The oracle speaks (Warren Buffet warns of Real Estate Bubble)

[RamboLiberal]

http://money.cnn.com/2005/05/01/news/fortune500/buffett_talks/index.htm?cnn=yes

<snip>

In his answers to shareholders' questions, Buffett made it clear that he remains concerned about the trade deficit and the US dollar, although he is bullish on the long-term strength of the U.S. economy. But he and Munger issued stern new warnings about the residential real estate "bubble," the destabilizing effect of hedge funds on the financial markets, and the possibility of another terrorist strike against the United States.

They also warned that they do not see a clear future for pharmaceutical stocks, that GM and Ford face severe trouble over pension and health costs, that hedge funds could wreak havoc in a market decline, and that the New York Stock Exchange is doing a disservice to investors by going public.

<snip>

Buffett: "A lot of the psychological well-being of the American public comes from how well they've done with their houses over the years. If indeed there's been a bubble, and it's pricked at some point, the net effect on Berkshire might well be positive ....

"Certainly at the high end of the real estate market in some areas, you've seen extraordinary movement.... People go crazy in economics periodically, in all kinds of ways. Residential housing has different behavioral characteristics, simply because people live there. But when you get prices increasing faster than than the underlying costs, sometimes there can be pretty serious consequences."

[leesa]

1. And he throws in 'another terrorist strike' for what reason?

Are we still trying to blame the shitty economy on non-uberrich terrorists? Sounds like he's just throwing stuff out there.

[JerseygirlCT]

6. He might be, but he's got a pretty good history

of canny investing. There's a reason so many people follow his advice and hang on his every word. He's a smart guy.

[sam sarrha]

2. anyone who didn't see that when they passed the no-bankruptcy bill

has an IQ of 50..

We moved to TN for a job in a 108 year old "Family Buisness", and bought a house. They outsourced the entire company to Mexico in less than a year and now there are 4 to 6 houses on every street in theis little beautiful Rural town.. i figure we will lose 50,000 dollars.

my wife got a job in Memphis and has an appartment there and commutes home on weekends

[Double T]

3. Real Estate Prices Are Over Inflated And The Bubble Will Burst.........

.....People Have Short Memories And Avoid Heeding The Early Warning Signs Of A Market Collapse.

[MeDeMax]

5. i think so too...

interest rates were reduced and 2nd mortgages and refinancing were "encouraged" in many different ways for the last 3 years.

This resulted in an induced increase in consumer confidence resulting in higher appraised values for homes, it is also likely some at the highest levels encouraged higher appraisals.

I have heard many analysts on CNBC & radio state that the current consumer confidence and economic engine is being largely financed by home equity. When the equity runs out so will the confidence leading to a bubble burst.

Unfortunately, unlike the bubble burst in 2000-2001 there is no safety net around to break the fall.

[mcscajun]

13. About Those Higher Appraisals

Here in NJ, there hadn't been a statewide reassessment of property values in over ten years; about a year or so ago, the state ordered that all properties be reassessed at actual market value.

Now, we must wonder (NOT) if when the bubble bursts, as it must, will the state reassess value based on the downward valued market?

Ugh.

[patcox2]

19. New Jersey doesn't do statewide assessments, its local.

Assessments are done by your local municipality's Tax Assessor. They are done every year. They are not generally adjusted for inflation, and therefore in some municipalities, you will see ridiculously low valuations. However, it works out the same because everyone's assessment is proportinately off by the same amount. In addition, those municipalities with artificially low assessments will have much higher tax rates; so it might be that you pay $30 per thousand in value in a town where the assessments are only 1/10th of actual value, whereas you would pay $3 per thousand of assessed value in a town where assessed value equals fair market value. The relationship between the artificially low assessments and real fair market value is expressed by something called a "multiplier." You multiply the low assessment by the multiplier to get a good approximation to the actual fair market value.

They worked hard to make it this confusing.

[mcscajun]

28. I know the assessments are local...but the mandate to do them by market

value was statewide.

