How timely.  It had been occuring to me after reading some of the posts that some think that just because someone has an opinion, that that particular opinion is just as valid as another opinion.  There is a huge difference between and opinion and a vote.
——-

Excellent as always, IrvineRenter! The Watts drivel reminds me of the idea that the more exclamation points in a real estate listing, the more they’re covering up for lack of real features/legitimate good points. The excerpts from Watts have exclamation points all over the place. Maybe in this case, it’s the more exclamation points, the more B.S. he’s spewing. Keep up the great work.

Interesting post. I love it when these pundits are ripped to shreds when people who can see through the BS make the effort to shine the light on the cockroach.

I still have no idea how any logical and rational person could honestly believe that home prices were never going to stop. It does not take a Econ genius to firugre out that many factors must be in balance for a market to work. When the market boils over with few reasons that violate these balances, markets plummet.

Guys like Watts, Kiyosaki, Sheets, etc. make money by telling people what they want to hear. “You catch more flies with a drop of honey than a gallon of gall.” said Abe Lincoln. In this case, rational facts and analysis are the “gall”.

I think IHB needs one more post badge : The Tulip Award

Wow!  its nice to know there are people still swilling from the cool-aid tap.  You know when the market FINALLY comes back up, they will say, “this is what I have been telling you for years”!  It never ceases to amaze me.
-bix

I’ve listened to Gary speak and he honestly believes the nonsense he spews.  He tries to simplify his analysis and bring it to his cheering section in layman’s terms.  He rarely uses common real estate jargon in his speeches because he realizes that half the audience is very new to the business, and many of them have very little financial sophistication.  As Irvine Renter points out, Gary Watts loves to use commonly accepted misconceptions in his arguments.

Gary Watts is living proof that the entire RE industry must change and fall under more scrutiny from the regulators in the future.  A self regulating group with oversight from the government would work much better than the existing loose canon approach.  The days of the GED (wannabe grad), parlaying a new career in RE, so he/she can give financial/investment advice is just ludicrous.  It must change.

Just the facts mam. Great rational analysis as always. If I was an employer, I would hire you in a second. I can’t tell you how refreshing it is to read an “opinion” that has been carefully thought out.

I have so many friends that are so deeply invested in RE and plan on selling their investment properties in 2 years for their gains. I keep telling them that there may be no gains in 2 years…. and they look at me like I am a two head alien.

Keep up the fantastic work!

Outstanding report.  I am also in the business of analyzing.  I wish I could write as well you do.  Your article was clear, easy to read and well written.  Keep it up!!!!!!!!!!

Perhaps we should re-title it.?  How about “How to tell when your RE Agent and the pundits are blowing sunshine up your backside.”

Another classic to add to the IHB canon!

PS:
“...a rectal extraction” - LOL   Hillarious!

The post is not silly. 

There is a lot of mis-information about the RE market in the media.  Today’s post is a good guide on how to see through the BS.  It will help people be better “seekers of the truth”.

He used his Credit Bubble analysis as an example of good analysis because it is one!

Major S - You beat me to it! That line is classic!

It looks like Gary forgot one of his better outs in his report of an increase in foreclosure activity. Back in December of 2005 Gary had this to say: Anyone waiting for a major spike in foreclosures to buy a discounted home should forget it, said broker Watts. “They’re not going to see it,” he said.

http://www.ocregister.com/ocregister/money/abox/article_891975.php

Well it wasn’t so bad in 2006 with 647 foreclosures but I would say that 2007 is seeing a major spike with 1031 and it is only May. I think if the amount is more than double in half the time it might be considered a major spike for Gary. We will know next month won’t we.

Gary Watts made money in the previous real estate cycles, but has been clearly wrong on the end of this one.

Why is he anything special that’s what I want to know? 

And, Gary, why do you need to use so much bold and exclamation points in your fucking report?  That alone makes me want to punch you in the face when I read your “report” and I’m a pretty peaceful person.

Found this link of a blog comment - so no confirmation as to it’s source.  IF (big if) it’s what it says it is, it’s pretty interesting reading.

Be forwarned, it’s a rather large .pdf file.

Margage Liquidity du Jour: Underestimated no more
http://www.billcara.com/CS Mar 12 2007 Mortgage and Housing.pdf

Great post. I believe the ability to make a good analysis is probably the most important skill to pick up in any field of investment.

