Contrarian Investing and the Psychology of Deflation

Contrarian Investing requires the ability to ignore the prevailing mood of the market and buy when the herd is selling and sell when the herd is buying.

Irvine Home Address … 59 BAMBOO Irvine, CA 92620

Resale Home Price …… $800,000

Some of it's habitual

Some of it's predictable

sometimes the change is not enough

And in the lost empathy

memories of better days

Lagwagon — Change Despair

Bubble Blogs and Deflation Psychology

The IHB has never been a bubble blog, but it is often labeled as such because I have been bearish on housing for so long. I am still bearish on Orange County (and I am not alone), but I am very bullish on Las Vegas and many other beaten down markets. Someday, I may even be bullish on Orange County — probably after all the bulls give up.

Bubble blogs resonated with many people because they spoke a truth about greed and stupidity during a period of mass financial insanity. Prices were insane, and bubble bloggers said so. Once prices started to fall, bubble bloggers were heard by a wider audience and they fed into the cycle of deteriorating buyer confidence. Falling prices makes buyers understandably cautious, and it is this caution that creates deflation psychology that often causes markets to overshoot their fundamental valuations during the deflation of a financial bubble.

The article below is one of the finest explanations of deflation psychology I have read.

The Psychology Of Deflation Explains Why House Prices Will Continue To Fall

Edward Harrison, Credit Writedowns | Sep. 8, 2010, 12:22 PM

A great article in this past weekend’s Washington Post highlighted many of the major issues affecting the US housing market and most of those issues point to lower house prices. In particular, the self-reinforcing psychology of price deflation has already set in. And that means prices will continue to fall.

While the government is doing its best to prop up the housing sector and maintain credit growth, most common metrics suggest house prices are still elevated. This artificial prop buys banks time by preventing banks from taking losses and depleting capital while the yield curve is still steep. Yet, investors are coming to the realization that short-term rates will stay near zero percent for a very "extended period" indeed. Perpetual zero (PZ) is having the perverse effect of flattening the yield curve and reducing the carry trade that is benefiting banks. If banks are unable to restore adequate capital to deal with the loan losses that removing the government prop would induce, the next recession will be very painful.

The psychology of deflation in Japan

I first talked about the behavioural psychology of deflation in 2008 when writing about Japan’s housing bust. The post "A cautionary tale: story from 1994 Japan" relied on Michael Nystrom’s 2006 tale about a Japanese man buying a house amid the mid-1990s Japanese house price deflation to bring the psychology to life.

Michael wrote:

In spite of the booming economy, my uncle, like many Americans today, was shut out of the housing market. Prices always seemed too high, but a pullback never materialized, so he waited until the right time to buy. While he waited, prices spiraled up and away until at last they were hopelessly out of reach. By the time I arrived in 1990, his family was living in a government-owned, rent controlled flat that was, by any standards, small: Two rooms that were each about 12 feet square, a small kitchen and a tiny bath to serve three adults (including his mother) and his two kids…

My uncle thought that he would never ever be able to afford a house in Japan, and that he would live out his dying days in that little rented flat. In his experience, housing prices went only in one direction: up. But by 1992, two years after the Nikkei peaked, something strange began to happen – housing prices started drifting down…

By 1994, housing prices continued to drift lower until some units started to become, with considerable stretching and creative financing, affordable. So that year, by taking out a two generation, 60-year mortgage — with his 16-year old son on the hook for the remaining years that he might not be able to pay — my uncle bought his first home. The family had to scrimp, and both he and my aunt had to work more hours, but they were finally, proud homeowners. And it was a nice house – larger than their old house (but not much), in a nicer neighborhood, and on a higher floor with a view of the treetops. I even helped them move in. It was a happy day. I don’t recall the exact price he paid, but I remember thinking that it sure was a lot! Somewhere north of half a million dollars. Those were the kinds of details were lost on me at that age.

I left Japan in 1994, and didn’t return again for a visit until late 1998. In the intervening 4 years, housing prices had continued to fall, and fall, and fall to the point where my uncle’s house was worth only half of what he had paid for it four years earlier: A couple hundred thousand, up in smoke, just as Japan’s economy was mired in a 13-year slump. But he stuck with his loan, hoping the value will come back. And one day, it just might. So he makes his payments each month faithfully, and when he can no longer make them, his son will take over and pay off the remaining balance. And sometime, in the remaining 48 years on the mortgage, the house may once again be worth more than what is owed on it.

