“On The Other Side Of The American Joy Ride”
The Boston Globe from Massachusetts. “Gregory Truman and Wayne Pruitt didn’t need a real estate agent to sell their Brighton condo two years ago, but they could have used a crystal ball. The market was so hot that Truman and Pruitt were able to sell the unit in a matter of days for more than $468,000. They promptly upgraded, paying $644,000 for a 1930 Colonial across the border in Brookline.”
“They got a first mortgage for $333,700 and secured a home equity line for $140,000 (they used $70,000 of that money for the initial purchase of the home and $52,000 to spruce up the place). Over the next two years, in addition to sanding and painting both inside and out, the couple landscaped the front yard, added stone walls, and put pavers on the driveway.”
“Yet in May of last year, the house they had refashioned as their own became suddenly unaffordable when Truman learned that he hadn’t made tenure. He would be out of a job by August of this year.”
“Downsizing was in order. They put their house on the market in May of this year for $748,000, hoping to net a decent return on top of the cost of their improvements. Yet even after three busy open houses, the only offer they received came in the form of a casual inquiry through a neighbor as to whether they’d go as low as $699,000.”
“Unwilling to take a loss, the couple decided to refinance instead. They lowered their monthly payment by using a somewhat risky mortgage with an adjustable rate negative amortization, which allows them to pay less interest than the amount actually being charged. The difference, however, is added to their loan balance, essentially chipping away at their equity month by month.”
“‘I really don’t think we’ll be able to sell and get any sort of return,’ Truman says. ‘I regret buying the house. It was really a blunder.’”
“Perspective is easily regained now that we’re on the other side of the pop, the bust, the not-so-gentle thud. When we were living through what was unquestionably the biggest borrowing frenzy in history, homeownership shook off its staid status as the American dream and reemerged as the American joy ride. Every sale down the block, every bidding war, every visit to zillow.com confirmed that we were rich and getting richer.”
“Practicality was almost illogical. Though we skimmed off layer after layer of equity to upgrade our kitchens or pay down our credit cards, our home values magically rose as if to compensate within the same year, sometimes within months.”
“But with buyers back in control and perspective restored, most of homeowners aren’t feeling quite so wealthy anymore. As our equity levels recede, some of us, like Truman, are feeling foolish that we stretched our finances so thin. And clearly, with the midyear foreclosure rate up more than 60 percent over last year, some of us are downright devastated.”
“Lynne Nadorff has never touched her home equity but is second-guessing some of the improvements she made on the two-family Colonial she bought in downtown Lenox in 2002. After initially listing her house in July for $595,000, Nadorff has since reluctantly dropped the price to $495,000.”
“‘Maybe it would have worked better if I hadn’t put so much into it,’ she says of her investment. Knowing she won’t get out what she put in is hard to take. ‘It’s my retirement; it’s my nest egg; it’s everything.’”
“‘People, whether it’s naivete or denial, don’t seem to see where it’s leading,’ says Janet Werkman, bankruptcy lawyer based in Cambridge. Easy access to home equity, along with risky mortgages, contributed to the startling 66 percent rise Massachusetts foreclosure filings from the first half of last year to the first half of this year. Credit counselors and bankruptcy lawyers also link the climbing default rate to the proliferation of subprime lenders, who provide high-cost mortgages to people with bad credit.”
“‘I tell people all the time they’re not going to take away the TV that you charged, but they will come and take the house if you can’t make the payments,’ says Donna Cabana, a foreclosure prevention counselor in Springfield.”
“Brokers have also targeted the elderly, the population with the fastest growing rate of refinancing the country, says Len Raymond, founder of a Braintree-based nonprofit. Nationally, the percentage of homeowners aged 75 or older with home-secured debt nearly doubled between 2001 and 2004, from 9.5 percent 18.7 percent.”
“‘We had client who had refinanced 12 times in four years, Raymond says. Each time, that much more house got gobbled up, not just by the amount borrowed, but by steep transaction costs.”
“Whether we’ve poured money into our houses or routinely pulled money out, our expectations (and perhaps those of lenders) have reached unsustainable levels. These days, the reality check comes at sale time.”
“‘When somebody goes to sell, and they’ve taken out equity to make improvements or pay tuition or whatever, a lot of people are surprised to find that they don’t have the equity they thought they had,’ says Gary Rogers, a sales associate in Waltham. ‘I tell them you can’t spend the money twice.’”
This somewhat long article is worth signing up to read.
‘The lending industry has persuaded middle-class and lower-income families that borrowing against their homes is sensible way to plug holes in household budgets, says Elizabeth Warren, a Harvard University law professor. The strategy makes sense on its face, because the interest rates on credit card debt are often two or three times that of equity loans. But adding rather than paying down, mortgage debt virtually guarantees a bumpier retirement for families without other major assets. ‘Home equity lines have robbed Americans of the number one retirement plan,’ Warren says. ‘They will not have fully paid off their homes, and their monthly mortgage costs will likely exceed their Social Security benefits. For millions, because of home equity loans, retirement won’t be a soft landing.’
I wouldnt count on social security to be around either…I think we will see a lot of blue hairs flipping burgers.
We’ll see bums on the roadsides at major intersections in cities with scrawled signs “I was a FB. Help, need money!” Those greedy sellers who thought they could make a fortune off of others are going to have to share space with meth-heads and psychos under bridges.
Do people who don’t read this blog use the term FB?
“FB” may become a popular term. I tell non-bloggers about it. Other folks do the same. Ben’s blog can set the trend.
I noticed the other day on Wikipedia that nobody has yet posted this definition of FB. Somebody who knows how Wikipedia works could make a real contribution by adding some housing bubble information.
“blue hairs flipping burgers” … and they will get a slightly higher pay rate if they put on their resumes that they have documentable experience flipping houses
What do you mean, I see senior citizens right now working Trader Joe’s cashier jobs because they have to not for fun.
My story, I picked a line with an older gentleman checker, thinking that he would be a retired guy that like to work with people.
Needless to say, he wasn’t fast and he was trying to be fast and other employees were giving him a hard time and he was fearful about being slower.
I felt bad.
This was a the Trader Joe’s in Newport Beach adjacent Costa Mesa, CA.
There’s an older woman that cashiers at the grocery store I usually go to. I’ll stand in a longer line every time to avoid her. You have to watch her shadow to see if she’s still alive.
You might want to take a look at your own shadow once in a while,…. your traveling on the same road that she is.
I deserved that.
Same here in Ashland, OR, Blue hair epicenter. I see plenty of retired folks as cashiers,etc., and most are reasonable competent, but I wonder what expenses or lack of planning or other issues forced them into such low wage positions at this point in their lives.
posted “other employees were giving him a hard time and he was fearful about being slower.”
It never ends …. to TJ credit you do get full paid Med Bennies for 24 hrs a week…… a lot to loose the older you get!
This whole notion that a house is a major part of your retirement plan is a big con job. The only way a house can fund your retirement is if you downsize or move from bubble land to fly over country. I’m very skeptical of the benefits of a reverse mortgage. Even if your house is paid off you are still responsible for maintenance, taxes, homeowners insurance.
I agree - but, it’s amazing how many peolpe are truly counting on their home equity to fund at least part of their retirement. I have had so many conservations with people hat are insisting thier house wil tripple in value in the next 10-years. After that, it’s time to cash out and join the ex-microsoft workers on Coco Beach.
Maybe if they start building houses from edible materials, your home could become a nutritous part of your retirement. I’ll make a fortune on the cook book.
This would result in a rush to houses with little tiny rooms (more walls) You eat your way to “wide open Great Room look!
This is your Realtor (TM) speaking, and my words of wisdom are backed up by the entire global MSM.
Yes, it will possible to sell your 1/2 million dollar home for 1.5 million dollars to a middle class working man or woman in ten years time. And the new owner will in turn sell it for 4.5 million dollars to some other hard working middle class man or woman in ten years time. See how this works? Imaginable worth is just around the corner; can you imagine yourself spending your millions already?
Now, for those of you who are real smart, you buy as many houses and/or condo closets as you can. Can you now imagine yourself spending your billions?
