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Pimco Vs Shilling: The Housing Bull Vs Bear Debate

Tyler Durden's picture




 

In what was one of the most entertaining and informative live debates on Bloomberg TV since Paul vs Paul, yesterday the news station hosted Pimco's Mark Kiesel in his role as house bull (who supposedly sold his home in 2006 which according to some media makes him a swing-trade expert and top, and thus, bottom-caller) against perpetual skeptic Gary Shilling, who obviously does not share the optimism of PIMCO. His biggest concern? The same as Zero Hedge's - record combined (traditional and shadow) inventory: "We estimate that there are 2 million inventories, both visible and shadow inventories over and above normal working levels. That is a lot. Back in normal times, we built about a million and a half houses a year, so two and a half million is a tremendous overhang. Excess inventories are the mortal enemy of prices." His conclusion - housing has at least another 20% lower to go.

Who is right? We leave it up to readers.

Some highlights:

Kiesel on purchasing a home in California and whether he’s having buyer’s remorse:

“No.  I will say it is a little chaotic because there are a lot of boxes around. I think after renting for six years, my view is that housing prices have fallen about 35% and the inventories are coming down and banks are starting to lend again gradually. U.S. housing looks very cheap relative to international housing.  I feel good about putting some money into housing right now.”

Shilling on why housing prices will decline 20% this year:

“Because of excess inventories. We estimate that there are 2 million inventories, both visible and shadow inventories over and above normal working levels. That is a lot. Back in normal times, we built about a million and a half houses a year, so two and a half million is a tremendous overhang. Excess inventories are the mortal enemy of prices. What may happen here is that now that the robo signing flap is settled and the big banks settled for $25 billion with the various state attorneys general and the federal government, they have been holding off on foreclosures because they had enough bad PR. Now they have settled that, I think they will go back to foreclosures. The National Association of Realtors says that when foreclosed houses are sold, they sell at a discount of 19% to existing houses and that drags everything down when you get a big dumping of these houses on the market. I'm looking for another 20% decline and that is what it would take to bring them back to the long-term averages. They go back to 1890 in terms of median single-family house prices.”

Kiesel on how he factor in those inventory levels:

“Currently, we have 2.5 million homes in existing inventories which is down in the last seven years from 4 million. There is only 144,000 new home sales for sale. That’s at a 49-year low. The existing inventory is at a seven-year low. If you look at the shadow inventory, there were 3.6 million homes that were 90+ days delinquent two years ago. Today, there is only 2.9. All inventories you look at, whether new existing or shadow, they are coming down.”

Shilling’s response:

“They are coming down, but they are still huge…Yeah, they are down, but when you count in the shadow, and particularly this category that the Census Bureau has, which are houses held off the market for other reasons, very descriptive. This includes foreclosed houses that are vacant, but not yet sold. It includes houses that people have listed, but they couldn’t stomach the bids they got so pulled them off the market. You count all of that in and you are still over a working inventory of about 2.5 million.  You are still 2 million above that when you count everything in.”

Kiesel on what number he’s tracking: 

“What I was quoting was the 90+ day delinquencies. If you add that with the foreclosures, you do get to the 3.9 level. The thing about housing is that it’s very much a regional market. The homes that your viewers and people actually would want to buy, you need to look at the existing inventory that is quality. Go out and look for a house now. There is less quality inventory on the market today than a year ago. That shadow inventory will get absorbed quicker than you think because the implied rental yields is roughly 5%-12% in a lot of markets, so investors will line up. Gary, I respect your work and I read your books and if housing goes down 20%, I will back up the truck and likely PIMCO will, too.”

Shilling’s response:

“That's right. At that point the percentage underwater of mortgages would go from now 23% to our estimate is 40%. The equity of people who have mortgages which has come from almost 50% in the early eighties to 17% would go down to about 7%. Virtually nobody with a mortgage would have any equity. What that would do to consumer spending to say nothing to mortgages and mortgage-backed securities derivatives, that is pretty heavy duty stuff. That is recessionary kinds of things. We think that will happen over the next three-four years, one way or the other.”

Kiesel on whether employment levels are at a stage at which consumers are feeling confident enough to make an investment in buying a home:

“If you look at it, we have added 2 million jobs in the private sector over the last year. Confidence is picking up. The U.S. economy is doing well in numerous states and sectors like energy pipelines, technology, autos, manufacturing. There are many areas in the country where there is a housing shortage. The shadow inventory and the amount of homes underwater, there are 11 million homes but it is concentrated really in three states:  Arizona, 61%, Florida, 45%. Yes, there are some weak areas, but the fact is that in certain areas, housing is picking up and prices are going up and so again, it’s very regional.”

Shilling’s response:

“You and I can remember almost a decade ago as this problem was developing and we were on top of it and you were too, that people initially said, the problem was only in subprime mortgages and those are loans that luckily people will never have to meet. Then, they said it is only in Arizona and Florida and Phoenix. Then as it expanded, they said it is bicoastal, don’t worry. Everyone else is safe. Tip O’Neill said that all politics is local and you can say the same thing about real estate. Somehow, the composite, the national numbers are made up of those local pieces. There are a lot of shortages here or the other place. That I think is begging the question, overall, there is still a tremendous excess inventory.”

Kiesel on whether he’ll lower his assumptions about the economy:

“We are looking at basically 1-1.5% real GDP, but you don't necessarily need superfast GDP to get housing to recover.  Housing again is down 35%. The inventories are coming down. We are gradually employing more people. Housing relative to other asset classes—equities, bonds—looks attractive.”

Shilling on the New York-area housing market and whether Wall Street money not being what it used to be has affected real estate:

“I think it very much does. If you look at what is happening to the stock markets and related securities in the last month--if this continues, I think we will see a lot of softness in Manhattan and in the Hamptons and other places influenced by that. If you read off the employment verses GDP curve, if you're looking at even 2% real GDP growth, that says that the unemployment rate would chronically rise about 1% point a year.”

