Real Estate

 

 

 

Trader Scott’s Market Blog

February 12, 2017

Real estate (globally) has had a huge run since the 2012 lows in the US. There are bubbly RE markets all over the place.There is an article here by Mark Hanson, which lays out the not-so-bullish scenario in RE. There may be a cheap RE market here and there, but most RE is not remotely cheap. And if we’re supposed to buy cheap, and sell dear, how can anyone look at this market as an “opportunity”? And the whole idea of valuing an asset as cheap, because of the monthly payment is ridiculous. So because mortgage rates are cheap today, then the underlying asset is somehow a bargain. What in the world is that about? What happens when mortgages are at 10%, do these people have any conception that bond yields can actually rise persistently for decades? And the same goes for the valuation of any asset as of today, in terms of, is it cheap relative to the low yields of today. Who comes up with this stuff? What a mess the central banks have created with their wizardry.

There were incredible bargains 5 years ago, for the primary residence, or for the business of RE. That is no longer the case, and people are once again losing their minds in the RE market. Taking on a mortgage today is a bargainin the big picture, but the houses themselves are not even close to cheap. And most people don’t even get that a mortgage means debt, which means leverage. They also have no conception of how dangerous debt is, and how powerful the other side of the leverage is. They only see the mild mannered Dr. Jekyll. They can not contemplate the Mr. Hyde part. But just like in the masterpiece by Robert Louis Stevenson, it’s the evil face of leverage which actually has the most power. So in a rising market for RE, there is ZERO focus paid to the other side of the debt, only to the “benefits” of the debt. It was barely 10 years ago, when millions of people “discovered” Mr. Hyde, and what debt is actually all about – RISK. There are some people who are masters of using debt, like Donald Trump (supposedly), but most people are not (including myself). And the notion of putting it “all in” on one asset, any asset, is baffling. RE is just an asset, just like everything else. So just like there is nothing magical about the stock market, or gold, or whatever, there is nothing magical about RE as an asset. Its’ price goes up and down also. RE probably has more delusional permabulls than any other market. And even with all of the upwardly price distorted markets out there thanks to the brilliant economic PhDs, there are some bargains still out there, but (in general) RE is not one of them. If someone is a true professional in RE, there will always be a business for him/her. Instead of having capital tied up in RE at these prices, go where there are still a few relative bargains – for instance agriculture, clean tech/energy, PMs, and some individual countries. And for many people at these RE prices, may it be a better plan to just rent, and then put their capital into the truly cheap assets instead?

 

 

About

Trader ScottTrader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.



Missing Podcast?

If you see an error with an archived podcast or know that an episode of our show is missing, please press the button below to send us a message so we can look into it.

Enter your name and email if you want to be notified when this podcast is fixed:

'Trader Scott’s Market Blog – Real Estate – February 12, 2017' have 8 comments

  1. February 12, 2017 @ 9:52 pm Randal Magnuson

    Thanks Scott! Been on the RE roller coaster with the wife the last couple months… The thought of tying up so much capitol in the down payment, makes me want to puke, as it is a large portion of our reserves….. Portland is the last place on the west coast that people from Seattle and California can go to buy after they’ve distributed their houses to the mass of Chinese money flowing into their markets… prices are jacked here beyond what the local median income can afford…. such distortions create in me alot of uncertainty about buying currently… I wonder when the flow of Chinese money that’s been like a river blowing through the system buying things up will stop and what the fall out will look like on the other side? My initial feeling is that there would be a sizable correction in the following period of time…. inflationary forces/weaker dollar would also seem to put downward pressure on RE as people would be spending more on daily necessities, rents are pushing mortgage levels, but I’d still have the warm an fuzzy feeling of larger reserves to use more intelligently(I would hope at least)… what a mess..

    Reply

    • February 13, 2017 @ 12:26 am traderscott

      Yes, it’s disgusting how the CBs have screwed over literally billions of good people on this planet. I’ll continue going after the brilliant Larry Summers and his PhD brothers Moe, Curly, Shemp, etc. The decent people of the world need to understand what these clowns have done, along with all of their elitist globalist comrades. So now look at the situation you’re in. RE should have never been “allowed” to turn into speculation (on a mass scale). But with these monetary experiments, what else could have possibly been the outcome.

