How To Deal With Bubble Issues And People Around You
Readers want to hear how you deal with the housing bubble and the people around you. “I would like to see a thread on how to deal with bubble related issues in the people around you. How have you dealt with parents who think you should buy, coworkers who somehow ‘blame’ you for the bubble, friends who think that house prices will go back up as soon as Bernake lowers rates, etc?”
One said, “2 sisters own 5 houses between them. My 2 sisters. It’s a no win situation to discuss it now.”
A reply, “Sort of the same here, except it is one sister with a huge house. ‘The market is fine!’ End of conversation. No sense attracting anger.”
“Different with my mother, she sold her house ‘while she could’ and is moving into an appartment with her nest egg intact. She figured this out just from the newspaper. When I say it is a nice time to rent, she smiles. People either can read the signs, or you can’t talk to them about it.”
One has this strategy, “With parents I would be obligated to tell them how I feel. Anyone else, only if they ask.”
One relates, “I try to tell my parents how I feel, but it only lasts for a 2 months or so before they bother me again about how I should buy a condo or townhouse.”
“My parents really aren’t the biggest problem. I have this one coworker who keeps saying its a great time to buy. When he says it, he sounds like he was hypnotized or brainwashed into saying it because it doesn’t sound natural when he says it. His wife is a real estate agent so you can see the problem.”
“Another coworker who lives in West Virginia (but we work in the g”reater DC area) is convinced (really under the delusion) that his house will be going back up as soon as Bernake lowers rates. He bought at the top of the bubble in 2005 because he got married. Before he was trying to sell the house to move closer to our office, but he doesn’t want to do that now since ‘prices will be going up again.’”
To which was said, “That co-worker, sounds like he not only thinks you should buy, but from his wife. Maybe you should offer to spot him a $20, since he is such a good friend.”
And another added, “You have no idea how right you are. I started my current job in the second half of 2005 right around the peak. My second day of work, that coworker with the real estate agent wife says that ‘I should buy a house’ and gives me his wife’s business card. Even back then I was aware of the bubble so I didn’t. In the future when I buy needless to say I won’t be using that coworker’s wife services.”
One gets excited at the idea of lower prices. “I get frustrated that I can’t SHARE in the excitement of more bad housing news everyday.. because no one around me will benefit from it except ‘renter’ me.”
“It is hard to contain the excitement and not totally ostracize people. I go around the house teaching my toddler to chant ‘the housing market it crashing’ to the tune of ‘nah-na nah-na nah-na.’”
The Journal Gazette from Indiana. “An industry association representing local Realtors is combating declining home sales with a campaign to reassure wary consumers. The Fort Wayne Area Association of Realtors on Thursday introduced a new Web site, promoting the benefits of purchasing a home.”
“Reports on the subprime mortgage crisis have shaken consumer confidence, but those national problems should not affect how potential buyers view the local housing market, said Bob Coffee, the association’s president-elect. Buyers can choose from many homes on the market, and prices remain affordable locally, said Coffee, a Realtor at Mike Thomas Associates/F.C. Tucker.”
“‘What we really have here is a consumer confidence issue,’ he said, ‘not a market issue.’”
“The Web site highlights the large inventory and other favorable conditions for buyers, including low interest rates around 6.5 percent, Coffee said. The association is advertising the Web site on billboards, in newspapers and on television.”
“Although sales have dipped, several factors should encourage Hoosiers to consider buying homes, said Richard J. DeKaser, chief economist for National City Corp. Even if buyers must sell their current home at a lower price due to market conditions, they are likely to get a deal if they upgrade to a larger house, DeKaser said.”
“Some consumers avoid buying as home prices drop, but they should be more concerned about how a house’s value will change in the future, DeKaser said. If prices recover after a house changes hands, the buyer would benefit.”
“‘Believe it or not, that could be the best time to buy a house,’ DeKaser said.”
–
“Some consumers avoid buying as home prices drop, but they should be more concerned about how a house’s value will change in the future, DeKaser said. If prices recover after a house changes hands, the buyer would benefit.”
“‘Believe it or not, that could be the best time to buy a house,’ DeKaser said.”
Kindly, let us all know when it is the best time to sell a house. DeAsser!
Jas
Why jas, funny you should ask……
as it turns out ‘now’ is also the best time to sell a house. DeKaser would be glad to explain why to you, just give him a call….
It was probably just a typo in the blog entry.
“Some consumers avoid buying as home prices drop, but they should be more concerned about how a house’s value will change in the future, DeKaser said. If prices recover after a house changes hands, the buyer would benefit.”
The big elephant in the room is …what if…? What if you buy because you think the price will go up later and you plan on staying a long time, and:
1) You lose your job
2) Get sick
3) Get a divorce
4) Have to work for lower wages
5) Have a large financial setback
6) Need more space to accommodate all the relatives that have already lost their houses.
Etc., etc., etc.
Lots of people “plan” to stay in their house for the long term, but life in general has different plans for them. This time next year maybe you can’t stay in that house, and…you can’t sell it for what you paid. Plus it’s against the national realtors code of ethics to even comment on how the value of a house will be in the future. I know, I used to have to belong, and not by choice, by company edict. They were a total waste of money as far as I was concerned. Some of the scummiest people follow their code of ethics…right.
Also did anyone catch the new NAR ads, which by the way usually only run in the spring. Saw one last night which basically said, great time buy…interest rates are low…lots of inventory to chose from…we can help you even in this current market. They’re getting desperate if they advertise in the fall right before the holidays, which is traditionally one of the worst times to sell RE.
The big elephant in the room is …what if…? What if you buy because you think the price will go up later and you plan on staying a long time, and:
The old-fashioned reason for buying a home was to get some protection against the what-ifs! With a traditional fixed-rate mortgage and 15 or 30-year terms, you’d know exactly how much you had to pay in the future!
Of course, with new inventions like “HOA fees” and property taxes that go up because your neighbor paied too much for a similar house, even this reason may no longer be a valid one.
But to buy a house with an adjustable, except under very special cases (you have enough cash in the bank to simply pay the thing off in full!) makes absolutely no sense to me.
‘property taxes that go up because your neighbor paied too much for a similar house, even this reason may no longer be a valid one.’
I can not grasp the idea of rising property values and ipso factso increased property taxes. Can someone please, in a nutshell, explain to me how increased value translates into a natural reason to tax more other than that the assessors and town/county insiders can regulate such? I have read that federal subsidy diminishes more as property values heighten. If so, then the money that was being subsidized to the entity now has to come from the property owner. Does this mean that the tax-payer is going to get the increased tax payments reimbursed from the federal government. Forgive me for the naive question.
Actually, whether taxes go up with increased valuation varies from state to state. In Washington state, valuation is used toa apportion taxes, not set them. All tax increases are voted on in the taxing district, be that county, city, or whatever. The mil rate (tax rate/thousand $ valuation) is set to generate the required tax revenue. The ratio of valuations is set to apportion teh tax, i.e., a $200k property will pay two times the amount of a $100k property. If values rise, the only result is to lower the mil rate, not increase the tax.
Other states do it differently. My understanding is that California and Florida, for example, tax at a percentage of value. So if value rises in those states, taxes do also. Seems pretty screwed to me.
I think this is generally correct, put please modify my answer if necessary.
I own property in both CA and Florida. Both have some form of “inflation protection” on the books to prevent it from rising too fast, but it is based on assessed value.
(And they wouldn’t need inflation protection if lenders required 20% down and a loan-to-income ratio of 4:1)
Florida has a measure on the ballot to eliminate inflation protection, in exchange for a discount on assessed value. Even this is a terrible idea, it’ll probably pass because nobody reads these things, and people would vote to save a few dollars today, at the expense of paying a lot more later!
WatchingTheSagaUnfold:
“I have read that federal subsidy diminishes more as property values heighten. If so, then the money that was being subsidized to the entity now has to come from the property owner.”
I’m not sure if that is an accurate statement about fed subsidies, at least in all cases. Fed subsidies do come from various places for various projects (e.g. roads, schools, medicaid, etc.). Most require a fixed share of project cost to come from localities. The welfare/medicaid programs do generally get more fed money when prop values are lower, but they may just be a proxy.
“Does this mean that the tax-payer is going to get the increased tax payments reimbursed from the federal government.”
In a way, yes, but it’s inefficient and favors higher earners and new owners. You can deduct all taxes on real property (land and improvements) from your federal taxes, that is if you pay enough to make a difference. When your mortgage gets paid down enough to become mostly principal, it’s hard to have enough deductions to overcome the standard deduction, which is why it favors younger people and/or house flippers.
“6) Need more space to accommodate all the relatives that have already lost their houses”
That’s no joke. The poor dolts that bought McMansions and keep up their payments may very well have down and out relatives come knocking to stay with them. I remember an old girlfriend’s parents selling their 5 bedroom house because they were tired of their grown up sons repeatedly moving back in with them when they were between jobs, or when they just wanted to loaf around and stay and eat their food. They (parents) bought a 2 bedroom condo with tenant restrictions. Solved the problem.
DOC
The better question is “When is it NOT a good time to buy a house” because their must surely be one.
