What If The Shoe Was On The Other Foot?
Readers suggested a topic on circumstance and the housing bubble. “I was wondering, what would we all be saying if the shoe was on the other foot? By that I mean what if those of us who are currently renting due to the insanity of home prices had bought a home pre-bubble? (I am a renter). Would we have the same opinions about the ‘paper gains,’ and be so adamant that sellers lower their prices if it was our home equity on the line?”
“I know that many of us would like prices to fall big time so that we can finally achieve our dream of homeownership (or get back in a home if you sold out to take your gains during the bubble). But I found myself thinking today, would I feel the same way about the housing bubble if I had bought a home for $200K several years ago, that at the height of the bubble was worth $700K and is now worth $500K because of the bursting of the bubble?”
“I told myself that I would have the same opinions because I view a house as just someplace to live, not an investment or piggy bank, and having a paid-for home is a major part of my retirement plan. Therefore, whether my home was worth $200K, $500K, or $0K, it shouldn’t matter if I truly hold that view.”
“But I don’t know. It’s easy for me to sit here and be irritated at a seller who refuses to let go of his/her notions of their home’s ‘value,’ but what if it were me?”
“I guess what I’m trying to determine is, are people like those here (fiscally responsible, prudent, forward-looking, self-controlled, didn’t buy more home than they could afford, didn’t HELOC, bought home just to live in it, etc.) who own a home, just calmly sitting by watching all their equity go up in smoke and shrugging their shoulders? Or are they feeling some dismay even though they won’t be losing their homes, don’t have to sell, etc.? If you were never going to use the equity it shouldn’t matter, no?”
A reply, “Actually, if you owned a house pre-bubble AND did not HELOC it AND do not plan to sell it and move out of San Diego (for example) AND have any need for a move up house - i.e. growing family, nicer neighborhood, closer to the ocean - you are much better off if prices fall.”
“I.e. you bought a $100,000 house that went to $400,000 but wanted to move up to an $800,000 house. If prices stayed the same (all loans at 7% - all equity used for new purchase) You are looking at a $300,000 down and $500,000 loan for $3,307/mo. plus $733 for taxes = 4,040/mo.”
“If both houses ‘values’ were cut in half and your existing home was worth $200,000 and the desired home worth $400.000 - $100,000 down and a $300,000 loan which is $1,984/mo plus $367 in property taxes for a total payment per month of $2,351/mo. Same house. Same standard of living. Heck of a lot less money.”
“Sometimes you have to run the numbers but as long as the person didn’t buy recently and/or didn’t HELOC the property and they want to stay in San Diego, they are better off with lower prices if they ever want to move. Even moving from like to like would mean much higher property taxes.”
“People freak out when their ‘net worth’ drops, but so often this is a false number. Sometimes just running this scenario for them helps out immensely. Unfortunately, if they are retiring and moving out of state then this is a bad scenario for them. (Although it can be argued that prices are dropping everywhere.)”
To which was posted, “Exactly! It was property taxes that kept us from buying up, and convinced us to sell-to-rent. Our payments would have more than doubled, just to get an extra bedroom in a **slightly** better area.”
One wrote this, “From my POV: I built my house in 98-00 and never calculated what it cost, nor what I’ve added since then. As the local ‘comps’ are somewhere between abandoned travel trailer and new-ish doublewide mobilehome, the construction guys kept telling me that I’d ‘never get out what you’re putting into it.’ I’d reply that I had no intention of ever getting ‘anything out of it’ because I had no intention of ever selling it. This was my home.”
“They thought I was nuts, but I paid them in cash every Friday, so they eventually cut me some slack and quit harping on me.”
“And sure enough, when I moved in, the county assessed it at about 10% of what a comparable place in any other part of California would fetch. Boy, was I pissed at myself for wasting all that money on thoughtful design and high quality material and workmanship!”
“So no. The equity fluctuations have had not one iota of effect on my outlook or my finances. I could never replicate this place for anywhere near what I might be able to afford even IF I could find the skilled labor and a comparable piece of property to do so, so I’ll probably die here. A happy camper who still has no clue as to what her home is ‘worth.’”
“(The problem is the FB’s from elsewhere who think they can move up here on a budget cut…and end up trashing their land because they can’t afford to maintain it. On the other hand, as their property values tank, it’s just that much easier for me to buy them up, doze their POS trailers, and let the land revert back to nature.)”
One had this. “Ecclesiastes 1:9 says.. ‘..there is nothing new under the sun.’ But i prefer to quote Don Ameche.. ‘Things Change,’ and a fall in price could become important.”
Another cites market forces, “Here is the beauty of a free market: Sellers are entitled to fantasize forever about the ever-increasing value of their faux chateau. Under a free market system, they cannot be coerced into selling for one penny less than they know their home is worth.”
“Would-be buyers can sit on the sidelines forever if they believe homes are overvalued. They may rent indefinitely if they don’t think homeownership is a smart financial move.”
“The stalemate can continue forever, and nobody is the worse for it!”
Good thread Ben!
I never considered a house as an investment, although I thought I could trade up in a few years when I bought a house in 1990. In every trade, however, seller bids a high price and buyer bids a low price. It’s foolish to consider a seller a fool for asking a very high price (above market).
I do the same thing in my engineering contracts. I ask for a very high hourly rate. Some headhunters (recruiters) politely say “I’ll see what I can do. E-mail me your resume.” And I don’t hear from them again. But all it takes is one headhunter (and customer) to agree with my bid. In my situation I have an easy time of finding a buyer, since I can work coast to coast. For a real estate seller, he has a tiny market to sell to (cannot pack his house and take it with him).
It seemed the general populace considered a house a place to live and not an investment - before 2003. Something changed that attitude among millions of people and they became “investors,” - or (ahem) would-be Donald Trumps.
I was too busy working to be able to trace the root cause of this mindset.
There are some holdouts, but we are about to switch back to the mindset that a house is not an investment.
I don’t put most of my investing money into any single asset class, so I’m certain to not count myself to be among the braggarts at the office water cooler about a great deal I made in the next bubble, whatever that is.
Unless you consider job shopping coast to coast an investing bubble. There is good money in being very portable, consulting coast to coast.
“I never considered a house as an investment, …”
I think the number of Americans who looked at their house as a money tree was quite limited until around 1998. Californians certainly knew that real estate could serve an investment purpose, but those not subject to amnesia may also recall losing a good deal of money in the value of their homes between 1990-1996. As for the midwest, until this bubble, people thought of homes a living expense. Now they get to learn that a home can also be a falling knife.
I’m a renter too, I sold my house in may of 2004 after my home went up 3x from where I bought it. I knew then that we were in a bubble and we still are. No, the stalemate cant last forever. New homebuilders will arrive and start building cheaper. Lumber is off significantly from peak and you can still get cheap mexican labor. Houses can be built significantly less than todays prices. When builders come to terms with that they will sell houses. Death, divorce, hardship will put pressure on existing homes.
It comes down to affordability. If there is no expectation of price appreciation there is no need to pay twice as much for what you can rent for.
Lastly, the only thing that will keep prices high is if interest rates come down significantly enough to make it affordable. What would that rate be? 1%, 2% or 3%, I have no idea but why would an investor take the long term chance of interest rate increases, and lend hundreds of thousands for low return. Welcome to the paradox
I also wonder, if rates did drop a lot, how much of that mortgage money will be available to low-down-payment speculators. I’d think not much, given the increasing inability of the money centers to flog the MBS paper. I look around here in Florida and just can’t picture when, in any time frame I care about, speculators will want to buy back in. For every reason TO, there’s a better reason NOT to.
Actually, there is no way that rates will drop to any degree; quite to the contrary is much more likely. The Fed can lower rates all they want, but that is not what sets the mortgage rates.
Things totally outside the control of the Fed control mortgage rates. Anticipated inflation is one of the biggest factors that influence rates. And each time the Fed drops rates, this increases inflation expectations, thus RAISING long term interest rates. Also, our artifically low rates in the past few years have been a function of overseas buyers of our Mortgage-Backed securities. That market is almost non-existent.
And on the topic of the exchange rate (which also influences long term mortgage rates), if Bendover Ben Bernanke keeps lowering rates, and devaluing the dollar, long-term rates will SKYROCKET.
