The mortgage crisis is not restricting its pain to owners; many renters are being evicted from their homes when foreclosure occurs. Many are only given a few hours notice when a sheriff shows up at their door. The New York Times had an article over the weekend that discussed this now prevalent situation.
As Owners Feel Mortgage Pain, So Do Renters
http://www.nytimes.com/2007/11/18/us/18renters.html
The immediately critical question for many renters is "what should you do if they want to evict you during foreclosure proceedings?" Taking the right steps can buy a renter critical time to find a new place to live.
Many times a bank will be the new owner after a foreclosure. Sometimes the home is sold at auction and you will be dealing with a private individual. In the current environment a renter probably has more leverage with a bank from a regulatory and practical perspective. A bank is normally interested in cutting a deal to get you out of the home in a reasonable timeframe without having state banking regulators pestering them. A private individual who purchased a home at a foreclosure auction simply wants to move in to their new home as soon as possible and will get a much more sympathetic hearing from any third party such as a court.
What grounds do you have to avoid eviction?
First, let’s start with the assumption that you have consistently paid your rent on time, there is a written lease in existence, and the lease does not end shortly. Most leases have a requirement that either party must give the other 30 days notice prior to taking action. Some states view that properties are still encumbered with existing lease agreements if the house changes hands. If you are a renter in good standing and are given less then the notice period to evict the property then you have solid legal ground in many states to stall the eviction proceedings and threaten to take the situation to civil court. Most banks and purchasers very much want to avoid court and normally will consider providing a more reasonable timeframe to relocate then a few mere hours.
What regulators can help?
The most valuable people to call, if a bank is threatening to evict you, are the State Banking Regulators. Demand action to prevent your eviction for 90 days from the bank. In many states these regulators are very helpful in these situations; others view it as outside the scope of their oversight. Regularly call to follow-up and ask for details on their interaction with the bank. Calls to the state AG’s office or BBB are not likely to have much impact on a situation that is effectively a non-fraud related civil dispute. Banking regulators have more influence over the actions of banks.
Call the eviction authority
Call the enforcement agency in charge of carrying out evictions and demand that they not proceed with the eviction because you have not been given proper notification as the renter. Different states have different rules about notification period requirements to people actually living in a home. A simple phone call with a follow-up letter may stop the authority from carrying out eviction proceedings until the bank can definitively prove that they have properly served you with an eviction notice and met the timeframe standards.
Pressure the banks for more time
Call the bank or mortgage company and demand 90 days notice. Under pressure from regulators and politicians a number of banks have implemented an unannounced adoption of this policy before it can be imposed on them from the states and federal government.
Demand your deposit back prior to leaving
Demand the deposit back from landlord and the bank in writing via registered mail prior to moving out. If they fail to return the deposit then they have failed to meet the terms of the lease. This will normally slow down the momentum of the eviction proceedings; however many banks will simply tell you to sue your old landlord for your deposit and it’s not their problem. On the positive side, the letter will provide a firm evidence trail for any further action after you leave.
Demand proper compensation to move out quickly
Many banks will pay you to move out quickly. A number offered is usually a measly amount like $500. Demand a sum that covers your entire security deposit back plus moving expenses to move with any urgency.
Be Prepared!
Be prepared to move out quickly if necessary. Line up a place to put your stuff on short notice, such as storage unit or at a friends/families garage if possible.
The Final Rent payment
If the eviction is inevitable within 30 days with no chance of extension and you have no commitment about the return of your security deposit, then stop paying rent. This is one of the very few real estate situations where you should consider withholding rent. Send registered letters to the landlord, management company, and/or bank stating that you are doing this, and you will take them to court if any negative references show up on your credit report relative to the final rent payment. Keep in mind that an owner that can’t pay their mortgage is unlikely to ever return your security deposit; nor will a bank or new owner return money they never collected. At worse the landlord or bank will take you to court about this, in the same hearing you can demand your security deposit back in front of a judge who will probably view the situation as a wash.