The psychology of deflation hits America

What happened? The psychology of deflation happened. But rather than go into some diatribe of how this works, I will use excerpts of the Washington Post article In struggling housing market, buyers and sellers are out of sync to paint the picture. While reading this, remember that the DC area has been relatively buoyant economically during this crisis compared to other American cities due to federal government largesse. I have highlighted the parts that pertain to deflation psychology.

Jack Donnelly put off selling his Capitol Hill rowhouse for three years until he thought he saw glimmers of life in the housing market this past spring. At $950,000, he said, the red brick Victorian is a "solid deal."

Jackie Wright sees it differently. The row house is one of many homes competing for her attention in uncertain economic times. She’s been looking to buy a home in the District since April but is in no rush to commit, partly because she thinks mortgage interest rates – and prices – could sink even lower.

As with many prospective sellers, Donnelly’s hopes for his rowhouse were forged in the past, before the housing bust, when homeowners assumed that real estate prices would inexorably rise. They expected to reap vast windfalls when their houses sold. But Wright’s eyes are turned to the future. She’s anxious about whether the coming months will bring more gloomy economic news and reluctant to gamble on a major purchase, especially if a flagging market might actually mean better deals ahead.

Notice the disconnect between Donnelly and Wright’s psychology. That’s the interesting thing about this story. The house was bought for $645,000 in 2004. Renovations of $150,000 (excluding labour) put the all-in cost at $850,000. So, why is Donnelly trying to sell the house for nearly a million dollars? In behavioural economics, this is called anchoring. Donnelly’s price point is anchored to the $1 million he expected to receive during the halcyon days of the housing bubble. See Michael Mauboussin on investor psychology for more on this.

Back in 2004, when Donnelly and his new bride, Roxanne, bought the home, they’d paid $645,000. It was a fixer-upper in a transitional neighborhood. And the finances had been a stretch. But with a child on the way, they had been ecstatic to find a place they could afford.

They converted the space from apartments into a single-family home and installed central air conditioning. The renovations totaled more than $150,000, not including labor costs, Donnelly said. Three years later, after the tremendous run-up in U.S. housing prices, he decided he wanted to sell it for $1 million.

By then, however, the housing market had begun to sour, and he figured the home couldn’t fetch what he thought it was worth.

"I decided to do the conservative thing, collect rent on this place and wait a couple of years for the housing market to improve," Donnelly said.

See, Donnelly bought another house and moved in there. He could have sold his old house. But he was anchored to the prices of a few years back and so decided to rent it out – that isn’t the conservative thing. The thing is house prices are lower today – even in DC. And this presents a classic negotiating problem. H. Raiifa’s "The art and science of negotiation" sets out a framework based on three sets of data (as quoted by Max Bazerman’s "Judgement in Managerial Decision Making"):

  1. Each party’s alternative to a negotiated agreement (BATNA – Best alternative to a negotiated agreement)
  2. Each party’s set of interests
  3. The relative importance of each party’s interests

In a period of falling house prices, a home buyer’s BATNA is to simply wait. She can rent or stay in her present home. Here’s how the Post puts the conflict.

Hart, the real estate agent, insisted that Donnelly’s house is properly priced. She said five other comparable homes within short walking distance are for sale at similar prices – $900,000 to $974,000. She said others have sold within that range recently.

Donnelly has his doubts.

"Frankly, I don’t know what number makes sense anymore," he said. "It’s not a normal market. . . . Some houses are gone, and some in the same price range are not going. I can’t gauge what’s real and what’s not."

He acknowledged that he’d been thinking of reducing his asking price, lowering his goal for a second time.

In fact, by Saturday he’d dropped the price to $895,000.

And while that may narrow the expectations gap with prospective buyers, it might not be enough. If he fails to attract a buyer soon, Donnelly said, he would take the house off the market, possibly refinance it at lower rates and keep on renting it out.

That would be one more sale that never took place.

