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
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
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

U.S. Housing Market Panic of 2009, Buying Opportunity of a Lifetime?

Housing-Market / US Housing Jan 16, 2009 - 09:17 AM GMT

By: Q1_Publishing

Housing-Market

Best Financial Markets Analysis Article“Sir, there are no seats left. You're going to have to stand in the back.”

I was only 10 minutes late, but the conference hall was packed. Every seat was taken. The walls were lined with people.


At that point, I knew without a doubt, there was a lot more downside left in real estate.

Reincarnation of Tom Vu

Last week, I went to one of those “Invest in real estate: become a millionaire” type of seminars.

You know the ones. They show you all the “tricks” to making big money, the easy way.

It was like witnessing the meteoric rise (and inevitable fall) of Tom Vu all over again.

Remember him? He's the late 80's infomercial star who would teach anyone how to become a millionaire…for a price.

He came up with classic in-your-face lines like, “Do you think these girls like me? NO, they like my money” while standing on a boat surround by models. And he'd tell viewers, “Don't listen to your friends. They're losers!” (For the nostalgic among us, follow this link to a segment from one of Vu's infomercials – pay close attention to the man who just made $15,010.50 and still can't afford a decent haircut).

Vu made millions selling advice. But here's the thing, Vu couldn't have been successful without the 80's real estate boom. You see, the herd always plows into everything at or near the top. Stocks, real estate, tulips…everything – they never fail to move in at the wrong time.

So when Vu started selling a real estate course at his seminars, he couldn't help but be successful. He was great at selling advice people wanted. As we've seen time and time again, the herd wants advice on the hot sector. They want advice on what everyone has already gotten rich from. They don't want advice on what they will actually get rich from.

That's why when I saw more than a hundred novice investors vigorously taking notes and jumping at the chance to sign-up for a more advanced course, I knew there was still some downside to go. After all, I deduced their “secret” to success was leverage.

All of these “real estate is down, it's time to buy” types need to get crushed first. Not until that point will we have a true bottom in real estate.

Going the Other Way

Now is the time to go the other way. There's likely a lot more pain ahead for real estate and commercial real estate is about to get taken to the cleaners.

The Fed's Beige Book report earlier this week warned:

Commercial real estate markets deteriorated in most Districts. Contacts in the Boston District described the commercial real estate market as grim and depressing, and market conditions continued to deteriorate in Richmond. In the Minneapolis District, a contact noted that the market remained in a downturn that has now lasted more than a year. Commercial real estate transactions in the Dallas District have reportedly ground to a halt…

It goes on and on to echo the “grim and depressing” and “deteriorating” conditions across the entire country.

A recent PriceWaterhouse Coopers report, aptly titled “Forget the Quick Fix”, warns:

U.S. commercial real estate faces its worst year since the wrenching 1991–1992 industry depression. Values will drop substantially, foreclosures and delinquency rates will increase sharply, and a limping economy likely will crimp property cash flows. The aftershocks of rampant “over-the-top lending” that batter the entire credit system leave property markets substantially overleveraged and vulnerable to significant depreciation.

The market is anticipating a lot of problems ahead for commercial real estate, but there's still a lot more room for them to fall.

Bloomberg reports, “Overdue commercial real-estate loans quadrupled from two years earlier in the third quarter to 4.73 percent, according to seasonally adjusted data from the Federal Reserve. That's the highest level since 1994.”

It's just the start. Overdue commercial real estate loans will continue to rise. If overleveraged homeowners were able to leverage themselves up to the point where as much as one-third of them are now underwater – there's no reason to expect commercial real estate owners couldn't do the same.

It's all part of the vicious cycle. As unemployment rises, consumers spend less, retail sales fall some more, more shops close down and walk away from their leases, and overleveraged mall owners collect less revenue eventually defaulting on their loans and forcing the banks to take the losses. Throughout it all, unemployment rises even more from the retail stores closing up, manufacturers cutting back production because the retail outlets buy less from them, banks cut back staff, and start the cycle all over again.

It's the definition of a recession and why I've been concerned commercial real estate could spark a real panic in the financial markets (2008 was not a panic – a real panic is much, much worse – ask any Russian or resident of the Asian Tigers about what a real panic is like).

As you'll soon see, this one could be the Big One. Of course, we can get prepared now. Here's how.

The “OK To Fail” Sector

The problems in commercial real estate are well known. Most commercial real estate REITs, (the ones which own commercial real estate like malls, office buildings, and shopping centers) have already sold off quite a bit.

The big opportunity here is in the regional banks. You see, the small bankers were a lot “smarter” than most of Wall Street gives them credit for.

It was the small bankers who made a lot of the loans. They made all the loans to people they knew probably wouldn't be able to pay them. Then they sold them to institutional investors, Fannie and Freddie, and the big banks.

Meanwhile, they kept the sweetest loans for themselves. They kept the loans for apartment buildings, malls, office buildings, and other commercial real estate on their books. After all, these were loans made against properties run by businesspeople that would have the wherewithal to actually make good on the loans. In addition, commercial real estate loans would collect 9% interest while home mortgages were fetching 6%.

They were smart…for a while. Now, commercial real estate debts going bad are going to cause a lot of pain for the regional banks. For instance, smaller banks like Marshall and Ilsley (MI:NYSE) and Branch Banking & Trust (NYSE:BBT) were leveraged more than 3-to-1 against commercial real estate loans. Fifth Third Bank (FITB:NASDAQ) and Regions Financial (NYSE:RF) leveraged themselves about 2.5 to 1.

The commercial real estate loans are not going to be someone else's problem. These smaller banks are going to have to deal with the problem. And the question now remains, will Federal bailout funds go to these smaller banks which are not “too big to fail.”

If there's no help for these banks, watch out. Many of these banks will go under and we'll have a situation where it's tangible to investors. So far this problem has been one that decimated Wall Street and has hurt a lot of people, but it's just a bunch of huge numbers in headlines, and a bit of politics as usual.

It's about to get tangible. When your ATM card quits working, you can't access your cash held at your local bank, and it's going to take months for the FDIC to sort out how much it owes you before you can even get your cash, the crisis is real. We talked about bubbles the other day not getting real hot until they were tangible, well the same is true in the inverse. The opposite of a bubble is a panic.

So, to repeat our mantra for 2008:

This downturn will go down in history as the buying opportunity of a lifetime. But I'd advise against going “all in” now.

Given the state of the economy and how much has to be worked through, a buying opportunity that only comes along once in five lifetimes could be around the corner.

Stay liquid, keep plenty of cash on hand, buy only great companies which will survive through all this, and just wait out the storm. We'll be able to pick through the wreckage when the time is right which we'll discuss in our 100% Free e-Letter the Prosperity Dispatch .

Don't be like the latest class of newly minted real estate investors fueled by greed and armed with three hours of training, they're bound to get crushed.

I'm not a doom and gloomer by any stretch, but we can't avoid reality. We've got about a 1 in 5 shot of hitting a full-blown panic and we should be prepared. There's a lot of money on the sidelines, so a panic is definitely not a 100% sure thing. But if it happens, it will be a truly great buying opportunity. One, I'm not willing (or going) to miss.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2009 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Q1 Publishing 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