Jon

Response to username: "Las Vegas Real Estate"
In response to your question about what are derivatives and how do they relate to the real estate market. I posted a Trulia blog which goes into some detail hopefully providing a step by step intro. There are also more sources then you may care for with the most authoritative links and statistics at the bottom of the blog (but also throughout the article).

$700 Billion Bailout! Why should I care about credit markets when I just want to buy real estate?
http://www.trulia.com/blog/jon_2/2008/10/700_billion_bailout_why_ - Sun Oct 5 2008, 21:11

No Fdr, I'm far too ahead of the markets to be scared and would hardly pay much mind to any of our useless politicians. I anticipated the housing bust several years before it came to fruition as did many others who did their best to warn others. Same for the build up of derivatives. I am concerned though that a lot of people will continue to get blindsided having no idea about the nature of these products. Although, honestly, from what you wrote, it sounds like you were watching the news and then responded to my post without getting that the purpose was to provide some facts to understand what's going on.

For those interested in learning, take a look at the outstanding derivatives reported by the Bank for International Settlements. You'll see an bold doubling of them from $300 trillion at the end of 2005 to almost $600 trillion at the end of '07. http://www.bis.org/statistics/otcder/dt1920a.pdf
Into 2008, they made it up to about $700 trillion before finally deflating back to $600 trillion in 2nd quarter, '08. Still a completely astounding amount.
http://www.bis.org/publ/qtrpdf/r_qt0809b.pdf - Sun Sep 28 2008, 11:40

No the economic crisis isn't as bad as the Treasury, the Fed, Congress and the media says it is...it's worse.

The media and many others have led us to believe that the housing fiasco is the cause of our economic crisis and the reason Secretary Paulson and Fed head Bernanke are asking for a $700 billion bailout. This is dead wrong! We are being misled in a psychological ploy (which is what can make or break markets). The problem with the housing market has simply exposed the vulnerability of the biggest ponzi scheme the world has ever known to the tune of $300 to 600 trillion (depending on whose figures you use). That's the "value" of the global economy's derivative products. The top 25 U.S. commercial banks hold $180 TRILLION of these derivatives which increased by $16 trillion from 4th quarter 2007 to 1st quarter 2008. Yes mortgages are wrapped up in some of these derivatives, but the amount is relatively small, though widely held across the globe so as to be able to expose the ultra-leveraging of the entire derivatives market. World Gross Domestic Product is $55 trillion, so not even the world could cover the hundred's of trillions of derivative bets let alone the U.S. government (but they're the last stop gap since the world still buys our debt at this point).

JPMorgan Chase holds $90 trillion of them which makes them too big to fail ($905 billion of deposits don't support $90 trillion). Non-bank, large derivative holders were intentionally merged into banks (like Merrill into B of A) because FDIC backing of deposits provides psychological assurance - it's the best game the government can play (or best place in the shell game to hide the derivatives) even though the the FDIC currently doesn't have funds to back $100 million let alone billions of deposits from bank failures. And there's another trick that's even better, some of these mergers make the same bank the owner of both sides of the derivatives contract, essentially allowing them to cancel out the derivative. Some say this will rid the system of some 10 to 15% of the derivatives. Will that be enough, only time will tell. Supposedly this will buy enough time to reinvent the system, but the rest of the population will have to work a lot harder to rebuild their assets. It's a grand system of slavery where your assets are essentially stolen through inflation and taxation which are tools used to protect those that run the systems. See the U.S. Treasury Dept.'s 1st quarter 2008 report on bank trading and derivatives for the details that they aren't telling us in the media:
http://www.occ.treas.gov/ftp/release/2008-74a.pdf

We can only hope the $700 billion psyche trick works or we'll feel a global melt down that will make us wish for the Great Depression. - Sat Sep 27 2008, 23:45

Renting is an excellent choice! It's what I chose to do after selling all real estate in anticipation of the housing bubble bust. The time to buy will be after you see a slew of news stories about Realtors looking for new careers because there were too many in the field. That's not necessarily a bad thing, remember the markets are designed to weed out those that aren't worthy (unless the government interferes). Also remember when seeking advice, Realtors are sales people not market analysts even though many talk as though they think they are. Any clown can be a real estate agent with courses available online, so think of the housing bust as a good thing to weed out the worthless agents and leave us with the gems.

