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The Next Leg Of The Housing Crisis In Five Simple Charts (zerohedge.com)
66 points by limist on Feb 5, 2010 | hide | past | favorite | 19 comments

So maybe I shouldn't buy this $200K foreclosure?

Some actual actionable advice from a comment there:

"" If you are agonizing about whether to buy real estate now or later, maybe you'd better define "real estate"

It's hard to see the value in buying a "suburban middle class home in CT" right now, or a year or three down the line if/when prices dive again. You may as well rent it and save a lot of money (and headaches) if all you are gonna do is park your car, watch TV and sleep there. Call that "fake estate"

If you want your real property to produce anything of real value, the best time to buy was yesterday, and you could already be at work building the soil, planting fruit trees and garden beds, installing some distributed energy source like solar or wind, and improving the structure. It takes a few years at least to get this sort of thing going, especially if you are doing it after work and on weekends. Invest in infrastructure during this so-called "deflationary period" and take advantage of gov't subsidies and tax breaks for energy efficient appliances, insulation, solar panels, whatever.

If things really are gonna be so grim, you are probably soon going to be at best "underemployed" and maybe even a little hungry...

Here's another idea - rent your house, and buy some cheap agricultural land within an hour's drive or less (go in with your friends and/or family maybe and it'll be even cheaper) and lease it to an organic farmer. That property may actually appreciate quite a bit in the coming years.

Or if you are not cut out to be a farmer, buy a multi-unit that you can fix up, live in and rent out the other units.

The whole point of real estate ownership used to be that it was a factor of production, not a financial abstraction that magically provides some rate of return while you rent it from the bank. If you are not going to improve the property in some way, and realize some income from it, don't bother buying it. If all you are willing to invest in life is fiat currency, you may eventually get lucky and get it back by the wheelbarrow full, with many more zeroes on it. ""

This concept really resonates with me -- my girlfriend and I bought a house recently, motivated by a combination of the tax credit, ever-increasing rent, and a desire to be able to plant, build, and remodel to our hearts' content.

Having a proper workshop in the garage and garden plots in the yard is important for me. I grew up "hacking" on physical objects just as much as computers, so being stuck indoors with only computers and small gadgets to work on always felt oddly limiting.

At a fundamental level, home improvement and micro-scale agriculture offer many of the same sorts of problem-solving challenges as coding. Plus, it's a lot easier to get other people interested in your latest kitchen remodel or crop of produce than the SQL optimization you pulled off at work.

Owning your own place can complicate the pseudo-nomatic lifestyle that a lot of developers seem to thrive on, but it can be totally worth it if you want interesting problems to solve outside of the digital realm.

If you plant fruit trees, be prepared to kill every squirrel in a two mile radius!

For sure. The little buggers are robbing me blind. Somehow they know when I think to myself "the peaches are almost ready, I'll start to harvest them tomorrow".

For some reason they mostly leave the plums alone. So go with the plums.

Big problem with plums is that as far as I can tell the entire tree goes ripe the same millisecond, and you have about three days to pick them all and figure out what the hell to do with a million plums before the birds get to them and they fall off the tree and make these terrible little lumps on the lawn.

Sauces and alcohol. Plums are good for both. Oddly, plum-coriander sauce is pretty good (try a small amount before you take my word for it -- I love it, but YMMV).

You need hawks and cats. Both are effective at squirrel management.

The last point seems to indicate he thinks less new home sales volume leads to lower prices on houses in general.

This makes no sense to me. I see that as a good thing for home prices. If less new homes are sold then more existing homes will sell which means more demand and rising home prices.

The fact that there is less new home sales is just a result of home builders starting fewer communities out of realization that there is too much inventory already.

I think he believes that the lack of new homes is evidence that people don't expect prices to go up in the future.

It is a "good thing" for home prices, but it is also evidence of a much larger "bad thing".

Yea, I think you are right that that is his thinking, but I still think the logic is flawed.

Sales of homes by homebuilders are under a much different dynamic than existing homes sold by homeowners. Homebuilders can and will reduce supply while they wait for the prospect of better profit margins even while existing home sales are showing increased demand.

No one has mentioned this, but if you buy into the argument that the housing market is in for another downturn, there is plenty of opportunity to cash in. Not sure what the CDS market is like these days, but I know that congress hasn't got around to regulating it yet and a small number of investors made out really well by taking large positions last time around.

Some additional data on current housing trends here: http://www.nnnrent.com/2010/02/housing-crash-profits/ ...charts galore too.

Take zerohedge with a HUGE grain of salt.


The ratio of existing to new homes makes sense since no one's been building the last couple of years, but that shadow inventory is definitely worrying.

Take the shadow inventory stuff with a grain of salt. Mostly speculation.

Keep in mind that Zero Hedge is a very controversial finance blog, and the writer has a dubious past.

I half agree. Yes, it's speculation absent access to banks' actual balance sheets. But we do know that a good many such homes are in foreclosure due to official filings, and that a high proportion of those have yet to be brought back to market, plus we can speculate that banks are generally sticking to their policy of not forgiving debt - although they may recover less than the outstanding loan value by selling the house, they don't want to set a precedent of wiping out (say) 25% of the debt on mortgages by mutual agreement, because then everybody will try to take advantage of it, even those who are not yet underwater.

Anecdotally, I've been househunting for a few months, and just in the last few weeks I've started getting calls from real estate agents to inform me that the asking price for property X or Y has dropped, and would I care to make an offer? I find this startling - I'm looking around the low end of the market (by San Francisco standards...it's still expensive here) and only a few months ago the typical attitude was 'at this price, everything goes fast - better increase your bid a little if you really want it'. Now I'm getting called at least once a week about 3-5% price cuts.

Some of this is doubtless due to the public perception that the first-time homebuyer's tax credit was expiring in November (in fact it was extended to April). But the ratio of new properties on sale to foreclosures has been < 1 for a while now. I think the increasing pain of the commercial real estate market is creating a glut of inventory for banks, which they are increasingly anxious to get off their books.

Take a look at Redfin trends for San Fran: http://www.redfin.com/city/17151/CA/San-Francisco

Specifically, # Sold, # For Sale. If I'm reading this right, seems the market peaked in mid-December, has dropped 25% in the past 1.5 months and now inventory is coming back up.

The thing about the shadow inventory is ... it's houses that have trashed and had their wiring stripped by meth-heads. Yes, even our drug-addled friends can do their part to support the market. It might be a terrible waste of resources but letting unsold housing just die on the vine is another thing that may, just may, keep the expansion going another year or two...

...the sole reason why mortgage rates have been as los as they have, has been due to the Fed's constant manpulation of the MBS market via the $1.4 trillion MBS/Agency QE purchase program. With this program set to expire in 2 months, rates are set to explode.

Uh, yes but it's old story - when the end of a program would mean the end of the economy ... the chance are they'll continue the program(duh).

That's not saying this crash isn't coming, it's just saying you can't be sure it will come on schedule. The US economy is becoming depend on more and more things - the state injecting money, China buying bonds. This kind of situation can go on, it can go on longer than you'd think. It just will eventually go under. The housing boom lasted five years. While the present ad-hoc, artificial economy seems much more fragile, we could plausibly give it a couple years to crumble. 2011, better watch out...

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