Kiesel on the West Coast housing market:

“Housing is very much based on jobs, based on consumer confidence. We were in the subprime capital of the world in parts of Orange County and we can show you houses that are down 50-60%. In my neighborhood, housing prices fell 20-30% from the peak. The economy is not a recession, we are growing, and banks are flush with cash willing to lend gradually and the Fed is set to reflate. The key here is that you want to own a hard asset in a world of very low to negative real interest rates where the Fed is going to print money.  You have to own something tangible.”

Kiesel on the opportunity cost of buying a home:

“I think stocks are looking at basically nominal GDP, which is 4% plus dividends of maybe 2, so you are looking at 6. There are rental yields in housing out there above that. Plus, you get the benefit of actually living in the house. From my perspective, I still think that housing beats a lot of asset classes.”

Kiesel on whether PIMCO is looking at housing as an alternative to bonds:

“We own non agency mortgages and those securities benefit from a housing recovery. If Gary is right and we do see housing prices go down 20%, the U.S. will be one of the cheapest housing markets in the world. It is already near one of the cheapest.”

Shilling’s response:

“Actually, it would take a 22% decline in median single-family house prices to bring them back to the long-term trend that Bob Schiller has identified going back to 1890. That has been corrected for CPI, general inflation, and for the tendency for houses to get bigger over time. That would bring them back to the norm. They might seem cheap but there are only where they would have been for over a century.”

 

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Wed, 05/23/2012 - 11:06 | 2454893 CPL
CPL's picture

Man PIMCO is a shit tier company.  Couldn't pick their nose with instructions.

Wed, 05/23/2012 - 11:09 | 2454904 francis_sawyer
francis_sawyer's picture

No doubt they'd try...

Wed, 05/23/2012 - 11:13 | 2454915 Careless Whisper
Careless Whisper's picture

The Careless Whisper News Update & Threadjacking

 

Apple Store Gets 5 Years Free Rent From Salt Lake City Mall

http://arstechnica.com/apple/2012/05/cities-offer-free-rent-other-incentives-to-bring-in-an-apple-store/

Trending: Foreclosure Suicides

http://www.nydailynews.com/news/national/man-kills-days-eviction-california-home-foreclosure-article-1.1083046

Facebook's Secondary Offering In Jeopardy: Can't Find Anymore "Zuckers"

http://www.nypost.com/p/news/business/cluster_zuck_RLNc8787v19qcgvJP3pE7I

Opinion: Ford Proves Real Capitalism Works

http://www.detroitnews.com/article/20120523/OPINION03/205230332/Credit-upgrade-vindicates-Ford?odyssey=mod|newswell|text|FRONTPAGE|p

New York Republicans Propose Law Banning Anonymous Online Posts; Must Reveal Phone Number

http://www.wired.com/threatlevel/2012/05/anonymous-online-speech-ban/

Santa Monica Residents Protest Cops Shooting 75 LB Mountain Lion Near Promenade; "It's Their Land Too"

http://www.latimes.com/news/local/la-me-mountain-lion-20120523,0,7045701.story

 

 

 

 

Wed, 05/23/2012 - 11:36 | 2454952 Popo
Popo's picture

The housing issue is one of demographics.  The percentage of housing (as a percentage of aggregate value) which is held by soon-to-be-retiring (and soon-to-be-dead) baby-boomers is astounding.

The tidal wave of properties which will be returning to market as baby-boomers attempt to extract the value of their nest-eggs is going to be historically epic.

Housing prices are going to get nothing short of pummelled.

Combine that with rising structural unemployment and a (market-forced) rise in credit-quality -- and there's simply no hope for anyone long real-estate.  

The grim reaper is coming.

 

Furthermore,  to own a home is to be a 21st century serf from a tax perspective.   You are "bound to the land".   Home owners are muppets for predatory tax-regimes,  and with the gross underfunding of municipalities nation-wide,  anyone saddled with a home is a fat, juicy target for tax-fleecing.   How's your home's value going to fare when taxes double?  Triple? Quadruple?  Think it won't happen?  It *is* happening. You're not going to be able to sell it -- especially with the demographic issues mentioned above, at which point you'll be 100% pure American serf.

Stay mobile folks.   Don't own.

Wed, 05/23/2012 - 11:46 | 2455002 redpill
redpill's picture

I would offer a counter-argument that as the manipulated and delusional nature of modern financial markets becomes more evident, there will be a scramble for real property that is not subject to the same sort of undulations as increasingly volatile equities.  Valuation +/- 15% year to year in a real asset you can either live in or rent?  Big deal.  Beats massive swings in stock portfolios or negative real returns on bonds, neither of which have any practical value. 

When shit gets real people will buy real estate before they buy gold & silver, that's just how they are.  They are more comfortable with it, they understand it more (or at least they think they do), and at the end of the day it has practical value.  The real estate bubble has already burst, and while there may be some more losses to come in some areas, that's nothing compared to the not-yet-burst bubbles of bonds and central-bank-inflated stock prices. 

And while I abhor debt, if you assume that interest rates will eventually rise, potentially sharply, it would be a massive benefit to savers if they had taken on fixed-rate mortgage debt at these stupid artificially low rates.  That's the way the game is set up.

Foreign property is even more clever, but Americans tend not to do well with understanding unfamiliar things.

 

Wed, 05/23/2012 - 12:05 | 2455129 Dr. Engali
Dr. Engali's picture

You put up a sound argument but I think you under estimate the wave of boomers who are going want to downsize. I haven't had a client talk to me yet who isn't giving consideration to down sizing. They all have a big house and they are looking around at it asking themselves...what the hell am I going to do with all this house?

