Posted by Al - So Cal on December 05, 2002 at 14:23:07:
Congragulations. Sounds like you`ve taken action and
are well positioned. Good Luck.
Timing the Real Estate Market - Posted by Sean(CA)
Posted by Sean(CA) on December 04, 2002 at 13:06:21:
Timing the Real Estate Market ? By Robert Campbell
This is a book review of Robert Campbell?s new book (http://www.realestatetiming.com/) and my impressions of it.
I have been waiting for this book to come out for months and took one of the first ones off the press. It would have been very hard for this book to live up to my grand expectations for it, and it was, unfortunately, not up to the task. I found it to be a little disappointing.
The premises of the book are two: (1) That real estate appreciation or lack of same can be predicted in the next 3-6 months by checking certain ?Vital Signs? and (2) That real estate won?t appreciate one month and depreciate the next, but that appreciation must first slow to zero before it turns completely around and goes negative.
The vital signs, in case you are interested, are (1) existing home sales, (2) new housing permits, (3) mortgage delinquencies, (4) foreclosure sales and (5) interest rates. Robert Campbell blends all these elements together into a master formula that applies the right weight to everything and predicts whether appreciation will occur in the next quarter or two.
Now, it shouldn?t come as rocket science to anyone that if existing home sales are down, new housing permits are down, mortgage delinquencies are skyrocketing, a record number of foreclosures are occurring and interest rates are headed to the moon that it is a bad time to be in real estate. The point of the formula is to let you know what to do when existing home sales are up, new housing permits are down, mortgage delinquencies are headed sideways, foreclosures are slightly up and Alan Greenspan is pushing interest rates down like there?s no tomorrow.
Considering that this book is all about the magical formula, it is surprisingly light on math and what math is discussed isn?t exactly written so that a 10-year old could easily understand. Another surprise is that the book doesn?t contain the master formula that blends the 5 ?Vital Signs? together ? to get that you have to buy the software he advertises on the third to last page of the book. It took me about 10 minutes with a calculator staring at the chart on page 78 and following the instructions on page 79 until I could follow along (hint, when he says the result is 24, it?s actually 0.24 so initial attempts to reverse-engineer the chart will fail). Careful reading shows also that the examples he give are simplified and he uses an exponential moving-average in order to come up with the real numbers.
The book is also slightly out of order. First read page 76, which definitely should be earlier in the book, then hit chapter 1 and chapter 4, then skip to page 78 and follow along with the math and go straight to the appendix (page 141) then do chapter 7 and 8 and finish the rest of the book, if you don?t already have the jist.
The biggest problem with the book is that he doesn?t indicate what the vital signs really are. For example, what does he mean by ?foreclosure sales?? Sales of properties near foreclosure? Sales of foreclosed properties that are now bank-owned? Median dollar sale of foreclosed properties, what? After some thinking, I guess he means the number of properties sold at auction on the courthouse steps, but he could?ve been a lot clearer and if that?s what he means why didn?t he just say number of foreclosures? Also nebulous is his ?interest rate? calculation. What rate does he use? Mortgage rates would make the most sense, but also the federal funds rate, discount rate or even the prime rate could be relevant. The answer to the interest rate he uses is on page 170 and definitely could?ve been spelled out earlier.
The book comes with a 30-day money-back guarantee and I don?t plan to ask for my money back ? instead I?m passing the book on to the special lady in my life to try to help her understand why I do what I do and to persuade her to sell her townhouse (that?s appreciated from $70,000 to $150,000).
Another thing, his 10 cardinal rules should contain another rule and that?s FEAR is a four-letter word. I can?t tell you how many people I?ve told to sell their property because prices are maxed out only to hear them say, ?But, if I sell, I?ll never again be able to afford the down payment on a house because house prices are going out of sight.? It?s not HOPE that prices will go up that keeps people from selling it?s FEAR that they?ll keep going up and the person will never own the American dream (a house) ever again.
Robert Campbell has a BA in economics and if there?s one thing that economists are good at it?s putting together a good mathematical model so I have high hopes for his Excel spreadsheet software. Overall I give the book 3½ stars out of 5.
My real estate signs… - Posted by David Krulac
Posted by David Krulac on December 05, 2002 at 17:41:38:
Sean,
Your views are much appreciated.
I disagree with getting out of real estate altogether.
There are definite signs that are down trending, including as I’ve written before the time of te season.
December and January in cold temps is the worst time of the year. Probably not so in South Florida, CA. TX AZ and NM. But on the positive side is the low interest rates. A banker called me offering to lend money at rates in the 5s. There is cheap long term and short term money available. That helps fuel the re industry.
The worst times that I have personally seen, not having memories of the great depression of the 30s is 1981. I offered to buy a house and agreed that i would accept 16% interest fixed for 30 years. The house was immaculate, the price had been dropped about 30% over the year that it was for sale and I just felt that it was too good to pass up. When well built, immaculate houses sit on the market for a year something is wrong. 50% of the real estate agents lcoally dropped out of the business because houses just weren’t selling. But when houses aren’t selling its a buyer’s market. If the economy goes bad and houses aren’t selling, then to me that’s a sign to buy.
