Drew Dowdell

Is there a recession looming?

38 posts in this topic

For those of us who work in real estate, when we hear that question it feels like we're wearing night vision goggles and standing on the prow of the Titanic while the Captain shouts down "Do you see anything ahead?". We're shouting back, but he can't hear us.

Since December 2006, 170 mortgage lenders have shut down. The job loss involved in that is simply staggering. Many of these companies have anywhere between 100-500 employees, some are much larger. Assuming 300 as an average, that would mean at least 51,000 people have lost their jobs since December 2006. If GM or Ford fired 51,000 people it would be front page of the New York Times, but because the losses are spread over 170 companies no one notices that they're all in the same industry.

Here in Pittsburgh, the real estate market never had a "bubble". Market values remained steady and quite low throughout the time the bubble was inflating elsewhere. Over the past six months the market for $200k plus homes here has completely collapsed. Today there are 9654 single family homes for sale in a county with a population of 1.2 million. That is 1 house for sale for every 124 people in the county. This is the same ratio many "bubble" markets experienced when the bubble first started to pop. Again, we're not talking Southern California or Miami here.... this is Pittsburgh. Now wait till January when many of the adjustable rate mortgages sold in 2003 being to adjust and the people who are just making it suddenly see their payment jump by $300 a month. The foreclosures will start in mid June and hit record levels in late summer early fall. For those that can avoid foreclosure, that $300 per month has to be taken out of the economy. Watch sales of vacations, automobiles, appliances, computers, and home improvement supplies all tank.

Imagine how Joe and Jane Suburb are going to feel in October when their McMansion has been foreclosed on, they can't buy that new truck, they couldn't go on that vacation they took every year.

By next November it'll all be over but the shouting and who are they going to blame when they go to the polls?

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depending who you ask... we could be bottoming out compared to how much the dollar was worth before WW1, on the "gold-standard".

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Unfortunately it's not just mortgage brokers and we don't have to wait for new Years either. I have son in laws in the automotive business (car hauler) construction (commercial) and printing. The turn down/recession/depression has already started.

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I was just using the mortgage industry as an example because it's what I know.

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Well, it had to end at some point. This 'consumer-driven' growth spurt of the past few years has been built on people's cashing in equity on their homes and spending. Since so many of our jobs have been off-shored, it has only been the money managers and paper pushers who have been making money these past few years.

As I have time and time again pointed out, Wallstreet generates nothing other than paper wealth. Pundits laugh at the plight of the 'fly-over'' States, but it is those hobbled states that built the U.S. Now that they are a shambles, who is left to generate the jobs for the next cycle?

I know of several people who are leveraged to death, literally. They bought second and third homes to rent out, fooled by all the 'cheap' money. Since both Canada and the U.S. have gone from nations of net 'savers' to net 'borrowers,' where do you think all this 'cheap' money has been coming from this past several years? :scratchchin:

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Quite honestly, I don't know. Best advice I can give at this point is to live as debt free as possible.

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Quite honestly, I don't know. Best advice I can give at this point is to live as debt free as possible.

currently that is probably a good idea, its always a good idea to have invenested in homes, only at which you can clearly afford the morgage you are getting...

my parents are extremely leveraged, owe some 3 million on 5 million of assets... they've purchased before and durring the boom... its been good for them, but they still havent cashed in, and have no intentions... only to grow it...

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I cannot fathom a scenario where no debt is a bad thing... which is why I make it a point to have none.

The 'keep liquid' theory sure gets more appealing with recent news; I was listening to financial AM radio today (I know- what a party animal) and at one point I said to myself 'sell everything' {stocks}, but the market ended up just about flat today- in fact, most of my holdings crept up. Most 'pros' offering their market advice say there's money to be made in any market, and this certainly opens up some bottoms... if you can spot the actual and not grab hold only halfway down. I will continue to play the market as I continue to learn about it.

One analyst on the radio predicted the bottom for real estate may not hit until 2010. Yikes.

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I cannot fathom a scenario where no debt is a bad thing... which is why I make it a point to have none.

The 'keep liquid' theory sure gets more appealing with recent news; I was listening to financial AM radio today (I know- what a party animal) and at one point I said to myself 'sell everything' {stocks}, but the market ended up just about flat today- in fact, most of my holdings crept up. Most 'pros' offering their market advice say there's money to be made in any market, and this certainly opens up some bottoms... if you can spot the actual and not grab hold only halfway down. I will continue to play the market as I continue to learn about it.

One analyst on the radio predicted the bottom for real estate may not hit until 2010. Yikes.

Well.. of course no debt is a good thing.... but I no longer have any investment advice that I can feel confident in giving. I'm in real estate as a buyer and I'm even scared of what's going to happen.

I don't want to be chicken little, but the potential problems our economy is facing as a whole look very very bad.

