Bits Bucket And Craigslist Finds For December 23, 2006
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Merry Christmas and a happy New Year to all.
Merry Christmas Russ, Thanks for all the great information and your efforts.
Merry Christmas from Sacramento!
Pulte New House: 88% Off
Sacramento Land(ing)
Merry Christmas & happy new year, Russ!!! Thank you for all your insight!
Ben,
With your permission, I’d like to post here as “John M”. Your spam filtering didn’t like the idea the other day.
I prefer to deal with utility issues through email.
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your spam filter is vicious and ruthless.
And thank God he has one…
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On an itensity scale of 1 to 10, i think it’s set to about 15. Is NAR and NAHB that powerful???
I don’t think you would like to have to scroll through the hundreds of disgusting spams I have to get rid of everyday. Plus, posters don’t have to enter that squiggly character thing.
things are moving south.. at least in my zip, 94539.
I have been watching this http://tinyurl.com/ylu2nn for a while now.. Started with $825K, reduced to $799 and sold for $764 (Zillow).
okay, should have given some background.. 94539 is considered one of the best school districts in bay area, CA…. so much for the “single family, best location will hold” theory!!!
That still seems too high. How much would it have sold for in 2000?
zillow shows it sold for $585 in 12/2000…
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Start Amount $585,000
Rate 3.50%
Years 6
End Amount $719,114
Offer no more than $700,000.
Sellers are stubbornly holding on to their selling prices. A little econo-correction in January should help loosen them up like a cocktail for a barfly…
3.5 is generous. 3 max.
I don’t think it’s time to make ANY offers on any property. My feeling is we will (possibly) get a dead cat bounce in the spring but that’s all it will be AND I’m not even 100% convinced we will get that. Especially if we get more rumblings about a possible recession the closer we get to summer 2007.
Of course we cannot trust government figures on employment anymore (or any government figures come to that) but there is a whole section of our workforce that will be unemployed the more this mess un-winds. Mostly those in the construction and property finance industry and the various trades and professions on the edges. Watch the drop off in realtor numbers as they start to starve and begin turning in their leased Mercedes.
When this mess finally ends, buyers will have plenty of time to pick and choose from the rubble. Possibly years with very little movement price wise.
For example, I know of several people who got shafted in the stock market bust and not one of them would touch a stock again. Ever. In fact, I know of very few people who invested in that boom and bust who came out unscathed. The same thing will happen with property. The buying psychology will have totally reversed (if it hasn’t already) and the stories of foreclosures, bankruptcies, divorces, scams, frauds, perp walks, etc, will make buyers very leery.
If we have hearings in Washington on the fraud, scams, etc, complete with victims telling their stories on tv that will only add to the anxiety. Also, banks are going to be more conservative so that no down payment and free money gimmicks will have gone. That will exclude even more would be buyers.
I still think, if you can rent at a reasonable price, 2008/9 or even 2010 might be about right but there will be no need to hurry. With this massive build up of inventory, thousands of fb’s, thousands who’s credit will be destroyed, buyers will be able to pick and choose.
In a nut-shell, Ben’s blog could be around for a long time.
“My feeling is we will (possibly) get a dead cat bounce in the spring but that’s all it will be AND I’m not even 100% convinced we will get that.”
I get the DCB idea in equity markets, as there are always deep-pocketed players sitting on the sidelines waiting to buy the dips. But given the leverage needed to buy real estate, I am wondering what qualified buyers would drive the DCB in home prices?
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here are my handy spreadsheets if anyone wants them -
http://www.files.bz/files/11251/RealEstateValuationMethods.xls
http://www.files.bz/files/11251/Financial%20Calculator.xls
http://www.files.bz/files/11251/property_analysis.xls
“I get the DCB idea in equity markets, as there are always deep-pocketed players sitting on the sidelines waiting to buy the dips. But given the leverage needed to buy real estate, I am wondering what qualified buyers would drive the DCB in home prices?”
Maybe we should define what a DCB is for this RE Market. I’m thinking that there will be slightly more activity 2Q 2007 vis-a-vis sales, but I don’t foresee a significant uptick in the median price for my zips.
Too much inventory of every kind of residence: 700k MickeyMansions thru 150K condos. Just this morning I drove by: One big-a$$ McMansion - FOR RENT. Brand new. About a quarter mile down the road from another McMansion, framed and OSB’d, unfinished, just sitting there in a semi-complete development, which was one cul-de-sac down from another undersold, incomplete development of 700k starter castles.
The OSB house was directly across the street from a SFH that’s about 3-4 years old, a product of the Big Boom - FOR SALE.
Anybody who wants to inhabit that particular square half mile of PA is going to have fun negotiating with the Builders, in two cases, and the Homeowners, in the other two.
The strangest thing about that area is that the new homes are particularly out of place with what already existed. These big LOOK AT ME houses have been plopped down in the middle of 1960’s-70’s era brick/siding 2000 sq. ft. ranchers and colonials. I can just see the salespeople telling prospective McMansion buyers that they shouldn’t worry about the existing “older” homes cluttering up the neighborhood, because soon they will be torn down and replaced by nice shiny Big People houses, just like they’re about to get.
