8 comments to “Oh How I Love The Smell Of Being Right In The Morning”

Robert Coté on April 2nd, 2008 at 8:04 am said:

• On or before July 4th, real estate loan underwriters and their bosses will have rolled the clock back to basic sanity. … Lenders will wake up, realize it says L-E-N-D-E-R on their foreheads.

  While I agree with the sentiment I disagree with the timing and causation. I figure it will take about 6 months to shake out the remaining lenders who can’t actually lend leaving standing only those who are lending. In stocks it is called survivor’s bias. I don’t think it is any secret that middle-lenders are being squeezed from the big aggregators. This means smaller commissions in a field of much less competition. They’ll make it up in volume or they’ll be subsumed as gateways to the larger lenders.

  At some point the price loses its preeminence. When an investment deal makes sense -now- then the price only becomes on factor of many. Those are the deals that will be made. My only disagreement is that I believe prices and demand can still continue to deteriorate long after that possibly imperiling pricing (rent) power for investors.

BawldGuy on April 2nd, 2008 at 9:37 am said:

• Robert — I think the timing and causation will be a stand alone issue, for the most part, rather than than the herd mentality. We don’t seem to differ much on the timeline — 90 days apart.

  I agree with you on prices. That said, experienced investors understand they’ll never be able to call the exact bottom, so will be fine with a little front end dip if it happens. They know, again through experience, that buying ‘around’ the bottom is what’s important in their big picture.

  And the big picture is looking better these days. Much better.

Robert Coté on April 2nd, 2008 at 10:05 am said:

• After 3+ years of next to nothing making sense anything looks like a feast. If a deal makes sense then doing it early means making money for the 6 or 12 months that the bottom callers are waiting on the sidelines. Personally I’m not so arrogant as to believe I can call the bottom that close. As to the big picture, I need to see the summer before making a call either way. I let you pros go out on that limb. A long period of bouncing along the bottom is possible but so is another stair step down. 2 years ago Bloodhound Greg proved that Phoenix prices couldn’t go down and now he is cautiously claiming it can’t go down much more. If I told you in Dec 2006 that Countrywide was “dead man walking” you’d have wasted no time dismissing me as tinfoil wearing, toad licking crazy. If I told you Dec 2007 that we’d see a huge vertical drops in prices Q1 ‘08 you’d be correct to reply that that had never happened before. We are somewhere (begin/mid/end?) of events that have no historical parallel. Even the expert predictions are but guesses. None of which means there won’t be some smart deals for the prepared.

BawldGuy on April 2nd, 2008 at 10:34 am said:

• Robert — You gotta promise to keep comin’ by.

  Anyone who thinks they an call the exact bottom has careened way past arrogant. My experience tells me my experience has been different in each of these down cycles. Sure, there are common threads, but each one has had major factors not present in the others.

  I wasn’t shocked by Countrywide’s experience, but surely didn’t predict it, or even expected it.

  Anyone who has seen as many brutal corrections as I have, isn’t surprised by much. What would I be surprised by now?

  That’s easy — not much. Still, it’s my take that both the national economy and real estate specifically are beginning to see a far away light. It’s my firm belief it’s not a train coming our way.

  There are simply too many of the smart — AND — mega-capitalized investors — converting to buyers, and in a huge way. Unless all these folks are in the same room fertilizing each other, I’m glad to have been on record saying the same things they are.

Brecht on April 2nd, 2008 at 6:14 pm said:

• Your blog has become a staple. Feeds come and go from my google home page but the bawld guy keeps on talkin.
  Certain parts of the country will not see the bottom for some time. Until the average home in the average town can be bought on a 30 year fixed note by the average 2 income family we aren’t there yet.
  Just one opinion.

BawldGuy on April 2nd, 2008 at 6:58 pm said:

• Brecht — Your point is well made. The other central factor is the local economy, especially as it relates to jobs, and job creation.

  It turns into somewhat of a Catch-22. Folks can’t afford the homes because the payment would be too high. Prices fall, or at least don’t rise.

  The question is, why don’t more people make enough money in any given region to afford the median priced home?

  San Diego is a solid example of that. Our median hovers around $480K give or take. less than one of 7-8 residents can afford to buy at today’s prices. Does that mean prices will continue to fall until they can?

  Nope. If that was the case, San Francisco would have crashed decades ago, yet they haven’t.

  Take Phoenix as the other side of your coin. They’re the number one county in the nation for job creation. Even while feeling more pain than nearly everyone during this correction, their population and jobs just keep going up, up, up.

  That will result, in my opinion, in a V type correction relative to the rest of the country. Pent up demand does wonders.

  Still, when a two income family can’t buy a home, we all shake our heads in wonderment.

Real Estate Invester on July 5th, 2008 at 4:57 pm said:

• Great point about connection of home affordability and demand not always equaling price reduction. In a market like todays, its easy for people to latch onto few dramatic statistics and miss the whole picture. Nice work.

Jeff Brown on July 5th, 2008 at 7:24 pm said:

• Thanks for visiting REI.

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