Best time to buy:
1) Home prices are below 120 times rents
2) Home prices are below four times local incomes
3) Asshats like DeKaser are too embarrassed to suggest it is a good time to buy, as everyone on the planet knows that real estate is a terrible investment
I go around the house teaching my toddler to chant ‘the housing market it crashing’ to the tune of ‘nah-na nah-na nah-na.’”
LOL
This did not make me laugh. Parents should be teaching their children correct english as in “The housing market IS crashing.” Dumbing down of America begins in the home.
And ring-around-the-rosy is better for toddlers.
The housing market is crashing.
Mozillo’s tan is rashing.
Short sale, short sale,
the SIV’s fall down.
Hah! Good one.
I remember being upset at the DARE program when my daughter was in kindergarten. She was forced to sign her name to a pledge that said she promised never to do drugs when she couldn’t even read. That night at dinner, I asked her what the pledge said, what the pledge meant. She said, “If I signed it, I could have a cookie.”
Teaching children to sign a document without knowing what it said or means is one of the dumbing down tricks used by education and supported by our police-state government. It’s no wonder so many FB signed financial documents without realizing that their payments would adjust up. After all, that’s how they learned to sign papers in school. The mortgage lender probably said, “sign here, here, here, here and here and you can have some candy from the jar on my desk.”
When my daughter was exposed to DARE, she came home and told us we were all drug attacks because we drink coffee, some smoke, some drink socially. That was her last day to participate in DARE.
drug attacks - oops - drug addicts!
re: drug attacks. That works, too.
I never allowed my kids to participate in DARE after that, either. I was considered a pariah in those classy OC public school because of it. Once, the DARE officer followed me home and let the dog out to whiz on my front yard.
Magic, don’t worry, it was a simple typo. The English language is saved…
Oh, thank the Goddess above! I thought the mormons had you under their spell, and had you speaking “babytalk” to our crystal and indigo children.
By this time, most of the people around me have already wised up. At this point, the few FBs I know are not anxious to talk about it
Of course, I’ve never been a true bubble evangelist - I normally only talk about housing and RE when someone else brings up. But they know how I feel by the end of the conversation.
Man….I’ve alienated so many friends by talking about the bubble pop. Started back in early 2000 (maybe around 2003/04?) when things doubled in my neighborhood overnight. Thought it would crash back then, but boy was I ever wrong.
Need some new friends here! I’ve got a bachelors degree in MIS and one in Land Use Planning (odd combination, I know….don’t ask). I do not watch TV and can think for myself. Any takers?
I’m in sort of an odd situation when it comes to this. Can you imagine what happens when people ask me, ‘what do you do for a living?’ I usually just tell them I run blogs.
But of those that know me, most were skeptical at first but saw the light as I started getting media interviews. Odd that. Nowadays, most new friends I make want to know what I think about this market, or Fed moves, etc. I patiently tell them what I find here. Strangely enough, the most receptive people are in the biz. The most negative reaction I get is from FBs.
If I were you, I wouldn’t worry about it. I see more of the ‘We all knew it was a bubble’ talk all the time. I met a guy the other day for the first time who told me, with out any provication, “I used to hate lawyers, but now I hate realtors. They’ve ruined this town.” You’ll have plenty of bubble company soon, IMO.
Can you imagine what happens when people ask me, ‘what do you do for a living?’
lol. I’m surprised you haven’t been run outta town.
Funny you say that. One time a RE guy said something like, ‘you won’t be able to eat in here if you do so-and-so.’ I told him to go out and find a realtor that can stop me.
I told him to go out and find a realtor that can stop me.
Better yet, ask the man if he has had his Mirranda rights read to him recently.
I’ve moved to a town that has NO realtors - nary a one. Wow (small town of 1,000). If you want to use a realtor to sell your house, the realtor has to travel one hour to get here (from the nearest town).
Well, then, losty, you should rest in ambush behind a sagebrush, as this putative realtor travels the one hour, from the nearest town. After all, a bullet spent is a bullet saved.
Agree that FBs are the most likely to be hostile. Other people are beginning to want to show their sophistication by acknowledging that housing prices are dropping, and that it will take a while for anything to stabilize it. There’s still quite a bit of “it’s different here” stuff, but then I often just go along with them — “oh yes, YOUR house will be fine because “
It’s getting really bad. Like I wrote below, one of my friends is calling me a “rent slave” now! That guy and his brother are up to their ears in real estate. They make fun of me for buying savings bonds, T-bills, municipal bonds, TIPs, and especially precious metals - I just bought a one ounce Platinum Koala today.
AZ, I’m looking in a higher end area (1-2 minimum acre lots and 2-3sf). The realtors I communicate with are getting very uneasy as they all live locally and the prices are dropping to a level that is severely damaging the comps. I have one home in mind that comps were 649ish and I’m afraid they might accept low 400’s. Pouring cold water on wife as we speak.
You made me chuckle Wants.
I had to pour cold water on hubby last night!
Wait, let me finish!
We’re looking for 10+ acres, 2000sf with large outbuilding for said hubby’s wood workshop.
I think he sipped a bit to much Gin, for he asked me when we were going to start offers. (our computer desk are in an L configuration, and I didn’t have the energy to get up from my chair bonk him in the head).
I calmly told him WE are not going to entertain such an idea until February, if the conditions are right, as it’s so different here in Wisconsin too, don’t cha know.
This morning, after the Gin ran it’s course through his veins, I brought the subject up again. He was much more reasonable, thank heavens. (note to self, hide gin).
Smiles,
Leigh
It’s funny - I just went over to some friends and was talking about ‘when we’re going to buy’ - I explained that we wouldn’t be looking until summer next year, by which time we hope to get an affordable place somewhere near the husband’s work.
Not a mutter of disagreement, nothing.
And these were the friends that vehemently said, 18 months ago, that I was smoking crack if I thought that L.A prices would ever go down…
How times change.
You are certainly a Real Time Economic Historian. Analysis like you are doing wouldn’t have even been possible in other times. Hmmm…Maybe you should just say you are a window washer.
Mr. Ben,
Thank you for creating a safe haven for kindred spirits.
And, pretty please, blog or not, always be careful.
As one more skilled than I suggested, alway know where the exits are located : )
Smiles,
Leigh
Perhaps it’s better to imagine yourself as a sort of mad scientist caught in a huge psychological operation run amok. Try to keep a sense of humor.
I certainly try to look at the bright side of things, explaining that houses need to be more affordable, etc. Its not like the bubble won’t pop if you don’t say anything.
Exactly. Its not like saying anything will save many people either. But at least we can go to bed with a clear conscience.
As to people claiming to always know it was a bubble, I admit to being a later entry than most here. But hey, I was so career focused, I was ignoring homes until coworkers went into a frenzy of “buy now or be priced out forever.” That very night I was scared enough to google “housing bubble” and via another blog found this one.
Got popcorn?
Neil
“Exactly. Its not like saying anything will save many people either. But at least we can go to bed with a clear conscience.”
Agreed. I sat with a good friend of mine in 05′ and told him why I thought is was a very BAD idea to buy at that time. Also (earlier) suggested he might buy a little of the yellow metal when it was around $400 p/ounce. Said my piece both times and then dropped it.
I figure He and his girlfriend (a real “but Suzanne researched this” cheerleader) are about 50-75k in the hole (and dropping) on their house right now.
Sometimes I wonder if he thinks, “s**t, maybe I should’ve listened to him.”
DOC
I know what you mean. In 2005, I though about buying a condo in the Chicago Loop. I loved the place, 800 sqft, 10th floor, etc etc. *Only* 300K + 350 mo for assessment. I did the numbers and figured out that I couldn’t afford to put down enough on this condo to afford the monthly payment with a 30 year fixed. I did a search for “housing bubble” and found this blog.
“caught in a huge psychological operation run amok”
So you live in northern Ca too? j/k
Everyone here has charts, graphs, etc posted outside the door to their office. It’s a bragging rights on research thing.
I have a gorgoeus color copy off the Bearn Stearns chart. I update it with a sticky comment that says (You are here) denoting where we are in the time line. The faculty love it and we’ve had some great talks.
The staffers who have family in RE, they are not so nice but at least they’ve stopped saying “It’s a great time to buy” every bloody week.
As to my close friends who are screwed, they know the couch is there when they’re ready and we leave it at that.
I’m an “in your face” type of guy. I enjoy ripping into realtors who are losing everything. However, I’ve learned to cool it with people who bought properties and are taking a hit. “Vengeance is mine, saith the Lord. I shall repay”.
Hm, guess I was lucky. The only people that I managed to alienate were buffoons to begin with. Types like that had an immense confidence in their judgment and bought into the housing bubble 100%. Family members, coworkers, and friends that I liked, managed to see through the bubble talk. Perhaps this was one of those events in our lives where we got to see the true nature of the people around us. At least it seemed that way to me. Sorry to those who have lost people you truly care about to this maelstrom of greed. I especially feel for those whose SOs get caught up in the mania; that must be a trying situation.
When people ask ME what I do for a living I put on a big winsome smile and I say, ‘I f*ck up developers.’
And I do.
I am surprisingly popular. So I don’t know what you all are talking about.
