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Realistbear

It Is Over: Official - H P C Is On

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Buffett holds substantial real estate interests:

http://money.cnn.com/2006/05/05/news/newsm...50606/index.htm

Buffett: Real estate slowdown ahead

The Oracle of Omaha expects the housing market to see "significant downward adjustments," and warns on mortgage financing.

Money Magazine

By Jason Zweig, MONEY Magazine senior editor

May 6, 2006: 2:51 PM EDT

OMAHA (CNN/Money) - At this weekend's annual meeting of Warren Buffett's Berkshire Hathaway, security is tighter than usual, with several entrances to the parking lot of the Qwest convention center closed.
On the real estate bubble
Buffett: "What we see in our residential brokerage business [HomeServices of America, the nation's second-largest realtor] is a slowdown everyplace, most dramatically in the formerly hottest markets. [buffett singled out Dade and Broward counties in Florida as an area that has experienced a rise in unsold inventory and a stagnation in price.] The day traders of the Internet moved into trading condos, and that kind a speculation can produce a market that can move in a big way. You can get real discontinuities. We've had a real bubble to some degree.
I would be surprised if there aren't some significant downward adjustments,
especially in the higher end of the housing market."
On mortgage financing
Munger: "There is a lot of ridiculous credit being extended in the U.S. housing sector."
Buffett: "Dumb lending always has its consequences. It's like a disease that doesn't manifest itself for a few weeks, like an epidemic that doesn't show up until it's too late to stop it
Any developer will build anything he can borrow against. If you look at the 10Ks that are getting filed [by banks] and compare them just against last year's 10Ks, and look at their balances of 'interest accrued but not paid,' you'll see some very interesting statistics [implying that many homeowners are no longer able to service their current debt]."

Given Warren's track record on accurate financial predictions and his huge wealth as evidence of his judgment we had better listen. HPI is over and what applies to the US market applies to the UK and even more so because our entire market is a bubble and irresponsible lending is far more widespread (the US are crashing even with 30 year stable loans). The sharp rises in repossession and bankruptcy is the first smoke of the coming conflagration as values are burned up in minutes. :o

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A reminder of Buffett's genius:

http://www.signonsandiego.com/news/busines...rehathaway.html

Berkshire Hathaway reports 70 percent jump in 1Q earnings

By Josh Funk

ASSOCIATED PRESS

4:32 p.m. May 5, 2006

OMAHA, Neb. – Berkshire Hathaway Inc., billionaire Warren Buffett's investment vehicle, reported a 70 percent jump in first-quarter earnings on strong performance from its investments and insurance businesses.
Berkshire's net earnings were $2.3 billion, or $1,501 per share, for the three months ended March 31, compared with last year's $1.4 billion, or $886 per share, according to Berkshire's filing with the Securities and Exchange Commission released late Friday afternoon.

:)

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And don't forget folks that W.B. is a 'buy to hold forever' merchant. As is the Duke of Westminster.

Don't expect to see either of these guys selling up any time soon.

I think I'll follow their lead :D

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Guest Charlie The Tramp

I thought he had already cashed in on his investments and put the $42 billion in the bank. He must have known how rapidly US rates were about to rise. :)

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I thought he had already cashed in on his investments and put the $42 billion in the bank. He must have known how rapidly US rates were about to rise. :)

He's jumping out of cash now;

Buffet ditching cash holdings

Not surprising seeing what's happening to the USD and money supply. Hope you STRs aren't still sitting on your piles of cash in the bank while it's vanishing into thin air.

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I thought he had already cashed in on his investments and put the $42 billion in the bank. He must have known how rapidly US rates were about to rise. :)

Right:

http://today.reuters.com/business/newsarti...-MEETING-DC.XML

Buffett wants to cut cash pile, mulls $15 bln deal

Sat May 6, 2006 2:28 PM ET

Printer Friendly | Email Article | Reprints | RSS

OMAHA, Nebraska (Reuters) - Warren Buffett said on Saturday he wanted to reduce Berkshire Hathaway Inc.'s (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research) cash pile and that there was a small chance he would make an acquisition that could take up to $15 billion of cash.
Buffet said he would ideally like to reduce Berkshire Hathaway Inc.'s (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research) cash pile to about $10 billion.
Buffett, speaking at Berkshire's annual meeting, said the company did not need anything like the about $40 billion it has in cash. He said it was "likely but far from certain" that the company would have significantly less cash in about three years' time. He wants to translate the cash into earning power.