I agree - but, it’s amazing how many people are truly counting on their home equity to fund at least part of their retirement. I have had so many conversations with people that are insisting their house wil tripple in value in the next 10-years. After that, it’s time to cash out and join the ex-Microsoft workers on Coco Beach.
Your comment recalls to me a conversation I had with a friend we were visiting in the Destin, FL area about 2 years ago or so. He lives in the atlanta area in a 400K home and had purchased one of these 3 story box beach cottage homes just off the beach in a quaint little community about 20miles east of Destin or so (can’t recall name). At any rate, I am guessing he paid about 600K or so and was doing short term rentals out of it when not using it as a second home. Now, he was making about 150K/yr at the time but the company he worked for was already in a financial crunch and it looked like not only a paycut but also retirement default issues were approaching with this company. I remember his comment that “this house is my retirement” and just shaking my head while thinking what an unmitigated disaster this guy was setting his family up for. At the time the houses nearby had appreciated up towards a million (according to him) so perhaps he wasn’t totally hosed, however the story doesn’t end there. I was asked whether I wanted to “take down” a couple of lots in the same area (but even worse location) that this guy could get a hold of for me? He and a couple of buddies produced a plat and sure enough it showed about 200 “zero lot line” land lots (very small) my friend says were being released by the developer in 8 lot increments for (drum roll) 500K/lot! They were located about a 1/4 mile off the beach (developer was going to build a boardwalk for access). I was truly astounded that these guys were contemplating the purchase of any of these lots. I have no idea whether they bought any but my .02 to them was to run away from those lots. I’m quite sure they thought I was nuts when I suggested the area might be experiencing a bubble. The main theme of this story is that there are hundreds if not thousands of bag holders right in this neighborhood alone that stand to lose hundreds of thousands of dollars when this bubble unwinds. As an afterthought, this was prior to the hurricanes that went through that area of FL so who knows the impact of the storms were on that area?
“The main theme of this story is that there are hundreds if not thousands of bag holders right in this neighborhood alone that stand to lose hundreds of thousands of dollars when this bubble unwinds.”
True, and if they were using the home to bankroll their retirement, god help them. If they were just flippers, they will walk away with lousy credit and a good story.
“… so who knows the impact of the storms were on that area?”
You’ve got to factor insurance costs into your housing.
And therein sums up the whole problem with this Bubble-mentality in Florida. This State alway attracted retirees because they could sell their castle in New Jersey and buy something much cheaper here in Florida, pocketing the difference for a nestegg.
With the frenzy of the last 5 years, there are no cheaper houses here (not yet) to buy, so they won’t be coming here to retire. They can’t downsize, except perhaps to a mobile home.
They used to go to Florida to escape the northern winters. Now Florida retirees will have to flock to Michigan to avoid high costs.
Retired folks have traditionally lived in paid off houses, homes they paid off during their working years. That way their cost of living was dramatically lower once they had to make do on social security or pensions. No matter what, they had a roof over their heads. That security will not be there for many. This will be a dramatic change in the nature of “retirement”.
I have a feeling, that in 10 - 20 yrs single retirees with a paid off mortgage, will be hot commodities to other single retirees.
Now there’s the best reason I’ve ever heard to pay off one’s mortgage!
I “opted out” of social security in June of 2000 when I quit my Federal Employment of 12.5 years. (Good thing I have been saving and investing and building up equity during these years of employment, and I do not mean RE.) I rolled my FERS (federal employees retirement system) account into a self directed IRA, then converted the next year into a ROTH IRA.
I was born in 1960, and by the time I reach retirement age I fully expect Social Security to be reduced through means testing or near hyper inflation or whatever.
I have no desire to ever go back into the work force under the auspices of this Ponzi scam that is appropriately called “The SS”.
I also have “opted out” as of nearly 10 years ago by virtue of trading for myself. I contributed enough before that to get whatever maximum benefit will be available but I’m not counting that money anytime soon.
How do you opt out of Social Security? I thought you always had to pay the 7% even if self employed.
No, when you’re self employed, you get to pay 15%! (you pay the employer’s share, plus your share)
I used to be self employed, but I quit to stay home with the kids. By the time the taxes were paid there wasn’t much left (my income went on top of my husbands, so it was taxed at a very high rate, plus self employment tax, plus 9% CA tax). I think I kept about 45 cents out of every dollar.
I believe in txchick57’s case, since her source of income is stock trading the money she makes is all short or long term gains. Not subject to SS tax. Am I right?
Exactly my point. How do you “opt out”? IRS form 1049??
Capital gains and Dividends are not subject to the “self employment” tax, nor the social security tax. These two taxes are paid on earned income. Capital gains and taxes are treated by the IRS as unearned income, and thus not subject to any of these two taxes.
The IRS says that both the social security and the self- employment taxes “are similar”, but I do not see any difference. They are one and the same.
The social security tax is paid in two equal parts by both the employer and the employee. Currently, the tax is 7.65%. So if you are self employed, you would be paying both the employee’s share and the employer’s share, for a total of 15.30% This 15.30% is then called the “self-employment tax.”
The SE and SS are vicious taxes (like organized crime getting their share, it comes “of the top” of every dollar earned up to $94,200 including combined wage earnings, tips, and net earnings) since there are no “income tax brackets”. ( Now you know why I call social security “The SS.”)
So for example, if you are self-employed and have total earned income of $75,000 then you would pay 15.30% ($11,475) and file schedule SE of the 1040. Then you pay your regular Federal 1040 tax, plus any applicable state and local income taxes. Don’t forget the Federal AMT, you pay the higher of either one.
However, if all you have is $75,000 of income from long term capital gains (unearned income), then you do not pay a social security tax, nor a self-employment tax. You pay a maximum of 20% on your Fed 1040 on long term cap gains. Also, with or without the AMT, your tax on long term cap gains and qualified dividends is not any higher.
Any dividend income also has special tax preferences with lower Federal 1040 tax brackets, but only if it is qualified dividend income. It is sufficient to say that most (if not all) of the dividends payed out by shares of actively traded common and preferred stock is qualified.
Now do you see why it is wise to “opt out” of social security/self-employment tax? You would be replacing earned income with unearned income, and preferably with long term capital gains and qualified dividends.
Bryce: “IRS Form 4029, baby.” This does not apply at all to our discussion. From the back of Form 4029: Form 4029 is used by members of recognized religious groups to apply for exemption from social security and Medicare taxes. The exemption is for individuals and partnerships (when all the partners have approved certification). Note. The election to waive social security benefits, including Medicare benefits, applies to all wages and self-employment income earned before and during the effective period of this exemption and
is irrevocable for that period.
If you want it straight from the horses mouth, here it is:
IRS SE/SS TAX http://tinyurl.com/38rac
IRS Qualified Dividends http://tinyurl.com/6ebgs
IRS Form 4029 http://tinyurl.com/w3ad6
I “opted out” by simply quiting my job. Social security tax and self-employment tax is paid only on earned income. Once I quit my job, I had no more earned income (in this case wages reported on W-2s, but earned income includes combined wage earnings, tips, and net earnings), and thus no more social security tax.
However, just quiting your job does not “opt you out”. This is only half the story. You still need income. The other half of the story is what kind of income do you have after quiting?
All of my income is now long term cap gains and qualified dividends from common stock. All of this income is recognized by the IRS as “unearned income; there is no social security or self-employment tax paid on these (or other) types of unearned income.
So there you have it. Essentially, I switched from earned income to unearned income. I have therefore “opted out” of any SS/SE tax.
In summary:
All earned income is subject to the SS/SE tax,
all unearned income is exempt from the SS/SE tax.
Happy_Renter, I have similar circumstances. I am one year older than you. I worked as a federal employee 11 years and got out in 1996. I had a Thrift Savings Plan and was worried the government would use my savings to fund programs, so I rolled my money into an IRA. I did not convert it to Roth though. I had a meager amount of savings in my name in 1995 and now I have a lot of savings, due to better paying jobs and my consulting career. I don’t expect to count on social security at all. But I expect to work into my 70s because I like to be actively using my mind.
Retirement is for the birds. Come to think of it, I’ve never seen a bird retired either.
