Housing and mortgage…random thoughts
I have been out of town and pretty busy the past few days…so I don’t have time to hammer out one of my long posts, so here are some random thoughts and impressions on the housing bubble, real estate, mortgages…among other things.
- At 11:31 PM on Monday night, there are: There are 16,981 active homes in San Diego, CA. per ziprealty. At what time this week (give day and time), do you think that San Diego will go over 17,000 properties? I would do Orange County, but ziprealty hasn’t split OC/LA up…so the number sits at over 72,000. I’m going to say Tuesday at 3pm, we will go over 17,000.
- I was ‘out and about’ quite a bit this long weekend. Made it down to the Gaslamp in San Diego. On one corner there were 4 sign ’spinners’ peddling condos. I saw 2-3 others on various downtown corners. Has anybody ever bought a condo because of one of these guys? Maybe it’s just me, but a condo starting at 300k is not an ‘impulse purchase’. If somebody was spinning a sign for a $2.50 slice of pizza, I think it might work. Condo’s….not working for me. Not to mention the fact there is a real estate office on every block, and condo’s going up all over “East Village”. Even if I did want to buy a condo….those signs are merely pointing me in the direction of about 10 places where I could ‘buy’ one.
- Why is there a silent ‘T’ in the word MORTGAGE???? (let me clarify…this is more of a ‘joke’ than a real question. Back in a training class a while ago, the instructor asked if there were any questions…somebody raised their hand, and asked that question. It was much funnier if you were there.) Thanks to all the people who e-mailed me, or posted the correct answer about the french origins of the word.
- Read this piece of work that was e-mailed to me by a broker. I think they got the roles reversed….what do you think?!?!?
CONTRARY TO POPULAR BELIEFIT PAYS TO BE A CONTRARIAN. Sir John Templeton was known as the Dean of Investing, and he was a classic contrarian. Mr. Templeton said to buy when things looked most pessimistic and sell when the masses felt most optimistic and his attitude paid off. He began his Wall Street career in 1937, created many of the worlds largest and most successful international investment funds, and is now a full time philanthropist at age 92.
Some recent examples - stocks were on fire in 2000 and almost everyone was buying, but the market went the opposite direction from the herd. And now over the past four years the media has warned of a housing bubble, but home prices have done very well across the country; rewarding those who bought. With Housing Starts numbers coming out with a bang this past week and the report being higher than expected, it is a clear indication that the demand for housing is still strong. So, what about all this housing bubble hype?
Well, if Joe Kennedy father of former President John F. Kennedy were still alive, it is pretty clear that he would agree and say that the hype is clearly just that, hype. If we could ask this legendary contrarian and one of the most successful businessmen in history what he would do given the current Housing Starts number and all the bubble hype being published by the media, Mr. Kennedy would probably runnot walkbut run to a local real estate office and invest in real estate.
Let’s take a look at why Mr. Kennedy would probably feel so strongly about purchasing a home. Joe Kennedy attended Harvard College and became a highly successful entrepreneur with an eye for value. He multiplied his fortune through stock speculation and did so by investing with a very contrarian mindset. In the early to mid 1920s the majority of the population was reluctant to invest in the stock market. However, Mr. Kennedy became an expert in dealing with a stock market that was unregulated and even opened his own investment company during the bull market of the 1920s. Joe clearly saw an opportunity and with his keen eye for value, invested in the stock market. By being smart, going against the grain of the majority, and not buying into fear, he bought with confidence and made millions by doing so.
But one day, his local shoeshine boy gave him a tip on a stock to buy. Mr. Kennedy immediately cashed out his multi-million dollar gains and got out of the market. He realized that if the market were so oversaturated that even the shoeshine boys were giving out stock tips, it was time to get out. And thats exactly what he did, just months before the stock market crash in 1929. Looking back, Mr. Kennedy based his investments on facts and statistics, not on fear and hype.
And when the housing bubble hype began four years ago, many individuals refused to base their decisions on hypeand have seen sizeable gains with their real estate investments. On the other hand, those who put off purchasing real estate based on the fear induced by the media most probably regret their decision. If you have been putting off the purchase of your dream home, dont base your decision on fear and hype, meet with your trusted mortgage professional and get the facts about your local real estate market.
Uh…maybe I missed something, but I thought the popular opinion was that you “can’t lose” with real estate? I had no idea the media has been saying there was a housing bubble for the past 4 years. Heck, the stories are JUST starting to roll in over on Ben’s blog. Remember, the media is a lagging indicator…and many brokers will say anything to get a commission. The fundamentals in this story are correct, but they are having an identity crisis and they got their roles mixed up. The contrary people would be ’selling’ into all the ‘buying’ frenzy.
