Real Estate Blog

WHAT IS 'COMP DESTRUCTION?'

January 5th, 2010 4:48 PM by Sherry Lee

It's very likely that whatever you believe about the stock market or stock
prices, those thoughts have been placed in your head by Wall Street. By
Wall Street, I mean the people who own the banks, media companies,
energy companies, and defense contractors.

Wall Street is not a marketplace, it is a business comprised of merchandising
operations, and gaming operations. Just like a retail store and a casino
combined.. No business that needs your money in order to generate a profit 
likes having competition, and Wall Street is no different. When something
siphons off dollars from Wall Street, it needs to be stopped by Wall Street.

It's a fact that nearly 100% of all Lottery winners use the first part of
their winnings to buy a nicer house... almost none buy stocks. Wall Street
can never change the nature of man, but it can have a dramatic effect on
man's ability to act on it.

After the Fed toppled the resale real estate market by raising interest
rates 17 times just before the massive adjustable rate mortgage re-set
period in 2006, millions of homes fell into the hands of Wall Street
banks. This occurred right after trillions of dollars of profit had been made
from the sales of credit default swaps. When homes started falling back into
the hands of banks who had reaped these profits, they began systematically
pricing them for sale at 50%-60% below the surrounding homes in the
neighborhood. This was seemingly to move them off the balance sheets
fast, but you may have noticed that the offers to purchase these homes are
seldom responded to for many months. The banks will tell you this is
because they're so busy trying to digest their foreclosures, but the real
reason for this delay is to allow the property's heavily discounted pricing
to become fully engrained in the minds of other homeowners. This eventually
alters the marketplace, and forces genuine home sellers to compete with the
lower prices. This process is called "comp destruction".

Now we've got a dysfunction in the real estate market that only Wall
Street could benefit from. Home prices are continually declining, the Banks
refuse to make new loans (even though they have unlimited access to 0%
interest rates from the Fed), and 35% of all potential home buyers have
damaged credit. Don't worry though, you don't need a good credit score
to buy stocks or invest in a 401K.
 
There are now 20 million vacant homes in America, with 10 million more
foreclosures in the pipeline. Although the nation's most expensive homes
in Palm Beach and New York continue to increase in value, the inventory
of average homes in average locations assures a flat to downward real
estate market for at least the next 10 years. Many of those homes were
built by, financed by, or had credit default swaps sold against them by
companies traded on Wall Street, yet according to the media, it's a great
time to buy stocks again. We're told on a daily basis that the bounce-back
in stock prices over the last year proves once again that "buying and holding"
stocks is the sure fire way to get rich.Thank goodness the media is as open
and honest as the marketplace for stocks itself. I'm sure it's just a coincidence that virtually every major publisher, and television, radio, cable network world-wide is owned by our friends on Wall Street. Just think, if stock prices can just go up 30% more from here, we will have finally gotten
back to even.
Posted in:General
Posted by Sherry Lee on January 5th, 2010 4:48 PM

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