Contact the management company
Lean on the management company (if there is one) to strictly adhere to the terms of the lease in regards to eviction and notification. If you live in a state where management companies are regulated (usually by real estate boards) and the management company is not being cooperative in defining timelines in regards to when the home will be repossessed and when you have to leave, then explain to them that you will be contacting the agency that provides oversight and make a fuss. This may make the management company more cooperative. You would think that management companies would have a human interest in doing the right thing, but most don't.
If the management company is cooperative, you may want to ask them about other equivalent homes that you could potentially move into which are listed in their available inventory. You also may be able to cut a deal for the deferral of an upfront security deposit on the new residence if the management company has a conscience about your situation.
Leave the home in good order
Despite your dismay at being evicted for no good reason, it does not make sense to take your anger out on the rental home. Leave the home “broom clean” and in good order. It is not worth the headaches of having the bank or new owners come after you for ripped out light fixtures, broken plumbing, or other destructive problems. Nor would this benefit you in any civil legal action after you leave. Document any existing problems in the rental that are due to normal wear and tear (worn carpet, etc.) or other causes (water damage due to leaks from the roof, etc.) that are not your fault prior to leaving.
Keep Records!
Keep notes of all conversations and the full names of who you communicated with regarding the eviction situation.
Be Proactive
If you have any concerns that the home that you are renting may be at risk of foreclosure then it is important to search online to determine if the home is due to be foreclosed upon. There are a number of websites that provide this information for a small fee.
Summary
Taking the steps outlined above can help slow your eviction as a renter in a foreclosure situation, and provide you with critical time to find a new place to live. Always be polite when dealing with all the parties, but still be demanding and understand your rights as a renter within the state that you live. Many states have web-pages and government agencies that provide an overview of the rights of renters and landlords. The reality is that your eviction is inevitable in most foreclosure situations; the best you can hope to do is buy time. Rarely will you get the opportunity to stay with the property unless it is immediately sold to a private owner who plans to rent it.
Monday, November 19, 2007
Sunday, November 18, 2007
Screening to Win: Moving Averages
This is the start of a series of articles that describe how to successfully screen for stocks. The initial essays will cover some common technical indicators. The follow-up articles will provide examples of winning screens that utilize both fundamental and technical indicators. This material will eventually be placed on the HingeFire website.
At HingeFire, we believe that investors should take advantage of every aspect of screening to put the market edge in their corner. Fundamental criteria are an excellent gauge of the prospects for a company over a lengthy period of time. Technical indicators provide important clues about the short term momentum in the market, effectively reflecting the fear and greed of traders.
Investors with long time horizons can use technical indicators to enhance their returns. Studies have demonstrated that using technical indicators to time the entry and exits of long term investments can increase the basis return by over 4% points. It makes sense to use technical screening in conjunction with your fundamental examination of potential equity selections to boost your portfolio.
The good news is that technical indicators are not magical voodoo, most have sound theories behind their logic that all derives back to the innate psychology of the market. Additionally, technical values are simple to understand and helpful in implementing your market execution decisions so it behooves investors to comprehend them.
The overview below describes one of the common technical indicators - Moving Averages, and provides insights on how to utilize it in your stock selection. Hopefully this outline will provide traditional fundamental investors with some solid insight on how to incorporate technical indicators into their screening. The free HingeFire Stock Screener which can be found at http://www.hingefire.com/ is one of the few tools available that includes a wide selection of fundamental and technical criteria for selecting stocks. Using a combination of fundamental and technical screening is a powerful tool for winning in the market.
Moving Averages
Moving Averages Overview
There is an old expression that “Bulls live above the 200 Day Moving Average and Bears live below the 200 Day Moving Average”. In many ways this adage holds true. Associating a stock’s price level with its moving average is a very reliable approach to determine the trend.
The two most common types of Moving Averages are SMA (Simple Moving Average) and EMA (Exponential Moving Average). Simple Moving Averages are created by simply totaling the closing prices for the defined time period and dividing the total by the total number of days.
An EMA applies more weight to recent prices relative to older prices. The weighting applied to the most recent price depends on the specified period of the moving average. The shorter the period of an EMA, the greater the weight applied to the most recent price.
