“Waiting Buyers Can Cause Prices To Drop”: California
The Burbank Leader reports from California. “Housing sales in Burbank were down slightly in August compared to the same month in 2005 and the number of homes on the market has quadrupled, the Burbank Board of Realtors reported.”
“With more than 400 homes, condominiums and town houses listed for sale in Burbank, the market contains many offerings for buyers, he said. ‘We’re into a buyer’s market now,’ said Larry Auzene, president of the Burbank Assn. of Realtors. ‘The buyer has the ability to come in and bargain a little. It’s part of the concept of supply and demand. We have a large supply … this time last year there probably wasn’t more than 100.’”
“Recent fluctuations in housing inventory can be partly attributed to limits that the Federal Reserve imposed on so-called exotic mortgages, said Jack Kyser, Los Angeles County Development Corp.’s chief economist. Regulators put restrictions on these aggressive packages not only to protect potential home buyers, but to preserve the viability of lenders themselves, he said.”
“‘For a while you had sort of a buying frenzy because mortgage rates were extremely low,’ Kyser said. ‘And then it’s like somebody flipped the switch, and mortgages started to go up. All of a sudden it’s like rational behavior has returned to the market.’”
“The result is a filtering-out of buyers who were only eligible for ownership as a result of exotic mortgage packages, he said. And in some cases, eager buyers bit off more than they could chew, he said. ‘People now who are in the market probably are qualified financially to buy a home,’ he said. ‘Probably over the last year you had a lot of people who got in on these exotic mortgages.’”
The Press Democrat. “Falling home prices will likely hit bottom early next year, but it may not be a soft landing and housing likely won’t rebound for five years, an economist told Sonoma County business leaders Friday.”
“‘It was a bubble. And the bubble is popping. The real debate is whether this is going to be a soft or hard landing,’ economist Chris Thornberg said.”
“The correction was expected, with Thornberg and other economists saying it was overdue, but it has been quicker and stronger than many anticipated. Many builders, brokers and lenders have become resigned to the housing slowdown, yet hope Thornberg was wrong when he predicted the market won’t regain strength until 2011.”
“‘I think he was confirming what we have been watching. We’ve been there before. It’s going to be a little longer than I would like to see,’ said Phil Trowbridge, a longtime home builder who noted sales have slowed at his Vintage Greens development in Windsor.”
“Sonoma County home sales are down more than 27 percent so far this year. The median price has fallen 7.7 percent over the last year to $567,000 in September. Sales and prices also have fallen across the Bay Area and nationwide, leaving two questions, when will it end, and can the economy survive the hit?”
“What is going on in housing remains troubling, Thornberg said. The market’s annual double-digit price increases the last several years drew buyers who figured the gains would never end, setting up a painful correction, he said.”
“Falling prices already have led to rising loan defaults for many more homeowners across Sonoma County and state. Others could feel the pinch when it comes to spending decisions because they feel less wealthy. ‘How consumers respond, that waits to be seen,’ he said. ‘This might all blow over. On the other hand, there is the potential for a true catastrophe.’”
The LA Times. “Tired of the drumbeat of negative news about the housing market, the nation’s real estate brokers are trying to change the tune. This weekend and next, the National Assn. of Realtors is spending $40 million on full-page ads in the nation’s biggest newspapers, including The Times, to convince people that the market is A-OK.”
“But at least one marketer isn’t buying it. ‘It’s preaching to the choir and goes in the face of objective reality,’ said Peter Sealey, who runs consulting firm Sausalito Group Inc. ‘I predict it will have zero effect on the marketplace.’”
“A year ago, the Realtors’ chief economist, David Lereah, chastised ‘the Chicken Littles’ who warned of a pending bust in housing, about the same time he was promoting his book ‘Are You Missing the Real Estate Boom?’ It claimed that property values would continue to climb through the end of the decade.”
“In this month’s Realtor magazine, Lereah wrote he now favored ‘price softening.’ ‘The housing sector and the U.S. economy need home-sale transactions more than home-price appreciation,’ he said.”
“Behavioral economist say that those involved in real estate are not immune to the same pressures and need for conformity as, say, high school students sporting pompadours in the ’50s, love beads in the ’60s and platform shoes in the ’70s.”
“Real estate elation, too, inevitably faded, and fear now drives people’s actions instead. In this new era, nobody, it seems, wants to be the first on the block to lower their price, to be first among their friends to leap into a purchase. It’s in real estate, psychiatrists and economists say, that interesting psychological dynamics come into play. Terms such as ‘denial’ and ‘loss aversion’ begin to fill the notebooks of industry watchers and shrinks alike.”
“‘In a changing real estate market, buyers and sellers freak out and come up with their own strategies, which actually affect the market,’ said Christopher J. Mayer, a Columbia Business School economist. ‘Buyers waiting for prices to bottom out can cause prices to drop, and in the ’90s that led to a recession.’”
“So far, there is no recession, economists say, but there are signs of buyers and sellers slipping into well-worn psychological patterns, following their neighbors’ advice instead of solid economic fundamentals.”
“Once in, overextended buyers often become victims of ‘bubble thinking,’ said psychiatrist Richard Peterson. Buyers gamble that the value of their homes will increase, even if they’re losing money every month due to negative amortization loans and lack of equity actually accruing.”
“Sellers are another story. The word ‘denial’ must have been created for them, psychiatrist Peterson said. As applied to real estate, denial is a condition in which sellers cannot bear to part with their homes for less than what they believe they’re worth, experts say.”
‘Sonoma County’s most recent housing decline was tied to the recession that hit California and the Bay Area in the early 1990s. Prices here fell 4.2 percent overall in 1993 and 1994 during what was a four-year downturn.’
‘Sonoma County home sales are down more than 27 percent so far this year. The median price has fallen 7.7 percent over the last year to $567,000 in September.’
I’ve seen this 4% thing before from the PD. Is that all prices fell then and isn’t it interesting the drop is already almost double and we’ve just started?
I went shopping today in Santa Rosa around the Costco shopping center. Traffic was high and little available parking. Amazingly, consumers are still in full force for retail/wholesale goods. The day-to-day spending might curb much later on.
On a sidenote, my uncle just now conceded to my idea that selling last year was a good idea. He and I had an argument back then and didn’t talk since. But now he thinks I was smart in retrospect and is asking for investment advice.
It’s the beginig of the month, and the end of a week when a lot of people get checks: paychecks, Social Security, and other governmant checks.
I saw what you did and someone mentioned what it might actually be.
it was a lot more than 4%,sonoma housing bubble reprinted some ads from the 90’s correction earlier this year,you can find them in their archives.the correction righ now apples to apples and not median is about 15%
Burbank is over-rated. Kind of icky, actually. true, not tons of gang action, but souless.. Areas like this will not weather this downturn well, imho
Totally souless. Add to the list: miserabley hot, trafficky and bad air (sixth on a list of the nation’s top 10 cities with the worst soot according to a three-year study released by the South Coast Air Quality Management District). No way ordinary houses are worth 700k — unless you enjoy self-torture.
Ya, growing up in Da Valley, everyone made fun of Burbank. Now, a lot of people I know bought there cause it’s close to all the studio work. (since this is a “Company Town”)
I honestly wouldn’t pay money to see anything that has come out of Hollywood in last 10 years. That’s a product that I cannot fathom why people buy. You need the intellect of about a 8-10 year old to enjoy these “films”.
Maybe your just underestimating your own intellect. What if what you perceive as an intellect of an 8-10 year old is in reality a 14-25 year old? Have I scared you yet? Are you “getting the picture?” Movies are produced and marketed perfectly for their audience. 8-}
I think there are some great Hollywood movies made each year, just not many, and they rarely become big ticket sellers.
“What if what you perceive as an intellect of an 8-10 year old is in reality a 14-25 year old?”
High school is the new elementary school; college is the new junior high; grad school is the new high school.