A reply, “Sort of the same here, except it is one sister with a huge house. ‘The market is fine!’ End of conversation. No sense attracting anger.”
- Immediately change conversation to one of the following:
1 - Did you see this weeks episode of ‘Dancing with the Stars?’
2 - Are you keeping up with ‘OJ’s arrest’?
3 - Can you believe what has happened to ‘Brittany?’
SoBay, are you my brother ??? I think we have the same sister. Mine lives in Queencreek Az, about 30 miles from the outskirts of town in McMansion suburbiaville. 4,000 sqft 7 bedroom house for $300k circa 2002. Moved out of her 3bed 2,000sq/ft house purchased for $125K in the mid 90s which was on the outskirts of town.
After commenting on how far away it was for me to visit her she vehemently defended “WELL, THIS was ALL i could afford.” O. I. C. Who am i to argue that the 5 year old house you had bought new which was bigger than both sets of grandparent’s houses combined wasnt enough…..
Next whammy. $45K pool HELOCed. Whoah. Nice pool. He##. Better be for $45K. Should have gold lay mosaics like San Simion for $45k.
The one which was too much. In 2005. House across the street (same model) went up for sale. It was on the market for 6 weeks by the time i dropped by and commented on it. Asked my sister, “hey, how much they asking” Reply. “Not enough. ONLY $650″ Wiskey Tango Foxtrot….i nearly fell out of my chair; didnt ’cause i was standing. So i went over to a chair, sat down, then fell out. 2x 300K up in 3 years !!!!!! Yes, yes. I can see how that isnt enough. Guess all those buyers not buying it agree. They probably have left it on the market for 6 weeks because it is too cheap and they must think something is wrong with it.
People are just strange. As one poster here said. Real Estate is a religion for some. Never debate politics or religion. It is like talking to someone trying to seel a used car. No one ever wants to pay them what it is worth.
Every used car i ever sold (and plenty of them) ive sold in less than 3 days after going to print (popular enough models mind you). Take year, make and model. Look in Auto Trader, and/or Craigslist type of service. Look at every car +/- 1 year (comparable condition). Lowest 3 prices. Average them. Subtract 10%. Vehicle sells. Full asking price. Everytime.
Housing. Simple. Same thing. Look at last month’s sales for your zip code. Take the lowest 3. Average them. Drop 10%. House will sell. Full asking price. Somone will chase that knife down.
There is always a market. Some people just dont understand market price.
J
I love the comment that “i’ve priced my house fairly and it’s not selling, stupid buyers”. Any property is only worth what someone will pay for it, and if no one is willing to buy it for X, then it’s not worth X. X is just a figment of their imagination.
Great post.
Classic post! Thanks Jasper.
“Readers want to hear how you deal with the housing bubble and the people around you. ”
I just don’t discuss it any more. I just don’t. It’s evident to most people around here (Central coastal Cali and Southern Cali), that something a bit scary is going on with the housing market, and hopes for a quick turn around have been evaporating month to month.
I made a name for myself among our circle of friends and acquaintances as a housing Chicken Little, starting in spring 2005. Very few listened. When the subject of housing was brought up, I would express my opinion on ‘the bubble’, after which I would usually be either laughed at, or *almost* yelled at, that things might cool down, but there was NO WAY we would see a decline (you need a recession for that, the economy is ‘Goldilocksing’, everyone wants to live here, we have been ‘discovered’, etc.) I just got so tired about people becoming so emotional AT me that I started avoiding the subject completely. When the subject of real estate was brought up, I’d usually just smile a bit, say “uhm hum, uhm hum”, and nod a bit at appropriate time. My wife would often try to coax me into stating my true feelings, but I became quite good at keeping a straight face and saying “who knows what the future holds?”
Now-a-days, things have gotten much easier for stating my true point of view, but I know quite a few people who have either gotten themselves in housing trouble, or will soon face trouble (mortgage rate resets).
Among the few people that know the background and history of the bubble, I become *extremely* animated and talkative.
But even today, I no longer go out of my way to actively “warn” people about the whole housing mess. Been there, done that, got burned at the stake as a housing heretic for my troubles.
Real estate is a powerful religion for some people…
“Real estate is a powerful religion for some people…”
That is what it comes down to. In some cases I can understand why. Like with my coworker who bought in West Virginia at the top because he got married. He obviously got himself trapped into a “Suzanne researched this” situation.
What I don’t understand are the people who bought before the bubble and bought as a place to live. They may have HELOCed themselves into massive debt, but I doubt it. They are so excited that their house is going up and want Bernake to lower rates to preserve their “gains” even though it doesn’t put anything resembling actual money in their pocket. They should know better. What makes it worse is what they want is to weaken the rest of the economy just to preserve their house “value” jeopardizing their job. Apparently, these people would rather their house go up in value than have stable gainful employment.
“They are so excited that their house is going up ”
It’s the exclusivity principal at work…now only “rich people” can afford houses in their neighborhoods (or so they think), so it then feels more like an ‘exclusive enclave’. Even if they never take money out, it makes them to feel good that ‘only rich people can buy here now’. Never mind the fact that until recently, non-rich people were the ones buying in and elevation prices, using exotic loans. And never mind that, in many cases, their own turning adult children were being priced out of the neighborhoods.
> now only “rich people” can afford houses in their neighborhoods
I’d never be member of a club that would have me as a member.
Groucho Marx
And never mind that, in many cases, their own turning adult children were being priced out of the neighborhoods.
When we sold, our in-laws had a short freak-out period. (They are a little too self centered to worry about us for long..) I think one of the things they may have freaked out about was the semi-conscious realization that those never ending rises in house prices that they were banking on meant that at some point people like their son would be unable to buy a house.
“Real estate is a powerful religion for some people…”
True!
One guy I know in Phoenix who is about 2 years older than me (I’m 48) shakes his head and tells me a man in his 40s should own a home. Of course he does not mention the fact that houses in Phoenix are way overinflated.
So what is my excuse? Partly, I’m a single guy, and would not fit in a place where there are mostly families. I tried that once. Neighbors regarded me suspiciously, as if I was gay or something (I’m not). I also fear of making a costly mistake - that I buy a house and some noisy trashy neighbors move in next door. Part of that is experience - that I bought in a falling market and ended up losing 20%. I can understand how much a rush it would be to buy a house in the bottom of a bull market and watch the next two years as houses nearby go up in selling price. You tend to ignore any negative aspects of your location, thinking you can sell and profit and go elsewhere. Now that’s too late for a lot of people.
“I just don’t discuss it any more. I just don’t.”
I’m with you, Arroyogrande. My in-laws have taken to making fun of me and sometimes even baiting me since I’ve taken to not bringing it up anymore. My spend-oholic friend just says, “oh I don’t know anything about money and I don’t want to.” And my friends that still have their kids’ college fund invested in real estate…well, she just LOVES telling me how much its gone up since I first told her she might want to put that money somewhere else. (A blogger helped me and advised me their TGI Creff was commercial RE)
Then there’s the friend who agrees with me and claims her Dad and brothers have said this was coming for years, yet she is still looking to buy if her husband gets a new job in a different state. And her recently divorced brother is doing the same after he ditches the bad memories from the previous ball and chain.
Earlier on, I had wondered if any of these people I talked to because I cared about them and didn’t want to see them suffer a loss might someday say, oh you were right.
But the info on the MSM is coming out left and right and I still get condescension. I just think some people have to be contrarians and will stubbornly hang on way past the point of the obvious.
I wouldn’t say anything to people who already own. But I did beg friends and family members not to buy, and when my in-laws said last year the were interested in moving from a rural area to somewhere more convenient, I told them “you have to do it right now!”
No one took my advice. Including people who knew I turned out to be right (eventually) in the past, on the totally obvious 1987 housing and stock market bubbles, the totally obvious 2000 stock market bubble, etc. I’m not a genius, and have no idea what’s coming normally, but how could people miss these?
Note to the wise — don’t talk about HELOCs. You don’t know who has done it and is now in trouble, and might be offended.
I agree..when things were rocking and rolling my family was called “old fashion” and pretty much scorned at as “not on the money train”…we took it in stride and sat back and watched with popcorn and in awe at how people around us were getting more and more into debt without any lender considering how this was all going to get paid back..I don’t mean to the tune of hundreds of thousands but to the tune of MILLIONS!!!…well fast forward to today..and those that thought we were not going to have a retirement like they would, well, they are facing foreclosures, credit ruined issues, loss of homes, and so on..pretty much what we read about everyday on this blog…now the sheepish cries are coming to us….”I guess you guys were R-I-G-H-T”…and the “So how are you guys doing?”…
Our live are not perfect…but heck..I sleep very well at night…
popcorn and awe
That’s got to be the title of the book Ben will, nay MUST, write
“I sleep very well at night…”
BINGO.
And it’s not that we don’t take risks, it’s that we refuse to take risks based on emotion and herd stampede mentality. The time to take the risks is *before* everyone is doing it, not after.
But people feel so much more safer when “everyone is doing it and getting rich”.
Made that mistake today…oops
Every time I see the term heloc, I picture a helium balloon loaded with cash floating away in the air. I have no idea why that picture pops into my head.
