Real Estate Strikes Back

Oh boy, amidst the good earnings of Intel (NASDAQ:INTC) and Google (NASDAQ:GOOG) we have a downer of a story on real estate. Foreclosures have hit an all-time high in Q3 of almost 1M homes. In Nevada, 1 out of 23 homes was in foreclosure last quarter. Mish reports that foreclosures could top 3.5M homes this year, 50% higher than last year. Mish was a bundle of joy today, also reporting that rents have fallen for the first time in 17 years, and that new FHA rules make condos utterly worthless.

Worse, real estate woes have run through subprime and are now increasing in prime housing. Prime loans are now 58% of foreclosures, and the chart shows that 65% of foreclosures are in the mid and upper tiers of prices. Video commentary here.

OptionARMs are starting to bite. The 5 Min. Forecast reports that 46% of optionARMs are past due, even though only 12% have reset rates.

What to make of this? I have commented on this previously, including here and in a much more in depth post here. The next wave down is coming – see second chart. OptionARMs, HELOCs (home equity lines of credit) and commercial REITS are about to go through the same wringer that subprime did last year.

That doesn’t mean real estate couldn’t be played. My comments from the in depth post still stand:

Seems like the only two sensible options (besides staying out) are: buy in places which avoided the egregious loans, like Palo Alto; or buy apartment buildings near distressed areas to pick up all those folks who are about to be kicked out of their homes.

Also, one bright spot globally is the land of Oz. Sydney real estate is still bouyant, pulled up by Chinese stockpiling. Of course, that could change if (when?) the China Bubble bursts.

I would avoid China however – check out this Special Project: The China Files analysis of a growing bubble in Chinese real estate, sent around by John Mauldin today. Bottom line: China 2010 = Japan 1989.

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About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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