Mike wrote I know of several people who got shafted in the stock market bust and not one of them would touch a stock again. Ever. In fact, I know of very few people who invested in that boom and bust who came out unscathed. The same thing will happen with property.
The difference: You can dollar cost average in equity funds but you cannot dollar cost average in a house.
So you invest $1000 per month in fund X. Its NAV in 2000 was $100 and now it’s $80. You lost big time? Not necessarily. If you kept investing $1000 per month you could have bought lots of months of bargains in 2002 - 2003. On the other hand, you have to be solidly lucky in RE. A lot of people who lost big in stocks in 2000 could not buy a home in 2000 and had to wait until 2004 or 2005 when they recovered from the stock crash. BOOM!The real estate bubble bursts and now they got struck in the second crash. They should have been DCAing into stocks instead of saving to buy RE in 2005.
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so simple even a caveman could understand it? i think sometimes are so jaded that they only believe what they want to believe.
i think the people most adamant about how “risky” the stock market is today are the ones who were the most reckless tech investors in the late 1990’s who got burned and know they dismiss history’s best performing asset of the last 80+ years. then they’ll finally capitulate and want to jump in all at once at Dow 20,000 right before the next crash - rather than start dollar cost averaging today.
I’m pretty adamant about how risky (no quotes) the stock market is now. I have a small portion of my portfolio in an international stock fund, and am prepared to lose any or all of it. Otherwise, I’m not getting back into the market before the next crash… which by the way I expect fairly soon. But I’m in no hurry; my other investments are doing very nicely.
Reflections on Christmas:
http://wallstreetexaminer.com/blogs/winter/?p=225
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It’s the “evil” CORPORATIONS run by CEOs that create jobs and drive the economy. NOT the government. Stop villifying them. Americans are the biggest consumers in the world because we are the most PRODUCTIVE. Merry Christmas!
This is provably false. Creation of jobs and driving of the economy is done with growth. Maturing growth may be managed by corporations, but big companies have a terrible record when it comes to innovation. Most genuinely new things come from outsiders working alone or in small companies. There are as many examples of this as one cares to look for, but a particularly apt and trendy one is the iPod which Apple assembled from the products offered by existing OEM vendors.
This is relevant to housing because there is a whole host of cultural and industrial factors that have to come together to make hit products possible. Where these factors do manage to come together there are many results including greatly increased productivity and rate of growth. Housing prices in these high growth areas are always higher in general as well as more volitile than other areas.
Instead of knee jerk reactions that business is good it would make more sense to take responsibility for the world as it is and attempt to optimize variables. Some corporations are better than others in various respects, so it is not the case that all corporations are equal, related, and acting in a coordinated manner as you implicitly assert.
Corporations are very productive, but the money went to cash hordes and CEO bonuses instead of innovation and rewarding productive employees. As a result the Pension Benefit Guarantee Corporation, only recently created, is about to explode. Reactionaries see this and complain that corporations are only ever totally good and just pointing it out is evil, but it is possible that massive collapses of pensions across the board could have an impact on housing, the economy, even the society as a whole.
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so many words but nothing said.
No, he politely called you Johnny one note.
Somebody who isnt very bright who keeps chanting the same thing he heard somebody say that almost made sense once.
Phillygal,
It’s great to FINALLY find someone else in the Philly area who realizes that “it’s different here” Philly isn’t different in terms of a RE bubble. I would like to discuss more of the local stuff via email. Send me an email at vedere2 @ aol. com. (Remove the spaces, of course.)
OK I’ll catch up with you next week.
Me too. My daughter and SIL are itching to buy something in south Philly.
Looking for some advice, a few months back I posted a comment about a friend of mine ( ex- paratrooper) I served with in the Army and how he and his family were in financial troubles because of a house note they could not afford. Recently he asked me if I could help him out , he owes 10,000 for 3 months on a mortgage that he hasn’t paid yet. I believe the banks have already started the foreclosure process, my advice to him was to sell, which he refuses to do. Does anyone know or have any advice for this…either payment plan or refi??? I am not an Re or banking expert therefore I have no clue what to tell him besides he is f***ed.
accroyer
someone suggested a weekend topic of being able to say no for situations like you stated
as much ai it pains you for a friend i would say no personally
unless a 10k hit is not going to cause heartache at home
you more than likely will never see that 10k again
He has two more months before it goes to auction. His only option would be to negotiate a short sale and have it sell between now and then, which he seems unwilling to do.
Stand by and offer to help them move when they need it.
sellnrum is right. This guy is not going to listen to anything you have to say so don’t offer advice. If you really like this guy just be there for him when he is picking up the mess of his bad decisions.
Absolutely do not loan this guy money. That will certainly kill the friendship even faster than giving advice that he doesn’t want to hear. Then you will be like the man getting dragged down by the drowning guy.