(off topic)
Last good movie was in 1999 - The Matrix - Well within the 10 years. Seriously though, I realized working at a corporate job a while back, I had an idiot manager standing behind me telling me to put a really big button on the web form so users would see it. When I objected stating the obvious she stopped me short with “I’m a manager and you are just a programmer…” After it went live, of course every one hated it… Same with Hollywood. Movies are created by managers not directors. I hold out hope for Independent films, but that is not there either yet.
-
Agreed. Enough with Borat and Jack Black. Not funny.
Jack Black is a genius.
I despise that unfunny fat bastard.
Come on Gekko, Don’t sugar coat it, tell us how you really feel….
Gekko posts ” I despise that unfunny fat bastard.”
Just like Rush and all of your pal’s
-
Boy, you liberals are a nasty bunch.
Clinton has sounded the alarm. “we must fling poopie for poopie!” “no poopie shall go un-flung!”
Der marching orders have been given. Poopie for everyone!
Now, have you heard about the new rule against bending Pages?
I’m no liberal, but I do know Rush is a sodomizing junkie.
nnv, you make it sound like those are bad things.
Aw shucks, we liberals aren’t nasty.
BTW - Have you bought any crystal meth from a gay hooker lately?
At least in Burbank, they have their own police dept. Here in Studio City it took the cops one full hour to arrive when I called 911 last year. Burbank is mostly a blue collar area. Some of the streets are tree-lined. Hey, it’s better than Van Nuys! (and the prices are comparable)
“Studio City” … Name Dropper!
Just kidding, (NOT!… I’d much rather live in S.C. than BoreBank!)
Yea, poor VAn Nuys, always getting Scr&wed. They took away the nicer parts and renamed them all. Valley Glen, Valley Village, Lake Balboa. Allsthat’s left is the bombed out core!
Burbank is plain vanilla but Van Nuys is A blank sheet of paper. It may be the drabest stretch in the SFV. The weather is hot and the air is quite bad. There is an old gritty industrial belt running thru the center along Sherman wy which has a lot of small industrial sweatshops. Woodley ave and the area east of Van Nuys airport has various assorted industries, the largest being the Anheiser Busch factory. Driving along Sherman wy or Roscoe blvd thru Van Nuys is as bad as driving thru Compton ave or Slauson blvd in scentral LA.
peter m ” There is an old gritty industrial belt running thru the center along Sherman wy which has a lot of small industrial sweatshops.”
If you recall thst is the area where the old GM Plant was? Many old closed sub contractors all gone about 15 years now.
Burbank is somewhat pedestrian and plain vanilla. The southern Edge of Burbank where all the big studios are is okay, and the northern edge of griffith park which abuts Southern Burbank is a nice stretch of greenbelt. The area immediately east of the airport has some Entertainment industries, and there is scattered small factories/worksites along SanFernando Blvd and the old industrial railway corridor belt. To the North and west lie Sun Valley and North Hollywood, which are indeed degenerate, old industial districts(especially Sun Valley) swarming with slummy apartments, illegals and gang-bangers.
Peter M, you’d make a right decent travel writer, you would! First West LA last week, now Burbank. For those that don’t know LA, all quite accurate I might add!
Thank you imploder for the compliment!
Just a few tidbits on the SVF. I went to a house on Sherman Oaks Cir off 405/101. It was used as a home-based law office or something like that. This is a rather neat way to turn a miilion-dollar SFH residence into a cash flow income-producing property. There are some fancy villas going up at end of reseda blvd deep in the Encino hills. Also saw an 87 unit condo project just opened at Oxnard and Variel near the Warner center, the hi-rent commercial district of Woodland hills.
The SVF is evolving into two types of residential zones:the hi-rent SFH enclaves up in the north slopes of the Santa Monicas(basically south of Venturan blvd), which has the million dollar MCMansions/villas, and down on the flat valley floor a vast sea of apts, older SHF stuccos, and increasing hi-density condo/apt developments with heavy immigrant influx. Such mid-SFV areas as Northridge,North hills,Arleta,Winnetka,Van nuys and North Hollywood are becoming swamped with multi-housing apts/condos/twhms. Affordable SFH’s in neat tidy Middle-class neighborhoods are disappearing in large portions of the SFV.
the worst smog in all of los angeles is in burbank.i worked there in 980 and it was worse then,i was coughing up black stuff and your eyes just burned.1980 that is
i like the way you don’t even go back and fix the post, just correct on the fly! your a guerrilla poster in the war against grammatical NotZees!
i applaud!
Imploder, you truly have an outstanding grasp of th absurd. Keep it up!
“Sellers are another story. The word ‘denial’ must have been created for them, psychiatrist Peterson said. As applied to real estate, denial is a condition in which sellers cannot bear to part with their homes for less than what they believe they’re worth, experts say.”
These are not sellers, these are owners who will continue to own for a very long time. Many others will not have the good fortune of choice and must come to the market-place willing to bargain.
I’ve got some “owners” who won’t stay that way for very much longer:
flippersintrouble.blogspot.com
While I’m here, I might as well ask for some advice. The number of FITs is increasing so fast, I’m not sure a blog is the best way to display the information. Are you guys happy with this layout, or is there a better way to do it? I can foresee a time when there will be 600+ FITs in Sacramento County alone…
Max,
I like what you have here and I see what you mean by questioning the display effectiveness. Here is what I think. I like the format as you have it when listing each property. I would create a hierarchy of pages starting with a top level intro page with a single listing (the worst flipper loss of the day or week??) and a list or a map with zip codes that would link the user to the format you have now in pages seperated by zip. You could color code the top level zip links to show dollar loss or percentage drop.
That is an excellent idea. I could also add historical and follow up data for the houses that do sell.
Thanks for the suggestion. I’ll look into this.
Max “I’ve got some “owners” who won’t stay that way for very much longer”
Tell them to cheer-up…. the price can only go to zero!
Somebody ate my doughnut. Now all I got is this big hole….
Takes a lot of work to keep up with all that. Thanks, Max.
I would interested in knowing when some of these properties sell. How far down do we need to go from early 06 prices to get a sale? Are the flippers pricing aggressively compared to other houses in their neighborhoods?
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Are those previous sale prices correct? I can hardly believe my eyes at the losses those flippers are already taking. It looks like 2004 to early/mid-2006 there was some SERIOUS overpaying happening. Could it be mass mortgage fraud? Rigging up the price of the house with a rebate back to the buyer?
—–
The million-dollar dump
A con artist looks for a low-end, rundown house for sale. He approaches the seller and says he’s willing to pay the full asking price-but only if the seller will do him a small favor. See, the buyer needs a bigger mortgage than the house is worth. So if the owner agrees to relist the house at, say, triple the price, then the buyer can apply for a bigger mortgage.
The swindler often tells the homeowner not to worry-he wants to use the extra mortgage proceeds to fix up the house. The seller usually heartily agrees: He’s getting the full price … and besides, wouldn’t it be nice to have the place fixed up? The swindler, using a false identity, takes out the supersized mortgage, pays the seller, and pockets the remainder. The house usually ends up in foreclosure.
http://money.cnn.com/popups/2006/fortune/fraud/4.html
I love this site. I’ve been watching the Davis Market like crazy - watched some condos go from 299K to 229 in one yr. Imagine how much fun next year will be? Keep up the great work Maxx
My favorite:
Total Loss: $90,000 Percent Loss: 26.5%
Asking Price: $250,000
Bedrooms:3 Baths: 2 Sq. feet:1213
Asking Price Changes:
Down 25.4% from $335,000 On 04-15
Down 21.9% from $319,900 On 04-21
Down 24.0% from $329,000 On 04-27
Down 22.8% from $324,000 On 05-12
Down 21.6% from $319,000 On 05-25
Down 19.1% from $309,000 On 06-09
Down 18.0% from $305,000 On 06-30
Down 16.4% from $299,000 On 07-22
Down 10.4% from $279,000 On 08-26
Previous Sales:
Sold on 2006-02-09 for $340,000
Max — it’s time to look at using a database-driven tool instead of plain text.