Perhaps it is actually that hydroden filled baloon now collasping towards earth in a firey ball……
When we didn’t have anything to spend it on, my in laws were really pressuring us to set up a HELOC. Is that like the strangest thing ever or what?
You should take one out.
But we don’t need any money.
Yeah but our lawyer advised us it’s the best way to use credit.
But it doesn’t make sense to us.
Oh, you’re so argumentative.
They may have been right, but not “because their lawyer said so.” If you have a decent amount of self-discipline to not use it except for emergencies (real ones, not Plasma TV ones), it’s good to have one on standby in case of job loss or disability or any other short to medium term loss of income.
Medical bills are generally not a good thing to put on your HELOC. If the debt is held by the provider, they can often be discharged in bankruptcy without recourse, but the HELOC is secured by your house. If you have to sell your house in bankruptcy (low state exemption for example), the HELOC lender gets fully paid before everyone but the superior mortgage holder(s). Your medical provider(s) have to get in line with your credit card issuers if they (or collection agencies who bought the debt) are the ones trying to collect from you.
this past spring, i heard that my nephew, getting married in August, was anxious to purchase his first home before the fall in the burbs of Philly. I called my sister-in-law, him mom, and carefully suggested that he was silly to purchase now…that things were about to turn and at the best, he might find himself in this first home for a long time if he didnt want to take a loss in selling the home to move up. She told me “YOU tell him that, I give up.” I gave him my opinion, ie to sit tight for awhile and his money will go much further when he needs to buy. keep renting. I sent him a link to this blog, and a few others, and suggested he do some homework before making his decision. At the same time, another of his uncles has a family who owns a real estate agency in Scarsdale, NY. and they have been very successful over the last ten years playing the buy, rent and sell game. Their advice to my nephew was to “buy. It always goes up.”
A few months passed and I saw something specific about the Philly market and sent it his way. He wrote back that he had bought two months ago and was all excited. a 2BR home for he and his new wife. Ugh! after the first kid, and he is stuck in the small box cuz he cant get out whole, what is he gonna do?
My ex just bought a little old 50s brick house to flip - outdated interior, figures he’ll put 50 k into it. He paid 490k for the house (W. Colo). I told him about this blog months ago… glad it isn’t my money…
Have you noticed some folks now avoid you? It must be the HBB folks fault this happened because they said it out loud. Maybe we’re headed back to the old days when it was impolite to speak about finances, religion and politics in polite society - then again where is polite society?
‘ It must be the HBB folks fault this happened because they said it out loud.’
I have had people say to me, ‘this is all your fault’, but only in jest.
In their heart of hearts, they may not be jesting. Please be careful, Ben.
I agree.
When a person’s entire reason for existence (i.e., to be ahead of the Joneses [no coincidence intended]) is literally crumbling underneath their feet, they will certainly look for scapegoats, and may do more than just ‘joke’.
They certainly didn’t consider it “impolite” when they were bragging about their big RE genius fortunes a couple of years ago.
Az,
True enough. But let us not forget that the housing religion is like playing craps (almost too much so)….when the shooter hits point chips for everyone. Big roar, yippeee, everyone was smart. We all win. Try being the guy who bets the don’t pass line on the next roll……
“7 out, line away” yep. You bet with the house (casino) but no one is cheering “yippee” with you. They all have scowls and say it was YOU who spoiled the lucky table.
People are some of the strangest folks i know…….
(hat tip to aladinsale for one of the funniest quotes on the vegas market)…….the “7 out line away” …..ahem….borrowed it from him. thx man
Craps players are an odd lot to be sure.
Just tell them that you can’t afford it due to your Animal Porn habit. They’ll soon stop asking you
I don’t talk about the bubble anymore. Period. This blog is my outlet, and I probably would have gone nuts without it.
“Pullman is unique.” “The recent rapid home price appreciation is just making up for some slow years in the 1980’s and 1990’s, it doesn’t have anything to with the national bubble.” “There isn’t any speculation in Pullman like they’ve had on the coasts.” “Schweitzer Engineering has been hiring a lot of people and driving up real estate prices.”
My response: “Hmmm, is that right?”
Amen to that. One of my last ‘discussions’ on it was back in ‘06 when one of my family members traded ‘up’ to buy a $600K house in the middle of nowhere. She started talking about 30%+ per yr that she expected. I just looked at her and said 30%/yr gets exponentially more difficult (impossible) each yr - i.e. ‘It seems a bit outrageous that this house would be a $1M in 24 months seeing how it was a $300K house 24 months ago”. Her -silence and a cold stare. Me - slowly backing out of the room. We don’t discuss RE anymore.
A couple we know bought a $750K (100% financing) in south Anchorage this summer in an area called Potter’s Marsh; it’s a “fixer-upper”, needing a new $50K roof because of the high winds and having been unsold and unoccupied for over a year. They and the folks in their neighborhood believe prices are going to $1M over the next 5 yrs because of the as-yet-unbuilt gas pipeline. I told my 8 y.o. son not to wear his Mr. Housing Bubble T-shirt when they are around.
That much for potters marsh - they’ve really gone crazy up there. I remember when hillside was most posh in Anchorage. Lots of the folks from earthquake flats got free land on the hillside after the earthquake. Long drive into Anchortown from the marsh.
Are you guys talking about Alaska??? $1M homes?????
Speechless………
There’s one going up for $7,000,000+ soon.
There are also plenty of $1M+ on the Yahoo foreclosure list (one of which we rented ~7 yrs ago (on the block for ~$650K, worth ~$350K), but only stayed for 40 days because our little boy kept slipping and falling on the Pergo floors while learning to walk.
No matter what the entanglement of the conversation becomes on real estate, do not let on to the other party you are solvent! Misery wants company.
“Misery wants company.”
Financial misery also wants someone else who is solvent to solve their financial problems. My advice is “Always be broke”.
And look the part.
‘And look the part.’
I am working on that.
Doesn’t work. I am so cheap, I patch up holes in my kids pants. Kids tell me the other kids think it’s cool because ripped pants are not in fashion …
tell them you rent !
got my mother to sell in FL 6 months past peak and couldn’t get her to sell in RI
now tanked
Its amazing to me that people will believe a real estate salesperson on their take on the real estate market ,who has everything to gain by hyping up the market ,but they don’t want to hear contrary data from a friend or someone that has nothing to gain by giving them a honest opinion .
When I was young someone said to me ,”Always look at what peoples self-interest is in everthing they say. ” Another friend of mine once said ,”Self interest is behind all acts .”
Sure the real estate mania group wanted everyone to get in on the bandwagon ,just like any ponzi scheme . The bagholders bought for the wrong reasons and now they are stuck waiting for the rebounding market or any greater fool that will believe the myths .
Now I’m sure the big story is that BB will lower rates and the boom will continue ,or that we are reaching bottom soon so you better buy before it takes off again .
Anybody with half a brain can see that everything in the real estate market has changed now ,including financing ,so how anyone can say this correction is just a short term dip is crazy .How can people not see what a big supply of homes and listings there are on the market,along with big discounts the builders are forced to give now?
I don’t like to bring up the housing crash anymore unless it pertains to objections about bailouts .
Wiz, they may not see our opinions as disinterested. After all, we don’t “own” as much RE as they do, so we have a material interest in the decline of RE prices. I actually do best in conversation when I tell people that I sold a house in 2005 because of my suspicions that the RE mkt would crash. They can see that the decision I made then was motivated by an opinion, not by my existing situation. Even now I tell them I don’t know how much it’ll go down, but that I’ll feel safer buying it when the prices permit purchase and rent-out without loss.
correction 2005=2006
I never told anyone I worked with I owned rental property while I owned it or after I sold it. I told a few recently I sold my personal residence middle of ‘06. That was more related to what I thought would happen in my one company area, however. Housing market a bit locked up here as there is a tbd size rif in the one company area coming.
People I work with tend not to talk about finances much in general. Many investors, but most are tight-lipped and solitary.
I tell them I rent. I dont tell them how well off i am… Without asking them I pretty much give a 10 minute blurp which stuns them cold. After all its all about knowing your local history local economics and common sense.
It’s only been recently that people have started assuming that we are renting because we *want to* (because of insane prices), and not because we *have to*.
There’s simply DEEP denial among most people.
I have relatives that aren’t selling, or really following the market, but they are the ultimate experts in their minds, and I should “Buy a starter house.”
They just don’t get it.
Of course, they bought in 1998 (big houses on 1 acre) for 3x income. Today a “starter house” in my area is 7-8x income. Their “starter houses” were 1x income.
I wont raise the topic over the holidays, I’ll just keep watching prices drop and buy when the numbers finally make sense.
I overheard part of a conversation in Poway (North San Diego) yesterday. One person was commenting about the prices falling recently, and the other guy immediately responded that his property had started “going back up”. Without actually selling his property I am not sure where he got this idea. The other guy shut-up wisely.
Sounds like it was good for a laugh. Recently, I’ve seen places for sale there in Poway that are over $100K below what they were purchased for in just the past couple of years. That guy is seriously dreaming.
