That there is a ton of money on the sidelines is another myth. A lot of that money has simply vanished, been destroyed, or is needed to cover the massive losses on existing investments. Remember that many of these institutions were on 30 or 40 to 1 leverage. That’s why you see all these financial institutions go out of business when things move against them. The US government just pumped $350 billion into the financial system and banks just held onto it. Why? They can’t lend because they need this money to cover the losses they are taking on existing loans in order to stay solvent.

I don’t want to be so negative, but unfortunately the facts get in the way. There is one way out of this mess that might work. Check out this link here:

http://market-ticker.denninger.net/archives/733-There-Is-Only-One-Solution-To-The-Banking-Crisis.html

We have to wipe out the existing shareholders and convert the bondholders into new equity owners. That will clean up their balance sheets so banks can start lending again. What the government is doing right now is simply pouring money into a gigantic black hole.

What most of us don’t realize is that we are only 2 steps away from a complete collapse from here. The government is going to attempt to spend a massive amount of money that it doesn’t have. Whether the final number of the Obama stimulus bill is $700 billion or a trillion doesn’t really matter.

The government will first try to borrow this amount of money by selling treasuries (via auctions). If the market doesn’t allow them to borrow at a interest rate they can afford, the central bank (Bernake and Co.) will try to print the money. Watch the value of the US Dollar to see if the FX markets allow them to get away with that. If US dollar also plummets, the game is over. The government will be in the same boat as the rest of us; no credit, no income (tax revenue), no savings to fall back on, and we have to let this recession (depression?) run its natural course.

So the first test will be after this stimulus bill passes and the government attempts to borrow the money to finance this beast. Watch what happens to the interest rates. If they stay low, we might have a shot at getting out of this. If those treasury auctions go badly, we are in deep trouble…

Nice to hear from your! Hope you’re enjoying the new work space.

Yes, I agree, there is a LOT of money on the sidelines waiting. It will be interesting to see how much of a spike we experience when all these buyers decide it’s time to buy again and come rushing back to the market all at once competing against each other and driving prices up.

Perhaps the new $15K tax credit combined with the proposed 4% interest rate will get people motivated, but I think we have to wait and see how the logistics of that will work.

Take Care,

Steve

I can’t say that I expect our government to immediately fix anything but I DO hope they’ll start leading with a bit of optimism instead of all the fear tactics that are worsening things with every speech it seems.

We sold our office house (thanks to Sylvia “just in time” for us, but it seemed that the buyer had his own long term plans and many others do as well. Many people do have money but are waiting. Heck, I’ve been shopping for a vacation home up north in MI for months, actually more like a year and a half, hoping to find the right deal and I still can’t find anything under $250,000 – most of the ones I’ve been looking at have simply been sitting there holding with the price they want. And I’m talking about quaint little homes in very small towns, not waterfront mansions.

I heard areport that U.S. businesses and investors have about $4 trillion in potential investment dollars on the sidelines just waiting for the right moves – so that is at least something to be optimistic about, right?

At some point that money will begin to move again.

It’s very easy to look a chart and pick the low point in 1932 and say we should have bought there because there was fear. But wasn’t there fear in 1930, 1931? How do you know if we are in 1930, 1931, or 1932? Have you actually looked at a chart of the Dow Jones averages from 1929 to 1940?

The peak in 1929 stock market was 375. It bottomed at 41 in July 1932. That was 90% decline!

Let’s try to understand how the math works here.

Let’s say you bought after the down dropped to 225, a 40% decline. That’s about where we are today. Sounds like a great deal right? There was gloom and doom everywhere and we were in the middle of the Great Depression. You still lost 80% of your money after the market had ALREADY fallen 40%.

Let’s say you were even more patient (like what I am advocating) and waited for the market to drop 60% from the peak and bought when the market was at 150 (in 1931). You would have still lost a stunning 72% of your money! Remember, this is even after buying when the market had ALREADY fallen a stunning 60%!

OK, let’s take it to the extreme. You waited until the market had fallen 80% from the peak. The Dow was only at 80 in March 1932 compared with a peak of 375 in August of 1929. If you bought in March of 1932. You still lost 50% of your money! Even after buying when the market had ALREADY fallen 80% from its peak 3 years earlier, you still lost over HALF of your money as the Dow drops from 80 to 40.

If you understand the credit situation, this is the kind of devastation we are facing. I’m not saying this will happen, but it is a very real possibility with the state of the world’s financial system. There is not a lot left standing between the scenario of the 30′s and what we are facing at the moment.

Maybe Warren Buffet can explain it better than me. He wrote an article for the NY Times a couple of months ago, explaining why NOW is the best time to buy American stocks, which is what he is doing with his personal money. Translate what he says about stocks in this article to real estate, and you’ll better understand why I think like I do.

Among some of the quotes I like from the article:
“Be fearful when others are greedy, and be greedy when others are fearful.”
“So if you wait for the robins, spring will be over.”

What you essentially are preaching is, wait for the robins to come out and start singing. By then, it’s game over. All the buyers start coming out and it’s off to the races again, competing against all the other people who sat on the sidelines and now finally think it’s a good time to buy.

Here is a link to the article:
http://www.nytimes.com/2008/10/17/opinion/17buffett.html

Steve

Steve,

I understand this is your opinion, but what facts are you basing your opinion on? All of the economic indicators I’m following indicate that the situation is going to get worse before it gets better. Heck, if you have been listening, even Obama has been saying it is going to get worse (and possibility a lot worse) in the coming months and we need to take drastic actions.

Do you understand that virtually ALL

Austin and Texas does have the strongest economy in the country. We are weathering this better than just about anywhere else. I’ll give you that. But that does not mean we are immune to a national or global collapse.

You said:
> You came a long way, Steve.

Not sure what your point is. You took two unrelated quotes from over 1.5 years apart. ?!

I’ve always welcomed non-Realtor viewpoints here on this blog. Especially ones that disagree with me. And don’t count that 5-year run out yet. It’s a long way to 2012 and 2008 could well just be an inhale for the market.

I’ll be posting final 2008 stats soon, hopefully tonight. Some interesting metrics to discuss.

Cheers

Steve

I 100% agree with you on “This is an EXTREMELY DANGEROUS time for anyone to be buying who doesn’t need to buy.”

It is better to play safe now than to be sorry later. We’ve entered an unchartered waters. My feeling is I have deja-vu. Nobody could’ve seen the collapse of the Soviet Union ever possible but it happend almost momentarily, bringing the tradegies to the majority of its citizens, erasing the life savings, jobs, careers, setting anarchy and havoc. I don’t want to go through this again but I’m prepairing for the worst case.

My advise is to be as flexible as possible with less liabilities (ie debt) and less ties (rent vs own)

From (back in 04/07/2007):

“No, Austin prices are not going to go down and the market is not cooling. All I’m seeing in South/SW Austin is a strong seller’s market.

We are still in the early stages of a 5+ year boom cycle. Luckily, we haven’t heated up out of control. We don’t want $500K average home prices here, but Austin has for sure been discovered and is one of the best real estate markets (for seller and builders) in the nation right now.
”

to

“Sometimes non-Realtors have as good or better insight on local economics than Realtors, and I like hearing different perspectives.
”

Peace now!

Joe: Thanks for the link, but we could trade links all day long with conflicting viewpoints. That’s why I opted to not post a bunch of links supporting my viewpoint but instead simple offered that we can all search around for economic and business reports to gain a sense of what others think will happen this coming year.

Steve

If there was no government intervention at the moment, we would be entering the next Great Depression right now. There are some that argue that we are going to go into one anyway and it can’t be stopped. They say all the government intervention that is going on right now will just prolong and deepen the mess we are in.

I don’t necessarily agree with that, but you are pinning your hopes on the government successfully being able to intervene and stop the deflationary spiral that we are in, which is not a sure thing at the moment.

Timing is everything. My parents bought a house in 1989 and for 11 years it went nowhere. If someone bought at the tops, it might take n 10 years or more just to break even. Why not just rent in that case?

Even if you believe unemployment will turnaround by mid 2009, why not wait until then and see what happens? What are we going to miss?

Unemployment is ACCELERATING right now. Why not wait until unemployment reaches 10-15% and reevaluate the situation then? At the pace we are losing jobs, it will only be a few months before unemployment reaches double digits.Those people that are going to be losing their jobs over the next few months are going to be forced to sell their homes, further lowering prices and increasing inventory…

Mostly I listen to Bloomberg Radio when out driving around (XM Radio station 129) which has a lot of interviews and information from in-the-trenches people that you don’t hear from on CNN, FOX, CNBC, etc. I read a lot of different publications also.

I started to post some links to articles, but it’s just as easy to find opposing opinion, so I’m not sure that’s useful.

I’m not an economist or an expert, but if you search around, there is a lot of information and indicators to suggest the most likely turnaround for unemployment to be mid summer 2009. Slight chance it could be sooner, and also a chance of course it could go much longer.

But Obama, the Fed, Treasury and all of Congress are working to make sure the turnaround has every chance of happening sooner rather than later. Whether it does or not remains to be seen, but I choose to believe it will.

Steve

http://www.reuters.com/article/newsOne/idUSTRE5077TM20090109

I hope things do turn by mid-summer – both in Austin and across the nation – but I am not seeing that sentiment in the majority of the news I am reading.

Can you please brief us on what you are reading that is supposed to prevent the economy from sustaining a long recession if not an outright depression?

-Joe

As far as the “timing” issue goes, I’ve said it before and will continue to say I’m not a believer in trying to time markets. My Dad bought his house in San Diego in 1964. Was that a good time? Should he have waited? I bought my first investment property in Austin in 1994. Was that a good time? Should I have waited?

We, as a nation, have become a bunch of twitchy barometer watchers. Long term buy and hold investments, whether real estate or stocks, don’t require timing. Real Estate is not day trading. If someone wants to buy a house right now, and they can afford it, and they plan to hold the property long term (at least 5 – 10 years), and they know how to negotiate the right price, within the context of current market conditions and expectations, they have no reason to be listening to naysayers and renting instead of buying.

Steve

Yes, we have a long way to fall folks.

Anyone know anything about risk v. reward as it relates to pricing? Still have a long way to fall, price wise. Do not buy / get out!

Sometimes? Sometimes? Try ALL the time. We on the housingbubbleblog have been warning of the collapse for years, with factual explanation, but the greed-fueled REALTOR(tm)s and other REIC contingency laughed us off.

I would learned a lesson and not trust any realtor. They are a dying breed, anyway.

Cheers.

My brother took a pretty serious look at those condos but the second that he saw that 2/3 of the planned units were rentals from the start, he couldn’t walk away fast enough.