According to Tom Barrick, allegedly the greatest real estate investor on the planet, the global outlook is continued ugly. Commercial is beginning to follow in Residential’s downward spiral, and he predicts further regional bank failures as a direct result. Though Barrick had the foresight to exit US real estate in 2005, he is still gravely concerned about his $40 billion business portfolio. We have certainly seen a fair amount of business closings and job losses right here in town, but there have been a few new openings as well. Nonetheless, this video is not for the faint of heart. Thanks again to Incline Jim for another great link.
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Zen
OK Diane, since you through this out, have you gone all in with an ultra short financial etf such as SKF? If not, why?
Incline JJ
The Savings & Loan crisis of the mid 80’s to early 90’s was started with the commercial real estate tanking.Same thing..Too much easy money was lent out..Lax appraisals and people got money to build projects they shouldn’t have.
Companies cut back employees thus need less space..close divisions and field offices, need less space, go bankrupt or merge to survice need less space..
This loan mess started in Residental and will go to commerical next..then credit card defaults..
Reno Ignoramus
Diane, remember back in the early days of your blog when you used to quote people like David Lereah, Leslie Appleton-Young, and Lawrence Yun? Remember every month when you used to post your Chase kool-aid charts telling us that the bottom was in? Remember the very first time the thing known as a “short sale” was discussed here? Remember when people didn’t know what “REO” stood for?
As we approach the three year anniversary of the blog, it’s enlightening to realize how much ground has been covered here. Tom Barrick is about as far away from Leslie Appleton-Young as one can get.
Maybe we ought to have a 3 year look back contest and ask people to offer their suggestions for the best thread, best one liners, etc. Maybe the best flame throwing award, like when Bantering Bear and Allen used to get into it. The winner gets a free beer at Smarten’s 1/11/09 “bottom” party?
MikeZ
OK Diane, since you through this out, have you gone all in with an ultra short financial etf such as SKF? If not, why?
I’ve been riding the Ultras and Ultra shorts for the last 3 mos and have made some very good $.
DDM just paid off with a 20% gain ($25 to $30) after 3 days.
I certainly wouldn’t go all in or even hold these ETFs in this volatile market. Why hold, when yuo can turn 10% a month?
Allen Murray
I quit posting on this blog many months ago as I saw it turn from an informative blog to a personal bash session. Its unfortunate as I, and others I’m sure, have information that could be shared to the benefit of the reader, but don’t have the time or energy to defend the barrage of personal attacks and misguided assumptions that follow. I think Wayne Cappurro should be commended for trying to defend himself on this blog, and perhaps readers will realize how classless some of the other posters can be.
Survival is the new win right now, many of us are trying to do just that. I do feel for the people who took zero risk and are going to help pay for this mess by losing their retirement or by paying higher taxes for years to come. On the flip side, risk taking and ability to financially benefit from it is was made this the richest and most powerful country on earth in a relatively short time. Perhaps those of you who are complaining the most about this downturn, would prefer a more stable economy. Bantering Bear, I hear the weather is nice in Cuba…….
Sully
Allen, good to hear you’re alive and hopefully “well” also. Happy Thanksgiving!
BanteringBear
It should be known that I did write Diane last night to apologize for using the words “scumbag” and “jack@ss”. It was in poor taste, and it won’t happen again. I stand behind everything I’ve said on this blog, though sometimes my delivery has been a tad raw. But, I’m not here to win the Mr. Congeniality award.
You know, Allen, I don’t believe you have any valuable information to share. Why? Because you never have shared anything valuable. I mean, if blathering on about perceived personal successes counts, then maybe you have added something. But, your first appearance on this blog was to bash me, for crying out loud. And, here you are again, taking a little jab. Talk about the pot calling the kettle black!
You’ve added virtually nothing to the discourse, Allen, and this latest appearance is more evidence of that. And, I don’t think you know a thing about “survival”. Going to daddy’s safety net for personal loans or “gifts” which run into the hundreds of thousands of dollars doesn’t qualify as hardship. Get real.
