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Tuesday, August 23, 2011
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20 comments:
http://franklymls.com/dynamicHtmlGen.aspx?Id=DC7667206
flopper 1.1 M to 445K
http://franklymls.com/DC7642859
assessed 700K, list 499K
pat,
Did you get that place?
All-
Talking off housing shortages caused by the great depression, it is really amazing seeing how little the inventory is of new houses new homes inventory Sales volume of new homes is so low that the months of inventory is still fairly elevated, but it is good to see how few houses are being made, because this really is the best way to deal with the glut of houses.
Contrarian-
It looks like the Fed's problem bank list wasn't as bad as you expected. The list shrunk for the first time in years and the number of bank closures was also the lowest in a couple of years problem banks There is obviously a lot of stress in the banking system, but it isn't nearly as bad as some of the media makes it out to be.
Forget housing! Who felt that earthquake????
First, I hope that everyone escaped injury in the earthquake.
Second, I’m not sure if this has already been posted, but this WSJ article contains an interactive feature that compares incomes to house prices on a historical vs. current basis. The chart for Washington shows that home prices are currently overvalued by 26% on a historical basis.
The article notes, however, that “areas where price-to-income levels show that housing is still overvalued, *such as Washington, D.C.,* may not see prices fall further due to structural changes in the economy.” It’s difficult to critique the author’s assertion that “structural changes” in DC’s economy will support DC’s new, higher ratios because no description or explanation of these changes is provided.
I would argue that whatever structural changes that once supported DC’s higher “income to home price” ratio, if any, will either: (a) no longer exist; or (b) be overcome by subsequent structural changes in DC’s economy, i.e., government austerity. Defense spending, heavily concentrated in DC, rose to unprecedented levels after 911. Now, it seems clear that defense spending will be cut dramatically and that the DC area will feel the accompanying pain.
Also, Government workers’ salaries are currently frozen and there is a real possibility for future freezes and cuts, YES CUTS. Agencies’ budgets also face cuts (read an article today that Obama has asked federal agencies to submit next year’s budgets with a 5% reduction built-in). This will affect not only those agency employees but also contractors and vendors.
In sum, all the “structural changes” I see lead me to believe that DC home prices still have some “fluff” built-in. The fluff may be eradicated by actual price deflation (quickly) or through time via inflation (not-so-quickly). Either way, I see absolutely no hurry to jump into DC’s real estate market.
http://online.wsj.com/article/SB10001424053111904253204576512532609819142.html?mod=WSJ_RealEstate_LeftTopNews#articleTabs%3Dinteractive
Mike, these are the most logical comments I have seen so far on this blog. If we consider real estate (housing) as another asset class and apply valuation principles, this market (nova/dc) is over-prized.
In dot com boom also people used to say that Internet companies are "structurally" different, and we all know what happened.
I've done my part to help the housing industry.
We closed in the last 30 days on the home we were renting.
It was a very good deal considering all factors.
:)
Now its up to you slackers to sign on the bottom line so I don't lose the equity I have.
:LOL:
cheryl
No.
I was unable to pull up the WSJ article. It would be interesting to see when the divergence in income/price began. Post or pre 911?
The outsized increase in Arl. salaries has been discussed here at length. I don't completely discount the impact of the decrease in defense and other gov't spending; in fact it has already hurt certain sectors of the local economy.
A period of stagnant pricing is fine with me.
"Structural changes" may include all of the tech, bio-tech and other business growth we have seen outside of defense.
I would also like to see other regions of the county that have experienced housing outpacing income. We can't be the only place.
People being unable or afraid to buy over the next decade will actually help my situation.
Hey Contrarian,
Buffett just invested $5 Billion into Bank of America.
Thought you should know.
My $0.02.
Of course he did. And it's all over the news. That was a good move, esp since people will think, hey he did it, I'll put a little in. That will raise the price a little bit and then guess what? He's easily make double that investment just because he invested such a huge amount to begin with; very smart on his part.
contrarian said..."Buffett only invests money when there is an opportunity for him (Berkshire) to benefit."
Well, duh. I guess Buffett decided that high yielding preferred stock is better than t-bills earning .1%. Also, considering that he now has warrants to buy 700 million common shares at $7.14/share he doesn't share your view BAC is going to zero.
Texas Native, congratulations.
Everyone, stay safe this weekend and I hope no one experiences property damage or utility outages.
David
as a preferred shareholder he may well own BofA after it declares bankruptcy.
Word is he bought Preferreds with a 7% coupon. what's BofA doing that is generating 7%?
Most likely he views it almost as areal estate play.
Buffett has gone on record saying that he thinks the unemployment rate will go well below 8% by the next election year...
"Buffett conceded that his bullish bet is based on his belief that home construction will recover, and the construction industry will start hiring more."
http://blogs.wsj.com/deals/2011/07/07/warren-buffetts-wager-on-unemployment/
Bank of America's survival depends largely on the rebound in housing, so Buffett is putting his money where his mouth is. 50 year lows in mortgage rates will help drive the recovery.
Pat-
As a preferred shareholder Buffet would get nothing in bankruptcy. All depositors and senior and subordinate debt holders would get the assets before he got anything. If the senior bondholders could be paid in full than Bank of America would do this and it would not be in bankruptcy. Second the coupon is 6% not 7%. Third there are tons of things that BofA does that generate more than 6 or 7% like installment loans, credit card loans, small business loan... Fourth BofA is a play on the entire US economy not just real estate. BofA's real estate issues are related to lawsuits not on how real estate performs going forward.
David-
Bank of America's survival has very little to do with real estate. The bank is wildly profitable, well capitalize, and quickly reducing its leverage.
The risks to the bank are either it losses additional enormous lawsuits or the economy tanks worse than in 2008. It is unlikely to lose new huge lawsuits because most major investors have already settled. I think it is also unlikely we will have another recession soon worse than the previous one because banks are much better capitalized and home prices are much closer to long term average levels.
"housebuyer said...
Pat-
As a preferred shareholder Buffet would get nothing in bankruptcy"
Yep - all that "preferred" stock means is that their holders get priority of payment over common stock holders. The reality is in nearly all bankruptcy cases, the equity holders (either common or preferred) get back $0 to, at best, pennies on the dollar.
HB - thanks for being the voice of reason & providing the appropriate smackdown to our resident bears who somehow want to quare their theories that "BOA's days are numbered" along with the idea that "Buffet was smart to invest in BOA".
The reality is either (a) BOA's days or numbered and Buffet is a complete moron, or (b) BOA's is nowhere near bankruptcy and Buffet made a decent investment. To assume that its some combination of these two positions is the sort of glug, glug, glug, foolish thinking that poisoned this blog for years.
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