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View Full Version : The financial market starts to correct



Cliff Rohrabacher
08-06-2007, 11:50 AM
American Home Mortgage Investment Corp. filed for bankruptcy.

Financial companies in the sub prime market have tumbled and some of the prime lenders like American will too. In not too long the space created by these falls will cause the financial market to recover.

David G Baker
08-06-2007, 12:08 PM
Cliff
I have some big bucks in REITs and am getting a little nervous.
The sub-prime market has had alarm bells ringing around it for the past six months or more.
I live in Mid Michigan and many home owners are giving their houses back to the mortgage companies and banks due to loss of jobs and no prospective employment. They are giving up their equity because they can't sell their homes, packing up their belongings and leaving the state.
If I had a lot of surplus money I would start buying up real estate if I saw a potential turn around in the employment situation in Michigan. The banks and mortgage companies are over loaded with houses. Might be a good time for retirees to think about moving to this area (if they can tolerate the snow).

Steven Wilson
08-06-2007, 2:25 PM
Good, there are a number of financial companies that should go under. Failure is good for the system and some shareholders should get burned.

Bob Childress
08-06-2007, 3:23 PM
We're going to see the same shake-out with some new home builders. Their cash flow is being squeezed with the slowdown and the carrying costs of their land backlog, some of which was purchased at too high a price to warrant home construction on it now. They can't sell it and they can't afford to build on it.

Only the builders smart enough to squirrel away plenty of cash against this rainy day will stay dry.

Again, this will eventually result in a real estate correction that will strengthen the market for those who didn't overextend and can therefore hold on to their homes. But first, all that excess housing has to be absorbed and the absorption rate right now is mighty low.

Cliff Rohrabacher
08-06-2007, 5:46 PM
Cliff
I have some big bucks in REITs and am getting a little nervous.
I'd hold any real estate position so long as it wasn't mere options. Excepting those who purchase options to buy and not the land itself all REITs have loads of what Ben Graham called safety margins in the form of book value.




I live in Mid Michigan and many home owners are giving their houses back to the mortgage companies and banks due to loss of jobs and no prospective employment. They are giving up their equity because they can't sell their homes, packing up their belongings and leaving the state.OUCH~!!! That's gotta be depressing.


If I had a lot of surplus money I would start buying up real estate if I saw a potential turn around in the employment situation in Michigan. The banks and mortgage companies are over loaded with houses. Might be a good time for retirees to think about moving to this area (if they can tolerate the snow).

I am one of those people who prefer being near an ocean. I don't eat pork of beef. So the sea is a life style necessity. One of the local communities had what I considered a brilliant idea. They invited a builder (Toll or Hovnavian I forget which) to build a large retirement community. The idea was brilliant because it'll raise revenues in the form of taxes without raising operating costs. Old people don't have kids in school don't flood the roads with commuter traffic, don't produce much garbage, and tend not to be an added police and fire problem. Yet they do pay taxes.

Maybe taking that up with your local town council might be a good idea.

John Shuk
08-06-2007, 8:02 PM
Toll brothers has been doing the older folks thing around here for a while too. Even Trump has gotten on the band wagon.

Why is it that many lay people have seen this type of thing coming and the guys who make the big bucks haven't?

Ben Grunow
08-06-2007, 8:10 PM
The banks caused the collapse by allowing people to borrow more than they could afford... most people could afford the adjustable rate mortgages when they were new and the rates were low but they were adjustable and the rates happened to go up this time.

Seems like the banks made plenty of $ selling these mortgages and now they own the houses and people are in big trouble. Not too smart if you ask me. Maybe a little more planning and a little less greed and we could all make money and have a place to call home instead of a few make big money and screw all of us in the long run.

I have a 30 yr fixed rate mortgage at 5.75% btw, I just cant stand these things.

David G Baker
08-06-2007, 8:41 PM
Remember the Savings and Loan fiasco? The tax payers bailed them out. The same thing will happen in this case to the banks if they start going under. The big losers are the former home owners and the tax payers.

David G Baker
08-06-2007, 8:46 PM
Cliff,
My REITs are Vanguard mutual funds. They have dropped some but they have been earning around 35% per year for the past several years. Wish I had a few more investments with that return.
I opened up a bank savings account today, the earnings are .75% per year. A little less than the 35%. The other local bank is paying .40%.
Pay Pal pays around 4% or more.

Jeff Kerr
08-06-2007, 10:52 PM
I agree with the scenario seen in Michigan. I happened to have a conversation with a stranger that had a pickup truck plastered with signs " I buy houses for cash" all over it here in Ohio.

I asked him if those ads work. He said that is all the advertising he does. He went on to tell me that folks are so in over their heads that they are giving him their houses for "free" so they don't get foreclosed on. He gets their debt and all their equity.

He then flips them for small profits.

I too am worried about the cascading effect. I see a lot of houses for sale, but few that are actualling selling.