I would give the Prestigious WTF Award to Mr. Gary Watts

Sue,

I don’t know if you are registered in our forum, but these great articles you have been linking to would be a great addition to our headlines thread in the forum. I already linked todays.

http://forums.irvinehousingblog.com/discussion/128/4/headlines/#Item_42

I think he also suffers from “Rectal-cranial inversion”.

Irvine Renter:

You would have made a good scientist.  Perhaps you missed your calling.

————————-

What bothers me about the permabulls is that NAR was ill advised to link their reputation to market predictions in the first place.  Realtors are supposed to be about the competent conveyance of Real Estate… nothing more.  They should have absolutely nothing to do with predicting market trends.  That is why ALL Comparative Market Analyses and Appraisals HAVE DATES ON THEM…. so that all opinions of value cannot be perceived as a market trend analysis.

This whole bubble bursting mess is going to be a major pie in the face for NAR and it absolutely did not have to be.

Was any one around during the early 90’s that can tell us how low prices got relative to peak prices? 

You just can’t tell from the median data because it is so skewed.  A few real life examples would be useful.

I bought in a SFR in the California Heights area of Long Beach for $250,000.  I had it reassessed for tax purposes at $178,000 and I think I may have hard pressed to get that by 1995.  -29% and I was upside down on my mortgage.

“Gary Watts made money in the previous real estate cycles, but has been clearly wrong on the end of this one.”

I wonder why he is so stubborn this time, he would appear alot smarter if he would have called it 2005,2006 or even 2007 yet he is very stubborn when only a moron can ignore the decline?

One of the classic lines I remember from seeing Gary debate Chris Thornberg (in person) was his reasoning for the oft-cited demographic shift contribution to upward price movement.

He stated that the baby boomers, flush with cash in the midst of their peak earning years, “enjoy investing in real estate” [including vacation properties and homes for kids in college] and would continue to do so, implying that a paradigm shift had occurred.

At the end of the debate during Q&A, I was actually in line to ask him if the only reason they were “enjoying” this investing is that it had created insane, stock-market-smashing returns over the last few years, but they did not get to my question.

The guy is an idiot, and the crediblity he was given for predicting the last downturn has been completely overspent in this latest cycle.

SCHB

I bought my house in 1994 in Laguna Hills for $300K, in 1995, it was appraised at $240K (-20%).  Today it has a market value of $1M - $1.1M.

Nirvinerealtor,

So you won’t be surprised when it is worth about $450K - $500K in 2010. The 20% drop you saw in 1994 will be small compared to the correction we are just entering.

OK here is my story…..I was a young 30 year old pup in 1988 and I bought a house and it doubled in value…I figured I was a genius…....so I got another house, paid 480K and put 200K in upgrades. B of A appraised the house in 1990 for $750K. I had to sell for a move and put the house on a market for $725K thinking it would be an easy sale.

Well, 18 months later I sold it for $480K and had to take back a 10% second. I felt like somone pulled out my stomach from the inside out…it was miserable.

I purchased a home in silly valley for 400K, lowest amount I could pay and not have capital gains…..here’s the good part. Soom fool purchased the house in silly valley for 1 million in 2000 and I paid cash for a home in Irvine in 2001(600k) Sold the irvine house due to divorce in 2005 for 1.1 million…...

I am out of real estate now, I use the interest from my sale to pay for my apartment…and I believe condos will be about $220 per sq ft by 2010. I won’t buy in Irvine though, because I find it a littl on the boring side.

SoCalwatcher - I think you mght be right this way the Kool-aid is constantly regergitated.

Sue - I second IrvineRenter’s thought as you do post great articles. Keep them coming and we would love to see you in the forums.

NanoWest,

Don’t be so smug.  Your predictions are no better than Gary Watts.

Thanks, Nirvinerealtor, for providing your example.

OC-Conservative

I would suggest that my views are similar to Gary Watts, but on the downside…..and thats OK.  Like everyone, I can only guess at what will happen.

At this point though, I believe that prices will correct such that the average home costs about 5 times the average income or about $350,000. This is a premium above the rest of the country and pretty much in line with history…..of course I could spout off all the bear stories….....just like the bulls can give you all the reasons(land, OC special….)

Guess we will wait and see…...

NanoWest,

We are roughly in the same age range, you are a bit older though.
I started buying real estate in the mid 1980 so I can relate to your experience.  I did not think I was a genius, I thought luck was everthing.

