November 30, 2006

“Paying The Price For Overheated Appreciation”

The Boston Globe reports from Massachusetts. “The median price for a single-family home has fallen 7.8 percent since hitting a peak of $370,000 in June. Sales of single-family homes fell 16.5 percent from the previous October to 3,239. In each of the past three months, single-family home sales fell by more than 20 percent.”

“Some agents say the October numbers forecast a slow winter. ‘The importance of October is that’s the tail end of the selling season before you get into the holiday, and everybody was hoping it would’ve been a little better,’ said Arthur Shannon, an agent in Danvers. October, he said, ‘tells us how we’re going to sit throughout the next few months.’”

“‘Buyers have started to move forward,’ David Wluka, president of the realtors’ association, said yesterday. Still, at the end of October, there were 33 percent more homes and condos for sale statewide than a year earlier.”

The Daily News. “Massachusetts home and condo sales fell by double-digit percentages in October and home prices continued to decline as part of a market correction that may still take several months to conclude.”

“The October home price decrease is the sixth-straight monthly drop compared to the same months last year, and the drop in home sales marks the 20th of 21 months where the number of home sales have dropped in the state. The latest 11 months of decreases were marked by double-digit percentages, reflecting the sharpest and most sustained slowdown since the 1989 to 1991 period, according to the Warren Group.”

“‘This market is paying the price for overheated appreciation,’ said Nicolas Retsinas, of Harvard University. ‘It was clear for a long time that it couldn’t be sustained, but it did last for a while.’”

“Retsinas said homebuyers should do their homework when shopping and look forward to at least five to seven years in the home they buy if they don’t want to lose money. ‘If you think you’re going to buy a home to make money, you’ll be disappointed,’ he said. Retsinas also warned buyers to be wary of the condo market, which is investor dominated, and thus, more susceptible to a downturn, he said.”

The Boston Herald. “Boston house prices plunged last month at their fastest pace in more than 13 years, erasing all gains recorded since early 2004, new figures show. The Warren Group reported yesterday that median house-sale prices in Suffolk County, which mostly consists of Boston, fell to $325,950, a stunning 13.31 percent decline from October 2005.”

“That drops prices back to May 2004 levels. It’s also the sharpest 12-month pullback since 1993.”

“David Wluka, president of the association said the smaller sales drop-offs show him that ‘the market correction may be about over.’ But Wellesley College housing economist Karl Case is less optimistic. ‘All of the indicators, sales volume, prices, everything, are pointing downward,’ he said.”

The Sun Chronicle. “Condominiums, increasingly the single-family home alternative for buyers in Southeastern Massachusetts, may finally be losing momentum in a softening real estate market.”

“Condo sales in the area declined 36 percent in the third quarter, compared with sales results for the same quarter in 2005. Statewide, the drop in the number of condominium sales exceeded that of single family homes for the second straight month according to The Warren Group, ending a decade-long trend in which condo sales outperformed single family home sales virtually every month.”

“‘For a long time, as real estate was appreciating, condos trailed somewhat behind single-family homes,’ said Terry Egan, for the Warren Group. ‘As sales began to decline, condos also seemed to trail somewhat timewise. Now they seem to have caught up.’”

“Market watchers said a large number of newly-completed condos arriving on the market at a time when sales are already depressed added to an already bulging inventory.”

The Boston Channel. “Buyers and sellers are carefully crunching the latest housing numbers, and in Massachusetts…it reflects the most sustained slowdown since the bubble burst of 1989 to 1991. One Duxbury house has been on the market for about one year now. Two weeks ago, the sellers dropped the price yet again. It is now $60,000 less than where it started.”

“Several miles away, homeowner Robert Burnham can relate. His experience is nearly identical. ‘There is a house we would like in a retirement community, which we are not able to move. We are very much like many people my age that can’t get out of their home to retire,’ he said.”

“‘It means we’re still in a real estate slump. We are still seeing a lot of houses on the market. Buyers and sellers can’t quite come to an agreement,’ said Tim Warren. Burnham has decided not to drop his price again. He’s taking his house off the market for the winter, making a few changes and then will try again in February. Warren said that he thinks it’s a good strategy.”

From the Times in New Jersey. “Sales of newly built homes continued their slide last month, the government reported yesterday, renewing fears the housing slump would continue for the long haul. The Northeast region experienced the biggest decline in new- home sales, dropping 39 percent in October from September.”

“Industry watchers say the housing slump is likely to continue. ‘It may not be until 2008 until the market bottoms out,’ predicted James Hughes, dean of the Bloustein School of Planning and Public Policy at Rutgers University.”

“The problem, Hughes said, is the ‘extraordinary gains’ in the market played out over seven years, from 1998 to 2005. When the highs last a long time, ‘it takes time to adjust,’ he said.”

“The 39 percent drop for the Northeast came as no surprise to Patrick O’Keefe, chief executive of the New Jersey Builders Association. ‘The evidence is overwhelming that the state’s housing markets are weak and will continue to weaken,’ O’Keefe said. ‘This market in New Jersey particularly, given the economic concerns outside the housing sector, cannot see its bottom.’”

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Comment by Ben Jones
2006-11-30 05:35:24

‘A pronounced housing slowdown is underway, while at the same time, millions of Americans with adjustable loans are finding their mortgage payments rising. Home prices have never fallen so far, for so long.’

‘For millions of Americans, there is serious trouble ahead. The value of their biggest asset is falling, they’ve tapped their home equity dry and their adjustable rate mortgage payments are rising. Data show foreclosures up 44% so far this year and they’re up by triple-digits in New Hampshire, Massachusetts and Alabama.’

Comment by txchick57
2006-11-30 05:52:59

Break out the world’s tiniest violin. Sorry, can’t summon up any sympathy.

Comment by sheryl larson
2006-11-30 06:44:39

txchick’s comment spotlights why I despair for our future. Those heading into foreclosure deserve no compassion, no empathy and certainly no sympathy? Did you ever consider that maybe they weren’t all trying to make a quick buck? Shit happens. Lighten up, people. Despite what you may want to believe, we really are all in this together.

Comment by eastcoaster
2006-11-30 07:32:11

Why should I feel sorry for someone who tapped their equity dry as a means of income? Or why should I feel sorry for someone who FAR overextended themselves to buy a house when I, myself, have NOT been so irresponsible and am still renting. I don’t love renting - hell I don’t even LIKE renting - but I’m not going to be stupid enough to throw my life’s savings away and overstretch my paycheck each month just to be a statistic of a “homeowner”. Do I want to own my own home? More than many of you can even possibly imagine. Did those who are facing foreclosure based on stupid, irresponsible, and/or greedy choices feel sorry for me when I couldn’t afford to buy? Hell no!

The only ones I feel sorry for are those who have lived in their homes for YEARS and now face property taxes they cannot afford due to no fault of their own. Or those who tapped equity for reasons like medical bills or some other rather catastrophic event who now may be facing foreclosure. So, there, I do have some compassion.