Wed, 05/23/2012 - 12:24 | 2455255 Morrotzo
Morrotzo's picture

My whole thing is that the elderly stole and mortgaged away the future of young people ten times over for decades.

Who the fuck are they going to sell to? Wages are down, hours worked are down, unemployment and underemployment of the youth (18-34 demographic) is massive, those young people already have credit card and college debts in the thousands and tens of thousands and hundreds of thousands. The Baby Boomer motherfuckers ate the seed corn. There is nobody left to rip off anymore.

Strangle a Boomer-George Carlin

Sat, 07/14/2012 - 22:11 | 2616662 JeffB
JeffB's picture

The government is the culprit here.

If they can kill the Fed and free the economy from the governmental strangulation, the economy could heal relatively quickly and even start a long healthy recovery.

There's no inherent reason for "structural unemployment" of the youth etc. There's plenty to be done. We just need to let the economy clear the malinvestment and keep the government from distorting the economy with such disastrous effects.

Sure there are some demographic adjustments that will need to be made, but it's certainly doable. The U.S. population isn't dropping, albeit due to immigration. But we've thrived with a significant immigrant population before, and there's no reason to think innovation and advances in science and technology have suddenly come to an end.

 

Wed, 05/23/2012 - 12:54 | 2455400 redpill
redpill's picture

When they turn around and want to sell it, they'll find they can't get as much for it as they want, and many of them will decide to rent it out and get some rental income from it while they go live in a condo on a golf course.  The tax advantages alone make the situation worth it.  Just like a few years ago when everyone was a real estate speculator, now everyone is going to be a property manager.  The boomers retiring won't be the problem, rather when the "me generation" starts dying off en masse and leaving behind nothing but debt to their kids?  That's a different story.

Wed, 05/23/2012 - 14:47 | 2455984 Popo
Popo's picture

Renters are mobile.  Young people are mobile.   They move.  

They don't stick around and pay high rents.    Businesses will also leave when taxes go up.    You simply can't squeeze tax dollars from someone who is mobile like you can someone who's immobile.   (Hell, it's actually pretty hard to opress someone who's completely mobile).   But you *can* squeeze plenty of tax dollars from someone stuck with real estate.

All oppressive regimes depend on limited mobility of subjects.  Serfdom.  Communism.  etc.   Mobility lies at the very heart of personal freedom.  Housing is completely antithetical to personal freedom because it represents the ultimate immobility.  Homeowners are low-hanging fruits for high tax regimes.  Besides, there's no such thing as home ownership in the USA anyway:  You rent from the government.  Stop paying your rent and the landlord will kick you out.  That's not ownership by any definition of the word.  

 

 

 

Fri, 06/01/2012 - 12:22 | 2484545 Meremortal
Meremortal's picture

Mosts young professionals today should rent, as they must stay mobile, and will continue to have to relocate often to chase jobs. I'll rent to you, it all works out. Or, it does if one understands which markets to get into to and which to avoid.

The outlook for those working in the trades is mixed, some will have to move around, others can stay planted. Own/rent ratio for them is still favors renting for now, under my analysis.   

Wed, 05/23/2012 - 12:22 | 2455241 resurger
resurger's picture

"interest rates rising sharply" yes when spraed to cover is 0 on US paper auctions which will mark Weimar USA.

the rates shall drop further if there is a second S&P downgrade, i second your thoughts on fixed rate mortgage.

 

 

 

 

 

Wed, 05/23/2012 - 14:19 | 2455933 Temporalist
Temporalist's picture

RP I think the reasons people like homes is best put by George Carlin:

https://www.youtube.com/watch?v=MvgN5gCuLac

Wed, 05/23/2012 - 14:23 | 2455953 graymnzrc
graymnzrc's picture

We may also find a European here and there trying to pick up some American Real Estate in order to hide from the coming onslaught over there.

Right now I am looking to buy my eventual retirement home. I hope to rent it out for the next 20 years before moving down. Am I worried? Yes. Do I like the current pricing? not bad. Interest rates? Hell yeah.

I just don't know how bad Europe will sh1t the bed for everyone and how bad things will get over the next 3-4 years. Eventually people have to eat and live so this downturn will end, I just don't know how long before we stabilize.

Sat, 07/14/2012 - 21:50 | 2616636 JeffB
JeffB's picture

You make some good points, but I don't think this one is as strong as you probably do:

" it would be a massive benefit to savers if they had taken on fixed-rate mortgage debt at these stupid artificially low rates."

---

Rising interest rates would hammer prices on real estate. Of course it would tend to hurt virtually all asset classes other than perhaps money market funds & cash.

On the other hand, I don't think either of you mentioned the impact of a potential inflationary spiral. That would wipe out a lot of the existing debt one might have invested in a home. Alternatively, it would be a safe haven vs cash for the equity in the home.

I don't think the Fed is about to let rates rise unless absolutely forced to by a painful bout of inflation. The effect of rising rates on housing prices would be counteracted to a greater or lesser extent by the devaluation of the dollar.

 

Wed, 05/23/2012 - 11:55 | 2455087 bonddude
bonddude's picture

You may be the smartest person here. You are completely correct. Acquiring property, not triple netted, in the coming tax screw is suicide.

Wed, 05/23/2012 - 12:05 | 2455133 lasvegaspersona
lasvegaspersona's picture

Popo

"soon to be dead?" really. The OLDEST boomers are 67 now and are expected to live until what?...78 years old?

Your perverse optimism is leading you astray.

Wed, 05/23/2012 - 14:53 | 2455935 Popo
Popo's picture

Take "Soon" to be a relative term.   10 years is "soon" in my book when one talks about a coming financial armageddon.

