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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Oblomov who wrote (15525)	12/19/2003 8:31:55 AM
From: Elroy Jetson	Respond to of 306849

You need to look no further than the cyclical melt-downs at many lenders to know that some credit scoring models are someone's mass hallucination. A model, like Experian's, which scores heavily indebted people higher than those with significant assets will achieve it's logical outcome. I shared these two wildly different scores with my ex-business partner and we were both rolling on the floor laughing. Unlike myself, I assume the Queen of England has never found any use for credit of any kind. As such I feel it's safe to presume that her Experian Credit Score is quite a bit lower than mine - she's probably a sub-prime credit. I think it's safe to say that lenders using the Fair Isaacs model will weather an economic down-turn with little damage while lenders using the Experian model are not likely to survive.

To: Oblomov who wrote (15525)	12/19/2003 8:56:59 AM
From: Elroy Jetson	Read Replies (1) \| Respond to of 306849

The current real estate price bubble is far more exaggerated in some regions than others. Like the previous bubble in the 1980s, the aftermath affects all areas. My youngest Cousin just purchased a new 2,800 sq ft home in Austin TX for $170k which by my estimation is roughly a $150k home sitting on a $20k finished lot. In coastal states that $150k home is sitting on a $300k lot minimum. In better areas of Los Angeles that home would be smaller, say a 1,200 sq ft home worth $90k which now sells for $850k. So 90% land cost and 10% building? So one may surmise there's not much of a bubble in Austin. But I have a cautionary tale. In 1986 I did an valuation of the Tanglewood apartment complex in Houston, where the bubble collapsed four years before it did in California. It had just been built for $64 million but, due to over-building, rents in the area supported a sale value of only $16 million for the complex. So in this case real estate was selling for 75% less than construction cost. Needless to say, the project went back to the bank - and in fact the bank went under. One could say my Cousin is fairly safe buying a home where a 50% decline in land values would result in a modest $10k decline in value. But when Tanglewood sold for 25% of construction cost, homes in the region also sold at a significant discount to replacement value. So yes, Texas had less of a bubble than California during that period but the aftermath was fairly similar.