Financial independence is a goal, however.
Opted out? If your not self employed then what the hell are you?
What worse– The greedy flipper or the tax evading fruitcake?
All of my income is now derived from capital gains and dividend income. The only thing I have ever flipped in my life are hotcakes on a griddle, and all of my cap gains and divs income shows up on 1099’s that my discount broker files with the IRS every year, so I am no “tax evading fruitcake.”
Doesn’t this fall under the “self-employed” banner? If so, aren’t you paying SS like deb stated?
IRS Form 4029, baby.
Playing by the legitimate rules and tax codes isn’t “greedy” or “evading” it’s called being intelligent and informed.
Are you “greedy” and “evading” when you take a legitimate tax deduction?
Im sure the investment plan for alot of baby boomers was to sell their overpriced POS in Southern California , New York ,etc. and move to a cheaper retirement area at retirement time .Some BB’s even bought their retirement homes ahead of time or a second home rather than pay the higher prices of tomorrow .
When the home prices drop to where they should be it , this buy ahead of time plan isn’t going to work out on paper and will only be a drag on retirement dollars that could of been saved or put in a less risky investment .
I know a couple that are due to retire in 5 years . The accountant advised this couple to buy a second residence in Las Vegas in 2005 . This couple going to get less for their current residence but they will lose 100k to 150k on the Vegas property while the carrying costs will eat them alive .
When your close to retirement a 300k to 400k loss is hard to take. These so called experts were encouraging people close to retirement to take those kinds of risks . Alot of people bought this “real estate always goes up ” BS .
In addition, you had every builder and their brother building these homes all over the Nation for the flippers and baby boomers that don’t want to buy now .
SS is not going anywhere. That being said, it will certainly change from what we know today. Anyone with their head screwed on straight should be planning on supplementing their SS at retirement with an IRA, 401, rental income, etc.
“The strategy makes sense on its face, because the interest rates on credit card debt are often two or three times that of equity loans.”
Sure it does. Just like the strategy of liberating the big equity gain on your first home to buy five others on speculation. So long as real estate always goes up…
My favorite quote-
More than just places to live, our houses morphed into pots of cash, vessels so deep they could seemingly supply our material wants now and our retirement needs later.
How does anybody think a house can be their entire retirement. Where do they plan on living when they sell the house for food?
“It’s my retirement; it’s my nest egg; it’s everything.”
Didn’t the Sylistics shoot to the top of the charts with this song in the early 70’s?
Wow - someone doesn’t have tenure, and goes in on a $644K house?
But, but, real estate only goes up…
My question is, what were they thinking when they failed to follow up on the casual offer of 699K? Yes, they would’ve lost the commission, but by May of 2006, if they had been paying attention, they would’ve known they should take any offer they could get. Wonder what Truman was a professor of. It would be cruel to say that the decision to deny him tenure was an intelligent decision, but certainly more intelligent than his decision to reject the 699 offer out of hand.
“Unwilling to take a loss, the couple decided to refinance instead. They lowered their monthly payment by using a somewhat risky mortgage with an adjustable rate negative amortization, which allows them to pay less interest than the amount actually being charged. The difference, however, is added to their loan balance, essentially chipping away at their equity month by month.”
Wow, those two are really takin’ it up the a$$.
No pun intended.
Me thinks this odd couple ‘Screwed the Pooch’
Gregory Truman was an assistant professor of information systems at Babson College.
Yes, I would agree that was surprisingly dumb decision for a professor type. I do sympathize with the major career setback and financial setback. I have certainly taken some risks in the past, assuming a “don’t look back” attitude.
Although I am a scientist, but I have given up on academia for this reason. The prospect of enduring years of graduate school, low entry pay, then getting denied tenure after 5-7 years, when academic jobs are very hard to find, is just beyond the pale for most of us.
A ‘ freakin’ men. Changes in academic jobs require big moves. You usually have to pick up and move out of state. It is not like you can look for them in the local paper.
That is precisely why I am so conservative with my money.
Maybe he would have gotten tenure if he had focused on research and writing, insead of painting and updating his house.
Very good observation Bill.
After completing my dissertation, I had toput in literally hundreds of hours of evenings and weekends at no pay to get the work published. Needless to say, I did not have much time to compare carpet swaths and wainscoting. I do feel for the guy, but it does seem like he should have stayed in the smaller home and busted his B@#$! until he won tenure. Major home improvement takes major time.
I think one of the unifying themes of this bubble is that so many of the people who will be hurt the worst are those who wanted to get everything at the same time while real wages have been declining. The big house AND the Escalade AND the Plasma TV AND the boat AND that European vacation,etc, and TENURE. Oops!
Too bad the article didn’t specify the guy’s field and specialty. My guess is Real Estate Economics…
And he wonders why he didn’t get tenure.
I didn’t know zillow was around in the “richer and richer” years.
Hopefully one day in the near future homes will once again be viewed as a place to live instead of an ATM or a retirement vehicle.
I have never seen the point in granite countertops or fancy tiles making the home more valuable. Why should I as a buyer pay more because the seller installed them? Maybe there are colors or patterns I like better, or the identical house down the street only has formica counters and vinyl tiles and has a list price of $50k less then Mr Granite has? With vinyl tiles I could change the look of my kitchen every year for less then 1 grand and 1 Saturday. Why should I spend $10k for ceramic tiles that break and stain? Why do I need Cherry cabinets when maple looks just fine and is 5-10k cheaper?
Or the clowns who heloc 50 to 100k to put in an outdoor entertainment center.
This whole materialist binge is a sign of a sick society. Just like the parents who work long hours, suffer terrible commutes, and max out their credit so their kids can have the “best” clothes, toys, electronics, schools, etc. What’s best for the kids is having the parent spend time with them, not mindlessly tossing items at them or feeding them junk food because the parents are too busy to make a decent meal as they rush the family from club, to activity, to mall and micro manage the kids’ schedules as if the kids are corporate executives. Yuck.
Not to mention, the kids turn out to be insufferable spoiled brats.
My friends are pretty well off, and the daughter was slated to get the used Benz. Guess what? she didn’t want it. She wanted a 2006 truck. She got it. She also carries a D&B purse (600) and she’s 16 years old. When I was 16, mom was giving me 10 bucks a week for chores and I worked at McDonalds….
Can you believe some people blame teachers, and not parents, for the education system’s seeming lack of success relative to Japanese kids?
Sick.
Did I just compare our education system to a group of kids?
USA GDP per capita: $41,800
Japan GDP per capita: $31,500
Just saying.
I would blame the parents, both biologically and socially. I have read that the Japanese people (and South Koreans) are consistently recorded to be among the smartest people on earth (mean IQ 106 vs 100 for Americans as a whole). Asians and asian-americans outscore gringos in just about every level fo schooling and in standardized tests. On top of this, they often must meet social expectation of high goals and very hard work. If they (Japanese) are indeed smarter on average, gringos will need to work even harder to compete, not assume that current wealth = ability, or that underpaid teachers are the scapegoat for little Jimmie’s lack of success. Look at our Commander in Chief for living evidence that wealth and family connections do not predict ability and performance.
We Rent! - Actually, you compared “lack of success” to “a group of kids.” Definitely won’t fly on GMAT Sentence Correction.
“I have read that the Japanese people (and South Koreans) are consistently recorded to be among the smartest people…”
I lived in Palo Alto, CA for a number of years. My Jewish neighbors rode 10-speed bikes to work while Asians and others drove trophy vehicles that matched their conspicuous lifestyles. My Jewish neighbors had mom at home raising their kids and walking to school with them; no SUV to drop them off. My Jewish neighbors were always taking classes at Stanford, or working in top notch companies. IMHO, Jews easily are the most intelligent cohort.
“I would blame the parents, both biologically and socially.”
Exactly!
“USA GDP per capita: $41,800; Japan GDP per capita: $31,500″
Oh my, how bubbles change things. Just after their Twin Bubbles years, the per capita GDP of Japan was higher than that of the US!
We Americans would be very lucky if their per capita income only falls to $31,500, in today’s dollars, after out Twin Bubbles are fully burst.
Greater Depression anyone?