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I cannot fathom a scenario where no debt is a bad thing... which is why I make it a point to have none.

The 'keep liquid' theory sure gets more appealing with recent news; I was listening to financial AM radio today (I know- what a party animal) and at one point I said to myself 'sell everything' {stocks}, but the market ended up just about flat today- in fact, most of my holdings crept up. Most 'pros' offering their market advice say there's money to be made in any market, and this certainly opens up some bottoms... if you can spot the actual and not grab hold only halfway down. I will continue to play the market as I continue to learn about it.

One analyst on the radio predicted the bottom for real estate may not hit until 2010. Yikes.

Wise sage...

As a consumer "liquid" theory is best.

As a business owner/investor/employee/etc, debt is great. What has fueled much of the market growth is redistribution of wealth as opposed to creation of wealth. Most of that takes the form of debt.

All in all, the other problem so many are having is that healthcare has not gotten cheaper. Housing has been inflated for so long people have lost touch with what the "actual" cost of their home is. Cars, cars, cars... we all love them and that is why we are here but, honestly can you name 20 people that have owned their current car for longer than 5 years??? Consumer spending it seems has been on the rise even if the goods are cheaper than they were in the 70's (adjusted for inflation of course). It all adds up to debt.

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Cars, cars, cars... we all love them and that is why we are here but, honestly can you name 20 people that have owned their current car for longer than 5 years???

Not me... :( But then again, I haven't spent more than $5,250 on a car, and the one I'm currently driving I only paid $1,000 for. :) I drive 'em cheap, and til they die! Fix 'em myself, too. That's cheap transportation!

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In California housing prices have fallen about 15% to 20%, back to 2004 levels, and they will probably drop further. With the tightened credit market, people are not going to be spending much, and people can no longer refinance to get cash out of their homes. Our society is so consumption-oriented that I think a slow-down to a recession is inevitable, though Alan Greenspan apparently thinks otherwise.

As for myself, I no longer have the urge to get a new car every two to three years. New cars are perhaps the biggest money pits around. I have 10 years left on my mortgage and can pay it off much sooner, but with a fixed 4.75% interest rate, I have no incentive to do so when I can invest at a higher rate.

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I paid off my house in 11 years- saved $75K there (@ 8.125 & 6.125%). I did not have nearly enough money or knowledge to come anywhere close to that in the investment market in 11 years; it's not just the interest rate difference- the way morgages are structured with compounding interest- you pay far more than you think you are. bobo- do you have an amortization schedule for your morgage? Even with the tax deduction for morgage interest... unless you are a Warren Buffet or have --Idk-- $50K to play with, I don't think you can come out ahead with investments vs. eliminating your morgage as early as possible. It's possible, but seems highly unlikely.

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"Investing" in real estate is a fools paradise. It's a scam—nothing more than an enormous pyramid scheme. Unless you're actually building something, you're just hoping the next sucker is going to be stupid enough to pay more than you did—as people are now finding out, there isn't always going to be a "next sucker." An "investor" who buys property for the sole purpose of renting it out is nothing more than a scalper—they don't create value, they just drive up the price of property and increase the number of people who can't afford to buy themselves. This correction is going to hurt, but you should feel lucky. You now have an opportunity to correct past problems with lending practices, and ban those that contributed to the over-leveraging that caused this mess—place restrictions repayment periods and limit repayments to a lower proportion of household income. It will limit future growth in home prices, but will keep housing affordable and avoid the problems you have now. While prices were so high, such restrictions would have been unpalatable to current homeowners who already paid too much, but now prices are crashing anyway, it doesn't matter anymore. Not everywhere in the world is facing a real estate crash that will make such reforms acceptable to voters depending on their homes appreciating even further.

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"Investing" in real estate is a fools paradise. It's a scam—nothing more than an enormous pyramid scheme. Unless you're actually building something, you're just hoping the next sucker is going to be stupid enough to pay more than you did—as people are now finding out, there isn't always going to be a "next sucker." An "investor" who buys property for the sole purpose of renting it out is nothing more than a scalper—they don't create value, they just drive up the price of property and increase the number of people who can't afford to buy themselves. This correction is going to hurt, but you should feel lucky. You now have an opportunity to correct past problems with lending practices, and ban those that contributed to the over-leveraging that caused this mess—place restrictions repayment periods and limit repayments to a lower proportion of household income. It will limit future growth in home prices, but will keep housing affordable and avoid the problems you have now. While prices were so high, such restrictions would have been unpalatable to current homeowners who already paid too much, but now prices are crashing anyway, it doesn't matter anymore. Not everywhere in the world is facing a real estate crash that will make such reforms acceptable to voters depending on their homes appreciating even further.