Let him make his mistakes and learn from them. I see no other possible solution.
The guy used to jump out of airplanes for a living, how could you expect him to make sensible decisions?
Giving him money would be a mistake, he would just throw it away buying another month in his mess.
If the house is auctioned off who gets stuck with the difference? Is this forgiven by the banks or do they expect it to be paid back. The reason I am asking this is because that will be my final answer to them ( sell the house , ask the bank for forgiveness for the remainder debt and move on).
I think it depends on state law. Some states are “non-recourse”, meaning that the bank cannot come after the difference between the sales price and the deficiency. Also, I believe in Calif. the non-recourse only applies to the original mortgage used to purchase the house, so any refi’s do not fall under that. Also, things like 2nds may not. I am not a lawyer, nor do I have any experience in this matter - this is just info I have picked up along the way. Time to look into state law after finding out exactly what type of mortgage(s) your friend has.
I think the best advice you can give him is to cough up a few hundred bucks and see an attorney.
Jewish lightning!
A past due mortgage rubbed against a paid up HO insurance policy will create a fire quickly under any conditions…
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i’m surprised someone hasn’t called you a racist yet.
hahaaahahaaaha… mmmmahahaaaa.
maybe because…Jews normally are not black? If it was a remark about blacks, there would be dozens of attacks on him. Double standard and why I am not a liberal.
Things I know about Bill (from his own posts)
1.) He doesn’t like that rap crap.
2.) He doesn’t like “them” living in his neighbourhood.
3.) He’s rich (wheeee!)
4.) He’s an engineer (how the hell he gets paid what he claims is anyones guess ’cause it doesn’t sound like he’s much of a team player.)
5.) He doesn’t really care for “them liberals”
6.) Oh, btw, he’ll defend “blacks” as he likes to generalize, because, well, it wasn’t even mentioned, but it gives him a chance to diss liberals if he sees a straw man standing alone on the field.
I’m surprised no one has called you a criminal yet..
Don’t give him money. I agree with the other response. That will be a quick way to ruin friendship. I loaned money to people before and they did not pay me back. The worst case was $20,000 two years ago. That was basically grand theft, on their part. It’s best to never tell anyone how much money you have unless you have anonymity, like right here on the blog.
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if anyone asks for money, i tell them that all mine is all locked up in the stock market and/or LT CDs. even though i keep well over 200k liquid in a tax-free money market.
Oh really …hmmm…
There’s a couple condos I’d like to buy in Naples, FL…but I’m short about 75K. Could you spot me, Gekko, you’re sure to get the money back. Next year I’ll be able to sell those places at twice what they cost today! So many Baby Boomers and foreign investors swarming the Fla. Gulf Coast doncha know.
I know I can depend on you , since you’re such a nice guy, providing handy spreadsheets and such for us bloggers.
0% interest, of course.
Yesterday a very irresponsible relative (Aunt) asked for a $2K loan. Said I would think it over, overnight. Decided to tell her no loan, but I would send a one time gift of $200. I thought a good solution. She can fired (again) yesterday. But knew it was coming. Had months to look for another job.
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sounds like a great solution.
Gekko, I said almost exactly the same thing when one of my sisters asked me for money 4 years ago when I was living in New Jersey. I said my money is locked up in bonds and I get a penalty for early redemption. I had $20,000 stolen from me by a friend 2 years ago and when another sister found out, she was shocked. She has not asked me for money at least since then. Hmm…as for that MMF, I know you are probably talking about the Vanguard tax free money market fund. You are a Boglehead, and that is not an insult, you know.
yup!
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Bill - I only have two sisters. Both are pretty responsible, but if one of them needed some money, I would loan it to them - but i would write it off as a GIFT - and assume i’d never get paid back. I’d limit it to like maybe about $5K. After that, they’re on their own. Blood is blood.
I’d have to agree with the others here….if he’s not been able to make the first three payments, then he’s probably not going to be able to make them, ever..so your loan, no matter how goodhearted, will either be the first of many, or will never be repayed. If he’s having difficulty already - only three months in - then its fairly obvious he’s bought ‘too much house’ and subsidising him is just throwing good money after bad.
As he’s also unwilling to consider selling to get himself out from under the property, there’s nothing much more you can do.
Offering advice may help, but as he gets more desperate he might start blaming you for not providing the ‘perfect’ answer - ie he gets to keep the house and pay the mortgage - people do wierd and irrational things when in a bind, and he may very well find himself in ’shoot the messanger mode’ due to huge financial stress.
Sounds like he’s leaning on you both financially and emotionally - if he really wants help, offer to sit in when he goes to meet with the lender/bank, help him plan his finances, create a spreadsheet to show him exactly how much a month he can really afford if he’s not good with math. As others have said, offer him help with moving when the time inevitably comes, mayber even putting him and his family up for a few days. And, no, don’t lend him the money.
It’s a sucky situation for you to be in. No matter how much we pour scorn on FB’s here - its a different kettle of fish when its your friends/family.