Besides, think those boomers will die in the homes they currently own?    They won't.   And not because they're going to shuffle off to old-age homes.  

They're going to move because their nest-eggs are their homes.   Their current retirement annuities aren't paying jack-shit because Bernanke has interest rates screwed to the floor.   As a result of Ben's liquidity machinations, the boomers have to sell their homes to pay for their retirements.

This is the Catch-22 that is going to obliterate the Fed's central-planning dreams.   Bernanke is ironically going to force the tsunami of downsizing.  This is where his low-interest rate policy will come crashing in on his head.  He's currently bleeding retirees dry of their retirement funds because annuities are anemic and just about every grandmother in America now knows equities are for suckers.  

Bernanke had hoped to juice equities to counter his low-interest rate policies, but being a naive academic, he completely underestimated the crookedness of Wall Street.  Ultimately, the stimulus of a revved-up equity-market doesn't actually hit Main Street because Wall Street is so adept at fleecing muppets. As a result Mom and Pop will need to sell their house. Ultimately Bernanke's low interest rate "stimulus" will be the sole cause of a historical liquidation in real estate.  There's no other way around it:  Boomers have underfunded retirements because of low rates.   The strategy to support housing is ironically going to be the greatest cause of it's liquidation.  

Wed, 05/23/2012 - 17:39 | 2456725 AndrewJerome
AndrewJerome's picture

Brilliant.

Wed, 05/23/2012 - 17:39 | 2456727 AndrewJerome
AndrewJerome's picture

Brilliant.

Wed, 05/23/2012 - 13:23 | 2455602 tawdzilla
tawdzilla's picture

Demograophics is the key...80+ million boomers trying to unload their homes to 65 million gen xers.

Also, what happens to home prices when down payments go back to historical levels of 20%?  What happens to home prices when interest rates move up?  What happens to home prices if/when Fannie/Freddie/FHA get neutered? What happens if/when Simpson/Bowles is finally enacted and the mortgage deduction goes away?

This dead cat bounce in housing is a temporary phenomenon...the perfect time to sell if you haven't done so already. 

 

 

Wed, 05/23/2012 - 22:04 | 2457476 trgfunds
trgfunds's picture

I see we have four PIMCO fans in the house. (golf clap)

Wed, 05/23/2012 - 11:11 | 2454903 l1b3rty
l1b3rty's picture

New York is selling 90 million dollars for record high prices! Woohoo! Party like its '29!

http://silvervigilante.com

Wed, 05/23/2012 - 11:11 | 2454907 LongSoupLine
LongSoupLine's picture

Yeah, buy now because Gross is holding all those MBS's?

Wed, 05/23/2012 - 11:33 | 2454970 resurger
resurger's picture

PIMCO is going kevin spaceys way: sell that shit to your grandma if she's buying, is she?

Wed, 05/23/2012 - 11:12 | 2454908 LawsofPhysics
LawsofPhysics's picture

LMFAO!!!  Wages?  Anyone want to talk about wages? I didn't think so.  FAIL.

Wed, 05/23/2012 - 11:22 | 2454940 mayhem_korner
mayhem_korner's picture

 

 

Bingo.

Negative real interest rates + flat to declining nominal wages + need to buy life-supporting staple goods = no ability to service debt = deflation of housing prices

Wed, 05/23/2012 - 11:43 | 2455007 derek_vineyard
derek_vineyard's picture

japan-- scene two

Wed, 05/23/2012 - 11:23 | 2454913 hedgeless_horseman
hedgeless_horseman's picture

 

 

“Virtually nobody with a mortgage would have any equity. What that would do to consumer spending to say nothing to mortgages and mortgage-backed securities derivatives, that is pretty heavy duty stuff. That is recessionary kinds of things. We think that will happen over the next three-four years, one way or the other.”

Help us Obi-Ben-Bernanke...you're our only hope.  Inflate away our mortgage debt.  Increase our nominal home values.  Screw Ol' Grandpa Yoda and his savings...he's going to die anyway.  What imports we will no longer be able to afford we can just take using The (Air) Force...it is the Jedi way.  Republican Credits will be enough, we just need to print more of them!

 

 

Wed, 05/23/2012 - 11:14 | 2454919 CvlDobd
CvlDobd's picture

I have been considering writing a book on all the hidden costs of home ownership. Even in the good times it nets out for shit. Besides, you never own your home. Stop paying property taxes for a year and then tell me you own your home.

Wed, 05/23/2012 - 11:27 | 2454955 Rentier
Rentier's picture

Why you need a home based business so you can write off everything under the sun for your house.

Wed, 05/23/2012 - 11:30 | 2454964 CvlDobd
CvlDobd's picture

Good point.

You still don't "own" the house though.

And if my experiences with the IRS are typical of 2012 America. Liberal business deductions are soon to be extinct.

Wed, 05/23/2012 - 11:34 | 2454972 Rentier
Rentier's picture

Sure you do, when you retire you'll still be paying rent.  Which you can't write off.  I won't my house is paid for. As, for taxes I won't be paying those.  How?  Because I have renters like you that will be paying all my bills like utilites and taxes via your rent checks to me.  Plus, I get to write off my property taxes on my home based business. 

 

Wed, 05/23/2012 - 11:42 | 2455003 CvlDobd
CvlDobd's picture

Your points are well taken although I must say we are comparing apples and oranges. My point is on a family of four owning one house to live in, not a home based business or a rental property. Just maintenance on my house each month is similar to a new motorcycle payment. Just interest is about the same as a one bedroom apartment each month.

My "own" comment is centered on property taxes. Truth of the matter is the government owns all the land. They just let us peons use it for a while as long as we pay our ridiculous taxes.

Wed, 05/23/2012 - 11:47 | 2455040 Rentier
Rentier's picture

I concur without a home business owning a house can be losing proposition in the end. 

