I have been reading that the amount of money that now resides in money market (and bond) funds is astronomical and an historically high percentage of assets. This represents an investor movement towards safety.

economist Hugh Kelly addresses the availability (or lack thereof) of capital and takes a guess at when it may return:

There is such a volume of capital out there. I have three pictures I use in my talks, one is of Niagara Falls, one is the Sahara Desert and the third is the Hoover Dam. The argument is that for a long time we had a Niagara of capital, now people think we have a Sahara but we don’t. It’s a Hoover Dam. It’s all sitting back there. The question is when does it get released? And when it does you don’t knock the dam down, you just release the water again. That’s the 2009 scenario when you see some of this capital released into the markets in an orderly way.

There is also now about 2 years worth of buyers sitting on sidelines waiting for the opportunity to buy.

should investors start to see a leveling off of the stock market, capital will flood back to the markets, buyers jump off the sidelines at the same time.

This could very well mean a bit of RE rush will happen in 2009 or early 2010. Could prices jump another 15%???

Not if said buyers are now unemployed Wall Streeters!

I guess since this is a positive spin Steve, and MMAfia cant post because they are stuck on negative

petrfitz- I'm one of those people and don't plan on getting back in until I see at least a 30% correction in the Dow. I actually believe it's very possible we will see a 40% correction. The fact that there is a lot of money on the side is positive, for some at least. I'm just not willing to get back in when all indications are for further deterioration.

As far as RE. anywhere, the tightening of lending standards will make it much more difficult to clear inventory for the next several years. I remain very bearish on RE. Just an opinion.

petrfitz, once again you are looking at something only one way...this time it's real estate. dco has a good point regarding the lending standards which will definitely slow down the million + sales and even the lower point homes.

julia

you look at things in only one way - negatively. Do you see any opportunity in the RE market? Do you think that no one will make any money on properties purchased in 2008?

What you fail to recognize the the lack of available lenders in the market right now. Unless these buyers are willing to front at least 20% upfront, they cannot get a mortgage for the most part, particulalry at a price perceived by the lender to be inflated. I am no negative, just stating a fact. By mid '09 this will al be a distant memory.

TA - have you heard first hand of anyone not being able to get a mortgage? I follow the NY, BK blogs on this topic and posters often say its been no problem for residential properties.

Also all that capital piling up in MM and Bonds is going to move into the lending markets soon, as investors will realize that subprime lending is cleaned out and mortgage backed equities will be much less riskier in the next few years.

The "opportunity" in this market is to wait until it actually becomes an opportunity and not just a sales pitch from some RE broker.

"TA - have you heard first hand of anyone not being able to get a mortgage?" Absolutely yes. In fact when I bought back in January my lender tried to pull that shit on me and I threatened to sue them. Mortgage Commitments are not worth the paper they're written on. Moreover, anyone who had pending mortgages through Countrywide and IndyMac found out first hand. Thirdly, this is affecting commercial real estate absolutely because WaMu is fucked and had been a steady source of cheap financing for those deals.

TheFed- "not just a sales pitch from some RE broker."

My point exactly, very well said.

TA - I know of 7 couples in their 30s whom have all purchased homes above $700K in the past 6 months. None of them had hard times getting mortgages.

Here is a post from brownstoner ont eh subject - no one posted problems

http://www.brownstoner.com/forum/archives/2008/07/financing_how_d.php

TheFed - so you are saying the opportunity for you is to wait until everyone else says its time to buy and that is when you are going to start buying?>

thats useful fitz but Brownstoner is not representative of the market as a whole. Banks have not stopped 100% but the universe of loan products and lenders willing to lend them has dwindled. There is simply no secondary market right now for mortgage paper so these banks have to put all risks on their sheets and to do that, they scrutinize everything now. Thus, tighter lending market. Good credit risks will always be bale to get a loan.

There was a story in the NYTimes about tightening standards - for coops and banks: http://www.nytimes.com/2008/07/13/realestate/13cover.html?ref=realestate

I think the low end and the hig end of the market will be the least affected. Middle stuff will and is getting hit.

This is a new one - mortgages are easy to get right now? totallyanonymous is right - they are scrutinizing everything now, and just won't lend if they're not 100% comfortable. My mortgage broker told me they checked if one building he's working on had wind insurance. It's a four-story building. He'd never heard of such a scenario.

Petrfiz - how much did those couples put as a down payment? Mortgages are possible but they are definitely harder for potentital buyers to get, esp if they don't have 15% or more to put as a down payment. Plus, policies are getting harder with each passing day. Those couples may have been able to get their mortgages before the lenders tightened their policies.

petrfitz,

Understand that from 2000-2006 a very important source of demand for real estate came from borrowers who put less than 20% down, were not required to document their income, their assets, their employment or their occupancy status among other variables. Check out iamfacingforeclosure.com - Casey, a 23 year old Canadian citizen without assets or a steady job or income, was able to buy 8 properties in 6 different states with virtually none of his own money.