Q: Warren, do you think now is the time to buy real estate for investment? Or, do you think its time to sell?

A: "I would be surprised if there aren't some significant downward adjustments, especially in the higher end of the housing market." (http://money.cnn.com/2006/05/05/news/newsmakers/buffett_050606/index.htm)

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Warren is very rich and sucessful, so we’d better listen to his words very carefully and not just paraphrase them to mean something else. :D

Does he say “It’s all over – HPC on” as per the title of this thread? Well, not quite, but he does say::

1. Not a real bubble – only to some degree. [a qualified bubble]

2. Market trajectory may be discontinuous due to now being dominated by momentum trading.

3. Some possibility of significant falls amongst the volatility (see 2, +over-value on fundamentals).

Edited by spline

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He's jumping out of cash now;

Buffet ditching cash holdings

Not surprising seeing what's happening to the USD and money supply. Hope you STRs aren't still sitting on your piles of cash in the bank while it's vanishing into thin air.

MY guess is that many STRs are invested like Warren:

http://today.reuters.com/business/newsarti...-MEETING-DC.XML

He wants to translate the cash into earning power.

Buffett added that he expected to get more opportunities for acquisitions in the utilities field. In March, Berkshire's MidAmerican Energy Holdings Co. unit acquired the western U.S. utility PacifiCorp from Scottish Power Plc (SPW.L: Quote, Profile, Research) for $5.1 billion in cash, Buffett's biggest purchase in eight years.

Warren is bearish on property as he knows, like most STRs (and STMs like myself) that property is money vanishing into thin air in line with declining prices (my area was down 7% last Q according to ODPM which represents a notional drop of £21,000 on my trarget £300k house value). Whereas equities have been doing nicely, very nicley in fact.

Warren is very rich and sucessful, so we’d better listen to his words very carefully and not just paraphrase them to mean something else. :D

Does he say “It’s all over – HPC on” as per the title of this thread? Well, not quite, but he does say::

1. Not a real bubble – only to some degree. [a qualified bubble]

2. Market trajectory may be discontinuous due to now being dominated by momentum trading.

3. Some possibility of significant falls amongst the volatility (see 2, +over-value on fundamentals).

When its over its over. I like the headline of the article best: "significant downward adjustments,"

If the downturn is significant and Warren turns bear that's good enough for me! BTW: UKC had another bullish review today--see Investment Thread :)

Edited by Realistbear

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But isn't the imminent crash going to be independent of "big names" like this? He may be an "expert" but in the end - as we've said many times - it is the force of numbers that counts, and millions of UK citizens who would normally be FTBs are simply doing what I am doing: sitting on my deposit and waiting. It's the little guys - millions of them - who are just hacked off with the prospect of a 30-35 year debt, who will cause, eventually, these massive property portfolios to halve in value. A pyramid needs strong foundations -FTBs.

Even a drongo can understand the graph on the HPC homepage (regardless of whether it is "up to date!") - even if you just look at the "up" curve, it puts you off buying - regardless of what happens next.

And most FTBs are NOT stupid. Most are actually hitting the Internet and are better-informed than ever before.

The crash is coming. Strap in - this is going to hurt!

I don't think it'll bother Warren much, though...

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I think he stays with a market while it trades on fundamentals, but when after some very strong growth it becomes dominated by momentum traders he walks away to explore other opportunities. He’s telling us he’s done this now – for him it’s over, but not quite the same thing as him predicting a crash. [i think there will be a crash, but we haven’t heard this from him ;) ].