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Comment by txchick57
2006-11-30 07:34:55

Agree. Maybe the bleeding heart you responded to should go spend a few hours at the SDCIA board or Casey’s blog, or or maybe go back and read the Forbes article about the 20something guy with 24 “homes” in AZ he had never even seen. Or maybe those 700 realtors in Jackson Hole, Wyoming (population - what? 10K?)

Comment by jetsonboy
2006-11-30 07:59:57

I don’t feel sorry for people who knew that they were taking a risk. When you play a round of poker in Vegas, you go in knowing that you are facing a likely loss of money. The same goes with any other financial decision. People did the same with housing, and never is this more true than here in Norcal where way too many people I know took out ARM, IO, and combinations of the both on a house they could only afford if prices went up. I have no doubt that there were small voices inside each and every one of their heads telling them that it perhaps wasn’t the wisest of decisions. yet they did it anyway.
If I am to have any sympathy, it would be that a major factor as to why so many Americans made bad financial decisions is because our educational institutions simply do not cover economics in the classroom. My school had the bare basics. Everyone else probably had the same lack of resources. Perhaps in the future, the US should require all schools to teach economics as a major subject and not the minor handout it is now. We are in a world that relies on a international economy. If US citizens can’t even make intelligent decisions on something that should be plainly easy to do, like buying a house, then this is clearly an indication of the lack of financial fortitude the avg person has.
And as far as far as Realtors, industry leaders, and homeowners viewing this downturn as negative… I think it is safe to say that you guys had your fun, made a LOT of money of of people- some now in bankruptcy- and tipped the scales out of favor for most of the middle class. They don’t call it a correction for nothing. We are way past due for this deflation and frankly you can believe all you want about this ” the worst is over crap”, but the truth is that it is only starting. So I’m awful sorry you can’t make an easy 300k on some suburban piece of crap. boo-hoo.

Comment by sheryl larson
2006-11-30 08:10:30

Since medical debt is behind most bankruptcies (haven’t seen any statistics on this relating to recent foreclosures yet but I’d bet that it is a similar number), then it seems we agree that these people deserve some compassion.

Comment by txchick57
2006-11-30 08:10:40

The good news is that most of these idiot realtors who “ripped” other people put it into properties themselves or bling and thus will retain virtually nothing. The stockbrokers of this bubble.

Comment by txchick57
2006-11-30 08:12:07

Medical debt is NOT behind “most” bankruptcies. It is a significant factor but my guess soon to be far outweighed by mortgage and consumer crap related debt case.

Comment by sheryl larson
2006-11-30 08:54:40

You are wrong. Simply google “medical debt bankruptcies” and let the data tell the story.

Comment by CA Guy
2006-11-30 09:08:31

Why are you here on Ben’s blog? I despair for the country’s future because too many people are blind followers who refuse to use their critical thinking ability. They rush into stocks just before they top, and now they have done the same for RE. Sure, some people are in foreclosure because of legit reasons, but many are there because they had the foolish notion that they could afford a $500K house with a 75K income. If we as a society continue to coddle those who make dumb choices then this crap will just keep repeating. No sympathy, no bail out. It will be a painful lesson for many, but it is a necessary one.

Comment by finnman
2006-11-30 09:16:40

2005 study shows about half of 2001 personal bankruptcies due to medical problems. I would assume that number has changed, and that problems due to credit card trouble, loans and morgages have skyrocketed. When times are good, people are less fearful to take on more debt.

Comment by in NH
2006-11-30 09:23:23

Folks, it’s not at all that simple. You gang up on Sheryl like but she has a valid point. Not everybody is a greedy moron, some folks may have actually bought a home to live in and just didn’t think it through. Was it stupid to get the arms and pay 5 times your income? Of course but not everbody is into this finances like folks on this blog are. Hey, alot of kids and families are going to suffer and break apart due to these problems. Stop wishing for bad things just for financial gain, usually that karma bounces back at you.
Having said that I still empathize with those critizing her remarks. I do not have alot money and have been priced out of the house market and my very average are in NH. I also resent the fact that even though I save and responsible and even buy gold,etc. that myself and my young family could also suffer. WE are all in it together and the foolish decisions of others can bring down the ship-that I do resent!

Comment by Dan
2006-11-30 09:39:56

I certainly feel sympathy for the innocent bystanders of the real estate insanity. A coworker relocated to Boston from Chicago two years ago to advance in his career. At the time he was 36 with a wife and two kids. What was he supposed to do? Not take the job offer? Not buy a house? He was a victim of bad timing, not of financial stupidity.

Comment by CA Guy
2006-11-30 09:40:41

NH said: “Was it stupid to get the arms and pay 5 times your income? Of course but not everbody is into this finances like folks on this blog are.”

We are not talking derivatives, or commodities futures here, NH. This is common sense stuff like balancing a check book. Unless these foolish people learn a lesson then reckless financial habits ARE going to bring this ship down eventually. We are suffering from conspicuous consumption, which is a form of greed. If you ask me, these overextended folk are going to be suffering their own form of karma, much like back in late 1929. People on this blog aren’t looking for financial gain earned on the backs of the FBs, most if not all just want to live sensibly.

Comment by sheryl larson
2006-11-30 09:51:14

CA guy: You’re right. I don’t belong on this blog. And I apologize for insulting all of you by trying to defend those who are more unfortunate that me. Adios.

Comment by CA Guy
2006-11-30 10:11:13

Less fortunate than you? The kids on the St Judes Hospital commercials are less fortunate. Honest Iraqi citizens are less fortunate. People maimed by drunk drivers are less fortunate. Those who take out obscene mortgages because they think their family MUST have a house of their own are not less fortunate than you. Adios, senora.

Comment by txchick57
2006-11-30 10:17:07

Yep, don’t let the door hit you on the ass. Something tells me that isn’t likely.

Comment by Uncle Git
2006-11-30 10:20:13

Did the number of medical problems double this year to drive the bankruptcy numbers higher ?

No ?

Hummm - maybe it’s because the people now filing are the greedy sons of bitches who drove this bubble - hence no compassion - let em burn.

Comment by CA Guy
2006-11-30 10:28:28

And what’s with these people who cry victim because they just HAD to move for a new job, and they just HAD to buy a house there? Housing costs have gotten obscene, and people here realize that. It’s why most of us rent. Why don’t those who relocate do the same instead of feeding the frenzy? They are not victims!!!!

Comment by josemanolo7
2006-11-30 10:37:01

this is the sad part about reading this blog. i still believe people who are down need at least some sympathy. but helping them is a different matter, especially if it was their fault. there is also the matter of some who are really stupid and do not understand (and are not capable of understanding) what they are getting into. do we want a society that is only for the bright and prudent? well, guess what that really means.

Comment by Dan
2006-11-30 10:49:13

CA Guy,

You’re telling me it would have been better if he decided to rent a three bedroom house at $2,000-$2,500/month for five years than buy a place?

Comment by Jerry from Richardson
2006-11-30 10:58:25

If he couldn’t afford to buy a $600K, then he should have rented. End of story.