I would also add that while there are many national and global issues that affect the sale of houses, there are also very many local issues. The local employment, the local foreclosures, etc. that may make one area a buyer’s market and another area a sellers market at the same time. The imperfections and inconsistences of the housing market are what make the bargain prices.
David Krulac
Central Pennsylvania
Nice analysis, a couple thoughts… - Posted by Hal Roark
Posted by Hal Roark on December 05, 2002 at 08:06:19:
Sean,
You write well. I enjoyed your thoughts. Two thoughts:
“Now, it shouldn?t come as rocket science to anyone that if existing home sales are down, new housing permits are down, mortgage delinquencies are skyrocketing, a record number of foreclosures are occurring and interest rates are headed to the moon that it is a bad time to be in real estate.” I would clarify the last part of this statement to read that it’s NOT a bad time to be in real estate (it’s actually a GREAT time to be in real estate if you know the right moves) but it’s a bad time to own real estate with high ltvs and little/no equity. Agreed.
Second, make sure your significant other has lived in her townhome for 2 of the last 5 years, so that when she sells she can keep her gain TAXFREE. Taxfree is as good as it gets.
Thanks for the review.
Hal
Re: Timing the Real Estate Market - Posted by Al - So Cal
Posted by Al - So Cal on December 04, 2002 at 14:29:57:
Forget the gurus and their books and arguements and
look to your own indicators and especially your own
common sense.
The stock market bubble has burst. In the past there
has been a certain time-lag before real estate follow-
ed.
The economy has been helped by massive mortgage refin-
ancing and people taking cash out - 1.2 Trillion in
2001 - 1.4 Trillion in 2002 - and probably 1 Trillion
in 2003.
The results of the Feds taking the rates down has allowed this mania to take place allowed people to purchase homes at very high prices and have a low payment. Many dont realize that they have topped in years worth
of appreciation via 1989 when it took a lot of buyers
in my area 10 years to get their money back out.
I bailed out of trading stocks at the top - in Mar of
2000 because of a divergence in my technical indicators.
I believed at the time that the stock bubble would
be the cause of the greatest transference of wealth
in the history of the United States. It was probably
6 to 8 Trillion dollars.
Now its RE and the crowd is running in to get hurt- especially new investors. The trouble with formulas and prognostications is that by the time you see them set in stone its too late.
You lose.
Look for the following probability to occur.
Holliday sales disappointing. Stock Market to resume
downtrend in 2003.
Real Estate bubble to become more evident.
The huge X factor hovering out there now and has
been further terrorist acts. Good Luck to everyone.
HOPE vs FEAR :: Is the bubble about to burst? - Posted by royland
Posted by royland on December 04, 2002 at 13:42:25:
Hi Sean,
Although i have not read Mr Campbells book I must say I found your summary and conclusions very insightful.
I was especially interested with your thoughts on VITAL SIGNS: After you read his book what do you now think will happen into the market…
Are you actually saying - with the reference to HOPE vs FEAR - that the housing bubble is about to burst and that prices will actually decrease…
I would find your answer interesting as I stay in South Florida - Broward - and everyone seems to say that even thought prices have skyrocketed they will NEVER come down. They may stablize but NEVER come down.
I am reminded on my motivation to buying STOCKS on the market:
IF everyone is BUYING start SELLING
IF everyone is SELLING start BUYING
Whats your view?
Cheers
Jason
Maybe, maybe not… - Posted by Hal Roark
Posted by Hal Roark on December 05, 2002 at 08:02:18:
Al,
A few months ago, I posted my fears for the economy on this board. I, too, felt that the holidays would be poor, the economy might get worse, etc. I’m not so sure any more.
The malls around here have been packed since BEFORE Thanksgiving. I don’t think it’s going to be a banner year, but I don’t think it’s going to be as horrible as described either. The key is Bush: will he promote economic policies that stimulate the economy and help the masses (and thus the economy) or will he continue his hell-bent move to the right and satisfy the needs of the upper 1% only?
I also agree with you that the war on Iraq remains a huge drag on the economy.
We shall see. I, too, have thought that housing may be at the top, which is why I’ve sold 6 houses recently out of my portfolio.
We shall see, friend…
Hal
Los Angeles County - Posted by Sean
Posted by Sean on December 04, 2002 at 14:43:31:
Well, I can’t speak for South Broward, but I can say that here in Los Angeles the market failed my ‘smell test’ in 2002 and I sold out of all my real estate. I’m now happily invested in Canadian bonds, which yield more than US Bonds and I hope that the Canadian dollar will strengthen vs. the US Dollar considering the canadians have a trade surplus and we have a trade deficit.
Mr. Campbell’s book revealed that his formula generated a sell signal in late 2001 and I imagine that he’s cashed out too waiting for the market correction.
Could he have stayed in longer? Probably. I probably could have as well, but as they say PIGS GET SLAUGHTERED.
Anyway, considering that this is California I figure we’re due for a major earthquake anyway. That always depresses property prices.