PS- It’s been entertaining to watch you follow the market down with those chintzy price cuts on that anchor of yours. You’re only $250k or so behind the curve…
Allen Murray
Do I need to say more? Cheers All, Happy Thanksgiving! You too BB.
DonC
Until the last couple of months REIT’s had held up surprisingly well. When they recover will depend on (1) when the financial system starts functioning better and (2) when the economy recovers. Those things are really unknowable.
I don’t BTW think that Barrick is the Janus face of Lawrence Yun. Yun was more or less a shill for hire in the guise of an economist. Barrick is an investor saying little more than what most people can see — commercial real estate is headed for some challenging times. But don’t think for a minute that he doesn’t have an agenda.
AFAIK the big problem will come next year as many lenders which have been extending construction loans. The incoming administration may pressure them to offer take out financing since many of the developers are not in arrears, but that remains to be seen.
One point in favor of commercial is that it was not the source of the problem. Commercial dragged down residential in the 80s, but since residential was not a problem per se it popped back fairly quickly. We may see the opposite here.
DonC
I join Allen in wishing everyone a Happy Thanksgiving.
smarten
Hello Allen. Nice to hear you’re still “lurking.”
Surprise; I disagree with BB. I think you’ve added quite a bit of positive to many of the discourses we’ve had over this blog [especially when it came to rental properties, non-owner occupied financing, cap rates, etc.].
I wish you and all the others on this blog [even BB] a very Happy Thanksgiving!
billddrummer
Happy Thanksgiving to all of you who can afford to eat.
billddrummer
My error. I should have said to all of US who can afford to eat.
Diane Cohn
Zen, though I may watch the financial markets, I don’t play them because I don’t know enough about it. Right now I’m thinking cash is nice, a conservative viewpoint, I know.
RI, love the trip down memory lane idea… I’ll start (because I know this will come up anyway) what did I say back in 2005 about the bubble being an unimaginative metaphor? 😉
BB, all is well.
All, you probably noticed I took down the Wayne’s World post… It just wasn’t appropriate for this forum given that Guy, JoAnn and I still work in this town and depend on the goodwill and cooperation of our colleagues. So, thanks everyone for letting it go.
My very best wishes to all of you this Thanksgiving. I am truly grateful for the participation and contribution that each and every one of you bring to our lively conversation here on RRB.
RGJ
So, it’s OK for the usual RenoRealtyBlog bullies to be belligerent to everyone else, just not to to the president of the Board of Realtors?
Prior to removing the post and comments, your last comment was that disrespectful comment will not be tolerated….. is that from this point forward? Until now, this blog has been little more than the usual bullies with nothing else to do with their time – taking pleasure in the financial destruction of others (as in that of Mr. Capurro).
Diane, without allowing belligerent comments from your usual misfit posters, you do not have a blog! Hope it is worth it!
BTW, I wish Wayne Capurro & family as well as everyone experiencing financial problems the best of luck! Happy Thanksgiving!
billddrummer
To RGJ,
Sorry I seemed petty before, but I’ve had about enough whining from people who’ve earned 5-10x more than I have over the past 10 years.
Work hard, keep your mouth shut, and maybe, just maybe, you can afford to buy your daughter an iPod for her 18th birthday.
Wait, I’m sorry–I was substituting myself again.
I apologize.
BanteringBear
Apparently she’s doing something right, RGJ, as you’ve continued to read despite all of your wailing. Think about it: if the blog’s number one critic is still around, she must be doing something right!
Thank god Diane hasn’t caved in to all this whining from you, and all of the other crybabies. Speaking of caves, you can crawl back into yours now, and we’ll expect to hear another round of whimpering from you sometime in the spring. Buh-bye!
BanteringBear
Marketwatch headline:
“This rally’s no turkey”
Hmmm. It may not be turkey, but it’s bologna. Though the market posted it’s 4th straight day of gains, does anyone think it’ll last? I sure don’t. Personally, given the current economic situation, I think the DOW is headed down into the 6000 range, and that might be generous. This is just a hunch, and anyone’s guess is as good as mine.
