstry how much more efficient you were than the farmer just a few hundred years ago?....this move forward will be much more convulsive and dynamic as we go forward.

It is party time........the music is changing.

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#12) On February 18, 2010 at 12:35 PM, dargus (78.37) wrote:

Unless people can start living as biniary numbers in a computer, shelter will always have value.

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#13) On February 18, 2010 at 12:46 PM, alstry (36.27) wrote:

The sole determination of value will be the amount of money in the people's pocket.....no more no less.

If the people have money.....they can pay.....if they don't because the cost of living exceeds their income or assets....they can't pay.

Alstrynomics is not very complicated.

In 9.09 you knew the Industrial Age was dying when the FDIC, FHA and Pension Gurananty all went broke at the same time.  All three of those entities are littered with industrial age assets and obligations.

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#14) On February 18, 2010 at 12:56 PM, dargus (78.37) wrote:

Even if I have nothing, I still am able to provide labor. This has value and can be used to procure shelter. Even in a post-apocalyptic wasteland labor will have value. Perhaps even more value than today because survival will depend on manual labor more than it does now, much as it did in the past.

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#15) On February 18, 2010 at 1:00 PM, alstry (36.27) wrote:

It is not apocalyptic...it is change.

When the farmer moved to the city, his skill of tilling the soil didn't matter....so he had to change his skills.

What is different this time is technology can displace labor and it is now being adopted.......how this will play out will only be determined with time.

At this point, the changes are so dynamic that one must question even the current concept of money....but that is a bit too out there for CAPS.

Just prepare to tear down all boundries on what you think is NORMAL and stop looking backwards.

There are lots of people in Africa that can provide labor but there is not money.

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#16) On February 18, 2010 at 1:09 PM, dargus (78.37) wrote:

I'd say there is a serious flaw in your logic. If you are claiming money will become worthless, my house should be worth an infinite amount of dollars, not zero. If money is useless, then I don't really need to worry about unemployment since the only reason to be employed is to acquire money. I'll just live in my house that can't be purchased with money and grow some vegetables. I’m glad I took ownership of some property before the entire monetary system collapsed.

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#17) On February 18, 2010 at 3:18 PM, alstry (36.27) wrote:

I don't believe I ever said money would be worthless.  It might be or it might be worth a lot....my bias is to the latter right now and has been that way since I started blogging.

I said you have to question the current concept of money and how it is used.....but really that is not something to focus on right now.

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#18) On February 18, 2010 at 3:44 PM, dargus (78.37) wrote:

I love the vagueness of your comments. Please explain how money being worth a lot will make my house worth zero dollars. Even if unemployment is high, someone will be holding that money. As I stated before, shelter has value and if your house sits on open land you have the added benefit of being able to feed yourself as well. You are telling me this is going to be worth zero dollars? Nothing of value will ever be worth zero dollars. Eventually falling prices will entice buyers. Please explain to me how the concept of money will change in such a way as to create the situation you suggest. Further, even if my house is worth zero dollars, it still is worth something. There will always be a demand for shelter, which suggests shelter will have some value placed on it. It can be dollars, beads, or oak leaves, but it will have value.

 

Please provide me with a coherent argument, not a loose group of facts followed by a leap to some conclusion about the future with no logical connection made and an excuse that you just don’t want to explain it to me. Otherwise you are just another soothsayer using your mystical powers to persuade me about your visions of the future.

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#19) On February 18, 2010 at 3:55 PM, alstry (36.27) wrote:

If I raised the property taxes on your home 10X as an extreme example.....your house is worth Zero......even if you have a job.  In the more immediate world....every time government raises the taxes on your home, the home value declines.  If many jobs are lost in your community and the vacancy rates skyrocket, your home value declines.  If interest rates rise, your home value declines as the dollar gets stronger.

I can think of over 10 additional possibilities to reach the same result with money having a lot of value.

In reality,  I have a friend who owns a very expensive home on a very large lake....the maintanence costs approach $10K per month owning the home free and clear....my guess is very few people would want that home for free even if it was given to them because they couldn't afford to maintain it.

Times have changed how people veiw real estate....and they will change even more going forward.

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#20) On February 18, 2010 at 4:55 PM, dargus (78.37) wrote:

Where will people live? If owning property becomes that expensive, renting will also. The government also realizes that if they jack up property taxes there is a point where their revenue will decrease due to no one wanting to own property. Those who do own it and can't sell it will refuse to pay the taxes. Their new home could then be a jail, but that requires a government with revenue to spend. I suspect the general public would be wary of such policies also. Sorry, I'm not buying it.

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#21) On February 18, 2010 at 5:32 PM, alstry (36.27) wrote:

We outsource companies to Asia all the time and destroy towns and housing in the name of efficiency and progress......you don't need to buy it.....it is selling all across America as this blog is written.

Soon we all may be outsourced.....that would actually be in the best interest for America as it would not have to pay the entitlement obligations.

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#22) On February 18, 2010 at 6:10 PM, dargus (78.37) wrote:

Outsourced jobs support us. If our economy dies, so does the outsourced economy. It also stands to reason if unemployment skyrockets, as you suggest, that competition will push wages down making us more competitive in the global market. We would then start seeing other countries outsourcing to us. You seem to think everything we know about markets will suddenly change. In reality markets are complex, but basic market theory is pretty simple. People want things and they will trade whatever valuable items they possess to acquire what they desire. Collecting every negative story about the economy doesn’t support your specific claims. I’d be willing to accept the idea of an economic collapse as possible, but saying housing will be worthless doesn’t follow that line of reasoning. Housing is a necessity. You might as well tell me food is going to cost zero dollars. It is absurd.

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#23) On February 18, 2010 at 6:17 PM, alstry (36.27) wrote:

Nobody said our economy is dying, simply changing.  I agree with almost everything you said above.

BUT, if our wages dropped to be world competitive...you think we could afford to pay current prices for houses and health insurance?   Very few would be able to afford their current PITI.

Actually, just paying current property taxes, utilities and insurance would be a stretch with other bills....remember, we still have to exit this economy and that change will be very convulsive.

Welcome to the world of Concentric Contraction.

It is not the end of the world....just the end of an economy as

YOU KNOW IT!!!!

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#24) On February 18, 2010 at 7:31 PM, dargus (78.37) wrote:

Fine, but you are using a Beckian level of hyperbole. There is a huge difference between massive deflation and all houses being worth nothing.

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#25) On February 19, 2010 at 4:19 PM, chk999 (99.97) wrote:

How will the new digital age deliver hamburgers?

Cat food?

Surgery?

Water?

I think you overestimate the changes.

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#26) On February 19, 2010 at 4:22 PM, alstry (36.27) wrote:

When we went from horses to cars.....who fed the millions of horses and maintained the carriages and stables?

Maybe I am underestimating the changes.

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#27) On February 19, 2010 at 4:23 PM, alstry (36.27) wrote:

When we went from horses to cars.....who fed the millions of horses and maintained the carriages and stables?

Maybe I am underestimating the changes.

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