Monday, February 25, 2008

Steve Moyer is a little anxious about real property

I know you sometimes think I'm the most alarmist guy in the world. So, to make myself look more reasonable and moderate, I'll quote this guy.
I now expect every property category to become significantly affected — houses, condos, fourplexes, apartment buildings and complexes, shopping centers, office buildings, industrial complexes, lots, land — you name it. The evidence (and a growing and overwhelmingly negative real estate buying psychology) has me convinced that no property type will be spared.
Given my grave doubts that a combined Fannie Mae, Freddie Mac crisis plus credit-derivatives-nightmare can be averted as asset deflation intensifies, I now expect a frightening systemic event in the U.S. at some point, possibly within the next few years, which will take property values out at the knees and cause transactions to come to an utter standstill for a time. At that point I expect loans to become almost impossible to get and buying psychology to be so damaged, a generation of people will tell you “you should never buy real estate.” Regardless, the economy will be shaken by these unfolding events to the extent that the mere thought of buying real estate (absent a massive cash discount) will be considered by most a preposterous notion.
Which isn't to say he isn't right. And, he uses the word 'dunderheads.'

Luckily, you can still sell property, albeit for less money, to 1) dunderheads, 2) folks who have pawned off other property and foolishly want to exchange into another to “avoid paying tax,” 3) folks who don’t recognize that we are post-bubble and therefore think this is a short-term phenomenon or “typical real estate cycle,” or 4) folks who think this is a good time to buy and hold to the notion that “real estate values will always go up in the long run.” Hey, god bless ‘em; that’s what makes horse races.

You will probably be a bit disappointed with what price the market will bear for your property right now, but that’s nothing compared to losing 70% or more of value when the shinola is all the way done hitting the deflationary real estate fan. When property values tanked during the Great Depression, it took them more than 20 years to get back to “par”; do you really want to run the risk of waiting an entire generation for the real estate market to return to 2005-2006 values? Don’t.

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