That's wild.. they still haven't fully embraced credit cards in parts of Japan.

I've said it in here a million times...... just as "things to watch out for" in investing. There are always correlations of money chasing a return. Bonds have sucked as an investment vehicle for years now (in my mind - forever) with low yields (interest), and no growth (a very basic statement). A decent common stock dividend has paid double or more. But the market has always reacted to "bond yields". Money chases money....

So -- what am I saying?? I'm saying that as yields on bonds rise -- money will seek out the return rate that is equal to (factor taxes in here) safe returns in stocks.

Now -- make no mistake -- the long term historical return on stocks far exceeds bond returns... but there is a huge amount of investor capital that loves bonds "safe" predictable yield.

What's that look like?? As bond yields seek a normal level --- rising --- you'll see sellers in the market raising cash - taking their gains (huge gains) -- and running to bonds. For me -- these inevitable selloffs are buying opportunities. Just don't go all in every purchase. Pick your names - make a list - and buy some as opportunity allows.

The lowest paying dividend yields will get hit as money moves out of them and into higher yielding names or in to tax free bond yields.

REMEMBER TO ALWAYS CALCULATE YOUR YIELD AT YOUR COST BASIS!! Don't look at what the yield is at today's closing price!! Your yield might be double, or better, than what the current price/yield is. So don't get tricked making this common mistake!

The math for this ----- your cost per share divided in to the annual (not quarterly) dividend in dollars and cents. Move the decimal point in the answer.


div is $1 (.25 every quarter X's 4)

your cost is $12 per share

1 divided by 12 = .08333333

Move the decimal point 2 places ---- it's paying you 8.33%

The fact that it's now selling for $24 a share and showing a 4.16% dividend is correct if you bought it today - but you were so smart and bought it 3 years ago !! LOL

++++++++++++++++++++++++++++++++++++++++++++


We've discussed LLC's and "commercial real estate" investments - such as multi family (apartments) etc. I've invested in this type of opportunity for almost 30 years now. I was reminded of something that just happened to one of my investments when I wrote the part above about calculating your yield on your cost basis.


5+ years ago I invested in an apartment complex in Seattle. Seattle has been one of the hottest real estate markets for quite awhile now. The yield on this investment is 7%. That's great income - and income from this type of investment is offset by the depreciation come tax time.... so these work great for guys like me. Eventually you have to "recapture" all of that when you sell etc - but for the typical hold period of 10 to 15 years -- you're collecting that payment "tax deferred".

Now -------- every 6 months we get a state of the investment (LOL) letter along with our check. They've been very "rosy" and have shown a massive increase in the value of the property.

When it crossed the line exceeding 100% of original purchase price (couple years ago) --- I wrote to management that it should be discussed whether it was time to capture that gain... because the CURRENT ROI (return on investment) is half what it could be if we sold and reinvested in something else. This is not exactly true if you calculate it all out - taxes have to be paid etc -- but basically -- think of it this way.... I invested over 1MM in this deal -- I get 70+K annually -- but now my 1MM is worth 2+MM - and even if I paid 40% taxes I'd get 1.6MM net.... if I invested 1.6MM in something that paid 6% ---- I'd get more cash (ROI). Plus -- nobody ever went broke taking a profit.

Now ---- that does not mean that you should be doing this with STOCKS. Stocks are LIQUID --- real estate is not! Your cost basis stays where it is -- and the growth in capital is your paper gain and the ROI should INCREASE over time as they raise the dividend rate -------- these real estate investments DO NOT do that -- they're like bonds -- as long as you hold them they're going to pay the agreed to rate. They're tax plays along with capital growth over time.

I'm mentioning all of this as an INVESTING 102 "lesson" ------- pay attention to your ROI --- know how to calculate it --- all investments are NOT equal!! Each type has its own parameters. Make sure you understand those and don't get caught selling a sure fired winner because you miscalculated your real return etc. Or don't get caught holding a low rate of return when you could have sold and moved it to a higher rate etc.

Good advice Greg. Curious if you've sold that apartment complex yet or not? The only problem I see with doing what you talk about in Real Estate is you generally have to pay more for what you are replacing it with. Unless of course you are in the fixing up segment of the market and if so, then by all means...