Buyers gamble that the value of their homes will increase, even if they’re losing money every month due to negative amortization loans and lack of equity actually accruing.”
Yea, and these were not real buyers, either. These were gambling fools. Soon to be broken on the wheel of financial reality.
“These are not sellers, these are owners who will continue to own for a very long time.”
This is a great point, and one I talk about to a select few people I know who are trying to sell. Certain homes or their owners (used loosely) will NEVER sell because of the their completely unrealistic expectations. There is so much inventory in certain markets, that price is the only way to attract a buyer. I laugh at listings all of the time knowing there is no chance in hell they can sell even with significant reductions. And beyond the wild pricing, I have never seen so much garbage on the market in my life. Nasty trailers, tear down homes, problem land, etc. Some are properties which would be hard to give away. Who wants a house right next to the railroad tracks? Or how about a parcel of land in a flood plain, or with an easement for high voltage power lines. At times, I have wished realtors would stop listing this crap, but then I realize it may even aid in driving down prices.
Absolutely - there are lots of houses where the owner is anxiously debating between, say, a 5% and a 10% discount and yet the house would go unsold even with a 50% haircut.
List them, list them all. Then relist them. The more the better. Just like I want the builders to keep building until their profit margin is nil to crush the resales. Like others have said before, you want people to puke this stuff up as if they were an addict who took too much.
Besides, it only takes about a minute to rule out some pos house when you have a big list. Haven’t you just driven up to house with an agent, looked at the place and said you didn’t even want to waste the time going into the house? Slightest flaw is enough reason to flush the place.
umm….yep!
Sadly as i peruse listings via mls, i say this about 90% of the homes. Y do people with some 50’s era cape cod WWII home on .75 acre in Bulletmore, Murderland think its worth 500 large? Oh i forgot, they are building 2006 model colonial tract home with hoa and 700/year sewer assesment down the street for that price on only .25 acre. My bad.
Bulletmore - too funny. I drove by Johns Hopkins medical school about 5 years ago. Fenced, gated and guarded all the way around. Might actually be worse than USC in LA.
List them all, let God sort them out.
Indeed,
A friend of mine bought a modest house right on the railroad tracks here in Ashland, OR for ~$185k in 2003. Wife and I looked at it, and she wisely vetoed considering it, having, as we did, a baby on the way and the midnight special likely to cut into the tyke’s (and our) all too little sleep. Said friend now has had it listed now for $349k for several months. I truly doubt people are eager to pay a 88% markup on a fundamentally flawed property.
I’m curious, if anyone knows why the UK market is still humming along at a hell of a clip, and the US market is sinking into the dumps. I know the bank of England seems to be making efforts to prevent the bubble collapse, but with record personal insolvencies as they call them, how long can this go on for? Is it possible some intervention could keep the party going here a while longer? I personally doubt it, but I also predicted falling prices in UK as of last year and am apparently wrong on that account.
When the market last crashed in the UK, the interest rates were in the 13 - 18% range, people walked away from houses only to realize that if they had held on, their houses would have regained their value, so perhaps this is why people are holding on. Also mortgages are still pegged to 3.5x salary, limiting the amount that can be borrowed and paid for houses a bit more compared to the US market which has much less strigent lending standards. Also mortgages are scrutinized much more carefully (probably because of what happened in the last housing bubble burst) and so there is less likely to be fraud going on.
And yet… Salaries in UK tend to be lower say compared to San Diego where I live, and prices in the south higher. I suspect the only players in the UK market have owned for a very long time and are all playing musical chairs, since I know of very few who would qualify to buy anything there at just 3.5X salary. One would need to earn substantially over 70K in pounds to get into something even cheap at this point.
Sooooo this begs the question. How have prices risen so fast there? Where is the underlying money funding this massive rise in property valuation. Here we assume lax lending standards and creative loans are in large part responsible, but what on earth is going on to continue pushing up prices even as they have already risen so much.
Please look up “logic+begging the question.” I am shocked no other logition has toasted your bum on this improper use of a fallacy.
Or try this linky:
http://en.wikipedia.org/wiki/Begging_the_question#Modern_usage
This usage is often sharply criticized by proponents of the traditional meaning, but it has nonetheless come into common use as a result of its use in the media, especially by people ignorant of its original use. Argument over whether this usage should be considered incorrect is an example of the debate between linguistic prescription and description.
UK is totally different story, prices are driven by bulk buyers from Middle East, sustained high oil prices feeding the beast.
maybe cause UK is an island and America still has millions of acres of land
That’s close. The real reason is that there is almost no land in the UK available for development because of superstrict development controls - way tougher than anywhere in the US. It’s the developer inventory that’s taking the wrecking ball to prices in the US.
Bubbles are often destroyed by rapidly expanding supply in response to high prices. Can’t happen with housing in the UK.
“The correction was expected, with Thornberg and other economists saying it was overdue, but it has been quicker and stronger than many anticipated. Many builders, brokers and lenders have become resigned to the housing slowdown, yet hope Thornberg was wrong when he predicted the market won’t regain strength until 2011.”
It hasnt been as quick as I expected it. I thought it would have imploded 2 years ago when Trump started his show. I honestly thought that was the sign, and perhaps it was but this thing has taken along time to crack. Yet still prices are extremely high.
yes but the market has done a complete 180 degree turn in the last 6 months so be patient.
180 turn in regard to sales, only. I wanna see prices…
what about “patient” didn’t you understand?
“Despite the best that has been done by everyone . . . the situation has developed not necessarily to our advantage.”
Emperor Hirohito
Radio Broadcast Announcing Japan’s Surrender
August 15, 1945
“Biggest understatement of 1945″
Which imploder are you……..this one? imploder#&8482;
Imploder doesn’t understand #&8482? But there is only one imploder, all other are non imploders.
I’ve only seen implosion and imploder.
And that was after 2 nukes.
He should have been the communications director for the NAR.
You guys are tooooo much……..hahahaha
What’s more, the emperor spoke in what you might call “Shakespearean” Japanese - archaic enough that the layperson couldn’t even understand. Yep, woulda been a hell of an NAR spokesperson.
He’d be a heck of a Fed governor, too.
Sunday LA times has a full version on Saturday. page K5 (real estate section) in big print reads.
It’s a great time to buy or sell or home.
Translation: it’s a great time to support your local Real Estate Agent.
Agents have to eat too.
and lower down it says most of the negatives in housing are probably behind us.
and
contracts for home sales in August are up 4.3 (foot note 1)and the outlook is for home prices to increase next year.
Footnote 1 from, you guessed it, from National Association of Realtors.
what a waste of good paper, and a full page no less.
Oh and further up page today’s interest rates are comparable to a 40-year low, offering homebuyers a once-in-a-lifetime opportunity.
Translation: Prices are at a 40 year high. What dolts those realtors.
See this article:
Realtors’ ads tout bargains
National campaign urges buyers to act now before the housing downturn reverses and prices rise.
By Jim Wasserman - Bee Staff Writer
Aiming to move thousands of would-be homebuyers off the fence, the National Association of Realtors is launching a major advertising campaign today suggesting, “It’s a great time to buy or sell a home.”
Full-page ads appearing in today’s Wall Street Journal and USA Today and four more newspapers on Sunday cite low interest rates, a large inventory of for-sale houses and a positive economic outlook among reasons buyers should “act now before the market changes.”
…
They might do better with milk carton ads. Picture of sad eyed realtor™ staring mournfully upwards. caption reads: “have you seen this man? If you do, buy him a sandwich… he’s hungry.”
I think we should all take up a collection and run a FP ad adjacent to the NAR’s ad “It’s a great time to buy or sell a home ad” and call it “It’s a lousy time to be a real estate agent”.
Then we can blow each of their arguments to pieces point by point.
