Tuesday, November 13, 2007

Discomfiting words from the Housing Bubble Blog

There’s a greater than 50 percent probability that the financial system ‘will come to a grinding halt’ because of losses from mortgages, Gregory Peters, head of credit strategy at Morgan Stanley, said. ‘You have the SIVs, you have the conduits, you have the money-market funds, you have future losses still in the dealer’s balance sheet in the banks,’ Peters said in an interview in New York. ‘That’s all toppling at once.’
But, at least I'm doing my part.
When the downturn ends, [real estate consultant John Burns] says sales activity will correct back to 1995 levels. But when will that be? Burns says it will hinge on downpayments. ‘When [current] renters can save up a downpayment, [to buy a home] then we will see the end.’


nephos said...

I'm not sure I totally get this about the downpayments. For example, in a certain large metropolitan area on the East Coast there exists a stable regime within which a minority own astronomically expensive homes while the majority is content with renting.

What I'm imagining is that a relevant piece of information is the slope of the wealth distribution. For example, in a bi-modal distribution, there might be two people battling it out for one house that none of the unwashed renting masses could ever dream of owning. Price inflation could be infinite in the housing market without the indigent being the least bit relevant.

Rionn Fears Malechem said...

Are you talking about Savannah?
Here in Manhattan, people have been buying these non-luxe apartments for a lot of money. The super rich are (a) rare even here. Well, uncommon here, and (b) unwilling to live in most available spaces. They stick to a few neighborhoods and live in large spaces. The myth of people who don't care what the price of an apartment is is very popular here, although they're usually held to be foreigners bent on losing money.
But, it's bunk. You're trying to make me do research, but if a man claims that you are a fish, will you take off your clothes to show you have no scales?
The point of the downpayments is that speculation has reversed. Until it makes to save up a down payment on a living wage, the prices of houses will fall. And it's a very long way away.
At 10 % interest, a 10-year mortgage paying my current rent of $1850/month would be $140K. Say that this was 80 % of my purchase price, and I had $28K in my back pocket to buy a $168K place. I'll point out that I make over three times the 1999 median household income in the borough.
But, what can I get for $168K now?
Take a look at the recent sales in my neighborhood. The very cheapest was twice what I could afford.
So, prices will drop until I catch them.

Rionn Fears Malechem said...

sorry, 20 % of my purchase price would be $35K. So, I could buy a $175K place. And, I'd probably be able to add whatever I save monthly to my rent, but I don't know if I want to centralize my investments like that -- I have to flip the place before the island starts sinking, but I don't know when that will be.

nephos said...

The great advantage of being a Climate Change Cassandra is that you can flip before the rest of the market fully anticipates the impending calamity.

As one of your former associates taught me, what matters in investing is simply knowing more than others.

So you see, regular anticipation of the demolishment of Manhattan by a hurricane is a wise financial strategy, from which I expect you to be able to turn a consistent profit.