Comment by Doug
2006-11-30 11:25:29

Being able to afford the move should have been part of his decision to move.

Comment by CA Guy
2006-11-30 12:17:02

Dan: yes, that is what I am telling you. You said he moved two years ago. The bubble was prime then, and if he bought at those prices then rent would be a fraction of a mortgage and it would likely be a nicer house to boot! Instead he just had to buy, and unfortunately he will likely spend the next five years watching the value of his house drop significantly. I’m not saying the guy deserves to lose it all, I just don’t understand why you think he had to buy. Has owning the past two years made him a better father or husband? Unlike many other parts of the modern world, renting in the US has a stigma attached to it. I for one do not understand why.

Comment by Mary Lee
2006-11-30 13:19:21

Complexities abound. My husband and I made a considered decision to move to a slower place (following a nasty medical incident) in preparation for retirement. Our timing couldn’t have been worse. Arrived (and rented) just as all hell broke loose in the local market. Being ancient, we weren’t remotely interested in buying for the sake of buying, but mourn not having our own property…… Feelings? Sure…we all have them. Maybe it takes a few turns around the block to fully grasp feelings have to take a back seat to reason at some point. Today, we can’t be certain the RE market here (in sunny Southern Oregon) will turn around before we reach retirement age…..So what? We’re healthy, have decent jobs, and choose to rent (like others here, beyond what we could pay to purchase currently) till a correct decision becomes obvious. Who knows? Perhaps we’ll choose to move to a less expensive area.

I work with kids paying a couple thousand a month plus, who have swallowed the whole enchilada: over-expensive house, 4WD monstrosity, 48″ tv…… and a few who look on, despondent they missed the boat. I’m relentless about encouraging the latter group to save, enjoy, and wait (tough when you’re that young)….while we wait and see what the HELOC crowd does over the next couple of years…. At the least, it’s fascinating.

Comment by cassiopeia
2006-11-30 13:23:02

I couldn’t agree more re the lack of economic knowledge in the population in general, even highly educated doctors and lawyers. Every time I hear about another hare brained real estate investment gone bad, I remember my first economics class in the university. The professor grabbed the Samuelson manual (that was the book of choice in my day), dropped it on the desk and said: OK folks, we are going to discuss many debatable things in this class, but supply and demand is like GRAVITY. Get that inside your heads or you won’t pass my class. The fact that an airplane can fly does not mean that gravity does not exist, it just means that you have done something to overcome it, and if you stop doing it, the airplane crashes. If you don’t learn to look at what is holding the economy together and whether it is sustainable or not, then you don’t know anything about economics.
I’m not an economist, but the concept stuck with me. That means my family lives in a 2bed rented apt. in L.A. My kids (boy and girl) have always shared a bedroom and we have never had a family room or a garden. This does not mean that we are poor or unhappy, not by any stretch of the imagination, but it does mean that we passed on something that we would have loved to have and would have had in normal circumstances (meaning a normal rent to own relationship). We are neither geniuses nor clairvoyants, it’s just that something in our personality allows us to go against the grain, and in this case I guess it has been beneficial. But most people are like sheep, that has always been the case. So, personally I understand Sheryl’s point. It is the industry leaders and the government who are most to blame for fanning the flames of this nightmare, whether for monetary or political gain, or just because they are lazy or don’t like to be the bad guy in the movie. In other words, it takes courage, a virtue that is conspicuous for its absence these days. The poor people who got in over the heads will pay a terrible price, that’s their punishment, but others who bear as much responsibility will not, and that makes me mad.

Comment by passthebubbly
2006-11-30 07:35:23

My favorite quote from Catch-22 comes to mind:

“From now on I’m only thinking of me.”
“But, Yossarian, suppose everyone felt that way.”
“Then I’d certainly be a damned fool to feel any other way, wouldn’t I?”

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Comment by ed in texas
2006-11-30 07:41:58

Here’s the deal. I fully expect the new congress to play to the “I didn’t know any better” crowd and bail them out, along with the lenders who lent the money knowing basically that they were stealing from the homeowners. We all get to cover another round of inflation that basically goes to pay for the obscene profits of the guys at the top.
So what’s in it for those of us who wouldn’t buy into the game, pay their bills, and don’t try to game the system for a quick profit? Why do we keep working and saving if it doesn’t count? From a personal perspective, we’ve finally got free of the masses that came to S Texas in the wake of Katrina; I wasn’t looking to expand the franchise at this point.
And I mean that in the nicest possible way…

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Comment by tj & the bear
2006-11-30 12:50:01

You’ve heard the expression “Too Big to Fail”? Well, this time it’s “Too Big to Bail”.

Comment by garcap
2006-11-30 08:39:25

Sheryl said: “Lighten up, people. Despite what you may want to believe, we really are all in this together. ”

“In this together”? I don’t remember signing up for anything like that. Maybe we should save our compassion for those that really need it….

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Comment by CA Guy
2006-11-30 10:02:48

I agree 100%, garcap. “Owning” a home does not make you a better person or family. The national obsession with housing cannot be healthy. I’ll save my sympathy for those stuck in places like Africa or the children’s cancer wards.

Comment by txchick57
2006-11-30 10:18:03

Yeah, if we’re all in this together, where’s my cut of the obscene profits that were made in this bubble?

Comment by tj & the bear
2006-11-30 12:52:38

“All in this together” means we all get to suffer for these fools greed and poor choices. Sorry, no sympathy here either.

Comment by Betamax
2006-11-30 09:23:49

I sympathize with greed but have no pity for gross stupidity.

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Comment by Sammy Schadenfreude
2006-11-30 20:40:16


To the extent that anyone gets foreclosed on through no fault of their own, compassion is in order. Those cases, however, are exceedingly rare.

What most in here recognize, and are angry about, is that the sharp, unsustainable rise in home prices is a direct result of irresponsible and reckless use of debt and credit. The vast majority of FBs are people who quite simply were and are living beyond their means. And, while you correctly note that major medical expenses are a prime causative factor of personal bankruptcy, I have to ask: how many of those afflicted did not buy health insurance or set aside emergency funds, because they just had to have a new SUV, hot tub, or McMansion instead? Or they put themselves in a situation (again, through taking on excess debt for a house and/or crap they DIDN’T NEED and COULDN’T AFFORD) where, say, both husband and wife HAD to work, but then one got sick and lost his or her job? That isn’t just a misfortune; it’s poor planning. Couples should ALWAYS think through “what-if” scenarios that include job losses, illnesses, pregnancy, etc., and plan accordingly. They should also have enough savings to tide them over in the event of a job loss or other financial strain.

In the not-so-distant past, houses were viewed as true homes, places for families to raise their children and live their lives in relative contentment and stability. The flippers and FBs viewed them as just another speculative commodity, and foolishly and recklessly used other people’s money to drive the prices into the stratosphere — pricing out those who wanted decent HOMES in decent neighborhoods, but who were unwilling to take on irresponsible and dangerous levels of debt to do so.

