Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Sell Your Real Estate Immediately! - Asset Price Deflation Crash!

Housing-Market / US Housing Feb 14, 2008 - 08:43 AM GMT

By: Steve_Moyer

Housing-Market

Best Financial Markets Analysis Article"I always felt very secure and very safe with real estate. Real estate always appreciates." ~ Ivana Trump

Before we begin our next hair-raiser, I notice a lot of people scratching their heads as global stock markets decline in the face of a "strong global economy." What you are seeing is the "pricing in" of approximately $2 trillion of lost homeowner equity in the U.S. (soon to be $3 trillion, then $4 trillion and so on). And it's only a matter of time before that equity squeeze wreaks havoc across the economic board and takes down the stock market and commodities, too. Picture a five year old trying to beat back an elephant with a Wiffle bat -- eventually that will be the metaphor for a declining global economy trying to chase from the living room the growing, immovable force that is asset deflation.


Meanwhile, sell your real estate now. Sell it now. Now. Get rid of it. All of it. Even if you can't get 2005 prices (and you won't). Get what you can now, set the money safely aside and buy the property back (or one like it) several years from now, for a lot less money.

You might make a case to retain your personal residence, particularly if you bought it prior to 2002 and/or have a very large equity (60% or more). You need to live somewhere, and that stability (and home ownership) can be worth more than money. But whatever equity you can pull out of any other property now will pay greater dividends later on, when the mother of all credit/liquidity crunches -- continuing to unfold right before our very eyes -- makes safe cash King in a way few of us can fathom right now.

At this point, the cancer -- now exacerbated by a pronounced, continuing, anticipatory drop in retail, office and apartment REIT values and a developing storm in securitized commercial mortgage markets -- is spreading unfettered and ALL U.S. property values are poised to take an increasingly substantial dive in the next 24 months, followed by an even greater one the next several years after that. Japan-style real estate deflation -- only worse -- has arrived; it is no longer a matter of speculation.

I now expect every property category to become significantly affected -- houses, condos, fourplexes, apartment buildings and complexes, shopping centers, office buildings, industrial complexes, lots, land -- you name it. The evidence (and a growing and overwhelmingly negative real estate buying psychology) has me convinced that no property type will be spared.

Thus, the time has come to sound an even more definitive and clarion call: Sell your real estate now!

Given my grave doubts that a combined Fannie Mae, Freddie Mac crisis plus credit-derivatives-nightmare can be averted as asset deflation intensifies, I now expect a frightening systemic event in the U.S. at some point, possibly within the next few years, which will take property values out at the knees and cause transactions to come to an utter standstill for a time. At that point I expect loans to become almost impossible to get and buying psychology to be so damaged, a generation of people will tell you "you should never buy real estate." Regardless, the economy will be shaken by these unfolding events to the extent that the mere thought of buying real estate (absent a massive cash discount) will be considered by most a preposterous notion.

The farther you look out onto the decade-long horizon, the lower I expect prices to be. The good news is, if you like real estate (and, as a 26 year veteran of the investment RE business, I certainly do), you will be able to buy it back later on for a lot less money -- IF you take particularly good care of your cash in the meantime.

Foreclosure flyers and " Price Reduction !" announcements fill my email box and "foreclosure seminar" ads dominate the morning paper. TV news accounts highlight "savvy buyers" who have worked with cooperative lenders and purchased "bargain" real estate. Surely, with the daily dose of bad news, this is the time to bottom-fish, isn't it?

The answer is no; you're much too early and you'll probably end up losing your money. It's like buying a sofa at a 15% or 20% off sale, then finding out later on that the price ended up being slashed by 40% or 60% or more. Today's "great deal" will be tomorrow's loser, as real estate deflation continues to take greater hold and we find ourselves in The Incredible Shrinking Equity economy. That "$605,000 house" you can buy for $470,000 today will be worth $370,000 in a couple of years, then $270,000, then $170,000, then possibly less than that when it becomes cash-on-the-barrel-head time at some point down the road.