One way can avoid property taxes is if you are related or know disabled vet you can trust. lol.  Now another way my parents told govt to kiss off on property taxes is they sold their house and bought a large sail boat and had it parked in intercostal or at friend's dock, zero property taxes there >:)

Wed, 05/23/2012 - 11:54 | 2455075 CvlDobd
CvlDobd's picture

Nice!

Now we are talking the same language!

When I tell people not to own, I don't automatically mean rent. I mean get creative! Boats, airstreams, lofts, etc. there are ways to outsmart traditional living expenses so that people can focus more on what truly makes them happy. I get no joy out I cleaning gutters. I do get joy ou o riding motorcycles so if I can reduce my gutter expense I can increase the amount I allocate to happiness, like motorcycle trips with friends.

Wed, 05/23/2012 - 12:24 | 2455250 FreeNewEnergy
FreeNewEnergy's picture

The home business angle is solid. I've advised people for years to start a home business, even better if you lose money. Plus, my experience with the IRS is that if you don't go too far out of bounds on expenses, they don't care. Also, file by paper. I think they just shitcan paper returns these days and hardly bother to look at them.

Basically, make it as difficult for them to conjure up a reason for an audit. Even then, you can always tell them to go piss up a rope. With the condition the US is in, they simply can't catch all the tax cheats, prosecute all the cases.

Ads for property taxes, yeah, they suck, and I live in NY state, where they're downright punitive. I've been tempted to start a business getting assessments lowered on fresh appraisals after I had mine reduced from 124K to 82K. Cut my taxes by a huge amount. Of course, the assessor came by for a look see and it only took him 3 minutes to decide my reduction was for real (Keep your house in disrepair). Naturally, they want you to get permits for any improvements so they can tax you more, so, if you improve, don't get a permit. It's the most ass-backward law on the books.

Only way out of property taxes is become a church or other non-profit, educational or philanthropic entity, though that's tough to pull off. The current issue of Business Week has a good article about a secessionist in Australia that founded his own nation. Some ideas there!

I think Shilling is on the right track. 20% more on the downside over the next 3-4 years is only 5-7% a year. Child's play. And that gets us only to the norm. Scary to think it could be worse.

Free houses for everyone!

Wed, 05/23/2012 - 12:33 | 2455312 CvlDobd
CvlDobd's picture

Great post.

You point about keeping your home in disrepair helps my point. To beat the government (or lose less) you have to keep your house in disrepair? Is that really winning?

When I was in college I worked in a welding shop. We were contracted to renovate the interior metal work. The guy put a dumpster in the last room to be renovated along with most material. That was to avoid a permit as no one coul tell from outside that the house was being renovated. I applauded his creativity, but having to go to such lengths to avoid government flys in the face of my libertarian outlook.

What kinds of home businesses do you recommend? I also love your paper filing idea. Good call.

Wed, 05/23/2012 - 12:31 | 2455301 prodigious_idea
prodigious_idea's picture

Of course you're paying the taxes.  You just have rental income to offset expenses.  And we renters are glad to have your crew mow the lawn, fix the roof, put in new carpet and paint and replace the appliances.  Was a homeowner for 30 years but after the kids moved out and we got over the emotional attachment to home ownership it was a no-brainer.  Run the numbers with some sensitivity for decline in asset value and your P&L is a nightmare.  Even without a figure for decline in asset value and you're barely above break-even on cash flow.  And of course the situation depends on the locale.

Wed, 05/23/2012 - 12:24 | 2455254 prodigious_idea
prodigious_idea's picture

Great idea but don't get too excited.  Depreciation is over 30 years and you have to allocate the personal/business portion which turns out to be almost nothing each year.  Even if you add in pro-rata taxes, R&M and utilities it doesn't make for much of a deduction.  Run the numbers.

Wed, 05/23/2012 - 15:32 | 2456230 HedgeOn
HedgeOn's picture

why does everyone quote that schmuck robert kiyosaki "rich dad poor dad"  about not paying taxes on their home as if they came up with the idea themselves?  so pay rent for the rest of your life.  there isn't one way to skin a cat- the people who pay off their houses, pay real estate taxes, ho insurance, and the upkeep of their homes.  renting is not a picnic either... so what, should we live in a hot air balloon?

Wed, 05/23/2012 - 11:18 | 2454929 Dr. Engali
Dr. Engali's picture

I live in a pretty nice neighborhood and thought about selling over the winter. At that time there was only one house up for sale in the development. When spring rolled around for sale signs started popping up everywhere.  Now there are twelve houses listed and I know of two more going up. Needles to say I decided against selling.

Wed, 05/23/2012 - 11:22 | 2454934 HaroldWang
HaroldWang's picture

Me thinks we're going to erase bulk of these losses on the BTFD after Euro close. Today feels like that old game is back in play.

Wed, 05/23/2012 - 11:22 | 2454935 guinea
guinea's picture

When is boomers retiring going to knock down housing prices some more?  or white flight from California?

Wed, 05/23/2012 - 12:24 | 2455258 GeezerGeek
GeezerGeek's picture

Falling housing prices due to boomers retiring and selling will occur after the adult kids living in the basement are kicked out. That action, of course, will drive rental prices up first, so watch for that to happen.

And don't get caught up in the "live on a boat" meme. If cities find they need revenue, they can find some way to raise slip fees, boat license fees, etc. Then the EPA will come after you to verify that your waste water is not causing polution, and on and on. I've had friends with boats large enough to live on. Maintenance on a boat is not cheap.

 

 

Wed, 05/23/2012 - 11:19 | 2454938 mayhem_korner
mayhem_korner's picture

 

 

"Confidence is picking up..."

"We are looking at 1-1.5% real GDP growth..."

"All inventories you look at, whether new existing or shadow, they are coming down...”