Lower home sales presage lower prices

This last sentence is the crux of the article.

In any negotiation, the two parties have a "reservation point" beyond which they will refuse to negotiate and will simply walk away and accept their BATNA. The art of negotiating is finding a price higher than the seller’s reservation price that is also lower than the buyer’s. In a market panic, sellers reduce price quickly because markets are more transparent, the assets transacted assets are fungible, transaction costs are low and volume is high. All of this means a bottom comes more quickly because a seller’s reservation price becomes unanchored very quickly as market prices fall.

In a housing market selloff, markets are more byzantine, properties are unique, transaction costs are high, and sales are infrequent. This means that, in assessing one’s set of interests and their relative importance, many sellers decide not to transact because their reservation prices are still anchored to in bubble psychology.

So the first thing to give way in a housing bust is volume. Lower transaction volume is prelude to lower prices. If volume is falling, you can be sure it has done so because sellers have not lowered their reservation prices and are waiting for prices to rise again. But, of course, if the psychology of deflation has set in for buyers, they are not going to pay more. And that means prices and sales volumes drift lower as forced sellers dominate the marketplace.

Moreover, the psychology of price deflation is also the reason markets tend to overshoot to the downside. Buyers are saying, "wow, those prices sure have come down. Maybe they will come down even more. I think I will hold off on buying and see." This type of psychology is self-reinforcing and almost always takes markets below fair value when value players snap up bargains and change the psychology. In my view, the government can slow but simply will not be able to overcome this dynamic. That means a slow and inexorable decline for house prices.

And since housing usually leads recoveries, that spells a weak recovery and perpetual "extended period" language from the Fed. Eventually, the U.S. yield curve will flatten as it did in Japan if PZ takes hold. PZ is toxic for banks because when the next recession hits, the central bank cannot lower rates to induce a steep yield curve and bail them out. Therefore, loan losses will have to be taken without the benefit of the carry trade and that spells bankruptcy for the weakest. This is what happened in Japan and what is likely to happen in the U.S.

I agree with everything that author has written. Well done.

Notice that it is the value players that snap up bargains and form a durable bottom. Who are the value players? Cashflow investors. That is why I am so enthusiastic about Las Vegas. The market is in despair. Deflation psychology is in full force, but as individual buyers do a own versus rent analysis (at least the ones who understand how) they quickly see that ownership saves them a huge amount compared to renting, and they buy. Further, cashflow investors see the same disparity, and they buy. It is these buyers that stabilize prices and change deflation psychology.

Hard Landing Las Vegas

Understanding deflation psychology gives cashflow investors an edge. They can see the true value of a property when others are afraid to buy. If there are any enduring lessons the bubble blogs have taught readers, it is how to identify bubble psychology, and hopefully, how to identify the opposite: deflation psychology. Smart money is not buying in safe havens. Smart money is taking advantage of deflation psychology and obtaining undervalued cashflow properties in markets like Las Vegas.

Now is a safe time to quit paying your mortgage

Obviously, I watch the trustee sale market closely. Over the last two months, lenders have slowed the rate at which they allow properties to go to auction. I can only speculate as to their reasons, but a burgeoning MLS inventory is likely the cause. Of the few properties that have gone to auction, almost none of them have been priced over $500,000. That isn't likely to change considering we are still in a recession, there is too much inventory, and few buyers are stepping up to buy overpriced local properties. Any struggling property owner considering accelerating their default should do so now. There is little or no change a lender is going to begin foreclosure proceedings over the next 6 months or more. For anyone already squatting, they too will likely get through to next spring.

  • Today's featured property belongs to a Northwood II squatter. The property was purchased on 11/10/2004 for $924,000. The owners used a $738,940 first mortgage, a $92,300 second mortgage, and a $92,760 down payment.
  • On 7/19/2005 they refinanced with a $801,000 Option ARM with a 1% teaser rate and obtained a $53,400 HELOC.
  • On 8/15/2005 they obtained a $146,850 HELOC.
  • On 2/8/2006 they got a larger HELOC for $279,000.
  • Total property debt is $1,080,000.
  • Total mortgage equity withdrawal is $248,760.
  • Total squatting time is about 30 months (off and on).

