How near to the housing bottom are we?

Discussion in 'Economy' started by william the wie, May 7, 2011.

  1. william the wie
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    william the wie Gold Member

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    The easy answers to this question are:

    Take a least squares analysis, if you are using the right measuring tools and have a long enough trendline then you can make a fairly good guess at where the housing market is and where it is likely to be headed.

    A check figure involves asset allocation of all financial assets: stocks, bonds, real estate, cash and precious metals in equal portions. You compare cashflow in and out of real estate to the flows in and out of the other assets.

    One wild card is financial leverage:

    Free cash reserves by definition involve zero leverage.

    Bonds are usually unleveraged but can be leveraged by up to 95%.

    Precious metals have storage costs and therefore are usually unleveraged financially but are often leveraged by means of futures contracts.

    Stocks can have leverage of up to 50% and this relatively common.

    Real estate is the only financial asset that is usually financially leveraged and at more than 80% of value.

    Second wild card, price discovery:

    Real Estate is the only financial asset that is not fungible as in any 10 year treasury that matures in June 2020 is like every other June 20 10 year treasury of the same denomination.

    Because of leverage price swings in real estate are usually much greater than in other asset markets. Also because of real estate and non-recourse laws in most states margin calls are made by the borrower not the lender, the exact opposite of other asset markets.

    So when enough homeowners decide that housing is not coming back and stop paying on the house or simply can't afford to pay on the house it goes into foreclosure. It is stopping payments that the owner can afford to pay that has not yet gone viral when will this happen? And what will be the result?
     
  2. sparky
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    sparky VIP Member

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    take it a step further willie, what's the average Joe involved in an adjustable mortage's stance going to be if the $$$ tanks?
     
  3. Toro
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    Toro Diamond Member

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    Excess supply of housing should be cleared away by 2013 at the latest.
     
  4. william the wie
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    william the wie Gold Member

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    Toro I'm going to call you on that one. REITs are something I spent 15 years playing with due to their normal 3-5% discount for buying stock straight from the Treasury. Call me tight but a low risk 22.45% return makes me happy. Last time I did a quick check of all forms of housing to see if it was safe to get in the pool about 18 months ago. Total housing stock of all forms was at that time at least 130% of households and equilibrium is assumed to be 111%.

    So, no 2013 is way too soon to clear a 17% oversupply of capital stock.
     
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  5. Big Fitz
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    Big Fitz User Quit *****

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    And doesn't the timeline extend even farther with the shenanigans the Feds are playing by backing mortgages with taxpayer money or has that finally stopped completely?
     
  6. sparky
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    sparky VIP Member

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  7. Care4all
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    Care4all Warrior Princess Supporting Member

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    all i know is that we bought our house in late 2006, at the peak of housing prices and we have lost about 30k on the house's value....we paid cash and do not have a mortgage, so we are not underwater on a mortgage but none the less, we have lost 30k....it's depressing. :(
     
  8. Valerie
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    Valerie Gold Member

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    Take heart as that loss is not realized unless or until you sell the house at which point you'd be subject to capital gains taxes, depending... Not to mention all the money you saved by not paying interest. People are throwing away that much in interest every few years...



    Good to see you, my friend! :beer:
     
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  9. B. Kidd
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    B. Kidd Gold Member

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    Whose gonna eat up the inventory? There are only so many foreigners to buy up houses once owned by Americans, and many of them have already bought.
     
  10. Care4all
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    Care4all Warrior Princess Supporting Member

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    And unless all of those people that went through foreclosure can buy another home with their bad credit rating, we have lost a huge portion of the american potential buyers.... :(
     

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