Steve Moyer’s Real Estate Commentary
Posted on March 28th, 2007 by Kemp
Check out the latest article on a significant potential scenario for the U.S. real estate market. Due diligence is currently worthwhile and highly recommended.
Filed under: Economics, Steve Moyer - Investment Commentary
I too had experience in the Real Estate business for a long time. I feel the same as you in regard to the future Real Estate Market and its devastating effects
I was fortunate to had experience by catching the end of the real estate bust in the very early ’70’s. This gave me an appreciation to have experience first hand “It can happen”. Most people today younger than 60 years old have not experienced a real down market. Denial, illusion and delusion are so embedded they will prolong the agony for themselves well beyond reason.
I commend you on your article for your attempt to raise much needed awareness. The fact few will take your advice is not as important as the fact you can feel good for doing the right thing….at this point you are a lone-wolf crying in the wilderness.
I must compliment you on your piece. I hope you’re right, as I came to the same conclusion on my own and have already taken the approach you recommend. I do have a couple of questions though:
1) What do you see happening to rental prices over the next 10 years?
2) Most economists seem to think that the threat of hyper-inflation or at least persistent inflation is more likely than deflation. Do you consider this a possibility?
3) Are you taking any listings, or do you have any listings right now? Do your clients know your feelings?
this is the best article I have read about the RE bubble! I know from first hand experince that this happens. DH & I lost our first house (in our 20’s) duing the 80’s “Oil Patch” downturn in Texas. Fast forward to now, we are in D.C. Bought a house in 2001 and sat for 5 years. Market started to drop here (even though everyone here said “DC never goes bad, Capital-of-the-world, we have all the jobs here !!). Sold our home after 320 days, but still cleared 250K out of the deal. Are we buying back in - NO. I’ll give it 6-12 months and see how it’s going. I”M WAITING ON A DEAL OR MY $$$ CAN JUST SIT IN CD’S.. I’ve seen how this situation plays out & it ain’t pretty. It took 10 years for the cycle to change in the South….
I found your article interesting, and informative. I believe that some of the things that you mentioned are a little too extreme. I don’t see the financial markets in the US stopping or crumbling down into thin air after all major stock market crashes including the do.com bust. The deflation that you refer to in his article might happen, but only as an extreme case it could happen as you describe it - you basically have to have everyone in the country in a pessimistic, depressed mentality for this to happen. I strongly believe that the American economy can survive this just like it has survived many economic declines, wars, etc. Believe me there is no doubt that there is a crisis out there, but this is a crisis that mainly affect investors and flippers and people that want to sell, people that have no plans on selling and staying put for ten years or more will survive this. The article is so negative about the American economy that maybe we should all sell everything and go into hiding. I think we are better than that, and yes this crisis will also pass like everything bad in our past. I believe real estate still good for people that want to own homes - The one good thing about this crisis is that it will clean the market of real estate investors and leave real estate to Americans that buy homes to stay in for a long time.
I agree that all asset classes would take a hit in a scramble for liquidity but only if the dollar is still viable as a medium of exchange. Now it is becoming fashionable to buy and sell oil in non dollar denominated paper. Even Norway, a non OPEC nation is doing it. How long before other commodities join in. Exchanges are opening in Iran, China and Russia. Besides, all the major central banks are inflating like crazy. i’m a little leery about sitting on a pile of cash right now. ” All paper money returns to it’s intrinsic value, Zero”- Voltaire
Delfation and Derivatives — and real estate.
Darth Vaders Revenge
On the subject of deflation there are only two authors I know of who have written books on deflation. –- contrasted to literally hundreds who have written on inflation. These authors are Robert Prechter & Gary Shilling. The two of these men have over 70 years of combined “out of the box” financial thinking between them. They are the premier unswerving -if not much taken seriously by “mainstream” economists - advocats of deflationist theories.
As the late C.V. Meyers, an early deflationist said – “All debt must be repaid by either the person who borrowed the money or the person who lent it”. This has seemed to me to be an absolute in economics which is often overlooked.
Moreover, studying the Japanese model of deflation …. when people simply refuse to go into more debt and to consume or buy things …. no matter what the stimulation by ….Mr. Bernake or anyone else people will simply refuse to borrow to augment already crippled assets.
In Japan the stimulation of the Japanese government in building billion dollar bridges to nowhere and “stimulating” public works projects … did not even work. The banks were still crippled by huge broken assets held on their books while people still refused to borrow. Crippled city governments were renting out 4/5th’s of their public spaces for rent to keep going.
