Homeowners Can Settle For Less: Letter
The letter campaign to the Sun Sentinel is heating up. “I concur with the author of a recent letter that stated that housing prices will fall. All of your articles couch real-estate ‘bad’ news with the counter-opinion of experts who use soft-ball terms (e.g., a slowdown, ‘we won’t see double-digit increases,’ etc.).”
“It is misleading to tell anyone to buy now, even if they are a ‘user’ vs. an investor. There is much evidence that house prices increased over 130 percent in five years (and most within the last three years). Real income wages did change by double digits in that time period.”
“The real-estate frenzy was propped up by low interest rates and creative financing techniques. Facing 7-plus percent loan rates, those days are over. You cannot look at the plethora of poor purchase decisions and not conclude that buyers who are overstretched by payments, insurance, taxes and homeowner associations will be in trouble for a couple of years. Many will dump their houses or face foreclosure.”
“People are now trying to sell homes at over $400,000. Home owners who bought three or five years ago have plenty of equity, they can agree to lower offers.”
“How can anyone (but a Realtor) say this market will continue to grow? I think house prices will fall off in the double digit range over the next two years. Instead of printing softball articles, why doesn’t the South Florida Sun-Sentinel do an in-depth analysis?”
Great letter!
Makes up for the Sun-Sentinel letter this weekend accusing the media of scaring buyers with gloom and doom!
won’t the paper scare off advertisers (read “RE related” in South Florida) if they print negative stories on RE?
If anything, a decline in sales volumes should actually help newspapers, as builders will have to advertise more and for longer periods to get their homes sold.
Exactly right. During the past few years there was little inventory to advertise and little need to do it. MLS alone would draw multiple contracts.
newspapers are losing their butts- RE ads are 20%+ revenues
must tiptoe
Hey, somebody else deciding not to drink the koolaid and demanding to know the truth! People slowing are waking up.
If I was running the paper I would be doing the same thing the papers are doing though. Keep one foot in each camp so that you don’t cut off the ad dollars from the RE people and yet still loosely warn people about what could happen.
Stick a fork in this bubble, it is sooooooo done.
Friend and I aren’t speaking now. He’s getting very stressed out but is still claiming that prices will rise 3-4% there and if there are no hurricanes, 30%. What can I say to such delusions.
Sometimes it is best to just keep your mouth shut. That goes for staying married, and for keeping friends who make dumb investments!
Trust me! I NEVER bring it up. He does!
Things you don’t discuss politics, religion and THE BUBBLE. It will get you in trouble everytime.
Wise words.
I guess I’ve been lucky then. If a housing topic comes up within earshot, I’m always the big bad bear in the room. So far, no mud has been slung my way. Hmmm….maybe when I bent over to tie my shoe, I missed a mudball.
BayQT~
“Nou are taka wa tsume o kakusu”
(The hawk with ability hides its talons)
Japanese proverb meaning that the one who knows the most often says the least. Think Japanese business meetings and American bubble conversations. Not that this has helped me any - I can’t keep my big mouth shut.
Sounds good. But of course that’s not always the case. Some who say the least just plain don’t know enough to contribute.
BayQT~
How about a bumper sticker. The Realtors had one in the early 90’s “Now really is a GOOD TIME to buy a House”.
The Bear version “Friends Don’t Let Friends Buy Real Estate”
cute
If you make it, we will buy. (The bumper sticker - surely not a house!)
Good advice. This is a hugely sensitive subject, and lately, unless I’m asked, I keep my mouth shut. What I have done, though, is save many of the key articles that have been written over the last couple of years so that when I’m asked, I’ll reply with something like “I’m not quite sure what’s going to happen, but here’s some stuff you may want to look into.” After that, if their closed minds have been expanded, I’ll go off on my opinions. But if they come back and tell me it’s just a lot of crap, I’ll just let ‘em float down stream.
This is a sentiment worhty of a topic. I am trying (ever so gently) to convince my folks to unload their investment property at a reasonable price - while my RE agent sister is filling their heads with candy and huge profits. My folks have made their phsycological choice, and greed wins again. My comments are not welcome any longer, and as their listing date has stretched out to 5 months everyone is making sidelong remarks that ‘people like me are ruining real estate’. OH WELL. I don’t say much now. Just waiting for the crash and burn.
there is so much psychological soup sloshing around in homeowner’s heads….I mean, it’s a huge financial ownership issue and Americans have literally bought into the notion that homeownership is super duper, no matter what their financial situation is…everything in our society is geared to upward and onward, accumulate, then disperse to the “greater fool”. It’s not that homeownership is inherently bad…it’s terrific for some people at the right price. But nothing’s been right with how this real estate bubble has been inflated and nothing will be pretty when it deflates.