Do I feel sorry that reality is imposing itself and legions of flippers, “investers” and FBs are getting their heads handed to them? Not in the least. Fools and their money have been parted since Biblical times, and these greedy, stupid speciments will deservedly be cautionary tales for years to come. One hopes that they, and their unfortunate offspring, who I do pity, MIGHT gain some hardwon wisdom from the experience, as did their ancesters during the Great Depression.

We are not soulless or heartless in here, but accept (not without schadenfruede, I won’t lie) the natural and inevitable darwinistic result and consequences of unchecked greed and stupidity.

That said, please stick around, Sheryl. It is good to have contrary and even unpopular points of view presented in here.

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Comment by badger boy
2006-11-30 07:13:34

hope the democrats in congress agree. not sure though…

Comment by yogurt
2006-12-01 04:56:12

What does it have to do with Democrats or Republicans? One, in no congressional district do FB’s have enough votes to deliver the seat. Bailing out FB’s would be at the expense of the majority, who would see right through it. It’s just bad politics.

A great deal of MBS and GSE debt is held by foreigners. Do you think the taxpayer would stand for bailing them out? Letting the foreign debtholders hang out to dry would reduce the US’s foreign debt.

And as someone else said, it’s “too big to bail”. There is just no way that the US gov’t could take on the additional debt for any kind of full-scale bailout. The cupboard is bare.

I think that one benfit of having a Dem congress and a GOP president is that each one has no interest in aiding the other’s constituency. Which likely means there will be no bailouts, period.

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Comment by ajh
2006-11-30 06:14:14

From the article,

“But we should start the new year with the housing contraction over for the nation.”

Another fearless prediction from DL.

Comment by GetStucco
2006-11-30 06:25:31

You have to admire the persistence of someone who is so consistently wrong.

Comment by packman
2006-11-30 06:33:06

If “admire” = “be amused by” then yeah :-)

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Comment by GetStucco
2006-11-30 06:35:39

David will keep saying the market is coming back next year until his stopped-clock prediction turns out to be correct.

Comment by sc in dc
2006-11-30 07:12:58

And then we will hear ad nauseum from NAR and the media echo chambers: “and as the NAR predicted, home prices began rising in (Month)(Year) after the much needed, healthy correction…”

Comment by verjeep
2006-11-30 08:19:44

Reminds me of a saying in medicine:
“all bleeding eventuallys stops”

Comment by tj & the bear
2006-11-30 12:35:58

Home prices have never fallen so far, for so long.

And as the song goes… “We’ve only just begun!”.

Comment by az_lender
2006-11-30 05:56:11

“a market correction that may take several months to conclude”
At the rate it’s going, it may take 72 or 84 months to conclude.

Comment by JR
2006-11-30 07:28:31

AZ, I second your opinion. In 1990, as the market topped out and started declining, everyone in California said, “Wait 6 months, it will turn around”. Four years later, the mantra was “Stay alive ’till 95″. It got progressively worse every year. In fact, it took 8-9 years for most California markets to see any recovery. It may be worse this time, as the bubble is much more pronounced and there have been no exogenous factors to start the slide. Wait until a recession, higher rates, or sliding dollar start adding new factors to this mix.

Comment by Captain Credit
2006-11-30 08:59:11

JR, That sounds exactly like what happened in New England beginning in mid 1990 and those 1989 prices weren’t seen again until 2003.

Comment by CA Guy
2006-11-30 09:16:47

JR, here in the bay area we have a personal finance guy named Rob Black who has both TV and AM radio spots. Pretty much just common sense advice, but I find him tolerable and level headed. Anyhow, yesterday morning he mentioned that if you had bought a bay area home right after the October 1989 earthquake then you would have been underwater for seven full years. Many of us here already know that, but I was glad to finally hear it being discussed main stream. Basically he was saying to listeners that buying a house is not a spur of the moment decision. It has to make sense for your situation regarding income, family needs, expected length of stay, etc. These common sense principles were lost the past 5 years, and I bet a bunch of his listeners were quite puzzled and/or angered by his comments. The herd mentality of this bubble was sickening, and that is why I feel zero sympathy for the FBs, unlike sheryl larson above.

Comment by JR
2006-11-30 09:31:47

CA Guy, I learned this lesson personally in 1990, having bought a home in January. I patted myself on the back for 6 months, as it climed $20,000 in value. Then, Katie bar the door. It dropped 35% by 1994. Did a cash in refi to qualify for a lower rate on an 80% LTV. Hello, CASH IN REFI, you read it right.

Instead of buying a new home a year ago, I rented a Flipper’s home for 1/3 the cost. Live in 3300 SF, $2,000 a month. Owner paid $750,000 and has $1,100/mon in tax, ins, bond & HOA payments. And the last comp went off at $505,000. Ouch. It was Sacramento Land(ing) and Sacramento Real Estate Statistics blogs that saved my a$$ets. I almost bought an $840,000 home in Dec. 2005. Whew. I went on the net to get data to prove to myself it made sense to increase my purchase offer. There I saw the bubble graphs and the rest is history. I save $30,000/year and $300,000 in depreciating value. Whew, again. I will buy or build in 2008. Lots are dropping like a rock already in Sacramento.

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Comment by CA Guy
2006-11-30 09:49:57

Having lived in Sac for a few years, I am just stunned by how much they have built in the past 5 years. One of the major reasons for my moving there was the lower cost of living. Like many areas of the country, the bubble took that away. Sacramento is going to see alot of shed tears, but it’s necessary for the region’s long-term economic health. I like your idea of building your own. Alot of the recent stuff has been pounded out by fairly unskilled laborers. Not to mention, it seems that the big builders are terribly inefficient in their use of interior space. So many have just idiotic floorplans. Best of luck to you in 2008!

Comment by novasold
2006-11-30 05:58:07

I’m beginning to agree with those who believe the fallout will last at least 5 years if not longer.

Boomers begin to retire en-mass in 2011 I believe.

Comment by walt
2006-11-30 06:26:27

Not according to those smart experts!

“Most housing experts agree with Warren, saying the so-called slump will be less severe and shorter than the last correction of the 1990s, which saw declines for five years in a row.”

Just who are these “experts” anyway? The waitress, cab driver and shoeshine boy?

Comment by CA Guy
2006-11-30 09:58:28

Indeed. Why would a logical person think that the largest housing bubble in history would suffer only a short and orderly decline? An example of how it is hard to make someone understand something when their livelihood depends upon them not understanding.

Comment by Chris
2006-11-30 12:36:36

Just who are these “experts” anyway?

All of the so called “experts” the media talks to are people in the realestate business like realtors, NAR, and mortgage brokers….

Comment by the_economist
2006-11-30 06:26:36

novasold, What affect do you think this will have on the housing market?

Comment by GetStucco
2006-11-30 06:29:10

Boomer retirements are sure to push up demand for Super-sized McMansions — not!

Comment by the_economist
2006-11-30 06:41:54

Wont boomers be leaving McMansions for smaller units?