[Name removed]

4. Deleted message

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[MeDeMax]

7. he was right about the last bubble in 2000-2001...

it takes balls to stand up to every stock & economic analyst including greenspan (who atleast onece said the net stocks have sky high potential) and be right.

Sorry, jail Buffet if you like, but lets us hear what he has to say, he is right more often than wrong.

[Name removed]

8. Deleted message

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[bleedingheart]

11. Well those predatory lenders that are luring people into debt

on houses they can't afford should be in jail.

Buffet isn't manipulating the entire housing market.

[Bridget Burke]

14. According to you, actors need to be in jail, as well.....

I see a pattern here.

[bleedingheart]

15. I noticed that too...

methinks something is afoot...

[abburdlen]

9. He can't be that bad...

" Buffett and Munger also told shareholders they oppose U.S. President George W. Bush's plan to allow privatization of Social Security because the government has a duty to take care of the country's elderly."

from http://quote.bloomberg.com/apps/news?pid=10000006&sid=aGh_OPpEs3_4&refer=home

[trotsky]

10. Do you have any documentation of your claims?

Or do you just not like Buffet? After all, he IS pretty liberal.

[northzax]

12. excuse me?

I don't want to call you misinformed, So I'll let the US Census Bureau take care of that...

PERCENTAGE OF HOUSEHOLD INCOME 2000-2003

For Mortgage owners: 37,751,364 41,976,364
2000 2003
30.0 to 34.9 percent 7.22% 8.4%
35% or more: 19.2% 22.23%


And that's just one line. In fact, the only two statistics that Declined in percentage over those three years were the ones for people paying out less than 20% of their income in housing costs. So despite the increase in the number of houses of almost 3.5million, average monthly costs went up. and income went down. tell me again how you got your information?

This works if you have a mortgage, own your place free and clear or rent. In fact, for renters, roughly 48% of renters pay over 30% of their income for housing costs. GO to the Census site and find out: http://factfinder.census.gov/servlet/MYPTable?_bm=y&-qr_name=ACS_
2003_EST_G00_MYP14_7&-geo_id=01000US&-_scrollToRow=102


Stats aren't avaliable for '04 or '05 yet, wanna bet we seem the same level of increases again?

[coda]

20. Yeah, Buffet single handedly ran the US Dollar from 1.20 to .85.

:eyes:

Lost money on his dollars trades? Maybe it was on the $40 Billion in Treasury Securities that Berkshire has. :)

Lost $300,000,000 on his US Dollar hedges? Only in your mind.

[Mizmoon]

16. Real estate has been "crashing" for five years

when is it going to crash already?

Or maybe the truth is that people are mobbing NY and Cali because those are the places where the jobs are and these prices are what those homes are worth now ...

[bleedingheart]

17. actually home prices here in PA are going up...

and in fact I am not sure where the jobs are that are supporting the homebuilding that is going on. Our area is depressed and jobs have been scarce, but yet there is a big housing boom. People are running from one county to another for lower taxes...but then when all the people settle in the new area the taxes go up....big duh!

[progressivebydesign]

26. I doubled my equity in Cali in 3 years, now in another state..

.. I've increased my equity (thru nothing more than owning the home) 150k+ in less than two years. It's always been this way out west.. not just California. We had a glitch during the Bush I years.. but bubble? I just don't see it.

[Phoebe Loosinhouse]

18. "Psychological well-being" of the American public

is tied up in how well they have done in real estate. True, but it's an illusion. With artificially high demand driving unsustainable price increases - IT HAS TO TANK.

It is all Greenspans fault. By keeping interest rates too low for too long, he has driven the housing boom and driven far too much of our dollars into real estate. We have one of the lowest savings rates in the world - gee do you think low interest rates have anything to do with that?

So Americans now have all of their eggs in one basket - their house.
They are eating some of the eggs by taking out equiity lines for stuff they can't really afford but are counting on continued appreciation to continue feathering the nest and bail them out. And on top of this you have property tax increases which the various cities and towns are spending like drunken sailors.