My boyfriend has now forbiden me from talking about the RE situation. I have talked a couple of people I know out of buying at the peak of the market. One is the girl how cleans my house and I leave an article printed off of this blog on the counter with my check and make her read the articles. So far she has not bought an over priced property and is waiting.
I got my mom to list a Naples condo last week (should have been last year). Her tenants are not coming back next year and at 71 she is tired of rentals. She still qualifies for the 2 out of 5 year tax savings if she sells this year. I told her not only would she lose that, but prices will be falling too. She is smart enough to price it to move and I went over the comps with her and her Agent. She wanted to FSBO it - thankfully I got her to list with a pro.
Good move. Naples is going to crash and burn.
And the President of the Naples Board of Realtors said that she doesn’t like stats because they can be fudged.
She said it doesn’t matter because “We live in Paradise”
Say that when a Major hurricane is heading right towards you.
I hear you. I have 3 rentals in Naples. I wanted to sell the one that will never produce a decent cash flow even with no mortgage (condo fees, ins., re taxes, low rent,etc) but I could not get my husband on board. I am not worried about the other 2 at all. I know they are going down, but my cost basis is so low I don’t care.
I have a 20yr time frame. It will not be a good 5 or 10 years for the balance sheet and I intend to firmly plant my head in the sand. Hear no evil, see no evil.
Va_Investor — I’m not meaning to be critical, but I am baffled. If you own these two places as investments, why in the world would you ride them DOWN? Condos, more than any other type of dwelling, are close to fungible — another one will be available later. Why don’t you sell these two, park your cash in CDs or Treasuries, and buy them back again, so to speak, in 3-10 years, when the market finally starts rising again? Put another way, why are you treating your investment condos differently than you would stocks, or would you also ride your stocks down?
Chip - After taking into account the costs of selling (commissions, closing costs, taxes, recapture of depreciation as ordinary income, lost rent, loss of very good interest rates on loan, place on amort. schedule etc.) it appeared to me that a 30+% hit was in the offing.
There are also re-entry costs to consider. So, I thought it practical (not necessarily optimal) to stay the course. Further complicating matters is that there were several 1031’s involved in the acquisions. More tax implications.
So prices would have to drop more than 35-40% before I would actually take a hit. I have time to ride out a normal cycle. If things go worse than that, then I will have made some mistakes.
Correct. You can be right or wrong about anything and everyone is entitled to their own opinions. I’ve been fully expecting a decline since 2002-2003 and prices jumped since then. You never know what the Fed might do here to keep that soft landing they’re calling for intact, if that’s even possible once a YoY decline is in the books in most bubble areas.
If you want to stay friends, in some cases it’s best to avoid seriously sensitive issues… abortion, religion & risky investments.
Start out by saying that the hurricane reasoning is just plain dumb. It is not if there will be a hurricane, but when. Then do a back of the envelope calculation, showing what home prices will be if they were to go up 30%/year for 3, 5 & 10 years. If they don’t believe you at that point they may be delusional.
Send a link to this website over to him.
He’ll get religion in a hurry. If not-he’s brain-dead and not worth helping.
Don’t discuss money or finance with friends or family! I work very hard not to say a word.
It sometimes hard. We’re a bit better off than the rest of the family and I sit quietly while some elderly Aunt talks about Roth IRAs, for example (something I’m ineligible for becuse I exceed the income limit). When she asks me if I have one, I’ll give her whatever answer I need to shut her up the fastest.
Similarly, when the M-I-L (who’s gone BK twice since I’ve known here, and once previously, and has been on and off the public dole her whole life) asks if she should buy a condo in Vegas, Yahoo! stock, or learn how to “day trade” I just smile and say “Gee! That sounds interesting” and shut her up.
Great letter! Sorry to say but the paper and the experts they consult are not likely to be willing and/or able to furnish the requested in-depth analysis…
Folks, don’t be too quick to indict the newspaper industry over “real estate adverising revenue.” In fairness, editors get lobbied by the industry a lot - they’re lectured about the psychology of the marketplace, that bad press can be self-fulfilling and bad for local economies. These guys have a responsibility to pursue good reporting, of course, but it generaly does not boil down to ad revenue alone.