Comment by GetStucco
2006-11-30 06:53:59

You’re the economist. Why don’t you think that through…

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Comment by CA Guy
2006-11-30 09:26:20

We’ve been hearing alot about boomers wanting to move back into the cities, live urban, go into old-folk only communities, etc. I for one am not convinced. My parents are true boomers, both born early 1947, and there is no way they want to make a move. I recenty saw an AARP poll that found the majority of persons over age 55 would prefer to stay in their homes rather than make some major lifestyle change. I’m really wondering how all the 55-plus communities will do going forward. I see boomers wanting to remain independent, doing their own thing in their own house, not hacking around some generic golf course or playing bridge.

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Comment by Mary Lee
2006-11-30 13:50:24

I think that style went out the generation before mine (only slightly precede the boomers). When Gloria Steinem turned 60, I think it was MS mag had a full-face photo….looking drop-dead gorgeous and 40, captioned “this is what 60 looks like.” Iconic as hell for the folks my age. Can’t claim to mimic Steinem, but guarantee my mother’s photos at 40 correlate to mine at 60…… Something to do with moving around a bit and glorious research… No… I don’t see us living in captivity, golf courses or not.

Comment by Subare
2006-11-30 16:11:58

My parents said the same: they were happy living in the ‘burbs forever, maintaining the garden and house themselves but by the time they reached their late 70s their mindset had changed. Although they were reasonably fit and healthy there were other things in life they reckoned so they bought into a retirement community and have never regretted it.

When you’re young you think you will be partying forever and never become a stodgy stay-at-home but there’s all sorts of age-related attitude changes throughout life and I don’t think the senior phase is much different.

Comment by happyrenter
2006-11-30 16:12:46

CaGuy, you make a good point, but what happens when the McMansion owners cannot maintain their property anymore? Cleaning large houses might prove a tad difficult w/an aging population. Add on to that yardwork, and that might push some over the edge. I suppose they can always outsource, but that just adds to your costs….

Comment by arroyogrande
2006-11-30 10:15:36

“sure to push up demand for Super-sized McMansions — not!”

“Wont boomers be leaving McMansions for smaller units?”

Hence the “not” at the end of GS’s post.

See the movie “Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan” for an explanation on the use of “blah blah blah [pause] NOT!”

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Comment by speedingpullet
2006-11-30 11:45:10

Or, take out “Wayne’s World” from the store, and see it used in its original, unadulterated form.

Comment by claudia
2006-11-30 12:42:10

We’ll be buying those “condo-hotels” and trying to turn them into Senior Housing Centers — at a vastly reduced price, of course. (I knew there would be a reason behind all this new construction!)

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Comment by gsinbe
2006-11-30 06:51:47

Don’t count on it. Most of us are going to be lucky to EVER retire….

Comment by eastcoaster
2006-11-30 07:47:30

I, myself, cannot imagine being able to retire (though I am many years away from it). Maybe if my son ends up being a star NFL player or something… (no pressure, kid!)

Comment by Arizona Slim
2006-11-30 07:38:47

And how many from the Boomer Retirement Class of 2011 will actually be able to AFFORD to stay out of the work force? I doubt that many will.

Comment by WT Economist
2006-11-30 06:22:42

(‘There is a house we would like in a retirement community, which we are not able to move. We are very much like many people my age that can’t get out of their home to retire.’)

Generation entitlement. The problem, sir, is that you assume that the next generation will be forced to pay a price that will make them far worse off than you have been for their entire lives.

You can do that to them in the public sector, where you can seize their tax dollars, but their services, and burden them with debt and unfunded pension obligations. In the marketplace, however, you have to trick them. Looks like the game is up.

Comment by walt
2006-11-30 06:29:42

Between the population decline and job decline in Massachusetts , just who do these people think people think they are going to sell to?

Comment by Housing Wizard
2006-11-30 07:41:28

If this guy wants a retirement house ,all he has to do is lower the price of his house and he most likely will also get the retirement house cheaper also because of the down market .I don’t get how this is holding up his retirement unless he has to get a price because he took out equity loans .

Comment by CashOnlyPlease
2006-11-30 07:56:28

Don’t fear. He will re-list in February when the market comes back. His realtor said it’s a good plan.

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Comment by oxide
2006-11-30 09:42:43

That was my exact thought too. If he’s old enough to be as close to retirement as he says, either

a. he would have bought the house at least 10 years ago at a cheap enough price that he could afford the haircut now.
b. or, if he bought recently, he would enough equity built up from previus homes that he could have put in a considerable down payment, so could still afford the haircut.
c. or he has enough put away in savings that he can afford to carry two mortgages for a year or so while he tries to sell.

But nope, I bet either he wants to retire in style in a McPalace (a step up from a McMansion), or he’s HELOC’d up the wazoo.

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Comment by lefantome
2006-11-30 08:01:31

You nailed this WT …..the retirement community works for the Burnhams, as long as it comes with the retirement account. They’re finding out they are the only ones with the password to the ATM. If they leave, it doesn’t work anymore.

Comment by lefantome
2006-11-30 08:12:59

You have read here in the past, that most retirees have little to no savings …. except the perceived equity in their home. The inability to move with that retirement account may really put the brakes on the 55+ communities. I’ve noticed Del Webb sales slowing here in CA. Why they continue with enormous planned cities I don’t know.

Comment by GetStucco
2006-11-30 06:30:27

‘October, he said, ‘tells us how we’re going to sit throughout the next few months.’”’

This October tells them that houses are going to sit on the market throughout the next few months ;-)

Comment by GetStucco
2006-11-30 06:31:38

“The problem, Hughes said, is the ‘extraordinary gains’ in the market played out over seven years, from 1998 to 2005. When the highs last a long time, ‘it takes time to adjust,’ he said.”

Hulbert ( just lectured us on the factoid that parabolic blowouts have nothing to do with future price declines. Maybe it is “different” for stocks than for housing?

Comment by jag
2006-11-30 06:33:46

A house near me in Boston has just been taken off the market after being on for nearly a year. I assume the thinking is the same as virtually every other “disappointed” seller; we re-list in the spring.

How many of these have we read? If you were thinking about listing but in no hurry you probably haven’t bothered, you’re waiting till spring. If you’re like my poor neighbor, you’re listening to “conventional wisdom” without thinking things through, you’re waiting till spring. Well it doesn’t take a genius to figure out that, come spring, they’re be more inventory than ever, the pressure on marginal buyers will be all that much higher, the fear factor will rise and buyers (should there be any at all) will probably be even more bold in low balling offers.

Come spring, sellers will have even more competition for fewer buyers. Brilliant strategy. If I were on the fence to sell, I’d drop my price aggressively now, while there might be a few “bargain hunters” around. Cause by springtime the musical chair game will be in full force and no gimmicks are going to cut it in the competition to capture that last, marginal, buyer. Its going to take a huge price cut and the builders, condo developers and bankers will not be so concerned about “giving” their property away. They’ll take what they can get. What will private sellers do then?