Jas Jain
I’m Asian and here’s my commentary:
Asians tend to be *much* more oriented towards “gaming the system” than Westerners are. I doubt whether many of the Asians who took AP European History with me at the Lawrenceville school could remember the reasons behind the Thirty Years’ War. I can, but I’m really not a typical Asian - the term they use for me is “Twinkie” (yellow on the outside, white on the inside), since I never really had any Asian friends and didn’t buy into the cliques that they hold so dear.
Combined with being much more group oriented, the culture is a perfect fit for about 90% of jobs out there, which involve repeating back the boss’s words and kissing @$$ and calling it kimchee.
White guys have a *much* lower tolerance for this than Asian guys, but that low tolerance for crap is also why we (native Americans, including 2nd generation) tend to be much more creative.
Jews are estimated to have an average IQ of at least 120. “IQ and the Wealth of Nations” The book also found an average IQ for USA of 98, not 100. But, we do have Blacks & others in the mix. Whiter countries in Europe show at 100 to 102.
The thesis of the book is that average IQ is important to a nation. However, that being said, a nation is better off having a wide range of IQs (so that some are smarter), rather than literally having every human have an IQ of 100.
I had an SUV, but it was a ten-year old International Harvester Scout, Tomatoe-soup red, to better hide the rust. Chick magnet not.
Let me just say that most of the reason that Japan and other countries outperform the U.S. in educational tests (such as the Third International Mathematics and Science Study (TIMSS)) is because other countries’ educational systems are not required to report all scores. Often, scores are manipulated by underreporting poorly acheiving districts (or not reporting them at all). The U.S. reports all districts’ scores, and so appears to do worse. American workers’ productivity is a much better measurement of how well our educational system works.
Believe me, I lived in Japan for 7 years, and there are plenty of average and below-average people there, just like there are in every country. I do agree there is a lot more pressure for students to push themselves, but much the same as has been mentioned here, they are encouraged more to memorize when needed, not to analyze and create. While there’s no concrete evidence that our creativity helps us be more productive, it’s been studied in international educational journals for at least a decade.
I agree that parents are the ultimate arbiters of their children’s fate — maybe they should stop buying their kids expensive toys and giant tvs with their home equity and start reading them books and teaching them values other than consumerism!
When I was 16 I drove a ‘56 Dodge Powerwagon PU with a log bumper. I got it free and had to work an extra job to afford to get it running. Nobody offered me a Benz.
Sounds like a rig I would have liked to see,
When I was 16, I inherited a 1967 Ford LTD with a 390 big block and power seats from my big brother. Dad found it in a junkyard and got it running and rolling for $150. A great car actually, until it burst spectacularly into flames in front of the junior college one fateful afternoon.
I think I have you guys beat. My first car was 1975 Plymoth Fury Station Wagon with a booming 318ci engine. It also had one of those seats that faces backwards.
That definitely does sound cooler than mine, all it would need for perfection is that log bumper!
When I was 16: I was in HS and I had an after school job at a retail store. I did not mind walking 30 minutes to work since it would take longer to take the bus, plus I saved the bus fare.
My first car was a 1973 Ford Pinto, purchased in 1980. This car was a blessing for me because it was a simple mechanical car and a great “platform” to learn basic mechanic skills such as rebuilding carburetors, relining brakes, troubleshooting open wires at the fuse box, replacing u-joints and anything else it needed. These skills will eventually save me tons and tons of money as time wore on, but my initial impetus for doing my own repairs was a tremendous curiosity to actually put my hands on the working parts of cars. (I already knew how they worked in theory.)
I can truthfullly say that I am a self made man. I have never inherited anything (my parents had nothing materially to give). My struggles in my early years for survival (in 1980 I was on my own and earning about $12,000/year and payng rent, tuition, gasoline, clothes, food, car insurance, etc…) was the best teacher that would prepare me for my success. I now manage my own stock portfolio and I can not think of anything else that I would want to do for a living.
If you worked at McDonald’s, why did you need the $10 a week? That sh%t wouldn’t have flown in my house. You were spoiled.
Ha!! You got me with that one!!
And I agree, I was a silver spoon boy compared to some of the tough love families in my neighborhood.
When I was that age, I was so poor, I couldn’t afford to PAY ATTENTION…..
Wow, when I was 16 I rode the bus or walked. I don’t envy people who are handed everything - I value the things that I have earned.
There is no such thing as a “Purse” that is “worth” $600. What is F#@kin wrong with or Society. I don’t even spend $600 a YEAR! on clothes!
I have watched children raised in austere Christian churches by parents of modest incomes, but most of them still turned out to be “insufferable spoiled brats”.
I think it is the American culture (TV, hollywood movies, professional sports, politics, etc…) that is breeding this sense of entitlement into the masses. Poverty and religious zealotry are not automatic exemptions from this phenomenon.
I agree with your post. I see people with American flags and Bush/Cheney bumper stickers on their bumpers or on their windows violating traffic laws every day. To be fair and honest, I see the same with Kerry/Edward stickers violate laws every day too. Cities are becoming so crowded that you come across cheaters all the time. I met people who assume every American lies and cheats, so they use that assumption to justify them cheating too. Modern American religion has done a poor job of teaching ethics, citizenship, and morals. You got Jim Bakker, Oral Roberts, Jimmy Swaggart in their perverted scandals. Makes non-religious people such as myself wonder about why Americans bother to get into that stuff at all? Objectivism is a better system of ethics.
Dude…Its not religion that’s at fault (not counting Radical Islamic teachings), it’s the boob tube and the Internet. You have easy access to porn, violent and non violent role playing games, myspace, IM, etc. That is just talking about the internet, don’t get me started on TV.
I remember reading a book called “Your Money or Your Life”. It encouraged people to look at material things in terms of the number of hours of work it took to buy them, and about trading your life and energy for things that you really don’t want or need. Perhaps if people really thought about how much of their life and energy they want to give to those granite countertops they wouldn’t be so coveted. Somehow we have to get beyond that “want, need and deserve” mentality. Two years ago I remodeled my sisters kitchen because she “wanted, needed, and deserved” new cabinets, floor, paint, and appliances. She justified it by telling me how it would improve the value of the house. Fast forward two years and all she has to show for it is a two year old kitchen that someone else might either like or not.
Want, need and deserve mentality is a creation of advertisers. They’re very diabolical at being able to tap into the psyches of the average tiny mind who is unable to tell that they are being manipulated for profit.
txchick57-You have hit the nail on the head. There are very bright people on Madison Ave. who know how to manipulate people to the max.
txchick57…are you suggesting that we’re all VICTIMS of Madison Avenue? (hahaha…I’m kidding!) No one can make someone buy something that they don’t want. American greed makes me sick. Some woman my husband works with told him last week that she bought ten of the newest Elmo ridiculous toy at Wal-Mart…cleared the store out. She’s going to sell the $40 toy on eBay for $250 each. That isn’t the free enterprise system. It’s hording and then gouging. It might not be illegal, I’m not even going to make a statement on morality…but it’s gotta be soul sucking.
Score one for Shaunta! I despise advertisers, but one can just turn off the TV.
Glad to see you have some fight and humor left after the barbs you caught in the boomer/gen-x rumble last week!
Too bad your kids just want to watch it that MUCH MORE, if denied, to keep up with their peers….. And they will find a way, and it will just seem that much COOLER!…… Fester, Media is EVERYWHERE….. (ref: please see youtube)
I must remove 5 points from Shaunna’s score, sorry but it’s the rules.
Unfortunately, most people can’t or won’t turn off the TV.
Hobbes (of “Calvin & Hobbes”) stated it perfectly:
“It’s amazing what some people would rather have than money.”
I am a product of the 70s “Saturday morning cartoon advertizers”. Those advertisements were so brazenly manipulative (and often false) that they made me forever cynical and antagonistic to marketing. I thought I read somewhere that this feeling is common among my generation, for exactly the same reason.
Remember to drink your Ovaltine!
Karl Rove is another master of this technique, except he has deployed it politically. I totally am in awe of their Machiavellian minds even as I try to use that thinking myself in the markets.