GreenNV
Diane has asked me to clarify that I was the one who pulled the Fearless Leader post from ChaseNation – sorry, no conspiracy. It did manage to eke out one comment over there, in line with most of the comments posted here on RRB. The post is still alive, just moved off RRB. Clicking GreenNV should take you there.
I echo the sentiments wishing all of you a happy Thanksgiving. Mr. Goober Eyes gets the dark meat, I get the white, and we are both happy campers!
KB
I did not have the opportunity to see Mr Capurro’s response to the post on his former home. Can you put up his post so readers of this blog can see his viewpoint as well.
MikeZ
PS- It’s been entertaining to watch you follow the market down with those chintzy price cuts on that anchor of yours. You’re only $250k or so behind the curve…
Allen, welcome back! How much are you bleeding monthly these days on that for sale?
$6K? $7K? $8K?
cash buyer
http://www.youtube.com/watch?v=bNmcf4Y3lGM
Incline JJ
351 California Street in Downtown San Francisco is Foreclosure sale and the owners filed Bankruptcy..You know the poop is going to hit the fan hard when the prime SF downtown Real Estate starts to get foreclosed on..
Just like the house of cards in housing..too much debt..brings them all down sooner or later
SmartMoney
I wonder how Diane’s house sale is coming along?
Diane Cohn
RGJ, I guess I would say that the Wayne post was just a little too personal, using real names, real home address information and pointed public humiliation… it just didn’t feel right, so I had to remove. Sorry, but this is a small town, and again, as real estate professionals we have to cooperate with our colleagues… meaning Guy, JoAnn and I have to maintain the respect of our peers to get the best deals done for our clients.
KB, sorry, can’t repost. Essentially we’re in hard times and realtors certainly aren’t immune.
SmartMoney, we gave up trying to sell. Too much loss to stomach. When we move, we’ll rent out and suffer the headaches that ensue.
Rhodent
Not to worry, Diane. The value of your depreciating asset might be back equal to what you paid for it no later than 2015-2016. In nominal dollars. Adjusted for inflation, your house will likely never get back to what you paid for it.
The view from here is straight down. You are going to be living with the consequences of the ‘unimaginative metaphor’ for a long time.
BanteringBear
Diane posted:
“…we gave up trying to sell. Too much loss to stomach. When we move, we’ll rent out and suffer the headaches that ensue.”
This is a losing strategy, but really, there is no ‘win’ for people in Diane’s position. She, like many others, paid (or borrowed) a huge sum for a house which has plummeted in value. The more money one put down, the worse a situation they are in. Why? Because if they have very little skin in the game, they can just walk away, taking a brief hit on their credit, and soon it will all become a distant, albeit unpleasant, memory. This is the best decision, financially speaking.
But it becomes more difficult and frustrating when one has put down hundreds of thousands of dollars. People have a hard time convincing themselves that abandoning that phantom equity is a smart move. So, they cling to a false hope that someday it will come back. It will not, in terms of inflation adjusted dollars. The money is gone.
Renting out a beautiful house at a monthly loss will take its toll in the long run, and many in Diane’s position will default down the road, after they’ve had enough of subsidizing rent, along with vacancies, repairs, maintenance, etc. It’s a grind, and not a pleasant one. Most of these unintentional landlords will be flushed, in due time.
CommercialLender
BB and others,
We are now in a de-flationary time, but I know of very few who don’t otherwise predict some big time inflation coming down the pike if for nothing else to pay off, what, $8 Trillion in new gov’mt [borrowed] spending? So, at what point do we cross over from de- to in- flation? The question is very important, because if people like Diane (and let’s admit, many of us) could hold on for X period of time we might just find out that inflation bails us out in the end.
Look at the late 1970’s when homes were being bought for $30K against $9K salaries, only to see incomes increase at a rapid pace a few years later where many incomes were then equal or in excess of their home mortgages.