Comment by txchicK57
2006-11-30 06:47:51

That is exactly right. I’d buy now if I could get one of those Cramer 55% discounts (which I don’t believe is real)

Comment by waaahoo
2006-11-30 06:52:38

I had a friend run that scenerio by a realtor who his holding some spec houses and was planning to delist them until spring. My friend said the realtor just looked kinda confused and said “I hope not” in reference to everyone dumping their house on the market at the same time.

Comment by Bill in Carolina
2006-11-30 07:37:38

Your friend the realtor thought, “OMG then there will be NO POSSIBILITY of a commission check until spring!”

Comment by Sarah in DC
2006-11-30 07:11:09

We saw exactly the same thing happen last Fall. A sudden drop in inventory, used by realtors and other interested parties to support a claim that the housing market was improving. Then, as now, it was just people taking properties off the market to wait for the ‘Spring bounce’. Could this be the year when the truth finally starts to dawn on the horrified, overextended sellers?

Comment by dawnal
2006-11-30 07:21:42

In support of your point, selling now might be easier as the realtors are still spewing positive on the market. They won’t have any credibility in the spring, I suspect. Just another reason not to wait.

Comment by jag
2006-11-30 09:32:12

Very good point; might as well act while there is a modicum of credibility for the happy talk of agents.

Comment by bottomfisherman
2006-11-30 07:25:57

Yes, and just wait until all of those foreclosed houses and REOs hit the market at the same time. Banks will unload them at any cost and they have no cares about ‘giving the house away.’

It’s going to be a bloodbath for sellers in spring ‘07.

Comment by Arizona Slim
2006-11-30 07:39:59

What, pray tell, is so special about next spring?

Comment by Housing Wizard
2006-11-30 07:59:44

What is special about the spring involves the NAR/realtors predictions . In order to try to control inventory the spinners/cheerleaders started a prediction campaign saying that next spring in 2007 the market would rebound after this short correction in 2006 .
Not only was this campaign designed to get buyers to buy now because of the urgency of buying before the big re-bounding market of 2007: the hype was designed to get people to take their houses off the market so the inventory would be lower .
Flippers /speculators that needed to sell became short term landlords waiting for the market to go up again in 2007 .
What alot of these soon to be sellers don’t realize is everybody has the same selling plan .The sellers are also under the illusion that BB will lower the rates next year and that fact will set off a appreciation market again .
So you are going to have so many people putting their house on the market in the spring of 2007 that you will never see a suppy side problem this huge. Than the rude awakening .

Comment by tokala
2006-11-30 12:57:01

Not many sellers are as knowledgeable or on top of the NAR/realtor press releases as those on boards like these. But the fact is that the MO for sellers has usually been to take houses off the market in the winter due to holidays, less daylight to view homes, landscaping not looking as good with little/no leaves, childrens’ school schedules, etc. Then it’s the everyone puts their house back on the market in the spring mentality. None of this is new. The hype is really just the NAR/realtors grasping at straws to induce some sales at the end of the year and rally buyers for the spring.

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Comment by arroyogrande
2006-11-30 10:29:38

“the hype was designed to get people to take their houses off the market so the inventory would be lower”

Exactly. So the theory is that there is a *ton* of hidden inventory, ready to hit the MLS come Spring 2007, when conventional wisdom says that buying will start briskly again. However, if buyers don’t come back en masse in the Spring Selling Season ™, and there is indeed a hidden inventory that will all hit the market come spring, the inventory will *explode*.

And if that happens, you will finally see some panic in the housing market.

Comment by GetStucco
2006-11-30 06:34:16

“The 39 percent drop for the Northeast came as no surprise to Patrick O’Keefe, chief executive of the New Jersey Builders Association. ‘The evidence is overwhelming that the state’s housing markets are weak and will continue to weaken,’ O’Keefe said. ‘This market in New Jersey particularly, given the economic concerns outside the housing sector, cannot see its bottom.’”

Last year’s prediction: Real estate always goes up. Trees grow to the sky.

Next year’s prediction: The market is weak and will continue to weaken. The housing sector is a bottomless pit.

Is this guy trying to deliberately create a crash?

Comment by Catherine
2006-11-30 06:53:23

“David Wluka, president of the association said the smaller sales drop-offs show him that ‘the market correction may be about over.’ But Wellesley College housing economist Karl Case is less optimistic. ‘All of the indicators, sales volume, prices, everything, are pointing downward,’ he said.”

Hmmm..which one to believe? President of a realtor organization?
Or housing economist from Wellesley? Who gets paid by what?
They gotta stop even interviewing realtors…it’s like interviewing death row inmates right before execution about the death penalty.

Comment by sohonyc
2006-11-30 07:04:31


At the end of the dot-com boom, America went through this really goofy moment when people suddenly realized they had been listening to financial analysts that worked for the very same banks that underwrote the dot-com IPO’s. Then there were lawsuits, accusations, regulations and a required separation of roles at investment banks, which made the practice illegal.

Now we’ve got the EXACT same thing happening and I point the finger squarely at the media. The fact that journalists are so unbelievably stupid as to use real estate industry execs as their information resource is just mind boggling.

Comment by snake_eyes
2006-11-30 09:10:59

They’re not stupid. They know where their advertisement revenue comes from.

Comment by az_lender
2006-11-30 07:07:55

Aim a bazooka/At David Wluka/Who makes us all puka

Comment by boulderbo
2006-11-30 07:41:08

Last year the press was using Wluka as a mouthpiece. Now at least they are using someone else in the article to mute this knucklehead.

Comment by Housing Wizard
2006-11-30 08:07:13

LOL Catherine , …../////Right on about the realtors being bias …..

Comment by Northeastener
2006-11-30 07:09:01

“Boston house prices plunged last month at their fastest pace in more than 13 years, erasing all gains recorded since early 2004”

And here I was worried that we’d only see a 10% decline in MA. A year into this housing recession and we’re already down almost 8%. What’s the consensus here for total decline in pricing for MA over the next three years?

I won’t pull the trigger on an SFH until 2009-2010, so hopefully this decline won’t burn itself out too quickly. When I can buy an acre of land in South Westport (MA) for $60K, I’ll know it’s time to buy. Currently that same lot is running about $125K.

Comment by sohonyc
2006-11-30 07:21:33

If it was just about a crashing real-estate bubble, I’d say -30%

But this isn’t just about real-estate. This is a perfect storm.
This is about the US economy, retiring baby-boomers, a paltry personal-savings rate, peak-oil, underfunded pension plans, the social security crisis, a loss of confidence among consumers, the death of American manufacturing, and a host of other “storms” combining into a never-before-seen Category 6 economic-nightmare.

This is going to so much more devastating than most people realize.

Comment by Bill in Carolina
2006-11-30 07:42:50

Ah, the old “static analysis” trap. Like it’s not possible for any of those situations to be changed, through new laws or changed behavior. It’s a trap that has ensnared even top economists and forecasters.