Isnt this the equivalent of throwing good money after bad even though it doesnt come from the same spender? We dont have to advertise gravity for a reason, it always works.
My thoughts exactly. Let them try to talk the bust down all they want. They are just grabbing over and over for the double edged sword. The more they talk about it, the deeper it cuts.
“We dont have to advertise gravity for a reason, it always works. ”
This is a great line, and I freely admit I will use it myself soon and make it look like I thought of it.
Nicely said MDMORTGAGEGUY!!
Desperation, desperation, desperation. Ending an ad with “Don’t Delay”? When talking about Real Estate in November? Come on. Even if I was somewhat persuaded up until then (I wasn’t, not even by a single bullet point) that would have to give anybody pause.
This is preaching to the choir: an attempt at morale building and talking points for the Realtors, especially the newer ones. You give us your dues; we give you back a pep talk.
This will go down as one of the most expensive and useless puffs of hot air ever blown up the public’s backside in history.
“This is … an attempt at morale building and talking points for the Realtors, especially the newer ones. You give us your dues; we give you back a pep talk.”
I agree and think that it is the only real reason for the ads.
Yea, “you give us the dues, we’ll blow smoke up your A$$!”
I just can’t believe their attorney gave the go-a- head for ads like that .Firstly ,how are they getting away with predictions of a future uptick for 2007 values therefore being able to advertise the urgency factor of buying now . There is a fine line here on truth in advertising .
Second , I even question them saying “it’s a buyers market “and “it’s a great time to buy” . Sure the courts allow a little bit of sales puff ,but shouldn’t the NAR’s role just be to report what the sales have been etc.
Because they cannot control what the prices are like other advertisers can ,such as a car company ,how can they base advertising on a claim that prices will be higher in 2007 ?
I don’t know, if I was a buyer and I bought based on this claim on urgency before a uptick market of 2007 and it didn’t happen I would be pissed .
I guess because the NAR/realtors got away with saying we were running out of land and real estate never goes down ,they think they can get away with this one.
Just write a contingency on the contract to have the RE agency guarantee the price appreciation. If Remax, Prudential or Century 21 truly believe that a bottom is in place then they should be able to back it up with a contract…
“In this month’s Realtor magazine, Lereah wrote he now favored ‘price softening.’ ‘The housing sector and the U.S. economy need home-sale transactions more than home-price appreciation,’ he said.”
The sector needs it. The economy needs it. Smeagol needs it. But the Realtor™ needs it more. So..so..tricksy.
These NAR chumps are so predictable and transparent it’s a joke. I don’t know anyone who takes these hucksters seriously. They’re like clowns at a circus… or freak show.
DL is deeply concerned about the US economy - LOL.
Now he comes right out and says it. No couching in “long term appreciation”, “it’s the best time to buy”, “better hurry or you’ll be priced out”… No. It’s now HIS civic duty to save the US economy by telling us how it’s done. How fortunate we are to have such a benevolent stand-up fella looking out for us. Of course it has nothing to do with continuing to line the pockets of his dues-paying-followers. Nothing to do with that at all. Make the transaction happen. So what if the seller is 200K upside down.
I’m sure sellers are getting noticably angry with the NAR’s new tactics - confronting sellers and telling them to lower their prices to get transactions rolling. Instead of ethics training Realtors should learn self defense.
‘The housing sector and the U.S. economy need home-sale transactions more than home-price appreciation,’ he said.”
But how can that be? Didn’t he just brag that 2006 would be the 3rd biggest transaction year in history? So why the big concern - does he have ants in his pants?
I suspect the presence of a slightly different organic substance.
Let’s get those 50% off transactions going for the good of the country. Works for me.
It’s a good thing they’re just trying to be helpful and aren’t operating out of their own amoral self-interest.
The only thing better than Realtors being wrong is for them to spend $40M so they can show the whole world they are wrong.
Who was it that said…”It’s better to be thought a fool than to speak up and remove all doubt”.
some say Twain, others are less sure:
http://ask.yahoo.com/ask/20010115.html
I wanted to see if anyone got annoyed by this (off-topic). I went into the local mall. While walking down the court, I was approached by a gang of a high school soccer team wanting to sell raffle tickets. I have nothing against them and trying to raise money, but just don’t like feel that I should try and support every school organization because the budgets are cut. Used to get co-workers selling stuff for their kids, knocks on door selling candy by kids, etc. I just felt like why should I be trying to support everyone else because the government would rather waste my hard earned tax money elsewhere. Anyone else with similiar feelings.
Someone was commenting yesterday about high vet bills. They must be high to cover the vet’s increased malpractice bill. Someone somewhere probably got sued for 2 M + because a vet broke Fluffy’s or Fido’s tail. Riduculous.
Bring on the Governator to save the day for CA housing!!!
You represent the path of least resistance. Most of those kids you encountered would probably be in grad school by the time local government gave them a hand. I saw this first hand my kids first year in school promptly enrolled them in private school for the next year.
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I hate when those spoiled kids accost me when i’m entering the supermarket. when i was a kid, i had to go DOOR TO DOOR to sell candy bars or hoagies for my activities. I had to EARN the money by POUNDING THE PAVEMENT. yet these lazy spoiled kids camp out in front of a supermarket with a tin can? I have no problem saying “no thank you”. if they knock on the door, i’ll gladly give them some money - but not accosting me at the supermarket.
At least they are trying. If they were truly lazy and spoiled, Dad would sell them at the office and the kid could keep playing vidja games on the couch.
No! Pound the pavement, knock on doors, and dodge the child molesters like i had to do! It builds character!
Gekko - child molesters (and other sickos) are exactly the reason why these kids don’t go door to door anymore (FWIW, I used to go door to door, too). It pisses me off being hit up in front of the grocery store, at the office, etc. but it pisses me off even more that there are people so sick and evil out there that kids have to be so cautious now.
Gekko -
My guess is you weren’t hugged enough as a little tike….maybe there was an “Uncle Tickles” in your past. Whatever it was my friend, you need to chill. Go get yourself that hug, and hey, we’ll love you ’till you learn to love yourself, and then we’ll always love you. (God I crack myself up)
Schools have plenty of budget. Layer upon Layer of $100K salaried administrators are the problem. Worse, the more money schools are given, the more administrators are hired and the more serious the budget problems are. Want to save our schools, cut budgets by 50% and get rid of the money grubbers.
Right on, GH. Then, develop a secret questionnaire in which teachers are asked if they would like to become administrators - and fire all the ones who answer yes.
Government schools are to education as canteloupe is to beatniks.
“Government schools are to education as canteloupe is to beatniks.” LOL. Cryptic.
How about “A school without an administrator is like a fish without a bicycle.”
“Waiting Buyers Can Cause Prices to Drop”…
seriously, Ben, do you just crack up when you write these titles??
I’ve noticed that the title is usually a quote from someone in the article - they’re that good.
This is interesting; how valid is the assumption that there are even any “buyers” out there?
That call that you’re not getting isn’t a “waiting” buyer Mr/Ms Broker. Its called no buyers.
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All Housing Markets Are Local, Except When They’re Not
http://www.nytimes.com/2006/11/05/business/yourmoney/05view.html?_r=1&ref=yourmoney&oref=slogin
moneybox@slate.com
dan’s email
I don’t subscribe to the NYTIMES. care to summarize the article for those of us who can’t get the link?
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http://www.bugmenot.com/view/www.nytimes.com
November 5, 2006
Economic View
All Housing Markets Are Local, Except When They’re Not
By DANIEL GROSS
THE macroeconomic data on housing has been grim in recent weeks. On Oct. 25, the National Association of Realtors reported that the price of existing homes fell in September by 2.2 percent from the year before. The next day, the Commerce Department reported that the median price of new homes sold in September fell a whopping 9.7 percent from September 2005.