Anyone claiming we've bottomed need only wonder how they could know this without knowing the value of the Credit Swap Derivatives (which no one can figure out) of soon to be bankrupt Lehman Brothers and the other financials. Or why the government is still arranging corporate marriages like Bank of American taking over Merrill Lynch and J.P. Morgan being asked to take over Washington Mutual after it already picked up Bear Stearns. The cheer leaders tried to call a bottom when Bear Stearns was taken over and now we'll see 2 more of Wall Street's top 5 vaporize in a single week. It'll be a bottom when everyone has given up trying to call a bottom. Then you can think about buying in a neighborhood that isn't subject to municipality failures due to municipal bond collapses and roaming deterioration. - Sun Sep 14 2008, 20:32

Pat, your answer is on Trulia. Look toward the middle of the web page for any property listing and you will find a chart showing the average sales price for the past few months. Click on the chart for charts with data going back to 2000 with breakdowns by number of rooms for avg, median sales prices, listing price etc. Realtors like to direct you to their site which usually have much less info than Trulia because they want you to contact them and depend on them. That's why they all post here; it's free advertising, not because they're all so helpful and friendly.

Let tell me tell you to expect residential real estate to drop by another 25% over the next 6-9 months. I would wait until prices have fallen to 2000 levels for most areas (which you can determine from Trulia's charts). You need to think in those terms because the housing bubble was caused by the Fed's money injection when the stock market's tech bubble blew up. About the only defense Realtors have left under current market conditions is to tell you that every local real estate market is different which is true, but does not mean that some lesser hit areas won't eventually take a fall. Expect unemployment rates to increase dramatically as the credit market collapses which will strengthen the assaults against the housing market.

QUOTE:
Albert Edwards, global strategist at Société Générale, said Washington's serial bail-outs are the inevitable result of the credit bubble of preceding years. "This was all baked in the cake long ago. What we have seen so far is just a dress rehearsal for the deep recession that is coming. America is going to be losing 500,000 jobs a month. That is when we will see interest rates go to zero. The deficit will be covered with printed money as it was in Japan. The endgame will be helicopters full of cash dropped by Ben Bernanke," he said.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/… - Thu Sep 18 2008, 15:26

Leasehold properties generally depreciate in value the closer you get to the end of the leasehold period, so it's not something you would usually think of as an investment but rather as a more affordable place to reside in Hawai'i especially if you think you will expire before the leasehold.

QUOTE:
A total of 23,754 single family leased fee conversions were identified in Hawaii. Most of these conversions occurred during two time periods - 1979 - 1982 and 1986-1990. All but 295 of these leased fee conversions have been on Oahu.

The five largest sellers of leased fee interests have been: Bishop Estate with 13,616 (57.3%), Castle Estate with 3,996 (16.8%), Robinson Estate with 2,256 (9.5%), Campbell Estate with 1,583 (6.7%), and Queen's Hospital with 834 (3.5%).
http://hawaii.gov/auditor/Overviews/1992/92s.htm - Sun Sep 14 2008, 22:11

Of course, buying without a mortgage is the only smart thing to do given that Wall Street itself is collapsing now that 3 of their top 5 financial firms will be gone by this week (i.e. Lehman and Merrill joining the vaporization of Bear Stearns). However, the worst case scenario for any condo is living in a ghost town. Given enough foreclosures in the building or simply owners who can't pay the maintenance fees, you could lose building services like the use of the elevator, hall lights, security & other staff, landscape irrigation, pool maintenance, etc. And in that situation you're stuck in a scary situation because only deal seekers with an eye toward a market turn around several years down the road will want to buy you out. So research the building's other units and local economy very well, especially in Florida.

QUOTE:
"...more than half of all the deposits for Miami condos were put down by people planning to flip them for a profit without living in them..."
"A high rate of units contested in court makes buyers nervous about closing and moving into a half-empty complex..."
http://online.wsj.com/article/SB122091760356512479.html?mod=… - Sun Sep 14 2008, 21:00

It won't make any difference for you other than to have lower mortgage rates available. The purpose for the government take overs of Fannie and Freddie was to appease the foreign central banks that hold a great deal of their bond debt, so that these central banks will continue to buy U.S. debt (not just from Freddie and Fannie).

QUOTE:
"I suspect this is the first case where foreign central banks exercised their leverage as creditors to push the U.S. government to make a policy decision that protected their interests," said Brad Setser, a fellow in geoeconomics at the Council on Foreign Relations, who has tracked rising foreign investment in Fannie, Freddie and other debt issued by U.S. agencies.
http://www.washingtontimes.com/news/2008/sep/09/overseas-deb…

List of governments that own the most Fannie Mae and Freddie Mac debt.
http://video1.washingtontimes.com/video/bdebtgraphic.jpg - Thu Sep 11 2008, 17:09