Foreclosure Record

Recording Date: 05/01/2008

Document Type: Notice of Default

The received a loan modification on 5/20/2008, but they received a NOT shortly thereafter.

Foreclosure Record

Recording Date: 05/21/2010

Document Type: Notice of Sale (aka Notice of Trustee's Sale)

Click here to get Foreclosure Report.

Foreclosure Record

Recording Date: 05/04/2010

Document Type: Notice of Sale (aka Notice of Trustee's Sale)

Click here to get Foreclosure Report.

Foreclosure Record

Recording Date: 08/11/2008

Document Type: Notice of Sale (aka Notice of Trustee's Sale)

It looks as if they are still in the property wating for the bank to accept a short sale. $250,000 in free money and 30 months of squatting. Not bad… for them.

Irvine Home Address … 59 BAMBOO Irvine, CA 92620

Resale Home Price … $800,000

Home Purchase Price … $924,000

Home Purchase Date …. 11/10/2004

Net Gain (Loss) ………. $(172,000)

Percent Change ………. -18.6%

Annual Appreciation … -2.4%

Cost of Ownership


$800,000 ………. Asking Price

$160,000 ………. 20% Down Conventional

4.36% …………… Mortgage Interest Rate

$640,000 ………. 30-Year Mortgage

$153,792 ………. Income Requirement

$3,190 ………. Monthly Mortgage Payment

$693 ………. Property Tax

$267 ………. Special Taxes and Levies (Mello Roos)

$67 ………. Homeowners Insurance

$142 ………. Homeowners Association Fees


$4,358 ………. Monthly Cash Outlays

-$755 ………. Tax Savings (% of Interest and Property Tax)

-$864 ………. Equity Hidden in Payment

$254 ………. Lost Income to Down Payment (net of taxes)

$100 ………. Maintenance and Replacement Reserves


$3,094 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$8,000 ………. Furnishing and Move In @1%

$8,000 ………. Closing Costs @1%

$6,400 ………… Interest Points @1% of Loan

$160,000 ………. Down Payment


$182,400 ………. Total Cash Costs

$47,400 ………… Emergency Cash Reserves


$229,800 ………. Total Savings Needed

Property Details for 59 BAMBOO Irvine, CA 92620


Beds: 4

Baths: 2 full 1 part baths

Home size: 2,460 sq ft

($325 / sq ft)

Lot Size: 3,799 sq ft

Year Built: 2004

Days on Market: 33

Listing Updated: 40423

MLS Number: S629433

Property Type: Single Family, Residential

Community: Northwood

Tract: Came


According to the listing agent, this listing may be a pre-foreclosure or short sale.

Almost Brand New Home in Northwood II. Beautiful hardwood floors throughout downstairs.Upgraded carpet in great room and upstairs. Gourmet kitchen w/ stainless steel appliances, incl. extra convection oven, white Euro Cabinets,custom Caesarstone Countertops incl. butler pantry w/ full back splash and center island. Built in desk and addt'l cabinets in study alcove. Custom two tone paint & wood blinds/shutters throughout. Central vacuum & much more!

Apparently, in realtorspeak, a six year old property is "almost brand new."

20 thoughts on “Contrarian Investing and the Psychology of Deflation

  1. awgee

    “Over the last two months, lenders have slowed the rate at which they allow properties to go to auction. I can only speculate as to their reasons, but a burgeoning MLS inventory is likely the cause.”

    Coto may be different, but the main reason properties are not going to auction in Coto is because most of the NTSes are being canceled. And there is very little shadow inventory in Coto. REO seems to come onto the market within a couple of months after the auction.

    So far, many of the canceled NTSes are refiled, and my guess is that almost all of them will be eventually.

    1. IrvineRenter

      How can you be certain about the shadow inventory? Do you have information on loan delinquencies? Nationally over 15% of loans over $1M are delinquent making for a huge shadow inventory in communities like Coto in the rest of the country.

      1. awgee

        Sorry, I probably should not have used the term shadow inventory. My point is not to argue about the definition of shadow inventory, but rather to say that in Coto, there are now few properties that the bank owns that are not listed for sale. And if recent history is a good indicator, even those few will be marketed soon. In Coto, the main reason properties are not going to auction is that the NTSes are canceled.