Unrelated but I thought this was a good read, some of you may as well.

http://creativeplanning.com/news-article/the-waiting/

Good question Lance.

The info was just fed to me with the final payment of the Partner Distribution made a week ago.

Here's some interesting details to help people understand these.

Typical holding period on these kinds of properties is 10 to 15 YEARS.

Only the Managing Partner decides to sell or hold etc.... The investors are along for the ride. Therefore these are completely illiquid !!

The market is so hot in Seattle -- that this property will be placed for sale on a bid basis - with no stated sales price. Bids have to be in by a specified date and due diligence and close by dates are specified.

Offers are then reviewed and accepted.

++++++++++++++++++++++


This property was purchased for $7.4MM -- and will sell for 16.5 to 17MM

So along with the "decent" Partner Distribution of 7% annually -- we'll all see a return in excess of 100%

Not a bad investment for 5.4 years


++++++++++++++++++++++


A direct answer to the question of reinvestment:

Sometimes these are done on a 1031 exchange.....

Sometimes they're sold outright (the case here)

I've invested with this particular group for almost 30 years. I turn 65 in August --- and while the hold period was fine when I was 40 or 50 years old --- 10 to 15 years is too long for me to hold now. So as these cash out -- I'll simply put the money in to investments where I (or my heirs) have control, and have liquidity.


+++++++++++++++++++++


5.4 years ago -- a 7% distribution was stellar. Todays buyer is going to get sub 5% (this depends on the final price and financing and rental rates).

In a rising rate market - that we're in now - I would not accept a sub 5% distribution. My guess is FED bonds (10 year bond) will exceed that soon enough, and they'll be tax free.... Many stocks pay in excess of that (even factoring in taxes) and they're liquid.

Remember that we're talking about a particular market (Seattle). Cap Rates vary greatly depending on the market....

I like this statement from Janet Yellen...... 'tiz fact.



The current U.S. economic expansion is now approaching nine years and is the third longest in duration since 1945, according to the National Bureau of Economic Research. Yellen said the economy can continue to grow. “Yes, it can keep going,” she said. “Recoveries don’t die of old age.”

that is a great quote.

Greg, on the reit. This may not be a proper question but here goes. Did you know the number of units (at the apartment/condo/highrise etc etc) there were and the average sq ft of each unit? in other words, i'm curious to see what these boil down to on a cost per sq ft basis. I know in the custom and track home building business's this matters, was wondering if the same applies to a reit.

thanx

Okay -- it's semantics -- but these are NOT REITS (Real Estate Investment Trusts) -- these are private LLC's....

Yes --- Price per square foot matters.... and the condition of the property relative to its neighbors/neighborhood.... and it matters what it's competition is getting in rental rates ------ if you plan to buy a beat up property and improve it.... can you then raise the current rate to market.

The guys I've invested with have several key investment strategies that I personally am drawn to:

HUGE down payments --- 40% ish or more

Large cash reserves

Cash to improve the property immediately (meaning part of the cash raise from investors includes the updates)

Improve the property to raise the rental rate.... even if it means no return to investors for a year or two. What happens here is a lack of rental income while you're remodeling several units at a time.

Buy properties that have been owned by someone that has not brought them up to current rates because they've not improved them. This includes interior and exterior and landscaping etc. While this is costly up front -- the return is a higher/above market rental rate. Rental rates control cap rates - cap rates control the selling price.

I hope everyone is ready with a little cash for the big sale that's on!

No question the market has been a little "hot" --- I've not bought anything of note for awhile now... and was sitting on quite a bit of cash....

I put in some limit orders today that got filled.

I put SOME money to work -- I did not rush in.... and I had predicted early this morning that the selling would accelerate at the end of the day. The market is subject to program trading -- and MARGIN CALLS which come at the end of the day.... Oh yeah buddy -- you trading out on margin -- it's going to be real painful as these folks are forced to sell at any price. I've watched this a zillion times..... I NEVER am on margin. You're just asking to get hammered.