      Reply

      • February 13, 2017 @ 1:43 am Randal Magnuson

        Speculation for sure… Fixers and flippers abound, cash offers out bidding left and right… making a chasm in prices 230k+ for a fixer, and 360k+ for anything move in ready… unless you want a crap condo with HOA fees up the wazoo…. BS….

        Reply

      • February 13, 2017 @ 12:26 pm Easy Al

        The massive expansion of money and credit since early 1970s has resulted in serious non-uniform distortions in many areas of economy. When a distorted trend lasts too long, people tend to only look at event superficially and believe the trend as if it were absolute truth. This, undoubtly, is also aided by the generation changes. As Grant Williams’ video presentation shows, oil when priced with gold, has much less variation that that when price in dollar. I suspect that it is equally true for home price too. However, started with Mr. Alan Greenspan in late 1990s, the presstitudes and academia for the establishment called the rising of home price as wealth creation. They forgot that Zimbabwe would have been the richest country if a central bank can create wealth.

        That the (dollar) price of a good or asset misleads people is best illustrated by a column written by Mr. Martin Armstrong. Today, all informed people consider that buying an expensive import (European) car to make money as ridiculous. However, many people really believed it in 1970s. Suppose you bought a new German Porsche in 1970 (which cost only a few thousands then). As Richard Nixon de-linked dollar from gold, dollar decline sharply against German mark, which drove up the price of the new imported German sharply which, in turn, also increased the used price. When people who bought the new Porsche in 1970 and 1971 sold their cars in 1975, they sold their used cars at higher price than they paid a few years ago in spite of that fact that they had used the car for many years. So, some people were convinced that European cars, especially the expensive German cars, not only kept its value but also could make money for you. Of course, many people today will realize this is purely caused by devaluation of dollar. However, if you tell them to substitute Porsche by home and extended the 4-5 year period into 20-30 years, they will mostly likely argue with you on why a home is different from a car [such as they are not making any more new land and home is a non- depreciated asset (even though one has to constantly maintain and fix it)].

        (By the way, it was me who was asking if Scott made IPI up by 10% earlier. I accidentally submitted the message before I finished typing my user ID).

        Reply

        • February 13, 2017 @ 12:45 pm traderscott

          Yes, I thought that was you EA. And I really don’t get the case for RE, because as you say, it’s a depreciating asset. My buddy does RE as a successful business, but he lives in a very modest home (paid with cash) as his primary residence. He invests his capital in his business and in markets. He uses debt for his business only. There are great opportunities out there in commodities, emerging markets, etc. The great opportunity is not in a primary residence, at least not at these prices for RE. 2012 was a different story.

          Reply

        • February 13, 2017 @ 12:45 pm traderscott

          Yes, I thought that was you EA. And I really don’t get the case for RE, because as you say, it’s a depreciating asset. My buddy does RE as a successful business, but he lives in a very modest home (paid with cash) as his primary residence. He invests his capital in his business and in markets. He uses debt for his business only. There are great opportunities out there in commodities, emerging markets, etc. The great opportunity is not in a primary residence, at least not at these prices for RE. 2012 was a different story.

          Reply

    • February 13, 2017 @ 1:44 am traderscott

      South Carolina Randal?

      Reply


Would you like to share your thoughts?

Your email address will not be published.

©Copyright One Radio Network 2014 • All rights reserved. Site built by RedLotus AustinThe information on this website and talk shows is solely for informational and entertainment purposes. IT IS NOT INTENDED TO PROVIDE MEDICAL ADVICE. Neither the Editors, producers of One Radio Network, Patrick Timpone, their guests or web masters take responsibility for any possible consequences from any treatment, procedure, exercise, dietary modification, action or application of medication which results from reading or following the information contained on this website in written or audio form, live or podcasts. The publication of this information does not constitute the practice of medicine, and this information does not replace the advice of your physician or other health care provider. Before undertaking any course of treatment, the reader must seek the advice of their physician or other health care provider and take total responsibility for his or her actions at all times. Patrick Joseph of the family of Timpone, a man...All rights reserved, without recourse.