I think "it" started. Fist is subprime mortgage loans. If that would be just 20 years ago when banks were dealing with person directly only that bank would loose. These days loan is stripped to tranches and sold. That trunch can get anywhere in form of a derivative. Last week was about credit market illiquidity. Fed had to inject cash to make it more liquid. In the next couple of months we should see bunch of hedge funds collapses as well as small banks. The good new is economics indicators are good. Consumer confidence is high. But! Stock market has less effect on consumer confidence now than real estate value. And when house value will decrease more and more confidence will fall. Confidence down will lead to spending decrease. And that can happen fairly soon. I guess this is a nice slow start to markets adjustment.

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Originally posted by _Sergey_: I think "it" started. Fist is subprime mortgage loans. If that would be just 20 years ago when banks were dealing with person directly only that bank would loose. These days loan is stripped to tranches and sold. That trunch can get anywhere in form of a derivative. Last week was about credit market illiquidity. Fed had to inject cash to make it more liquid. In the next couple of months we should see bunch of hedge funds collapses as well as small banks. The good new is economics indicators are good. Consumer confidence is high. But! Stock market has less effect on consumer confidence now than real estate value. And when house value will decrease more and more confidence will fall. Confidence down will lead to spending decrease. And that can happen fairly soon. I guess this is a nice slow start to markets adjustment.

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Agreed. And I've been saying this here for years. Being ashamed to admit I am right, is not one of my weaknesses. ________________________________________ "Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

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"Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

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Originally posted by Egor: Agreed. And I've been saying this here for years.

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That's easy to say because market will go down. Guaranteed! Now, what advantage can we take out of the situation? How can we make money in this market? Thoughts? Ideas?

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I agree. Atlanta is not the most over-priced market, but you will see housing prices fall, you will see appraisals not come in, and you will see people who thought they could refinance, end up without a house. I expect a lot of average people are going to suffer badly in the next year. The smart people I know are already covering their asses. it's going to be a bloodbath (so much for consumer confidence...the average consumer doesn't know what they are in for yet: A 20 year correction - that will impact the stock market, pension plans, and every financial instrument that incorporated sub-prime mortgages (most). Frankly, I'm thinking it makes sense to sell the real estate I have, and buy it back in a year at 20% off....the rich can come in and buy up real estate and rent it out to all the poor souls who lost their housing. Another win for the rich! lol "Your ad here..."

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"Hearts will never be practical until they can be made unbreakable."

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Originally posted by _Sergey_: That's easy to say because market will go down. Guaranteed!

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No I actually said why and how. And not about the market. The market is only back to April, and I don;t expect a stock market or a real estate crash.

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Originally posted by _Sergey_: Now, what advantage can we take out of the situation? How can we make money in this market? Thoughts? Ideas?

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Not really Same as always I guess. Long-term investments into stable companies or real estate. ________________________________________ "Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

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"Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

Atlanta will be fine. A few years of price stagnation at worst. You will not be able to buy you house back cheaper if you take into account transaction costs. In overpriced markets this may be true, I would sell and invest the money. And inflation has outpaced real estate growth in Atlanta, almost for the entire existance of the city. So not much to lose here anyway :) ________________________________________ "Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

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"Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

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Originally posted by Egor: Atlanta will be fine. A few years of price stagnation at worst. You will not be able to buy you house back cheaper if you take into account transaction costs. In overpriced markets this may be true, I would sell and invest the money. And inflation has outpaced real estate growth in Atlanta, almost for the entire existance of the city. So not much to lose here anyway :) ________________________________________ "Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

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We will see... "Your ad here..."

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"Hearts will never be practical until they can be made unbreakable."

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Originally posted by Egor: Not really Same as always I guess. Long-term investments into stable companies or real estate.

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By real estate you don't mean REITs do you? Since market goes a little down I want to try one simple strategy that should beat index on a long term. Will see...

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Actually, i think what it's going to bring is once again lower interest rates. (i do believe that it started already with Fed dropping discount rate for banks) - it's a part of another conversation that we had with Egor and gtSasha. Egor believed that we saw the last of the good interest rates, i tend to disagree. it will happen. Fed has changed in the last few years So we have another possibility for someone of getting something for a good price and with a good interest rate I do agree with egor that Atlanta shoulnt suffer that much of a drop. Florida? Yes - it's already been pain to sell in Florida (i have some relatives with properties there), CA and NY - probably though god knows. It has already been stagnant market for the last year or so around the areas that we personally looked at but somehow new communities with houses going for 600-700k and townhouses 450 and up are still popping up and still being sold!!