The booger in the wood pile, however, is not consumer borrowing or corporate debt, or real estate borrowing but “derivative instruments” and hedge funds which probably will implode in the center of our financial system like financial Hydrogen bombs.
The current world wide abundance of “derivative instruments” is something in excess of $375 trillion, and perhaps more: or, 10X to 15X the world GNP.
So. Write off the banks. Mr. Bernake will be struggling mightily to liquefy a world without money…. forget ramping up the consumer to buy more “stuff”, forget real estqate, forget collectibles, forget gold (you can’t take your gold bar to the supermarket and get bread nor beans).
We are well cooked.
… I am a historian and over the last too many decades I have come to expect the “exogenous event” (the accident) to be a larger determinant of human history than all the well meaning government bureaucrats, and bankers, and insurance salesmen plodding away in their linear world. When there is no money how will the government pay the 43% of the people employed by the government in one way or another?
Unfortunately, the annual world economy is approximately $30trillion. Worldwide interest rates run around 3% - or $1trillion total worldwide interest. Therefore, the US trade deficit ($800billion) currently consumes virtually all the interest earned by all investors all over the world.”
The world runs on cash. Not investment.
I was born in California … and by the time I was 20 I watched 3 real estate buggles burst always with the same result. Strange that Steve is from San Francisco. I come from across the bay but now live in New York bu I have come to exactly the same conclusions he has. MASSIVE DEFLATION.
Hey, who is going to buy “the stuff” when 4.5% of the worlds population (America) runs out of cash? Isn’t it kind of strange and marvelous that 95% of the world (that does not much like us now) has depended upon the goldern 4.5%.
Tatoo this on your chest. “The world runs on cash. Not investment”.
What is it that everyone in America has? Debt.
What is it that no one has? Ready cash, as they used to say in the quaint old day of the 19th century during previous financial busts.
Best to you all and just fantastic work Steve!!,
Clark
Making the call that we have now turned to Deflation may seem like big news but I have to be skeptical. Bob Prechter has been making that call every year since 1978 - his 2003 book proclaimed it loudly but that too didn’t pan out . Right now I see commodities are holding record prices and real estate is still rising in New York and London. We could at some time turn deflationary like Japan but the evidence is lacking right now. I tend to be more concerned with the Fiat US - (make that the World’s default) - Paper Currency - so if you want speculate that cash will be King, why not diversify to foreign currencies ?
It is really not a bad idea at all to have some holdings in a variety of currencies if you plan on utilizing them as a intermediate-term store-of-value (i.e. savings). Additionally, it does not hurt to have a percentage of holdings in precious metals even if deflation is your call. Holding some metals provides a hedge against mismanagement on the part of global central banks.
Dear Kemp,
As you suggested, I have been reading a whole lot more about the global economy, monetary policy and markets. The more I read, the more horrified and paranoid I become. I am of the opinion that we will see major asset deflation, but at the same time we will see price inflation in goods and services.
I am still not convinced by any of the various different theories for the outcome of the bursting of equity bubbles in real estate, the dollar, and the stock market. There are so many possible scenarios, and so much that we don’t know, it is very confusing.
First we have the gold/silver people on their blog who are actually taking their cash out of the bank and stuffing bullion in their mattresses. Then we have the mainstream bears suggesting that ‘cash is king’, and that we should all buy US treasury bills. There are yet others who say US treasuries are not safe from dollar decline and that people should buy foreign bonds and currencies. I won’t even go into what the MSM says to do because that is suicide.
I would never have been interested in any of this stuff had I not panicked in June 2006 and sold my CA house after it doubled in 5 short years. I just had this sick feeling that something was very fishy and wrong with this, and I couldn’t sleep at night. Since then, I have been trying to make smart choices what to do with this ‘funny’ money. Being very ignorant, the first thing I did was put the stuff into CDs at World Savings. Well, duh! Now I know that is not the best place for it, and it will have to come out. The rest of my cash is in FXE, IAU, and SLV.
I suppose you are probably not in the business of giving out free advice, and I don’t suppose you have all the answers. But couldn’t you please give us working slobs a little hint where you think this is going? And why do you say foreign currencies might only be a good intermediate-term store of value?
Suzy
Ping…
The biggest shortage of all is the shortage of common sense…
Hello
Looks good! Very useful, good stuff. Good resources here. Thanks much!
Bye