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Buffett dumped one of his investment houses at the top of the CA market in 2005:

http://money.cnn.com/2005/05/01/news/fortu...lks/#realestate

Buffett: "I recently sold a house in Laguna for $3.5 million. It was on about 2,000 square feet of land, maybe a twentieth of an acre, and the house might cost about $500,000 if you wanted to replace it. So the land sold for something like $60 million an acre."

He knows that you buy low and sell high--the fundamentals do not support bubble house prices in CA or the UK for that matter. The Duke of Westminster may be buy and hold but then his family have owned much of their property since 1068.

If Warren is calling a "significant downturn" this is his way of saying "crash"--just a little more sophisticated that's all. 20% down significane enough? We will see--IMHO I see the UK following the historical pattern with 50% off the previous peak.

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If Warren is calling a "significant downturn" this is his way of saying "crash"--just a little more sophisticated that's all. 20% down significane enough?

It must be nice to have a unique insight into the mind of Warren Buffet, and be able to confidently reveal what he was thinking but didn’t actually tell us. ;)

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It must be nice to have a unique insight into the mind of Warren Buffet, and be able to confidently reveal what he was thinking but didn’t actually tell us. ;)

The insight comes from reading his quotes:

Buffett: "What we see in our residential brokerage business [HomeServices of America, the nation's second-largest realtor] is a slowdown everyplace,
most dramatically in the formerly hottest markets
. [buffett singled out Dade and Broward counties in Florida as an area that has experienced a rise in unsold inventory and a stagnation in price.] The day traders of the Internet moved into trading condos, and that kind a speculation can produce a market that can move in a big way. You can get real discontinuities. We've had a real bubble to some degree. I would be surprised if there aren't some
significant downward adjustments
, especially in the higher end of the housing market."
On mortgage financing

When Warren uses words such as "dramatically" with regard to a slowdown or "significant downward adjustment" it suggest to all but the most dull minded that he does not hold property in high regard as a current investment strategy. Its not so much insights but an ability to understand plan English which WB has mastered quite well. :)

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We will see--IMHO I see the UK following the historical pattern with 50% off the previous peak.

By which I think RB means something like 28% falls - on the basis that property has gone up 130%, but will lose half the gains - 100, to 230 = 130% rise. 230 to 165 = 28% falls.

It's a repetitive niggle of mine, but saying "50% off the previous peak" is very ambiguous and could easily be taken to mean a 50% fall. I think your prediction is less implausible once you realise it translates as 28% falls. (Still higher than I'd predict, but not by such a big margin)

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By which I think RB means something like 28% falls - on the basis that property has gone up 130%, but will lose half the gains - 100, to 230 = 130% rise. 230 to 165 = 28% falls.

It's a repetitive niggle of mine, but saying "50% off the previous peak" is very ambiguous and could easily be taken to mean a 50% fall. I think your prediction is less implausible once you realise it translates as 28% falls. (Still higher than I'd predict, but not by such a big margin)

Yes, a loss of half the gains realised since the previous trough. Thus, £100k house rises 130% to £230k. Half the rise is £65k which would be the amount of the loss if the historical trend repeats. THis would be an average however. In the "hot spots" losses could be more--depends on the fundamentals. Seems that Wales would suffer most as they have had extraordinary rises without fundamentals supporting the prices. "New British Riviera" is not very convincing.

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It's a repetitive niggle of mine, but saying "50% off the previous peak" is very ambiguous and could easily be taken to mean a 50% fall. I think your prediction is less implausible once you realise it translates as 28% falls. (Still higher than I'd predict, but not by such a big margin)

Yes, more gobbledygook and obfuscation than plain English. We also tested this idea in a previous thread by running the numbers and found it had rather little support from the historical house price indices. :)

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Yes, more gobbledygook and obfuscation than plain English. We also tested this idea in a previous thread by running the numbers and found it had rather little support from the historical house price indices. :)

I have heard of Pedantic Peter and Tautolgous Tim and now we have Parsing Paul!

Edited by Realistbear

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"New British Riviera" is not very convincing.