Comment by Betamax
2006-11-30 09:30:42

Of course, but none of the changes suggest a growing economy.

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Comment by tj & the bear
2006-11-30 17:34:40

New laws or changed behavior?? LMAO! You kill me, Bill.

As sohonyc points out, there are more crisis-level issues facing the U.S. than you can count on both hands, and any one of them — especially the housing bust now underway — is more than likely to trigger all the rest. Our “leaders” can’t even tackle one… WTH do you think will happen when they’re faced with all of them at once??

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Comment by Army No. Va.
2006-11-30 09:15:49

Lots drop much further than houses…..figure $30K-40K on the lot. It’s really hard to tell the bottom…but a good indicator is when the foreclosure inventory show sustained shrinkage over 6-12 months. Note - it will be cheaper to buy a resale house than build a new one at the bottom as well.

Comment by Northeastener
2006-11-30 09:43:03

The problem with resale houses in Westport is that the inventory is very, very skewed. Most properties are either older homes in desperate need of updating or if it is new construction, then ridiculously sized/priced McMansions.

Also, the zoning laws in Westport(typical of MA communities) make it very expensive to build/develop affordable housing. Right now a new 1700sqft 3bd/2bth on 1 acre in S. Westport runs $440K. Most of the new housing seems to be 2300sqft and up.

Just to show the insanity… I still can’t believe that someone (from CT, no less) paid $420K for a 1300sqft house near my parent’s home. While it is less than a mile from Westport Point/Harbor, it does not have a water view and the lot is very small and right on the rd. It is assessed at $251K. This is a vacation/investment property for them… I wonder how long it will be before they try and unload it, realizing how much work it takes to maintain a home during the winter here, knowing it is not appreciating (while expenses taxes continue to increase).

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Comment by Mary Lee
2006-11-30 14:07:01

….medical services outsourced to Asia…..climate change…investors “getting it” about back-dated executive options… The Chicago Boys won - before we all lost.

Comment by dawnal
2006-11-30 07:25:31

Wait until the lot is priced at 25,000. Won’t be too long from now.

Comment by JR
2006-11-30 07:40:36

Lots are dropping like a rock. Auburn, near Sacramento, you could not find a willing seller in 2005 for less than $350,000. Asking prices have been reduced to $199,000 and a lot is going on the courthouse steps next week. Loan balance: $146,000. Same owner probably turned down $300,000 last year. Paid $225,000 in late 2004. Land will be hit the worst. No possible income if you keep it.

Comment by Northeastener
2006-11-30 08:31:34

If lot’s hit $25K in S. Westport in the next three to five years, I’ll buy Ben a bottle of Dom Perignon and toast to his continued health and prosperity after the closing (assuming I haven’t been economically ruined in the aftermath of said depreciation in value of real estate and all that entails)…

These lots were going for $200K+ in 2005, so they have fallen quite a bit already.

Comment by Captain Credit
2006-11-30 07:44:58

Bwhahaha….60k/acre? 125/acre? Too funny… Even Dawnal’s estimate of 25k is high.

Comment by CA Guy
2006-11-30 10:21:51

A homebuilder recently backed out of an option they held in San Jose. The price worked out to $4M per acre! I think it was Pulte Homes, but I’m not certain. $1.5M/ac has been commonplace the past couple of years, even in the lower density regions. I’m assuming that is why they continue to build. Need to recoup at least a portion of that land cost!

Comment by mugsy
2006-11-30 07:12:24

“‘This market is paying the price for overheated appreciation,’ said Nicolas Retsinas, of Harvard University. ‘It was clear for a long time that it couldn’t be sustained, but it did last for a while.’”

Wasn’t Mr. Retsina in collusion with Mr. L as one of the head cheerleaders of the never ending boom? Funny how they trumpet the market up, up, up when they’re getting paid by home builders, realtor associations, etc. Shame, shame, shame.

Comment by Ben Jones
2006-11-30 07:25:09

Yeah, the Harvard bunch have forgotten all about their recent report that everything is peachy.

Comment by John Law
2006-11-30 09:48:19

damn, I didn’t see that. the circa 1930s harvard economic club would be so proud.

Comment by mugsy
2006-11-30 07:17:50

One other thing: Who are the sheep buying the HB stocks? Another up day for God’s sake! Might as well burn the money in a fire place.

Comment by dawnal
2006-11-30 07:30:09

The rally in HB stocks is manufactured by the PPT and supported by those who are in tune with the Fed. B of A and JPMorganChase come to mind. The PTB have turned on the mighty Wurlitzer which is filling the media with upbeat messages about the housing industry.

It is phony and won’t last very long but who knows how long?

Comment by garcap
2006-11-30 11:00:06

Uh no…. the stocks are up b/c BAS upgraded the entire sector. I read the research note. It’s pretty weak, but i’m guessing that few people bothered to look at it and ran to cover shorts because of the headline.

Comment by tj & the bear
2006-11-30 17:40:33

[tin foil cap] uh, did you ever think that maybe the PPT told them to write that research note? [/tin foil cap]

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Comment by fred hooper
2006-11-30 10:10:46

Just opened new shorts on KBH and TOL. We’ll see.

Comment by Mike
2006-11-30 07:25:04

I’ll repeat my advice to anyone thinking of falling for the realtor, “Reel In The Suckers”, line, “It looks like the correction is over.” Okay, Realtor. I’ll buy this property if you add this to our contract: ‘If the property drops more than 2% in the next 2 years and I decide to sell, you will pay the difference between the current sales price and the eventual sales price AND you eat the commission.”

Please take a picture of their expression and post it on this blog.

Comment by Catherine
2006-11-30 07:41:48

awesome idea!

Comment by Captain Credit
2006-11-30 07:30:22

From Ben’s post:

Article#1….The latest 11 months of decreases were marked by double-digit percentages, reflecting the sharpest and most sustained slowdown since the 1989 to 1991 period, according to the Warren Group.”

Article#2….”it reflects the most sustained slowdown since the bubble burst of 1989 to 1991.”

My point? We have two seperate articles looking back on the correction in the early 1990’s, yet somehow, for some reason, the public and even some on this blog seem to deny how bad New England got hammered after the late 80’s runup, which wasn’t nearly the scope of todays insanity. One can only imagine what a full correction of this market will look like.

Comment by SCProfessor
2006-11-30 07:45:01

What I’m going to view as interesting is that whole collection of neighbors who, as general contractors, built themselves a new residence (in the form of McMansions of course) every two years, creating untaxed sweat equity. They would sell there homes and take advantage of the $500K exclusion from capital gain tax at the end of the two years and move on building another family home. For these guys, this source of untaxed income is now a source of non-tax benefited loss. Going to be fun watching them live in these homes because they can’t sell them, all the time pouring money back into them in the form of monthly loan payments that down the road they will no longer be able to afford. About time they got a job like me where they have to pay taxes…….