Yup. I don’t believe there is a media conspiracy to prop up housing. Most of the pabulum they publish is because they are slow and lazy–the NAR is always ready with a quote. Have to give the NAR credit, they are a well-oiled machine.
I couln’t agree with you more tiger…
Maybe people are giving newspapers credit for more power than they actually have. Newspapers are declining in importance. Circ is down throughout the industry, and the highly-paid pundits covering specific beats no longer have the clout the did 20 years ago. This here humble little blog of Ben’s (actually it isn’t a blog) and the thousands of RE message boards will be far more influential than the airhead media pundits who write for the newspapers. In fact, I’ll bet blogs and message boards are already more influential when it comes to the bubble vs no bubble debate. We are leading the discussion, we are at the forefront of what is going on. Not the newspapers.
The cautionary tales that are starting to crop up around the water cooler and at neighborhood barbeques will ultimately swing sentiment more than whatever is in the print or online media, IMHO. Of course, this creation of Ben’s has allowed me to counter the NAR truth-makers, “conventional wisdom,” and the myophia so all-pervasive on this topic. I’ve warned more than a few friends and neighbors that nothing is more expensive than regret, and given them pause from rushing into bad decisions arising from bad information.
one observation from Europe (Netherlands): after more than 10 bubble years, I still have to read the first article about a housing bubble or risky mortgages in the regional newspaper, while there is enough stuff to write about every day (and yes, RE advertising is probably their main source of income).
At the same time, they have financial advise colums and weekly housing specials that never fail to mention how great and safe real estate investments are. Glossy magazines for women, elderly people etc.: same story; never seen any warning but plenty of stories about all those people that got ‘financially independent’ with their clever RE moves. It also helps that politics from left to ride denies the subject.
Obviously the subject is mentioned on internet investment forums etc. but a large part of the population is totally unaware (and on these forums most people deny the bubble subject as well, and you get kind of death threats from realtors if you dare to mention the subject …).
Further evidence that it’s starting to sink in about “The Bubble”.
http://www.newratings.com/analyst_news/article_1227156.html
Working at a weekly newspaper in the Bay Area, CA, I can definitely say that realtors are super-sensitive to any “negative” views on their trade. Since the bottom line is ad dollars, we cannot afford to “tell the truth” about the market, as we are already competing with the Internet and other (more effective) marketing tools. Thus, I rely on blogs like this, and generally unbiased sources like economist reports, to tell me which way the wind is blowing.
The story in a nut shell………..where are the ethics in journalism? I thought a good journalist couldn’t afford not to tell the truth……….but then again…… good journalists seem to be few and far between. The almighty dollar does it again.
This is precisely why it will be a good thing to see the RE industry move from the MLS and the Newspapers toward the Internet.
The emperor’s new clothes…
This business is not unlike discussing religion or politics. You have true believers and skeptics. An argument is just impossible to win if it’s with a partial lobotomy patient. If the patient has the bubble lobe removed from his brain just forget it…
Realtors can’t set off panic selling either . Realtors are suppose to get the highest possible price the market will bear for sellers. Since when were they allowed to become soothsayers and psychics about the market .
i talk to homeowners about this stuff. i couch the whole thing in “you bought well, and are responsible i’m sure, but many people don’t have your common sense and this is what they can expect”….
Point A
Point B
Point C etc.
next thing, they start asking q’s and pretty soon, you can lead ‘m to the blog.
it seems to work.
nice letter!
I think we are almost at the point where general real estate prices start to go down, I say “almost” because of the following points.
1)Based on what most owners as well as prospective buyers have been saying , the reason they are willing to pay such outrageous prices for homes is that “they will keep appreciating”. This is what is driving this market, as well as the lenders willing to gamble making 100%, no doc., stated income etc. crazy loans(by the way I feel that the lenders are the real facilitators here, more so than low rates).
2)As soon as there is a general concensus that these buyers were mistaken and prices are no longer going up and maybe even decreasing, they will not want to hold these homes at the higher prices, especially ones with negative or no cash flow. I think at that point there will be a mass exit to the doors. To use a movie example for you fans of “Its a wonderful life” as the Ernie the cop said to George and Mary when people were lined up outside the Building and Loan,”Ive never seen one but it has all the signs of a run on the bank”. I think the RE market could get that bad and take some of the MBS’s with it.
3)Now, I do not think we are at a general concensus yet of a stalled market. I say this because I speak with people every day who are sure this is still going strong and will never end, real people(waiters, 7-11 clerks and so on, ha,ha). Also I listen to a few RE radio shows and all of the callers are still very high in RE as well as the hosts(big shock huh?).