An exponential moving average will always tend to be closer to the current price then a simple moving average. From a reliability perspective, EMA has a tendency to “whip-saw” more then SMA moving averages, providing short-term false breakout and directional change signals, due to its reliance on more recent information. Conversely EMA provides a quicker indication of the underlying changes in the pricing of the equity, allowing an investor to jump on board changes in trend. The question of which moving average is best is subject of a “religious debate” among theoreticians. Investors should try both and determine which is most useful for their selection process.
The HingeFire tool provid
es support to incorporate moving averages in your creation of screens for stocks. Support for both SMA and EMA is included. Users can scan to determine if a stock price is greater than or less than a particular moving average, and also determine if the price just crossed above (JCA) or below (JCB) the moving average today. The tool also provides the capability to compare the levels of different moving averages.
How to use Moving Averages in screening
The HingeFire screener supports allowing users to determine if today’s closing price is above or below the SMA or EMA for multiple time frames. Most investors view that closing prices above or below the moving average in longer time frames such as 200 day, 100 day, or 50 day provide a solid indication of a stock being bullish or bearish. Many investors use this assessment as a filter for their entries, typically going long on stocks whose prices are above their long term moving averages and tending to short stocks below these levels.
Short-term moving averages provide information on quick price acceleration or deceleration. A stock that is above its 5 day and 20 day moving average is likely to be accelerating in an uptrend and is prone to continue an upside breakout. A cross-over back below a short-term moving average can serve as a signal that a stock upswing is exhausted and it may be time to take profits.
AeroCentury Corp (ACY) recently broke out above its 20 day and 5 day SMA. Many momentum investors look for these conditions as entry points, and would view the stock price dropping back down below these levels as a sign of exhaustion and exit the trade. ACY was simply one of many stocks found when using the HingeFire tool to screen for the closing price being above the 20 day and 5 day SMA levels.
The HingeFire tool also supports determining if the pricing has just crossed above (JCA) or just cross below (JCB) a moving average level. These cross-overs potential indicate a change in trend from bearish to bullish or visa-versa. Many investors screen for these cross-over changes in order to scope out stocks that have potential before they become widely exploited by the market.
For example the stock price of Techwell (TWLL) just recently broke out above its 200 Day SMA near $12.65; this many times serves as notice of a change in momentum for the stock. Many investors would view this as a possible entry point if they believed that the stock had sound fundamentals.
The comparative level of moving averages to each other also reveals noteworthy information about stocks. The HingeFire screener supports comparisons such as the 200 and 50 day moving average levels. Support for JCA and JCB is also provided for comparing these moving averages. Many investors view that when a 50 day moving average crosses over the 200 day moving average, it serves as confirmation of the bullish signal for the stock. This type of confirmation usually lags the exact start of the trend but helps investors avoid situations where the trend quickly reverses.
Recently the 50 Day SMA of Avon Products (AVP) crossed above the 200 Day SMA; many investors would view this as solid confirmation of the bullish trend. Avon is one of the stocks that came up this past week in a scan of the 50 day SMA (red line) crossing above the 200 day SMA (blue line) using the HingeFire stock screener.
Moving averages can also serve as a support level, occasionally news will come out about a stock that causes the price to drop near its 200 day or 50 day support level. Sometimes the stock price will bounce-off of these support levels rather then diving below them with significant volume. Numerous investors screen for these situations as entry points and purchase their stocks near these support levels.
A recent example is CSCO dropping to its 200 day support level shortly after its recent earnings report. A regular screening of Cisco would show the price dropped slightly below the 200 day moving average (blue line) near the 9th of November. Many investors with a bullish fundamental long-term outlook on the stock would view this as an entry point to purchase CSCO.
Note that long term moving averages can also serve as resistance levels with some stocks having difficulty penetrating this barrier with volume sufficient to carry them higher. Investors focused on shorting commonly screen for scenarios where prices fail to breakout solidly above larger time frame moving averages.
In summary, many knowledgeable investors use the HingeFire tool to screen for the following situations with moving averages:
At HingeFire, we believe that investors should take advantage of every aspect of screening to put the market edge in their corner. Fundamental criteria are an excellent gauge of the prospects for a company over a lengthy period of time. Technical indicators provide important clues about the short term momentum in the market, effectively reflecting the fear and greed of traders.