Is anyone really calling Wales that? That's funny, and I agree with you about the hot spots.

Only one more mathematical niggle...

Presumably if you're talking about the historical pattern, you're talking real falls rather than nominal - as prior to the 1989 crash, the previous ones were falls only in nominal terms.

What that would imply is a lower nominal fall than 28%. The real rise is more like 80-100% rather than 130% (see Father Fred's recent analysis thread ) because real wages have risen slowly in the same period. So that would imply real falls of slightly less, say 20-25% to repeat the trend. And a nominal fall of say 15-20% would equal a real fall of 25% for the same reason.

So to lose half of the rise in real terms we'd only need falls of about 15-20%, maybe even a bit less. That would bring your prediction closer to what I imagine happening...

Yes, more gobbledygook and obfuscation than plain English. We also tested this idea in a previous thread by running the numbers and found it had rather little support from the historical house price indices. :)

Yes I think it's a fairly intuitive projection (ie somewhere between a guess and wishful thinking) anyway.

But looked at more closely, even if it were right it would imply rather lower nominal falls, as above. I haven't done the sums properly because it depends on what period the falls happened over, but I suspect you could get 20-25% real falls with as little as a 10% nominal fall over five years or so.

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Is anyone really calling Wales that? That's funny, and I agree with you about the hot spots.

Only one more mathematical niggle...

Presumably if you're talking about the historical pattern, you're talking real falls rather than nominal - as prior to the 1989 crash, the previous ones were falls only in nominal terms.

What that would imply is a lower nominal fall than 28%. The real rise is more like 80-100% rather than 130% (see Father Fred's recent analysis thread ) because real wages have risen slowly in the same period. So that would imply real falls of slightly less, say 20-25% to repeat the trend. And a nominal fall of say 15-20% would equal a real fall of 25% for the same reason.

So to lose half of the rise in real terms we'd only need falls of about 15-20%, maybe even a bit less. That would bring your prediction closer to what I imagine happening...

In simple terms:

If a house is bought in 1996 (at the end of the Great Crash trough) for £100k and is held until the peak of the market in 2005 when it hits £230k a correction that follows the historical pattern will see 50% wiped off the gain, or about £65k. The owner has still done quite nicely and will be ahead £130k if he sells at the peak. The Johnny-come-lately who buys the house for £230k in 2005 will sustain an actual loss of £65k by the time the market bottoms out if he sells. Thus the 1996 buyer who holds throughout the following correction has lost nothing but is left with a gain of £65k after the crash (but less of a gain than he would have had if he had sold at the peak). The second example sustains the loss. There are all kinds of permutations in between depending on when the person buys and sells.

The bottom line is simply this: the UK housing market is characterised by booms and busts. Depending when you buy in the cycle will determine the amount you will make or lose when and if you decide to sell. If you are in it to make money follow the simple maxim: buy low (at the bottom of the cycle) and sell high (at the top of the cycle). The trick is knowing when the top and bottom have been reached. I bailed a year too early(hard to judge the precise top) but made more in equities than if I had held my house so it was not a problem for me.

Edited by Realistbear

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In simple terms:

If a house is bought in 1996 (at the end of the Great Crash trough) for £100k and is held until the peak of the market in 2005 when it hits £230k a correction that follows the historical pattern will see 50% wiped off the gain, or about £65k.

Yes but my point is that simply isn't the historical pattern. That's what happened last time, granted. But the previous times prices stagnated so there were real falls, but nominal stagnation.

So your statement only makes any sense at all if we take it to refer to real prices - it sounds to me like it is an observation that comes from looking at the adjusted real prices graph where there are rises and falls. In that case the nominal fall will be more like 10-15% or so based on your assumptions.

If that's not what you're basing it on, then your statement is simply wrong as that isn't the historical pattern in nominal prices, only in real prices. Personally I don't think the historical patterns have to be repeated anyway, (meaning you could have big falls in any case) but if you're going to appeal to the historical pattern as something inevitable, you need to be clear on whether you are talking nominal or real.