Rupert Murdoch seems to to a pretty good job of controlling the minds of the masses as well. Witness Faux Newz. What sense does that make?
And James Carville isn’t? Methinks you are a left-wing Bush hater.
No. That would be me. Karl Rove is the lowest form of excretion I can conceive of. Ask John McCain about it.
Advertising is an ever changing monster. You get cynical, they use cynical. You get caring (you have a baby) They use caring. You get Underground, (YourTube) they use underground. (Grassroots, Stealth Seeding)
Of course it doesn’t work on everyone. Advertising is all about PERCENTAGES %.
And Advertising aimed at kid’s DOES WORK. (take a TV kid to the store some time)
Yeah, remember the Slinky commercials? Damn things didn’t go down the stairs, but I kept tryin…
Karl Rove is lower than whale shit. He and Ken Starr should open a shoe polishing stand together. (reported in the media to be what Starr does as a hobby)
-
The Liberals hate Rove because he’s BRILLIANT and we keep WINNING. America has rejected Liberalism. Nice to see Al Franken’s “Air America” gone BK.
“The cost of a thing is the amount of what I will call life which is required to be exchanged for it, immediately or in the long run.”
“Our inventions are wont to be pretty toys, which distract our attention from serious things. They are but improved means to an unimproved end.”
- Henry David Thoreau
I am cheerfully awaiting the sequel “”Your Money or Your Wife”
This housing bubble bust is going to be responsible for many additional divorces.
What gets me is that these people who spend tons of money on upgrades expect to get all of their money back PLUS PROFIT when it comes time to sell the house. They want someone else (the new buyer) to pick up the tab so they can enjoy their new fixtures for free.
It’s like buying a new car - as soon as you drive it off the lot, it loses half of its value. Why should the buyer have to pay full price and more for “gently used” granite and stainless steel appliances?
BTW, granite and stainless steel are now passe - too many people used them as a way to “get rich quick.” After the boom, no one is going to want to see detritus of the boom.
This never made any sense to me, either.
But we must remember that shows like “FLIP THAT HOUSE” were demonstrating the easy money you can get by “fixing up” a house for resale. It has worked for the past 5 years.
Now, it’s no longer working. And you are right, all these improvements will be flotsam and jetsom of the sinking ship.
This is a great point, I receall seeing a episode (I had never watched it previously) and noticed that they would spend say 10K on “granite countertops” and would note that it would increase the “resale value” of the home by 15-20K.
Why?!?!?!?!?!?
Why should I pay a tremendous premium for something that I could have done myself for less than half the cost. It used to be that improvements to a house left you maybe 50-80% of your original investment, never 200-400%. Its sheer madness.
Plus as many have noted, all these “upgrades” are destined to become tommorows avocado green refrigerators.
There was a time that acoustic ceilings, shag carpet, and green, yellow, brown and orange appliances were “upgrades”.
But I am at a company offsite this weekend, and in one of the conference rooms next to us was some real estate expo and I noticed the kind of characters attending compared to the people there from my company. Our company is made up of mostly scientists, engineers and executive managers(SES). People comming out the real estate wealth seminar are a cavalcade of the ususal suspects, people with little education, car salesman types, bimbos, slack jawed homeies with too much bling, clueless wanderers.
Watch out below indeed!!!
The last few years sellers got used to being able to sell a house needing $50k - $100k in updating for top dollar. Now buyers are starting to discount these factors and a lot of sellers are in denial about it. I’m constantly amazed at some of the asking prices I see on houses that haven’t been updated in 30 or 40 yrs. They expect someone to pay top dollar for their 30 yrs of filth, and wear and tear.
cavalcade of the ususal suspects, people with little education, car salesman types, bimbos, slack jawed homeies with too much bling, clueless wanderers.
lmao!! can’t wait for the crash just to clean out da trash!
people with little education, car salesman types, bimbos, slack jawed homeies with too much bling, clueless wanderers.
LOL. That about sums it up. It’s the dumb-money get-rich-quick crowd. They’ll be back to peddling Amway products next year.
Yea,
Nice writing OCMetro…I can see them all shuffling, strutting, and shucking and jiving in front of my eyes right now…
New TV Real Estate show…
Fix your house while in Foreclosure
lol…good one!
How about Pimp My House with Snoop Dog
I just ‘discovered’ the ‘Flip this house’ type shoes on HGTV and TLC. I find them fascinating. Less then half of the improvements are purely for the occupants. They are money making schemes to sell the hosue for more.
When I bought a townhouse before the bubble started, people thought I was wasting money becauses I wanted to repaint a few rooms, add a ceiling fan, change the carpet in 1 room. They said so what, you’ll only live there for 5 years max. So I shouldn’t spend 1 grand (cash not credit) and a few weekends to make my place nicer? People now heloc to put in granite, cherry cabinets, italian tile, etc and think they are wonders of the universe and are increasing the value of their homes. Dopes.
I agree. The value of your property is based on properties in the same area as your property. If you put in gold toilets and faucets for $200,000.00. It does not improve the value of the property by $200,000.00 the only thing that might change is the value of the gold. However most are not puting metals into thier home, they are puting in items that depriciate over time. So if you spent money on items that depreciate then you can only expect to get a percentage of a return and it only allows you to sell the property easier due to fact that your property is in better condition than others in your area - real value of the property does not change significantly.
“It’s like buying a new car - as soon as you drive it off the lot, it loses half of its value. Why should the buyer have to pay full price and more for “gently used” granite and stainless steel appliances?”
WAIT A MINUTE!!!! We shouldnt pay more for the house because the previous owner took a sh@t and showered everyday in the house?
Solid surface countertops are perhaps one of the most “useful” upgrades for a house. I like Corian more than Granite because it’s cheaper, but Granite slab is as useful as Corian. If you cook at home a substantial amount or have kids, a solid surface countertop while not an investment, is definately the right way to go. Many people, including myself, find tile countertops absolutely annoying, cleaning out the grout as well as the entire surface.
That being said, I also never understood the benefit of upgrading flooring (like tile or hardwood floor). Just give my decent vinal and decent carpet and I’m happy.
Most houses do not have formica countertops anymore, so the choice is more appropriately tile or Corian or granite. In this case I think Corian is definately the way to go.
There is nothing wrong with Formica. Good old plywood covered by a thin sheet of white plastic. My approach to “upgrades” is to only due what is required to maintain the structure, and then I *ALWAYS* do it myself (labor is 2/3 the cost of any job nowadays). I view my house as an expense pit and put as little as possible into it. I am not materialistic so the merely functional is good enough for me and my family. We like to go out and do things with other people most of the time anyway (this is called “socialization”). Too many people sit in their fortress homes and mope around lonely until they get divorced and then die alone. How pathetic.
I agree that there is nothing wrong with Formica, I prefer Formica to tile myself. But you’re not going to find a newer home (if that’s your poison) with Formica countertops. Formica has high utility but low aesthetics. Aesthetics may be overrated, but they are worth something. Tile has low utility but high aesthetics. Corian and Granite have high utility and high aesthetics. So, do want you want, but decent countertops are not a bad thing to spend money on, in my opinion. The error, is not upgrading the countertops, but in expecting to get your money back or make money off it.
“We like to go out and do things with other people most of the time anyway (this is called “socialization”). Too many people sit in their fortress homes and mope”
You know, *some* people actually have social events called ‘parties’ at their homes. Just to point out that all of this far-reaching self-righteousness is maybe getting a little thick.
“There is nothing wrong with Formica. Good old plywood covered by a thin sheet of white plastic.”
There is something very definately wrong with Formica. It is not “Good old plywood” anymore, it is good old compressed wood sawdust and particles board. It absorbs moisture and puffs up as it disintegrates and flakes off.
granite IMO is the most aesthetically appealing, but its far less durable and repairbale than Corian or some other solid surface materials like some of the new polyester tops or quartz tops that are stain resistant. You can screw up granite pretty easy if its not sealed right.
http://www2.dupont.com/Surfaces/en_US/products/index.html
AMEN!