Excuse me? Scalper? I buy apartment buildings that have been foreclosed on and are in serious need of repair and bring them back onto the market. It better damn well add value since I drop at least $15k on each one in repairs not lots of my own time doing actual work. Why should I not be able to profit from my labor?

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Best advice I can give at this point is to live as debt free as possible.

:yes:

Whatever happened to the idea of saving money to buy something?

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Excuse me? Scalper? I buy apartment buildings that have been foreclosed on and are in serious need of repair and bring them back onto the market. It better damn well add value since I drop at least $15k on each one in repairs not lots of my own time doing actual work. Why should I not be able to profit from my labor?

Wouldn't that count as the "building something" I mentioned? Most people don't do that though—they simply bid up the price of already well-maintained property. Affordability is irrelevent—the mortgage will be paid by tenants and any deficit can be written off against the capital gain. If they drive potential homebuyers out of the market, well and good, that just increases the demand and price of rental housing.
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As a rule of thumb you should aim to have 6 months income in a high-interest savings account (in the US that maybe an oxymoron), term deposit or CD. It's not a great investment, but that's not what it is for. It's to cover extraordinary expenses (delays in insurance settlements, deductables, short-term unemployment etc.). After that is established, you should be spending a third on housing, a third on regular expenses (necessary or otherwise) and a third on investment. A credit card is great for managing cash flow, but you should not be carrying any debt on it beyond the monthly statement.

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"Investing" in real estate is a fools paradise. It's a scam—nothing more than an enormous pyramid scheme. Unless you're actually building something, you're just hoping the next sucker is going to be stupid enough to pay more than you did—as people are now finding out, there isn't always going to be a "next sucker." An "investor" who buys property for the sole purpose of renting it out is nothing more than a scalper—they don't create value, they just drive up the price of property and increase the number of people who can't afford to buy themselves. This correction is going to hurt, but you should feel lucky. You now have an opportunity to correct past problems with lending practices, and ban those that contributed to the over-leveraging that caused this mess—place restrictions repayment periods and limit repayments to a lower proportion of household income. It will limit future growth in home prices, but will keep housing affordable and avoid the problems you have now. While prices were so high, such restrictions would have been unpalatable to current homeowners who already paid too much, but now prices are crashing anyway, it doesn't matter anymore. Not everywhere in the world is facing a real estate crash that will make such reforms acceptable to voters depending on their homes appreciating even further.

:lol: A little harsh perhaps, but nonetheless fairly accurate. Frankly, all forms of business are pyramid schemes of one sort or the other. Since there are literally millions of sq miles of uninhabited land (except maybe on Manhattan!) in the U.S. and Canada, most real estate appreciation is artificial. Like gerbils, we climb on that little plastic wheel and run like crazy, hoping to get ahead at some point in our lives. We are brainwashed from near birth that growth is good and consumerism is a God-given right. Malthus was perhaps off by a few decades, but rampant growth cannot remain unchecked forever. How big does the base of the pyramid have to get before it covers the Earth?

As to whatever happened to saving up to buying something - that went out of fashion with hand-wringer washers and single bathroom homes. Just look at what our grandparents had available to them to spend their money on and look at what we have available to us - and like pushers, TV and the media tell us we all gotta have it!

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I paid off my house in 11 years- saved $75K there (@ 8.125 & 6.125%). I did not have nearly enough money or knowledge to come anywhere close to that in the investment market in 11 years; it's not just the interest rate difference- the way morgages are structured with compounding interest- you pay far more than you think you are. bobo- do you have an amortization schedule for your morgage? Even with the tax deduction for morgage interest... unless you are a Warren Buffet or have --Idk-- $50K to play with, I don't think you can come out ahead with investments vs. eliminating your morgage as early as possible. It's possible, but seems highly unlikely.

I have been fortunate and have gotten some pretty good raises lately. I do have more than $50K sitting in the credit union making more than 5% interest. Of course, interest is taxable, but the mortgage interest is deductible. I do throw a little bit extra principal every month. I've just moved into a new tax bracket, so I should probably take investing more seriously and look into deferred comp accounts and such. I just don't have much motivation because I will have a pretty good pension when I retire.

Real estate is just about the best investment out there, but I don't have the stomach to deal with renters.

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is the question serious? We've been in a middle class recession since 2000-2001.

the mortgage and housing industries are in trouble because people's real wages have not gone up but expenses have gone up way faster than the mythical 3%.

Edited by regfootball
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All signs point to the U.S. being headed into a recession.

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Except for:

> unemployment is not bad nor rising significantly,

> the stock market is running at or near records, and

> the interest rate is low & expected to be lowered yet again at the next Fed meeting.

Textbook recessions feature high rates and much lower markets. This could, of course, change in the future.

Otherwise, yes. General concensis seems to be running that we will avoid an actual recession for the above reasons, instead terming it a 'slowdown'. I'm watching the market most nervously, ready to liquidate...

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