The dollar is in deep-doo-doo. There are three determinants of the exchange rate of any currency:
1. Inflation expectations
2. Interest Rate Differentials (the difference between our interest rate and others around the world. As we keep lowering, and other nations don’t lower, the value of the $ will go lower and lower.)
3. GDP
Were screwed on all three counts above. If people thing the $ has tanked already, they ain’t seen nothing yet…
Fresno;
What you say is correct, but at 56, I’ve seen all these cycles before. I remember in the early 70’s when the Dow was plummeting and stopped at 900.
In the 90’s the Pound was way down against the dollar and a lot of Brit’s who owned condos in Orlando that were weekly rentals, were getting killed. I bought quit a few for as little as 25K each. These were around Disney. I bought a nice one, 3 br, 2 bath for 55K, on a golf course and just about at Disney’s door. At those prices I could make money at the weekly rental and eventually sold them all. So the exchange rate was in our favor.
Now, it has cycled the other way and our stuff looks cheap. So, money will flow here and it will start all over again…after more real bad stuff happens. I completely agree, this ain’t no where near over, but this too will pass.
As far as the “Shoe Being on The Other Foot” and the above poster wondering how we would feel if we were and FB, I would say we would not be pleased. But, I think there is, for the most part a “common gene” amongst us here. We actually think, ask questions, research and do the math.
I know Realtors who have been in the business for 30 years and don’t have a clue. I always say that if you are in the real estate business for 5 years and are not a millionaire or close to it, you’re not paying attention. Realtors see a lot of good deals first. I am not a Broker to collect commission. I don’t even list houses. I have access to MLS and people in the biz know me as an investor so I get a lot of referrals. I simply do not understand why the majority of realtors didn’t see the opportunities or the looming problems. It’s very telling because a lot of the FB’s are realtors who began investing during the bubble!!
RE: this too will pass.
No it won’t.
In the 90’s there was still the pretense of a US manufacturing base.
All those Harold Alfond Dexter Shoe plants are long since gone.
Today, this country produces nothing but bad music, welfare babies, lawsuits, and bogus debt paper.
Throw in the US going from a creditor in ‘87 to the largest debtor in the world.
Just wait until OPEC dumps the USD pegs their oil to the Euro.
we produce weapons. Bestest in the world.
What happens when the Fed cuts overnight lending.
You make less on your money market. Thus many people will decide that it’s better to move their money from the bank or money market into riskier higher yielding forms of investment. Some of that money will finance longer term debt. So their is some modest effect on longer term lending, but it is probably dwarfed by the collapse of the dollar so rates go up.
I hate to say it but I don’t feel sorry for those people who are upset about their home being worth less in value after they used it as a ATM machine. My husband and I took alot of heat from these type of people as they lease their luxury vehicles, wasted money on tons of nonsense crap and did the “rub in our faces” routine, told us we were old fashion. Now they are in debt, with bill collectors hounding them, panicked about how they are going to pay the loans they took out and envious of our stability, kids in private school and business success. Sorry but after year of the “in your face” mentality..well right back at ya babe…
Amen, Sister Ann. My sentiments exactly.
The best revenge is living well.
And laughing at all the sheeple that think being a renter means you’re suffering, while you enjoy your home, your work, your family and your life.
Ah, the joys of renting during an imploding bubble. Babies don’t sleep this well.
‘Ah, the joys of renting during an imploding bubble. Babies don’t sleep this well.’
lmao
I agree, too. What is all the whining about. These folks got hundreds of thousands of dollars tax free without any work. They got their equity out early and now whine they have to pay for it. I’ve actually seen people try to say that it was their equity and they had no idea they would have to pay it back - why should they, it is their equity. The arrogance of ignorance raises it’s ugly head.
But with all the commercials telling them to “free THEIR equity” from “their” houses, how could they think otherwise?
Agree with what a poster said the other day…houses weren’t ATMs, they were credit cards. Whenever borrowers were told they could “just refi” that was equivalent to moving their CC balances from one teaser-rate credit card to the other — never actually paying off their balances (while the interest was stacking up nicely!).
I agree CA renter and I need to change my vocab on this point. I still say “house ATM” (with great contempt of course) when I actually mean the “house credit card.”
We’ve all been calling it the “housing ATM”, even though we know it’s really debt. Perhaps we should change the vocabulary from this point forward and call it the “housing credit card.”
I don’t feel too much sympathy for the folks like my neighbor who bought his townhouse for 86k, refinanced, ‘liberated his equity’ to buy a fancy boat, trips, etc. and now is paying 3x his original loan amount every month. Oh yeah, he works as a general handyman, probably pulling down 35k tops. He complained to me that he had to sell the boat, but is still making payments. Well, nobody forced you to use your house as a credit card, pal.
I bought my house for 89k, 30 fixed, 5.75% in 2003. I consider my house a place to live, not an investment or an ATM. I refused to join the refi bandwagon and put myself into debt to travel to Aruba, drive an SUV or eat out every night, and yes, I had plenty of ‘good advice’ about how I was making a big mistake by buying a house I could afford and living within my means. I guess that makes my old fashioned.
I thought about selling at the peak, but figured that since everything else went up, I’d just end up spending my profits on a new house and paying a higher interest rate. As for renting, rents in Baltimore have gone insane. My old apartment (1/3 the size of my townhouse with paper thin walls) is now almost as much a month as my mortgage and the neighborhood is so bad (15 illegals in a one-bedroom, section
that the cable installers don’t want to go in there. So I opted to stay put. I may sell when I retire and move back to Michigan, which should be pretty cheap by then.
RE: Death, divorce, hardship will put pressure on existing homes.
What all the commentator’s seem to missing relative to their talk of a housing “recovery” is the acute change in age demographics.
We are 18 years past the last meltdown in ‘90/’91.
As I noted to Daryl in Phoenix-best divorce @ 35-’cause @ 53 there’s not much chance for a financial recovery.
GEN XYZ & immigrants just AIN’T gonna fill the boomer gap-no matter how you spin it.
Agree, HD!!! Something most haven’t even thought about. The entire “growth” period since WWII was largely due to the distortionary effects of the population buldge (Boomers) — not a permanent situation.
It’s an issue that I had more time to research. It seems on the surface, that economic growth comes with population growth. So what happens when you get the pig in the python effect of a group like the boomers? What does it look like when they hit their peak earning period in life? And what does it like like when they all try to retire?
Waay before I found the HBB, I wondered if real estate as such would make a good investment because I was thinking that when I hit 70 or 80 there would be a less people around wanting it.
What you get is Japan, with deflation for the past 18 years. The brainiacs here are trying to replace the boomers with tens of millions of illiterate illegal immigrants. They think the illegals will be our saviors. I think we should import more educated people, especially nurses and doctors to take care of those boomers so that healthcare costs won’t rise faster than oil prices.
I was born during one of the peak years of the baby boom and @ every milestone the competition was fierce, getting into college, first house, etc. 5-10 yrs behind my age, not so much so.
A lot of those owners of trophy houses are going to want to downsize as the they age. Plus, if reports are to be believed a lot of them haven’t really thought much about retirement, let alone saved for it. I keep seeing refernces to ‘our equity was our retirement.’
As for how I feel, as one of the evaporated equity ‘vics.’ - bought in early ‘89 - 20% down. Saw prices shoot up just after, then tank in the 90s - but not below what I paid for mine, altho’ lots of people were upside down. A couple of years ago places went thru’ the roof, now they are way down again, but I’m still ahead of what I paid. I didn’t plan it that way.
I was really perplexed by all of these people buying all of those toys when I knew I made more than even 2 earner households and didn’t think I could spend that kind of money. Now, I realize I missed the house as atm bandwagon, don’t worry about tucking 15-20% away to retire party, and don’t pay for your kid’s college just take out ‘parent/student loans’ to the tune of $25000 per yr per kid dance.
So I owe less on the house than I’ll make this year, plus my mtge pmt is way less than rent would be,and the child will be done w/ college this yr. and I have 0 debt for it.
I have a co worker who did the borrow to put kids through(3 kids) plus threw in a divorce @ 50 (25 yr marriage.) All he can talk about is his bad health and financial situation.
I could walk away now and be financially ok, he cannot, there’s a peace and freedom in that that you can’t put a value on.
Bought Condo in Huntington Beach for $125K in 1987.
By 1990 (early) it was “worth” $210K.