I’ve wanted to change “saywhat?” to “saynothing”….I, too, have learned that talking about the bubble - however conversationally, not as some kind of messiah - makes people uneasy. I have too often been crowned Chicken Little and that pi$$e$ me off.
I told family about this blog over a year ago just because I thought it was a great site. Then, this spring, my retiree in-laws bought and moved into an overpriced fixer upper (granted, lots of potential - but aren’t all money pits?). They finally put their other home on the market in July - I really think they thought it would sell within a month (it’s different here, ad nauseum). Not a nibble.
At a recent family gathering, I gently asked my FIL how things were going on the sale of their old house and, after a pained look, I heard that it’s all about the psychology. I was kind of puzzled…..but then understood where he is coming from.
Many people can’t face that it IS a market issue, NOT a “consumer confidence” issue. I guess it’s easier to think that people will just cheer up and buy, buy, buy. The “market” tho - hey, that’s scary economics and we’re seeing some wild things going on that have led us to a bad place. Too awful - or difficult - for a lot of people to even think about.
I wasn’t going to start at ground zero. I can tell they’re already freaked about their decisions. They’re family and I wasn’t into making them feel worse or foolish - that would make me an a$$hat. Too late anyway, as far as they are concerned. I saynothing.
There are only 2 people I discuss housing with; my wife and a member of my IT staff. I discuss it with my wife for obvious reasons, and the person on my IT staff because I didn’t want him to make the mistake of becoming a first time buyer in Los Angeles in 2005. He actually listened to me, smart boy. They are both “on board” with the concept of the downturn taking years to play itself out. Everyone else can figure it out for themselves, as they thought I was a fool a few short years ago (no hard feelings).
BTW, great issue of The Economist just came out; “Lessons from the Credit Crunch”. If you don’t subscribe you may want to pick this issue up. It’s probably in the section nobody is standing in front of.
http://www.economist.com/opinion/displaystory.cfm?story_id=9988758
I think folks will know exactly where I stand when I show up for a couple Halloween parties this year as a dead Realtor impaled by a “For Sale” signpost.
Lake……oh man…that IS funny.
Trophy winner of best comment of the day.
Dont forget to put cobwebs all over the sign with 4 “priced reduced” placards swinging below it. Perhaps a “contract expired, under new realtor” or “shortsale, foreclosure, bankruptcy, open house, for rent” placard to boot.
Make sure the sign is good and faded, so people know it’s been in the weather for years.
ROTFLMAO! Oh that is good!
I have a feeling you’ll have more than one signpost stuck in your back by the end of the night. Invest in some kevlar brave soul.
Even if buyers must sell their current home at a lower price due to market conditions, they are likely to get a deal if they upgrade to a larger house, DeKaser said.”
Translation: Lose your money selling your first house and then lose more money when you buy the larger second house at inflated prices. This is an excellent idea if your a mortgage broker, banker or realtor who are out to line their pockets at the consumers expense. If your the consumer, smile and walk away from these types of people who could care less about you and are only interested in taking your money!
During the last bubble in CA (early 90s), a friend of mine dressed like a clean, yet undesirable homeless realtor and held a sign that said, “will sell homes for food.” He stood outside his office waving it around before heading off to the party and reported that most people driving by wouldn’t even look at him. One man stopped and gave him $10 and told him to go out and buy some dinner! LOL. He said that his costume was too close to truth, and changed his costume to a realtor mummy - as dead as the housing market.
Loooong time lurker here.
I tried to warn some friends before it was too late, when they were house shopping in what later turned out to be the peak months. They didn’t listen and started getting annoyed with me when I brought it up, so I vowed to just let them take their medicine and I would never talk about it again.
Fast forward, one owns an “investment condo” purch’d right at peak, neighboring units selling for 20% less already. Other friends own nice house but down payment has probably been decimated.
It is tough to bite your tongue, and tough not to feel offended when people ignore your opinion. They would rather believe the rah-rah-realtor over their good friend. After all, realtors are supposed to be the “experts” of the housing game! LOL!
Now nobody talks about housing at all. I don’t feel much shadenfraude watching friends get hurt, but there are some things that I have to remind myself now and then to justify feeling a bit vindicated. My friends are cool people and never lorded their purchases over anyone else. But many others did make their families and coworkers feel inferior for not buying. Many people HELOC’d a bunch of luxury crap and then paraded around like they were suddenly wealthy, rubbing it in your face. Many took fancy vacations and bragged about them for months. And all based on the premise of completely screwing over the next greater fool to come along. All based on making it nearly impossible for first time home buyers to get a fair shake. All based on making 200% profit in 2 years “just because”. The sense of entitlement was sickening. The flipper shows on HGTV really make me nauseous.
So, there are plenty of reasons to say “HA I told you so!” but one must bite one’s tongue and let the ‘invisible hand of the market’ bring forth the reckoning.
Like my former jeweler neighbor that I’ve told you about on here. Now National City Bank is taking him to court to make him change his bankruptcy from Chapt 13 to Chapt 7, liquidation. Apparently he has huge unpaid loans with them for store inventory.
Boy they lorded every purchase, vacation, household help, etc over everyone in town. Wonder if he’ll like living in his $100k motor home, until it’s repo’d, since I’d bet he won’t have the heloc’d house much longer. Funny part is, no one feels sorry for him.
The worst part of the whole thing is he professes to be so religious. Religious music played the store, billboards and ads with scriptures quoted.
I can think of quite a few the ten commandments that they’ve broken, but he still shows up in church, I’ve heard. You know how it is, those that push religion the most, usually have the most to hide.
Can you tell me what city this guy is in? Sounds like some jewelers I know. Big spenders, big bull$hitter$, liars, crooks. It’s not easy being a jeweler when I despise so many of my colleagues.
A small city 25mi south of Youngstown OH
oooh - do tell where - other half is at our house in liberty township and I want to make sure he doesn’t go looking at baubles there.
You know how it is, those that push religion the most, usually have the most to hide.
I have personally seen this demonstrated over the last 3 decades. Acquaintences of my dad ripped him off in the 1970s - one was a minister. Then the televangelists, the Catholic Bishops with their thing for boys, and so on. Nothing new. On the other hand, I know many people who openly live lives that are condemned by the fundamentalists (you name the religion), but I trust those former far more than the latter. An ex-girlfriend of mine (one of my favorites) loved to call herself a hedonist. And she was open about it. Of course she was an atheist just like me.
Little town of Boulder, Utah, has roadside signs, “Freedom from Religion.”
My uncle enthusiastically agrees my all my “bubble bursting” talk, with one caveat: he knows that his own town (Santa Barbara, California) is immune to any downturn.
I give him this. He’ll never have to sell; there’s no no harm in his believing that he lives in the one “special” place.
In my own rural California neighborhood, it’s impossible to attend any social function without finding oneself in conversation with a realtor, contractor, peak-buyer, or someone else who is otherwise emotionally vested in inflated home prices. Finding another bubbler is like encountering another member of a secret society: hushed, conspiratorial conversation ensues.
The reason that you’re running into so many realtors, contractors, peak-buyers, etc at social functions, is because they have no money for food, and this is where they go to eat.
Bravo! You ARE a writer worthy of the title.
Ghostwriter: one can often find free food at funerals
“Finding another bubbler is like encountering another member of a secret society …”
We bubblers need to wear a lapel pin that states: “It’s different here”.
I have friends in Santa Barbara. Jane sells time-shares (Hyatt, I think) and Joe is a mortgage broker. Jane reports that she’s the top agent this month, and Joe says the phone hasn’t stopped ringing from all the people who want to refi. I nodded my head, uh huhed a lot, and changed the subject — even though I wanted to ask, “How many salespeople have been laid off at the Hyatt, and how many are actually getting those requested refis?”
We have so many FBs in my office its ridiculous. I’ve been telling them for the 2 years that I’ve been there that I’am waiting for prices to crash and they looked at me in amusement until lately. I’am not mincing words when they ask if I’am still looking though, and they do alot, seems like their cautious way of gaging the market. I have noticed alot more attention to the bottom line on projects since it affects bonuses at the end of the year, and I’am sure they are needed for the mortgage payment.
Even funnier, I walked in on a conversation between my two big bosses and they were discussing how scary it is that they will never actually own their homes. They said it in kind of a joking way. I just shook my head and walked out. I don’t think its funny at all to rent a house from the bank for a ridiculous sum of money every month. This is Socal - everyone in the office has a $3,000 to $5,000 a month payment.
Even worse, everyone has an interest only ARM - most that reset in another 6 to 7 years. Did they think interest rates would be LOWER in several years? I can’t wait to see this play out.
Oh yeah - my rent on my little house (with big yard) within walking distance of a downtown and university community is $1,475. The FBs can’t believe I have such a low housing payment. I tell them that we’re socking it away so when we retire we can pay cash for a house in the mountains. No need to rent a monstrosity from the bank so that we end up eating pet food in a residential hotel in our golden years.
What’s sad is careful savers like us will ultimately be subsidizing these people when we all retire. The income you earn on $$ you saved for retirement will be completely taxed, leaving you no better off than if you had saved nothing.
> What’s sad is careful savers like us will ultimately be subsidizing these people when we all retire.
Yeah, gotta agree. I’m waiting for the special “one time” fees on 401ks to “save Social Security”.