REMEMBER ----- you'll never buy at the bottom --- it just won't happen because nobody knows what the bottom is and when to finally put your orders in. Just be selective -- use your best judgement - and if the price is higher than when the dust finally settles -- so what....

My advice is usually --- WAIT --- wait until the market stops going down and begins to flatten out or turn up. You're not going to get the rock bottom price anyway -- so waiting and paying up a little doesn't hurt the long term investor. I bought some stuff today more for flipping than for "investment" - but I bought stuff I'd buy anyway..... and I have my eye on a few more names that I'll just kick back and watch a bit.... and nibble at.

The stuff that's been the hottest - is most likely going to be the stuff falling the hardest on the way down..... Think about it -- some stuff is up 50% in a year or less.... lots of people are going to want to try to capture that gain.... and ALSO REMEMBER that for every seller --- there's someone buying... the stuff doesn't just fall in to a black hole. The market was down 1600 points and came back to close down 1175..... so money came in to scoop up those stocks.

401k
 

So here is a question that is a bit unique.
My company was bought out by a large company, we are now switching over to the new companies Insurance, 401k etc.
So my old 401K was through Vanguard, the new company uses Fidelity.

I look into my Vanguard tonight and see the monies are no longer there, I go to Fidelity to see that they are not there yet either.

So did I get ironically "lucky" with my money not being in the market with the last couple of days of sell off ? anyone here ever had a similar situation ?

It can take several days to complete these transfers.....


So did you see CASH in the accounts ---- or did you just find nothing??

No,did not cash in, just found nothing, they are transfering from one to the other, they show nothing in either, they told us there would be like a black out for a few days which is happening, I am just wondering when it comes back online, how can there be a loss if the funds were not in the market ?
I am sure this is not the first time something like this has happened.

You are invested in whatever you had before -- the transfer has NOTHING to do with what you owned -- this is simply a paperwork transfer from one brokerage to the other. Trust me - when you open your account when they finally post your holdings -- you'll either be up or down depending on what the market has done. You did not escape the carnage -- nor would you have dodged the UP market if that happened instead.

The good news is -- you're in a blackout period -- so it probably will save you from following all the lemmings that are selling instead of buying. Retail investors always buy at the top - and sell lower.... LOL It's why the rich get richer and the average guy loses money. They never quite figure out you buy low and sell high.


There are instances where one brokerage can't or doesn't have a product that the other one has - in those instances the shares are sold and the cash is transferred to the new account. You would have been told and would have had to agree to that happening.

This is for sure true, when it does finally get there it will go into a single fund (they picked) and then after that I can change my selection to a different choice if I chose, there 25 different funds and I believe there is only one that was the same/similar in both Vanguard and Fidelity, everything else is different.

Thank you Greg!

I don't know about everyone else, but right now it feels a little like Black Friday shopping! I feel good about my investments at last weeks prices, so seeing them take a hit over the past two days just feels like a great opportunity to add to my positions.

It's fun to watch your market value go up-up-up, but I enjoy these pull-backs because it gives me an opportunity for some bargains.

I had raised cash (selling in to strength) to a tad over 2MM ----- and yesterday and today wrote several limit orders to buy. Some got executed and some are open.... and I've bought some stuff at market just because I wanted to add to my holdings and the prices were "fine".

So I bought - over two days - 1MM -- and then sold a tiny bit of a winner and raised my cash back up to 1.44MM -- Because this isn't over.... I prefer to always be ready to seize on an opportunity when presented.

Some of my holdings are SO OLD (20 years - or 10 years - or 5 years) that I've been averaging UP nibbling here and there.... but I have NOT been buying at the top of the market for months now. I was happy with this bit of a blow off to put some dough to work. Interesting market -- but I don't think the selling is done.

Any thoughts on ETP.......keep buying below $20?

Very hard to discuss individual stocks and what to do or not. It's not what this thread is about. Just sayin'

Personally I hold this in two different accounts --- I'm way ahead in one account and way down in the other (10,000 shares in one -- 5,000 in the other).... I have averaged the one holding down a couple times in an effort to get it closer to where it's trading.

