Ask tommy2 about Real Estate

[bwana devil]

if there are more houses available for sale, it follows there are more people renting.

what trend can we expect to see in rental rates?

[tommy2]

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What's worse is that fewer people than ever have equity in their homes so there will be a strong chilling effect on the market--guys who would normally sell won't because they will have to write a check at closing--so they stay put. This combo could easily cause a hard crash in 6 months or so.

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Tommy, why wouldn't people's reluctance to sell at a loss result in lower market supply and actually encourage prices to go up instead of down?

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There is currently a glut of product on the market (thus the downward pricing pressure)--I forsee more sellers than buyers going forward in general, but that comment was specific to the players on the margin. In other words, let's say there is currently an oversupply of housing such that there are 7 sellers for every 3 buyers. Some of those sellers have to sell (new job, can't afford their mortgage, etc.) and some prefer to sell. The chilling effect is on the prefer group.

So, you have this bad combination of people who have to sell and are going to get hammered because there are fewer buyers and a group of people who would prefer to sell, but won't/can't because they will have to take a loss on their house. So, they stay put and effectively can't put their house on the market and become a buyer as well as a seller.

These guys can't add liquidity to the market until prices come back up. So, the # of players in the market gets smaller. The current glut needs to be absorbed before this is going to happen.

[tommy2]

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if there are more houses available for sale, it follows there are more people renting.

what trend can we expect to see in rental rates?

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Rents are going to trend up. So are occupancy rates. Both are already trending up in most major metro areas.

[jaydub]

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Tommy,

On what do you base your estimates of a slow decline lasting 12-18 months or a hard crash lasting 6 months?
J

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My gut and 10+ years of being heavily involved in RE markets. Extensive conversations with some of the smartest people in the industry...lots of economic data, etc.

I don't think the hard crash will last 6 months, btw, I think it will occur in about 6 months. We ain't there yet.

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Care to elaborate on any specifics, perhaps some of that economic data?

I find it unlikely that a multi year run-up in housing gets resolved in such a short time frame (in either scenario you propose). My reasons for doubting this include:

* the historical stickiness of real estate (especially on the way down)
* the experiences in Japan which is not a perfect model for the US for a number of reasons but is highly relevant
* the phased nature of the rate increases and 110% LTV triggers

J

[tommy2]

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Tommy,

On what do you base your estimates of a slow decline lasting 12-18 months or a hard crash lasting 6 months?
J

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My gut and 10+ years of being heavily involved in RE markets. Extensive conversations with some of the smartest people in the industry...lots of economic data, etc.

I don't think the hard crash will last 6 months, btw, I think it will occur in about 6 months. We ain't there yet.

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Care to elaborate on any specifics, perhaps some of that economic data?

I find it unlikely that a multi year run-up in housing gets resolved in such a short time frame (in either scenario you propose). My reasons for doubting this include:

* the historical stickiness of real estate (especially on the way down)
* the experiences in Japan which is not a perfect model for the US for a number of reasons but is highly relevant
* the phased nature of the rate increases and 110% LTV triggers

J

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So, what do you see happening? I think Japan is a lousy example, btw.

[jaydub]

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Tommy,

On what do you base your estimates of a slow decline lasting 12-18 months or a hard crash lasting 6 months?
J

[/ QUOTE ]

My gut and 10+ years of being heavily involved in RE markets. Extensive conversations with some of the smartest people in the industry...lots of economic data, etc.

I don't think the hard crash will last 6 months, btw, I think it will occur in about 6 months. We ain't there yet.

[/ QUOTE ]

Care to elaborate on any specifics, perhaps some of that economic data?

I find it unlikely that a multi year run-up in housing gets resolved in such a short time frame (in either scenario you propose). My reasons for doubting this include:

* the historical stickiness of real estate (especially on the way down)
* the experiences in Japan which is not a perfect model for the US for a number of reasons but is highly relevant
* the phased nature of the rate increases and 110% LTV triggers

J

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So, what do you see happening? I think Japan is a lousy example, btw.

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As should be obvious, a much longer decline. To be specific likely 4+ years.

Why is Japan a lousy example? Are you intending to just make unsupported one off statements like that?

J

[tommy2]

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Tommy,

On what do you base your estimates of a slow decline lasting 12-18 months or a hard crash lasting 6 months?
J

[/ QUOTE ]

My gut and 10+ years of being heavily involved in RE markets. Extensive conversations with some of the smartest people in the industry...lots of economic data, etc.

I don't think the hard crash will last 6 months, btw, I think it will occur in about 6 months. We ain't there yet.

[/ QUOTE ]

Care to elaborate on any specifics, perhaps some of that economic data?

I find it unlikely that a multi year run-up in housing gets resolved in such a short time frame (in either scenario you propose). My reasons for doubting this include:

* the historical stickiness of real estate (especially on the way down)
* the experiences in Japan which is not a perfect model for the US for a number of reasons but is highly relevant
* the phased nature of the rate increases and 110% LTV triggers

J

[/ QUOTE ]

So, what do you see happening? I think Japan is a lousy example, btw.

[/ QUOTE ]

As should be obvious, a much longer decline. To be specific likely 4+ years.

Why is Japan a lousy example? Are you intending to just make unsupported one off statements like that?

J

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First off I think we are more or less on the same page. As I stated in my first response to you I expect things to take ( <u>not last</u> 12-18m and 6m respectively)--the bottom could easily last 2-4 years.

Japan is a bad example because their bad run was heavily exacerbated by their unwillingness to change their banking system and realize the losses. I don't think that will be the case with us. I don't think we will be in a 10 year down cycle either, but 3-4 could easily happen.

[tommy2]

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Tommy,

On what do you base your estimates of a slow decline lasting 12-18 months or a hard crash lasting 6 months?
J

[/ QUOTE ]

My gut and 10+ years of being heavily involved in RE markets. Extensive conversations with some of the smartest people in the industry...lots of economic data, etc.

I don't think the hard crash will last 6 months, btw, I think it will occur in about 6 months. We ain't there yet.

[/ QUOTE ]

Care to elaborate on any specifics, perhaps some of that economic data?

I find it unlikely that a multi year run-up in housing gets resolved in such a short time frame (in either scenario you propose). My reasons for doubting this include:

* the historical stickiness of real estate (especially on the way down)
* the experiences in Japan which is not a perfect model for the US for a number of reasons but is highly relevant
* the phased nature of the rate increases and 110% LTV triggers

J

[/ QUOTE ]

So, what do you see happening? I think Japan is a lousy example, btw.

[/ QUOTE ]

As should be obvious, a much longer decline.

Are you intending to just make unsupported one off statements like that?
J

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No need to take a tone either. I'm just offering my opinion.

[Strickly Bidness]

tommy,

I just bought a house for 1.34 million in a great neighborhood in the bay area. Will I be able to sell this house for 1.5 million in 3-5 years or will I get my assed crushed with this purchase?

[tommy2]

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tommy,

I just bought a house for 1.34 million in a great neighborhood in the bay area. Will I be able to sell this house for 1.5 million in 3-5 years or will I get my assed crushed with this purchase?

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I PMd you.