It's not forgotten, just a near impossibility. I have never been more certain of a pricing prediction in my career.
My bid expired. The seller is trying to get me to step up and I am going to have to convince him that not only will I not raise my bid, but that I am about to walk away.
This house has been for sale for 17 months. Obviously he listed it way too high in the first place. His last offer to me was 30% lower than his original asking price back in December 2005.
I have had a substantial bet on it for a while since I rent. Every dollar downtick in housing has been cash in my pocket since that is one buck less I will have to theoretically shell out for my first house. (Just as every uptick has cost me the same.)
Irrational?
It's technically irrational to buy a $7 beer at Shea Stadium, so why do so many people do it?
I can justify buying a house now and giving away money because it's a tradeoff I am willing (and able) to make for what I desire now.
I wish the rental market met our needs but it's not so developed when it comes to single family homes.
I have had a substantial bet on it for a while since I rent.
It seems to me that renting should not be considered as a bet on the direction of the housing market. It's like holding cash during a bear market, i.e., it is a neutral position.
To me, a substaintial bet on an imminent housing crash would be holding a large portfolio of shorts. e.g., short the CME housing future, or a housing related ETF or index, etc. Especially if your certainty is close to 99.9%.
$7 beer at Shea Stadium
$7 is just too small to waste time analyzing rational vs. irrational decisions. If it were $700k, or $700 million, then it pays to think rationally.
I can justify buying a house now and giving away money because it's a tradeoff I am willing (and able) to make for what I desire now.
Well, if you are certain about a housing crash imminent and don't want to make a big bet on it, then why not at least put on a hedge? Why give away money when you can hedge away the downside of owning a house? Isn't that a more rational approach in buying a house before the crash?
Renting is a short position. Holding cash during a bear market is also a short position. If you were "out" of the market in the late 1990s and houses, art, retirement accounts, tuitions, etc. were all appreciating because of the roaring bull market you'd be losing purchasing power. It may not be as directly a short as an explicit market short, but it carries the same risk profile.
When stock exchange seat prices got high, many traders sold their seats and leased, hoping to buy them back later at lower prices. The idea is equivalent to renting a home.
As for quantifying my risk in purchasing a home in 2007, one would have to know more about my net worth, income outlook, and the price of the home to make a judgment thereof.
As for hedging, that is smart thinking and already in play. I am long oil and short the bond (my biggest position). It just so happens that I believe energy prices and higher interest rates are the biggest threats to home prices in New England.
I have all along forecasted a 30% decline in housing from the apex. The house I am bidding on probably will dip 15% more at least. I am the only one you'll ever hear admit to expecting a loss on their home purchase. Most people buy a home and then start spouting "real estate always goes up" propaganda.
Oh yeah, and they'll tell you how "good" the local schools are.
Renting is a short position. Holding cash during a bear market is also a short position.
Since the expected payoff of holding cash is completely different from that of shorting a security, holing cash is not shorting. By the same logic, renting is not shorting either. Once you do the math, you will see the difference.
I am long oil and short the bond (my biggest position).
I am not sure if that can be called a hedge on housing. Could one offsett a portfolio of oil contracts with a portfolio of houses? How does the math work? I was thinking more along the line of shorting the CME housing futtures.
What you guys are doing is comparing perfect (ideal) shorts with imperfect shorts. There are gradations. I don't know how else to explain it. Furthermore, shorting housing futures is also a wholly imperfect short.
Renting is shorting. I'll do a post on it in greater depth if you guys want, but if you looked at the value of the house I am bidding on, it has declined 182k in the last two years. So when I moved to Boston in 05, I chose to rent because I thought housing was going to tank, gave 54k to my landlord, and in the process saved 128k by delaying my house purchase. A "short" position is simply one that benefits from a price decline or other more general negative development. Heck, as a Red Sox fan, even with no money bet, I am technically short the Yankees because I derive pleasure each time the Bombers lose.
No, you could not offset an oil trade with a housing position because the price for oil has much greater factors than home heating demand.
The only way a hedge would be interchangeable with the underlying is if in fact it was identical. And that goes back to what I was saying, how you guys are stuck on ideal, textbook definitions of shorting.
14 comments:
I'm confused. You're bidding BEFORE the crash?
Me buying would CAUSE the crash.
You forgot the other possibility: housing price going up.
It's not forgotten, just a near impossibility. I have never been more certain of a pricing prediction in my career.
My bid expired. The seller is trying to get me to step up and I am going to have to convince him that not only will I not raise my bid, but that I am about to walk away.
This house has been for sale for 17 months. Obviously he listed it way too high in the first place. His last offer to me was 30% lower than his original asking price back in December 2005.