I know there is quite a bit of e-mail for me in my inbox, just bear with me, and I will get replies out. The forums are doing excellent! We hit the 200 member barrier! There are almost 150 topics and 900 posts! Lots of good info in there. If things are slow on the blog, be sure to check out the forums. Comments, feedback, and donations are always welcome and appreciated!
I look forward to the comments on this one. Don’t forget to make your guess on San Diego going over 17,000 properties!
SoCalMtgGuy
February 21st, 2006 03:34
I suppose he’s aware that Sir John Templton has said housing will fall 90%
http://www.lawresearchgroup.com/article.php?story=20041006055159728&mode=print
February 21st, 2006 03:36
If anyone subscribes to Gary North he has the article:
“Housing Prices Will Fall by 90% — Sir John Templeton”
http://www.garynorth.com/members/918.cfm
February 21st, 2006 04:13
I’ve heard that “shoe shine boy stock tip story also attributed to John D. Rockefeller and Bernard Baruch. Once I even heard Chas Merrill.
While it’s still an instructive anecdote, I’m starting to think it’s an urban legend.
Anyone know for sure?
February 21st, 2006 04:31
Ted
February 21st, 2006 03:34 1I suppose he’s aware that Sir John Templton has said housing will fall 90%
http://www.lawresearchgroup.com/article.php?story=20041006055159728&mode=print
Is this guy an optimist or what? I do believe the market is in serious need of a “correction”, but housing dropping 90%? This article was published in June of 2004 and informed us to plan on purchasing real estate “in 9 months”, which would have put us in March of 2005…not a time to have bought (but definitely a time to have sold).
February 21st, 2006 04:40
It doesn’t matter whether your believe Sir Templton or not. The RE agent above, claims a contrarian would be BUYING housing. It is his choice to use Sir John Templton in his RE pitch. Yet, the very man he uses as an example says it’s a bubble of such epic proportions, it could fall 90%.
February 21st, 2006 05:23
Unfortunately, you are wrong. People have been buying $300k+ condos on impulse, after all, the money has been FREE. That may change directly. Oh, and seriously, who is expected to buy all thse S.D. downtown condos? Who?
February 21st, 2006 05:30
The Economist magazine started warning of a housing bubble several years ago. So did I — in 2003 I was advising people not to buy because prices were too high relative to incomes.
Same dynamic in the 1990s. After 1997 I thought stocks were way overpriced, but they kept going up.
“Markets can stay irrational longer than you can stay solvent” — John Maynard Keynes.
“If asked to forecast, give a number or a date — but not both” — my former boss.
This bubble is going to pop. Someday.
February 21st, 2006 05:41
RealityCheck is right. I have a friend who has bought two additional condos on impulse. He’s a little nervous, but it looks like he’s getting out of one of them for a tidy profit. He actually wants to own his remaining two long term.
February 21st, 2006 05:46
@Larry Littlefield, what’s the missing ingredient in your equations: The Fed. In 1998, the Fed bailed out LTCM, and signaled they would underwrite the excesses of Wall Street. Without the bail out, you would have had your crash. Wall Street can take it cues nicely. The housing market was overcooked in 2003, but once again the Fed stepped up to underwrite the bubble. The bankers can take cues as well. The most extremely bearish can’t help but wonder where the Fed can go now.
February 21st, 2006 06:28
The great jurist Sir Edward Coke, who lived from 1552 to 1634, has explained why the term mortgage comes from the Old French words mort, “dead,” and gage, “pledge.” It seemed to him that it had to do with the doubtfulness of whether or not the mortgagor will pay the debt. If the mortgagor does not, then the land pledged to the mortgagee as security for the debt “is taken from him for ever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the [mortgagee].” This etymology, as understood by 17th-century attorneys, of the Old French term morgage, which we adopted, may well be correct. The term has been in English much longer than the 17th century, being first recorded in Middle English with the form morgage and the figurative sense “pledge” in a work written before 1393.
February 21st, 2006 06:34
John Templton has said housing will fall 90%
NO! “Usuary Inc.” said that. Sir John said the USD is liable to correct up to 40%.
February 21st, 2006 07:50
Where does this guy get that Joe Kennedy was one of the “most successful businessmen in history”? He was a rum runner.
February 21st, 2006 07:55
Honestly I wish we had $300K condos up here in LA!
February 21st, 2006 08:17
Joe Kennedy was both a rum runner and successful businessman. Where’s the contradiction?
February 21st, 2006 08:36
Joe Kennedy was a “successful businessman” like Al Capone was a “successful businessman.”
Kennedy gamed the system as head of the SEC to destroy his enemies, and while Ambassador to England just prior to World War II, stated that “Nazism is the wave of the future.”
February 21st, 2006 09:00
Monday evenings San Diego news reporting the Salten Sea area is the “next” boom town! I was laughing so hard after that.
