Real Estate Market / Inflation / Recession / Depression (Denver: loans, property taxes, gated)

[jazzlover]

Originally Posted by Bob from down south

Speaking of the First Great Depression and the 1920s, I discovered that one of my favorite books on the 1920s has been reproduced and made available for free reading online by the Univ of Virginia.

The book is Only Yesterday, by Frederick Lewis Allen, available in its entirety at:

Only Yesterday--F.L. Allen

The entire book is a great read...I recently read it again for the first time in a few years. It's clear when you read it that many of today's problems...in society and the economy...are nothing close to new.

For those interested just in the economic background, chapters 7, and 11-13 make for some really telling insight into the markets and what drove them over the edge in 1929. And if you read it, you won't need me or anyone else to draw the parallels in human greed and behavior that exist and in fact endanger the markets today.

Amen, brother. Like Yogi says, "It's 'deja vu' all over again."

[multitrak]

a fatal flaw to the urban densification argument is if a terrorist attack (could be something as simple as exploding c4 and a few lbs of plutonium oxide) occurs in a major city or even a smaller midwestern city the size of indy or okc, or even a nation-wide or global pandemic (like the spanish flu of 1918) with a high inital death count, i can pretty much guarantee you that the major cities would empty overnight and rural areas would be overrun by urban refuges. americans are spooked already and another 9/11 type event would cause urban dwellers to scatter throughout the country seeking safety and security. unfortunately, fear motivates people to do the right thing at the worst possible time.

[Bob from down south]

Originally Posted by multitrak

a fatal flaw to the urban densification argument is if a terrorist attack (could be something as simple as exploding c4 and a few lbs of plutonium oxide) occurs in a major city or even a smaller midwestern city the size of indy or okc, or even a nation-wide or global pandemic (like the spanish flu of 1918) with a high inital death count, i can pretty much guarantee you that the major cities would empty overnight and rural areas would be overrun by urban refuges. americans are spooked already and another 9/11 type event would cause urban dwellers to scatter throughout the country seeking safety and security. unfortunately, fear motivates people to do the right thing at the worst possible time.

I don't disagree that higher population density can leverage a terrorist attack, but if that theory were true Manhattan would be devoid of residents after the 9/11 attacks already. I think the percentage of the population that really cowers in fear of those idiots is pretty small, even amongst those who witnessed the last attacks first-hand.

A pandemic might drive an urban population to the countryside temporarily, but long-term...no, again they need access to jobs, health care, efficient transportation networks, and the social structure.

BTW, one of the interesting stories in the book mentioned above is the account of a rash of terrorist letter bombings in the Spring of 1919, and of a truck bomb set off at the corner of Broad and Wall Streets in NYC (now site of the New York Stock Exchange) in Sept 1920. Lots of folks think this stuff is something new to our age...it's not in the least.

[mrlucero2002]

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I was told by realtors in early 2007 that Colorado foreclosures had peaked and the real estate market was back on it's way to a seller's market. Looks like the foreclosures will continue to increase for another 12 months.

[Noahma]

Originally Posted by mrlucero2002

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I was told by realtors in early 2007 that Colorado foreclosures had peaked and the real estate market was back on it's way to a seller's market. Looks like the foreclosures will continue to increase for another 12 months.

I know we are at our slowest pace in a quite a while. I have been hearing on ABC news the past couple weeks about 2008 being a stablizing year, and 2009 starting to pickup again. Hope so, I would much rather work the 40 hour weeks instead of the 35 I am having to work now due to lack of projects.

[LBear]

Originally Posted by mrlucero2002

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I was told by realtors in early 2007 that Colorado foreclosures had peaked and the real estate market was back on it's way to a seller's market. Looks like the foreclosures will continue to increase for another 12 months.

REALTORS "talk" but they rarely speak the "truth". The FACTS are that 2008 will be as bad, maybe worse, to what 2007 was. Realty Trac stated that 2007 had a 75% increase in foreclosures compared to 2006. Lennar (LEN, Fortune 500), the nation's largest builder by revenue, reported a company record $1.25 billion fourth-quarter loss on Thursday.

Other top builders, including KB Home (KBH, Fortune 500) Centex (CTX, Fortune 500), D.R. Horton (DHI, Fortune 500) Pulte Homes (PHM, Fortune 500) and Hovnanian Enterprises (HOV, Fortune 500), are all expected to post losses through much of 2008.

2008 is a wash. 2009 will probably have residual left-overs from 2008 but it will not be until 2010 that it finally stabilizes. With 2%-6% increase in values being seen in 2011. Unfortunately, if the values fell 20-30% from 2005 thru 2010, it will take at least 5 years to come back to the 2005 values, making it 2015.

[Bob from down south]

Originally Posted by Pettrix

2008 is a wash. 2009 will probably have residual left-overs from 2008 but it will not be until 2010 that it finally stabilizes. With 2%-6% increase in values being seen in 2011. Unfortunately, if the values fell 20-30% from 2005 thru 2010, it will take at least 5 years to come back to the 2005 values, making it 2015.