“AMEN”
that was meant for bairen’s comment,
This is a great example of the loss of some of the real gains. I have a co-worker who sold at the peak and then bought at the peak in Florida. All he did was change locations. Now that the gains are gain, all he’ll have is higher taxes and higher insurance. Many in Florida are complaining that they are trapped in their houses and can’t trade up. The ones that actually realized the gains and tried to trade up used ACTUAL gains to buy an OVERVALUED house. Oops!
- gains are gain
+ gains are gone
“Whether we’ve poured money into our houses or routinely pulled money out, our expectations (and perhaps those of lenders) have reached unsustainable levels. These days, the reality check comes at sale time.”
When expectations meet reality, reality always wins.
I will admit that I’d run up about $21,000 in credit card debt a year ago, doing some home repairs (really necessary things like fixing the heat, re-roofing, new electrical).
But I swore I’d pay that off and not borrow another nickel until I did. It took a year and I took no vacation and bought no goodies for myself the whole time other than maybe some used CD’s and a few pairs of jeans.
It took a YEAR!! For just 21K!! I really doubt people with HELOCs of 100K or more can fathom how long it will really take to pay off.
It took a YEAR!! For just 21K!! I really doubt people with HELOCs of 100K or more can fathom how long it will really take to pay off.
They thought a bigger fool with a “bag of money and a box of stupid” was coming, to pay for their stupidity.
From the article:
‘I tell them you can’t spend the money twice.’
Nope but on a CC Card or Heloc, Your can easily pay it back Three or Four times over….
Probably has been posted already, but I will post in case somebody has missed it.
Here is a news release dated Augsut 24, 2004 from the U S Attorney General’s Office in northern Georgia:
“CLOSING ATTORNEY SENTENCED TO 30 YEARS IN PRISON IN $20 MILLION MORTGAGE FRAUD”
http://tinyurl.com/y72sj7
Did I read that right? This woman stole over $11 million and she only gets 5 years of supervised probation. Please tell me this is not the case. Man, I’m in the wrong business.
I read that she got 30 years. I admit that the 5 years supervised release was confusing.
I am just trying ot figure out how this scam was supposed to work. She left an enormous paper trail behind her, and surely someone was going to look into it. Was she planning to move to Russia or something?
If these people’s houses are “their retirement”, they are doomed to be working till they are 75 or more. Really one should think about a paid off house and $1-2 million or something +/- depending on lifestyle expected in retirement and timing. And don’t count on any private corporate pensions past 2020 or so. Maybe a few will be lucky…but. for example, look at how fast IBM is moving away and devaluing their pension and they make $billions in net income!
If the house is paid off or well on its way to being paid off and they have something on the way to many hundreds of thousands or more in 401k, etc… then the bust doesn’t matter so much. Particularly if they bought a house “defensively”, e.g., in a lesser bubble area that appears to have a future and the area can’t readily be overbuilt. It isn’t as big a deal if it goes down $200K or 25% or 50%…if most other stuff went down even more.
So what is going to happen to all of these people? Many high paying professional jobs / careers are NOT friendly to people over 50 and especially over 55-60. It’s hard to catch up if you are 40 or more now and go into the hole. So working to 75 means McD’s or Dillards unless one can find a hobby or teaching path that is fun and pays half way decently. I doubt all of these people can open their own little curio store and make any type of living. And then, you won’t be living in Palo Alto or NYC’s west side paying a mortgage, that is for sure!
Right now we’re still in the haha stage of denial. We know SS and medicare can’t sustain itself much longer. We also know that most private pension obligations will eventually pass to the government. Governments have promised more than they can deliver to their employees. Retirement as we know it is quickly becoming extinct.
Lots of currently-retired people with curio shops have had to give up the illusion that the sale of curios would support even the rental of the curio shop itself.
I have a hobby that is fun and pays half way decently. I am a stock market investor and I spend many hours a week researching stocks. I could not imagine doing anything else for a living. Plus, I am exempt from the 15.30% self-employment tax, since all of mine is in cap gains and qualified dividends.
But wait! I thought it was the boomers who were doing all this bad stuff. From the article:
*********************
We’ve all adopted the mind-set of property flippers to varying degrees, borrowing against our houses to make those improvements that will boost our bottom line come resale.
The shift is particularly apparent among 20- and 30-somethings. When Tim deRosa, an assistant vice president at the Boston office of the Chubb Corp., bought his Brookline condo for $357,000 less than two years ago, he, like many other buyers in pricey locales, saw it as a steppingstone to a bigger place. A $30,000 home equity loan enabled him to put in the top-notch kitchen he hoped would result in a higher sales price three or four years down the road. The 30-year-old didn’t count on meeting his future wife in the meantime, however. Now engaged, deRosa is trying to sell the condo for 399,999 so he and his fiancee can move to the North Shore. He hasn’t had any offers, and he’s unwilling to drop his price. Far from worried, deRosa is businesslike about the turn of events. “I’m not desperate to sell - I don’t have to move,” he says. So he’ll wait it out. He’s refinanced the condo to lower his payment and plans to rent the unit if he and his fiancee find the right house. His $40,000 in equity will cover the down payment, deRosa says.
Yes get that 40k equity out for a downpayment on another place. The infamous “momentum of money” I think some real estate guru calls it. If he does this, just think, he can build equity twice as fast. ha ha.
More sense of entitlement. A buyer is expected to pay more for used 4 year old appliances that the seller selected. I forgot, appliances never depreciate. Especially if they are stainless.
txchick57-
If you’re talking about the “I deserve to get at least the $399,999″ out of it, sure, of course, even then…if he gets $399 (which he won’t), he’s going to have to cash in on the condo unless he put 20% down initially, which certainly isn’t flipperiffic. 357+30=387, 399*.94= 375. 375-387= (12). So you tell me how this 20/30 something is showing his flippiness other than being willing to take a larger loss on the house. My guess, is that he did put 20% down, because then taking the 30K Heloc is still at 80% perceived LtV. He’s doing things the way, that we thought we were supposed to for generations, and heaven forbid he’d meet his wife along the way.
This is the frusterating thing for 20-somethings. Our life is happening, we’re having job changes or life changes (babies/marriages) etc. And we’re out competing to buy and sell while specuvestors are either buying like mad or selling like mad. I don’t think we want anything other than, to not have to deal with it.
Well this is life so find a way to deal with it. If it isn’t that, it something else.
“He’s doing things the way, that we thought we were supposed to for generations, and heaven forbid he’d meet his wife along the way.”
Nope. For generations, you didn’t buy a house until you got married and were ready to settle down - i.e. not move. You did not buy a house with the thought of leveraging up.
“…he saw it as a steppingstone to a bigger place”
The greedy idiot is getting what he deserves. If you don’t want to deal with it - stay out of the way (and rent) and you won’t.
A solid piece of reporting — it is worth reading in its entirety. What struck me most was the description of aggressive sub-prime loan marketing. Yes, I know that adults are (and should be) responsible for the written agreements they enter into, but the way these predators have been scamming the elderly and vulnerable is unconscionable. Many borrowers will be ruined, but debtors will also extract their pound of flesh. Perp-walking and prison-time is going cap more than a few extra-aggressive lenders’ careers.
You’re so right. My clientele, nearly all elderly, come to me because I have a good word-of-mouth reputation. Many have been scammed by commercial lenders of various stripes. Often when I mention my very high interest rates, they say they can do better elsewhere, and then a month later they’re back on my phone explaining that they just found out about all the points and fees and bulls**t.
I happen to have been living in Boston during the last housing bust. One of the things that came to light was “redlining” during the boom years - the mainstream banks would not lend in certain neighborhoods - illegal, of course. When the bust came, many people in poor neighborhoods lost their houses because of these predatory, boiler-room lenders. The real scandal was that it was discovered that many, said “boiler-room” predatory lending companies were in fact owned by the mainstream banks!
There was shell corporation after shell corporation that had to be peeled back like an onion, but there it was. There were gazillions paid in fines, but no one went to jail over it. I hope it’s different this time!
Did you all see this in yesterday’s Washington Post? What a piece of **** article. I’m not sure if you need to sign up to view it…..
http://www.washingtonpost.com/wp-dyn/content/article/2006/10/13/AR2006101300664.html
This guy should really get flooded with emails explaining the truth.