The fact that many cannot or will not hold on is what is deflating the housing market now: borrowers and bankers alike are increasingly not able to hold on. Will the economy in fact turn to a high degree of inflation? Stagflation? Any guess as to how soon?
BanteringBear
I don’t buy into the inflation argument. If it’s to be so, then what’s the hold up? Simply put, we already had inflation over the course of the past several years. The amount of money sloshing around in the system was unbelievable. The current rate of wealth destruction now dwarfs that of creation. We are in a period of huge job destruction, which leads to LOWER salaries, which leads to less demand for homes (amongst other things) and larger inventories, and lower house prices. Enjoying deflation? It’s nasty.
homepop
A future period of inflation is inevitable, because the bailout money that will be given away over the next year or more is not real. It doesn’t exist today. The Treasury will have to print out an extra $T+ eventually to cover these give-aways, and that it when we will see inflation.
Timing is crucial, because when we are in deflation, cash is king but during inflationary periods cash is progressively worthless and debt is king. If you are waiting to buy a home, you will have to do as good a job at timing as you can; if you go to Ben Jones’ housing bubble blog there are frequent discussions of how to estimate the timing of market forces re: housing.
On another topic, people in Nevada with other assets (or even an income) better be careful about just walking away from a mortgage, because I believe that in Nevada the lender can go after other assets (or garnish wages), unlike in California, which is a non-recourse state. At lease, that is what I have been told.
BanteringBear
You seem to be ignoring the fact that money is going up in smoke, homepop. The wealth destruction is more than mitigating any possible inflationary effects of the bailout funds. Again, if inflation is inevitable, then why isn’t it happening? We already HAD inflation.
Going into debt right now is the most foolish thing one could do. You’d be paying for it with more expensive dollars moving forward. No debt, with cash is the position to be in. Inflation and recession are mutually exclusive- it’s one or the other. We’re heading into the Greater Depression. Inflation? Not anytime soon, that’s for sure.
homepop
I get a federal pension that is indexed to the CPI, and we are getting a 5.8% bump this year, which is the largest YOY increase in the past 10-15 years.
Despite that, I do not believe that we are currently experiencing inflation. We are more in a deflationary phase, and cash is king, debt is bad. We agree on this.
My concern is that eventually the Treasury is going to have to pay for all its bailouts. This could be years away. The government doesn’t create wealth, but it can print money. It will balloon the money supply to cover these debts, and there is our inflation. Too many dollars chasing too few goods. When this happens it is better to be in debt so that you are paying it off with cheaper dollars than you borrowed.
I don’t think we really disagree about any of this.
BanteringBear
We will have to see wage increases and an economic recovery of sorts in order for this inflation scenario to play out. You don’t get wage increases with skyrocketing unemployment, and a reeling economy. I do not see this happening in the near term. If there is to be inflation, I would expect it to be years in the future. It seems to me, from what I’ve read, that we’re currently experiencing a deflationary spiral, and staring down a liquidity trap.
CommercialLender
Good ‘bantering’ from the both of you. Here is what I suspect we’ll see: de-flationary spiral for oh 6-12 more months, then when the economy is caput (‘stagnant’), you’ll see the M1, M2 and M3 money supply really kick in (guess which one the govt stopped reporting a few years back, after a few years of ‘bubble’ growth, presumably so we would not notice?). That’s called inflation. Add ’em together and welcome back the Carter Administration – we’ll be in a mighty dismal and painful StagFlation all over again.
Obama hired Voelcker himself on his economics team, so provided he sticks around (he’s 82), he’ll want to see Bernanke reverse the Fed’s current monetary policy. (If not, my recommendation is to study up on the past 2 decades in Japan).
If I’m correct, I think you play it like this: fiercely protect your cash positions now, buckle down and stay out of debt, keep your income protected, then buy your house in 12 months from now complete with reasonable, not toxic, debt using a low debt service ratio.
Sully
CL – I agree with your scenario.
homepop
Thanks, CL.
My intuition has been similar to your scenario. I am only concerned that more government intrusion in the process will keep pushing into the future the “safe” time to buy again.