I would not try to game KMI or ETP. If you own it - I'd hold - it pays a great dividend.... and about all a guy can do is hope and pray they don't cut it (would be the kiss of death for the company and stock).

on the lighter side...
https://youtu.be/lQegMA_kY9Y

Thanks Charley - because this video is absolutely PERFECT!!

Thanks for the laugh Greg. I feel 1% or less of portfolio is ok.

This market has become so interesting..... half the time people are betting the market is going up and buying the dips -- half the time they're selling....

I sit here and laugh at the whole silly mess -- why? Because the market is UP UP UP ---- and when it goes down 5% everyone freaks out. Really?? Pick a name - check where it was at the beginning of last year -- and where it is / was at this years LOW....


Okay --------------- but here's one thing -- AS A BUSINESS -- I would be concerned about.

INTEREST RATES.

Why?? Because people are just people. Look at your own personal situation. Do you have ANY interest rate sensitivity? Buying a car? A house? Is your old loan at 3% ?? You think that payment is "okay"? What happens if your payment is based on 5% ?? Is your home loan on a 7/1 at 3.5%.... and you're 4 years in to that.... How much will your payment go up if you refinanced today to a 30 year??

Inflation is here -- it's been here for awhile.... it's been a coiled spring waiting for the worst opportunity to pop. Rates have been artificially low for years now... they too are a coiled spring. The FED thinks it controls rates.... but they're now a SELLER... and it's a BUYERS market. What's the mean?? That means that people buying debt -- control the rate they want -- this is controlled by what they will pay for bonds - and the government has a LOT OF THEM to sell... right when they're planning to add more debt to the pile.

Here's why it's important -------- going forward ----- will people be able to buy a house at the new rates? Cars? Or will they sit on their hands and stage a buyers strike.... When/if that happens we'll start with the layoffs in the housing market.... which hits suppliers (Caterpillar and Cummins and Deere etc).... and there's a chain reaction that doesn't end well.


OR


Do people realize it's still "cheap" and they'd better get busy buying stuff (most buy on time)...


SO ---- look at your own situation for some guide. Have you loaded up with debt? Has your business loaded up with debt? Or did you pay down debt - put money in the bank - and are sitting pretty?


IT'S THE REAL REASON YOU'RE SEEING THIS MARKET GO CRAZY ---- nobody knows where we're going and we're kind of at a bit of a crossroads. Will we be in trouble as a nation with higher rates -- or will we be fine and keep going? I have no idea. I'm not saying that I do.... I'm asking you to keep your ear to the ground and watch where you live and work. What do you hear from your friends and business associates.... are they working overtime or are things coming back to normal? Is biz great or has it changed etc?

Always interesting to read your posts Greg.

I have been thinking a bunch about the local housing market (SoCal) lately. I am in no position to buy right now so it seems like the best time to watch from a safe distance. Prices in my area are above 2006/7 levels with a decent amount of inventory for single family homes. I've had a couple friends recently purchase houses and a few have popped up in my neighborhood over the last year. One of which sat empty for 9 months before being sold. Sell price was within 5% of original asking.

I can't for the life of me imagine buying a house right now at these prices. Even IF I was in a position to buy. For you guys in the real estate business what are you seeing personally? First time buyers on the rise? Mostly investors with cash deals? Are prices trending up or down in your area?

What prompted this post is someone close to me that has a few rental properties is looking to buy right now. I fully respect him and most previous financial endeavors which made me wonder, "What does he know that I don't?". Maybe he's just more of a risk taker than I am. His History of such things would beg to differ. He's always been on the conservative side of things so it seems out of left field from my perspective.

He's looking at $300K condos that will likely produce $1500 in rents. That alone should be enough information to make a "NO" decision.

Comparing the real estate market from 2006 to 2018 is tough to do because they are not that alike. First, financing isn't anywhere close to that loose and most homes are bought with considerable documentation and scratch in the game these days. Don't discount inflation either. The cost over everything is up since 2006 so the same median price isn't relative.