In 1992 I sold it for $172K.
I came out ahead and didn’t worry about the $38K I “lost” because it is only based on….belief and hope.
Cash in your pocket is real, everything else is a “paper fantasy” (eWealth).
Except our gov’t is out to make sure the cash in our pockets is worth less and less every day.
Considering the number of people heading into retirement in the near future, and SS colas, etc, how long do you think they are free to allow that trend to continue?
Oh… so many things to say.. But we’re not allowed to talk about the generational war…
My grandparents stole my parents retirement, and now my parents are trying to make sure they are able to steal mine.
Wonder what’s going to happen when all the parents who dumped their kids in kiddie kennels and after-school programs, so they could indulge their materialist pursuits instead of doing the hard work of actually raising their own children, turn to these same offspring in their old age for care and support. Not sure the latchkey kids are going to extend much sympathy.
Darrell: Are you speaking of SS or real stealing? Because I have suffered the real stealing - My parents stole our inheritance from my grandparents and it changed our entire lives is lost opportunities. I Agree with Sammy and raised my kids that way. I gave up career opportunities to be there for my girls and they offer that in return, that they want to be my retirement. I expect to continue this give and take forever with them. Right now, I’m unemployed (debt free), so I live with oldest daughter and family, helping to run household and contributing another caring adult to my grandson’s upbringing. I also conribute to my younger daughter’s college education and provide little gifts to her. She just recently told me that when she has children, she wants me to come live with them and help run the household and take care of the grandkids. All the extended family spends as much time together as possible and we have a blast. Both my daughters say all their peers think it’s odd they would want to hang out with parents and extended family.
I think the lives of your grandchildren will be incalculably richer [blessed] for having you as a part of their household. It was great that you were there for your daughters - and still are - and they can also be there for you. Strong, caring families are the ultimate safety net in troubled times. Maybe there’s hope after all.
I don’t know. But nothing in the last few years has been according to any kind of market fundamentals or sane thinking (hence bubble). I think they will do what they want, when they want, never thinking or caring or knowing what it means for the future, just for the now.
There hasn’t been anything yet to show me that sanity or fundamentals mean anything to the people in charge. And the sheeple won’t do anything about it. They will continue to run this country into the ground.
Sure, at some point, something may have to bend and break and snap us back into “what should be”, but don’t think they gov’t won’t fight it kicking and screaming all the way… and for many many years to come. I think it will continue as long as they can make it continue.
“how long do you think they are free to allow that trend to continue?”
Long enough to do some serious damage. We had rampant inflation throughout the 1970s, so why couldn’t they do it for another ten year cycle? Inflation can be made to look good to the voters for quite a while, because it makes it easier for the government to pass out money and freebies. South American countries do this in cycles, and so do we, although historically not quite to the same extent.
Maybe they’re hoping enough boomers die off from lack of funds or die in the streets so they won’t have to deal with SS. The truth is there would be no problem with SS at this point or in the near future if the government hadn’t stolen all the money that was paid in. Easier to provoke generational warfare and pit everyone against each other than to admit the pillaging and rape of the system.
Absolutely! Also, we do need means testing for SS and/or there should be no cap for income subject to SS tax. So many things done by the rich, for the rich, that make no sense at all — including 15% LT cap gains tax. Why in the world should passive income be taxed less than labor???????
‘Maybe they’re hoping enough boomers die off from lack of funds or die in the streets so they won’t have to deal with SS. ‘
You are anthropomorphizing this government too much. I don’t think anyone is running the asylum. It justs reacts like the apes in the opening scenes of “2001″.
Also, we do need means testing for SS and/or there should be no cap for income subject to SS tax.
That’s not a retirement program, that’s welfare.
I would also expect that the government will continue to do it’s darnest to “massage” the CPI (until it screams for help!!) to lower SS pyaments. I think the government is really going to want to going to want their cake and eat it too, for as long as they can.
That’s not a retirement program, that’s welfare.
——————-
Not disagreeing with your label, tj.
What so many fail to see is that “welfare” does not only benefit the poor. It keeps the hungry/poor/sick/desperate masses at bay by giving them just enough to subsist on.
Otherwise, they come after those who have more — and I personally don’t want to deal with sick, hungry, desperate people who are willing to do anything to get what they want/need. Every successful, safe and civilized society has had some form of welfare. It just goes with the territory.
In 1971 We bought in the Inland Empire for 17.5. 3 br/1 1/2 ba. We got a 60m heloc in 2001 and they estimated our house at 135m. I laughed about the valuation. In 2002 the house nextt door sold and my wife said the price was 280m.
I thought she misheard the price and did not credit it. Then in 2006 2houses on our cul-de-sac sold for over 400m. Approacing retirement, I couldn’t sell but I had heard about reverse mortgages and just prior to my 62nd birthday, I set the wheels in motion. We now have no mortgage payment and over 100m in heloc that doesn’t have to be repaid in our lifetime. The values shown for the house are dropping
as another house on our block is listed for 307-357. The readjustment doesn’t bother me as I’m here for the duration
but I worry about the recent buyers here in the neighborhood.
Hi Crazy!
All the extended family spends as much time together as possible and we have a blast. Both my daughters say all their peers think it’s odd they would want to hang out with parents and extended family.
My hubby, myself and son think, talk and act in unison. I tell my friends I live in Comedy Central
We have a large extended family here that we cherish.
My son’s GF thinks it’s odd for him to want to visit with us so often (he works 50+ hours/week, thank heavens). Yet, he looks forward to heading over to ma and pops. (Sometimes she comes, but she was not cared for properly as a young one, and finds our relationship odd).
I’m happy for you, because, ya know girl, I’m happy for us too!
Best,
Leigh
Hi Ben!
Wow…your question (Considering the number of people heading into retirement in the near future, and SS colas, etc, how long do you think they are free to allow that trend to continue?) is a nagging one to me daily.
Let me explain. Hubby and I are both retired USAF.
What if, one day, we wake up, and the US government says, no more money? (We don’t count on seeing one red cent in SS and have planned accordingly).
Dang, that’s just…er…well, we have a few contingencies, but that would hurt in a BIG way!
Shoot, if we survived the USAF, I’m sure we will survive whatever the govcorp technocrats may dole our way.
Note to self: shore up even more. Dang!
Best,
Leigh
No troop withdrawal is on the near-term time horizon in the War on Savers…
No, I see only more relentless “insertions” in store for the savers….
Reminds me of the Enron employees who cried about losing 250K, 500K, or even a million.
They always count it from peak don’t they?
Not from their cost basis……………..
And, it’s not money until it is cash in your hand.
Bingo…crazy! When you can see it, taste it and smell it …then its real..before that..its all talk!
As they say s*it happens - checks don’t clear, bank holds funds longer than they should (and use the float), someone doesn’t pay what they owe you….and surprise - only thing the supermarket takes is money - not stories about what you’re going to be paid or what you should have been paid.
“By that I mean what if those of us who are currently renting due to the insanity of home prices had bought a home pre-bubble?”
That’s me in a nutshell. I bought in Marin in 1996 and sold in 2004. Am renting now. And yes, I did want to get every penny I could out of that house, because I had a sense it might be a once-in-a-lifetime event. I’ve always been a good saver, but nothing approaching the chunk of change I left with when I sold my house, and it’s been financial peace of mind to know I got out while the going was good.
I will happily buy again as soon as prices have dropped to sane levels, and I can comfortably afford a nice fixed 15 year loan.
FWIW - I am a vintage 2002 owner in a house/neighborhood I like and can afford. I enjoyed watching the market continue to ratchet up through 2005, even though I knew it was irrational. I wasn’t so much “counting paper gains” as thinking “well, I wouldn’t have been able to swallow paying $xxx,000″ if I were buying now.
I didn’t feel smart or justified for purchasing when I did — just comfortable. And, even if prices dip below my 2002 purchase price — I’m in a fixed loan, and my expense is about the same as renting right now.
Of course — folks who bought a place they couldn’t really afford in the first place, but were sure they would be able to book 15% a year appreciation until they felt like selling (or needed to sell) would have a vastly different outlook.
It’s funny — the people who bought a house to live in, well within their means — will probably make money in the long run. The people who bought a house just to make money, on the other hand, may be at risk of not having a place to live.
*Ahem.* “What if the shoe WERE on the other foot?”
