The impact of hedge fund problem on real estate

T

tourbillon_IHB

New member
<p>What kind of impact do you guys think the hedge fund problem will have on the current OC real estate market, and more importantly, how much it will impact LA market. The speed of this downturn is very surprising to me. Oversea real estate markets tend to either stay over-valued forever (Shanghai, Beijing, Tokyo until the big crush and of course, my personal favoriate HK) or undervalued for no apparent reason (present day Tokyo, Germany, Switzerland to a degree, and some Italian cities) for a long long time. US real estate market corrected itself very quickly (still correcting, probably won't be done for another two or three years), and I believe this shows the US real estate market is still the best to invest in (of course not now). </p>
 
The re-pricing of over-the-counter derivatives will have the most profound effect on re prices, not just in So Cal, but around the world, as any other factor.
 
<p>I'm a casual observer of this...but, it seems that the hedge funds have been investing in securitized home loans. As the value of these products fall (due to the loans in them are going into default, etc.) there will be a smaller market for these securitized home loans. If lenders can't easily package and sell off their home loans, they will have to be more selective in the loans they write. This means that it will be harder for home buyers to qualify and the banks will be writing fewer subprime loans overall. This means that there will be less buyers, or at least buyers will not be able to get home loans for as much as they could before.</p>

<p>Fewer buyers and lower affordability should push prices down. </p>

<p>That's a macro analysis, but should be applicable to OC and LA. The higher the concentration of subprime borrowers the greater effect it would have in each area.</p>

<p>My $0.02.</p>

<p> </p>
 
<p>Firsttimer,</p>

<p>Easy credit in the last few years was a rare opportunity for many folks to get into homeownership. It also invited flippers and frausters. Now the opportunity is gone for both. Easy credit had to stop for now.</p>

<p>So now we are back to the normal conventional lending where you need income and assets to quality. I believe there are lots of money to loan to QUALIFIED borrowers. </p>
 
Firsttimer...





You are spot on regarding the subprime (CDOs). There will be much fewer written since there will be fewer approved and provided by lenders.





The market for seasoned and AAA-rated GSE type structured products will continue to be in demand as they are the more conventional type of home loans.






 
<p>"Easy credit in the last few years was a rare opportunity for many folks to get into homeownership."</p>

<p>Unfortunately, many of those folks will be forfeiting their homes when their loans reset because they were banking on home appreciation.</p>

<p>The patient buyers who forwent the glories of homeownership because they didn’t believe the prices were justified will be purchasing those homes at heavily discounted prices in the future.</p>

<p>It will be an example of the meek inheriting the earth, except with homes.</p>
 
<p>Is there any truth when the "experts" say that these hedge funds will not have a big impact on the overall economy or the stock market?</p>
 
reason - Specifically, which experts are you refering to? Anyone without a vested interest in the status quo?<p>

The "truth" will not be known for years. Right now, all there are, are opinions. Some of those opinions are based on logic, evidence, and reason, and some are based on wishful thinking.
 
<p>Awgee,</p>

<p>When I speak of "experts", I am referring to those who gives their opinions on the news. You'll have one guy saying, "Oh, no the subprime debacle will not affect the overall economy.".....then later on, another person will say, "Oh, yes it will." It's like a see saw of opinions. </p>
 
reason - Exactly, a bunch of opinions. I think it reasonable to discern the interest of the "expert" in order to help gauge the veracity of his info and opinion. And does one just say he/she thnks such and such or does that person give reasons and evidence for their opinions?<p>

An example; when the NAR says re prices have declined 1.7% over the last year, and Case-Schiller says they have declined by 6%, isn't it important to know what the interest might be for the two parties and what they are basing their figures on.<p>

Some opinions are better than others and are based on more facts and reason than wishful thinking.
 
IMO, those who offer opinions with a hidden agenda or obvious bias are hoping for the kind of "balance in the middle" approach most people take to evaluating opinions. Their opinions are mostly an attempt to sway public opinion rather than an attempt to elucidate the truth. This is particularly true in politics, but it can also be seen in market forecasting. It really angers me when you see some mutual fund manager or CEO pumping a stock to generate public interest because they are in fact selling.
 
<i>"CEO pumping a stock to generate public interest because they are in fact selling."</i><p>

Case in point: Angelo Mozillo, the CEO of Countrywide Finance has been pumping up his stock and selling every other day for the last two months.
 
<p>reason - Here is an example: Some experts have the opinion that the CDO derivative market is contained and not spreading. Let us look at a fact. Here is an example of the opposite.</p>

<p>http://www.nypost.com/seven/06292007/business/hedge_hells_spell_business_roddy_boyd.htm</p>
 
<p>awgee,</p>

<p>I am one of those who feels that the CDO market is contained and will not spread. Sure CDO investors lost their money and appetite to be in the market; thus weeding out crazy loans for non-qualified borrowers. </p>

<p>What do you do when you have extra money that you do not need. Money gone is money gone. For inviduals, does it matter really matter if the extra cash be put in CDO's, Las Vegas dealers, gold, burried in the ground, or high risked security? Have you ever wonder how the money/wealth were accumulated by these hurt subprime's investors. I can think one - flipping real estate? </p>
 
<p>nirvinerealtor - Do you have any evidence for thinking the CDO market is contained? CDO investors have not even started to lose their money. Trillions of dollars of CDOs have not even begun to be repriced to their actual value. What do you think is going to happen when trillions of dollars of CDOs get repriced?</p>

<p>Individuals do not buy CDOs or mortgage backed securities. Hedge funds, investment banks, insurance companies, pension plans, and charitable trusts purchase CDOs, derivatives of CDOs, and so on. None of the aformentioned organizations made money flipping real estate. The organizations that purchase CDOs do not have an attitude of "money gone is money gone". Except for the hedge funds, these organizations must divest themselves of any bonds with less than AAA ratings. Do you have any idea of the implications of hundreds of billiions dollars worth of bonds being re-rated at less than AAA?</p>

<p>There are many links to many excellent articles in the "headlines" discussion section if you have a desire for accurate information on the subject.</p>
 
<p>reason - If you read the following, you will see that I am not the only nut who thinks the CDO market is imploding:</p>

<p><a href="http://market-ticker.denninger.net/index.html">http://market-ticker.denninger.net/index.html</a></p>
 
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