So you're either completely wrong or slightly wrong.

Edited by Magpie

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Yes but my point is that simply isn't the historical pattern. That's what happened last time, granted. But the previous times prices stagnated so there were real falls, but nominal stagnation.

So your statement only makes any sense at all if we take it to refer to real prices - it sounds to me like it is an observation that comes from looking at the adjusted real prices graph where there are rises and falls. In that case the nominal fall will be more like 10-15% or so based on your assumptions.

If that's not what you're basing it on, then your statement is simply wrong as that isn't the historical pattern in nominal prices, only in real prices. Personally I don't think the historical patterns have to be repeated anyway, (meaning you could have big falls in any case) but if you're going to appeal to the historical pattern as something inevitable, you need to be clear on whether you are talking nominal or real.

So you're either completely wrong or slightly wrong.

The Nationwide graph shows peaks and troughs. The trough that followed the Great Crash (1989-96) bottomed at about 50% of the peak. The Big Crash (1977-83) was roughly the same with a 50% adjustment. IMHO it will repeat itself this time around.

If you factor in inflation the figures will, of course, be different. But inflation is an unknown as we move into the next correction. My only point is that the boom and bust pattern tends to repeat itself and that corrections are sharp to the downside and represent an approximate 50% drop from the previous peak as you examine the Nationwide chart. The "real" prices that flow from the correction have to be determined in the light of inflation and adjustment to value--if your house drops 99% along with everyone else's house the correction is notional. If, however, you have real debt that has to be repaid and your house becomes next to worthless there is a problem. The affects of a crash are myriad and depend on the individual's debt status, when he bought and sold, what he intends to do after selling--buy back in or move to a less expensive area etc.

The bottom line remains: boom and bust. Buy low and sell high if you are in it to make money or need to sell to avoid financial stress.

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In even simpler terms – this “historical rule” says that the exit price is the average of the previous trough and peak. Does it fit the historical pattern (i.e. more than one cycle) for either nominal, or real, or maybe the price to earnings ratio, or anything else? If only the market were so easily predicable :D

The idea is road tested here - took it out for a spin to see how well it did.

llink: http://www.housepricecrash.co.uk/forum/ind...ndpost&p=298010

Edited by spline

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In even simpler terms – this “historical rule” says that the exit price is the average of the previous trough and peak. Does it fit the historical pattern (i.e. more than one cycle) for either nominal, or real, or maybe the price to earnings ratio, or anything else? If only the market were so easily predicable :D

The idea is road tested here - took it out for a spin to see how well it did.

llink: http://www.housepricecrash.co.uk/forum/ind...ndpost&p=298010

Thanks spline - so it's shaky reasoning based on shaky foundations...

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Cheers Magpie – But of course the “historical rule” is only really approximate because it neglects the mutation rate of the avian bird flue virus. :)

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Cheers Magpie – But of course the “historical rule” is only really approximate because it neglects the mutation rate of the avian bird flue virus. :)

You have to avoid the tendency to neglect the forest because of the trees. The variations based on notional, nominal, actual, inflation adjusted, historical, stocastic and trend line pricing has a tendeny to obfuscate the simple fact that house prices in the UK follow a boom and bust pattern. The bust follows the boom. The bigger the boom the bigger the bust. The troughs tend to be about 50% below the previous peak. All referenced to the Nationwide Chart.

You can read into the chart any number of things but the bottom line gives the following:

1. House prices follow a boom and bust pattern

2. The depth of the trough in relation to the previous peak tends to be at 50% of the peak--in real terms.

3. The Nationwide Chart is based on "Real" House prices and is thererfore a guide.

4. If you base your house buying and selling on the chart you are less likely to lose money (assuming you follow the buy low-sell high rule).

5. It is possible to maniuplate the Chart by reading into it alll the variables which it is not intended to relfect.

6. If you take a £100k house at the previous trough and apply the peak you will have a £230k value. If you hold the house to the next trough it will have that value less 50% of the increase.

7. We have had the boom, next comes the trough.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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