Investors with long time horizons can use technical indicators to enhance their returns. Studies have demonstrated that using technical indicators to time the entry and exits of long term investments can increase the basis return by over 4% points. It makes sense to use technical screening in conjunction with your fundamental examination of potential equity selections to boost your portfolio.
The good news is that technical indicators are not magical voodoo, most have sound theories behind their logic that all derives back to the innate psychology of the market. Additionally, technical values are simple to understand and helpful in implementing your market execution decisions so it behooves investors to comprehend them.
The overview below describes one of the common technical indicators - Moving Averages, and provides insights on how to utilize it in your stock selection. Hopefully this outline will provide traditional fundamental investors with some solid insight on how to incorporate technical indicators into their screening. The free HingeFire Stock Screener which can be found at http://www.hingefire.com/ is one of the few tools available that includes a wide selection of fundamental and technical criteria for selecting stocks. Using a combination of fundamental and technical screening is a powerful tool for winning in the market.
Moving Averages
Moving Averages Overview
There is an old expression that “Bulls live above the 200 Day Moving Average and Bears live below the 200 Day Moving Average”. In many ways this adage holds true. Associating a stock’s price level with its moving average is a very reliable approach to determine the trend.
The two most common types of Moving Averages are SMA (Simple Moving Average) and EMA (Exponential Moving Average). Simple Moving Averages are created by simply totaling the closing prices for the defined time period and dividing the total by the total number of days.
An EMA applies more weight to recent prices relative to older prices. The weighting applied to the most recent price depends on the specified period of the moving average. The shorter the period of an EMA, the greater the weight applied to the most recent price.
An exponential moving average will always tend to be closer to the current price then a simple moving average. From a reliability perspective, EMA has a tendency to “whip-saw” more then SMA moving averages, providing short-term false breakout and directional change signals, due to its reliance on more recent information. Conversely EMA provides a quicker indication of the underlying changes in the pricing of the equity, allowing an investor to jump on board changes in trend. The question of which moving average is best is subject of a “religious debate” among theoreticians. Investors should try both and determine which is most useful for their selection process.
The HingeFire tool provid
es support to incorporate moving averages in your creation of screens for stocks. Support for both SMA and EMA is included. Users can scan to determine if a stock price is greater than or less than a particular moving average, and also determine if the price just crossed above (JCA) or below (JCB) the moving average today. The tool also provides the capability to compare the levels of different moving averages.How to use Moving Averages in screening
The HingeFire screener supports allowing users to determine if today’s closing price is above or below the SMA or EMA for multiple time frames. Most investors view that closing prices above or below the moving average in longer time frames such as 200 day, 100 day, or 50 day provide a solid indication of a stock being bullish or bearish. Many investors use this assessment as a filter for their entries, typically going long on stocks whose prices are above their long term moving averages and tending to short stocks below these levels.
Short-term moving averages provide information on quick price acceleration or deceleration. A stock that is above its 5 day and 20 day moving average is likely to be accelerating in an uptrend and is prone to continue an upside breakout. A cross-over back below a short-term moving average can serve as a signal that a stock upswing is exhausted and it may be time to take profits.
AeroCentury Corp (ACY) recently broke out above its 20 day and 5 day SMA. Many momentum investors look for these conditions as entry points, and would view the stock price dropping back down below these levels as a sign of exhaustion and exit the trade. ACY was simply one of many stocks found when using the HingeFire tool to screen for the closing price being above the 20 day and 5 day SMA levels.
The HingeFire tool also supports determining if the pricing has just crossed above (JCA) or just cross below (JCB) a moving average level. These cross-overs potential indicate a change in trend from bearish to bullish or visa-versa. Many investors screen for these cross-over changes in order to scope out stocks that have potential before they become widely exploited by the market.
For example the stock price of Techwell (TWLL) just recently broke out above its 200 Day SMA near $12.65; this many times serves as notice of a change in momentum for the stock. Many investors would view this as a possible entry point if they believed that the stock had sound fundamentals.
