errata

Toll Brothers (mentioned in the article) (Trading On Line)
[should be] began it's rise in early 2000, from around $5 to over $55
in 2005.
Sorry.

Interesting article. I thought the comments relating the housing sector
to the economy were worth noting. At least there are some numbers to
look at.

I wanted to add that housing stocks started their declines in the
middle of last year. Toll Brothers (mentioned in the article) (Trading On Line)
began it's rise in early 2002, from around $5 to over $55 in 2005.
Recently, it was below $23. Not to get into charting analysis here, but
the stock seems to be a predictor of the housing market. Other housing
stocks show similar charts, especially with regards to timing.

Not to toot my own horn too loudly, especially not at a red light in
the housing market, but the above is a gem ....

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote:

- quote -


http://www.investorsinsight.com/otb_...?EditionID=377

One quote:

"How bad are the signals coming from the housing sector? As a recent news
headline clearly put it: it is simply UGLY. Indeed, all the indicators from the
housing sectors - including the latest housing starts and the homebuilders
(NAHB) forward looking business conditions - indicate a housing sector that is
literally in free fall"

-- Doug

I googled and found several of the slides cited at the link
below posted at
http://www.burbed.com/2006/08/26/the...-presentation/ .
(I do not have Powerpoint.) From more googling, apparently
Lereah recently characterized the expected behavior of the
housing market as a "soft landing," not a "long slump" nor a
"crash." OTOH, Lereah has been famously criticized on the
net for over-optimism. Considering his employer, perhaps
that's no surprise.

The second chart at the link above, "Cooling Metro Markets,"
shows sales down by as much as a third, but prices up
slightly, from a year ago in some popular metro areas. The
last chart, "Housing Outlook," also indicates not massive
depreciation of prices but rather much slower appreciation.

One blogger observed that while Lereah said today's drop in
existing home sales is at a rate never before seen, that's a
big "duh": In the last few years, home sales increased at a
rate never before seen.

I suppose a decline will hurt the economy. But as the
blogger implies, it is also much anticipated. I do not know
that all the little folk outside popular metro areas will be
quite as hurt. As S. Weldon has noted on occasion, bubbles
do not burst when they are widely anticipated.

hefferMiller[at]hotmail.com cited the presentation in August
2006 by National Association of Realtors Chief Economist
David Lereah:
- quote -

"dapperdobbs" <GeorgeCFL[at]hotmail.com> wrote
- quote -

With monster homes and massive leveraging for real estate
financing, reminiscent of the Roaring '20s?

Though I admit I do not know what the data says about the
fraction of monster homes out there. We do have some idea of
how much leveraging is going on, though, with the creative
financing schemes available to (in some cases kind of forced
upon) ordinary Joes and Janes, and speculators seizing upon
interest only loans and/or having the seller pay transaction
costs etc. themselves.

Fortunately I suppose that bodes badly only for housing. I
imagine the effect on stocks will be more like an
aftershock: Not devastating (for various reasons) like the
1929 Crash, but certainly potentially a notable correction
to the S&P, Dow etc. from time to time in the coming years.
A comparison to the very erratic 1965-1973 or so period
seems apt. (After about 1973, P/Es dropped precipitously
below the historical average, hence my cutoff of 1973 or
so.)

Which is another argument for diversifying one's financial
basket: Do not hold strictly real estate, and do not hold
strictly stocks. Hold some (a lot?) of high grade bonds
and, with money market yields doing fairly well, hold even
cash.

- quote -

Yes, but then I am left wondering what was behind the long
slow decline /in certain large cities on the two coasts/
described in the article. Just the capriciousness of city
living?

Yale professor Robert Shiller was quoted in this article. He
gets so much press time some times I worry I'm following
media hype rather than reason when I read him. Yet the power
of that artillery of historical economic data he wields,
with humility and qualification ever present, is hard to
deny.

Even the Real Estate agents are now admitting a crash:

http://www.realtor.org/Research.nsf/...%25202006).ppt



Elle wrote:
- quote -


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.

Interesting commentary. Some guy at the Federal National Mortgage
Association wrote and article about a year ago explaining that the past
average housing "busts" lasted three years, with price declines in
metropolitan areas of 20% (average). I was in L.A. in the early 1990's
and heard stories of walk-away's (e.g. paid 450k and couldn't sell for
320k).

Thing that has puzzled me in this latest real estate boom is what seems
to be a dramatic escalation of "vacation" or "resort" prices. I mean,
my own cousin is an agent, and told me a family picked up a "shack" on
the shore (for 800k) so they can dock their boat for a month or two
before continuing up the Eastern seaboard.

If "yuppies" or "baby-boomers" have driven up prices with an eye
towards retirement - even if there has been a follow-on effect of
panicky buyers - when the "boomers" do retire, won't they sell their
"work residences"? That would seem to support the idea of a long, slow
decline, wouldn't it?

Am I seriously missing something here?

For those folks posting here lately interested in buying a
rental home, some commentary from today's NY Times:

---"Read Between All Those For-Sale Signs"---
There seem to be three major paths that housing could follow
over the next year: a soft landing, the start of a long
slump, or a crash. A soft landing is the one predicted - and
preferred - by most economists on Wall Street and at the
Fed. A long slump is what many past real estate booms turned
into. A crash is the outcome that a small group of analysts
say is the only possible ending for the biggest housing boom
of all.
...
Perhaps the biggest reason to be skeptical about a real
estate crash is that the country has not really suffered
through one before. Not since the Depression has the
combined value of residential real estate fallen over the
course of a full year. Homes seem to be much less vulnerable
to crashes than other assets, because people rarely sell
them in a panic.

But earlier booms have been followed by modest price
declines in some cities that turned into long periods in
which increases trailed inflation. After peaking in much of
California and the Northeast in the late 1980's, house
values fell during the recession of 1990-91 and then drifted
for years, often rising more slowly than the price of milk.

In inflation-adjusted terms, prices in the New York and
Washington areas did not return to their late-80's peak
until 2002. In Boston, it didn't happen until 2000, and in
San Francisco, 1999.
---

For those of us young enough to have only owned housing from
1995 or so onwards: I propose not basing one's future real
estate expectations on this short, anomalous period but
instead taking great caution from what the above says about
the historical behavior of real estate pricing.