  2. awgee

    Every week we post the scheduled auctions for Coto de Caza, .

    Out of the 15 auctions scheduled for the week of 9/12/10, 6 are redefaults or properties which have had a recent NTS rescinded, (canceled), and have redefaulted. Also, many of the properties with NTSes are sold as short sales and therefore never go to auction.

  3. Shevy

    “I decided to do the conservative thing, collect rent on this place and wait a couple of years for the housing market to improve,” Donnelly said.”

    What amazes me about this is how agents have perfected using propaganda to convince people to buy when they shouldn’t, yet, when they really should sell agents have not educated themselves to be able to educate their clients and provide the sound advice and the knowledge it takes to show them rental parity or why it’s in their best interest to sell. I wonder what he leased this property for? The article was good; the only thing I wish he had added is an analysis on the rent and false logic of leasing this property. Moreover, the owner probably going backwards both from a deflation perspective and on a cash flow basis. Not working with a professional that could show him this likely will cost him 10’s of thousands if not hundreds of thousands. Moreover, not pricing it correctly right off the bat will also likely cost him. However, it’s also possible that based upon the psychology outlined he would not listen.

    I see both of these scenarios play out regularely. One, people choosing to rent their home rather than sell and “wait for prices to come back” and agents that do not use the closest comps and set the wrong expectation regarding what their clients home can sell for and costing the seller money in the long run. A great example of this was a recent transaction in which the property was listed circa 5-10% too high depending who you are talking to. It had been on the market for 90 days and its market value based upon the comps was a few percent over one million, however it was listed close to 1.1. Nevertheless, they immediately dropped the price circa 10% on our initial offer, below a million. While in my opinion, if they had just listed it under a million to begin with it would likely have had multiple offers and sold for more. Instead we went back and forth for about 3 weeks and instead lowering their price on the market and selling it for a million or possibly slightly more, it ended up selling to us for below one million. The seller mentality that my home is worth more and any minute it’s going to go back up so I’m not taking your offer, I’m going to list it for what it was selling for a year or two ago, or I’m going to rent my property out will play a role in lengthening the time for correction in Irvine but will cost most sellers in the long run.

    1. Anonymous

      I think some of that rent, don’t sell advice is wishful thinking on the part of the realtors. Sometimes real estate agent genuinely believe the real estate is the best investment, always and go whole guns with that advice (ie. lever up and buy multiple properties themselves). Then when the market trends down, they still believe that RE is the best investment, it’ll just take awhile to go back up, and that their own personal decision to buy the multiple properties must still be correct. So their advice to rent and not sell is not really about the seller, but about themselves and justifying to themselves their own beliefs and previous course of action.

      1. Shevy

        Good points. I agree, many agents genuinely believe what they are saying. I actually believe in real estate as an investment if purchased right. I own a number of rentals; however, I purchase properties that cash flow essentially from day one with fixed 15 or 30 year financing. Despite agents intent, it still comes down to lack of knowledge, when real estate is their profession and they are advising others into costly mistakes, it’s hard to excuse. Moreover, it’s hard to make a case to hold a property that has negative cash flow and depreciation even with today’s record low interest rates no matter what one believes about real estate as a long term investment.

        That being said, agents that gave this advice in early 2009 and their clients were rewarded as rates pushed lower, supply was decreased, and tax credits were thrown around were rewarded. Although it occurred at the expense of responsible tax payers many of them were able to sell their homes for more than they would have reinforcing agents and sellers beliefs that we will return to the hay day and drawing the correction out.
        It comes back to lack of education on fundamental valuations as well as lack of legislators understanding of the consequences of delaying a correction.

        There is a difference between an investor buying long term and a speculator or owner holding out hoping for a return to bubble pricing. An investor should have positive leverage and cash flow right off the bat, ultimately for them, what happens to prices in the short term should not affect them greatly one way or another as long as rents are stable or rising and they took the right financing. Buyers that hold hoping for a return to bubble prices can be compared closer to speculators. Of course, even with cash flow, if a property depreciates while rates are steady or going down, it can prove to be a marginal investment at best.