These are national figures. But real estate, like politics, is said to be a local business. Any broker worth her salt can easily come up with reasons that the malaise currently gripping the national housing scene doesn’t affect her particular local market — because of its excellent public schools or the lack of supply or the easy commute it affords.
Are the brokers right? Is housing a single national market or a collection of hundreds of small markets?
The answer, as one might expect economists to say, is both.
“Housing is becoming more of a national market and an international market than in the past,” said Robert J. Shiller, a professor of economics at Yale and author of “Irrational Exuberance.” While huge price increases have been confined to particular areas, like Las Vegas, Professor Shiller, a careful student of speculative activity, has noticed Vegas-like attitudes popping up among homeowners in places like Milwaukee. In this boom, he said, “national attention has been drawn to the real estate market.”
An evolving credit culture has also helped forge a national housing market. “Instead of getting mortgages from local banks, as they did 20 years ago, people all over the country get mortgages from capital markets,” said Mark Zandi, chief economist at Moody’s Economy.com. That means that access to credit and interest rates don’t vary much across the country.
Yet in many ways the market remains intensely local. Last month, Economy.com issued a report that examined the prospects for housing in 379 metropolitan markets. Over all, the consulting firm expects home prices to fall by a small increment in 2007. But there’s wide variation.
“About 100 of the 379 metro areas will experience some kind of measurable price decline, and they together make up about half the nation’s housing stock,” Mr. Zandi said.
On a map, areas most at risk for short-term pain look like a Democratic fund-raiser’s view of the country: Northern and Southern California, the Northeast and most of Florida. Meanwhile, in the remaining 279 metropolitan areas constituting most of the rest of the housing stock, prices should remain flat or rise. It’s a tale of two groups of cities.
Looking further into the future, Economy.com also projects that a small minority of the nation’s metro areas — about 20 — will experience a crash over the next several years. (Economy.com defines a crash as a double-digit percentage decline, from peak to trough.) Reno, Nev., is expected to fall 17.2 percent by the fourth quarter of 2008 from the fourth-quarter peak in 2005. But some markets are expected to hold up fairly well. Home prices in Portland, Ore., are expected to fall just 0.8 percent by 2009.
What accounts for the differences? Not all housing markets are created equal. Homes in some cities have appreciated much more than average during the last several decades, and might be expected to fare better in coming years.
Consider the places that a group of economists has dubbed “Superstar Cities.” These are coastal urban areas where a scarcity of land, local regulations that prevent rapid development, and a plethora of well-paying jobs in thriving industries (rich people) have combined to create fertile housing microclimates.
“If they were stocks, they’d be high-priced growth stocks,” said Todd Sinai, professor of economics at the University of Pennsylvania’s Wharton School. Professor Sinai co-authored a paper on Superstar Cities with two other professors, Joseph Gyourko of Wharton and Christopher Mayer of Columbia.
Looking back to the period from 1950 to 2000, the economists found that in San Francisco, a Superstar City, housing prices grew at a real annual rate of 3.5 percent a year —more than twice the national average.
In less-glamorous burgs, where land is comparatively plentiful and high-income jobs have been scarcer, price advances have been muted. From 1950 to 2000, housing prices in Buffalo grew at 0.54 percent a year, for example.
To the degree that New York, Boston and San Francisco maintain their appeal to high-earning workers and companies, they might be insulated from long-term declines in prices. Of course, past performance is no guide to future performance, and not all Superstar Cities are created equal.
MACROMARKETS, a company founded by Professor Shiller, has introduced futures contracts on housing prices in 10 markets. The contracts, traded on the Chicago Mercantile Exchange, allow investors and builders to hedge bets or make investments based on how they think housing will do in 10 cities, among them superstars like New York, Boston, San Francisco and San Diego.
Professor Shiller cautions that the contracts aren’t very liquid. But on Friday, the futures market predicted that by August 2007, housing prices in the Chicago area would fall by 5.4 percent. On the same day, investors were betting that housing prices in Las Vegas would fall by a larger margin — 7.1 percent — in the same time frame.
The predictions by Economy.com and the futures markets provide a more nuanced view of the national housing market than the monthly data released by the National Association of Realtors and the Commerce Department. But lately, the data has all been trending in the same negative direction, even for the Superstar Cities. Professor Shiller said, “They’re all sending roughly the same signal.”
Daniel Gross writes the “Moneybox” column for Slate.com.
two interesting points -
1. “Vegas-like attitudes popping up among homeowners in places like Milwaukee”
2. “Instead of getting mortgages from local banks, as they did 20 years ago, people all over the country get mortgages from capital markets,” said Mark Zandi, chief economist at Moody’s Economy.com. That means that access to credit and interest rates don’t vary much across the country. “
Gekko,
When I read that second point, it was like a lightbulb went off. I forgot that during all of the previous housing downturns that mortgage markets were local and not national in scope. Holy crap! How could I not have backtracked that information to the previous isolated nature of housing declines (e.g., Southern California 1991 to 1995). Now, we can all have our mortgage market tighten up together.
This isn’t a minor point… maybe I was just being dense. It implies that the rate of the downturn will be self feeding and that this snowball, once started, won’t create an avanalance to take out the town… nope. Its going to keep going and take out the big cities.
This is the first housing downturn that will effect credit nationally.
Man, I’m glad I read this blog tonight.
Neil
“Consider the places that a group of economists has dubbed “Superstar Cities.” These are coastal urban areas where a scarcity of land, local regulations that prevent rapid development, and a plethora of well-paying jobs in thriving industries (rich people) have combined to create fertile housing microclimates. ”
Here in the Land of monstrously overpriced Coastal RE(LA county), are these communities’superstar’ coastal urban areas?
1.Santa Monica, Brentwood, Pacific Palisades, Marina Del Rey, Manhatten Beach, Hermosa beach, Venice.
2 in the OC, is Newport beach a superstar city?
Sanat Barbara was long thought to be a superstar but it has that little problem of scarcity of good-paying jobs. Long Beach is a dim Star(a collapsed star) due to lack of hi-paying jobs sector and refusal to rein in excessive condo construction. Palos Verde is an aging over-the-hill former star about to be put on waivers(as they say in the NBA regarding a player past his prime getting the pink slip).
Huntington Beach(OC) has potential but needs to work on some housing fundamentals(rein in excessive construction), get in a few more hi-paying jobs)before it gets to the level of a coastal urban superstar.
You must be kidding.
I live in HB.
Check out the AGI’s for all of the cities zip codes.
Pretty OC middle class.
http://www.melissadata.com/lookups/TaxZip.asp?Zip=92648
http://www.melissadata.com/lookups/TaxZip.asp?Zip=92646
http://www.melissadata.com/lookups/TaxZip.asp?Zip=92647
http://www.melissadata.com/lookups/TaxZip.asp?Zip=92649
It is a long way from superstar city status.
“It is a long way from superstar city status.”
Maybe HB needs a ways to go to attain Superstar status: right now is is solidly middle class, probably like Ventura. Not the favored area for the rich with their fancy million-dollar+ villas as Newport Beach is(though there are a few such enclaves scattered in HB). Best things about HB is moderately sunny year-round weather, comparatively clean air, the long white beach stretch and coastal bikepath.
HB is simply too recently build up:only 30+ years ago it was mostly an oil-derrick region with a blue-collar village clustered around Main st and the pier. Give it another few years: with further Gentrification and more orderly coastal development, and the cleanup/removal of the last vestiges of the old oilfield structures, HB will probably get to at least the Santa monica:Mahhatten beach level.
HB has not yet developed into a stuffy elitist wealthy enclave out of reach of middle income folks/families. Hopefully it will not get to this level as has most of the overpriced LA/OC coastal enclaves.
‘Buyers waiting for prices to bottom out can cause prices to drop, and in the ’90s that led to a recession.’
Not only do I refuse to get off this fence until prices come down - way down - I also refuse to take the blame for any recession that may be in the offing.