Especially if you read blogs like Ben’s, you have a sense of just how grim things will get - and any friend would want to help another friend from avoiding financial ruin and bad credit and possible marital strife.
Doubtless he’ll curse you for not providing a quick and easy (cash)way out, but in the long run, once his head clears, he’ll realise you did him a huge favour - imagine him a year or two down the line trying to pay his mortgage, lending from Peter to pay Paul, scrimping and cutting to make the monthly nut..how stressful and joyless his life will be, all for a house. Better to get the pain over with now and get on with his life.
Sorry, I don’t normally waffle on like this, but your post really touched a nerve - I couldn’t imagine being in a situation like yours. Good luck.
Let us know how it pans out.
I’m with winjr on this…tell him he needs a lawyer. He’ll have his options spelled out for him by a disinterested pro, any legal rights he has will be protected, and the decisions will be his. Don’t lend him money, and also don’t give him advice.
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How to say NO! to anything — or anyone
http://articles.moneycentral.msn.com/SavingandDebt/ConsumerActionGuide/HowToSayNoToAnythingOrAnyone.aspx
He must find someone who will buy the home for $10,000 and take over the payments. If he bought the place six years ago this will not be a problem if we bought it within 3 years he is doomed.
Obviously, you have the 10K, or it would be a non-question.
Therefore, loan him 10K after the foreclosure. You can’t save the situation. But you can help.
Endless thanks to this blog for alerting me to all kinds of financial landmines. PS, Russ, who do YOU want in charge?
I am not giving them a dime , but would advise them to work out a plan at the bank if at all possible. I guess I probably didnt word that right, I was looking for advice to give them.
DO NOT GIVE ANY ADVICE. I never use all caps but I think you might need it here. This guy doesn’t want to hear it. If you give advice the friendship will die.
agreed. keep both your wallet and your mouth shut. as hard as it may be, just be a sympathetic ear. if he asks you for money, tell him that yours is all locked up in the market and/or long-term CDs.
accroyer -
You’ve done all you can. He’s 10K behind and he can’t make the nut. You told him to sell. He refused your advice. In all likelihood, within short order whoever holds his note will sell the house for him.
http://www.gazette.com/display.php?id=1328029&table=story_archive&sec=1
More Katrina vermin in the news - a pair of evacuees repaid the good citizens of Colorado for sheltering them, by murdering a 7/11 clerk near Denver.
I’d like to chat with you offline sometime. I”ve got an FB friend I’d like to vent about and don’t want to put it here where he might see it.
Sammy,
do you have any status on Colorado Housing market? Have homes started depreciating?
Ashter,
Which part of CO? I only track the local (Colorado Springs) market. In general, I haven’t seen any widespread depreciation. What I’m seeing is an significant and accelerating rise in foreclosures (mostly at the lower ranges of the market, but more and more $500K plus homes as well. Inventory is also way up, though a lot of the sellers have evidently pulled their homes off the market in anticipation of the NAR-promised Spring Miracle Revival. A lot of military people are transitioning into this area, and most seem to have no understanding that now is NOT a great time to buy. That said, it looks to me like most resale homes, at least, are coming onto the market overpriced (2005 peak) and then languishing for months. In the prestigious Old North Side area, some of the listings are going into the second year, despite some relatively paltry reductions. So right now I’d characterize it overall as a standoff.
I have noticed that the very widespread perception that I encountered on moving here in 2004 - “it’s different here, everybody wants to come here, prices only go up” has shifted. Now the fear is palpable (among FBs-to-be) and some of my wife’s friends are admitting: “Your husband was right. You guys were smart to have rented.”
Thanks Sammy, I was looking for Colorado Springs information in particular.
1. If you emptied any city of its population, you would get stories like this.
2. Convenience store clerk is a dangerous job, anywhere, with or without refugees.
And that goes double for cities with no industry apart from tourism. New Orleans is not just cursed by terrible poverty, it is an example of a broken and ruined culture. Any abstract index measure of Creativity, Tolerance, or Equality shows a third world city that would fit in much better south of the border. In many ways that city was already set for a fall, it was just a matter of when tragedy would strike.
If we hanged scumbags who committed armed robberies, I’m guessing those late-night clerks would be a lot safer.
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we need less appeals and faster executions for those convicted of murder.
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no bleeding heart liberals dare to challenge this assertion? i’m shocked!
With the benefit of a perfect justice system, I would agree.
Given the number of people subsequently found to be innocent, you could kill innocent people.
Better to lock them up…
Loafer
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i say give them 7 annual appeals. then fry ‘em.
bill and gekko, this is the 2nd time you guys are trying to bait liberal to respond the way you thought of them. if your impression of liberals are simply about *defender* of blacks/racism or bleeding hearts, you are sadly mistaken.
“Liberal” here. Very much in favor of capital punishment. Agree with Sammy. Those who commit murder (especially in the commission of another crime) deserve to hang.
Threadjack!
“bill and gekko, this is the 2nd time you guys are trying to bait liberal to…”
Where’s the “bill” post in this thread (besides this particular post)?
