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« Weekly Standard: Putting the Toothpaste Back into the Tube | Main | CNBC: Fast Money - Bull Market or BS? »

May 12, 2009


Andrew Butter

This fool can:

Have a check in six months time.

robert e. gillespie

that started all this...


historically, Real Estate, like most other INVESTMENTS has been CYCLICAL...but NOT THIS TIME... here's why...

1. "Buying a House" as opposed to renting has been a "sweet deal" for many decades in MOST MKTS.

this is because you put 20% down (or less) and if your house appreciates just 10% a year...well, on a 200,000 dollar house YOU WOULD BE MAKING A 50% return on your investment.

(20% x 200,000 = 40,000 which is your down-payment investment)

(10% appreciation in the annual value of your house x 200,000...means you made a "50% gain on your investment!)


however, this is a DOUBLE-EDGED SWORD...when Real Estate depreciates YOU LOSE your down payment RAPIDLY and in most cases permanently unless the mkt recovers.

Let's say your house went down 20% (or more) in value over the last two years (typical in many mkts) now because of REVERSE LEVERAGING you have lost your entire 40,000 equity in the house if you have to sell (that's why the bank wanted your 20% in the first if there is a REASONABLE DOWNTURN...they are protected until your SECURITY DOWN-PAYMENT is exhausted.

Now, in most Real Estate Cycles...housing doesn't depreciate that much, so in the next up cycle you recover...but not likely THIS TIME!

WHY: tens of thousands of high-paying tech jobs are going overseas to places like there are less and less high-paying jobs to support a recovery THIS TIME.

there is a glut of housing (many empty) because of overbuilding...because everyone saw the "rapidly rising prices" of residential or rental real estate and wanted a piece of this HIGH RETURN, LOW RISK investment...add to this the banks relaxing credit standards and issuing mortgages...because, hey, real estate just keeps going up, up, up...and with that leverage, etc.

well, it all collapsed, and now we have a glut of houses, AND GUESS WHAT...

WHY WOULD YOU BUY A HOUSE THAT IS GOING TO "DEPRECIATE IN VALUE because of the "negative leverage factor," even if you can GET A MORTGAGE AT 2%...YOUR STILL LIKELY TO LOSE YOUR DOWNPAYMENT...(better to Rent, and put your money in Gold or some other prospective investment...and rents are coming down because of the glut of the impact of renters being evicted because of job loss, etc.

Also, the gov is NOT GOING TO ALLOW THE BANKS to pump up the Real Estate bubble AGAIN with risky loans...

So, essentially REAL ESTATE, though IT MAY BE NEAR THE BOTTOM, is NOT GOING TO RECOVER anytime soon, if ever...


just because the losses in home values are slowing DOES NOT MEAN THEY WILL REVERSE...

think about it...

why buy a house, even at a 2% (or less mortgage) IF YOU ARE GOING TO LOSE YOUR DOWN-PAYMENT...

do the arithmetic...most buyers will...

SO THE SPIN HOOPLA on WALL ST. about a Real Estate Recovery is UTTER NONSENSE...

show me how, why and the way...

don't show me incremental statistics showing a slowing in decline,
or slightly positive numbers in specific mkts...

some people will always have money to buy a BMW...problem is there are a LOT LESS OF THEM BUYING A BMW...


Alexander Kolpakov

Good point, Mr. Gillespie, thank you, and let me add that commercial Real Estate in US is in the same mess.


You people are too simplistic in your thinking. Most of the places with the massive overbuilding selling at inflated are not even places where most people want to live. Location, location, location still rules. Will real estate eventually recover? Absolutely. Rhetoric about renting as the only sane thing to do...clearly written by someone who doesn't own his own and never will.

Sure, jobs have gone overseas...but, in this big cluster-f*ck we've been through, you're going to see a big change going forward. The outsourcing of jobs overseas was entirely based on a cost savings thesis - which no longer holds. You have many, many professionals now on the sidelines who will come back in to the workforce and be willing to accept a lower paycheck in the near-term. This, coupled with the ability to have employees physically with you eliminates the cost differential and many of the problems that have come along with outsourcing. India and similar body-shop countries that were hotspots for outsourcing are going to be in some serious trouble, because if the cost differential is reduced or eliminated, they have no other way in which to compete. T's surely not on the basis of quality or the level of service they provide.

And I absolutely guarantee you, Wall St. is not dead. There will always be the next complex structured newfangled product or grand idea some brainiac comes up with that will take things into the next cycle. Real estate will always be boom or bust. We always have the biotech cycles. We had energy trading. Then all these "toxic assets" backed by MBS, CDO, CDS, and so on. Wall St will always have something to pitch and there will always be suckers rushing in to drink the KoolAide.

Your theories are simplistic at best.

Whenever someone says "well this time it's different" he is generally wrong - whether with the market continually going higher...or lower.


Andy- please delete the SPAM post in the comments (It is the first post... something about market oracle)
SPAM is obnoxious


The FairTax, one of the best as well as most misunderstood ideas to come along in years, would generate much more revenue for government coffers.

Speaking of India, China, and etc, many more companies would remain in country instead of moving out. Companies that have moved would return.

The FairTax is investor friendly, since there is no penalty for success, plus business will not have to plan their actions based upon tax consequences.

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Lucas DuVal

Thanks Andy. You are the greatest at putting everything in perspective. I was bordering on optimism for about two months.

Loyally yours,


mr big dicks hot chicks

For now, the market appears dependent on a hand cranking out dollars to help fund banks. I'd rather see rising expectations for corporate profits.


Set your own life more easy get the personal loans and all you need.

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