Watch out! Hillary wants a wealth tax! Tax your bank account a certain percentage. Even though I’ve always been a “liberal”, I’m going to vote Republican!
I did a rough calculation of what her proposals would cost me (raising the marginal rate, uncapping social security, etc). I won’t reveal the actual number, but the amount of increase is 3x what my total salary was when I worked at Grumman Aerospace in 1984.
I am assailed by relatives almost every time I see them to “invest in a house,” and it has caused some friction in our relationship, because sometimes they go behind my back to complain about my stubborness to my wife, who thankfully is in my corner. One relative owns three properties in Sarasota; others are of the boomer generation and have snowbird friends that bought elsewhere in Florida. Yet another purchased a small house in California in 2002, and by 2005 was receiving unsolicited notes in his mailbox from realtors promising to sell his house for 50% more than he paid. He thought he had won the lottery, and his exasperated response to me when I pointedly disagreed was “we all know how you feel about this snake charmer.”
Because I am in my thirties, the perception among my relatives appears to be that I am reluctant to make one of the moves that our culture uses to define a mature adult. I could go into a whole other set of stories about friends and co-workers, but suffice it to say that, up until this year, I was regarded as a fool.
One should *never* discuss money with relatives. My MIL a lot of alcohol and self-control issues. Racking up credit card debt on Infomercial “collectables”, etc. And never once learning a lesson even after 3 bankruptcies 6 husbands, and in and out of detox clinic.
Whenever we go see the M-I-L I try hard to set rules. Don’t discuss ANYTHING to do with money! Not even indirectly. This means don’t talk about international vacations, work, etc. Don’t let them see your iPhone. Bring a cheap camera if you want to take photos of the nephews (leave the Nikon D2X at home!), etc.
Because people like this ALWAYS try to bring it back to money. They’ll notice we drove a new car up to see them and ask how much it costs. They love to talk about “property values”. They ask us (both of us are executives in the high-tech industry) if we think they should by “Apple Stock” or “Google Stock”. (Amazing! People with credit card debt want buy STOCK! Pay off the friggin’ 20% interest debt first!)
And, of course, if they can smell money, they’ll ASK FOR IT! As if they’re entitled to it. After an unsuccessful attempt at house flipping in Burney, CA several years ago, the MIL asked to “BORROW” 20K to make up the difference.
I asked her: How can you stand there and ask to “borrow” 20K when you know damn well you have absolutely NO WAY of paying it back?
reuven,
I asked her: How can you stand there and ask to “borrow” 20K when you know damn well you have absolutely NO WAY of paying it back?
WHAT WAS HER RESPONSE ?
Probably along the lines of, “Don’t you love me?”
People who are addicted to “easy” money will pull out any stops. I am thankful to have none of those in my immediate circle. But then, I think I’M the poor one of the family…
(doing just fine, BTW. I just have very motivated siblings.)
She claimed that the new business she was “investing” in with friends (which is why she was selling her house and moving to Idaho!) would make her a lot of money, and she was going to be an “executive” in the new venture.
About a year after that, we had to fly out to Idaho to get her checked into a detox clinic (at taxpayer expense) and clean out the apartment she was found collapsed in.
reuven: sort of reminds me of Los Vegas Vacation with Chevy Chase:
http://www.imdb.com/title/tt0120434/
“‘Believe it or not, that could be the best time to buy a house,’ DeKaser said.”
Actually, I’m surprised that Realtors haven’t switched away from making financial arguments at all, in favor of making entirely emotional appeals.
How about “Owning a house makes you fell happy and secure, and you can’t put a price on that” or “Variety is the spice of life, so we see creative, adventurous, successful people buying new houses every couple of years - t’s like getting a new pair of shoes - it’s rejuvenating.”
I have already heard variations of “Your children deserve a permanent, stable home, and they’ll never have that unless you own your own house.”
Hey, just as one who is married shouldn’t be expected to stay with the same spouse their entire life, why should they be expected to stay in the same house?
That’s why we have starter houses and starter wives, so we can trade up. Sheesh, so last century.
“Your children deserve a permanent, stable home, and they’ll never have that unless you own your own house.”
Children need 2 parents, in the same residence, food clothing, and a decent education. Children could care less how big the house is, or even if it’s an apartment (yea, they may complain about you losing the tax write-off, but that usually doesn’t happen when they’re in grade school). Same for the choice of a car - if they can fit in, it’s big enough.
By all reports from our kids, they like our new “house” (3 bedroom apartment in a 4 plex, with a large yard in a nice neighborhood) better than our old 3 bedroom house.
Unfortunately we live within suburban affluency but do not follow the lifestyle. At least once a week, my twelve year old son asks when can we move into a Mcmansion like so and so classmate. We live in a raised ranch which is paid off and I’m so happy to be living here, and enjoying the RE scene & popcorn. I go on to tell my son that even though we look poor compared to the rest of his parochial school friends’ family, my husband and I are happy with the way things are. We let him know that we can afford those homes, but refuse to pay the crazy money for “maintaining” the mcmansion……continuous property tax increases, heating/cooling costs, etc.
And what happens when he and heads off to college? I tell him that his father and I do not want to be trapped by this gigantic burden by retirement age bc we could not find a greater fool than us to buy.
Good lord. Explain “keeping up with the Joneses” to him.
Incidentally, I am the youngest of five and that comes with certain financial restrictions. Since that also came with a set of good parents and lots of informal education (family museum passes are wonderful things, and many museums have “share” programs where your local pass will get you in other places), I got into programs with other motivated children…
…who were largely from families that were much richer than mine. One time my mother picked me up from a classmate’s and still describes how she “sank into my ankles in the carpet.” So I basically had these insane comparisons to look at.
And yet, I didn’t bug my parents about moving, because I was bright enough to understand about money. In fact, I think I had an overly exaggerated worry about making my parents spend too much on anything. I wonder if my classmates thought I was poor, I was so careful about my clothes and other possessions.
At any rate, it sounds like your son could do well if you sat him down with you when you do the bills. Make sure to explain the taxes on your statement, and the costs of a move aside from the initial purchase price, and encourage him to take your monthly income and multiply it to see how long it would take to buy a house if you used your ENTIRE paycheck. Then tell him how much food costs, and how his appetite is going to double any time now.
He’ll probably get very thoughtful after that. Hard numbers can do that.
The problem is my husband and I make decent money and much of it goes into savings. I’m not one to complain when food and energy costs are going up bc we can afford whatever our federal, state, and local government dishes. I feel for those on minimum wage who are trying to move up in the ladder.
What I try to make my son understand is that most likely his friends’ families are probably living on credit. I sure wish people’s financials are more transparent, that way everyone can see that the “Jones” are just imaginary people.
Second on that crap - which we heard from my FIL. Apparently if you rent, you are forever getting kicked out on your home. (Even though quality renters are in short supply..) We are the ones creating stability for our kids, not the empty box surrounding us.
Every since the Bubble started ramping up, I’ve had to put up with the insults and BS from arrogant speculators and other loud-mouths who think that I was a fool for not shelling out 50% or more of my gross income to overpay for some stupid McMansion. For years this went on: “Oh, you should buy a place! Real estate only goes up! Renting is throwing money away! Anyone can get into a home!” and on and on.
I countered by asking them if they can REALLY afford their McMansion, by asking what will happen when their toxic loan resets, by asking how anyone can actually afford these houses given the current salaries in the area. Every time, the conversation degenerated into basically: “Real estate always goes up because real estate always goes up!” Right…
Well, there has been an eerie silence on the part of all the home-braggers lately. Why, it almost seems that every since real estate started going DOWN, these arrogant clowns have nothing more to say. Gee, who’d have guessed - real estate does NOT always go up! And people actually have to PAY FOR their houses in the long run. Amazing!
Needless to say, I am not waiting for any apologies from these jerks for being treated as less than human for years since I was a renter. But I will get a satisfied laugh at their expense as their bills keep mounting, and the debt slowly crushes them as they wonder why $100K a year with no money down won’t let them afford their $600,000 dream McMansion for 2 adults and 2 young kids. Tough luck!
Right. 100K a year, with a good down payment, buys a 250-300K house, not a mansion. Loan payments should be within shouting distance of monthly rents.
15 years ago, this was common knowledge.
One of my sensible friends told me about 3 years ago that if you pay over $200,000 for a house, you re paying too much. My ideal price for a Tucson house is $140,000. I think that will be possible before 2012.
Real estate should be a small part of your personal finance portfolio - I thought most people took that for granted just 5 years ago. Then they got all wierded out by greed. Maybe television infomercial hucksters saying real estate is the quickest way to financial independence - bunch of bull and not in personal finance text books.
When you friend said that paying more than $200,000 for a house is too much, did they mean anywhere in the US or just in Tucson?
I agree that as little as 5 years ago, most people understood that a house was for living not an investment other than getting a fixed mortgage payment and being free and clear of said mortgage by retirement.
He lives in Gilbert (part of the Phoenix metro area), so I assume he was talking about Phoenix metro. In 2001 new homes in Gilbert about 1300 square feet were selling for $130,000. That to me was a little on the high side. Now they are probably sitting up for sale at $250,000 and no buyers.