In time, even this will correct itself. Rule to live by, live within your means!

Pat Germain
08-06-2007, 11:12 PM
My neighborhood is a good example of people overextending themselves. I bought my house new. The price was well below what I could have qualified for and even afforded. However, I didn't see a need to buy a lot more house than I needed.

Shortly after I moved in, all my neighbors started leaving. Was it me? Actually, no. They were being foreclosed on.

Every Spring we have a lot of houses on the market because this is a big military town. This year, here we are in August and most of the houses are still on the market.

Other than my house, most of my investments are in Blue Chip stocks. I hope the market keeps going for awhile.

Cliff Rohrabacher
08-07-2007, 10:44 AM
Why is it that many lay people have seen this type of thing coming and the guys who make the big bucks haven't?
Oh I rather suspect the smart money waited for the opportunity to ripen to maturity before investing.

No fun building a retirement community if the boomers haven't retired in sufficient numbers to fill 'em. Besides why not wait for the communities and states to get desperate for $$ and offer you tax incentives.

Cliff Rohrabacher
08-07-2007, 10:50 AM
Cliff,
My REITs are Vanguard mutual funds. They have dropped some but they have been earning around 35% per year for the past several years. Wish I had a few more investments with that return.

You are doing better than Warren Buffett


I opened up a bank savings account today, the earnings are .75% per year. A little less than the 35%. The other local bank is paying .40%.

Take a look at ING and I think HSBC is also offering high yield savings accounts with no minimums and no fees.
I think the interest is somewhere between 4&5%~!!

[/quote]Pay Pal pays around 4% or more.[/quote]

EEEEKK don't get me started on pay pal.
Google "Regulation E"
Read everything you can find and learn how exposed and unprotected you are.

Unlike Banks which are regulated heavily and also governed by the UCC, Pay Pal is subject solely to Reg E and whatever contractual agreements it establishes with consumers and that is the wild wild West of financial regulations.

Joe Pelonio
08-07-2007, 11:30 AM
Per an article in this morning's Seattle Times, the availability of homes for sale is way up right now (51%), yet the prices have defied logic by continuing the upward trend, up 9% over last year. Also, I noted yesterday while in Bellevue that there are at least 25 construction cranes in use by companies building more high-rises.

Ken Fitzgerald
08-07-2007, 12:08 PM
I had to chuckle yesterday.....already there's discussions on why the government should bail out the financial and housing industries.........

Let's see.......We live in a "supposed" capitalistic society....unless of couse, we can bend enough Congressional ears and get the tax payers to pay for poor management and consumer decisions....Next.....somebody makes a bad investment and we'll be wanting the government ( read this as taxpayers) to pay for those bad investment decisions.

I was 29 and had been married for 10 years before I could come up with the down payment for a housing loan. While I spent 8 of those 10 years in the Navy I'd still been able to save that down payment. The financial institutions managers made a decision to expand their somewhat stagnant market by making loans with low entry requirements that would change dramatically later. Well.....now it's time to pay the fiddler......

I pray none of my children have one of those mortgages or stock in those institutions!

Kyle Kraft
08-07-2007, 12:15 PM
I hear you, David. The situation here in Michigan gets more dismal every day. If I lost my job, I could have another one tomorrow easily if I could live on half of my current pay. Everybody wants skilled tradesmen who can do anything from machine scraping to plc's, electrical, pneumatics, et al but none want to pay over $12/hr for them. I hear that they are looking for good skilled tradesmen in Wyoming......

Cliff Rohrabacher
08-07-2007, 1:56 PM
I had to chuckle yesterday.....already there's discussions on why the government should bail out the financial and housing industries.........



That's what I like about the US congress. They are loyal as dogs - once they are bought that is.

David G Baker
08-07-2007, 4:42 PM
I hear you, David. The situation here in Michigan gets more dismal every day. If I lost my job, I could have another one tomorrow easily if I could live on half of my current pay. Everybody wants skilled tradesmen who can do anything from machine scraping to plc's, electrical, pneumatics, et al but none want to pay over $12/hr for them. I hear that they are looking for good skilled tradesmen in Wyoming......
Kyle,
After living in California for a little over 40 years I was shocked at the average skilled workers hourly pay. I still do not see how the majority of families in Michigan survive on the existing wages. Maybe they don't and are on public assistance.
I know some union carpenters that are making good money, for Michigan, when they are working, but they have to travel all over the state to get to the jobs.
If I was not retired, Wyoming would an option I would look at.

David G Baker
08-07-2007, 4:49 PM
Cliff,
The PayPal 4% rate was really a dig at local lending institutions. I read about the risk factor involved with PayPal. I use them on occasion but no longer keep any substantial amount of money in my account.
I am a Vanguard believer. I use the Coffee House Portfolio described on CBS's financial on line site. 7 Vanguard funds, they pretty well cover most of the market. It has worked very well for me for the past 5 years or so.