        Ultimately, when one has negative cash flow right off the bat and in today’s market know that they want to sell in the next few years but choose to wait,it comes down to lack of understanding and education or an deep insight into government legislation coming down the pipeline and a belief that it will succeed at artificially supporting or increasing prices. I believe that most have a lack of education on fundamental values and what will happen when the market is allowed to fully correct.

  4. BD

    IR –

    …what are the reasons NTSes are cancelled so frequently on ‘high end’ properties like those in Coto? I have seen the same house cancelled like 10 times.


    1. IrvineRenter

      Bank denial: pure and simple. The banks know that if they foreclose now they will lose a lot of money. They believe — incorrectly — that once the economy turns around these loan owners will be able to afford the payments on the loans and prices will be supported. That isn’t going to happen. The combination of denial and false belief is causing the banks to allow every squatter in jumbo loan land to get a free ride. Eventually, they will come to realize the error of their ways and push the squatters out. Each bank will realize this in their own time, and when they do, the cartel will crumble and high-end prices will fall.

  5. BD

    Thanks IR… it seems that prices above $1M are the most out of whack. These people seem to think we are not already back to 2004 pricing and falling. Some of them are asking two and 3 times what they paid for the property in 2000.

    Seems like there is going to major pain here…

    My .02


  6. FoolishRenter

    Upon FC’ing the bank would need to pay the utilities and HOA on their property. Delaying FC, delays start of those expense.

    Japan not only has the psycology of deflation, but has massive discouraged workers, who live and are supported by their parents for the last 15 years — not unemployed, but gave up. Not much prospect of ever getting a job or being counted as marriagable material. Very sad.

    IR, I disagree on your last note on the banks expecting a turn around on the high end property owner’s status. The goal is to move the liabilities by refinancing or sale to a GSE backed without bank liability. Then defaults will be the taxpayers problem and not their problem. In fact it will not be their problem, but their oportunity for picking up property on the cheap and FC/administrative fees.

    Hold on and rent it out is attractive to those with steady income and if the property breaks even or losses very little. I was a property that the sale fell through and I held. Lost lots of money via bad renters, major repairs (HVAC units going out) and vacanacies. Now it makes a little bit of money. Not a business for most people with lots of unplanned expenses.

    Renting for money,
    Should of been
    Squatting for free.

  7. AZ

    Even if a property looks attractive on a cash flow basis at current low rates, doesn’t the value of the home decline (even if the CF doesn’t change) if rates rise? Wouldn’t home become less affordable to others on a monthy payment basis?

    1. BD

      That is exactly my concern. If you buy and live in a home for 10 years and then try to sell you could still loose 25%+ in value is rates go from 4 3/8 to 7 1/4. In a world of slowly or quickly rising rates property will not appreciate. At least here in SoCal where everyone is maxed on a monthly basis. Rates will make ALL OF THE DIFFERENCE.

      My .02


      1. Shevy

        Great point, however, even during the bubble and today doctors, successful entrepreneurs, and other relatively wealthy buyers that historically could afford the best real estate in Irvine end up accepting less house for the same money that should be able to get them a home pretty much wherever they want in Irvine. Moreover, teachers, professors, nurses, police officers, and other middle income earners who contribute a great deal to society end up getting priced out of traditional single family homes that historically they could afford and may settle for attached townhomes or condos or move to another area. The person that should be buying in the best tract in Turtle Ridge or Turtle Rock settles for something down the hill that he can afford.

        Eventually the pretenders and squatters will get cleaned out but how long will responsible people have to wait and how many will give up or give in the mean time? Moreover, this drop in interest rates that no one could have predicted has bailed out a percentage of people that could never have afforded the home with traditional financing at 6% and will cement them to the properties for many years to come. Eventually, if they want to sell they want to sell 10 years down the road and rates are at 8% they will see they have no equity but with a rate of 4.25, they may have cash flow.

        1. BD

          Hi Shevy –

          …I think you have it right. It’s hard for me to believe that rates won’t come back to the mean over the next 5-10 years. I paid 7 1/4 in 1999 for a 30 year fixed. With all of the money being printed by central banks / quantitative easing and the massive deficits and debt, I don’t see how the dollar will not fall and inflation – specifically commodity inflation rise.