With all that being said, I think a cool down is coming soon. It's been a really good run in most markets for quite some time. I'm not saying it's a bad time to buy if it makes financial sense. I wouldn't buy because you think you will hit a home run. That was in 2010-2014 in most markets.

The key is and always will be, buy real estate only if the numbers make sense personally long term and you can afford to wait to sell until the market is right again. If either of these don't equate, don't buy.

Both good posts.......

Personally --- I'm so happy we're selling the apartment complex RIGHT NOW..... We've made a great return. Time will tell if we were stupid. In my head the old adage -- pigs get fat and hogs get slaughtered comes to mind.

In rental real estate it's all in the numbers.... they work or they don't. Long term - they can work on the SALE side of things. In ALL of my business dealings -- I work with the adage "the money is made on the buy, not the sale". In other words - I like to buy LOW and sell high.

My post was really about --- looking forward --- in an Investing 102 way.... a "heads up" --- pay attention - don't be complacent and think the market goes straight up for years and years -- houses don't go up forever and always.... and I'm not saying to sell -- or not buy -- Rates are still historically low... The stock market and housing market CAN and DO go up even in a rising rate environment.... We could be in a space like the 50's and 60's when employment was good - and steady - houses sold steadily - the market was steady.... and there's nothing wrong with "steady". I just hope the FED doesn't get it wrong and we have to be MINDFUL of where we're headed --- not where we've been.

Debt is an interesting topic for me at the moment. I'm pushing 40, and I see a lot of people my age and younger that are working furiously to get out of debt (myself included). A lot of people older than me have already made it there. I don't know if I see more of it because it's my mindset, or if there are more people who look at debt differently than we did 20 years ago, or differently than their parents did. I've never liked debt, but there have been times in my life that I thought it was a necessity.

I've also talked to a lot of people in the their mid-twenties that seem to be a lot smarter about debt than I remember people being on average 10-15 years ago. Most of these kids are actively saving, buying used cars and driving them longer, buying reasonable homes, etc., etc.

I say all that to say that I've been having some of the same thoughts that Greg mentioned, though not nearly as coherent or well formed :), but in my little bubble, there are fewer and fewer people taking on debt. Even companies are buying with cash. At least equipment valued in the vehicle range down. That's despite money being so "cheap" these days.

The housing market is another oddity here. There aren't enough contractors to keep up with the demand for new home construction, and the "contractors" have come out of the woodwork. It's at the housing bubble pace here with no signs of letting up. I think people are just buying less house with the new mortgaging rules.

The "new" mortgage rules are onerous.... I have several friends that are real estate agents. I hear stories all the time about the perfectly good credit people have and perfectly good down payment - and the fighting they have to go thru to get their mortgage approved.

Debt -- AKA "leverage" isn't bad in and of itself... but most times it's used and abused. People use debt to raise their standard of living.... to buy things on time they really can't afford ---- and the worst example is --- use expensive debt to buy DEPRECIATING assets. Debt to buy a home - that's okay - debt to start a business - that's okay. Debt to buy a fancy car.... STUPID. Debt for a vacation - DUMB.

That's where people just simply lack discipline. Discipline would have them driving their current car 3 more years - all the while putting what would be the payment, in the bank.... and then paying cash for a car (the version they can pay cash for) and driving it and once again - putting the payment in the bank/market..... Ditto the vacation. If you know you have 2 weeks of vacation and you're going to Hawaii --- and you can't manage your money well enough to be able to put some away to cover that (you have a YEAR!!).... then the last thing you should do is put that on your credit card @ 22% interest rate. OMG....

Personal debt is more about a discussion of "living within your means". You don't buy furniture when you have to make payments on it. #1 that furniture is overpriced junk - and it's not worth tossing it on the curb and you still owe money on it. LOL

Agree on all points. The only things I might change would be to put more stuff in bold :)

About the only thing I see requiring debt these days is a house on the personal finance side. Then there's startup costs or large capital purchases (depending on your business structure) on the business side. I'm sure there are some circumstances outside the norm that make it necessary, but it's a quick way to get in trouble if you're not careful.

There were several generations that learned to buy it (and that's whatever "it" you want right then) on credit and pay it off when/if you can. Then several generations got to see how that worked out, and I see more and more that are willing to wait a little while and buy it without the debt.