I know, unbelieveable isn’t it? They have the gall to blame priced out buyers for this mess. F**k them and their bloated debt ridden lifestyles. They are to blame for this whole mess.
Right on JWM. What insults me is what are they trying to do, scare people into buying by saying we will go into a recession if people don’t buy? People might buy if they think they are going to be priced out of the market forever, but people don’t buy if they think that we might be going into a downturn and a recession ,and they might lose their job .
The smart ones don’t believe they will ever be priced out forever. Hey, go ahead - blame me. I could care freakin’ less if it means prices come way down. Hell, I’ll go on national television and single-handedly take the blame!!!!
Oh yeah, commit to a 30 year payment plan because you are afraid of a recession? The cut-throat seller’s market will see a cut-throat buyer’s market. All the buyers have been tapped out until rents start getting too cost ineffective versus buying a house. What will be the equilibrium point where a home sales slump bottoms and renters will start buying? For me, it will be when I can make a great down-payment and reasonable monthly home payment versus rent. And I will also have to weigh in that down payment’s lost earning capability vs. being in bonds, stocks, money market, etc. Do you think the housing market will trend that way overall for many future buyers?
Somebody has got to take one for the team.
‘Buyers waiting for prices to bottom out can cause prices to drop, and in the ’90s that led to a recession.’
That’s a bit unfair is’nt it, blaming this whole debacle on buyers unwillingness to buy. Why not emphasize the sellers role in this debacle. Sellers have been pumping up supply like there is no tomorrow to the point where supply far exceeds demand. As a result, suppliers will now have to stop or slow building and this contraction in building will lead to a recession.
Exactly right. I don’t feel badly about people losing money who were told they were making a financial mistake, and I refuse to take the blame for not bailing them out.
Who I do feel badly for are the people who will lose money through no fault of their own - say, people who HAD to buy a primary residence in an overvalued market in 2005 and who HAVE to sell now.
In what situation does a person HAVE to buy a house? I can’t think of any.
Bingo. There is none.
SouthFL - Nobody “had” to buy anything, and it is their own fault if they bought, sold, and lost money. Who do you suggest take the responsibility? I sure as hell don’t want it.
Slightly OT, and please no offense, but let me have my rant-of-the-week: I’m seeing a lot of “feeling badly/sorry” lately. Feeling badly/sorry “for” other people is a non sequitur - it’s one of the defects of the English language. People actually can only feel badly/sorry “for” themselves - feel is a reflexive verb. When people say they feel sorry for somebody else they just demonstrate their own fear about the situations life presents. Doing something for others can be worthwhile; feeling sorry for them is beyond worthless.
You better alert Webster, et. al., as to this change:
empathy:
is commonly defined as one’s ability to recognize, perceive and directly experientially feel the emotion of another. As the states of mind, beliefs, and desires of others are intertwined with their emotions, one with empathy for another may often be able to more effectively divine another’s modes of thought and mood. Empathy is often characterized as the ability to “put oneself into another’s shoes”, or experiencing the outlook or emotions of another being within oneself, a sort of emotional resonance.
Yeah, something along the lines of, “My emotional resonance tuning fork is telling me you’re screwed and will accept a 50% lowball offer.”
Exactly, imploder, it’s all about self, not others, and yet the perception is that there’s actually something noble or selfless taking place, when there isn’t.
implosion,
I believe you’re describing “empathfreude” or “shandethy” take your pick…
You mean there is never value in empathy?
Wow.
So there is never a tragedy unless it happens to you.
I hope you do not truly believe this way.
“Exactly, imploder, it’s all about self, not others, and yet the perception is that there’s actually something noble or selfless taking place, when there isn’t.”
You’ve set up a false dichotomy for yourself. It’s possible to feel empathy or be altruistic in a way that serves both the self and others. Mother Teresa’s life was no doubt fueled by a sense of empathy. Ken Lay’s by an abject lack of it.
The abilty to “recognize the emotion of another” is the basis of human communication including most art, poetry, novels, comic books, tv shows and blog posts.
Yeah, c’mon you sellers - lower those prices by 50% right this second so the buyers can do their part to get some transactions going.
‘Buyers waiting for prices to bottom out can cause prices to drop, and in the ’90s that led to a recession.’
Here’s the thing: Until I actually spend the money, I’m noy a ‘Buyer’ I’m just a human being going about my business making decisions about how best to manage my finances.
“In a changing real estate market, buyers and sellers freak out and come up with their own strategies, which actually affect the market,” said Christopher J. Mayer, a Columbia Business School economist. “Buyers waiting for prices to bottom out can cause prices to drop, and in the ’90s that led to a recession.”
Interesting, this is the first time I’ve read of an economist tying the “cause” of the 90’s recession to housing prices dropping. Usually it’s been described the other way around.
Is this a crack in the endless mantra of “we won’t have as bad of drops as in the 90’s, cause there’s no job losses and recession to make that happen “?
“In this new era, nobody, it seems, wants to be the first on the block to lower their price, or in the case of buyers, to be first among their friends to leap into a purchase.”
Dear behavioral economist,
To equate a delusional seller with a hesitant buyer in this market is absurd behaviorally and economically.
“In this new era, nobody, it seems, wants to be the first on the block to lower their price”
That’s cause any seller with any kind of brains could see where this was going and was one of the last sellers to sell “BEFORE” they “HAD” to lower their price. No EVERYONE follows the herd over the cliff. Some broke off from the stampede with ample time left. “Bombs away, Suckers!” Have a nice trip.
“In this new era, nobody, it seems, wants to be the first on the block to lower their price”
I hope this holds true for a while longer. Anyone here who needs to sell can take advantage of the stubborness of the neighbors and be the 1st one to list at a lower price and actually make a sale. Anyone knocking on my door to yell at me for “Lowering their home values” will be greeted with laughter and the worlds smallest violin.
I’d do it. Put my house on the market for 100k lower than my flipper neighbor (comparable house) and watch my neighborhood go into meltdown. Currently 5 homes listed on one street here in Bend.
IMO manrayguy you are right the psychology between those two states not being comparable. At this juncture in the market, only a fool would not hesitate, hesitating denotes a well grounded psyche. A seller that won’t lower their price over fear of what others will think, indicates a weak sheeple psyche.
“In this month’s Realtor magazine, Lereah wrote he now favored ‘price softening.’ ‘The housing sector and the U.S. economy need home-sale transactions more than home-price appreciation,’ he said.”
minor correction: Realtwhores need home-sale transactions more than home price appreciation. If the volume dries up, even if the price does not budge one cent, the hordes of realtwhores will starve, and as a consequence NAR war chest will be empty. Lereah will be at risk of losing his job.
Take solace in the fact that Lereah’s income was a lot lower this year than he was counting on. His new book only sold 2 copies. One to Casey, and one to a guy that requested it be mail addressed to: “Mr. Pine Box Boy”
lol
posted “If the volume dries up, even if the price does not budge one cent, the hordes of realtwhores will starve, and as a consequence NAR war chest will be empty. Lereah will be at risk of losing his job.”
I would guess 2/3’s of the current crop of realtors have any idea what a true dry season is. Not to worry about Dave he still has his brains and reputation.
And remember, the $40 million for the ad campaign comes from the dues paid by the people who charged you 6% to sell you a home.
And those dues are going to be substanitially lower in the coming year with all the Realtors dropping like flies. Sure would be fun to see the NAR
have to take out a IO loan to make ends meet !
posted “the $40 million for the ad campaign comes from the dues paid by the people who charged you 6% to sell you a home. ”
This show’s what they think is a good idea to do with thier money. Next year they will fund soup lines.
Honest realtor called Bob Brinker! WOW!! Blamed realtors and loose credit for the run up! GOOD STUFF!
HE was from the East Bay of SF
Claimed prices are down 10% since the peak - WITH MORE DOWNSIDE
Claimed foreclosures are only beginning!
He mentioned numerous people using 100% financing will and are walking away from properties!