I have never been more certain of a pricing prediction in my career.
Is your certainty close to 99.9%, or 20%? Are you certain enough to place a substaintial bet on it?
If the price is about to collaps, then why buy a house now? That's not rational, is it?
If the price is about to collaps, then why buy a house now? That's not rational, is it?
Yeah, that's what I don't get either. Post was way too short for retards like me to understand.
I have had a substantial bet on it for a while since I rent. Every dollar downtick in housing has been cash in my pocket since that is one buck less I will have to theoretically shell out for my first house. (Just as every uptick has cost me the same.)
Irrational?
It's technically irrational to buy a $7 beer at Shea Stadium, so why do so many people do it?
I can justify buying a house now and giving away money because it's a tradeoff I am willing (and able) to make for what I desire now.
I wish the rental market met our needs but it's not so developed when it comes to single family homes.
I have had a substantial bet on it for a while since I rent.
It seems to me that renting should not be considered as a bet on the direction of the housing market. It's like holding cash during a bear market, i.e., it is a neutral position.
To me, a substaintial bet on an imminent housing crash would be holding a large portfolio of shorts. e.g., short the CME housing future, or a housing related ETF or index, etc. Especially if your certainty is close to 99.9%.
$7 beer at Shea Stadium
$7 is just too small to waste time analyzing rational vs. irrational decisions. If it were $700k, or $700 million, then it pays to think rationally.
I can justify buying a house now and giving away money because it's a tradeoff I am willing (and able) to make for what I desire now.
Well, if you are certain about a housing crash imminent and don't want to make a big bet on it, then why not at least put on a hedge? Why give away money when you can hedge away the downside of owning a house? Isn't that a more rational approach in buying a house before the crash?
Renting is a short position. Holding cash during a bear market is also a short position. If you were "out" of the market in the late 1990s and houses, art, retirement accounts, tuitions, etc. were all appreciating because of the roaring bull market you'd be losing purchasing power. It may not be as directly a short as an explicit market short, but it carries the same risk profile.
When stock exchange seat prices got high, many traders sold their seats and leased, hoping to buy them back later at lower prices. The idea is equivalent to renting a home.
As for quantifying my risk in purchasing a home in 2007, one would have to know more about my net worth, income outlook, and the price of the home to make a judgment thereof.
As for hedging, that is smart thinking and already in play. I am long oil and short the bond (my biggest position). It just so happens that I believe energy prices and higher interest rates are the biggest threats to home prices in New England.
I have all along forecasted a 30% decline in housing from the apex. The house I am bidding on probably will dip 15% more at least. I am the only one you'll ever hear admit to expecting a loss on their home purchase. Most people buy a home and then start spouting "real estate always goes up" propaganda.
Oh yeah, and they'll tell you how "good" the local schools are.
Renting is a short position. Holding cash during a bear market is also a short position.
Since the expected payoff of holding cash is completely different from that of shorting a security, holing cash is not shorting. By the same logic, renting is not shorting either. Once you do the math, you will see the difference.
I am long oil and short the bond (my biggest position).
I am not sure if that can be called a hedge on housing. Could one offsett a portfolio of oil contracts with a portfolio of houses? How does the math work? I was thinking more along the line of shorting the CME housing futtures.
What you guys are doing is comparing perfect (ideal) shorts with imperfect shorts. There are gradations. I don't know how else to explain it. Furthermore, shorting housing futures is also a wholly imperfect short.
Renting is shorting. I'll do a post on it in greater depth if you guys want, but if you looked at the value of the house I am bidding on, it has declined 182k in the last two years. So when I moved to Boston in 05, I chose to rent because I thought housing was going to tank, gave 54k to my landlord, and in the process saved 128k by delaying my house purchase. A "short" position is simply one that benefits from a price decline or other more general negative development. Heck, as a Red Sox fan, even with no money bet, I am technically short the Yankees because I derive pleasure each time the Bombers lose.
No, you could not offset an oil trade with a housing position because the price for oil has much greater factors than home heating demand.
The only way a hedge would be interchangeable with the underlying is if in fact it was identical. And that goes back to what I was saying, how you guys are stuck on ideal, textbook definitions of shorting.
Shorting has always been a hard concept to grasp (even for me when I was 21 and started at the PHLX) and to teach.
Even more confounding than generalized shorting is shorting options. So we'll save that for much later on.
Tomorrow or Thursday.
Well my bid expired and the house is still for sale. So the housing market is temporarily safe.
But if the guy calls and comes to within 5k of my old bid, I'll step up and sign the contract.
AO,
If you are right about your prediction, I will send you a free autographed CaptiousNut bobblehead doll.
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