Wall Street, long known as the street of hype, is once again hyping housing. Not only is it pushing the shares of termite-infested, housing-related companies, but some financial pros have gone one step further. They're saying -- with no ifs, ands or buts -- that it's a great time to buy a house and they're all basically pitching the same rosy message: The very worst is over for housing, which should enjoy a solid rebound in the second half.
Sounds good, but you'll never convince Marty Rieser, who is no housing expert, but a veterinarian on the outskirts of Newport, R.I. Based on his experiences, he's convinced that if you follow Mr. Blandings and try to buy your dream house today, you stand a good chance instead of winding up with a nightmare.
What's more, he believes, buying a house now would be a dumb thing to do because prices continue to head south, the number of unused homes continues to swell, the economy continues to contract and the stock market is still slaughtering many investors on a daily basis.
"Unless it's one of those wild deals that you see on TV where you can steal, say, a $275,000 foreclosed home for $375, I think anything you buy now is bound to go down in price ," he says. "That has been the case with my family and friends, many of whose homes have dropped in value to unbelievable levels. So anyone who says this is a good time to buy a house is spending too much time in Disney World."
Rieser claims he can attest to that assertion first hand. For example, about 15 months ago, he bought what he thought was the buy of the century -- a four-bedroom house, originally priced at $1,325,00, for $630,000. "I thought I might get arrested for stealing," he says. He was wrong. As it turned out, He and a cousin, also a veterinarian in Manhattan, decided about six months ago to join forces and start their own business in Los Angeles. To do that, both had to sell their present homes in order to buy new ones.
That effort has been an exercise in futility. About five months ago, Rieser put his home on the market for $730,000. No luck. Now, three reductions later and a current asking price of $535,000, still no luck. In fact, he has had only two lookers, one of whom made a low-bid $250,000 offer. His cousin is also faring badly. He has been trying to sell his Manhattan three-bedroom east side condo for $1.6 million, which, because of the lack of any buying interest, he was forced to reduce from his asking price of $1.85 million, which was also his original cost. So as of now, a new West Coast veterinarian business has been put on hold.
Speaking of the West Coast, Los Angeles money manager Arnold Silver of A. Silver Associates echoes Rieser's negative assessment of housing. He's in sharp disagreement with Wall Street's prevalent view that the real estate mess is over, "Wall Street is blind-sighted," he says. "For sale signs are everywhere, listings are up and that's also the case, I know, in Florida, the Hamptons and I'm sure in lots of other places around the country, as well. It means, he tells me, prices are going down even more. In addition, he points out, nationally you have inventories on the upswing and prices are still falling, not just by pennies.
Taking note, as well, of high unemployment (with 14.5 million people out of work), the growing number of abandoned homes and strenuous consumer efforts to cut down their debt, how, Silver asks, can anyone conceivably believe the housing crisis has come and gone? "The undisputed answer," he says, "is they really can't."
Former Merrill Lynch strategist Bill Rhodes shares the thinking of most Wall Street economists who believe that the worst of the housing horror story has passed and that the speed of the decline is beginning to slow. Nonetheless, he cautions that fundamentals show housing is far from out of the woods. Zeroing in some of those key fundamentals, Rhodes, head of Boston-based Rhodes Analytics, an adviser to institutional investors, notes the following housing negatives:
One money manager has told some of his Wall Street buddies that an official at Centex Corp., a leading homebuilder, told him he didn't think home prices would stabilize until 2011.
If housing is indeed going to rebound, it will require some additional zip, which many economists believe is on the way. They may be right, but liquidity tracker Charles Biderman, CEO of West Coast-based TrimTabs Research, partly owned by Goldman Sachs, offers up some economic thoughts that hardly augur well for housing.
Forecasts of an economic recovery this fall are a fantasy, he believes, noting that his latest data shows incomes are dropping at an alarming rate. The economy, he points out, faces major headwinds from rising foreclosures, deteriorating credit conditions and rising long term interest rates. While most employment indicators have improved, they are merely pointing, Biderman says, to a slowdown in the rate of economic contraction, not a return to economic growth.
The only people who should be buying homes now are those who have no intention of moving for at least 10-15 years, and even they should wait if they have any sense because current policies will not only return housing prices to their historical norm - 15-20% lower than today's - but will very likely (almost certainly, actually) cause them to"overshoot" as unemployment exceeds 10%, credit delinquencies (of every kind) break records and the commercial real estate market literally implodes (which of course will absolutely destroy what's left of our smoke-and-mirrors banking system). This is going to be an extremely rough ride, and it's not time to "invest" in a home.
Hopefully folks will listen to you and be saved from their inevitable grief, Dan. Keep it up.
I have watched the "McMansion-villes" rising in every available pasture, and now I see solitary spec-homes and fancy entrance-gates built in what are once again forlorn pastures. I wonder now, as I wonder then, "where did they get their customers?"
And I am frankly suspicious that their true "customers" were actually ... fraudulent banksters. Uh huh, yet another scam. It works like this:
"GO AHEAD! Let the construction guy get a billion-dollar mortgage to buy land and build fifty houses on it. GO AHEAD! So WHAT if they're not sold?! You have just created an "asset" worth $1 BILLION, because that's what all those houses will be worth WHEN they are sold. Since they are at the moment a somewhat illiquid asset, we'll strike-down the DERIVATIVE SECURITY to 50% ($500 million) and then just for good measure we'll sell twenty copies of that. No one will know or care, because we "pwn" the SEC and everybody else.
That's how an empty cornfield becomes ... lemme do the math ... $2 billion in marketable securities. A portion of which our securities-arm will use to pay the mortgage issued by our banking-arm. Presto: one empty corn field, $1.5 billion net profit. Slick, huh?
Years ago when Louis Rukeyser took a week or two off on vacation the Market would drop. It would rise on his reappearance. Just coincidence? When he died in 2006 I knew it was all over for the Market. I liquidated my real estate that year and put most new investment monies away as cash. I had previously increased my gold and silver positions and continued doing so. I went 80% into cash in early 2008. My recent bottom fishing has been defensive. The rotund woman has yet to grace us with an aria and I doubt that she’s even left the dressing room.
:-)