"Banks are flush with cash and willing to lend..."

"I still believe housing beats a lot of asset classes..."

This Keisel guy is employed, right?

Wed, 05/23/2012 - 11:22 | 2454941 Calidreaming
Calidreaming's picture

Rick Santelli for president

Wed, 05/23/2012 - 11:23 | 2454942 RoadKill
RoadKill's picture

I'm in the process of buying 2 condos in Miami.  Prices are up at least 10% since I signed.

Housing is local has never been more true.  Miami is being driven by massive amounts of money coming from South America - trying to escape the commies in Venezuela, Ecuador, Argentina and Bolivia.  This is only helping the mid-to-high-end condo market.  It doesn't hurt that $/sq ft has fallen 65% from near $1,000 to closer to $300.  I can get into the 4 Seasons for $500 a sq ft vs $2,000 in Boston and $5,000 for Manhattan.

But suburban Miami single family homes will remain a disaster.  These forclosed houses are quickly becoming uninhabitable.  Soon you won't be able to even fix them.  You'll just sell them for the land and tgear them down.

Wed, 05/23/2012 - 11:50 | 2455056 francis_sawyer
francis_sawyer's picture

Have fun with shoddy construction & inability to get insurance protection from hurricanes...

Wed, 05/23/2012 - 12:31 | 2455297 GeezerGeek
GeezerGeek's picture

The biggest risk you face would come from Venezuela going back to freedom. Who knows what will happen if Chavez dies soon? A bigger question is this: what happens if the Castro brothers die? I have a friend who came to the US in 1960, and he and his contemporaries often wish they could go back. (In 2009 he said if he wanted to live under a Communist he could have stayed in Cuba, but that's another story.) If the Castros hang on a few more years there may be too few Cuban-born folks to make any exodus to Cuba meaningful, since most of the born-in-the-USA descendents of Cuban refugees that I know would probably stay here.

Wed, 05/23/2012 - 19:18 | 2457007 malek
malek's picture

You can only pray the banks continue to keep most of the excess inventory off the market long enough

Wed, 05/23/2012 - 11:23 | 2454943 Lost Wages
Lost Wages's picture

Did the Fed buy Bill Gross' MBS yet? Hmmm.

Wed, 05/23/2012 - 11:24 | 2454945 5880
5880's picture

He's talking Newport Beach RE

saving 35% on his home minus rent, buys a lot of dinners at Sabatinos

Wed, 05/23/2012 - 11:30 | 2454965 LawsofPhysics
LawsofPhysics's picture

Don't kid yourself, he lives in Corona Del Mar.  Makes Newport Beach homes look like the projects.

Wed, 05/23/2012 - 11:26 | 2454954 Catch-22
Catch-22's picture

Anecdotal from Florida…

I’m in Fort Lauderdale in a building with 400 condos. At the height (or low) of the downturn in 2009-10 as many as 38 condos were listed for sale… right now it’s 8.  BTW 8 is in line with the average (normal) number of listings at any given time in the past 40 years (since the place was built).

Also, in similar buildings around here, 2 bedroom condos were listed between 300K and 400K last year, most are between 400K and 500K now. There is one left in the 300K in my building … it needs to be gutted and redone.

 

Just sayin…

 

Disclaimer: I’m not in real estate… just thought someone might be interested in my bit of info. I hear some people are still moving (retiring) down here.

 

 

Wed, 05/23/2012 - 12:42 | 2455357 GeezerGeek
GeezerGeek's picture

Earlier this year, before I cancelled my subscription, I saw ads in the Sun-Sentinel (Ft. Lauderdale's media appendage to the Democratic party) offering condos with deep water access (boating access to the ocean for those of you in landlocked areas) at half price or less. Reduced from $1.6 million to $800K, the ads appeared for several months before I lost track. Living a mile from the ocean I haven't seen much of a change in the for-sale signs over the last several years, because it's a stable neighborhood. I'm clueless about prices, since I have no intention of buying or selling..

Wed, 05/23/2012 - 14:04 | 2455877 Catch-22
Catch-22's picture

Although the numbers are always suspicious, I’ve seen from different sources that the inventory has been cut in half since last year… I imagine, another year, and it’s all gone. You would think the prices would have to be affected.

My father also thought he wasn’t going anywhere… until he had to. It’s just nice to know that the value of your home is still there if you need it (added peace of mind).

BTW, I share your feelings about the Sun-Sentinel but once in a while there’s important info (road closures, accidents, flooded areas, etc.). To get it for free online; click an article and stop the loading just before it’s complete (immediately after the text has appeared). The last loading feature, the notice that hides the article and asks you for money, will be dropped.

 

 

Wed, 05/23/2012 - 15:32 | 2456201 Kasperfx
Kasperfx's picture

 

Thats what the realtors, HOA and banks what the gullible buyers to think, in reality I bet yea theirs a good number of units that or ether held by the banks or none paying mortgaged owners ....


It;s happening in both of the buildings we own condo's in Hallandale fl,  HOA is spreading words that the building is selling again but I don't see half of the people of what we us to see at the pool or beach so ether these new buyers are ether vampier's or it's all a bunch on bull to try getting the sheeple to buy in.. 


 

Wed, 05/23/2012 - 19:15 | 2456997 malek
malek's picture

Anecdotal from the East SF Bay...

Oakland in a building with 100 condos (quality building, OK location). Currently there are 4 units in pre-foreclosure, 1 in Auction and 3 bank owned - which is pretty much bottom-bouncing on worst level when looking over the last 3 years.
I cannot even tell how many are on sale as many listings are pulled again after a low number of weeks. Exactly one unit was sold during the last 9 months, a 1 bedroom condo for 190K, down at least 140K from the top.
Several units have been empty for many months now, and with effing high HOA fees makes you wonder who is losing money there.