I’m sorry. I just can’t help myself.
That said, I hope I’d recognize that a house (not a “home”–a house is a thing; home is a concept) is a living expense and not an investment. But then again, I see the emotional investment people have made in their houses and how irrational it makes them.
Take it up with the original poster, puleez…
Actually the original poster is correct.
“The Shoe” is a singular subject and “was” is the singular past-tense form of “to be”.
Shoe was …
Shoes were …
But this is the subjuctive mood. Subjunctive is for statements that are hypothetical or contrary to fact… and “were” is always used.
If I were rich (but I’m not), I’d buy a condo in Miami without caring what it costs.
If I were you (but I’m not), I wouldn’t buy a house right now.
If the show were on the other foot (but it isn’t), I’d be a FB.
Point taken. I should stick with finance.
Nah, either (gosh cannot remember) genetive or dative case for “what if” leans toward “were” even in the singular.
As in, “What if i were a poor foolish buyer” is correct. “what if i was a poor foolish buyer” less so.
best
evildoc
Ah, yes Subjunctive, not Genetive or Dative. My bad.
-evildoc
When that’s blast from the past. Another: Gaul was divided into three parts.
what would we all be saying if the shoe was on the other foot?
It’s ALL Business FB’S, COLD HARD RE BUSINESS.
Ask any RE Agent, Banker, Lender, Inspector or city TAX Collector to have SYMPATHY for you and to forego their commisssions, principal, fees and Taxes BECAUSE you screwed up ROLLING the HOUSE DICE.
You WANT SYMPATHY from the buyers?
HELL, they bring ALL the Money to the Table and PAY for EVERYTHING and MORE Assclowns. You can be sure because Suzanne and the THUG GANG above RESEARCHED THAT.
Like when your shack’s EQUITY trippled, you ALWAYS INTENDED to knock off $100-$150k OFF of your ridiculous Dream Price just because the poor buyer’s only EARNED the US Medium household INCOME…Yeah …RIGHT !
It’s JUST BUSINESS FB’S . No HARD Feelings
Bwahahahah
“A reply, “Actually, if you owned a house pre-bubble AND did not HELOC it AND do not plan to sell it and move out of San Diego (for example) AND have any need for a move up house - i.e. growing family, nicer neighborhood, closer to the ocean - you are much better off if prices fall.”
I have a friend in Portland who has lived in his house for 20 years - he and his wife has no intention of selling, and he hopes that the bubble bursts over the next couple of years before his house gets reassessed. Bragging rights about how “rich” you are vs. lower taxes. Hmmm….
Property taxes won’t be lowered due to greed of the political class and will hopefully collapse prices further, then we can see the end of the welfare state. Public employees will go down kicking and screaming.
Why do you relate public employees to welfare? I was one and I can assure you I worked my butt off and was paid for that work. It was well below the private sector level I could have earned - it took the trade off for the benefits and a sense of public service. I didn’t receive any welfare at all. Sure there are lazya*s public employees, just like there are lazya@s private employees. Why must everyone be lumped into group think? You’re just playing into the divide and conquer strategy.
Thank you Crazy. Common problem: regurgitating koolaid-speak before digesting…… Critical thinking? Nah. Add it to the list of areas where we Americans are careening down a slippery slope.
“I know that many of us would like prices to fall big time so that we can finally achieve our dream of homeownership (or get back in a home if you sold out to take your gains during the bubble). But I found myself thinking today, would I feel the same way about the housing bubble if I had bought a home for $200K several years ago, that at the height of the bubble was worth $700K and is now worth $500K because of the bursting of the bubble?”
Whilst you are in the casino de yours, and have the “home” advantage of staying there free, who would ever entertain selling it, while it was always going up and the atm machine wasn’t broken, yet?
A few of us sold when the selling was good, most everybody else procrastinated and is paying the price of being part of the maddening herd of sellers, that can’t really be called that… as nothing is selling.
I’ve owned and rented, and think owning is over-rated. To each his own. But considering that the economy seems headed into a RE led slowdown (which couldn’t happen, many experts said), I value mobility at this point.
Same for me as well. When I owned a had an interior wall that collapsed due to water intrusion and had to replace some appliances. I am also not entirely settled so I value mobility as well.
I understand starting a family and wanting a house though. I have adverse reactions to owning “stuff,” but the truth is when you have a family you just - to some degree - accumulate “stuff.” I am by no means a packrat, but I do plan on buying my children toys and beds and whatnot. I am at the point where moving is becoming a real pain. The last 2 landlords tried to raise rent on me. Both houses are STILL empty and for sale/rent. It is truly a test of nerves. At least I’m saving money and not losing hallucinated “wealth.”
“I understand starting a family and wanting a house though.”
This is the way I feel as well, and I imagine most other Americans who live on Main Street feel this way. The financial playas who profited through undermining this bedrock foundation of American values should be drawn and quartered. I hope they all go down in flames with their CSDOs (Collapsed Subprime Debt Obligations).
Right on Ben. Mobility is and has been KEY in keeping up with an economy that has been on the slide for working folks for alot of years now. By virtue of the fact most cannot be mobile or refuse to take contract work just makes it all the more lucrative for guys like me. Keep your benefits and longetivity…… give me the cash.
RE: mobility, my next objective (not yet realized but in the near-term plans) is to invest in learning a foreign language so that just in case the aftermath of W’s 8 years turns out to be “worse than expected,” I will have more options about where to live out the rest of my days on the planet…
Scary that so many of us seem to be thinking the same thing (as evidenced by the odd threads regarding good places for ex-pats).
This country has lost so much over the past few years. Sad.
Mobility is a good thing, but I find it harder to do as I get older. I’m one of those people that accumulates “stuff” like books, furniture, etc. It takes discipline or a different mindset than mine to do this easily. That, or big monthly payment to self-storage rentals
Mobility is not a problem with me. I’m 48. The key is to not be obese. Your energy levels will be very high by not being obese. It’s fun to check out how life is like in other communities and get paid at the same time.
Also it’s a good exercise to go through a scenario where you had to move 2000 miles away from your locale. You have to plan on where you will live, what neighborhood you prefer to be in, your distance from your temp job, the airline flight schedule to the city where your current residence is, and so on. There are apartment review web sites that tell you some sort of idea what you’d be getting into if you become a renter. I’ve been doing this for seven years.
“The key is to not be obese.”
BiM — I think you are on to something! That is why I have the energy to post at 3am, then get up and play two hours of racquetball at 8am. Obesity is sapping American productivity.
I’ve had the opposite - my homes have been wonderful and affordable and my rentals have been (and is) horrific. WIth four dogs and other pets it is almost impossible to find a decent place to rent at an affordable price. If prices are in line with underlying fundamentals (and they are not now) it is cheaper for me to buy than rent. So I am really looking forward to owning again (in a few years) and not having to worry about being evicted due to an abusive landlord (as I have now), someone entering my home while I’m away on some false pretense, or (my new worry) being evicted because my landlords are HELOCing through their noses.
Also, little mobility for me as I own a business and may be able to move once (although it will cost me) but have to settle permanently soon.
And giving up the pets is not an option before someone recommends that. I know not everyone understands people who would rather be homeless than give up their “kids,” But I would live out of an RV before giving them up.
The psychological bonus is worth the sacrifice of not having a nice apartment instead of a dumpy home.
And giving up the pets is not an option
That’s something I *always* love to hear.
SD Re Bear. Your post touched my own inner voice. Thank you.
I have owned a condo in CA, a townhome in CA, and a small “ranch” in TX. I now rent. I agree with Ben that “mobility” is huge right now as the economy sours the ability to downsize to cheaper rent and easily move to find work……all without being tied to that boat anchor of “ownership”….is HUGE!!!!
Not to mention the rising cost of oil and all the means to far-flung owner/commuters.
Light and mobile….the new mantra for the first decade of the 21st century.
“Light and mobile….the new mantra for the first decade of the 21st century.”
OT…As much as I understand progress and technology and all that jazz, this still makes me sad. Maybe I’m just old fashioned, but I miss the days when people would live in there homes for years and years. Where you knew (and trusted) your neighbors. The street where I grew up on, still houses most of the original people from when I was a kid. My grandparents are the original owners of their 1950’s house and still live there.