Here’s part of the article……
With all the dismal reports about the home real estate market, don’t lose track of something critically important: Mortgage interest rates have been falling quietly but steadily for weeks and are now at their lowest level in half a year, barely a percentage point above 40-year lows.
New mortgage applications are up sharply, the number of pending home sales is up, the national economy continues to expand moderately and the rate of unemployment just declined again, to 4.6 percent.
All of which raises the question: Just what kind of housing bust is this anyway? With gloom-and-doom purveyors forecasting imminent crashes in dozens of metropolitan areas, how could such key fundamentals as jobs, interest rates and even pending home sales simultaneously be trending in the opposite direction?
……..
“Just what kind of housing bust is this anyway?”
The kind where you can’t sell your house for anything more than 80, 70, 60, or even 50% of what you thought it was worth. DOH.
Desperate spin doesn’t require a rebuttal. It will have no impact on the market — but may give a few folks with heavy exposure to MBS defaults and other RE-related problems a way to forget their troubles until Monday morning. Columns like Harney’s are an inevitable part of the downward spiral.
I think the boomer bashings gone too far. Sure many boomers leveraged up and cashed out , but many 20 and 30 somethings were more then willing to join the party. Greed knows no age limits. Now their all going to see the ugly side of leverage.
One group can claim ignorance to some degree, the other group should’ve known better and was 100% driven by greed. One group has time to make up for its mistakes, the other will get what it deserves.
“I think the boomer bashings gone too far”
It’s best to ignore any “generation war” type posts. Just chuckle, roll your eyes, and move on.
Remember the old (several years old) adage: “Arguing on the internet is like running in the special Olympics - even if you win, you still look retarded”
Some of us are poised just between the boomers and xers. Nobody looks good to us, including ourselves.
Different times, different problems and different opportunities. But whining is forever.
I have a question for someone in Boston
Look at this portion of the article:
“”I’m not desperate to sell - I don’t have to move,” he says. So he’ll wait it out. He’s refinanced the condo to lower his payment and plans to rent the unit if he and his fiancee find the right house.”
If this guy is going to rent out - he is going to have to rent for at least $3K a month just to stay even with his mortgage and taxes (assuming 20% down). Can he actually rent the place for that much? Most of these people whom are planning to rent their upscale places as a “plan B” to not selling are going to find that they have saturated the upper 5% of the market.
No. In fact, in 20 years of living around the Brookline/Newton area I’ve never seen “For rent” signs…now they are routine. He’ll be lucky to get a decent tennant. If he does, he’ll be lucky to get $1,500/mo.
You will not get $3000. My husband and I looked for a 2 bedroom with parking and could not find one for $1500 or less. Parking is key. If there is no parking, then $1500 would be the norm. There are a lot of highrises that have been around for a long time that are a little cheaper, but I still think $2000 would be the most that you would optimistically think to get, even with parking. (Parking is not allowed on the streets in Brookline)
““‘We had client who had refinanced 12 times in four years, Raymond says. Each time, that much more house got gobbled up, not just by the amount borrowed, but by steep transaction costs.””
I guess, Greenspan and Bernanke don’t see the sickness in our society that they had a lot to do with. Debt Slavery on full display in the US of A. Denial is Americans’ favorite pastime.
Only a dupe can be conned into the notion that one’s home is an investment, or a nest egg.
When it comes to economics, investments, and politics Americans are dupes of the first rank, thanks to the propaganda machine controlled by the economic ruling elite. Now we do understand what Orwell meant and how populations are duped. Bubbles are just the reflections of this doping.
Jas Jain
Jas, did you read that book written by the Indian IB who was writing about the call centers in India? Apparently they are trained to consider the average 35 year old American consumer to have the intelligence of the average 9 year old Indian kid.
No, it is news to me. But, I am fully cognizant of the power of the American propaganda machine to turn people into serving the interests of the economic ruling elite to their own detriment.
I did conclude on my own that when it comes to investments most Americans are like kids. They are easy prey.
Jas Jain
Yes, indeed.
This is why I (too) fully expect the “Greater Depression” — people are irrational, emotional, and easily manipulated. Once you realize that everything is psychological, it all makes sense. Too bad most so-called economists cannot grasp that simple truth.
And if they were marketing to the average Chinese, Japanese, or Indian? Do you suppose they would suddenly change that? They are cutting to the chase. It’s numbers, percentages, they are looking for the specific demographic that WILL BUY. It’s isn’t some big Cultural Reflection.
For most people, risk-aversion doesn’t exist unless their friends, families and TVs are telling stories illustrating worst case senarios. The boom years caused cautionary tales to be crowded out by investment advice. Now we refresh the stories that teach people to fear debt. Stories from the 1980s apparently didn’t last very long. But I think that the home-as-an-ATM story will be well known by our children. It’s too bad that the strength of our collective memories depends on the severity of the human suffering from which they come.
Which explains the existence of a few debt-averse early boomers with parents who yammered on and on about the Depression.
I am not a boomer, but it was close with my depression era great-grandfather.
To me, everything we’ve been talking about (housing bubble, rampant consumerism, etc.) is a product of the fact that most people are crowd followers who don’t think for themselves. Part of it is our lowest common denominator media and part of it is the education system that does anything but teach people how to think creatively or critically. It is what makes the people into sheeple.
I’m not sure why all the doom and gloom about Social Security. Even with the Bush Administration’s deliberately distorted numbers the program is perfectly sustainable with either no adjustments or minor adjustments depending on which projections you use.
Medicare, however, is an entirely different beast and completely unsutainable.
In any event, these stories about people counting on their houses for retirement illustrate to me even more dramatically why a program like SS is so necessary. Defined benefit pension programs are being scrapped by corporations as fast as they can get away with it meaning most retirees in the future are going to be a the mercy of stock market and real estate market forces to fund their retirements. At least SS is there to provide a basic safety net to keep seniors out of cardboard boxes and off dog food. You all may dislike SS but fact is this country needs some sort of basic safety net in place for seniors because all the traditional sources of retirement security are melting away (family, pensions, real estate etc.)
I’m 42 and unlike many of the folks on this forum. I fully expect SS to be around when I retire and expect it to be more gold-plated than it is today. The political forces in favor of SS are inexorable. Every year that passes the voting population becomes older because seniors vote at a much higher percentage than everyone else. I think the Bush Administration knew this and that’s why they were so desperate to dismantle SS last year. Because with a voting population that is increasingly turning gray it becomes increasily obvious how any SS shortfalls if they occur, will be dealt with in the future. Not through benefit cuts, but through general fund subsidies which ultimately means higher personal and corporate income taxes.
Indeed, the locust generation (baby boomers) will selfishly draw out any remaining wealth in this country for their own personal consumption and happily pass along the bill to the next generation. They have always been given everthing they wanted, while never having to really work for much of it. Enjoying their youth in the U.S.’s golden age, and living through the largest stock boom in history to be followed by the largest RE boom in history.
The only difference is that this country is now entirely dependent on credit. At some point the credit will run out when global consumers are at a point that American consumers can be replaced. Globalism is ensuring that a new generation of consumers will be able to afford all the worthless junk that Americans cashed in their futures for.
The baby boomers will average at about ag 75 when they find out that the credit has stopped and they are shuffled off into a much bleaker standard of living.
Much like many in the “greatest generation” found out when their defined benefit retirement compensation was kaput after so many years of easy living. Companies can not sustain two or three workers for ever one real employee, even the government will have a hard time keeping up that game for long.
OCMetro
They have always been given everything they wanted, while never having to really work for much of it. Enjoying their youth in the U.S.’s golden age:
Vietnam:
Deep dread of knowing you will probably be drafted and forced to kill or be killed. Lot’s of Boomers males didn’t quite “get everything they wanted” over there, “Enjoying their youth”, cause they’re dead. They did force the “end of the draft” for the next generations though.
70’s recession:
No Jobs, No Money, double digit inflation. a real “golden age” a real “never having to really work for much” kinda time. OH YEA….
I could go on, but I know your not going to listen.
Every generation has it challenges and tribulations. You have yours.
