something to read

INVESTMENT U RESEARCH REPORT:
Forget the Housing Bubble:
3 Ways to Get the Most Out of Your
Real Estate Investment Today
by Karim Rahemtulla

Investment U Advisory Panelist, Mt. Vernon Research Investment Director
Alan Greenspan recently declared that the housing market has most likely seen its darkest days. I
did a double take. Has the maestro fallen prey to the same ill-conceived thinking that is so pervasive
on Wall Street?
Two weeks ago, a number of major investment banks upgraded home-building stocks. Last week,
some of those very same companies reported that they saw nothing less than disaster ahead. One of
the healthiest builders, DR Horton (NYSE: DHI), a very well-managed company with a pristine balance
sheet and a portfolio that encompasses all economic strata, had this to say on the situation at hand:
“The company’s cancellation rate [homes cancelled divided by gross homes sold] for the 4th
quarter of 2006 was 40%.”
Almost one out of every two potential buyers backed out. Heck, I don’t need to see DR Horton’s
numbers... I can just look down the street to see a for-sale sign on every other house.
And it’s about to get worse. Consider the following regarding today’s real estate bubble...
Mortgage Payments Are Set To Double
I have always wondered who owned the houses up for sale everywhere. No one I knew had more
than one house, unless it was their business to buy and sell homes as investments. Yet there were an
inexplicable number of homes being built, apartments being converted and real estate wealth seminars
being held. Who are these people? Could they be the Nasdaq 2000 investors resurrected? Nobody
needs to learn that lesson twice.
During the Nasdaq bubble, the regular guy got sucked into a market that was manipulated from
start to finish by low-float Nasdaq small caps. The manipulation was concocted and implemented by
irresponsible investment banks that sold their reputations for quick hits from IPOs.
For the most part, they got away with it. But Joe Sixpack got killed. And now, he’s back at it again,
sucked in by the lure of quick profits in the real estate market. And, unfortunately, he is once again
being helped along by the irresponsible comments from people like Greenspan, the commerce
secretaries, the housing lobby and high-dollar realty companies.
What did you expect them to say when rates were at 3%? Lock in a fixed rate mortgage and don’t
speculate? Instead, Greenspan said, at the time, adjustable-rate mortgages make a lot of sense.
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Here’s One of the Early Results of Today’s Real Estate Bubble
This result is largely due to massive adjustable-rate-mortgage debt that many people took on
during the real estate boom: Homeowners, especially those who have interest-only or so-called “teaserrate”
mortgages, could see their monthly payments more than double.
“Some just won’t be able to make the new monthly payments,” said Jules Cohen, a bankruptcy
lawyer and partner in Akerman Senterfitt, an Orlando law firm. “They’ll get two or three months
behind, and then you’ll see a lot of them file Chapter 13 bankruptcy in hopes they can set up a debtpayment
plan and prevent foreclosure.”
Interest rates will rise on about $300 billion in adjustable-rate mortgages this year alone, according
to First American Real Estate Solutions, a research group. That figure is projected to skyrocket to more
than $1 trillion in each of the next two years.
So while the brokers are upgrading homebuilding stocks, and trying to make it seem that the worst
is over for housing, I have some news for you: The real estate bubble is not today’s news. It is going to
be tomorrow’s…
By this time next year, home prices in places like Nevada, California, Florida and Arizona will not
be down 5%, as the experts predict, but could fall two or three times that number.
Home Sellers Refuse To Give In
Right now sellers aren’t selling. They are in denial – still waiting for Santa to deliver the asking
price on their homes, or close to it. My advice is to take the first reasonable offer your real estate agent
gets for you... and count yourself lucky.
A contractor who does some work for me is selling his house. He told me six months ago that it
was on the market. I asked him if he had any bites. He said he had one, but was offered $5,000 less
than his asking price. He said he’d wait it out.
I mentioned politely that he should call the potential buyer back and offer to sell it to him at the
lower price. He declined. The house is still on the market today, and will likely be on the market this
time next year as well. In the meantime, the owner will have spent at least $20,000 in mortgage
interest, maintenance, insurance and property taxes.
Multiply that by several thousand and you can see what the future of real estate in the U.S. looks
like a few months down the line. And for readers in Canada – take note: you are next to feel the
bubble’s impact.
Greenspan has an impeccable history of being right. But even more impressive is his ability of
being right too early. Remember “irrational exuberance”? If you had listened to him then, you would
have missed out on huge gains in the market. He was right; two years later the market did crash. What
can we learn from his latest statement on the real estate market?
Jonathan Alper, a bankruptcy lawyer in Heathrow, said a couple that recently visited his office
faced insolvency after buying two $400,000 homes as investment properties. With annual household
income of only $75,000, the couple quickly defaulted on the loans. They blamed the ill-advised venture
on tips from a “wealth-in-real-estate” seminar.
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Copyright 2006, The Oxford Club, LLC 105 W. Monument St., Baltimore, MD 21201
All rights reserved. No part of this report may be reproduced or placed on any electronic medium without written permission from the
publisher. Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed.
Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our
employees may answer your general customer service questions, they are not licensed under securities laws to address your particular
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investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing
the prospectus or financial statements of the company.
Based on the GIRLI Indicator (Greenspan Internal Real Estate Loss Indicator), we are about two
years away from seeing the bottom in the real estate market... and the bubble fully burst.
Good investing,