Maybe, but I still think your recovery timeline is a bit on the early side. The majority of the RE timelines I've seen don't factor in the exacerbating effects of what is shaping up to be a prolonged and deep economic recession...or worse.

The mainstream media is finally starting to appreciate some of the other challenges ahead. Here's another, more telling, look at the pay option ARM time bomb ticking in the background. $500 billion more to add to the subprime debacle.

Bloomberg.com: Exclusive

Total destruction of "wealth" from the real estate bubble collapse is estimated at $6 trillion when the smoke clears. To put it into perspective, the national debt is around $9 trillion, and the total monetary cost of the Iraq war is estimated to total up to $2 trillion. There's a lot of pain still coming.

And nothing has appeared to mitigate my concerns about commercial real estate and consumer credit as the next legs down into the abyss...both are already showing signs of stress...severe stress in the case of CRE.

Now even Walmart is downshifting.

Look out below...

[brightdoglover]

Something I've thought of, the frequent references to "housing recovery." Recover from what? A several-year, abnormal, aberrant, low-interest feeding frenzy. It's not going to be a return to that. Maybe a stabilization more in line with the rest of the economy, but not a "return" or a "recovery."

[jazzlover]

I've worked around realtors for much of my career. When things are good, they say "buy" because things are only going to get better. When things are bad, they say "buy" because the turnaround is "just around the corner." They make their living selling something; why would they say anything else?

The reason the real estate market is headed for the tank--and will probably stay there for quite awhile--is really quite simple. People were allowed (even encouraged) to borrow money they had little hope of repaying to purchase real estate at inflated prices. It became a self-feeding phenomenon with excess liquidity causing prices to be bid up, which in turn made lending large amounts for purchases actually look responsible, which--led to more price inflation. This is a classic speculative bubble.

As I have posted before, it's like a chain letter. Everyone is happy until somebody figures out it's a scam and breaks the chain. Then the whole pyramid scheme collapses. What has broken the chain in the real estate market is that the lenders--or the schlubs they sold their loans to--have begun to figure out that an awful lot of those borrowers are going to be unable to repay what they have borrowed. (I should note here that the "sub-prime" mess is just the start of this. There are plenty of trophy houses and McMansions financed up to hilt, too. When some of those folks, living from bonus-to-bonus or dividend check-to-dividend check, find their cash flow squeezed by a slowing economy, a lot of those properties will head for default and foreclosure, too.) Now, the spiral works in reverse. Lenders tighten up their lending standards making less money available to borrow. This drops demand for real estate and sellers (many of whom can't afford to wait out the market) drop their asking prices. Or, lenders stuck with a lot foreclosed properties ("Real-Estate-Owned" or "REO's") dump those properties on the market. Prices decline, which make more borrowers "upside-down" and leads to more distress sales.

How long will such a downward spiral go? More properly, the question should be: How long should it go? The answer is long enough that the speculative excesses are wrung out of the market, and real estate once again is priced realistically to what buyers actually can afford and money borrowed to finance such purchases can actually expect to be repaid out of the borrower's cash flow. My guess for the Colorado real estate market is that would take something on the order of a 30-40% drop in many areas and up to 60-70% in some of the overinflated resort and mountain areas.

If all of those foreclosures and REO's cause some major banks to choke, we could have some really big problems. Also, especially in places like Colorado, where so much of the economy is tied to construction, the pain will be even more acute because the bursting of the real estate bubble will also decimate one of the state's major "industries."

The bursting of that bubble is EXACTLY what needs to happen, however--if, for no other reason, real estate prices will actually fall to where people can REALISTICALLY afford to buy a home again, without having to rely on nearly fraudulent loans that they have little hope of actually repaying anytime in their lifetime. It's unfortunate that there will have to be so much pain suffered to get there, but that doesn't change the fact that it needs to happen--and the sooner it does, the sooner a recovery can begin.

And a politician (which includes all of the Presidential candidates, as far as I can tell) who promises some "fix" to this problem is LYING. All of those "fixes" are nothing more than "hair of the dog" remedies which will do more harm than good--and ultimately not correct what is structurally wrong. At worst, the fixes could lead to hyperinflation or a final debasing of the dollar. One only needs to look at what happened in Germany when the Weimar Republic tried that gambit to inflate its way out of economic problems. The result was the Nazis and the Third Reich.

[multitrak]

some states where real estate went up exponentially like CA, NV and FL will get harder than CO, but CO will get hit hard, especially in the rural areas where in some cases there is a 30 year supply of homes that needs to be worked off. other states that DID NOT participate in the bubble either because of saner bank and mortgage company lending policies, and/or considerably less ARM exposure, will remain stable and actually appreciate in 2008 since they have more diversified economies and production of products in demand, including natural resources and agricultural foodstuffs. these areas include the midwestern and plains states (OK), and some areas of TX (DFW). i'm currently long OK - short CO and waiting for the blood to begin running in the CO streets...