Lots of new homes in Gilbert that will keep prices low on all homes until they are cleared out.
There was even more mild examples of this. 17 years ago when I bought my (now paid for!) sunnyvale house (with a 15-year fixed mortgage), the broker and agent kept telling us that we can afford a bigger house!
If we were weak-minded people who succumbed to peer pressure, I may not be sitting in a paid-up house with a pile of money in the bank today!
Same here. Bought what we could afford with 1/3 down and a 15 year fixed and we’re sitting in a paid off house, while many of our friends have traded up, heloc’d, etc and owe probably more than their homes are worth now. I keep pounding this in my kids heads. Buy what you can afford with a 15 year fixed and qualify with one income only. Stay around 3x income for payments, and you may not end up on the street, like many have.
The best way to sum up most of this thread is the old saying: The best revenge is living well.
I’m really looking for the end of all the boring conversations about house prices. It’s a subject I avoid, because it leads to that very special experience of being patronised by stupid people. I’ve hated being lectured about not buying on the way up, so I’m not going to do it to FBs on the way down. Nobody will have any idea as to my net worth, and I plan to fly under the radar, living in shared houses and shopping at thrift stores, until buying for cash. I’ve only really pushed the bubble once - I have a friend who is completely financially illiterate, but obsessed with real estate. She told me a month ago that a couple of friends of hers were going to buy a house to do up and flip, and that somebody else was going guarantor, her house was going to be the security on their loan, and in return they’d get a share of the profits. No way I could let that go, but had to be really tactful and point out that she and the guarantor were the only ones with any risk in the deal, and that obviously the flippers must have credit records and no savings, and if the bank saw them as a bad risk then so should she, especially as the bank involved is notoriously lax about lending standards. I’m glad I spoke up that time, and stopped the crazy house-losing deal from happening, but mostly I intend to stay out of it.
Good topic.
At work, I’ve got a co-worker whose wife is realtor. He’s the IT Manager, so I can’t exactly tell him to go pound sand. Anyway, at first I tried explaining that I expect prices to go much, much lower. He didn’t believe me. So lately I’ve been telling him that I’ve been thinking about going to grad school in another year or so and wouldn’t be able to afford a house payment if I wasn’t working full-time.
So to answer the question of the topic, my strategy for dealing with people who think that I’m an idiot for not jumping into the market right now:
1) We’ve seriously talking about moving back to Minnesota to start a family;
2) I’m thinking about going to grad school and will either have to relocate or couldn’t afford a house payment if my wife and I are not both working full-time;
3) I work in construction and am concerned about losing my job if (more like WHEN) the local economy goes into recession.
Which excuse I use is based on who I’m talking to (obviously I wouldn’t tell a co-worker that I’m expecting to be laid off). I usually preface it with “Man I really wish that we could buy now, but…” The great thing about these three excuses is that they each have a grain of truth.
I don’t like lying to people, but often times its just not worth having the conversation again and again. I was blunt this past week with a co-worker who was considering buying this winter (I just emailed her a Sac Bee article about how economists don’t expect prices to stop dropping until 2009 at the earliest).
I get people who want to sell me their friend’s house, their neighbor’s, or their son’s (he’s in construction). My list of “must-haves,” which is normally fairly short, gets longer as the conversation goes on
“Sounds nice, but we really need room for horses.”
“And the hogs, of course. Still have to pay the bills!.”
Did I get deleted for some reason?…
I’ve shifted from avoidance of the topic into stealth mode.. draw them out.. listen patiently.. probe.. collect information.
you never know where a good deal may be waiting .. might even kill two birds with one stone if it also helps a friend or relative out of a bind..
If someone already owns don’t bring it up. That said, I talked two friends out of buying at the peak. If someone is on the fence and they’re open minded, it’s worth a shot.
I just tried to talk a friend out of buying a house in Springfield, VA in northern Virginia. The house she bought was for sale or for rent. Renting would have cost her half the cost of buying, but she still chose buying.
I calmly told her the price of the house could fall by up to 50% and that i wouldn’t be buying right now, but that it was her decision. Oh well.
I had a heck of an argument with a buddy of mine the other day. He’s mostly into real estate. He’s a “happy landlord” renting out one of his condos in Miami and renting out some of his farmland in Iowa. He likes to attempt to bury my face in the mud. He basically says he should call me a “rent slave.”
I know he’s out of his mind. All I did was say I can leave at the end of my one year lease. He has duties as a landlord to pay his property manager and be sure his manager is doing his job. He pays more in property taxes than I do as a renter. If his neighbors turn his condo into a slum, he’s stuck.
What a jerk! I figure he is very stressed about the housing bubble and takes it out by saying nonsense.
I’m in a one year lease in Phoenix and a 6 month lease in Baltimore. I like the conditions on it.
I read lots of personal finance publications before I started investing outside my 401k back in the early 1990s. None of them said real estate is the easiest and quickest way to becoming wealthy in investing. They all touted stocks and stock mutual funds instead.
‘He basically says he should call me a “rent slave.” ‘
Spartacus?
After reading some of the other posts, maybe I should call my buddies “real estate holy rollers” everytime they call me a rent slave. Real Estate evangelists. Their farmland has hardwood and not a week goes by (serious) without an e-mail from one of them bragging that every time he breathes his trees get bigger. He always send me a link to a page about that particular state’s trees, promoting it as if it’s an IRA. The brothers say their timber goes up 15% per year.
I should ask them if they figure they can drag a tree into the bank to exchange it for cash to buy bread.
Perhaps they can haul a branch to the store to buy bread and milk.
(After all, we don’t “own” as much RE as they do, so we have a material interest in the decline of RE prices.)
Not in my case. I own much more real estate than most FBs. I’ve got a mortgage paid off. I NY blog discussions, I’ve been accused of being a “bitter renter.” People are either shocked, or don’t believe them, when I say I own a house.
What I try to point out is that what my house is worth on paper has no effect on me whatsoever. But unaffordable housing in general is bad for people I care about, my neighbors and my neighborhood, and might mean my teenage kids move away as adults instead of living close by.
It’s almost as if the tut-tuting about affordability and the cost of living and the gleeful thoughts of real estate riches take place in completely separate and isolated parts of people’s brains.
People are good at that. It happens all the time in politics.
…and any time money is involved, and in relationships, and so on, and so on…
Quite honestly, one measure I use for “intelligence” is the ability to actually figure out these contradictions. The best part about that measure is that IQ has nothing to do with it, and “common sense” has a lot…
“His wife is a real estate agent so you can see the problem.”
Is her name Suzanne?
DOC
You know there is one positive thing about this bubble. It really lowered my expectations. I mean I will be happy now to own a small 800sqft turn of the century shack in a neighborhood full of grey hairs if the price was right. In fact I know hate large mcmansions and anything without a yard and find HOA to be tyrannical.
Oh and by the way to anyone who is called a rent slave
“A man who has a dollar is no ones slave, A man who owes a dollar is everyones slave”
Good quote.
‘Oh and by the way to anyone who is called a rent slave’
It is Orwellian prose. Up there with ownership society.
“…I go around the house teaching my toddler to chant ‘the housing market it crashing’ to the tune of ‘nah-na nah-na nah-na.”
This is my kind of parent. That kid will grow up to be an extremely classy and productive member of society.
It’s the parents that try to “protect” their precious kids from reality that make me sick. Kids should be protected from s3x-related stuff, and that’s about it.
why thank you! That’s my kid.. I gotta share the excitement with SOMEONE other than my DH eh? nah na nah na nah na
There are no uncomfortable conversations to have with underwater homeowners here in Vancouver Canada because there hasn’t been any definitive turn in the real estate market. Almost everyone still thinks real estate here is invincible and will never drop, regardless of logic and what happens anywhere else. I encourage people to look at Vancouver housing prices on Craigslist - it’s good for a laugh. With the CDN dollar at almost $1.04 US, you can get a sense of possibly the most overvalued real estate market in North America. At today’s prices, IMO, most Vancouver homes would not be good value at 50% off. I just keep renting in a nice neighborhood and enjoying life while I save thousands per month.
Now I torment people. I ask them how much their taxes went up (it’s Long Island; property taxes increase every year). Then, I say that my rent stayed the same this year. So, who has fixed housing costs?
I’m frequently getting questions asking if I’m looking or when I’m going to buy. I don’t bring up the subject. I don’t indulge in schadenfreude.
With an acquaintance, I will usually just leave it at “I don’t think the market is very good right now. I’ve decided to wait a couple of years.”
If a friend asks, I will usually tell them that the market here is continuing to get worse and that I’m going to wait longer. If they’re curious, I offer the inventory and foreclosure numbers vs. 2004 in SD. Most of them have no idea of what’s going on.
If a close friend is wondering why I am not jumping at the current price reductions and getting a “bargain” priced house, I will tell them as much as they find interesting. So far, nesting instinct has won every time with anyone who briefly talked about holding out and not buying. Strangely, some of their loan types have come up in conversation, and after some explanation, I convinced them to get out of their ARM or IO and refinance into a fixed rate.
