U.S. Single-family housing starts in September fell 12 percent to their lowest level in 26 years while multifamily home starts (which includes apartment buildings) climbed 7.5 percent from month prior. The key sentence (and continued foreshadowing) from Bloomberg’s coverage: “Builders will find it difficult to lure buyers into the market after stock prices plunged this month and banks made it harder to qualify for a mortgage.”
Okay, and this one as well: “The full impact from the financial meltdown is yet to come.”
∙ Single-Family Home Starts in U.S. Fall to 26-Year Low [Bloomberg]
“doom and gloom”
“grave dancers”
“chicken littles”
🙂
[Editor’s Note: Don’t worry, we have the wahbulances standing by. And now back to the economics…]
Let’s see how this affects SF; Number of new houses in ’07 was 51. 19 of those included a demolition of the house that was there. 32 actually new houses in SF last year. A decrees of 12% will be a loss of 4 houses. MELTDOWN!!!!!!!!
“The full impact from the financial meltdown is yet to come.”
What does the full impact look like for SF/bay area? Lets look into the future.
Unemployment peaks at 10%…local economy contracts for 18 months.
Investors are buying.
From the NY times:
“Buy American. I Am.” – Warren E. Buffett in NYT
The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month – or a year – from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t.
They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s
advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.”
Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
http://www.nytimes.com/2008/10/17/opinion/17buffett.html
Let me know when Buffett starts buying real estate here or if you see Gretzky skating this way.
“Today my money and my mouth both say equities.”
Exactly. Equities. Not overvalued real estate.
Katy,
In equities, one can plausibly argue that we may be at or near the bottom. Dow is back to what? 2002? Another very point in there is the time horizon. He says, “Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. ”
Real estate in “real” sf is at or near the top. It still might make sense for someone if they have at least a 10 year horizon. But I don’t think it takes a Warren Buffet to predict that RE prices will be better 18 months from now.
Hi Chuckie,
I look forward to seeing what the real estate market is doing in 18 months.
It is a ride we are on and people are going to see exactly where the bottom was in a number of years in the future.
I hope we all catch the bottom on the way in and the top on the way out. Where is the yin and yang in that?
Best of luck with your investing.
Katy
I don’t know if anybody noticed, but the fall in the Case-Shiller has been remarkably comparable to the fall in the Dow Jones. It took C-S about a year. It took the DJ about two weeks.
But they’ve both shed a large double-digit portion of their peak values.
And if San Francisco is not ready for a huge crash yet, then that’s because it did not enjoy as huge a surge over the last five years.
Houses in the Top 1/3 rose way way less than the crappy cheap inventory in the Inland Empire. And I’ll bet that most nice SF real estate is not only in the top 1/3, but more in the top 1/9 (meaning that it probably rose even less).
apt bldgs and other investment bldgs haven’t fallen in price in SF at all. those with money and with previous investment experience in SF are continuing adding to their asset base. a few have moved over to oakland (-30% decline in lots of properties there), but many others i know would rather bet on SF in the long term. (most do not expect appreciation in the next 2-3 yrs, but after that, yes.)