          Bottom line.. the prices have to fall and a lot at the high end. Two professionals (Docs, Laywers, small biz owners) could afford 750K in 1999 but, the same house now for $2M+ is nuts…

          It’s the law of large numbers and rates… these properties will fall hard IMHO.


  8. Shevy

    Excellent point. Unless incomes and rents rise signifigantly enough to keep up with rising interest rates the value to a new investor looking at cash flow will be much less and there will be downward pressure on prices when rates rise.

  9. ochomehunter

    The received a loan modification on 5/20/2008, but they received a NOT shortly thereafter.

    Wondering why this high $ property was even considered for modification when you had real folks in real trouble. The system is jacked up.

  10. SanJoseRenter

    WSJ had a pretty detailed July article on bulk condo sales in Florida:

    ‘Bulk Sales’ of Condos Clear Supply, at a Cost

    Favorite quote: “The Vue, which has floor-to-ceiling windows, 20-foot ceilings and a rooftop terrace, cost $340 per square foot to build, but this latest purchase price works out to about $126 a square foot.”

    I can see why some developers are pushing to have unsold tracts bulldozed. Hard to compete with a fire sale like that.

  11. theyenguy

    Thanks for keeping us informed of current market conditions.

    You relate: Obviously, I watch the trustee sale market closely. Over the last two months, lenders have slowed the rate at which they allow properties to go to auction. I can only speculate as to their reasons, but a burgeoning MLS inventory is likely the cause. Of the few properties that have gone to auction, almost none of them have been priced over $500,000. That isn’t likely to change considering we are still in a recession, there is too much inventory, and few buyers are stepping up to buy overpriced local properties. Any struggling property owner considering accelerating their default should do so now. There is little or no change a lender is going to begin foreclosure proceedings over the next 6 months or more. For anyone already squatting, they too will likely get through to next spring.”

    I would like to focus on the part that sates “here is little or no change a lender is going to begin foreclosure proceedings over the next 6 months or more.”

    I see pressure from the stock market causing banks to start agressively foreclosing, as I outline a rather drastic decline in stocks in my linked article A Higher Yen Stalls US Stocks, But Moves Gold Higher … A Higher Euro And A Swedish Krona Sustain A Rally In The European And Asian Shares

    I write: There are those who are short the market, and to protect their investment, are committed to buying the Yen, FXY. They will purse a higher yen, until other carry trader investors relent, going long the Euro, FXE, and long the Swedish Krona, FXS, and the Australian Dollar, FXA, and the desired response of lower World Stocks, ACWI, and an S&P, SPY, is achieved. The chart of both, shows an Elliott Wave 2 up being completed; and an Elliott Wave 3-of-3-of-3 waiting to commence

    I believe that the rise in the Euro, FXE, today, September 14, 2010, to 129.59 will commence a Wave 3 of 3 of 3 Down; with a prior Wave 3 Down on April, 15 2010 at 135.47; and a prior Wave 3 of 3 Down on August 6, 2010, at 132.45. There had to come a definite rise in the Euro for the ultimate Wave 3 Down to commence; I believe that rise came in today.

    My belief is that the newly announced Fannie Mae, that is GSE, loss mitigation policy will push home prices down and extinguish bank capital as short selling and credit default swaps will quickly and progressively pressure the capital of banks downward, because they have a legitimate claim that the banks will now be taking losses on foreclosed properties that are pushed out of shadow inventory. The GSE announced policy of loss mitigation and loan management is the antithesis of FASB 157; it will effectively extinguish banks and transform them into property leasing organizations. Furthermore in addition falling bank, KBE, prices, and I expect PowerShares Real Estate, PSR, and Residential Real Estate, REZ, to fall. It’s the opportune time to sell them short as well as ProShares Ultra Real Estate, URE, and Direxion, DRN,

    And I also provide a complete listing of Stocks and ETFs to sell short for a debt deflationary bear market on Public ChartList

    So the concept here is that we are at the cusp of an Elliott 3 of 3 of 3 Wave Down.

    Dear Irivne Renter, neither you, nor I have the capability to comprehend of the economic shock and awe that is coming. I can assure you 100%, that banks will be foreclosing and leasing at a pace that one will find unbelievable.

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