Some comments during the piece; ..the sea was created by a flood back in”…That’s the first thing I would look for in a new home site! and it kept getting better, the sea is currently in alge bloom, but the government has plans to clean it up (think stinking fish tank)
Hey, they forgot to mention it’s up wind of the cattle ranches…and the dust storms…and repressive heat during summer…
Housing bubble? not in their minds.
February 21st, 2006 09:15
“He realized that if the market were so oversaturated that even the shoeshine boys were giving out stock tips, it was time to get out. And thats exactly what he did, just months before the stock market crash in 1929. Looking back, Mr. Kennedy based his investments on facts and statistics, not on fear and hype.”
The story has been attributed to many; no one knows for sure who it happened to, and it may be pure fiction.
I love the story as it’s presented here: Kennedy goes contrarian on a shoe-shine boy’s statement, then the broker claims that Kennedy “based his investments on facts and statistics”. Well, which is it? Anecdotal contrarian evidence, or facts and statistics?
Typical sloppy thinking that epitomizes bull rhetoric in bubble markets.
February 21st, 2006 10:46
Here is one thing you cannot ignore, simply economics. That’s right, I am talking about supply and demand. From the latest information from the Census Bureau:
4th Quarter 2005:
Rental Vacancy Rate: 9.6%
Homeowner Vacancy Rate: 2.0%
http://www.census.gov/hhes/www/housing/hvs/qtr405/q405tab1.html
So, we are at the highest level of homeowner vacancy rate (at least since 1960) and 2005 as a whole was the highest level of rental vacancy. So what does this mean? Supply is exceeding demand. Everyone get ready for the curve shift……
San Diego will hit 17,000 by tomorrow….the panic is on. NPR during Morning Edition talked about the “housing slowdown.” National Association of Homebuilders economist said that “2006 will be just like 2004.” Highest start of new homes in 30 years is adding to the glut of housing in the U.S. Let’s shift that curve some more!
http://www.npr.org/templates/story/story.php?storyId=5226101
FirstTimeBuyer
February 21st, 2006 08:36 15Joe Kennedy was a “successful businessman” like Al Capone was a “successful businessman.”
Kennedy gamed the system as head of the SEC to destroy his enemies, and while Ambassador to England just prior to World War II, stated that “Nazism is the wave of the future.”
It is true that Joe Sr. was did believe in a policy of appeasement with Nazi Germany for fear of another war, not that he was a Nazi. It is true that he was anti-Semtic, but his main priorty in life was making money. If there war, wouldn’t it be nice to sell to both sides? (See Iran-Iraq war in the 1980s for a modern reference of this theory in practice).
February 21st, 2006 11:04
What’s interesting about the Census Bureau data is the other times the homeowner vacancy rate hit 1.9%: 1989, as the prior bubble began to unwind, and 2001, as the current bubble SHOULD HAVE stopped inflating after 9/11, before things really got out of hand.
February 21st, 2006 11:20
Mortgage has a silent ‘t’ in the middle because it’s from archaic French: mort = death, gage = pledge or lien.
It’s an obligation on property that continues beyond the death of the borrower.
February 21st, 2006 11:49
I just came face to face with my first anecdotal confirmation of the downtrend here in San Diego. I had lunch with my former supervisor. Several months ago, he had bought a house in Chula Vista (SE side of SD area) before having sold their house / residence in Escondido (NE side of SD area). The Escondido house (bought in 2003) still hasn’t sold yet and he was asking me if I was interested or not (I currently rent in Mira Mesa area). He’s paying both mortgages right now and his wife doesn’t work. He makes good money (100 -130K), but that still has to hurt. He has two young kids with a third on the way. They delisted it and plan to relist soon in early spring. He’s a really nice guy and I didn’t know what to say to him…suggesting he read this blog would have like pouring salt in an open wound.
February 21st, 2006 11:50
I should have clarified….the whole “silent ‘T’ in mortgage” was a joke that went around the office a long while back.
We were in a training class and the instructor asked if there were any questions…and to be funny, someboday asked “why is there a silent ‘T’ in mortgage?” ha haha…yeah I know, not really funny…but it was if you were there.
Thanks to all the people who have posted or e-mailed me the answer!
SoCalMtgGuy
February 21st, 2006 13:09
Joe Kennedy was the rum runner.
Ted Kennedy is the rum drinker.
February 21st, 2006 13:10
socal - how do you get a summary number on ziprealty for total listings in an area - you know what i’m saying?
February 21st, 2006 13:10
Maybe the “mort” is in mortgage because the interest paid to the lender sucks the financial life out of the borrower.