When family members continue to try to prod me into buying in order to stop wasting my money irresponsibly on rent, I don’t hold back anymore. I send them specific information on their respective neighborhood and how much their home has declined in value, based on comps. I also tell them that any of the properties I considered buying back in 2004 are all $75K+ underwater now and still declining. I also show them that my rent is less than 40% of the cost of what owning would be. They’re starting to understand that their house isn’t appreciating anymore, but not the depth or extent of the problem underlying that decline.
Outside of blog posts, I don’t know of anyone who really understands what this bubble encompasses.
SD suntaxed I don’t know of anyone who really understands what this bubble encompasses
I think the banks and hedge funds do understand and it scares them silly
Another coworker who lives in West Virginia (but we work in the g”reater DC area) … He bought at the top of the bubble in 2005
He is hosed. So hosed. A friend of mine was looking to buy in Shepherdstown, a new build development. It took all I could do, plus many references to Ben’s blog here, to convince him not to. Actually, the thing that probably put him over the edge (not to buy, that is) was that he transferred here and wasn’t wanting to negotiate the house in his old city. So no house sale there meant no house purchase here. Lucky for him.
And eventually, he did realize the market was sagging, and now he’s a happy renter! (And landlord with a renter in his old house who isn’t even covering the whole mortgage with the monthly rental check. Not good, that.)
Had he bought, the model he was looking at was $470,000. In frikkin’ West Virginia!! Insanity! Turn the page to 2007, and those houses, the very same models, in the very same subdivision, brand new, were this summer going for…
$320,000.
He’d have been $150k in the hole, plus commissions. Oh, the pain! Now tell me, how long will it take the poor sods who DID buy there to make that back up?
My brother used to tell me I was negative when I talked about housing and the economy. The other day, we finally sat down and talked and I explained how it could mean he could afford a house one day. He has a very different outlook now. He’s been living on an inheritance, but needs to go back to work, was thinking about contracting, is now going to go back to college.
I was “lucky”, in that I bought a house when I was in my mid-twenties (in the early eighties), just before the 1982 recession…… we were “upside down” on that house for 5-6 years. So I’ve never bought into the “real estate always goes up” argument.
Bought a house due to a job relocation in 1999…….Told (now ex-)wife that there was NO WAY that I was signing up for a mortgage that we couldn’t pay on one of our salaries. She was commited to finding and buying a “El-horse-rancho-costs-too-mucho”; took it personal when I refused to finance her “dream”….the experience was a real eye-opener.
Daughter made mistake of buying a house with her boyfriend……when they had a bad breakup, she could afford the house (barely). Ex-boyfriend wanted to buy her out, but it was going to require some money out of pocket to make the deal happen. Told her that a single woman in her twenties needed a house like she needed a hole in the head….recommended she sell it, while the selling was good. She bit the bullet, and got out from under it.
She has seen what is happening with the housing market….she thinks I’m a genius….:)
Don’t let anyone tell you that this bubble wasn’t EVERYWHERE….in 2004, local prices were going up 15-20% a year here (Eastern Kansas). A lot of people I know or work with (usually us older guys) thought the market was nuts, but we were outnumbered by about 5-1 by the Kool-Aid drinkers.
This blog was a big help, because I kept thinking “Is everybody crazy, or is it just me?” The info I have picked up from this blog helped convince me that my eyes weren’t deceiving me.
Me too..
I can’t afford a house and never could! I’m a computer programmer and during the tech pop I briefly considered buying a condo in Cambridge MA when I went back to grad school because all the friends were buying property and I could have gotten a loan !?!?… At the end of the day even the teaser rate monthly payment was a bit too high. Lucky!
Will I buy at some point in the future? — Who knows. It will be years before it is even a realistic option because I still have considerable debt (school — another bubble?, cc’s due to living beyond my means) to dig out from underneath.
I am eager to discuss things with friends since there is a paranoia about being “priced out” of the area and they can’t really afford to buy around where I live any more than I can.
“I often find myself ahead of the curve,” he said, a satisfied smile falling over his face. “Unfortunately, ‘I told you so,’ is an incredibly unsuccessful campaign slogan.” Said by Howard Dean. Seems equally appropriate for this discussion. To have faught so hard to warn folks of the real impending doom and to have been so thoroughly disrespected, makes it so tempting to give the old ITYS, but in the long run it does more harm than good. They all now know it wasn’t just chicken little tin foil hat blathering, but they were so sure they were right and you were wrong that it’s beyond embarrassing to admit it. As long as I know I was right and I tried to help people by telling the truth, I can do my little ITYS dance in private and keep my friends, co-workers and family relationships intact.
Great topic.
I doing a new internet startup and I have managed to include the housing bubble in the product demo. The housing bubble itself is not related to the product, but the mention of it certainly gets people’s attention.
I can’t afford a house and never could! I’m a computer programmer and during the tech pop I briefly considered buying a condo in Cambridge MA when I went back to grad school because all the friends were buying property and I could have gotten a loan !?!?… At the end of the day even the teaser rate monthly payment was a bit too high. Lucky!
Will I buy at some point in the future? — Who knows. It will be years before it is even a realistic option because I still have considerable debt (school — another bubble?, cc’s due to living beyond my means) to dig out from underneath.
I can’t afford a house and never could! I’m a computer programmer and during the tech pop I briefly considered buying a condo in Cambridge MA when I went back to grad school because all the friends were buying property and I could have gotten a loan !?!?… At the end of the day even the teaser rate monthly payment was a bit too high. Lucky!
Will I buy at some point in the future? — Who knows. It will be years before it is even a realistic option because I still have considerable debt (school — another bubble?, cc’s due to living beyond my means) to dig out from underneath.
I am eager to discuss things with friends since there is a paranoia about being “priced out” of the area and they can’t really afford to buy around where I live any more than I can.
A couple of weeks ago I was talking to a friend who told me they had just taken their next egg out of the stock market but he was planning on putting it back in within a few days .In a very stern voice I said ,”I wouldn’t do that if I were you.” I ended up suggesting to him that if I was in his shoes I would watch the market for a little longer .My friend is one of these guys that believes the stock market will stay strong because of global markets .
My friend went away on a business trip and decided not to re-invest his nest egg before he went away like he was going to . I got a thank you call from the guy . I could not tell him what I thought would happen now with the stock market ,but I did have a strong feeling 2 weeks ago we were in for a big sell off soon .
When I’m asked from friends or in-laws that I should buy a house, I tell them straight-up that I don’t feel comfortable buying a home for $900,000 (which is normal in Northern California) when I am ONLY making $250K. I also tell them that it doesn’t includes my wife’s income. “Do you make around $300K?” They shut up right away….
Long time lurker on this blog and first have to give a tremendous thank you for the amazing contributions. I’ve been reading/absorbing here for almost 2 years. My father is a small biz owner with an economics degree and after several housing market conversations, asked pointedly “where the hell did you learn all this? Certainly not in college” (I’m an engineer with zero financial background). I happily referred him hear - but I digress…
I have to chime in on this, since I’m shamelessy looking for more good advice
Backstory: A friend of mine just had his GF of 1.5 years move in with him as she tries to sell her place. She “owns” a home purchased in 02 for 190K. Through some conversations I overheard, I discoved she’s another one living in HELOC hell. Apparently she owes 300K+ on a house that I think may be worth 240K - oh, and is asking 330K. I have no idea what her salary is, but would guess 40K max. I guess she’s been living on the equity??
Here’s where it gets interesting - her insurance company is going to drop her in January because they’ve been notified the house is vacant. What will this do since she’s required to have PMI? The woman with her insurance company apparently knew exactly what to ask and how to deal with the situtation; sounds to me like maybe she’s had some practice…
I’d like to help, but I have to agree with many of the above posters in preferring to save the relationship. I am friends with both of them and would like to keep it that way. I’d like to refer her to someone reputable that can explain a short sale and the implications of foreclosure/bankruptcy. This blog is an obvious choice, but I doubt they’d sit through the necessary info.
I find it interesting that she’s another doomed FB that so far hasn’t contributed to the ever growing negative stats…
her insurance company is going to drop her in January because they’ve been notified the house is vacant. What will this do since she’s required to have PMI?
Funny that they would drop PMI. Seems more likely that it would be hazard insurance (fire, theft, etc.) that is being dropped because, yes, insurance companies MUST BE TOLD when you leave the house vacant. That’s because a vacant house is a much higher risk; think of neighborhood teens, or just a problem like a leaking roof that you’d notice while living there, but if you aren’t living there, you don’t notice till a month after the ceiling falls in.
What she should have done, and what I recommend to friends who leave houses empty, is to tell the insurance company. They’ll increase the rate, but I’ve never heard of them cutting your policy if you tell them up front what’s going on. (Might be different in insurance hellholes like Florida.)
Now what will be REALLY bad for your friend is that the mortgage company will appoint its own high-risk insurance coverage, as it is allowed to do according to the mortgage paperwork she signed. And that coverage will likely be THREE TO FIVE times what she was paying till now. Very painful.
If she can beg or borrow the money to make up the difference, she needs to dump that house as fast as she can at the price the market will give her; otherwise, she might need to start thinking longer term about bankruptcy, what with her low salary. Seriously.