The recent stats I’ve seen show Americans burying themselves in personal debt not dissimilar to 12 years ago. Student loans being the biggest difference. Kids have giant loan balances to enslave them for a loooooooong time. That’s exactly what all debt is, slavery. You are forced to work to pay it off. It reduces your options and flexibility.

The only debt that may not enslave you is investment debt. Real estate or business, but you can get caught with your pants around your ankles. It best be very optimistic calculated risk.

Ah yes Todd..... Student debt. In many cases it shows the same brilliant "investment" strategies as many of their other life choices. What do I mean?

Why would someone take out debt to the tune of $100,000 or $200,000 for a job that pays $35,000 a year. Can they not do basic math and realize the burden this is going to be? I don't care what the interest rate is...

I heard an interesting podcast on this. For your perusal:



Not that I agree with everything that he says, but it poses some interesting questions.

I think that government involvement in education is part of why costs for university have significantly escalated and why there are degree programs that are, from a society perspective, useless. These programs produce people with degrees that can only work at low wage / skills jobs.

:cheers:

That's a good point. The levels of student debt that kids are apparently leaving school with is one of those things that doesn't make sense on such a basic level that I have a hard time believing it's real. I've heard of Music or History majors leaving school with the same sort of debt that some MDs are leaving school with. One of those makes sense to some degree..... The other two not so much.

To be clear, I don't have a problem with studying Music, History, the arts, etc., but I think we are doing students a serious disservice by encouraging them pursue an academic path that will put them in debt for the majority of their adult lives. Further, many of those career paths are extremely difficult to find a job once they leave school.

Colleges pushing these sorts of academic paths reminds me a lot of predatory lending. "Sure, we'll loan you the money even though we know you'll never be able to make the payments." Sounds a lot like, "Sure, we'll prepare you for a career in a market that we know is saturated and never provide the income necessary to pay for that education."

So here's a good sign to watch for regarding "the future" and what happens with rising interest rates.....


Mortgage applications ----- DOWN 6.5%

Why? The reason given was "rising rates make homes less affordable". DOH!!

What happens if mortgage rates continue to rise and sales slow? You got it -- prices come down.... and??

You got it -- Builders start laying people off....

Let's hope the FED doesn't screw this up.

I'm definitely starting to see people priced out of the market here. Not severely, but for a majority of the last 7-8 years that didn't happen very often. I personally think the real estate market needs to become more neutral. This coming from a real estate agent. In nearly 18 years of wheeling and dealing in real estate, I've seen a neutral market for a very small sliver. I'm talking months as the transitions from buyer's to seller's to buyer's to seller's markets have been abrupt. I don't mind the idea of a listing sitting around for 30-90 days. I actually have a chance to sell it myself and convert some buyers into clients. I also don't have to juggle 10 offers on one listing. The amount of incoming agent calls can be pretty atrocious. It's also super competitive for our buyers. It's not uncommon for a buyer to lose out on a couple houses. I'll naturally carry more listing inventory in a neutral to buyer's market and I like that.

As with everything, you find the silver lining and make the best of the cards you're are dealt. There are always opportunities in every market if you don't put the blinders on. I just gave my real estate team a pep talk on this yesterday. ha

I bought my house 3 days after it hit the market because it was what I wanted and I had to. The houses were moving very fast in this area. I'm in one of the very few areas that's still affordable for it's location.

I'm convinced the areas around Atlanta that I was looking are too hot to sustain. I got lucky I was able to get in where I am.

Housing prices and trends in general have me concerned on many levels. Maybe it's the area I'm near and travel through, but good houses going for 500k+ only to be torn down and replaced with mansions that are squeezed onto the lot is too common for me to thing it's "normal" or sustainable. There're no starter homes or middle class homes in many of these areas. It's mansions or low end. I fear we'll end up like San Fran and other areas where housing is stupid expensive. Sure, as a home owner, I may reap the benefits of this, but the larger implications have me concerned.

I love what Warren Buffett said on CNBC this morning about selling stocks when they're down....