This demand source no longer exists. And not only are these type of borrowers no longer a source of demand, in many cases they are a source of real estate supply as their foreclosed propoerties come back on the market.

Maybe you missed Econ 201 but use a little common sense. If demand decreases at the same time supply increases what happens to price?

Yes you are right. Borrowers who have saved their money and now have 20% of the purcahse price for a down payment, are willing to document their income, assets and employment and have a demonstrated history of paying back the money that they borrower can get loans. They have always been able to get a loan. Banks are back to elnding money to people who do not need it. The big issue for real estate prices is that the marginal buyers are no more.

jake - ho wmany of those people bought in Manhattan? Not many co-ops dont allow no money down. Some condos do and there may be some issues with condos.

But the fact of the matter is that lending to people with some cash and good credit is about to open up soon and there will be a ton of financing available to them. The average manhattan buyer will not have any mortgage financing problems in 2009 and tons will be jumping off the sidelines to buy those perceived deals.

Expect a 15% yoy increase in Manhattan prime by end of 2009

"TheFed - so you are saying the opportunity for you is to wait until everyone else says its time to buy and that is when you are going to start buying?"

I don't give a rats ass if everyone is buying or selling. I know how to crunch numbers so I don't need to rely on others to lead. Did I mention that I value Real Estate for a living? That might have something to do with it...

TheFed so you are one of the guys that got us into this mess by over valuing properties over the past few years so people could get mortgages?

Now you who took part in creating this mess are trying to tell us what is the right thing to do now? Hilarious.

I got a duplex in the East Village, if you bump up the valuation a hundred K I will throw you a $100. Deal?

"I got a duplex in the East Village,"

Are you that guy who exposes himself on the subway to young asian chicks?

"TheFed so you are one of the guys that got us into this mess by over valuing properties over the past few years so people could get mortgages?

Now you who took part in creating this mess are trying to tell us what is the right thing to do now? Hilarious.

I got a duplex in the East Village, if you bump up the valuation a hundred K I will throw you a $100. Deal?"

Actually, that wouldn't be me. I don't do single family residential, drive-by appraisals or anything else that would lead to your stucco palace in the desert to be worth more than the $75k it is.

Maybe I can pass you my contact info? Give me a buzz when your RE assets pass $250MM and you can play with the big dogs.

petrfitz got jacked up. Again.

"... or anything else that would lead to your stucco palace in the desert to be worth more than the $75k it is."

Right. Maybe in 1982.

jake, anyone smart enough to stay away from over-valued real estate 2006-2008 is not very likely to get in anytime soon. All of the "sideline money market cash" is waiting to see where interest rates go and waiting for the new development in the pipeline to come to market. Anyone who beat the stock market by 30% and real estate by at least 15% (yes, the average buyer in 2006 is underwater on a cash basis: taxes, fees and transaction costs) is not an idiot who runs out and spends big money during the slowest months of the year when the Wall Street layoffs are coming in the Fall and there are still tons of Alt-A 5 year ARMS from 2004-2005 waiting to be reset in the next few years. Sure, if a property comes on the market at the right price, it moves. But unless the developers crack or the economy jump starts, there is no reason for a cash-heavy investor to do anything but wait.

80'sMan - agree with your thinking but Perfitz has a good point - we are all sitting, but once things start looking really good for buyers who are flush and don't need credit - you are going to have a lot of "weary of waiting' buyers jumping at the same time. I am one of those who really needs to buy but can't justify even venturing a bid in a market that I KNOW is headed nowhere but down.

With the market down this much nationwide and still declining, why assume that its real estate they'd be moving into? Right or not, folks don't put money into "cold" assets, they generally stupidly go for the "hot" ones. If Wall Street maintains this rally for a bit, and RE continues its slant down, that cash is *not* going into Real Estate...

EddieWilson - maybe, but I think there are a good number of people that are committed to Manhattan that need to buy to accomodate growing families. We are all sitting but when the time is right we are all going to be "in" at the same time driving prices up again. Many of us have money set aside designated for the "trade up" and it is not a question of "if" the money is going into real estate it is a just a question of "when". In my case, I am in an even worse situation since I need a 4 BR and there are so few of them that I can pretty much count on the fact that whenever I buy I will be in a bidding war.

What do people consider 'tons of money' relative to % of their net worth?

Man, the market goes up two days and people act and say things that just boggle my mind. This is not even close to being over. And as far NYC RE. it's the first inning. MY god people wall street is still sitting on billions of loses. How can anyone even say it's over when home prices continue to fall. Lets assume it's all good, then what? How is wall street going to make up the revenue going forward, that made them all those billions in years past. We have a worldwide liquidity problem and a failing economy with inflation poised to explode. Two days and the markets fixed. WOW- I guess everyone can dream. I still can't believe that anyone would buy in this market. Today's great price, is tomorrows mistake.