You sound like you are unmarried, I can see living in Irvine is a bit on the boring side.  Go and live by the beach and I bet you will feel good.

Buying a home is all about psychology.  Case in point.  In 1989, people would pay anything for a house.  In 1995, people would not even take a house for free.

oc-conservative,
Thank you for being kind to me.

nirinverealtor, your 1994 to present experience is a good highlight.  Overall, when homes are bought near their fundamentals (price to rent/income etc.) and the owner has the financial wherewithal to hold the property and its sundry costs, over the long term, the tend to be good hedges of value providing a service the owners need.

Overall, has your situation indicates, the market when it’s not positive can be very negative handing someone a paper loss of 20% or more in a single year.  If you can afford the long term hold, you’re good, if you can’t, you’re in a real pinch.

I would estimate that if you picked it up in 1994, it would have been valued higher in 1991-1993 (if it wasn’t new), maybe only a little, maybe a lot.  But the key, IMHO, when buying residential property is you need to be able to hold ten years.

In this market, if you buy anything, you need to be happy with the place.  It may come back and be worth more, but that likely take more than five or seven years to occur.

I was stunned by IrvineRenter’s clear, rational, and compelling case against Gary’s shoddy analysis.  It inspired me with the hope that rational thought trumps BS.  Then I read your post and discovered that irrational people like you still don’t get it or accept it.  I can only assume that the reality of the obvious housing bubble is too painful for you to bear.  Could this be motivating your denial of the housing bubble by refusing to accept that anyone can ever know anything about the housing market through rational thought and considered evidence?  Very sad.

Have you considered selling now to lock in your profits?  The Case-Shiller Home Price Index will show exactly how overpriced property is in your area.  It will show how much air must come out of the housing bubble before house prices are in line with historical trends.  Before forewared, the data will make you sad.

Yes,,,,,,,and in about 5 years we will be back to the point where real estate is considered the worst possible investment in the world…and prices will be reasonable…..and we will start the cycle again.

As for the beach…I have a boat in Long Beach…....I spend about half my evenings on the boat….name of the boat….NanoWest.

Another real life story, from the Bay Area:

Purchased new 3 bedroom townhouse in a small development in Fremont, CA in 1990 for $225,000. A few months prior, same home was going for $260,000.

Within 2 years, one individual sold at $175,000. Everyone in complex was completely shocked.

But what followed from 1992 through 1997: 1/3 of townhomes in development sold for $180,000. Peak-to-trough 30% decline.

2005/2006 sales prices in this development?  $585,000!

(We sold for a $50K profit after renting townhouse out for a few years, but wish we kept it just a couple years longer…)

Ah, but they were lured in by the ever-increasing commission check.  The conflict of interest is plain - the size of realtor commissions increases with a rising market, and as went the boom, so went the commission checks.  They were only too happy to exclaim that real estate never goes down, and buy now or be priced out forever, because each person who bought it, so to speak, was lining the pockets of the agent.  They are hardly the first to trade long term credibility for a few extra dollars, and frankly, many of our population will not remember the lies a few years from now - realtors will be exclaiming that that they were saying homes were overpriced and due for a crash long before it happened, and people will buy it again - hook, line and sinker.

Just found your little place on the web here, IrvineRenter.  How I missed it I have no idea, and I’ve been to probably half the blogs listed in your links.  (Finally found it thanks to a reference in Slate of all places:

“The Real Morons of Orange County——Why America’s most reckless real estate investors come from Irvine, Calif.” 

http://www.slate.com/id/2171235/

Ahh well.  Glad I found you.  I see you receive most of your comments within the first few days of your posting.  Nevertheless,  let me provide a quick update. 

Gary Watts just came out with his long-awaited “Mid-Year Update”.  Under “What to Watch” (i.e. his caveats/outs)—-

1.    If the Fed sees things it does not like and raises interest rates.

2.    If increases in our housing inventory push the supply past 8 months.

3.    Un-motivated sellers still entering the market in large numbers.

The only change from his PREVIOUS outlook?  SUPPLY IS NOW 8 MONTHS INSTEAD OF 5 1/2 IN THE LAST REPORT!!!!!!!!

It must be wonderful to simply align and adjust your forecasts to a series of moving targets and still be regarded as “credible”.

What an utter clown.

DOHHHHH!!

Forgot Watts’ link.

Fitting, perhaps, what with the Simpson’s movie and all.

http://www.impactre.com/Forecast.html