“More Katrina vermin in the news - a pair of evacuees repaid the good citizens of Colorado for sheltering them, by murdering a 7/11 clerk near Denver”
Here in Los angeles/Scal region there has been some serious crime incidents last few days. In one case a 12 year old boy was killed in San bernardino in a shooting involving illegal alien drug smugglers. In Long Beach two Police officers were gunned down in a routine traffic stop. Also a shooting of some nightclub bouncers at some LA dumpzone. I think that we will see a sharp uptick in criminal activity in the greater LA region as the recession and RE bubble collapse hits here. Much of inner LA and the IE have become like the wild west, where any thing goes and the criminal gangs basically do as they please. Remember, the LA riot in 1992 occurred right in the midst of the SCal RE downturn of 1989-1996. Prior to that there was a surge in criminal activity from the mid-eighties up to the riot year. And yes, there was quite a bit of illegal-alien fraud activity during that period, including an epidemic of auto insurance accident frauds.
I worked in and around the LA inner city areas during that period and believe me when i tell you it was(and still is), a free-fire zone.
You didn’t mention the cop who was killed in Oceanside (San Diego) just the other night during a routine traffic stop. Seems the gangs might be placing “newbies” as snipers around various neighborhoods. Kind of like traps. If a cop stops one of their “homies”, they get shot.
I can’t say this is definitely the situation, because they are still investigating. But, based on the neighborhood (our old — sold — house is less than a block away from the shooting) and its pre-bubble history, I’m thinking this may be the beginning of the “Revolution” I’ve heard rumblings about.
Very scary, and again, what some on this blog were predicting quite some time ago.
Ya’ll will get a kick out of this re our recent discussions of hedge funds.
http://www.gawker.com/news/new-york-magazine/the-totally-outsourced-hedge-fund-manager-223688.php
Looks like they are looking for a substitute mother to me. They don’t even make time for their kids, pathetic.
Seriously, a real hedge fund manager would be looking for a source of risk and potential profit to balance their child against.
My sister (who reads no newspapers and only checks the value of her 401(K) holdings at tax time) keeps asking me whether she should “pull” her money out of the stock market. This is definitely a shoe shine boy moment if ever there was one…
The answer is yes.
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“pull her money OUT of the stock market”???
Sounds like a buy signal. Sell signal is when everyone wants to BUY.
Sell signal is when guys like you are bragging about how they became millionaires through dollar-cost-averaging into index funds.
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it ain’t bragging if you’ve done it.
i’ll let you know when i hit $2M.
Leigh Gallagher now has the title of Dumbest Boob on Fox News Channel. Buying in late 2007 will be great, she blathers. Why does anybody let her speak? Why do I even try to watch this crap?
Somebody shoot down the Fox News Channel satellite. Fast!
“Somebody shoot down the Fox News Channel satellite. Fast!”
And kick Lereah in the balls.
A nice touch Captain.
Merry Christmas everybody!
It’s off to Northern New Jersey. I will have anecdotal evidence on the state of their housing market for all of you on Monday or Tuesday. Be safe and remember to build great memories with your families and friends all weekend long.
You might want to give ‘grim’ a copy of your anecdotals as well. His blog specialises in that area.
From today’s WSJ Money & Investing section, p. B1 (my comments added in parens):
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New Rules for Real Estate
Boom Over, Investors Focus on Fundamentals, New Areas; Rental Properties in Kansas City
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By Ruth Simon
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Battle-scarred mom-and-pop investors are still dabbling in real estate. But they are changing the rules of engagement (I thought real estate investing was a certain path to riches, not a battle!).
During the housing boom, many individual investors went deep into debt to buy investment properties — rental homes and condos — in hopes of selling quickly. The goal: Cash in on soaring prices (aka find a greater fool before the Ponzi scheme collapse identifies you as the greatest fool). They may have had little or no intention of being landlords for the long haul (especially since their cash flow was negative from the outset).
Despite the end of the speculative craze, a number of markets in the fragmented real-estate world continue to lure investors willing to adjust their expectations. One key move: As rents take off, buyers increasingfly focus on multiunit rental properties instead of the single-family condos and homes that were popular during the housing boom (but I thought all the multiunit properties were condos now, thanks to the condo conversion craze).
Some investors are also shifting money into regions of the country where they expect prices to continue to rise, such as Texas, the Kansas City area and parts of North Carolina (cause everyone wants to live in Kansas City!).
Developers are also crafting special promotions, such as guaranteed rental income for as long as five years (developers must believe the bust will last more than five years, then). Deals like these are particularly common in Florida, but they are also appearing in other markets, including Philadelphia and Myrtle Beach, S.C.
Another major shift: Most investors are focusing on the fundamentals that guided the market before the housing boom, especially cash flow — the ability to actually make money from, say, rentals, rather than from quickly selling the property (if this is really true, the market is so toasted). They are sticking with properties that turn a profit, or at least break even, after factoring in interest payments, taxes and other expenses (in what miniscule fraction of the national US housing market can one currently find residential RE at prices that pencil out as rentals???).