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Originally posted by Lionya: Actually, i think what it's going to bring is once again lower interest rates. (i do believe that it started already with Fed dropping discount rate for banks) - it's a part of another conversation that we had with Egor and gtSasha. Egor believed that we saw the last of the good interest rates, i tend to disagree. it will happen. Fed has changed in the last few years

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Part of the current problem is exactly the interest rate of the past. Money were very cheap and investros borrowed and created highly leveraged positions. Another bad side is many investors borrowed cheap money in other markets, like Japan and invested it in US. When time arrived to unwind their positions, japanese yen suddenly jumped 2% due to demand

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Originally posted by Lionya: Egor believed that we saw the last of the good interest rates, i tend to disagree. it will happen. Fed has changed in the last few years

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I think I said many times that rates cannot be predicted. To prevent a real estate crash they can be adjusted very low. Which is why I don;t believe in the real estate crash. Unless you call 20% or so a crash :) What I predicted is the inability of people to pay for their houses when rates adjust, because of inappropriate lending practices. And in the longer term the overall inability to pay because real estate grew disproportionately to incomes in the US. I make no attempts to predict rates. I am sure someone tried that on 9/10/2001. And I always like to be able to say "I told you so" Predicting rates, is something even smart economists won't do. At least the ones worth listening to. All investment strategies should cover all reasonable rate possibilities. Which was my argument with you here before about ARM loans, if I remember correctly. And what they will do to the market. Which they now have, and this is only the beginning. I expect record numbers of foreclosures in the next 2-3 years, as the Fed is afraid to lower rates too far due to inflation, and banks (thank god) will not let people without net worth to refinance home loans any more. But homebuilding will cease, sellers will simmer down and wait it out, and buyers are already starting to smell a "buy low" situation. This system is too perfect for a large crash. It'll all be ok :) ________________________________________ "Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

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"Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

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Originally posted by Egor: I think I said many times that rates cannot be predicted. To prevent a real estate crash they can be adjusted very low. Which is why I don;t believe in the real estate crash. Unless you call 20% or so a crash :) What I predicted is the inability of people to pay for their houses when rates adjust, because of inappropriate lending practices. And in the longer term the overall inability to pay because real estate grew disproportionately to incomes in the US. I make no attempts to predict rates. I am sure someone tried that on 9/10/2001. And I always like to be able to say "I told you so" Predicting rates, is something even smart economists won't do. At least the ones worth listening to. All investment strategies should cover all reasonable rate possibilities.

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I agree that "interest rate" can no be predicted but as you can reasonably predict that markets will be going thru it's ups and downs, and i believe that Fed has changed it's way in the last 10 years or so to try to stimulate markets more and more with interest rates. Of course it could be a bad thing, as it happened last week when just b/c markets were feeling uneasy "Fed" rushed to help dropping the rate. So DOW can act like a spoiled baby - if it's good, it's good, if it's bad Fed gives him more candy (i.e. money) - so more companies can be bought with borrowed money so they would have longer life before making profit. And as you rightfully described (and a lot of articles did) when loans and mortgages were given to anyone out on the street - it's all coming back to bite us but it general my point is that the change in Fed can help us - little people. if economy is doing well, you should be invested and making decent returns, if it's not doing so well Fed will try to help us with lower interest rates so we can refinance for lower rate and hence save more money

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Originally posted by _Sergey_: By real estate you don't mean REITs do you?

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No, actual property investment. And with high down payments. Not without. REITs and no money down home-buying is outperformed by mutual funds almost always. Plus, I hope banks wont loan to these people anymore anyway. And not let them refinance. They must leave their homes asap. After this real estate will thrive again. ________________________________________ "Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

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"Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

Last summer I was looking for a place of my own (bought last September) and here are some things I was told to do: -- Buy more expensive house, it will increase in value more. -- Buy the most expensive house you can [not] afford. This way you will save the most on taxes. -- The more expensive house you buy the less tax you pay. -- Take interest-only loan, that's what the rich do. -- My friend took an interest-only loan and won [made money]. -- Don't put any money down on a house. The recent housing market, especially in places like California and Florida was a typical "mania". People were making speculative buys and banks were making speculative loans to people with poor credit hoping that the prices on houses will keep going up. A remarkably similar thing was going on back in 1999 and early 2000 when people who knew nothing about stocks and investing were pouring their money into .com companies. We all remember how that turned out. Just as the economy survived the .com crash, it is going to survive the housing decline. There will be other manias in the future and I doubt the sky will fall then either. Sasha

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Sasha

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Work is a matter of taste. If you don't work you don't taste.

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Originally posted by _Sergey_: That's easy to say because market will go down. Guaranteed! Now, what advantage can we take out of the situation? How can we make money in this market? Thoughts? Ideas?

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I recently read an article discussing the recent market situation. The author (I cannot remember who wrote and where I read it so I cannot give proper credit) said something to the order of: "Instead of guessing what stock market will do spend some time figuring out how to be better at work. There are guaranteed higher yearly returns from that, and it's something over which you have control." I agree with that. I am not a real-estate expert so I cannot tell you what will happen to the Atlanta real-estate market. As far as stocks go I invest a little money into mutual funds every two months or so. Every serious financial expert tells us to invest for a long term, diversify, and do what's called "dollar cost averaging", and not worry about what's going to happen next month. Sasha

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Sasha

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Work is a matter of taste. If you don't work you don't taste.