The comparative level of moving averages to each other also reveals noteworthy information about stocks. The HingeFire screener supports comparisons such as the 200 and 50 day moving average levels. Support for JCA and JCB is also provided for comparing these moving averages. Many investors view that when a 50 day moving average crosses over the 200 day moving average, it serves as confirmation of the bullish signal for the stock. This type of confirmation usually lags the exact start of the trend but helps investors avoid situations where the trend quickly reverses.
Recently the 50 Day SMA of Avon Products (AVP) crossed above the 200 Day SMA; many investors would view this as solid confirmation of the bullish trend. Avon is one of the stocks that came up this past week in a scan of the 50 day SMA (red line) crossing above the 200 day SMA (blue line) using the HingeFire stock screener.
Moving averages can also serve as a support level, occasionally news will come out about a stock that causes the price to drop near its 200 day or 50 day support level. Sometimes the stock price will bounce-off of these support levels rather then diving below them with significant volume. Numerous investors screen for these situations as entry points and purchase their stocks near these support levels.
A recent example is CSCO dropping to its 200 day support level shortly after its recent earnings report. A regular screening of Cisco would show the price dropped slightly below the 200 day moving average (blue line) near the 9th of November. Many investors with a bullish fundamental long-term outlook on the stock would view this as an entry point to purchase CSCO.
Note that long term moving averages can also serve as resistance levels with some stocks having difficulty penetrating this barrier with volume sufficient to carry them higher. Investors focused on shorting commonly screen for scenarios where prices fail to breakout solidly above larger time frame moving averages.
In summary, many knowledgeable investors use the HingeFire tool to screen for the following situations with moving averages:
- Equity prices being above or below long term moving averages function as a filter to either purchase the stock long or sell the stock short.
- Prices rising above or dropping below short term moving averages act as a momentum breakout indicator or serve as a profit taking point.
- Prices crossing over larger time frame moving average levels indicate a change in long term momentum. This serves as a possible entry point for investors to beat the crowd.
- Comparison of moving average levels act as a confirmation of a trend.
- Moving average levels serving as support or resistance levels.
Combining technical indicators such as moving averages with commonly used fundamental criteria when selecting your investments helps put the market edge in your corner. The HingeFire Stock Screener provides support for both fundamental and technical indicators, a powerful combination that will enable your success in the market.
Saturday, November 17, 2007
“We have not seen a nationwide decline in housing like this since the Great Depression"
The maze of weekend reading has produced some gems this week. The first was the quote above from Wells Fargo Chief Executive John Stumpf. Once in a while a banking industry insider hits on the exact correct perspective and provides a real zinger of a quip that puts the state of affairs in context.
Wells Fargo: All's Not Well
http://www.forbes.com/home/markets/2007/11/15/wells-fargo-closer-markets-equity-cx_er_ml_1115markets37.html
Earlier this week, Fortune provided commentary questioning the soundness of Wall Streets practices. The banking firms continual implement repetitive cycles of destructive behavior, never learning from previous lessons while always chasing higher fees.
In the past I have commented on the cycle of greed trumping common sense and adequate risk control in the banking sector.
Banks: The Worse is Ahead
http://hingefire.blogspot.com/2007/11/banks-worse-is-ahead.html
Fortune declares “In pure destructive power, the subprime mess has become Wall Street's version of Hurricane Katrina.” From any perspective, the investment banks have finally stepped in a bog where there is no easy way to pull their foot out. The size of the carnage triggered by the credit meltdown is dazzling. A couple further quotes from the article provide additional perspective:
“Predictable because whether it's junk bonds or tech stocks or emerging-market debt, Wall Street always rides a wave until it crashes. As the fees roll in, one firm after another abandons itself to the lure of easy money, then hands back, in a sudden, unforeseen spasm, a big chunk of the profits it booked in good times.”
"The fee engine becomes so huge that these products take on a life of their own," says Tiger Williams, CEO of Williams Trading, a leading financial services firm for hedge funds. "Everyone rationalizes that it's safe because they're making so much money. But it's far from safe."
The Fortune article is a worthwhile read; the bulk of the article outlines how Merrill Lynch created mortgage backed CDO packages while failing to follow sound risk control practices.