That is a change from the past few years, when speculators were willing to lose money each month in hopes of selling for a big gain.
Here is the whole thang…
http://online.wsj.com/public/article/SB116682378521958002-vNERuVRSbsRmpj6r6_a4Tj7L6_E_20061229.html?mod=mktw
“Many speculators who bought property during the boom may now be facing a tough choice. They can either lose a moderate amount of money each month while they wait for the market to rebound, or they can sell and take the pain all at once. Refinancing the mortgage could help under certain circumstances, such as when a borrower has an adjustable-rate mortgage that has reset to a higher interest rate. But for those who took out exotic mortgages with low monthly payments, refinancing may bring no relief.”
Boy does this sound like the tech stock bust — counting down the days until cash burn sank all the dot com startups into bankruptcy. Unless this time is different, foreclosures will drive down prices at the most rapid rate in 2008 or so…
“Another major shift: Most investors are focusing on the fundamentals that guided the market before the housing boom, especially cash flow — the ability to actually make money from, say, rentals, rather than from quickly selling the property (if this is really true, the market is so toasted).”
I nearly keeled over reading that.
‘”Making a minimum of $50 to $125 monthly on each house is what we’re shooting for,” says Wendy Kallberg, a recent investor in Newport News, Va., who has purchased four single-family homes and condos over the past year at prices ranging from $67,000 to $140,000.
“I’m not interested in flips,” Ms. Kallberg adds. “In six or seven years, I will go and sell the property.”‘
Good thing real estate always goes up over the long run — except for during a bust. I predict Ms. Kallberg will find her investments still under water in seven years.
does he realize the opportunity costs of making $50-150 bucks a month on a home?
“Developers are also crafting special promotions, such as guaranteed rental income for as long as five years. Deals like these are particularly common in Florida, but they are also appearing in other markets, including Philadelphia and Myrtle Beach, S.C.”
biggest scam ever. I bet the developer throws you a hundred bucks or so a month until he goes under and you get nothing from the builder.
if the builder throws you $500 bucks for 36 months, that’s basically just a $20,000 reduction you get if the builders stays in business.
lower the price!
no
Given the War on Savers, is it a good idea to pay off your mortgage early? Today’s WSJ takes up the pros and cons on p. B4.
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Where to Put Your Extra Cash
Paying Mortgage Early? Study Sees Benefit in 401(k) Focus Instead
By Jilian Mincer
(Why does getstucco suspect the study was funded by Wall Street money?)
I don’t have time to type in the whole article (hoping someone can provide electronic access), but here is a line which grabbed me:
“To eliminate risk, the researchers assumed that the 401(k) investments would be in safe Treasury or mortgage-backed securites.”
This sentence seems to reflect the popular view that on a conundrumish planet where risk premiums have been abolished, Treasury bonds and mortgage-backed securities are equally risk-free. I wonder whether this logic can survive a real estate bust?
To answer your question in the parenthesis, I’ll use a question: Why has the Dow increased at an annual rate or 10.1% per year since 1926, or 7.1, accounting for the average inflation rate, yet real estate increased an average 1% per year since then? I have no fear of Wall Street shysters. I am mostly into stock mutual funds for my equity portion of my portfolio. All I know is that my basis is well below the NAV for most of my funds. I’m bullish on America in the long run (got 20 years?). I am very bearish on America in the short run and intermediate term (up to ten years).
“I’m bullish on America in the long run (got 20 years?). I am very bearish on America in the short run and intermediate term (up to ten years).”
Ditto.
> I am very bearish on America in the short run and intermediate term (up to ten years).”
this is good if you are relatively young and in the ACCUMULATION phase of investing. keep dollar cost averaging into stocks and you will be them cheap if you’re right. if you’re wrong, you will still be buying them cheap. and in 20 years you will be sitting pretty. of course, stay diversified.
“this is good if you are relatively young and in the ACCUMULATION phase of investing. keep dollar cost averaging into stocks and you will be them cheap if you’re right. if you’re wrong, you will still be buying them cheap. and in 20 years you will be sitting pretty. of course, stay diversified.:
this is probably the worst advice ever. you might as well buy a home using this advice.
who wants to lose money on investments for the next 5-10 years?
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this is not lump sum investing - it’s dollar cost averaging. those who sucked it up and regularly bought stocks in small amounts from 2000-2003 made lots of money. i’m one of them. you use the volatility to your advantage. where do you invest your money, silly?
Gekko,
You must be quite a stock-picker. Stock indexes are flat to sharply down (Nasdaq down over 50%) over the last 6 years. Nominal dow peak which is actually negative if you adjust for inflation and/or the 30% decline in the USD. S&P down even in nominal terms, etc.
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try to wrap your brain around what the return would be of a continual regualr fixed dollar montly investment over the last 5 years into the S&P 500.