Like Stealth1, I'm ready and waiting to buy. And honestly, I think the market is pretty stale right now. So Petrfitz's supposition that buyers like us could rush in if prices dropped and desirable properties hit the marketplace and curb further price deterioration is not completely unrealistic. I'm still waiting for the prices to seriously drop. Sure there have been price cuts, but many of those properties were unrealistically priced from the outset. So they didn't actually drop so much as they just didn't get their exorbitant increases. The question is who can wait out this stalemate longer; those with money longing to make a purchase, or those who need to sell. Right now neither side is winning.

I would think those that want to buy can wait out the stalemate longer - because they can rent in the meantime. Depending on the reasons sellers "need" to sell, renting their apartment out is either a mediocre or a terrible option.

I can't wait until dco is forced to come on to these threads and admit he was completely wrong and his analysis was dim-witted.

Not as much money on the sidelines as sellers/developers would like think. And with 75,000-100,000 more units being released in the next few years, I don't see how buyers are going to feel pressured to move on anything except the perfect apartment at a discounted price.

Petrfitz, I agree with your point that there is a lot of money in cash. And I agree that there are a lot of people like myself who would like to buy but feel that the market of the past few years kept moving out of their price range. However, I think this "sideliner" group is divided into two types. The first is an all-cash buyer, who might move once the market falls a bit and they believe they can find good deals. The second group, like myself, has some savings but is potentially facing four related headwinds: 1) higher downpayment requirements from lenders (I've confirmed this with mortgage brokers) 2) higher interest rates (resulting in reduced affordability) 3) reduced income for finance professionals / Wall Streeters, and 4) job / layoff uncertainty. Not everyone is affected by these four things, but a lot of the income-dependent sideliners will be. Unfortunately for someone in this position, the market correction will need to be more than 5 or 10% to make buying feasible. This might be a pipe dream, but I'll be on the sidelines until then. Personally, I think the market will decline rapidly after the Q1 '09 bonus season and will hit bottom in 2010. There may be a rush of buyers at that point, as you said, but it will be as a result of reduced prices. Yes, that will put upward pressure on prices, but from a lower base than today's market. As a result, I don't think the net 15% climb will happen for several years.

DCO - Take a deep breath...exhale. Repeat.

grunty- Thanks for the tip, however it may be better advice for those who bought RE. in the last 18 Months.

i agree w/ 10thSt that when prices fall to reasonable pre-inflation levels then people will start buying again and eventually prices will go back up (but not to today's inflated levels)

the reason buyers are waiting on the sidelines is prices are not there yet = opportunities are not out there overall...

" Tons of money sitting in Money Markets and Tons of Buyers on the sidelines" ...
guys, guys, I have another news to break!!

MSFT is thinking of buying AOL.

I mean - imagine what that will do to the manhattan real estate market - with all the senior management of AOL making all that money (and ofcourse, there's only one thing to do with money - buy condos in manhattan) ..

"The question is who can wait out this stalemate longer; those with money longing to make a purchase, or those who need to sell. Right now neither side is winning."

The bigger question is, if prices were to correct as much as some proclaim, who would have the balls to buy then? I would argue that most nervous nellys on this board would wait themselves right into a market uptick. What if the market only corrects 10%? Would you buy then? How would you know?

This board has become a great case study for heard mentality. It’s shocking really.

Juiceman - add to that fact that, given that closings don't occur for months after contract, you won't even really know of a 10% correction until 3+ months after it happened.

If people are reading this board, monitoring listings and going to open houses, they're going to have a pretty good idea of what the market is doing. Of course, you can never pinpoint when the market hits bottom, but it's not as if the market is going to dip 20%, then return to 15% over previous highs in a blink of an eye. This idea that timing the market is some kind of ridiculous endeavor is just another version of the broker BS "Buy now or be priced out forever." If you're not trying to figure out if an asset you are purchasing is likely to appreciate or depreciate in value over your time horizon to own, you're an idiot. I'm less worried about missing the bottom by 5% than I am about buying after a 5% dip when there was another 20% left to fall. That's why the majority of whatever money there is on the sidelines is going to stay there for some time.

The price point that I'm looking at has not gone down even 5%. I keep reading (stevejhx) about the dip but when is the dip going to happen.

Looks like inventory is trending downward again.

billshiers- How did you get in my head. My feelings exactly. I believe calling a bottom in RE. is much easier then people think. Most people have no idea how the "Real Estate Marketing Machine" brainwash potential buyers.

there is always money sitting on the sidelines! ALWAYS!!! When DOW was at 14,000, there was money on the sidelines and sovereign wealth funds just waiting to be put to work in US equities!

When will people realize that Sneaky Pete just makes things up. "I know 7 couples...." Add that to all the telcoms people he claims to know in Alpine, New Jersey who are out of jobs, his chauffeur-driven Prius, his estate next to Celine Dion's in Las Vegas, all the property he "owns" on the LES.

None of it is real.