Много приказки за нищо (що се касае до България).
Накратко: Българския Joe Sixpack няма пари за други глезотии освен бира, камо ли да инвестира в жилища.
За американците може да е фатално 15% спадане на цените, защото са с ипотеки. За масовия българин без ипотека 15% спадане е нищо; просто изчаква да премине.

nihonjin, Здравей,

И си прав и не си !
Аз съм отявлен привърженик н атезата, че нещата на пазара на недвижимости не са в ред. Дали и доколко евентуална корекция би имала някакво значително отражение и на нашия пазар е една подтема, която е много чувствителна и избягвам д адавам мнение, пък за съвети да не говорим.

Един риторичен въпрос. Когато 2000 - 02 НАСДАК загуби примерно 3/4 от стойността си, как се отрази това на Българската Фондова Борса.
Всъщност може и да отговорим . Практически никак. Защото по това време беше пресилено въобще да се говори, че в Бг има фб.
Но нещата се менят.

Nacheff,

Нештата се менят, вярно е - нашата работа обаче е да кажем с колко и откога докога. В случая nihonjin е дефинирал "прага" за промяна - преобладаващото наличие на собственост с ипотеки. Аз лично даже бих се опитала да дам количествена мярка на този "праг" - когато притежателите с ипотеки станат над 50 % от всички притежатели, можем да очакваме, че ще се скачим с пазара в САЩ, а и в Европа.

на мен ми направи впечатление нещо, което обсъждахме преди коледа - някакво извадково проучване на Адрес - та там В МОМЕНТА по-малко от половината сделки бяха с кредит. Не ми се търси линка, може би помниш. Ако е вярно и имайки предвид откога изобщо съшествува ипотечно кредитиране у нас (старите собственици пък са без ипотеки всички на практика - старите от преди 5 години, да речем), това означава, че имаме още доста път да извървим до момента на "спукване".

Joan,
Не виждам нищо в думите ти, с което да не се съглася. Даване на количествена стойност на този "праг" е интересно, може би малко завишено, но пък - защо не ! Никога не съм се замислял.

Обръщам ти внимание, че аз в нито един момент не гледам на евентуални лоши събития на този пазар като на изолирано явление. Обратното, винаги казвам, че не искам такива развития, защото това неизбежно ще бъде свързано в някакъв размер и обхват с една обща дестабилизация. Пък и в последна сметка, толкова ли е важно за не(тесния)специалиста, кой кого ще повлече.
В момента ако трябва да съм откровен не виждам какво би довело до някаква бърза и сериозна промяна в имотите примерно (особено надолу), но далеч повече ме тревожи БФБ да не тръгне на корекция следновогодишно, както през 2005 (февруари - май надолу).

Дори и 100% от сделките да са с ипотека, колко години ще трябват за да имаме 50% ипотекирана собственост?

така е, Boby, аз затова подчертах "В МОМЕНТА". Дори и 100 % да са, пак трябва време - чисто интиутивно давам 4-5 години, но това зависи от броя покупки на жилищни имоти, т.е. с динамиката на пазара. Колкото повече покупки на година имаме (при 100 % ипотечни), толкова по-бързо ще стигнем 50 % ипотекирана собственост.

А те, според това проучване, даже не са 50 %, бяха някъде към 40 % май. Тогава ни трябва поне 2 пъти повече време при същата динамика (брой покупки на год) да стигнем "прага".

Я направо смятайте броя на ипотеките за 2005 и 2006 само. Ипотеките преди 2004 бяха при лихви доста над сегашните и цени доста под сегашните. Едва ли закупилите с ипотека преди 2-3 години ще имат някакви затруднения при изплащането им. Идеята ми е, че ако някой през 2003г. е взел ипотечен кредит, в момента плаща по-малко от тогава месечна такса (рефинансирал е) , а в същото време доходът му се е увеличил, а като вземем предвид и увеличението на цената на обезпечението...

Забравяте, че у нас може да се печели и от друго. С парите от ипотека не е задължително да се финансира покупка на имот. "Условия за успешен бизнес" биха увеличили ипотеките на изплатени жилища ( т.е. отпреди 2004).

когато притежателите с ипотеки станат над 50 % от всички притежатели.

Tova moge da se cluchi kogato:
1. Cenite padnat pone 5 pyti ot segashnite niva
2. Ostanalata polovina reshi che 3 gilishta na semejstvo ne sa dostatychno ta iska da si kupi i chetvyrto.