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http://tinyurl.com/yzhl4b
John Law, actually it’s not bad advice. It never ceases to amaze me how people keep belittling dollar cost averaging, yet it wins over all attempts to time the market. No one can time the market and accumulate a higher amount of wealth over a long term than a dollar cost averager. I know DCAing works. I’ve been averaging over the last 17 years. Some of my best wins were in 2002 when everyone thought I was foolish to buy stock market funds every month.
You would think these people, who post bright and insightful paragraphs about this RE bubble would at least know some of the basics of asset allocation and dollar cost averaging. Many of these are smart people, but not so smart when it comes to stock funds. They must have bet their virgin daughters in January 2000 that the top 100 dot com stocks would go up in value 500% or so. Maybe that is why they are so against equities! All I know Gekko, is that I’ve done the math. I’ve seen the math replayed over and over. It’s the combination of buying more shares at low NAVs, compounding, and buying fewer shares at higher NAVs that make DCA a winner over stock picking in any 20 year period.
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Bill - we typed a similiar comment almost simultaneously. Great minds think alike!
From my post from above:
i think the people most adamant about how “risky” the stock market is today are the ones who were the most reckless tech investors in the late 1990’s who got burned and know they dismiss history’s best performing asset of the last 80+ years. then they’ll finally capitulate and want to jump in all at once at Dow 20,000 right before the next crash - rather than start dollar cost averaging today.
know = now
ry to wrap your brain around what the return would be of a continual regualr fixed dollar montly investment over the last 5 years into the S&P 500.”
I did your homework for you Gekko.
http://www.moneychimp.com/features/market_cagr.htm
Not exactly a ‘lot of money’ is it?
“John Law, actually it’s not bad advice. It never ceases to amaze me how people keep belittling dollar cost averaging, yet it wins over all attempts to time the market. No one can time the market and accumulate a higher amount of wealth over a long term than a dollar cost averager. I know DCAing works. I’ve been averaging over the last 17 years. Some of my best wins were in 2002 when everyone thought I was foolish to buy stock market funds every month.”
why would I DCA into a losing market? like I said, you might as well buy a house. if you aren’t going to time the market, you might at well put all your money in your bank account or bonds. just because DCA worked for the last 17 years doesn’t mean it’ll work for the next 17 years.
I DCA into gold, silver and a natural resources fund and probably will for a long time. I won’t throw my money at the stock market when it’ll probably be a loser for years to come, just like it has for the last 6 years.
Does anyone else begin to suspect that Gekko makes his living by shilling stock?
Bill,
I actually feel the opposite (bullish short-term, bearish long-term). I think we are at the end of the credit bubble, the USD hegemony, and a lot of our excesses and sins will be catching up to us going forward. That’s what I enjoy about this blog though; lots of diverse and interesting opinions.
hmmm. First of all, the Dow is a cooked index, since they routinely kick out companies that do not continuously provide returns, and substitute in ones that do. THus, its numbers are deliberately skewed.
Secondly, there is some question on the actual return number. For example, rather than 10.x since 1926, this papers says the number is only half that:
http://www.washingtonpost.com/wp-dyn/content/article/2006/10/09/AR2006100901370.html?nav=rss_opinion/columns
And there is some question whether that is just share price appreciation, or also includes dividends, which in recent years have taken a hit, thus being skewed for the returns of early years.
Finally, we are not factoring in inflation. Nor are we factoring in taxes on the gains.
“The Dow is a cooked index”
I don’t care. So is the S & P 500, for that matter. If you put $50,000 in the Vanguard 500 Index Fund in 1976 and not another penny more, you would have well over $1.3 million by now. Average annual return a tad over 12% the last 30 years. Cooked indices are very lucrative! A fool will prefer to keep the bulk of his money in RE or T-bills (but it’s wise to have a minority of your portfolio in RE and T-bills).
To be precise, the Vanguard 500 Index fund was open to investors August 31, 1976. Let’s assume you put $50,000 in that fund. According to Vanguard’s web site, the average annual return on that fund is 12.22 since that date as of today. You pulled out all the money on September 1 2006. What would you have? 50,000 * (1.1222 ^ 30) = $1,588,831.84. The average annual returns includes reinvestment of dividends and capital gains. There you go.
Here is a compound annual return calculator for the s and p.
http://www.moneychimp.com/features/market_cagr.htm
“Secondly, there is some question on the actual return number. For example, rather than 10.x since 1926, this papers says the number is only half that:
http://www.washingtonpost.com/wp-dyn/content/article/2006/10/09/AR2006100901370.html?nav=rss_opinion/columns”
Vanguard 500 index fund average annual return from 1976 to 2006 is over 12%. Inflation not factored in. I read the 10.1% deal on the Dow in a variety of sources. If I’m wrong about the Dow since 1926, I would also bet bond yields were not as high as the 6% annual return since 1926 that the textbooks claimed either. If stocks returned 5% then bonds probably returned 2%, still better than the 1% annual gain of RE.