Anyway, here is a link to an ad by a Sacramento builder offering HUGE price reductions-
http://photos1.blogger.com/hello/101/3984/1024/horton-sacramento.jpg
February 21st, 2006 13:11
oops, gotta remember to sign in
February 21st, 2006 13:56
Anon,
Go to ziprealty.com. Click “buy a home” at the top. Click “start searching for homes” on the right hand side. Click your area (Southern California) for me. Then click on “San Diego” and you will see the number.
I don’t know how you find this info when you are logged in. I just do it when I’m not logged in. You can also click the link I have in the post.
SoCalMtgGuy
February 21st, 2006 14:38
socal - what a trip. i think you’re right. the grand total number only appears if you are logged out. that’s the one i’m looking for.
February 21st, 2006 14:59
“At first, only the “smart” money — the Bernard Baruchs and the Joseph Kennedys who watched things like money supply and other government policies — saw that the party was coming to an end. Baruch actually began selling stocks and buying bonds and gold as early as 1928; Kennedy did likewise, commenting, “only a fool holds out for the top dollar.”[6]”
http://www.mackinac.org/article.aspx?ID=4024
The FED was raising interest rates to reduce the money supply in 1929. Kennedy saw the money contracting and got the hell out. The Depression happened because the FED didn’t know when to stop and drained the economy dry. That along with a rapid shift to the planned economy resulted in 10 years of hell.
So, the market bubble popped when the money dried up because interest rates were raised. Anyone seen the rates going up lately?
February 21st, 2006 16:27
Nikolai:
Rates may be going up lately, true, but that hasnt stopped the dollar printing presses either.
One major difference between now and then was in 1929 we were on the gold standard.
February 21st, 2006 18:49
Bubble Butt,
I meant that rates were going up, which has been commented on here, is putting a crimp on the housing ATM and cutting into the ability of homeowners making their “margin calls” as we might call the rate adjustments.
The reduction in the loose credit will crash some but we’ll hardly have a depression. That would take a series of amateur errors by the FED and the government. An alignment of dark stars, if you will, but with the global economy we have lots of astronomers these days, who’ll aren’t shy about calling pointing out stupidity when they see it.
My point was that Joseph Kennedy moved out of the stock market bubble in ‘29 when he saw things happening that we are seeing today. I’d say the contrary viewpoint would be that when everyone wants to be a homeowner, it might be the time to be out of the real estate market.
February 21st, 2006 21:41
took ziprealty forever today, but finally we are over the 17,000 mark.
btw, if you are signed into ziprealty, highlight the entire listing of cities in a given county and move it to the search area, you’ll get the total for the county. that’s how I can get the total for each individual counties like OC/LA/Riverside.
February 22nd, 2006 10:10
Salton Sea as the next boom area? That has to be a joke. The place is a $HITHOLE as someone pointed out. If that is the next boom town, then Needles will be right after that. Of course, that may be. All of the foreclosed FBers may be able to get a beat up old trailer and park in the desert there. Oh, we are running out of land. Just thought of that while driving for hundreds of miles of nothing between Barstow and Needles. Barstow (at least it has a small population) is only 60 miles or so from OC, and 35 or so from the IE.
February 22nd, 2006 18:37
I believe the real ’shoe shine boy incident’ happened to Bernard Baruch and he mentions it in his autobiography. Although it’s not quite a single incident as he was getting stock tips from cab drivers, doormen, barbers, and shoeshine boys, making it clear that there were not many suckers left to sustain the market. The story sounds better as a sudden epiphany rather than an accumulation of facts that finally reached a tipping point.
The description of Joe Kennedy’s investing is very kind to the sordid reality. Today we can talk about the market not being a level playing field. In the times that Kennedy made his fortune it was crooked, and Kennedy was one of the main crooks on Wallstreet. He made his money as a participant in pools and syndicates that manipulated the prices. The practices used are all illegal today.
The correct anecdote about Kennedy and the 1929 crash is that he sold out near the top–much easier to time when you are one the people concientiously pumping the market up in the first place–and when question about selling he quiped, “Only a fool holds out for top dollar.”
He was far from the careful value investor portrayed above.
March 24th, 2006 05:43
There is an ancedote in JPK Kennedy’s main biographer (Landis) of Kennedy holded up in a hotel room in NYC trying to save one of his friends losing his shirt on Yellow Cab stock. He successfully manipulated the Yellow Cab stock over a couple days with buy and sell orders and got his friend out of a bad position.
No one has been able to trace his tracks in the stock market. He is said to have kept good records, though. Of course, no SEC in existence at the time. Roosevelt appointed him SEC chairman, even though Kennedy wanted Treasury secretary, saying it “takes a thief to catch a thief”.
January 6th, 2007 00:37
Array
October 10th, 2007 01:12
Salutations I was googling and found your blog looking for hotel san diego ca downtown, I thought that this post, random thoughts, was right in line with my own thoughts on the matter.