I was glad to hear him blame is own people for this mess. Especially with the big Ad, er… scare campaign running in Americas newsppers
*newspapers
Was this today??
Right at the time I posted.
Thanks, can you summarize Brinkers position on RE? I used to listen to him back in the day when I lived in Chicago. He saved me from going completely over the cliff with dot.com bust.
He was going on and on about how “the speculators would be taken out” also, “any one who uses 100% is a fool” and a few other things which we all know on this board.
However, two things I question about him:
(1) He claims he was against real estate for investment for some time. I remember several people calling him at the beginning of the show in Jan/Feb 2006 and they went on and on about how real estate was going to tank and there were a $hit load of FB’s out there and he dismissed them as “doom and gloom”. I think he might be visiting this blog for his “new found” hatred of real estate as an investment.
(2) The SF realtor claimed prices are down 10%. Bob closed that called with “but those in SF are still way ahead of the game in real estate”.
Really. What about those who bought in 2005? What about those who refinanced, took all the equity out and are now underwater in SF?
He probably has to pander to a certain portion of his audience who are no doubt into real estate. Most likely boomers.
“but those in SF are still way ahead of the game in real estate”.
too bad the “game” being played is known as “Hand-grenades”
“Boomers” playing with hand grenades. Ha ha.
JWM– when I first listened to him, I kinda liked him, but …. more and more got the clue that he couldn’t see the storm in RE. And to your remark about having to pander.. remember the def:
pander–#
# pimp: someone who procures customers for whores (in England they call a pimp a ponce)
Brinker always plays both sides of the issue, so whatever happens he can point to something he said in the past as being another of his amazing predictions. Very few call a spade a spade in the media in this day and age, otherwise they wouldnt get much airtime.
Best to buy now…don’t want to be declared an enemy combatant for failing to prevent recession!
Maybe they could get thing moving with subtle “hints” that “water-boarding” maybe forthcoming for all US citizens not currently in possession of a minimum of 2 houses. If that doesn’t work “select” a few “hesitaters” from each neighborhood and “demonstrate”. Something must be done to correct these backsliders! They are ruining the comps!
test
testing your mysterious name change, I see
Accident. LOL.
I have used several names including this one. I was going to change to:
Crispy&Coal
(both represent some serious REIC flames)!!!
Some choice quotes in here. Need to save them for all future history.
Any comments from “In the Bag” Gary? Is he missing in action? Was he deployed to the war zone? He could snag a few enemy combatants “in the bag”, oh I mean, war zone. Is he trying to start up a bubble over there?
Behavioral economist!!!!!!!
Now I’ve heard it all.
Behavioral economist = BS
Behavioral economists are the only ones who believe in irrationality as a persistent trait of the fundamental ‘economic man’. If you had to trust your life to an economist, trust a behavioral one.
Yours by far, is my favorite name on this site.
As a behavioral economist, I resent that comment!…a little.
All of this appears to be a wonderful verification of recent work in behavioral economics, I think, not a rejection. In the wake of serious doubts concerning the explanatory power of rational choice paradigms, a whole slew of minor and major renovations of it have arisen. To my mind, the most promising is hyperbolic discounting, which predicts that the closer an agent is to the moment of choice, the more vulnerable they are to preference reversal. Thus, for those with a relatively lower level of risk aversion, and with a high future discount rate, momentary choices might be irrationally skewed in favor of what the agent believes to be the sooner larger reward, rather than the larger-later reward. Or, in plain english, it appears to be a common human foible to want a quick buck now. When you get enough such agents treating housing as if it were vegas, you get our predicament.
Or is this just BS too?
I’ll play. Sounds like “hyperbolic discounting” is almost like a way of justifying the well-known phenomenon of “buyer’s remorse.” Why do people often regret their decisions shortly after making them? Because the actual moment of decision-making likely came immediately following a period (the so-called “preference reversal”) when the opposite “decision” was dominant.
As the time to the decision-making event approaches zero, the normal discount rate of future relative to current payoffs quickly blows up toward infinity, resulting in what appear to be irrational decision-making.
Is that the gist? I kind of like it.
Yes. That’s pretty much it.
The implications are whacky, though. Economists, philosophers and game theorists who subscribe to this model begin speaking of people as being “multiple selves” or “successive motivational states”. I could list references if you like, but there appears to be a number of bombastic know-it-alls already around here, and I’d like to conceal the fact that I am one of them.
The most interesting application of this model, in my opinion, is to addiction (and compulsions). See George Ainslie’s recent work, for example, especially “Breakdown of Will”.
But whatever it is applied to, it seems to accommodate what Rational Choice never could - the seemingly ubiquitous phenomena of people knowingly choosing the thing that they themselves deem inferior. Since Plato, it has not been at all clear how the phenomena is possible.
I’ll take some references. I always found game theory interesting. Haven’t looked at this stuff for a long time. Decisionmaking was one of my puddin’head minor fields.
Thanks, South FL, will check out Ainslie. And don’t apologize for intellectualism - this is the written word here after all, and I figure we can all run down to the local watering hole and be as anti-intellectual as we want. BTW, I went back to U. in my 30s and studied Econ during the Rational Expectations revolution and I may just as well have gone to grad school in math. As we used to say, the purpose of all the math complexity was to kill off all the human capital of the older economists who couldn’t understand it - of course I was also a casualty; but I did manage to score an MA even as I determined that the opportunity cost of me sticking around for another 3 years or so was prohibitive.
I agree that humans are anything but rational and I think behavioral economics is a promising field to try to explain people’s actions and motivations. IMO somewhat along those lines (and at the risk of getting a bit New Age-y) I think the nascent financial integration movement (George Kinder, Rick Kahler, etc.) linking nuts and bolts financial planning and psychology holds promise for getting people to realize the underlying reasons for self-defeating financial behaviors.
Paul, why not go back and get the puddin’head now? I’m thinking about going back for another as a backup if I lose my job.
“the purpose of all the math complexity was to kill off all the human capital of the older economists who couldn’t understand it”
Studied economics for 30 years. The math is BS. IMHO, “Behavioral Economics” is redundant. Everything about studying “markets” is about studying human behavior. The nonsense of trying to apply rigid math modeling to the often paradoxical behavior of humans is something only the truly elite intellectuals in education can come up with.
Show me something, beyond the essential logic of supply and demand graphs, that is mathematically reliable in economics……as some kind of predictive model of future behavior. It doesn’t happen.
The tyranny of the math garbage in economics for the last thirty years is, fortunately, being recognized. Yes, there’s an important place for the math but the emphasis on it in academia for the last few decades has been way out of proportion to its utility in understanding economics.
“successive motivational states” This concept also shows up in psychology of sensory perception. People are basicly living in a movie of “sensory frames”
As for math and economics. Just look at what options pricing theory has done to finance. Everything gets reduced to a network of puts and calls.
My hope is that behavioral finance begins knocking the math out of finance/economics and helps restore it back to the study of human behavior and practice.
“Behavioral economist say that those involved in real estate are not immune to the same pressures and need for conformity as, say, high school students sporting pompadours in the ’50s, love beads in the ’60s and platform shoes in the ’70s.”
I’m sorry if I offended you, but we are now to the point where, people are going to be hurt, and badly……….perhaps if behavioral economists have a role in all this, they should be looking to the BS that leads people to the situation they now face. Maybe treat the cause not the effect……..JMHO
No. You never offended me. Even I know that there was truth to your joke. In fact, I wholeheartedly stand behind your comment immediately above. In grad school, that was the first thing that I had to get used to - the fact that many in my field studied these things in order to learn how to exploit irrationality, not to correct it. Essentially, you either become a game theorist, get hired by wall street, and use your might to fleece the competition, or you get a job in higher education where you can spend your time on unprofitable things like helping people. I chose the latter.
Frankly, I appreciate Jag’s comment above too. Of note: many professional journals are now officially requesting that the math be relegated to footnotes.