 

Wed, 05/23/2012 - 11:27 | 2454957 BeetleBailey
BeetleBailey's picture

Keisel wrong. Schiller right.

Meat Good. Fire Hot.

Wed, 05/23/2012 - 11:28 | 2454958 resurger
resurger's picture

by looking at 2011 charts, one can make shit loads of money...

its all down hill from today ... the bulltrap got activated today.

 

Wed, 05/23/2012 - 11:30 | 2454966 roguetraderinchicago
roguetraderinchicago's picture

Quality inventory is very low.  Im genereally bearish but we have a quality unit on the market and its getitng lots of traffic suddenly.  I also have seen first hand bidding wars for quality properties.  Foreclosures at this point are almost all rehabs.  Bi-fircated hosuing market.

Wed, 05/23/2012 - 11:30 | 2454967 roguetraderinchicago
roguetraderinchicago's picture

Quality inventory is very low.  Im genereally bearish but we have a quality unit on the market and its getitng lots of traffic suddenly.  I also have seen first hand bidding wars for quality properties.  Foreclosures at this point are almost all rehabs.  Bi-fircated hosuing market.

Wed, 05/23/2012 - 11:52 | 2455063 Junior_Mistmaker
Junior_Mistmaker's picture

We just got a 400% return on three adjacent vacant shell buildings in a large mid-atlantic city we scooped up a few years ago for dirt cheap... this all escalated out of a bidding war

Wed, 05/23/2012 - 11:37 | 2454986 Snakeeyes
Snakeeyes's picture

Both are right. But calling a bull versus bear is risky. Wait until all those new taxes hit businesses and consumers at the end of the year. And waiting for yet another government intrusion.

Signs point to stabilization. 

http://confoundedinterest.wordpress.com/2012/05/23/mba-mortgage-purchase-applications-fell-2-96-europe/

Wed, 05/23/2012 - 11:40 | 2454991 Floodmaster
Floodmaster's picture

 

Europe's Housing Market is still in a bubble, ... another economic mystery ...

 

 

Wed, 05/23/2012 - 11:44 | 2455015 StockHut
StockHut's picture

I thought PIMCO was Austrian now?  What the hell is this clown doing?

Wed, 05/23/2012 - 11:56 | 2455022 tahoebumsmith
tahoebumsmith's picture

This Douche from PIMPCO is clueless. I hope you bought on the Beach in Newport so you can share it with all the homeless squatters that are going to be showing up in your front yard this summer. Median household income is the key here and with real unemployment at nearly 17% and underemployment at an additional 35% we still got a way to go down Bucky. Inventory levels are over 4 million and this doesn't include an additional 3 million units that are past due and likely to be strategically defaulted on. People are not buying the American dream any longer as now they see that in reality it has become the American Nightmare. Believe what you want, nothing but a talking head for one of the largest investors in MBS. If anyone hasn't figured out the rhythmic correlation between the FED and PIMPCO they obviously have their blinders on. Meanwhile as we sit here and listen to you sell your hopium, Bill Gross is teeing off at Pelican Hill with NAR President Moe Veissi making up numbers on their score cards just like they do the with the inventory levels! Who's kidding who? I hope you like your home because after the next leg down you will be buried in it just like the rest of California Bitchez...

Wed, 05/23/2012 - 11:46 | 2455028 johnjkiii
johnjkiii's picture

The 1990's R/E bear market bottomed in 1992 but foreclosures topped in 1995. The 1990's was kids play compared to today. Even if RE prices are at the bottom, it may be 10 years before we see any pop - unless Ben loses control and the markets "Greece" the dollar.

Wed, 05/23/2012 - 11:50 | 2455035 Junior_Mistmaker
Junior_Mistmaker's picture

I agree with Mark, we're exiting some holdings at surprising upsides but still getting deep discounts on portfolio purchases at the moment. Pimco may be backing their truck up soon, but we already are and are reaping the rewards. Population growth, credit market recovery post-artificially held down yield curves, and low multifamily vacancy rates/increasing rent rates will push things up soon enough.

Then there are people like us, scooping up portfolios. We just closed at a huge discount on dozens of homes in an area we already have existing similiar holdings, our estimates are at 20+% cap rates (yes, we know this market well) and to top it off the homes need little rehab. If we're doing this others are, or will be, too.... 1.5% 10Y yields, lol.

Wed, 05/23/2012 - 12:17 | 2455199 tahoebumsmith
tahoebumsmith's picture

Bravo! What a true ANTI-AMERICAN PRO FASCIST SPEECH! Riddle me this Junior? When did the American Dream start being defined as  20% cap rates and 10 year yields? Here let me help you out with the answer...When the greedy dickheads on Wall St. and of the rest of the financial world decided that they wanted to steal the equity from the American middle class and put in in their own pockets! I hope your proud that you can continue to profit from other peoples pain...LOL

Wed, 05/23/2012 - 13:14 | 2455568 riphowardkatz
riphowardkatz's picture

Yes! tahoebumsmith,  let the middle class upside down homeowner have no buyers for his home that will help him most.  And to all the rest of the middle class homeowners let the market keep dropping because then no one will profit and we can all rejoice.

You, tahoebumsmith are a moron. 

 

Wed, 05/23/2012 - 19:18 | 2457006 tahoebumsmith
tahoebumsmith's picture

Thank you for the compliment. I guess you are a Johnny come lately because the last time I checked it was Wall St and its whores that brought all of this on during their MBS and CDO binder? Not to mention the financial weapons of mass destruction they created...ie ALT A, option arms, teaser rates ect..ect.. This crisis would never have happened to the middle class if it wasn't for the money hungry turn your head the other way fisherman throwing out the lure. Meanwhile back in Mayberry Aunt Bee would still be baking pies for her neighbors and happy with her almost paid off mortgage.

