Thursday, February 14, 2008

This guy is predicting 70pc falls

Asset Deflation 13: Sell Your Real Estate Immediately!

Given my grave doubts that a combined Fannie Mae, Freddie Mac crisis plus credit-derivatives-nightmare can be averted as asset deflation intensifies, I now expect a frightening systemic event in the U.S. at some point, possibly within the next few years, which will take property values out at the knees and cause transactions to come to an utter standstill for a time. At that point I expect loans to become almost impossible to get and buying psychology to be so damaged, a generation of people will tell you "you should never buy real estate." Regardless, the economy will be shaken by these unfolding events to the extent that the mere thought of buying real estate (absent a massive cash discount) will be considered by most a preposterous notion.

Posted by sold 2 rent 1 @ 02:11 PM (1400 views)
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14 thoughts on “This guy is predicting 70pc falls

  • Hi all
    Please don’t shoot me down for the off topic missive, but can any of you younger computer literate bods help me out here?

    I’ve just got rid of the old dial-up internet and got Pipex broadband. It mostly works ok and I can now enjoy video clip links posted on HPC. Trouble is, some websites are no longer accessible, and many of the links on this site don’t work any longer. Also, I’m unable to access eg Halifax online service etc for online banking. I just get the ‘internet explorer cannot display —- ‘ message. I haven’t made any other changes on the PC, so what’s happening?

    Please help me out as not having full access to HPC links is spoiling my enjoyment of the site (creep creep).

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  • When buying real estate becomes a proposterous notion then that’s probably the best time to buy.

    p. doff – did you have to run a disk to help with the setup, I know a lot of the broadband companies give you anti virus and internet security tools, these block ads and cookies from perfectly legitimate sites and can stop entire sites working. You might be able to uninstall that and just download your own choice of anti virus like AVG and just be carefull what you click on or open and use your common sense and you shouldn’t need an internet security suite.

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  • sold 2 rent 1 says:

    Sounds like the your ISP is having problems resolving domain names to IP addresses.
    Best contact your tech support.

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  • japanese uncle says:

    I am often suffer IT problems as I have no systematic understanding about the issue. Good luck.

    Anyway this prediction is probably the most honest and precise one I have seen in years.

    The end is nigh indeed.

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  • Getting back on topic …

    A 60% fall is what’s required to get back to the long term average, so an overshoot on the way down to 70% isn’t that big. If anything, his prediction is a bit on the optimistic side.

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  • new user 2007 says:

    Not an IT person, but..I would also check your firewall. The security settings maybe set too high, so some site links are blocked.

    Regarding the story. Despite being a bear, even I think that is unlikely. In that scenario, I would indeed agree with the VI optimists here, that I would be unlikely to have the ability to buy a house as I could lose my job.

    I would add that even during the Depression, 75% of people still had jobs, but got to enjoy life even more as everything became cheap, albeit I suspect not too cheap as I salaries probably fell or stagnated.

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  • theboltonfury says:

    it’s a fine line – on one handing looking for a serious price drop, but on the other being aware that this will mean almost certainly arduous economic times during this time. Personally, I’d rather have a job than have a raft of houses to chose from but only my dole to use as a deposit.

    careful we don’t want too much or it could really bite us on our derrieres. Let’s meet half way and have a nice correction, but not doom monger about 10 years of depression. I believe both can happen

    just a thought

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  • ‘careful we don’t want too much or it could really bite us on our derrieres. Let’s meet half way and have a nice correction, but not doom monger about 10 years of depression. I believe both can happen’

    Sadly the communal madness may have gone on for too long to make a moderate correction that affects only property rather unlikely.

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  • I am a committed bear like many I think there will be a large correction in house prices over the next couple of years, I cannot however see how this could be more than 30%.

    In my area (East Midlands Villages) a reasonable building plot with DPP for a 250 sq m house (incl garage) would currently cost around £250k.

    The build cost would come in at around £250k (£1000/sq m), total cost £500k, which is about the current market for such a house in the area (so no profit for self build)

    If the property market goes down by 50%, that would suggest the land is worthless, now that cannot be right.

    If the property market goes down by 30% the land is worth £100k, which is as low as I can envisage.

    Am I missing something or is this just a reflection of my local market?

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  • sold 2 rent 1 says:

    wdbeast,
    If land falls by 50pc, construction costs will fall massively too.

    theboltonfury,
    “Let’s meet half way and have a nice correction, but not doom monger about 10 years of depression.”

    You talk as if we have a choice we can vote for.
    This is a 60 year debt bubble bursting, but the debts are much bigger and worldwide compared to the US debt bubble of the 1930s

    Put simply, life is about to change on a scale most people cannot imagine

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  • r2r1; sorry, I’m still confused.
    Why would construction costs fall?
    We spend a lot of time on this blog talking about inflation, why would this not apply to constuction (labour and materials)

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  • sold 2 rent 1 says:

    The deflationary forces that will occur with a 50pc fall in HP will be massive.
    Unemployment will rocket and wages will tumble.

    There are only 2 outcomes here – hyperinflation or deflationary depression.

    If we go down the hyperinflation route then house prices will go to the moon along with everything else and money will become worthless.

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  • mark wadsworth says:

    A 70% fall in house prices is highly unlikely, even if they fell back to 1995 levels, they’d only halve (and having sold-to-rent, I hope they will!!). But that’s not the point – assuming that the cost/value of the bricks and mortar is pretty stable, land values (total property values minus rebuild costs) did fall by about two-thirds in the early 1990s. I bought a house in 1998 for £95,000 and the rebuild costs per insurance quote were £110,000. When I sold it recently, the land/location value was about £200,000.

    OK, the insurance company exaggerated a bit, but even if we knock that down by 20%, the land/location value was worth no more than £7,000. And my council tax was over £700, so about 10% of the land/location value. Had Labour had the guts to replace Council Tax with Land Value Tax at 10% of land/location values back in 1997, then this would have acted like an extra 10% interest rate on land values, so we’d have had no bubble, a stable and fair type of taxation etc etc.

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  • sacred contracts says:

    Last year I got a building company to give us a quote for some work. The person who came round to do the quote was very interesting. He was quite old and had seen the building industry through several cycles. On meeting us he seemed to judge that we would not be interested in wasting our money. He effectively told me that the workforce are paid very little but the building company is taking huge profits.

    There is plenty of room for lower building costs if competition increases – its all the money that’s been sloshing around in association with property that has pushed build costs up so much at the moment.

    His tips included:

    * Hire your own scaffolding – there will be a huge mark-up on it if hired through the builder
    * Agree a price, and then arrange to pay it off in interest free lumps once the work is done

    His words rang true as I already had the discrepancy in figures for a stonemason to do some work for us and the same stonemason doing it via a different builder.

    We employed the stonemason directly and he’s been brilliant!

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