"If you bought your house for $20,000 and someone came along and said, I'll buy your house for $15,000..... you wouldn't sell would you".

Implying that you know/think/historically your house value is going to go UP over time.....

He's talking about being an INVESTOR for long term and investing in the value of the underlying company -- versus investing in the PRICE of the stock. Think about that..... it's a typical great Buffett / Investing philosophy.

He also called out people who try to treat the market like a casino. He's got some great advice about investing.

I'd posted about "HEADS UP!!" earlier......


Make no mistake -- Interest rates are extremely important to SALES.... Sales of ALL KINDS - not just houses -- but houses and cars lead the way.

The other night - I attended a party which was mostly all "the trades" - I was sitting with 3 excavator company owners all discussing their business (it's a very small valley where I live - they're all friends). #1 was about how busy they were last year and how busy this year seems to be starting out ---- and #2 ---- they all wanted to buy new equipment and hire more people.... PEOPLE to hire "don't exist"....and they're upset about interest rate change........ They've been buying with ZERO down and ZERO interest - and they've been finding out - those deals are going away.... Their unanimous response - they won't buy then! These machines are $80 and 100 and 250 grand!

+++++++++++++++++++++++++++++++++



New home sales down 7.8% in January
22 Hours Ago | 01:40




Sales of newly built homes are falling, and the culprit is clear. Homebuyers increasingly can't afford what they want. Higher mortgage rates, combined with the loss of homeowner tax breaks in some of the nation's most expensive markets, are taking away buying power.

Sales fell in December, when the new tax law was signed, and then again in January, when mortgage rates moved higher. Sales are now at their lowest level since August of last year.

The government's measure of new home sales is based on signed contracts during the month, reflecting the people who are out shopping and signing deals with builders. It is therefore a strong read on current reactions to home affordability. Mortgage rates moved a full quarter of a percentage point higher during January, from below 4 percent to about 4.25 percent. It then took off further from there.

"It seems that the jump in mortgage rates in January had an immediate impact on contract signings," wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group. "You can't get more interest rate sensitive when it comes to homes and cars with the associated cost to finance."

Just because I'm bored and partly because I was lucky enough to get a good place at the right time, I check the real estate market around me once in a while. It's still ridiculous. A quarter of a percent increase in mortgage rates deters no one.

Overpriced dumps in Sacramento (CA) sell in a maximum of six days, with multiple offers on the table frequently pushing values up as much as ten percent--this is like bidding war on sub-$300k stuff. We're talking 800-1200 foot places; in areas that didn't used to be so great, but are considered swell and quaint now, $500k will get you an old piece of junk (new paint + carpet with 50 year old windows no better than cellophane) with maybe 1500 feet of "living" space. The (local) job market (pay) does not remotely coordinate with what this stuff costs.

New places ("single family homes") starting at $500-600k down the street from me have been selling with literally no inventory, i.e., faster than they can be built (in December!). There is a waiting list for stuff that does not exist on the tiniest of lots. This looks just like 12 years ago, but some of the prices will undoubtedly hold better than others. Some will not . . .

Let's not even talk about the Bay Area (San Mateo?), where a small, yet newish 2-bedroom condo will ask at 900k, or you can pay $3000.00/mo for a crappy 2-bedroom apartment (Mountain View?). Someone mentioned San Francisco, which really isn't even mentionable anymore, since it was determined that you need to make at least two million a year to buy anything fixed on dirt in the city/county.

It's tough all over, but some have had good timing. For some places, though, it's like waiting until Beverly Hills becomes affordable. Just head east, really, really far.:welcome3:

I got a good laugh from an article this morning --- the point was -- "the next time someone tries to scare you with their prediction.... look at this chart".

This is so true it's hysterical.... the "sky is falling" - "the world is flat"....




https://lateral-g.net/forums/attachme...1&d=1519826414

I've followed monthly stats for over a decade here in the Las Vegas valley and sales always lag in December and January. There really is a seasonal adjustment. Even worse in markets with bad weather. They should be comparing numbers to other years in the same months. I'm not discounting that the market is changing, but as we all know, it depends on how the data is used.