Hmmm, Lumber futures have been weak......here's a post that is somewhat amusing about real estate.......
From: redfish 5/5/2005 5:43:35 AM
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THE KAHUNA'S RANT O' THE WEEK: The Residential Real Estate Speculation Top Is Nigh -- By Tobin Smith
This might sound weird from a guy who just bought a bunch of development lots at Desert Mountain in Scottsdale, Ariz., but I can now safely say that the TOP in the consumer housing market is here.
In other words, the second derivative (the rate of change of the rate of change) is clearly within three to six months of slowing down SIGNIFICANTLY.
How do I know? From these three irrefutable data points:
1) Donald Trump was just paid $1 million to give a 45-minute talk on getting rich in real estate to 40,000 drooling wannabe millionaires at The Learning Annex. 2) Every non-business newspaper I read this week (The Washington Post, L.A. Times and San Francisco Chronicle) had at least TWO FULL-PAGE ads for seminars claiming to be able to teach me how to make $50,000 in just 90 days in residential real estate. 3) I read this Andrew Carnegie quote five times this week: “90% of all millionaires made it through real estate.” (The fact that Carnegie said this so long ago that buggy whips were a growth industry shouldn't be forgotten.)
Ladies and gents, the EASY money in residential real estate is done. Those who own their homes in areas with strong employment will do just fine -- nothing to worry about there.
But the stupid money is now on the prowl to earn “up to $50,000 in just 90 days” and all it takes is a FREE DIGITAL CAMERA -- an “$80 value”-- to get them in the door.
This cool-off is as predictable as Paris Hilton trying to become the new P. Diddy. (Seriously -- she announced her mogulship plan today.)
READ THE SIGNS
Ladies and gents, every top in ANY market is marked by an irrefutable signal: FREE SEMINARS.
I saw it in the early ’80s with real estate syndication seminars.
I saw the top of the real estate GOLD rush of 1980s -- NO MONEY DOWN was the mantra then. If you could find someone desperate enough to sell you their home by assuming their mortgage and having them take back a second, third or fourth deed on the house (the famous all-inclusive trust deed or AITD), your fortune was assured.
Too bad lenders added "due on sale" clauses to their mortgages to wipe out that fun time.
I saw it again during the late ’90s “Learn How to Make $250,000 a Year Day Trading” frenzy.
And we are seeing this irrefutable topping signal for the residential housing market today.
First off, you MUST understand that these free seminars are simply a sales lead generation system for a $2,000-$5,000 Millionaire Maker training seminar -- on tape, of course.
Second, you MUST understand that the act of buying, refurbishing and remarketing residential real estate is NOT easy. It requires a LOT of debt service and uses HUMONGOUS leverage that can easily go against you if you don’t know what you're doing. I'd compare it to day trading in a sideways or downtrending market -- it's about as easy as getting your cat to do backflips into the backyard pool.
SOMEONE'S NOT PLAYING ALONG
In addition to the 100%-perfect, free-seminar indicator, I’ve observed that many old-time real estate developers in D.C., New York, San Diego and Orange County, Calif., have announced they are selling “every property they own” to huge pension plans for record prices. This the other signal.
When old-time dirt guys sell ENTIRE portfolios they have taken a LIFETIME to build, it reminds me of the developers I used to arrange financing for in the late ’80s who told me, “Toby, when the amateurs are bidding on land I KNOW I can’t make money on, it's time to pack it in … until the middle of the next DOWN cycle. You can reach me in Aspen or the beach if you need me.”
Mark your calendars six months from now and then another six months after that. Those will be the dates when the newspapers report “Home prices in much of the U.S. have leveled off significantly.”
That will be the day that the speculative home buyer with 100% financing will find out that he or she is actually UNDERWATER and will start a mild-but-growing panic.
AVOID any area in the U.S. where more than 20% of new mortgages are to non-owner occupied buyers. These are the areas where the most pain will occur.
Or, even simpler, you'd better get the hell out of your speculative home “investment” wherever the FREE SEMINAR full-page ads are running now.
Based on this theory, won’t I get crushed in my Desert Mountain golf course development lots?
No -- that's a different ballgame. With only 20 lots left in an area where 60% of the homes are owned WITHOUT a mortgage and there will NEVER, EVER be any additional lots or golf courses built (it's bordered by national and state recreation preserve lands), normal residential housing economics do not apply.
Where there is virtually unlimited, financially independent demand for a VERY limited supply of anything, prices go up. That's called "price elasticity" -- look it up.
Where there is virtually unlimited supply (i.e., the areas with 20% or more speculative ownership) and limited price elasticity (where 70% or more households can’t afford to own at today’s record low mortgage rates), there's gonna be some pain.
If you are convinced that there is still a lot of easy money to be made buying residential real estate in the hot zones of the U.S. these days … well, you have about six months to make it happen.
Rogue