Yes, we've been suggesting you sell your property since 2005 and many of our intelligent readers got out at the right time (and benefited), but I'm still hearing investment real estate sellers say things like, "You don't want to sell in this market" or "People are always going to need a place to live" or "I'll just pull it off the market and wait for prices to go back up" or "I'll sell it in a few years when the market improves." Boy, are these folks going to learn the hard lessons of post-bubble/bubble real estate deflation, especially when the U.S. economy continues to fall of the weight of falling asset values, no savings and hamstringing debt. Wait until accelerating job and stock market losses add further to the malaise and all appetite to borrow disappears.

Remember, none of those optimists have ever experienced a post-investment mania deflationary meltdown, where gun-shy lenders and cash-strapped and no-mood-to-borrow consumers/homeowners/investors unwittingly contract the money supply and lay waste to asset classes one by one. None of them have ever witnessed a central banking system running out of answers and ammunition; at this point a virtual certainty even as the Fed drops interest rates like a bad habit.

Luckily, you can still sell property, albeit for less money, to 1) dunderheads, 2) folks who have pawned off other property and foolishly want to exchange into another to "avoid paying tax," 3) folks who don't recognize that we are post-bubble and therefore think this is a short-term phenomenon or "typical real estate cycle," or 4) folks who think this is a good time to buy and hold to the notion that "real estate values will always go up in the long run." Hey, god bless 'em; that's what makes horse races.

You will probably be a bit disappointed with what price the market will bear for your property right now, but that's nothing compared to losing 70% or more of value when the shinola is all the way done hitting the deflationary real estate fan. When property values tanked during the Great Depression, it took them more than 20 years to get back to "par"; do you really want to run the risk of waiting an entire generation for the real estate market to return to 2005-2006 values? Don't.

The answer to the question I get the most on these pages is that it won't be "time to buy" until the vast majority of Americans concludes that buying real estate is both "too risky" and "a bad investment." At that point, smart (and wealthy) people like you will find themselves able to buy desirable properties for nickels and dimes on the dollar.

This is not to say cash buyers won't be able to pick some lovely cherries well before we hit "bottom." I expect they will find select opportunities, and on an ever-more-frequent basis. But there's no reason to do so until we've reached at the very least what Robert Prechter, Jr. describes as the "point of recognition," and people lose all faith that values will recover. Once we reach the point where buying psychology is damaged to that degree, credit is relatively unavailable and liquidity has vanished, that safe 2005-2008 cash will quickly make you "real estate rich."

Our call has been for falling real estate prices, damaged buying psychology, lack of savings and tightening lending standards. Check, check, check and check. Now the banks are yanking the rug out from under economy-crucial home equity lines of credit, while credit card and auto loan defaults are beginning to soar. Subprime and Alt. A problems are quickly becoming prime problems, and a commercial real estate slump is the next developing story. Our societal craving to "borrow to buy things" has run its course and lenders aren't so hot on the idea anymore, either. More importantly, we're not in a mood to borrow to buy real estate, as prices drop and lenders have the audacity to require larger down payments. Welcome to the slippery-slope world of post-bubble-bubble credit contractions, my fellow asset preservationists.

P.T. Barnum was known to say, "There's one born every minute." Sell your property now, to that guy, while he still has some ability to borrow and money to lose. Remember, all's fair in love and real estate.

 

NOTE: We'd like to hear about your recent real estate stories, experiences and anecdotes -- good or bad. We may feature some of them in upcoming columns. Feel free to send them to me at StephenLMoyer@aol.com or log on to our website ( www.ponderthis.net ) and post your comments for further discussion. Thanks.

By Steve Moyer
StephenLMoyer@aol.com
PonderThis.net

Copyright © 2005-2008 Steve Moyer
He has been an investment real estate broker since 1982. He is a columnist and the assistant editor of the monthly newsletter, Ponder This .... www.ponderthis.net .

Steve Moyer Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules