Thursday, September 06, 2018

It's starting to feel like you can't move a mansion.

I'm think we are much closer to this bubble popping than most people realize. I haven't been this obsessed with real estate in a while. Conditions are changing kinda fast.

I only have one gated community in my city, and it straddles the city next to me. I'm not sure if some houses are in one city and others behind the gates are in the other. At any rate - it's probably our
most expensive real estate. Houses are in the 6000sq+ range.

That development has 9 properties for sale right now. NINE. Multi Million dollar properties.

I think I have to center myself. One property in that development would be hard to move. And usually I think those properties are often pocket listings. So - it's so unusual to have so many up at one time. There might be a 100 houses tops in that development tops

I'm scared. Flat out.

More inland they are starting to offer incentives for new developments.

I think people got the best gift ever with low interest rates - but if there is one constant with people - the never realize when they get a gift, and always overextend themselves.


  1. "I'm scared. Flat out."

    You should be scared, but into action instead of just being scared.

    Let's push this along, shall we? :-)

    Who exactly is going to buy your house in ten years?

    How about fifteen years? How about in just five years?

    Ignore the current market conditions for now and look at demographics.

    Who else will be wanting to sell their houses at those times?

    A residential real estate market correction is long overdue in the US as well as in Western Europe, and it has nothing to do with the crap that happened back in 2008.

    There will be markets that will be completely unaffected by this shift, such as Japan's market where houses in Japan already depreciate to being worthless within 22 years on average.

    Residential real estate is America's dumbest investment asset class.

    It's the dumbest because of all of those people who want to stay in their houses past the point where it would have been a great idea to sell and to move down in terms of needs. Instead, these "Watanabe investors" try tricks such as the infamous "Reverse Polish Blanket Mortgage" where they try to extract as much of their equity from the house they're living in through financial chicanery.

    That easy money will be drying up in the next few years.

    Also keep in mind that some of the residential real estate development has been pushed through with money that's seeking legitimacy, and that this has been a form of money laundering.

    But what happens when residential real estate stops being an asset class, stops being a notional form of a security, and starts acting like a debenture?

    Most of what sells houses to people is the reputation of houses gaining in value or holding their value ... but what about when that stops?

    I knew of an izakaya (居酒屋) in the US that suddenly closed down after having brisk business for years. The owner was Japanese and couldn't secure financing to fix what was wrong with it because the building was so old, but of course that's because the Japanese owner sought financing from Japanese banks who wouldn't lend to him because of the building's age.

    Instead the building sat there for years until the land under it exploded in value, and then the building was demolished.

    Which was a shame ... I really liked that place.

    But imagine the situation where banks won't lend to you for "home improvements" and other "investments" in a house, and that's where it's eventually going.

    If you're actually not mortgaged and you intend to stay there for the next twenty years, I suggest getting as many home improvements done as you can afford so it's in absolutely perfect condition ... and then accept that in twenty years, it might actually be worthless anyway, but that you've lived in a perfect house for twenty years.

    But I wouldn't take that gamble, and I think economic conditions are going to force you to move.

    As for the "rent trap", it's not a trap if you can afford it.

    Aside from one neighbor with a shitty dog, a dog whose owners have reportedly been ordered to get him neutered or else, it's actually pretty sweet here.

    My rent is a fraction of what I'd have to pay for a house in a gated development, and I'd still be paying rent in the form of HOA fees.

    I'm not trapped by anything because if I have to move, there's a pre-negotiated contract breach fee, and so as long as I pay it, I can move on a moment's notice without having to tell the people at the next place that I broke a lease.

    I can literally give nearly zero notice as long as I pay the contract breach fee, so if I decide I want to move elsewhere in Florida again, that's doable very quickly.

    So this "rent trap" you've been talking about?

    I haven't experienced anything like that at all.

  2. Yeah. I'm not biting on that. You deserve what you get if you take money out of your house to make improvements. Not everyone sees that as a "thing".

    Residential real estate is America's dumbest investment asset class.

    During the recession when everyone was plowing into GOLD - there would be these commercials that said - if I gave you a thousand dollars in cash, or a thousand dollars in GOLD which would you chose? I always chose real estate. And I lived through a time when you couldn't give a house away. Seriously. Just put the charts over each other.

    Right this moment when I think the world is going to unravel - I would still chose real estate. But if you over extend yourself, real estate will take you out every time. That is the other constant in Silicon Valley. I've seen it happen a million times.

  3. If you happen to watch a TV channel that has those BUY GOLD NOW!!! commercials, especially those with that slug Duvane all dressed up as a veteran....

    Notice that they talk about how gold always went up from 2005 to 2012 and how you can't lose. Wonder why they use that range? Gold was $500/ounce in 2005, $1600/ounce in 2012, and is now $1200/ounce in 2018.

    Yeah, you can't lose if you sold it 6 years ago.

  4. Gold?

    Early 2003 to early 2008.

    In at a time when I lost money the next day, although it was still within the trading range, so I decided to let it ride for a long while.

    Out before everything went super crazy by about a few weeks.

    That's why you don't hear me talking like a "gold bug" around here -- most of that was not a really fun ride, because there were a lot less stressful ways to bulk up your money than that how that turned out.

    Also, houses are still a dumber asset class than that because of all of the low information "Watanabe investors" whose "portfolios" largely consist of what they have in their houses ...

    I'd still choose real estate as well ... just not in the US.

    Notice how carefully I've been dancing around that point up to now? :-)

    I rent in the US ... and I'm happy to continue to rent in the US.

  5. a landlord too we appreciate your patronage. ;)


  6. Land. Straight up good land. Fuck the houses.