I hope you save this snide little “so superior” of a post. Pull it out and read it while you are helping to “shuffle” 75yr olds off, (what clever writing, such “subtle” inference, auch tung, baby) By then, if you’ve learned anything, you will realize how foolish, uneducated and ill-informed you once sounded. Or worse, Maybe you won’t.
PS: a person who’s opinion I respect reminded me that when Reagan passed a SS bill raising the tax, The Boomer were calling the “Greatest Generation” people “The Greedy Geezers” So I guess the more things change the more they stay the same. It’s not a perfect system….
Excellent point. I am tired of these “nay sayers” and cavalier attitude that SS will be not around anymore. Maybe I am in denial, but for now I do not see any alternative. I have a reasonable saving ratio, but know for sure that I will need a couple of millions, just to be worry free. SS is probably on the best things ever happened to this country. Maybe in a reduced form, maybe means tested, but it will be foolish to relay on real estate and stock market for your retirement.
” I am tired of these “nay sayers” and cavalier attitude that SS will be not around anymore” After the upcomimg recession, the demand to fix SS will be greater than ever. Just scare the old people, Carl Rove’s speciality, and the demand to fix it will
create the votes both parties need.
Depending on your age, SS will most definitely be reduced, and if you rely on SS you’re making a huge mistake because there won’t be enough taxpayers to fund the payouts. I’m one of the last baby boomers and for me, SS will only provide a portion of what I’ll need to retire on.
Which leads me to a question on investing? Does anyone have a suggestion on good WEBSITES FOR INVESTING?
I saw something a couple of days ago but I lost it in all of the posts.
Thanks,
Which leads me to a question on investing? Does anyone have a suggestion on good WEBSITES FOR INVESTING?
Morningstar.com for sure, especially the vanguard forums on that site. You have to pay to subscribe, but you can get a 15 day free trial and absorb a huge amount of information in that time. For basic investment advice, it would be hard to beat the “Boglehead’s guide to Investing” which was written by a couple guys who frequent the morningstar vanguard forums:
http://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0471730335
Maybe I am in denial, but for now I do not see any alternative.
You are in denial. The lack of an alternative guarantees nothing.
If it’s still around it may be reduced, needs tested, and will kick in after age 80.
Kent : I agree. My parents in law (both disabled: 1 with severe arthritis, the other post stroke) have just got hit with the “doughnut hole” for medications. They have to pay next prescriptions fully themselves. One set will be $3000. Her Dad was a hard worker, but a financial planning disaster. He lost it by being a subcontractor during Houston’s enery bust. They have no pension and never recovered financially after loosing the business despite moving around the coutry for work. Any saving were exhausted when he was out of work in 2003.
Luckily they never bought a place and rent a 2 bed condo for $700. We originally had the lease under our name but they’ve taken it over now that they both qualify for ss. For the doughnut, we’ll have to help out with the medications as 1 is a mental sedative. He went a bit off the rails after the stroke: turned violent against the family, paranoid, denial about being disabled etc. I will willingly pay for these (for a peacefull life) but it would be a disaster, if we weren’t both working professionals.
So what was my point again ?
Oh yea, It was the medical financial bubble. I cannot see how we can afford this as a country.
I’m 42 and unlike many of the folks on this forum.
Yeah, clueless.
“Yet in May of last year, the house they had refashioned as their own became suddenly unaffordable when Truman learned that he hadn’t made tenure. He would be out of a job by August of this year.”
Yup, many people have this dream that their salaries will always go up too. I personally cannot count on that for me. I’m looking for another consulting job right now and I’m considering dropping my hourly rate by $20 (no typo), just so I don’t have to move out of the west. I kept telling people during the first stirrings of outsourcing that you cannot guarantee your work will stay in the U.S. In fact, the proper reaction to all the outsourcing earlier this decade would have been to crash real estate prices. Free competition of labor means lower salaries. I decided that I will save enough money to cover the cost of my dream home in case I had to greatly downsize my job. My dream home is too expensive now, so I rent instead. It amazed me that so many people did not see this coming.
Truman, then an assistant professor of information systems at Babson College, and Pruitt, minister of the Union Church in Waban,…They promptly upgraded, paying $644,000… in Brookline. They got a first mortgage for $333,700 and secured a home equity line for $140,000 (they used $70,000 of that money for the initial purchase of the home and $52,000 to spruce up the place). Over the next two years, in addition to sanding and painting both inside and out, the couple landscaped the front yard, added stone walls, and put pavers on the driveway. Yet in May of last year, the house they had refashioned as their own became suddenly unaffordable when Truman learned that, much to his dismay, he hadn’t made tenure.
So many observations and so little time. Where to begin? This husband and husband team are destined to be a chapter in the book. First, they HELOC’d part of the down payment? Naughty boys. Did not the minister half of this poster couple look into his imortal soul and realize it was wrong to commit fraud? And the one I’m sure everyone glossed over but has the most general repurcussions is in bold above. The asst professor half should have been busting his butt for tenure not picking out color patterns for the paver driveway. This ranks right up there with Casey Serin quitting his job. Both these guys are in contracting Massachusetts industries. Religion is losing big time and both education and IT are contracting in the Commonwealth. At least they’ve got gay marriage to keep them warm.
Naughty, naughty boys!!!
I’m sorry, did they say they spent $52,000 to spruce up the place? That is a lot of sprucing. But hey, it’s only (borrowed) money, right?
This story has given me for inspiration to the ultimate post-House bubble TV show: “Queer eye for the forecloser guy”.
The concept is our soon to be homeless fab two, give liefsytle advice to the Deputies and repo men foreclosing on their house. “That Rotweiler dog is SO 2005. A Yorkshire terrier on the other hand would match your goatie”
When I was a kid I’d go get the mail from the mailbox and see offers for loans all the time . One day I asked my dad why doesn’t he get some of this money and take a vacation or get something like a boat or new car .
He told me that there was no way he would ever borrow on or get a second mortgage on the house . He said that a lot of folks had nice things but were in debt up to their eyeballs . He grew up dirt poor during the great depression and knew what could happen to those that overextended themselves .
He never forgot and it colored his thinking until his death .
Thankfully I learned from him and enjoy a mortgage free existence
in a simple 1200 sf. rural area home on a half acre lot .
I have been able to purchase outright my dream 20 acre lot with a pond to retire on .
Every day while driving by new housing developments with the 2 story stucco boxes crammed in like sardines I thank God I never went for that .
Having frittered away a large part of my youth and getting a late start on home ownership it took years of hard work and some sacrifice to catch up … like building the house myself with a 15 year note that I paid off early and keeping things simple lifestyle wise with NO credit card debt and living below our means .
Now we are making more money than ever before and still live like we always have …below our means .
In retrospect I could’ve done better but on the other hand it could’ve turned out a lot worse .
Thanks Dad .
“Unwilling to take a loss, the couple decided to refinance instead.”
They had already taken the loss; they simply were unwilling to realize it.
They had already taken the loss; they simply were unwilling to realize it.
No,……… they decided to DOUBLE IT!
The problem here is there is no double or nothing. There is just more doubling of debt.
““Yet in May of last year, the house they had refashioned as their own became suddenly unaffordable when Truman learned that he hadn’t made tenure. He would be out of a job by August of this year.””
Let’s see, with purchase price plus improvements they are $696k into the house. They expect to make, beyond that, a $52K profit in two years by selling to someone else.
The only overture they got was for 699k, a measly 3K over what they paid; to avoid this they are jumping into ever higher risk machinery.
What they do not see now, and will only see three years from now, is that right now they have an excellent chance of getting out quickly without too much pain at all; only a valuable lesson. In three years they will still learn the exact same valuable lesson, but rather than only a negligible amount, it will cost them tens or hundreds of thousands of dollars.
Will the mere passage of time make them wiser?
‘Home equity lines have robbed Americans of the number one retirement plan,’ Warren says.
Puh-leaze.
Greedy idiots sucking up equity like lines of financial coke so that they could live beyond their means… And they’ve been “robbed”?
For that matter, if your house was your retirement “plan,” you weren’t planning. Heh: here’s a plan. I’ll buy it for a third of what you’re asking and you can live in the Hummer.