[customerserviceguy]

27. Good analysis

You're right about the low interest rates shoving more of our national "wealth" into real estate, but I also have to give some of the blame to tax policies that favor home ownership, like the full deductability of mortgage interest and real estate taxes. It doesn't work for most folks who bought a house twenty years ago, their interest amount isn't enough to push them over the standard deduction (if a married couple), but on megabuck mortgages (over $200K) its a major factor in deciding to purchase.

I see the bubble bursting, too, but there are ways that practically guarantee that it more likely will resemble a slow leak, rather than a popping balloon. Homes that cannot sell for what is owed on them will just go into foreclosure, and generous terms by lenders who try to unload them will mask their price declines. I've seen it happen through a few real estate cycles.

[emad]

21. Warren Buffett loses $310m by betting against the greenback

May 02, 2005

Times
By Patrick Hosking and Gabriel Rozenberg



WARREN BUFFETT has lost $310 million (£162 million) betting against the US dollar. But the world’s second-richest man and best-known investment guru is undeterred and continues to position Berkshire Hathaway, his investment company, for dollar weakness.

Admitting the loss to 19,000 shareholders at the company’s annual meeting at the weekend, Mr Buffett repeated his concern about America’s trade and budget deficits. “The world has demonstrated a diminishing enthusiasm for dollars over the last few years as they get flooded with them,” he told the meeting in Omaha, Nebraska.

“Does that lead to some tipping point at some point? I have a hard time thinking about any outcome from this that involves an appreciating dollar.”

Berkshire still has $21 billion of assets in non-dollar currencies, down slightly from $21.4 billion at the end of last year.
http://www.timesonline.co.uk/newspaper/0,,170-1594361,00.html

[brainshrub]

22. This will be page #1 on all the freeper sites.

But when the 2nd dust bowl comes, they'll be sure to blame the Liberals who tried to warn them.

[Dover]

23. According to this article the dollar WILL strengthen in the short term

but I think Buffett is generally correct in the longer term, if his investors can sit tight for a year or two.

The coming crisis
By Rohit Chawdhry

The greatest threat to the emerging markets is China, where a crashlanding would have far-reaching implications beyond Asia. We could then expect global risk appetites to plummet, emerging market currencies to fall and interest rates to rise - and the dollar to strengthen. A number of factors tend to precipitate emerging market crises. A slowdown in the global economy, falling global liquidity, rising interest rates in the US and a crisis in a specific country that spills over to other emerging markets. Conditions for such a market dislocation are now falling into place....
Cont'd
http://www.atimes.com/atimes/Global_Economy/GD22Dj01.html


Fri Apr-22-05 08:26 PM

U.S. group lauds Bush call to devalue yuan

http://feeds.bignewsnetwork.com/?sid=45e6f3eb908a1627

Big News Network.com Friday 22nd April, 2005 (UPI)

U.S. manufacturers Friday praised concerted efforts by the Bush administration this week to push China and other Asian nations to devalue their currencies.

The Coalition for a Sound Dollar, a group supported by the National Association of Manufacturers, said it was particularly encouraged by the fact that the Bush administration wanted to see China's currency to reflect its true value as quickly as possible.

Currency analysts argue that China is deliberately keeping the value of the yuan low in order to have a competitive edge in the export markets, with some analysts estimating that the yuan is about 50 percent weaker than its true value. A weaker currency makes products made in China cheaper and thus more attractive in the global marketplace.

more...

[daleo]

24. He has proven to be pretty sharp.

I expect that he isn't put off by temporary movements like this. He is in it for the long run. $310 million is about 1.5% of 21 billion.

[progressivebydesign]

25. Still waiting on that bubble....

How many years have people been saying that? I guess if people say it for long enough, it will happen, and then they'll look brilliant.

Like predicting snow, it will happen eventually.

Of course I see now that he's equating the real estate bubble with how it will be "positive" for Berkshire.

Yawn...