Wall Street's money machine breaks down
How Merrill Lynch broke down in the subprime mess
The subprime mortgage crisis keeps getting worse-and claiming more victims. A Fortune special report.
http://money.cnn.com/magazines/fortune/fortune_archive/2007/11/26/101232838/
Wells Fargo: All's Not Well
http://www.forbes.com/home/markets/2007/11/15/wells-fargo-closer-markets-equity-cx_er_ml_1115markets37.html
Earlier this week, Fortune provided commentary questioning the soundness of Wall Streets practices. The banking firms continual implement repetitive cycles of destructive behavior, never learning from previous lessons while always chasing higher fees.
In the past I have commented on the cycle of greed trumping common sense and adequate risk control in the banking sector.
Banks: The Worse is Ahead
http://hingefire.blogspot.com/2007/11/banks-worse-is-ahead.html
Fortune declares “In pure destructive power, the subprime mess has become Wall Street's version of Hurricane Katrina.” From any perspective, the investment banks have finally stepped in a bog where there is no easy way to pull their foot out. The size of the carnage triggered by the credit meltdown is dazzling. A couple further quotes from the article provide additional perspective:
“Predictable because whether it's junk bonds or tech stocks or emerging-market debt, Wall Street always rides a wave until it crashes. As the fees roll in, one firm after another abandons itself to the lure of easy money, then hands back, in a sudden, unforeseen spasm, a big chunk of the profits it booked in good times.”
"The fee engine becomes so huge that these products take on a life of their own," says Tiger Williams, CEO of Williams Trading, a leading financial services firm for hedge funds. "Everyone rationalizes that it's safe because they're making so much money. But it's far from safe."
The Fortune article is a worthwhile read; the bulk of the article outlines how Merrill Lynch created mortgage backed CDO packages while failing to follow sound risk control practices.
Wall Street's money machine breaks down
How Merrill Lynch broke down in the subprime mess
The subprime mortgage crisis keeps getting worse-and claiming more victims. A Fortune special report.
http://money.cnn.com/magazines/fortune/fortune_archive/2007/11/26/101232838/
Friday, November 16, 2007
Credit Crunch = $2 Trillion Shock
A number of recent estimates have calculated the projected direct losses of the mortgage related credit crunch at over $500 Billion. This figure primarily focuses on the write-downs at banks and other institutions.
A recent estimate on the overall impact of lending by Goldman's chief U.S. economist, Jan Hatzius, places the reduction in lending at over $2 Trillion. This type of scale-back has the significant probability of triggering a recession or causing a subpar growth scenario over the next few years. Remember the old expression about 'the economy slides on a slippery slope of loaned money." Any type of reduction in mainstream lending to worthy creditors has a negative impact on macro-economic growth.
Economist: U.S. facing $2 trillion lending shock
Goldman Sachs analyst predicts impact from credit crunch
http://www.msnbc.msn.com/id/21834052/
A recent estimate on the overall impact of lending by Goldman's chief U.S. economist, Jan Hatzius, places the reduction in lending at over $2 Trillion. This type of scale-back has the significant probability of triggering a recession or causing a subpar growth scenario over the next few years. Remember the old expression about 'the economy slides on a slippery slope of loaned money." Any type of reduction in mainstream lending to worthy creditors has a negative impact on macro-economic growth.
Economist: U.S. facing $2 trillion lending shock
Goldman Sachs analyst predicts impact from credit crunch
http://www.msnbc.msn.com/id/21834052/
Thursday, November 15, 2007
Finally: Some Truth in Real Estate Projections
Most of the articles about real estate prices are sunny, projecting a quick pricing rebound in all local markets by late 2008. The majority of these media items almost read like a press release from the real estate industry, regularly quoting NAR and other stakeholders who have an interest in positive spin on the deteriorating situation.
Finally an article has come out that looks at the cold, hard facts and attempts to perform some realistic real estate market evaluation based on math. A recent article in Fortune projects the prices five years from now using the most reliable indicator of all, price-to-rent rates. The results clearly demonstrate that the quick recovery jubilantly projected by the real estate industry is fiction, and homeowners better be prepared for a multi-year cycle of pain.