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S&P 500 averaged 10.4% annual since 1926. Dividends are included but you get them with a low cost Index fund. Inflation reduced all returns - so your mattress money is -3%. Taxes? S&P 500 Index fund are very tax-efficient because the Index rarely changes and when it does, it’s all LT gains with preferential treatment.
I guess these people never had discipline to maximize into their 401ks and IRAs EVERY year as soon as their companies offered 401ks. Only 2 seem to have done that, Gekko and myself. That must be why everyone else cannot grasp Dollar cost Averaging. But to us it is like simple arithmetic.
The world is full of: woulda-coulda-shoulda
Why all the homework…go with a proven track record:
(BRK-A)
1 share 1990: $5,000
1 share 2006: $109,700
http://finance.yahoo.com/charts#chart1:symbol=brk-a;range=my;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined
16 years for this return…vs… your 30 years with the index.
Sorry I had to. Enron Sept 2000 $90.00 / share. Now worthless.
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Enron? that’s why you buy index funds and diversify.
Not only that, the Dow kicks out companies that fail, such as during the Great Depression. That certainly helps the rate of return.
The benefit of owing on a mortgage is that inflation reduces the value of the dollars you have to repay. The risk is that in a sudden USD devaluation you will lose your job, and your ability to repay even those devalued dollars. Tough call. I would carry the mortgage, if it was a manageable amount.
also remember, it’s not so much inflation as it is wage inflation that pays off your mortgage.
Wage inflation doesn’t keep up with headline inflation unless you work on Wall St.
‘But while Simon clearly loves the money his success has won him (he recently bought not one, but two Picassos on a whim while shopping on Rodeo Drive, Beverly Hills), it is power he most craves’
this is going to be good in 2007 to see how much more the have-mores get
KEEPING UP WITH THE JONES = Financial ruin, stupidity, deep strangling, slow choaking, and death from stress. But you look great from the outside, rich, successful, etc.
KEEPING UP WITH BEN JONES = Financial peace of mind, relaxed living, modesty, frugality, wise with money, no/little and manageable debt that is going down. But you look very simple and modest from the outside. Everyone wonders why you don’t have all of the TOYS.
Ha! Good one! My sister is moving out of our apartment to Portland the next few days. My stuff fits in one bedroom, and in January I’m probably going to get a good paying 2 year software contract in Glendale, about 37 miles away. I live in an apartment owned by a very large corporation that allows me to transfer my lease without breaking it. They have complexes in Glendale that look good. Having very few things will make it very easy for me to move there on half a day. I’ve moved from a studio by renting a U-haul truck once for $25 earlier this year in LA. Having few material possessions means freedom. It does not win me dates with the ladies though. Funny thing is I can live off my savings (outside my retirement funds) without a job for maybe 7 years or more.
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Life is a delicate balance. Live well today but save for your future.
“Live well today but save for your future.”
As my FIL sez:
Have money; just live like you don’t…..pretty sound advice from a savvy investor who bought a LOT of Vacuum Oil Company stock during the ’30’s.
Advice for the friend who is $10K upside down. Be a sympathetic ear, be a gentle friend, say “I am here when you need me”, help him move if and when that time comes, etc. Do not give any money, do not tell him how to get out, just like our other wise bloggers have already suggested. If you give money, you will never see it and he will avoid you in the future. If your ‘advice’ fails, you can get the blame because they don’t want to accept fault themselves. Wish our best to him.
New Orleans, aka The Anus of the World, lost 200k valuable and productive citizens after Katrina; but hope is not abandoned!
Gov. Blanco’s “The Road Home” program is in full swing.
http://www.road2la.org/
Another update on your Federal Tax Dollars at work……..
LOL. I’d propose an alternative solution: The Sammy Schadenfreude “Let’s round up these pestilent parasites and criminals and boxcar them back to the cesspool that spawned them” program. Exempting, of course, the genuinely “valuable and productive” Katrina evacuees…both of them.
It just hit me as I drove past a small branch bank of a bank in which I own stock. For years they have been pumping the HELOC’s out and as interest rates rose so did the stock.
However, with the coming foreclosures they are going to be in second place behind the 1st mortgage. In order to protect themselves they would have to show up at the sale and pay off the 1st.
Sadly, there won’t be any equity so why buy a descending asset. $50K here and $50K there and a small state bank can take it in the shorts.
If I were an officer in a small bank I would be checking my HELOC clients as to value and spread.
As a stockholder I am gonna sell this before it gets out of hand.
My wife’s local credit union was paying an infinitesimal savings interest rate (10 times less than my real credit union) and making all the moves toward becoming a bank, all the while saying, “of course we aren’t interested in becoming a bank. We just need the changes to ‘expand’ “.
So they became a bank (without our money), and bought into the vacant-for-its-first-two-years new office strip across from my comapny this year. I wonder if they bought it at the peak. They make nice neighbors though: not much traffic from there to affect my leaving the parking lot.
Wonder when or if they will change their web page from the .org namespace… probably about the same time they become terminally “non-profit” as an “Equal Housing Lender”