And I know that people need to move to survive, but God, I hope I never have to do that. I want to buy a house and settle in and stay there as long as I can. Moving sucks. Renting, being at the whim of landlords (if you’re people like us who don’t like or want to move) sucks. When they raise rent or sell the house out from under you. Never being able to have pets or having to lie and hide them. I never feel settled.
I’m with the poster above who said that he didn’t feel justified or smart buying when he did, just comfortable. For us, we know prices are going to go down, we know things are going to get bad out there, but if we are in a position where we can comfortably afford something, in an area we like and are not in a position of compromising our finances, that’s good enough for us. At some point, you can’t sit and worry about “What if we lose a job or if mom gets cancer and we have to move back to our home state.” With those thoughts, we will be renting forever and I know renting is not taboo and is always a viable option, it’s still not something we want to do forever. Not because we want “instant wealth” because that isn’t going to happen, in fact, quite the opposite. But because we want stability and comfort and renting doesn’t provide us with that.
It was the no-pets thing hat inspired me to buy my first house in 1999. When I moved to Cambridge from Texas, I literally could not find a landlord that would take my dog and had to kennel him for 6 months. He went crazy and almost died from kidney failure the meds they gave him to control him. It took me over a year to detox him and get him back to normal. Bottom line, there are advantages to owning your own place that have nothing to do with money.
Awww! Poor Puppy!! I’m glad he got better.
Yeah, it’s the “no pets” thing that is doing it for us too.
I hear you, Haily. I wish I would’ve been born 100 years ago, when people still had roots and lifelong friendships and a sense of place. Mobility and rootlessness bred alienation and disaffection.
I have mixed feelings about it. I’m on the road a lot so I cannot maintain close friendships. I’m convinced there will be a major economic collapse in the next few years. I had that idea for several years. So I changed my lifestyle to be portable. The reward is high income.
BTW the platinum I bought today is beautiful! I think platinum will be $1600 to $1700 per ounce in the next twelve months.
Bill,
You’re fortunate to be contracting and to be comfortable as a single, childless person. That absolutely works for you & the coming years will be good to you, IMHO.
OTOH, there are many of us who actually like being married and/or having kids & pets. We really crave deep, personal relationships that are built up over a long period of time.
For us, it is very sad that this country has turned into a society that values the dollar over human life — that materialistic things determine how we need to live.
I admit to being a “socialist” in the sense that I want the vast majority of people to live safe, healthy, happy lives. Not that everyone should be paid the same, or that there shouldn’t be any incentives (and I’m a staunch supporter of private property and civil rights)…just that we could consider the greater good when making decisions that will affect the future of our citizens for years out.
I’m one of those people. We’ve been aware of the bubble since June 2005 and considered becoming bubble sitters but decided against it. I still want prices to fall because I like sanity and things that make sense.
Houses in our neighborhood are selling at about $300,000 now and I expect them to fall a lot more. My husband and I love our house, its location, the neighborhood and the neighbors. We earn a little over $80,000 and owe $89,000 on our mortgage. We have a 5.75% 30-year fixed and are happy.
I want prices to drop so that my fellow citizens, including my son (someday) can afford the asset and not just the monthly payment. Also, I feel I am being harmed by the housing bubble because people who Hel and Heloc spend that money on goods I have to compete for.
A couple of points. First of all, almost all of the general public, and unfortunately many posters on this board, don’t understand what an investment is. An investment is a capital good that provides income. That income may be cash, or a marketable good or service. An investment is worth something because it provides income.
An investment is not “something which I know I can sell for more than I paid for it”. There is no such thing.
A house is an investment whether you live in it yourself or rent it out. It provides a marketable service, shelter, which has a value equal to the net rental income - market rent minus taxes, etc. That does not mean it is a good investment at any market price. It’s only a good investment if the net rental yield (net rental income/price) exceeds the cost of borrowing money. Or in other words, if renting is cash flow positive with conventional financing.
Now that said, it should be clear that the value of your house is equal to the value of the accommodation which it provides for you in the future (discounted by the interest rate), not the current market price of the house, unless you sell it now. If the market price goes down, you’re not losing anything if you’re staying in that house, or a similar house, long term.
The price of capital goods inevitably adjusts to the income they provide in the long run. This is what we call “fundamentals”. Thus it should be clear that the variations in the market price of a house are not relevant to someone who owns it to have or rent out accommodation, i.e. a true investor, as opposed to a speculator, who is just hoping for capital gains.
“the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.”
Here is the definition from dictionary.
Living in a house without the intention of selling it in the future, unfortunately, is not an investment. Therefore, you are right that you are not losing anything if you are staying in the house, IF, it is not an investment (because the gain in profitable returns, as interest, income, or appreciation in value, is irrelevant to you).
Living in a house without the intention of selling it in the future, unfortunately, is not an investment
Wrong, because the value of the accommodation which you receive is income, as I pointed out above.
And obviously something like a stock or bond is an investment whether you intend on ever selling it or not.
I’ve seen on a restaurant menu once that the prices were labeled as ‘Investment’ ( the High Finance eats on top of Sandia Crest in NM). I suppose the return on capital was fertilizer.
I thought it is expense?
Remember that renting is throwing away money? How come renting and saving money is never considered investment?
I am just taking your argument that a tanking investment is not really losing money. Yeah those folks keeping their CSCO shares at $80 and still keeping it now really need this. Their CSCO is so special that it is still worth $80.
“An investment is a capital good that provides income.”
It is worth noting that the income provided could be in the form of a negative opportunity cost — i.e., if I own a home free and clear, I don’t have to throw away money on rent.
However, I do have to throw away money on insurance, taxes, maintenance, possibly HOA and Mello Roos, and in the current falling price environment, capital losses! Only when the expected present value of renting less the costs of ownership is positive is it financially prudent to buy a home, and we are not there yet.
Better wording:
present valuefuture cost of renting…>>An investment is worth something because it provides income.
I would call this the definition of an asset. An investment can certainly be purchased with expectation of value increase in the future. For example, a stock providing no dividends is an investment; a carload of commodities is an investment if you intend to sell it elsewhere; good or securities purchased using arbitrage techniques are investments.
June of 2003 my (now) wife was a year out of a divorce, mother of 2, making $35K a year plus a few hundred a month child support.
She went looking to buy a house… She ran the numbers and said she didn’t want to buy anything that was more than $120K.
The bubble was just getting going and the lending standards were disappearing. EVERYONE was trying to get her to spend more. To take on an ARM, to buy as much as possible to make as much as possible. Her mom, who’d recently taken early retirement to flip houses (she flipped 2 and learned that the only way to really make money was through inflated appraisals, cash-back-at-closing, etc, so got out as she didn’t have the taste for scamming people), the mortgage brokers, the Realtors… all tried to get her to spend much more than $120K.
She looked and looked, and eventually found a nice house (25 y/o, block construction, southern exposure, nice sized lot, pool, good neighborhood, down the street from a good school in a good district) It was about $10K more than she intended and hadn’t had much in the way of updates, but good electircal, good plumbing, solid foundation on good soil. Near a big hospital and a couple colleges (ASU West and Garmen School of Internation Management).
She got a great deal.
When we met a couple years ago, I started doing a few handyman projects around the house. When I moved in, the rate of remodel increased. We’ve done most of the cheap and easy stuff. The bathrooms and kitchen need work, but we’re waiting for the money.
SO…… At the peak of the market, the house was “worth” $270K. We never considered this real money. We did have some medical probelms that weren’t covered by insurance, so had to take out a HELOC and ran up about $30K. We’ll get about $10K of that back on taxes this year, and have been working to pay down our other debt.
Anyway, as the market started to come down, I decided to sell. I wanted to lest for $240K, but Realtor talked wife into listing at $250K. (I think because she didn’t want to sell and figured it wouldn’t go for that price). After a coupe months, I wanted to get agressive with price cuts.. like $20K a month until it sold…. she’d have none of it. She loves the house.
And, it was hard for me to justify it also. If we sold for $220 or so, minus $20K in fees - $200K. We’d then have to rent a couple years, and if we return to norm price/rent ratios, we’ll probably be able to buy 2 years from now for $150K. Taking fees then, call it $40K profit. Is it really worth selling, renting 2 years, posibly having rentals foreclosed out from under us, moving, having to give money to Realtors… for $40K, which is about 1/3rd our combined annual income?
