Housing Crisis Will End on June 30, 2009
So says James Cramer in New York magazine this week. Prepare to break out your wallets on that date, because housing prices, he says, will bottom and it will be “the best opportunity to buy since the 19891991 real-estate crash.” He gives 10 reasons why, including the eventually evening out of supply and demand; the…
So says James Cramer in New York magazine this week. Prepare to break out your wallets on that date, because housing prices, he says, will bottom and it will be “the best opportunity to buy since the 19891991 real-estate crash.” He gives 10 reasons why, including the eventually evening out of supply and demand; the $300 billion mortgage relief legislation, turning high-interest mortgages into more modest, 30-year versions; prices lowering so much in some areas that buyers won’t be able to resist; and the slow bottoming out of New York City. Immigration and population growth will play a part too, he says, and it looks to him like we hit bottom this summer and are starting on the slow road to recovery. Well, not that slow, apparently. Who out there agrees?
End of the Housing Market Free Fall [NY Magazine]
Photo by jkeys.
Hats off to TheWhat for warning us about the upcoming financial and housing crisis a year ago. Looks like this weekend is going to be a Bear Stearns redux, where we are all going to be sitting around our computer on sunday night to find out who the buyer of lehman is going to be. This time is going to be a lot uglier, for the shareholders, bondholders and employees of lehman because of the unwillingness of the fed and treasury dept to backstop any deal. Leh’s stock price is down 95% from the feb 2007 and their employees have lost more than $10 bill collectively. The wealth destruction we have witnessed is just horrific. We are not going to see the end to this crisis until two to three other financial institutions/investment banks/commercial banks follow suit. The run up in NYC real estate prices in the past 10 years has largely been due to the paper wealth created by investment banks and the economic stimulation that trickled down to other industries (legal, accounting, corporate events, etc) The reversal is starting with the destruction of all these institutions.
The short term implications of a possible lehman bankruptcy filing (some said it will get “taken care off” on here? yeah right, by who?) and its 24,000 employees (mostly in NY) is unimaginably horrible. The long term trend is NY is ceding its status as the financial center of the world to cities like London and Singapore.
I change my vote to 2011. Beware of Alt-A my friends. From Bloomberg:
http://tinyurl.com/4aevmg
@Dave, I used to do telecoms on the sellside but generalist on the buyside.
@Aussie, I only raised the Florida article because you cited the NY millionaires but I don’t think the levels in either case are enough to distort the market significantly (Monaco springs to mind as an example of this). If you read the article in the link, it actually incorporates home equity in the calc so it’s even more spurious.
@Lechacal, don’t be pissed off at the fees – you either choose to pay them or you don’t – and there’s a lot of overhead associated with running a proper fund. You should be pissed off at those hedge funds that don’t do what they say on the tin, those that run with excessive leverage and huge directional bets. We’re up double-digits year to date with an average gross book of 120% – I think I’ve earned my money 😉
Here’s why the current financial markets are just a circus. Who do you think is feeding this informations to Cramer on Citicorp….
Cramer says…
“Memo to Citigroup (C) : You are next. It doesn’t matter that you have a huge asset base and the terrific worldwide deposit business. You are just too vulnerable. These things are sequential. After the hedge funds are finished with Lehman (LEH) and AIG (AIG) and Washington Mutual (WM) , they are going to go after you, Citigroup. This moment is an obvious one. Pandit’s done nothing. He can’t defend himself. The financials are totally opaque. Unless it is having a great quarter that we don’t know about and can announce that it has sold its last three or four acquisitions (even at fire sale prices) or it has an investor in the wings we don’t know about, operating on Citigroup is just too easy a way to make a hedge fund’s quarter. Because there is no SEC protection from short-selling without upticks, and since you don’t need to borrow the shares beforehand, I can’t think of a reason the hedge funds don’t do their bear-raid thing on Citi. It has nothing but horrid mortgage exposure, and it is without a doubt, like AIG, too difficult to understand. This one’s a tough one. Everyone who has bought on the big broker and bank financings is down now that Merrill (MER) has broken the print price of $22. The inevitability of this is so extraordinary that we have to believe it isn’t next. Who would give them money unless they raised money themselves? So, here we go. I would buy position limit September 17.50 puts and position limit September 15 puts. Why not the September 20 puts? Because there is always a chance that the Federal Reserve reads this article and says, “We’d better cut rates big, because Citigroup is too big to rescue.” There was a time that I wouldn’t write an article like this. Citigroup? No matter what they did, they would be fine. But in 1990 I heard people say Citigroup would be fine. They said it all the way to $5 when Prince Al-Waleed bought his big stake. I think they will be saying it again next week, but I am too old and too knowledgeable about what happened in 1990 to risk not telling you to buy those puts for protection after the hedge funds eliminate the hope for AIG, WaMu and Lehman. Oh, one more thought: What the heck is this stock doing as high as $18? Makes no sense”
Cramer is smart about the economy, but he’s no expert on NYC real estate. NYC lags the rest of the economy by about two years. We may bottom around next summer, but that doesn’t mean you should buy then. I predict that when prices here do bottom out (probably 10-20% off peak levels, vs. 25-50% down across the rest of the country), they will stay down (“plateau,” if you will – but that really means something that goes up and the flat, whereas this will go down and then flat… more like a cnayon, or a cliff).
It’ll be 2011 to 2013 before prices begin moving back up and threaten to move above last year’s peak.
Of course, that’s not so far off, so there’s nothing particularly wrong with buying next summer, as long as you’re not a flipper (i.e. not insane). So Cramer’s advice is not terrible… it just won’t look like a valley in the way Cramer expects it to.
Agreed Denton. But if NYC has the most people with money, it should mean we can comfortably compare our NYC Real Estate prices to other major cities. NYC while expensive is not as expensive as other major cities. Don’t know why some don’t like me making the comparison.
being a millionaire ain’t what it used to be. I doubt if a millionaire could afford the typical HOTD.
I understand you point Lechacal but the many factors that increase the appeal of NYC (the “existing information” as you call it) act as a constant force that sets the long term trend for this town as up. The current problems will slow and partially disrupt the trend but as they abate the trend will resume. That could happen more quickly than you think. Something very big will be needed to disrupt the trend substantially. I personally think we are too close to that “something very big” than should ever be possible, but if it happens I’ll have more to worry about than property.
Cramer has the right date, wrong year. 2010 will be the turnaround. NYC will not lag.