Behavioral economics is just the rediscovery of stuff psychologists (especially those who study motivation and preferences have known for a long time).
Basicly the psychologists had a hard time describing the idea of a
“utility function” while the economists assumed people were rational and well informed.
In reality people are ill informed and tend to make instant decisions based on first impressions with minimal concious involvement. After making a first impression they become pigheadded and refuse to change their opinion unless group conformity demands it.
-
Casey Serin Podcast Interview
http://iamfacingforeclosure.com/28/live-call-in-show-tonight/#comments
imploder notes mistake in address. Correct address should read:
http:/ ihavemyheadinmyassanditisinfullclosure
“In this month’s Realtor magazine, Lereah wrote he now favored ‘price softening.’ ‘The housing sector and the U.S. economy need home-sale transactions more than home-price appreciation,’ he said.”
In the late 1990s, it was a commonplace to read that “everyone who wants a job has one.”
Perhaps in 2006, everyone who wants a house has one. In which case, the market doesn’t especially need transactions.
“everyone who wants a house has one” — YES !! that’s what the NAR and all the sellers don’t understand.
i know someone who just paid 750k for a 1600 sg ft home,in okay condition….750k,blows your mind, this house was worth 230k in 1995…..prices have a long way to go down……..let the party beagin in los angeles,cause it has not started yet……..
$750k doesn’t blow my mind, it just blows period.
The NAR/Industry wants to get a bubble market going again rather than a proper correction of a prior bubble from 2001-2005. Has the NAR considered that if they get a bubble going again it will crash harder down the road and the loss will be even more .
Nothing supports real estate appreciating nonstop . We already borrowed from future appreciation with this false run -up that wasn’t supported by local wages ,rental ratios ,etc.,and it was speculator driven , with massive overbuilding ,therefore not stable.
Don’t these people think about how they would be pricing out more buyers if they keep pushing for a new bubble . Can’t they see that builders over-built and new buyers can’t afford these trumped up prices anymore ?
Why don’t they just admit it was a mania that got out of control and stop trying to con new buyers into becoming greater fools ? The lenders would also have to admit that they made the mania possible by easy underwriting and low down loans for unqualified borrowers and speculators .
I guess they are desperate and still in denial stages of this bubble .
In bold big headlines in a paper today they had a article that said in essence that a real estate agents predicts HOUSING BOOM FOR 2007 . This newspaper article makes me want to puke because I think it’s all part of the new campaign by the real estate industry and NAR to just simply brainwash people without factual support .
I hear you on this. It defies all logic on the surface. Here’s what I think is going on with the NAR. They are lobbying the public for the inflation scenario..even if they don’t say it explicitly…that’s what this is about. The REIC wants Bearnanke to turn on the presses and flood the market with money supply and cheap credit again so people can keep buying. That’s why LeReah was whining about the interest rates a couple of months ago. This $40M ad campaign is a way to build sympathy for FBs/GFs and suck in more of them. In the minds of the REIC, affordability is not a factor. Just keep debasing the $ and let everyone payback their outrageous debts with devalued dollars.
If you don’t believe me, spend some time observing the Inflation/Deflation arguments on Mish Shedlocks blog. They inevitably come back to asset values (homes) and available credit as the issue.
JWM ..Let me ask you this …..Do you think the FEDS are going to respond to the NAR ?
No. The real question is whether they will respond to their real constituency. This is the big question for all of the real bubble sitters here because the majority of us are savers by nature. If they devalue the dollar, we lose. This is what bothers me even more than seeing all the douchebag realtors running around San Diego in their Escalades with the obligatory magnetic sign…even more vile are the husband wife teams.
Yep , it bothers me also .
Savers have free cash to buy foreign govt bonds or other instruments denominated in foreign currencies.
“douchebag realtors” - now what kind of pottymouth talk is that?
The kind of language I reserve for the parasites that they are.
Rippin funny pottymouth talk!!
I think “total f** POS douchebag realtors” is what you meant to say, but I could be wrong.
I agree that they want to turn the spigot back on without regard for the consequences. When people consistently do this, i.e., condemn the future because something provides a reward in the present, aren’t they basically abandoning reason and responsiblity and giving in to the psychology of the addict? Basically, don’t we have huge industries with big lobbies that devote every hour of every day to promote the psychology of addiction into the highest levels of our economy and government?
I don’t want to see my neighbors and coworkers, mostly hard working souls who crave stability, be hurt in this meltdown . However, we all know that this bubble needs to collapse and we must have a return to healthy market economics to have a future. I can’t believe we have so many people working at the highest levels to make our society essentially more and more diseased just so they can get another little shot of smack for the next five minutes. Once the investigations and taxpayer GSEs bailout legislation comes, is there something more I could be doing to help build SUSTAINABILITY into the system and maybe limit the power of the pushers–who will be completely crushed by 2009–to seize control again.
Well said . At this point in the mania it is like watching addicts . I think the way a person builds sustainability in the system is by living your own life in a sane way . The more sane people running around ,its more possible for sane things to happen .
God the real estate people /industry right now are like a bunch of drones mouthing the spin . Its really weird . I go to open houses and they all say the same thing .
Housing Wizard,
“I think the way a person builds sustainability in the system is by living your own life in a sane way”
Do the Amish use real estate loans?
Yes thats right. I still expect interest rates to go up again. If the rates go down to bail out borrowers we are all screwed. Out of control inflation and a crashing dollar and I imagine that will about end the world economy as we know it.
Oh ,wait a second , maybe the NAR wants to blame something/someone for the real estate crash so it takes the heat off the real estate industry for all their spin/lies that kept the real estate mania going .
i just wonder sometimes how much sooner the housing boom would of leveled off had it not been propped up by the real estate industry without media challange for most part .I know it was fueled
by greed or fear on the part of alot of buyers but still the real estate people took that ball and ran with it and they are still trying to run with it .
And they will attempt to blame, anyone or anything for the bubble burst other than themselves. Like $10 hookers, they have no sense of shame or modesty, only gall.
I was thinking ,if people stopped the stock market run-up in 1927 by not allowing margin buying anymore the 1929 stock market crash wouldn’t of happened , because the loss would of been manageable .
I thinK keeping the party going like the NAR wants just sets the stage for a greater event . IMHO right now it’s possible to correct this market ,with alot of pain no question , but with a recovering market with time ,(5 to 7 years).
take it easy on hookers, isn’t it their CUSTOMERS who have no shame or modesty?
Oh God , they got a flipper on TLC that bought a POS in Westchester Ca. for I think they said 730K . The house is a 1300 sq ft.3 bed 2 bath that a realtor/flipper wants to flip in a month after fix up that she wants to spend 40K on .
God the flipper is going to be into that house for over 800k before she even thinks of selling it . Knowing flipper greed ,she will want a million for it .
This house is a old small piece of junk as far as I’m concerned but maybe she can make it into a palace .
Ok, the Flipper wants 899k for the house.
Also , a friend just e-mailed me to alert me about a few identity scams . Apparently there is one involving Jury duty . Someone calls you up and states that they have a arrest warrant for you for not showing up for Jury duty . You argue it and you say that you didn’t get a summons ,than the person on the phone asks for your social security number ,other information , and some try to get your credit card number . Anyway , thats one of them .
The other one is a person will call you up and make sure they leave a message rather than talk to you and they ask that you call them back . Its a 809 area code that you are calling . You will be charged thousands of dollars from the phone company because its some scam where they are able to collect money and apparently they will try to keep you on the phone for a long time .This came from Sandi Van Hande AT&T Field Manager . Apparently your not suppose to dial the 809 area code because it set up this charge thing .
I really don’t know to much about these scams ,but my friend said it was also mentioned on CBS news .
Boy , I was just thinking after the thread today on fraud ,maybe thats how some of these guys get the identity to purchase real estate . Anyway I thought I would pass on what my friend e-mailed me .
I guess its risky to give any information about yourself over the phone ,or otherwise .