Anyway, when we took the house off the market in July, we accepted that the real “value” of the house is not more than $150K. We can easily afford our payments, and all put the HELOC is at low fixed rate.
SO, do I want prices to crash???? YES!!!!! As long as prices are high, builders will keep building, making the problem bigger and bigger.
I’ll take it a step further. The crazy anount of credit in the system have created repeated bubbles where scammers and slick operators have been able to make a lot of money robbing people of their savings. It has gotten to the point that saving is a waste of time. It has gotten to the point where everyone is doing all they can to keep up this make-believe upper crust, asperational lifestyle.
I think the country as a whole would be much better if the credit crashes, slick operators find themselves homeless, and the vast majority of the American people quit trying to have the biggest and best and were just content with friends and family and simple things.
I hope for a recession that is deep enough that asperational products disappear from the markets. Where sayings like “retail theorapy” are no more. Where restaurants have good food, instead of themes and gimmicks. Where people buy clothes when their old ones wear out instead of because a magazine tells them their old ones are now out of style. Where we don’t have stores like “fur kids” where people go to buy clothes, jewelry and other things to spoil their designer dogs.
A long for a world where I stop hearing people say “I’ll have a new car every two years anyway, so lease makes more sense than buying”, where you don’t hear “you are what you drive”, or “the best way to judge someone is by their watch”.
/applause!
RAmen, brother!
I too hope for the same as our society as a whole is decomposing. America may be dressed nicely with clothes not owned but in reality, she’s just a zombie with an arm about to fall off.
(Yes, I know Halloween was several weeks ago. :))
I agree with that as well..so sick of everyone flashing the HELCO jewelry, car and other crap…now..they are under water and I am not..we sold and bought what was reasonable for our family, we own our cars and will drive them into the ground..period..we get to enjoy going out to dinners, and vacations with the family…I want my family to have the same enjoyment I did as a child..For the others who needed all that junk to justify their self worth…Well now that you are underwater..how much self worth do you have now???
I have to say that I agree on both side of the equation when it comes to renting or owning…both have their advantages and disadvantages…it really has to be a personal decision…
Bravo. So sick of the nouveau riche looking down their noses at others. Old money doesn’t believe in being showy for the sake of propping up insecure wannabes.
“The stalemate can continue forever, and nobody is the worse for it!”
Once a pawn a time, serfs ruled.
Sorry, but I’m not inclined to “put the shoe on the other foot” when it comes to the housing bubble. I made out like a bandit when I sold my house in 2004, though probably passed on an “opportunity cost” of about $100K had I waited another year. No regrets, though.
To me, this isn’t just about home prices. It’s far bigger than that. It’s about the rampant greed, materialism, and sense of entitlement that has taken over our society, spurred by Madison Avenue, the Wall Street plutocrats, and their paid shills and puppets in the MSM and government. For far too long, the system has favored the worst elements and most harmful tendencies with apparent success. Look at how many FBs were living large, but their “success” was built on a pyramid of debt. There were few if any real checks and balances to prevent uncontrolled excesses. Now, the proverbial chickens are coming home to roost, and this housing bubble vulture is scanning the landscape with a gimlet eye, watching the carrion stagger and fall, as the lemmings flock to meet their date with destiny.
Something in the basic order of things has gotten so out of whack, that only a major, wrenching crisis will bring people back to their senses or at least make them realize that the lack of personal responsibility, accountability, and integrity that has so permeated every layer and sector of society, has corresponding consequences. The thinking one percent of the population, who are well-represented in here, will come through this just fine. As for the rest, well, poverty may not be ennobling, but some painful, long-overdue individual and societal lessons will be learned.
“As for the rest, well, poverty may not be ennobling, but some painful, long-overdue individual and societal lessons will be learned.”
I think you are so right Sammy! I am not sure we are not romantizing the lessons learned from the Great Depression, but I think not. People did seem to need less and live more simply after it. I too hope some valuable lessons come from any financial corrections that will be made. The first and most important is that stuff (including houses) will not make you happy and the collection of it is not what we are on this world to do. I suspect many of us already know that and the vast majority of us here are either living below our means or making concentrated efforts to change our life styles and do so. I also suspect a lot of you, like myself and I am assuming Sammy, are completely baffled at the debt people will go into for their unlimited wants.
Ants Rule!
I agree with every body. I live way below my means. I am not a miser. Being a millionaire (self made) I do not need to impress any body. One can usually summarize that the guys in the suite and watches are the salesmen. The rich guys are dressed in shorts. The reason I don’t spend it is because it never occurs to me that I have to spend because I make so much. I don’t deny myself any thing my heart desires. Making money is a game to me. I play it because it is fun. I will most certainly give it away because there is a lot of fun in giving. Some times there is more satisfaction in giving than receiving.
If I lost every thing I can very happily live with very little and be very content
“But I don’t know. It’s easy for me to sit here and be irritated at a seller who refuses to let go of his/her notions of their home’s ‘value,’ but what if it were me?”
During these early stages of the bust, I’ve wanted to make offers on any of three properties that I liked. The first: too much owed on it and purportedly went REO, but I think the owners might have been scammed by some of the “We’ll help you keep your house” crooks. The second: someone else paid at least 15% more than we’d have, no matter how much we liked it. The third: the insufficiently-motivated seller reportedly was pleading for an offer after a year of showings. But when he finally “reduced” his price, it was by just 0.3% — so trivial that I’m glad I didn’t bother with an offer. It’ll still be there for a long time yet.
I don’t have any feelings of irritation or anger or even frustration about the sellers, so long as we both are polite. It’s their business what they do and fortunately I have the time and the means to wait it out as long as it takes. So long as renting is the great deal it is, I’ll wait and watch and only when a great deal comes along will I be an owner again. Like Ben, my calculation of the net “value” of owning a house has dropped a lot during the past three years (as has the perceived stigma of being a renter). Didn’t know about the rent ratio before this blog — now it totally governs my housing decisions.
When your blog first started I stated that people were no longer using the word “home” in any of their posts, but, rather the word “house.” Someone attacked this notion, but, there lies the core of the problem. You don’t speculate on a house when IT IS A HOME. I have little sympathy for those that ended up without a seat when the phonograph record stopped.
I also posted that this correction would be 50% from the top and that’s where we are headed if we are lucky. I speculated in the early 80s boom and one needs to plan the play and play the plan for success.
I use house instead of home in most circumstances because they are not the same thing. A house is a building where 1 family lives on a plot of land they own.
Stick 2 or more living units together onto land they don’t own, and it is a condo, townhouse, apartment, trailer park, rv park, etc…..
All of these non-house living places, are still HOMES!!!!
We always rented. My daughter says it didn’t matter where we moved, it was always “home.” I always treated wherever we lived like home and made improvements to make it more comfortable for our stay. Many chided me for wasting my time and money on a rental, but I would respond - it’s our home. Why do so many feel the need to buy a house for the kids? If you need more space, rent a bigger place. My kids never knew whether we rented or owned because our finances until they were older were not a topic of discussion, beyond teaching them they didn’t need to buy things just because their friends had them or the TV said so. The learned early on about the difference between “need” and “want.” They also learned that home is where they live.
Bravo!
We, too, have made many improvements to our rental. Why? Because it is our HOME, and it will likely be our home for a few more years to come (been here since we sold in 2004). Trying to convince the hubby isn’t always easy as he “doesn’t want to waste our money on a rental.”
We also have a few kids who are very comfortable here and haven’t the slightest clue they are any different from our “owning” neighbors.
Actually, there is no way that rates will drop to any degree; quite to the contrary is much more likely. The Fed can lower rates all they want, but that is not what sets the mortgage rates.
Things totally outside the control of the Fed control mortgage rates. Anticipated inflation is one of the biggest factors that influence rates. And each time the Fed drops rates, this increases inflation expectations, thus RAISING long term interest rates. Also, our artifically low rates in the past few years have been a function of overseas buyers of our Mortgage-Backed securities. That market is almost non-existent.
And on the topic of the exchange rate (which also influences long term mortgage rates), if Bendover Ben Bernanke keeps lowering rates, and devaluing the dollar, long-term rates will SKYROCKET.
The dollar is in deep-doo-doo. There are three determinants of the exchange rate of any currency:
1. Inflation expectations
2. Interest Rate Differentials (the difference between our interest rate and others around the world. As we keep lowering, and other nations don’t lower, the value of the $ will go lower and lower.)