I think we will see this concensus within 3-6 months.
P.S. I was driving from Redondo Beach,CA to Manhattan Beach yesterday and the streets were littered with “Open House” signs.
Dont wast time talking people out of their bad decisions. Most people in my circle are in denial. We are talking educated people, engineers, medical fields, IT). I only waste my breath if I come across a seriously F-d borrower. Like a person making 40k who just bought a 400k home on an Option ARM with teaser rates. Those people need all the advice they can get. Just remember that all not home owners will be in trouble (30fixed, low rate,boght pre 2003), if you try to warn them about the coming crash it will just coem across as a doom and gloom type. Even worst..a ‘hater’. I am an home…correction..mortgage owner and I been accused of hating. Imagine that.
Answer number 12 for this common commnet:
Yes but a large number the 30 year fixed crowd have cash out re-fied based on the large run up on prices…etc. etc.
This guy’s a real bear writing for MarketWatch:
“For example, assume you live in one of America’s top 40 metro areas. You bought last year for $500,000 with $450,000 in mortgages. If the market drops just 10%, your equity’s gone.
And if it drops the predicted 47.2%, your home’s worth $250,000, you really are in trouble. If you lose a job, or suddenly get hit with extraordinary expenses, or just can’t make tax and mortgage payments, or otherwise forced to sell, you could be wiped out under the tough new bankruptcy laws.
So please read Talbott’s book closely: Is your home is at risk? Then quickly decide whether you can hang on in a housing collapse, a stock market bear and another long recession. And if not, consider taking his advice to sell now.”
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B0CF65944%2D4955%2D4F0B%2DACCB%2DD163F5758FAA%7D&siteid=mktw&dist
I’ve always enjoyed Paul B. Farrell’s column on MarketWatch… especially liked his comment about the “[...] deceptive happy-talk of self-serving spinmeisters in Washington, Wall Street, realty brokers and homebuilders”.
Paul Farrell lives in Arroyo Grande, on the Central Coast of Ca. He is a weekly contributor to cbsmarketwatch.com, has written several great books on investing. Appears to be a buy and hold investor. His wife is a psychotherapist. Probably helps if you are involved in any way in the ‘market’ even if on the edges. Read the article it’s great.
“If you want to stay friends, in some cases it’s best to avoid seriously sensitive issues… abortion, religion & risky investments.”"
Au contraire. It’s fun rampaging through some people’s soap-bubble la la lands, turning their sacred cows into hamburger.
Goodby for now, I have to get to the boob tube to watch ‘24′. On the left coast it’s almost 9:00 pm PST
Good night and good luck
Here are a couple of interesting blogs from the Florida Sportsman website. It is about a fellow with an interest only condo in Key Largo that he can no longer sell and is beginning to get nervous!
After three months of remodeling our place in Buttonwood Bay, at MM 96, we are finally ready to place it on the market for sale.
We spoke to an agent, and they tried to talk us out of listing! There are more units for sale now than in a long time (16 and counting). In the past six months only two units have sold, and both well below the asking prices.
I know much of this slow down is hurricane related, but, is this what’s happening all over? When we put out unit on the market, we will list it as the second cheapest in the development.
What are your experiences in the market over the past three or four months?
Thanks!
There are a lot of factors pushing us to sell at this time. First, we have three properties with substantial equity positions, so about 90% of our net worth is in real estate, and we need to diversify. We have awesome financing right now. We have two more years left on interest only 4.25% ARMS, so our payments are low. Re-financing makes little sense because of the taxes on the mortgages, and our desire not to increase our mortgage payments.
Second, we have the 2 out of five year primary residence rule tax deduction that starts to run out March 23, 2006. According to our accountant we get to prorate this over time, as we pass the date, but each month we don’t sell costs us $1525 in tax write of, up to the maximum of about $37,500. So if we don’t sell now, we would have to up the price by another $37,500 to make up for the tax write we will lose over the next two years. It a little complicated, but the property was my wife’s homestead exemption / primary residence before we got married.
Renting out the property is hindered by the policies of the association. In north Key Largo the minimum rental is one month. You have to get your boat approved with insurance before it can be docked.. so it makes it a bit complicated. My slip is limited to a 24ft overall length.
I think that on the coasts, real estate prices will remain high. Unfortunately, “high” relative to income is 20% to 40% down from where prices are now.
People just don’t get that. They think that prices can only go down if people don’t value homeownership, or if prices go down from here then they will be low. Not so.