Friday, March 25, 2005

The New New Old Thing

“It just seems like everyone is doing it.” Thus says a 26 year old Manattanite playing the real estate game—this year’s version of the New New Thing—in today’s New York Times.

After describing the eerie parallels between today’s Real Estate mania and yesterday’s Internet Bubble (for example, houses being bought and re-sold on the same day), the article quotes the scariest sentiment of all, from the president of a Miami real estate outfit predicting boomer demand and cheap foreign dollars will overwhelm the shrinking supply of land to create a nirvana for real estate investors:

“South Florida is working off of a totally new economic model than any of us have ever experienced in the past.”

The man was obviously not around in 1926, when Florida had the first of many real estate busts, following a boom based on the very same conditions underlying today's bubble: cheap money and a get-rich-quick certitude that a Greater Fool exists out there for any property you can grab.

Thus the “New New” Thing—real estate speculation—is actually a New New Old Thing.

And it’s not just in Manhattan and Miami that people are snapping up properties almost as quickly as the Fed raises interest rates: in February, new home sales around the country had their biggest monthly increase—9%—in four years.

Buyers ought to consider one thing before plunking down those deposits: the cost of money. While long bonds yields have not risen very much in the last year, 2 year treasury yields have spiked from a bit above 1% to nearly 4%.

And that takes a good chunk of the “Greater Fool” buying power out of the market.

Everyone seems to be debating the question of whether we are or aren’t yet in a “Housing Bubble.” But we’re there already.

The real question is, how do we get out?

Jeff Matthews
I’m Not Making This Up

8 comments:

mfairview said...
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mfairview said...
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JoeC said...

Jeff, enjoy your blog. I think there is little doubt that we are somewhere in a real estate mania. That said, with the Fed's move last week, in the verbiage of the internet bubble, we just advanced a full year, and I for one am trying to figure out if we moved from 1998 to 1999 here or from 1999 to 2000. It seems as people realize we are moving from a defined benefit to a defined contribution world and as boomers are moving closer to retirement without having saved enough, we may be subjected to an environment of "serial bubbles". Many investors try to chase performance in various asset classes to make up for the fact that they just haven't been earmarking enough of their income for saving. As investors, we need to hone our "early bubble formation identification" skills and our "buble bursting identification" skills as I think they may come in handy often in the next 10-15 years.

Jeff Matthews said...

"mfairview" has been deleted, owing to his use of infantile Message Board Language.

In fact, he was deleted twice because he seemed to think what he said was worth posting twice.

If "mfairfiew" wants to rephrase and reprint his post without the infantile Message Board Language, he is more than welcome.

Since he appears to have almost no life outside monitoring the Short Selling Conspiracy Against Overstock.com, he undoubtedly will.

However, for those wondering what "mfairfiew" said, it was an acute observation that without an Overstock headline, there appears to be very little participation on this blog--apparently confusing readership with the need to post paranoid ranting comments.

He then suggested getting Herb Greenberg to comment--another non sequitor, and proving once again the Conspiracy Theorists have very little to say, but they do say it anyway.

For those who don't know the drill, I'll say it once more: if you can't say it without cursing or using infantile Message Board Language, you may say it anywhere you like--but not here.

Jeff Matthews
I'm Not Making This Up

mfairview said...

Not surprising Jeff chooses to censor again... While it's ok for you to label people openly as conspiracy theorists, it obviously hits a nerve when a stone is tossed back. How lavish your glass house must be.

I stand by my earlier (censored) statement as evident by the numbers on this blog. But much like Reg SHO, you simply choose to ignore facts and then blame the lack of facts when putting forth your argument. How convenient for you.

It's also quite amusing for me to hear you saying i'm obsessed with OSTK when in fact you've devoted so much time and effort of your own volition to write so many articles on the subject. Again, facts that i'm sure you'll choose to ignore or censor then complain about later.

Talk about face cards... Time to open up a new deck Jeffro.

The Unknown Broker said...

To Mfairview:

I would like to take you seriously and treat your posts with due respect -- just as I hope that any new point of view that I encounter results in some level of education and enlightenment for me.

But dude (Sorry..Mr. Dude) you make it so hard to do so.

When every discussion ends up being diverted to completely unrelated topics, you come across as singularly obsessive and afflicted with tunnel vision.

You're like the guy that tries to veer every conversation back to his favorite subject, whether it's relevant or not. The guy at the office who is hung up on the Knicks, or Pamela Anderson, or Star Trek, or whatever.

Anybody: "So, how should we address this customer service issue?"

MFairview: "Just like Captain Kirk. He's awesome. Let's talk about Star Trek."

Everyone: "Shut up!"

You see, this thread was about real estate valuations and the possibility of a bubble being in progress. And here you show up with a discussion of Star Tre... I mean, short-selling and Reg SHO.

So now it seems that I am also a little guilty -- having chosen to respond to your off-topic post. But since we're on the subject of Overstock, may I request something from you?

Please, pretty please, I beg you, nay implore you, for the love of Pete, as an evident OSTK expert please help us with some answers to certain questions.

Jeff and others have raised questions regarding Overstock's actual business: the "diamond deal of a lifetime," and the progress or lack thereof in their auction business and attempt to take on eBay. Your answers to these have been either silence or a re-rant on short-selling tactics.

Let me explain something relatively basic. There is the company and there is the stock. They are quite different.

If the company is well-run, their service a good one, their business model sound, and the management capable, they will prosper. And in time the short-term fluctuations in the stock (whether short-selling induced or not) will be looked back as just a few wiggles on the chart and as so much forgotten chaff in the history of the company.

On the other hand, if the strategies are flawed, the management poor, the business a bad one, and the services not successful, the stock price will decline as the fundamentals unfold. And it won't be because of short-sellers. It will be because of the failure of the company to execute.

So please, give us some useful information and answers regarding the company, and if you find yourself tempted to veer off into a Round 72 Reg SHO diatribe and discussion of the stock, take a deep breath, count to ten, pinch yourself, have a therapeutic electro-shock adminstered, or whatever. Just say "no" to yourself.

You see, when you repeatedly contend that the one and only thing that is impacting the stock price is the short-sellers and that were it not for them the stock price would be just fine, we must assume that you really know the company well. To make such a confident assertion you must have really done your homework and due diligence and clearly you would have the answers to the relatively straightforward and simple questions regarding diamonds, auction activity, the preponderance of private label merchandise, site traffic, etc. Those aren't phenomenally difficult matters for someone who is a believer in the company.

And yet, in every Overstock discussion (and some that aren't even about Overstock at all) you and Bob O'Brien ignore those basic and legitimate questions and concerns and take the discussion off into your pet subject.

So let's be big boys, and let's try to focus. Some questions have been raised regarding the company (repeat after me: "the company not the stock, the company not the stock") and you should be able to serve as a valuable resource for those of us who don't possess your implied expertise on the company.

So, give us the answers to those questions. Let us respect you. Otherwise we just have to figure you guys are crackpots with obsessive compulsive disorders.

You can answer them can't you?

Can't you?

Its_strange said...

I am in Bergen County NJ and with all the forsale signs i see i can't help but wonder how disappointing the offers must be ...Any brokers want to comment ?

Its_strange said...

Beats me but i am hearing bids are dropping fast and the sub-prime market is long gone in Passaic County NJ. I even heard a real estate agent annouce " Its not over, it has been over "