Comment by Housing Wizard
2006-11-30 08:18:34

Agreed . I believe that the tax free capital gains on property every 2 years went a long way toward supporting the big speculator/flipper demand ,move up the property ladder, and than cash out the big house and have it made in the shade .
It has amazed me how many people bought real estate with a 2 year plan to sell after purchase .

Comment by Housing Wizard
2006-11-30 08:28:23

In fact , the short term speculator demand for housing was so extreme in the last 5 years that it had to be related to those tax fee gains .

Comment by Housing Wizard
2006-11-30 08:33:14

I mean tax free gains . In addition ,i wonder how this is real estate slow down is going to affect the flippers that have to rent for a while . I’m sure the plan was to declare the house as a primary residence, but how can they do that now that they have to rent the house out ?

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Comment by mgb43015
2006-11-30 08:02:15

can anyone shed light on what is happening on Cape Cod, Martha’s Vineyard and Nantucket? Thanks

Comment by jag
2006-11-30 09:37:23

From what I heard recently it is worse on the Cape than elsewhere in MA. Part of it is due to increased insurance charges.

Comment by arroyogrande
2006-11-30 10:03:54

“For millions of Americans, there is serious trouble ahead. The value of their biggest asset is falling, they’ve tapped their home equity dry and their adjustable rate mortgage payments are rising.”

“Sorry, can’t summon up any sympathy.”

“Those heading into foreclosure deserve no compassion, no empathy and certainly no sympathy?”

No, those heading into foreclosure due to recently buying a house that they could only “afford” with an exotic mortgage, or due to tapping their home equity dry to buy personal consumables and vacations deserve no sympathy.

Should I be sympathetic to the family that buys a $800K house with no money down on only a $90K a year income? What ever happened to “live within your means”? The family could have bought a smaller and less expensive house…or even rented. Why should I be sympathetic to a family that decides to over extend themselves, when they had the free will to make a safer (albeit, less show-offy) decision?

Should I be sympathetic to the family that takes equity out of their house to fund car purchases, nice vacations, boats, jetskis, and plastic surgery, only to find that they now owe more on their house than it’s now worth? Are you telling me that someone forced them to live beyond their means, and that they *had* to buy all of these neat toys and gigaws?

No, I’m sorry, I can’t muster sympathy or empathy for anyone that makes a conscious decision and their God-given free will to make risky decisions, especially if there are reasonable alternatives (buy a smaller house, rent, don’t buy toys you can not afford).

This sums it up nicely, and should be required viewing for *everyone*:

Saturday Night Live skit: “Don’t Buy Stuff You Can Not Afford”:

Yes, I have compassion, sympathy, and even charity for those that, through unforeseen circumstances, find themselves in dire straights (medical emergencies, etc.) But tell me, do you think that the majority of home equity extractions today are used for medical emergencies, or for toys/home improvements? What ever happened to “don’t buy stuff you can not afford”?

(PS Sheryl, I followed the web link in your name…are you in the mortgage industry? Don’t you have a vested interest in people continuing to buy houses they can not really afford, or doing equity extractions to fund personal items?)

Comment by txchick57
2006-11-30 10:22:51

HA! Very good! She was a realtor or mortgage broker! Good luck with that!

Comment by CA Guy
2006-11-30 10:40:40

arroyogrande: excellent summary. When taking out a 3% ARM, you KNOW your payment is going to rise. Tapping out all your equity is nothing short of stupid. You’re right, a lot of it was used to fund toys, vacations, and extravagant kitchens and baths. Having lived through the 1930s and fighting in WW 2, it is no wonder my grandparents shake their heads in confusion.

I had a feeling Sheryl Larson depended on the bubble, but never thought to check her link. Too bad, so sad for her.

Comment by ronin
2006-11-30 10:45:08

No matter how much sympathy you may summon up, it’s those very people who contributed to the mania to drive up the price of houses. Whether or not they were innocent, that bubble helped make prices unaffordable to the general public. When doing so, they certainly were not thinking that we are all in this together- rather they were thinking of getting in while they getting was good, devil take the hindmost.

Comment by arroyogrande
2006-11-30 11:04:17

Exactly…I *am* sympathetic to our best friends (married to each other, with kids)…they took a risk in starting thier own business, which failed. Instead of claiming bankruptcy, they decided to pay off everyone they owed. The husband got a nice paying job (working for someone else), they trimmed their expenses to the bone, and they paid everything they owed (tens and tens of thousands of dollars). Howevr, even with making over $120K a year, the family can no longer afford to buy a house in the OC. At least, not without taking out an exotic/risky loan.

They are now staring to save, for retirement, for emergencies, and for a down payment (remember those?) on a house or condo. *These* are the types of people I feel sympathy for…and for them, I hope that house prices come down.

Comment by Housing Wizard
2006-11-30 10:45:21

When I was in the lending business I would always push for the buyers that had prior lates because of medical problems or some other exceptions . If the lates were based on spending problems my attitude was I wanted them to put more down because they were a greater risk .
Screw all these people who can’t say no ,they are a bad loan risk .

Comment by Chris
2006-11-30 12:31:11

Burnham has decided not to drop his price again. He’s taking his house off the market for the winter, making a few changes and then will try again in February. Warren said that he thinks it’s a good strategy.”

Yes, a brilliant strategy consists of following what everyone else does. It is also works best if you find ways that DO NOT make your position unique or hard to duplicate.

Might I also suggest, Mr. Burnham raise his price in February and spring time since that is when all the buyers come out from hibernation (since buyers will be so groggy and will foolishly pay more 3-4 months from today.)

Comment by Sammy Schadenfreude
2006-11-30 16:40:12

“‘Buyers have started to move forward,’ David Wluka, president of the realtors’ association, said yesterday.

Um, yeah…I’m moving forward toward my fridge, so I can grab a cold one and toast the bursting bubble.

Comment by tj & the bear
2006-11-30 17:48:45

You serve your namesake well!!! :-)

Comment by BK- former owner
2006-12-01 05:44:43

Dear Dan - Your friend made the classic mistake.

I read Dan’s comment about his friend who moved from Chicago to Boston and HAD TO BUY A HOUSE.

I moved from Boston to another State and we chose not to buy a House. The hardest part is the cultural sterotype that you are a Renter. Dans friend couldn’t make the tough decision - the right decision to rent. Commonly held belief is that the children wouldn’t have been raised properly in a rental.

Dan- there are lots of great housing for rent in the $1,800 -$2,100 range. Most home owners don’t fully account for the costs of the House they are living in. They never figure in cost of repairs, tax increases, or loss of income if their nest egg was invested in something else.

There are a few times in life where we have to make tough financial calls - those of us with the fortitude to go against the crowd can make the right decisions.

I have great sympathy for Dan’s friend and others who couldn’t pull the trigger and become a Renter (a renter with portable wealth).

Comment by resveratrol
2008-04-18 20:00:43

More here. Yet, Spitzer refused to take action against an abortion clinic that did engage in deceptive practices , including “advertising in a section of The Yellow Pages that is solely reserved for organizations that do not provide abortions or references for abortions.”

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