Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: TigerPaw who wrote (6830)	9/20/2002 11:13:03 AM
From: Jim Willie CB	Respond to of 89467

developed nations in NAmer, Europe, Asia all go for GOLD /jw

To: TigerPaw who wrote (6830)	9/20/2002 11:28:34 AM
From: Jim Willie CB	Respond to of 89467

a Bill Bonner rant on the Real Estate bubble bust underway Greenspan's final bubble taken from the Daily Reckoning / jim But yesterday brought news that the housing bubble may have found its pin. Housing starts fell 2.2%. Lumber cracked - dropping below the $10 limit. Mortgage delinquencies at a record 5.7%...and foreclosures at the highest rates since they began keeping records...have begun to hammer away at both the builders and the lenders. Kaufman and Broad fell $3.26. Lennar dropped nearly the same amount. And Fannie Mae - the greatest of the housing bubble stocks - slipped to $67. Anecdotal evidence is beginning to show up too...and seems to be gathering a crowd. The smart money is selling, not buying: "I bought this piece of land [near Middleburg, VA] about six years ago. I marked it up to 4 times what I paid for it and sold it before I even had it listed," reported a friend over dinner last night. But in other areas, people say it is taking longer to sell houses. Rental rates are said to be falling off. Vacancy rates are increasing. As reported here earlier, housing prices have risen 30% more than the inflation rate over the last 7 years. Why should house prices increase faster than everything else? We have a partial answer: because you cannot import a house. Consumer price inflation has been coming down for 2 decades. But housing has bucked the trend in most areas. The Chinese are making more and more TV sets. They are making so many of them, so cheaply, that prices have been falling for many years. But the Chinese do not build houses for Americans... Even in America, though, people can still make things - if there's money in it. Years ago, your editor recalls that his cousin prepared to go into the construction business: "What do you know about building houses?" was the question put to him. "Nothing...what do you need to know?" answered the cousin. "Don't you need a lot of tools and equipment?" "I've got a hammer and a saw...what more do you need?" And so the cousin went into the home construction business in 1972 and did well at it. The typical American house is hardly a work of beauty or consummate engineering. In a matter of days, it can be hammered together out of pre-fabricated parts by a crew of illiterates. Over the long run, and making no allowances for local conditions, there is no reason for houses to be any different from other consumer items. They can beat the general rate of inflation for a while, but not for long. Warren Buffett points out that the only way you can be fairly sure of protecting a profit margin is to own a business with a moat around it - a high cost of entry that makes it difficult for others to compete. Some places have natural moats - mountain villages, such as Aspen, Colorado, with little available land...or islands, such as Manhattan...or seaside resorts, such as Naples, FL, whose backs are to the ocean. Not surprisingly, these are the places where property prices have risen most quickly. In San Diego, for example, with its huge moat on the west side of town...stretching all the way to China...housing prices have been going up at 20% annually. But there is no moat around St. Louis. Nor is there one around Baltimore or most other cities. As long as property prices rise faster than the cost of capital, builders will continue putting up marginal houses in marginal areas and selling them to marginal buyers with marginal financing. That is the thing about a bubble that is almost indescribably wonderful. Things that people might have considered foolish and stupid begin to look reasonable. The housing development, for example, that was a loser at 10% mortgage rates, becomes a winner at 6%. People who could barely afford a double-wide find themselves with a mini-mansion with plastic siding and a maxi mortgage. And gradually the supply of houses catches up to even the most marginal demand. And then a change begins. "For Sale" signs stay up longer. Foreclosures rise. Builders and lenders begin to lay people off. And suddenly, it begins to look as though the last of Greenspan's bubbles has popped. Ciao, Bill Bonner