Wed, 05/23/2012 - 20:17 | 2457151 riphowardkatz
riphowardkatz's picture

Get real. Wall Street is a symptom. They didnt bring anything on. The people of the US and their desire for more and more debt brought it on. Wall street is simply a conduit that is required for taxation through inflation. 

Wrong on Aunt Bee as well. She wanted cradle to grave "security" either for herself or the greater good.There are no free lunches. Someone has to pay sometime. 

The government elected by the people is destroying the wealth of the middle class. They are their own worst enemy thinking they are doing something good when really they are shooting themselves in the foot.


Wed, 05/23/2012 - 22:55 | 2457580 tahoebumsmith
tahoebumsmith's picture

Try again... I live in Northern California and I see what they did. It kinda went like this... Wall St. Bankers backed by the FED and interest free money to BOA,WELLS,COUNTRYWIDE,CHASE,FANNIE,FREDDIE , GMAC ect... called up their homebuilders..TOLL, KB... and others and told them to build fucking cities on barran land. They also said they would have them all sold at a 300% profit using trickery to lure unsuspecting buyers into their scam. Meanwhile back on Wall St. all these mortgages that were sold to anyone with a pulse were being packaged as AAA investments. That's right the asst manager at Taco Bell just got himself a $600k mortgage in a tract home with no money down and no income verification. Don't try to shill me, I've been singing the same tune since 2006 warning people not to get caught up in this scam. I can't believe I've even given you this much time. And by the way, Aunt Bee never wanted cradle to grave, back then America was producing goods and was the envy of the world... Owning a home in America was considered a long term investment..no more! Move on puppy, you don't want to be caught chasing your own tail, especially since you stop every few minutes to lick your balls in the confusion ...

 

Wed, 05/23/2012 - 23:21 | 2457688 Junior_Mistmaker
Junior_Mistmaker's picture

Sorry I'm not sorry. Do you proclaim evil every time a stock falls and people dump shares at low prices to others who benefit from a rebound? I can't even begin to understand how you can frame people like us, who take out our own mortgages, to be ruining things for America... or is everyone who's ever bought a short sale considered evil by you? The people selling these properties are doing so by their own choice, we're not holding a gun to their head.

"Owning a home in America was considered a long term investment..no more!" I'm sorry, if you think asset values always rise you need to get a clue.

Wed, 05/23/2012 - 12:18 | 2455212 Bunga Bunga
Bunga Bunga's picture

Pimco wants you to get in on MBS.

Wed, 05/23/2012 - 12:21 | 2455234 sbenard
sbenard's picture

My best friend is a bakruptcy lawyer. I call him my "bakruptcy indicator". He says its still bad and getting worse! His business is flourishing!

Wed, 05/23/2012 - 12:36 | 2455330 Satan
Satan's picture

I live in Spain, our real estate crisis is still in it's infancy. Once priced in New Pesetas I expect prices to return to what they were prior to Spain joining the euro...a fucking long way down. Spanish banks have more properties for sale directly through themselves than all the real estate agents combined...their refusal to slash asking prices is the only reason we have not seen a complete collapse in Spain yet...but they can't hold them forever .

Wed, 05/23/2012 - 13:30 | 2455687 azengrcat
azengrcat's picture

In PHX there are lots of cash buyers swooping up short sales and foreclosures inflating the lower end of the housing market while the higher end stuff is still getting bled dry.  Not a bad income to $/sqft ratio here so it is not the worst bet in the world to take even if there is downside left on the table.  Lots of crap for sale to rent to the foreclosed if you have cash but I have a feeling that some of these foreigners are going to be taken for a ride when they are buying individual homes in neighborhoods they have no clue about dealing with property managers far far away. Better off buying REITs if you are not in the same country let alone state of the property you are investing in.

Wed, 05/23/2012 - 13:40 | 2455743 SmoothCoolSmoke
SmoothCoolSmoke's picture

I love Schilling!  He's great when he is on Kudlow...... hammers Larry.

Wed, 05/23/2012 - 14:42 | 2456036 Kasperfx
Kasperfx's picture

 Ever notice how every argument for an RE recovery is supported by real-estate industry interests or homeowners who always use the past 7 to 10 years of bubble data to show how cheep RE is become over that time. LOL you ether have to be a blockhead or willfully ignorant to be looking at the past 10 years as organic .. I'm with shiling 100% 


 

Wed, 05/23/2012 - 18:45 | 2456922 covert
covert's picture

the bubble had to burst eventually.

http://expose2.wordpress.com

 

 

Wed, 05/23/2012 - 23:25 | 2457698 Junior_Mistmaker
Junior_Mistmaker's picture

The real-estate industry 'interests' think prices are cheap because there are properties you can buy for $70k that will bring in $15k in rent per year...

Thu, 05/24/2012 - 02:06 | 2458013 Blankenstein
Blankenstein's picture

Sorry don't buy that unless you're taking advantage of section 8 vouchers that just enrich landlords at the expense of the taxpayer.  The government pays way too much for the properties that are eligible.  When the SHTF this stealing of taxpayer funds to enrich politically connected landlords will end.  

Wed, 05/23/2012 - 19:02 | 2456972 malek
malek's picture

 implied rental yields is roughly 5%-12%

Feels like Kiesel forgot to mention that rents paid never go down - at least not on a nationwide basis!!   /sarc

Thu, 05/24/2012 - 08:42 | 2458385 sessinpo
sessinpo's picture

It might appear that all the world's housing problems might be solved by finally letting Fukashima go in Japan. North eastern Japan is already considered a high probability of total evacuation and rumors of a total evacuation of all of Japan might be necessary if Fukashima goes. That's 127m people or so. Let them buy 10 million or so homes over here.

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