3. GDP
Were screwed on all three counts above. If people thing the $ has tanked already, they ain’t seen nothing yet.
Actually, there is no way that rates will drop to any degree; quite to the contrary is much more likely. The Fed can lower rates all they want, but that is not what sets the mortgage rates.
Things totally outside the control of the Fed control mortgage rates. Anticipated inflation is one of the biggest factors that influence rates. And each time the Fed drops rates, this increases inflation expectations, thus RAISING long term interest rates. Also, our artifically low rates in the past few years have been a function of overseas buyers of our Mortgage-Backed securities. That market is almost non-existent.
And on the topic of the exchange rate (which also influences long term mortgage rates), if Bendover Ben Bernanke keeps lowering rates, and devaluing the dollar, long-term rates will SKYROCKET.
The dollar is in deep-doo-doo. There are three determinants of the exchange rate of any currency:
The first is Inflation expectations. The second is Interest Rate Differentials (the difference between our interest rate and others around the world. As we keep lowering, and other nations don’t lower, the value of the $ will go lower and lower.) And lastly, we have GDP.
Were screwed on all three counts above. If people thing the $ has tanked already, they ain’t seen nothing yet…
If the shoe was on the other foot….
I’d hack the sob off … and crawl away.
LOL. A fan of “Saw?”
Ben Jones
You sould start a blog devoted to water if it hasn’t been done as yet. Forget oil.
Water will be the central issue for this century. It’s problems are global in nature and one need only read about Sydney, Australia to understand what’s coming at us soon. Those living near and on shallow lakes in the Northeast are clueless. Lake Lanier is merely the beginning. Within ten years New York City ’s water supply will be adversely impacted as well.
Water’s impact on housing will be dramatic.
Yes yes yes! California water politics trump everything else.
Agree. Water and water shortages are going to have profound global, regional, and local impacts.
I agree 1000% that Ben should start a blog devoted to water. The impact of this on housing is going to be huge. The sun belt in the future may be known as the drought belt, and the rust belt as the water belt.
Hey Ben - I’m wondering how much time in a day people actually think you have. Starting a water blog is a great concept - hell, maybe I’ll do it - but let’s not spread ourselves too thin!
I call BS on the water scare. Considering there is never a net loss of water from the planet and three quarters of the planet is covered with it, the scare is overstated. Way overstated. I’ve been in the h20 biz for 20 years. All facets of it. Operations, maintenance and now construction of multi million dollar projects and worked with some of the best and brightest hydrogeologists, designers, limnologists and not one of them considered the latest scare to be valid.
In my own case, I nearly bought in 2004. Part of the decision included figuring out how much we could stand to lose if the market did a repeat of the 90’s crash. A house is only worth as much as someone else wants to pay for it, imo. We backed out when we realized just HOW far the market was out of whack this time around.
Spouse and I both feel the same. It’s a place to live that may or may not be worth more than you paid for it. Spouse’s parents had purchased a house at the peak of the 70’s market, putting them in severe financial distress for many years. A former job of mine had me following general news in the 90’s crash in California and the subsequent decline in RE values. We had already had our individual realizations that RE doesn’t always go up.
“Our payments would have more than doubled, just to get an extra bedroom in a **slightly** better area.”
This is why so many homeowners have torn down and rebuilt there houses in our neighborhood. They can do this cheaper than buying a bigger house. Many of them would have preferred to buy a new house because they had to rent for a year to await construction. I guess those rentals will be back on the market now!
People are freaked out when their net worth drops
Anyone who counts the value of their primary residence in their net-worth is an idiot.
If the shoe were on the other foot…….
One of the most disgusting/disturbing things about this bubble (there are so many!) has been listening to sellers who have children who, if their parents dreams of a never-ending RE bubble were to be realized, those same children would never, ever be able to afford a home.
Bad enough to be willing to screw a whole neighborhood, community, national economy, over your stupid fraud-inflated home price.
Toyally evil to blithely screw your own children just so you can “get yours”.
RE: Toyally evil to blithely screw your own children just so you can “get yours”.
SPD-My sentiments exactly.
Have a chat with the SOH portability people in FL if you want a real taste of that mentality.
Portability of the tax benefits will help (somewhat) to prop up prices, and will also transfer a massive amount of tax burden to those that do not already own homes (read, children/young adults).
I think that some of these people would eat their young to keep the low tax bill. They are willing to finacially leech off them forever, why not just take a bite!
It seems that almost nobody looked at that simple fact. If prices keep rising at 20-40% forever, at some point, EVERYONE who does not own will be priced out.
The only way to keep this going is with new money. Once you lock out that money, the game comes to an end (as we are now seeing).
“I know that many of us would like prices to fall big time so that we can finally achieve our dream of homeownership (or get back in a home if you sold out to take your gains during the bubble).”
There is a 3rd scenario you failed to mention; People that can easily afford to become a first-time buyer but are reluctant to do so because of inflated (and now deflating) prices. That’s my situtation, and I don’t want to be “the greater fool” so to speak.
What are you? Un-American?
You have a patriotic duty to buy an overpriced house so that a specuvestor can get out from under their soon to reset ARM, so that the lender doesn’t eat the loss, and collapse the entire economy.
If there is a Depression, it is YOUR fault…
I’m drinking a tall drip from Starbucks - that’s my contribution.
I’m drinking my third cup of strong java brewed in my home coffee maker from Trader Joe’s Italian Roast. It tastes better than SBUX coffee, it is not loaded with sugar and it costs less than $0.30 a cup. And I don’t have to listen to the conversations of loud and annoying SBUX customers, either!
Come to NY for real coffee and pizza.
Professor - I hear ya, my usual brew is Safeway Select Hazelnut from Vons. But my wife has a touch of a cold and asked me to go to SBUX and get her a latte. I hardly ever buy my coffee there, and from what I see on the financial news other people in the U.S. are starting to feel the same way; latte or a gallon of gas - easy decision when the latte doesn’t get you to work.
Somebody on this blog said a year or two ago; “when we see SBUX same store sales declining, we’ll know the sheeple have finally been tapped out”.
RE: becoming a 1st time buyer –
You are wise to wait. Why buy a home at close to the all-time record price, just at the point when The Economist magazine is making an entirely reasonable prediction the U.S. is going into a recession, when there is likely to be far better selection at lower prices over the next several years?
BTW, not being a trust fund baby, I have managed to comfortably participate in the housing market over the years by purchasing in the tailwinds of a recession. I strongly recommend this strategy, but you have to tune out the noise coming from economists quoted in the MSM, many of whom could not predict a recession if one were currently occurring.
We have owned our homes since 1984 when we bought our first home,(with a negative amortization ARM, so they aren’t as new as some people seem to think, but the interest rate was 12% with the ARM!) except for last year when we rented for a year. When we bought our last home in 2001 I thought home prices were going to drop then, but we looked at the home as a place to live and we paid cash so we weren’t afraid of dropping prices. In 2003 when I learned that ARMs were on the rise in a low interest rate environment I said “This is crazy, it can’t end well.” I was sad to see prices rising because I knew that bubbles always end badly. I would have rather seen prices stay the same or even drop a little because I knew that people were just using refinancing to go into debt more and using the cash for living expenses or for items they wanted but couldn’t really afford, but their housing “value” made them feel like they had more “wealth” when really all they were getting was more debt. Now the time has come when the piper must be paid and it isn’t going to be any nicer than in the original story.
We bought a home this spring at the top of the market here in the Seattle area because we discovered we don’t like renting and we finally found the home we want to live in for the rest of our lives; I love to garden and I don’t want to wait 2 more years before planting my apple and plum trees. We expect that the value of the home will drop by up to 50% but we don’t care because we paid cash, in part from the increase in value of past homes, and we don’t plan to ever sell.
The upshot is that increasing home prices are only an advantage for people who have more than one home, not for people who have one home, since it encourages them to go more into debt. I would prefer to see home prices come down to a reasonable price in comparison with incomes and stay there.
What is this “cash” that you speak of?
A very rare thing. You can buy most anything that is for sale with it.
Kime — I don’t mean offense by this, and it is very late in the day to think you’ll even see it, but I cannot understand why you follow Ben’s blog. Your philosophy is your business and pretty much all of us would wish you well with it, but it is so contrary to the central theme of the blog that I wonder why you waste your time reading it — there appears to be nothing in it that can benefit you.
