Buffet Calls Shenanigans Shambles (And The Dow Dips Below 7,000)

There are so many ways this feedback loop from the debt/RE unwind will affect all SF RE:
– Diminishing downpayment. Many people have a balanced portfolio which includes a bleeding stock section.
– Lowering expenses. Brownbag lunches are killing restaurants today. People see their 401(k) collapsing and contemplate unemployment and try to compensate to cushion the blow. People are tight-fisted on all possible levels which precipitates the fall in consumption.
– Less bonuses, M+A ad IPO windfalls: less cash at the upper top/top markets.
– Fear. What was certain yesterday (stocks and RE going up on the long term despite a few bumps) is now less that a sure thing.
– Unemployment: one job lost affects the market big time: one more seller or one less buyer. Basic supply/demand.
But rates are low and prices are getting lower. 2 good things for potential buyers. Bottoms are usually coming when everyone thinks the market is a bad idea. I do not see it today (rent vs own logic still overwhelmingly friendly to renters), but we’re getting closer by the day, imho.

I was particularly amused by Buffet’s statement: “Never trust geeks armed with equations.”
I think that rule should be liberally applied outside of the finance world, too.

scurvy,
It all depends mostly on how much pain people will have taken. The more pain, the more stable the market will be, I think. I always dream that people smarten up when brutally confronted with contradictions. Like having a stable income over 15 years, seeing a doubling/tripling of home values and then seeing all this vapor money disappear. The equation had to rebalance and so far asset depreciation is the way this is happening.
If this is what is going on, then RE will be a “Home” market again, not a cheap financing medium like before, and a home shouldn’t cost you the lifestyle associated with your income layer! Therefore if this is the rationale, prices should stabilize nationally at 3X or 4X buyer median income and stay there for a while.
But SF is different and that ratio could be higher. One of the reasons is the high volume of renters in SF do skew the median income numbers. In short: 60% renters means the median income is likely a renter and chances are he is rent-controlled and paying less than market rate which allows him to stay in SF with a lower income than a newcomer. Potential buyers who are not in a long term “sweet deal” usually make more and can afford more.

San FronziScheme, I think we’re kind of agreeing but crashing on terms. We both think the housing market will be stable after it bottoms. I think it will be stable and stagnant, not rising for 5 years or so. Not falling, but not really rising either.

Scurvy- I wholeheartedly agree with your take on Buffett. Frankly I’m so tired of the Buffett-balljack. Let’s go hear ‘the guru’ in a stadium, as we wallow in his words of whit (while sipping on cherry coke). It’s such an annoying marketing image, the homeboy from Oklahoma showing the elite manhattan sophisticats how to really invest. I’m sure Buffett is tired of that BS too, especially now that he got his ass handed to him like the other big time investors put there. How about that blackstone group IPO? Or KKR? Or the brilliant minds at the Saudi soverign wealth fund- that huge purchase of BofA stock in mid 08 must be sitting on their balance sheet like a turf the size of the titantic.

Oh ok, let me say 2 things I like about Buffett. He is modest, and I think he is playing a well balanced role of being realistic yet a cheerleader for equities in the future. At least he’s not a rote GD2 here we come bear.

“what do people think will rebound first – the equity or housing markets?”
Equity. No doubt. And the SF rebound will trail the national housing rebound as we’re still in the freefall period here.

Equity prices. 100% certain IMO. Residential real estate is not a claim on productive assets. the revulsion that will surround it once the smoke has cleared it going to be with us for a very long time I bet.
For 95% of residential real estate, I think it will fall to rental equivalent value (perhaps overshoot in many places and subcategories), and then be dependent on real income gains for any real appreciation. Because taxes and the geenral regulatory burden of government going forward are going to be much higher than in the past, income growth (and hence rental growth) will struggle, and so will real estate prices.

scurvy,
That’s my belief too. But a little voice in me tells me the government will try and throw more Trillions at the problem. Look at the AIG quarterly bailout. The upcoming Big-3 quarterly bailout. The Citi quarterly bailout. My head spins at the figures.
Eventually inflation could pick up and everything will inflate, salaries, stocks and RE. It will all be funny money of course, but they’ll claim they have “saved the day”.

Eventually inflation could pick up and everything will inflate, salaries, stocks and RE. It will all be funny money of course, but they’ll claim they have “saved the day”.
No to mention if this happens and people get the false idea Obama saved the day they in turn will vote him in for another 4 years..

It’s such an annoying marketing image, the homeboy from Oklahoma showing the elite manhattan sophisticats how to really invest.
Buffet is from Nebraska, not Oklahoma.
How about that blackstone group IPO? Or KKR?
KKR has not gone public, their IPO has been pending for about 2 years – they missed their window.
Or the brilliant minds at the Saudi soverign wealth fund- that huge purchase of BofA stock in mid 08…
I believe you are referring to the injection of capital into C, not BAC – I don’t recall a sovereign wealth fund making a large investment into BAC at any point during 2008.
If you’re going to rant about the downfall of Wall Street fat cats it sounds a lot better when you get your facts straight. Otherwise you just sound like an angry hippie railing against whatever you can.

as for dija vs. sf housing market, ok, i’ll bite.
i bet that real sf housing restores to it’s highs before dija does. dija down > 50% from record high today, meaning it needs to go up 100%. sf housing off 10% to maybe 20% max today. and i think it will be -30% (worse case) at its nadir. i also think sf housing will be one of the first major housing metros to recover, not one of the last. note: i do expect dija to start its recovery before housing does, but not by anything nearing 100%. that’s gonna take a loooong, loooong time.

Yeah,I did have SF in mind as a comparison to equities – not housing in general – I didn’t make that clear though.
and a good point 45yohister – lots of SF is down no more than 10% imo.
which could mean (a) further to fall hence wil recover slower or (b) faster to return to peak levels.

REPornAddict,
This market crash (stocks and RE) is humbling even the smartest. The rules of capitulation should be applied with extreme care. It’s when RE investing will be called the “most stupid thing to do with your money” that you’ll have a chance at getting to some kind of bottom or at least the flat part of the L/U.

“the “most stupid thing to do with your money”
In the context of Socketsite, using that logic bottom was reached well over a year ago.

‘”and I can’t even begin to see how, if ever, it (housing)will start to go back up. ”
and actually, sentiments like that make me believe we are closer to recovery than many.’
and chuckie is proof that we are getting towards the bottom…
touche!

I suppose reverse psychology has it’s limitations..

^
Blackstone also did quite well with the equity office purchase. What astonished me is that they literally flipped skyscrapers. I mean literally! This was mid 2006, after it was well known that residential markets like phoenix, vegas and Miami were heading down. So the banking/credit market went into overdrive on commercial speculation. And people like macklowe (literally) got their asses handed to them, and have lost alot of property. Interesting story on macklowe- before the crash he paid top dollar for a super condo in a bldg right across from his prized holding, the GM bldg. Of course he ended up loosing the GM bldg. It must really duck sitting in that lux condo looking at the trophy bldg that you lost. Ouch.
One thing I don’t understand- comments anyone? Why didn’t Sam Zell just split up his empire (as blackstone did) and get better prices for bundles of bldgs. All blackstone did was buy in bulk, and flip to others. Anyone have more details on this?

Morgus- can u elaborate more on that? Was equity office an REIT and did that have anything to do with the taxes?