Price-to-Rent rates are like a P/E for home prices. Similar to P/E’s for stocks, the price-to-rent ratios are mean reverting, and will always eventually come back to the mean once a speculative real estate market bursts. From 2000 to 2007 the nationwide P/R jumped from 15 to 24, an increase of 60%; this steep climb is not sustainable, and housing prices will eventually correct or rents rise to properly remedy the situation. Performing P/R calculations brings some disturbing conclusions; real estate will have to drop in price by an average of 16% across all markets to reflect proper pricing. This includes the expectations of increasing rents. Some local markets will show far worse downside performance.
The results for 54 areas around the country can be found in this table:
http://money.cnn.com/magazines/fortune/price_rent_ratios/
On average, a home that sells for $436K will drop in price to $372K five years from now. A house in San Francisco will be worth $1,568M in five years if the current value is $1,732M. In Raleigh, a house currently valued at $447K will be worth $381K in five years.
The information demonstrates that the real estate price decline is likely to last for a significant period of time, now that the era of lax lending standards has come to an abrupt halt. In the long run, the return to traditional lending standards and non-speculative valuation is a solid positive for the economy. However existing homeowners need to be able to deal with some valuation pain over the next few years as the situation corrects itself.
Real Estate: Buy, Sell, or Hold?
by Shawn Tully
Thursday, November 15, 2007
http://finance.yahoo.com/real-estate/article/103872/Real-Estate:-Buy,-Sell,-or-Hold
Finally an article has come out that looks at the cold, hard facts and attempts to perform some realistic real estate market evaluation based on math. A recent article in Fortune projects the prices five years from now using the most reliable indicator of all, price-to-rent rates. The results clearly demonstrate that the quick recovery jubilantly projected by the real estate industry is fiction, and homeowners better be prepared for a multi-year cycle of pain.
Price-to-Rent rates are like a P/E for home prices. Similar to P/E’s for stocks, the price-to-rent ratios are mean reverting, and will always eventually come back to the mean once a speculative real estate market bursts. From 2000 to 2007 the nationwide P/R jumped from 15 to 24, an increase of 60%; this steep climb is not sustainable, and housing prices will eventually correct or rents rise to properly remedy the situation. Performing P/R calculations brings some disturbing conclusions; real estate will have to drop in price by an average of 16% across all markets to reflect proper pricing. This includes the expectations of increasing rents. Some local markets will show far worse downside performance.
The results for 54 areas around the country can be found in this table:
http://money.cnn.com/magazines/fortune/price_rent_ratios/
On average, a home that sells for $436K will drop in price to $372K five years from now. A house in San Francisco will be worth $1,568M in five years if the current value is $1,732M. In Raleigh, a house currently valued at $447K will be worth $381K in five years.
The information demonstrates that the real estate price decline is likely to last for a significant period of time, now that the era of lax lending standards has come to an abrupt halt. In the long run, the return to traditional lending standards and non-speculative valuation is a solid positive for the economy. However existing homeowners need to be able to deal with some valuation pain over the next few years as the situation corrects itself.
Real Estate: Buy, Sell, or Hold?
by Shawn Tully
Thursday, November 15, 2007
http://finance.yahoo.com/real-estate/article/103872/Real-Estate:-Buy,-Sell,-or-Hold
Wednesday, November 14, 2007
ETF to Short China
For those who believe that the Chinese stock market is a bubble, there is now an easy way to take action on your convictions. The UltraShort FTSE/Xinhua China 25 ProShare (FXP) moves twice in the opposite direction of the Chinese stock market. The underlying index is the FTSE/Xinhua China 25 Index.
Doubling down on a global downturn
ProShares funds short booming Chinese stocks, other emerging markets
http://www.marketwatch.com/news/story/new-etf-lets-investors-profit/story.aspx?guid=%7B225CDEB1%2DACBD%2D4A6D%2D84CD%2DADF393307D9F%7D&dist=TNMostMailed
Doubling down on a global downturn
ProShares funds short booming Chinese stocks, other emerging markets
http://www.marketwatch.com/news/story/new-etf-lets-investors-profit/story.aspx?guid=%7B225CDEB1%2DACBD%2D4A6D%2D84CD%2DADF393307D9F%7D&dist=TNMostMailed
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