“I was wondering, what would we all be saying if the shoe was on the other foot?
Never judge a man till you’ve walked a mile in his shoes. That way, by the time you tell him he’s a fool, you’ll have his shoes plus a mile head start.
I bought my house in ‘83 (way pre-bubble) for 46K (At the time, that was on the higher end of prices; now it’s practically a giveaway price), and over the years have put about 20K improvements in it (new addition, new roof, etc.) As of the last appraisal, the house is worth over 3X its original price. Am I jumping with joy? No. I have no plans to sell, so the only thing I end up with is a higer property-tax bill.
That happened to a friend of mine, who built a house on the right lake at the right time. It was before SOH here in Florida. He would tell me that every day he comes home to the same house and everything about his life there is the same except that the taxes had become ten times what they were when he moved in — all a result in the higher prices paid for adjoining properties.
I’ve yet to see where anyone copped to believing they’re sitting on a million dollar lottery ticket in the hypothetical sense. Would the inflated prices have gone to my head had I owned? Probably. Would I have HELOC’ed? Yup. I know how I think in those situations. First and foremost, I DIDN’T buy during the fenzy because I KNEW then it would have been suicide and I believe that today and thank God frequently for keeping me out of the fray. I sold my place back home in VT in late 1999 for 37% over what I paid 5 years earlier. That same house is still worth only 15k over what I sold it for 8 years ago according to Zillow. I’m fortunate that I’ve managed to stay ahead of all this and am able to go back home and pay cash for my old place plus alot more. This boom/bust cycle has been a great lesson in delayed gratification and financial stewardship for me and my wife. I have to thank Ben J. for the blog because I really thought I was going out of my mind in late 04 and 05 when prices continued to spiral and all the dumbasses were acting as if all is well and nothing was wrong. My wife and I would look at each other knowing we both had the sickening feeling in our gut when we’d hear about people paying 300k or more for a shack we both new wasn’t worth 100k. About that time, Ben put up the blog and it was a relief for us to know that we weren’t alone.
I really thought I was going out of my mind in late 04 and 05 when prices continued to spiral and all the dumbasses were acting as if all is well and nothing was wrong.
Preach on, Brother Exeter. Back when I first stumbled upon this blog in 2004, I looked at the lunacy all around and felt a bit like Winston in Orwell’s “1984″:
“Being in a minority, even a minority of one, did not make you mad. There was truth and there was untruth, and if you clung to the truth even against the whole world, you were not mad.”
Back in those days, at the peak of the bubble, it was a positive relief to discover Ben and a small, intrepid group of housing bears who had independently observed that the Emperor had no clothes and were shouting it from the rooftops. Of course back then we had some trenchant “it’s different here” Kool-Aid imbibers, like the late and unlamented LV Landlord, to dogpile on just to keep things interesting.
As far as the shoe being on the other foot, although not housing related, there was a time when the shoe was on the other foot for me in terms of financial near-disaster. In fact I had to sell a property in order for it not to go into foreclosure and I was lucky enough to get out with a few thou to rent an apartment and get my life back together. This was back in the day when I was emerging from arrogant puppage and thought I knew it all, so to some degree I understand the plight of some of the FBs or bush league investors today.
No one felt sorry for me, heck I didn’t even feel sorry for myself, just panicked. It took me years to dig myself out, but I’m glad to say I paid back every penny I owed and then some. It was a lesson I’ll never forget. And so I predict that someday, some of the FBs and bush league throw-caution-to-the-winds investors, having learned their own lesson the hard way, will be sitting around on a blog much like this, marvelling over people making much the same mistakes they did. That’s why I see education as one of the key indgredients to preventing bubbles and financial problems for people in the future. It’s like teaching kids the evils of heroin or other similar drugs, for some kids, seeing what addicts have to go through can be enough of a preventative. And for some people, the idea of financial misery just might be enough to keep them out of trouble. My parents were decent folks, but one thing they never did was teach their kids about money and budgeting, etc., although they sure complained about spending money all the time. And the basics of money and budgeting was never taught in any school I went to, not even in business courses, believe it or not. Who the hell can comprehend accounting methods if you can’t even balance a checkbook or even understand why balancing a checkbook might be a good idea? Experience was my teacher and it has often been remarked on this blog that it is an expensive teacher. To which I say, TESTIFY!
Amen!
It’s virtually impossible for me to identify with the real estate greedheads which abound today.
My first home was a new construction double walled solar contemporay with about 1800 SF of very “primal” interior finish.
I finished off the second floor and upgraded the finish over a 15
year period.
The year after it was finally finished, my -ex lost her job and we moved back to a rent.
A complete example of Murphy’s Law-no pun intended.
Total financing was around $62k with a lot of sweat equity.
In the late 70’s early 80’s, the idea of home appreciation was like,
“huh?” A house was your home-a place to hang your hat and wrench on your scoot.
Today, I am primarily concerned with my children’s standard of living.
I know I’ve had my run. Praise God, I’m at stage where I know there is more to life than worry about $650k worth of glue and vinyl.
Thus it is my sincere hope that these chucks with their $500 POS starter homes all die a slow financial death so that my kids can have a legitimate shot in this very fooked up world.
I have the shoe on my other foot. We bought our house in CA in 1995. If you can believe it, the value actually dropped a bit the first year or two! We now own it free and clear, have remodeled by paying cash, and the kids and other family know there is always a HOME they can come to. Maybe in 10 or 15 years we’ll want to sell it to help with retirement or because we just don’t want to mow the lawn any more. I don’t feel smug, entitled, or lucky. I feel sad my kids can’t buy homes around me. I feel sad because people who didn’t know any better succombed to the pressure to consume that is hammered into our consciousness (along with ‘you can’t be too skinny’) 24/7. I am grateful my husband is a better critical thinker than I am or that might be me out there losing my house. IMO, people have forgotten that life is about what we need, not what others want us to want, because no-one is reminding us.
This scenario you depict has one flawed assumption!!
I know it is hard to get this right with so much mis information running around!
The flaw is that prices have not bottomed!!! (the quick explanation of how I know this is reversion to the mean!)
That $200K that went up to $700 and is now $500 is going to drop to between $280 - 300K. That price will be roughly the real value which was the $200K pre bubble price plus normal real estate appreciation plus inflation!
The ramifications of this will be different for each person. So, there is no way to draw any conclusions except to say that for those that did not HELOC and who are just looking to enjoy their house as a home, they will be just fine.
The next phase, that no one is talking about, is that inflation is about to go hyperbolic. We should see well over 5% in the very near future. This will bode very well for those who are still paying a monthly mortgage if and ONLY IF it is a fixed rate mortgage. What will essentially be happening is that you are paying off a fixed price loan with cheaper dollars. ie. if inflation is at 10%, one year from now you will be paying back essentially only 90% of the loan value. In two years, 81% etc.
I would like to think that I would believe the same things if I were a homeowner. Current prices mean everybody has to be a slave to the mortgage bankers. Debt slaves are boring people…tired, and generally irritable from being trapped in a job to make their payments. Not fun to live among.
RE: Debt slaves are boring people…tired, and generally irritable from being trapped in a job to make their payments. Not fun to live among.
More truism from this blog’s wise and knowledgeable.
“having a paid-for home is a major part of my retirement plan.”
Huh? I’ve been there, done that. My condo was paid off but there were still Home Association fees and Property Taxes; either one which could foreclose on you and steal your equity if something went wrong.
I was making half of what I made before in retirement. Even with a paid off condo, I basically no longer had any disposable income. Those twice a year property tax bills were a killer.
Consider this. You need to LIBERATE your equity. I was totally broke until I sold (at the peak I might add) and all of a sudden I’ve got cash up the wazoo earning income in CD’s, earning captital gains on GOLD and losing no money to interest payments because I am debt free.
The other option would be to stay trapped in your paid off sh*tbox until the day that you die broke; as you desperately try to hang on and even consider going back to work as a Walmart greeter.
“By that I mean what if those of us who are currently renting due to the insanity of home prices had bought a home pre-bubble?”
It would make no difference to Me. A house is Just a Commodity, like anything else. I would never buy a house for more than what it is worth to “ME” . If someone wants it worse then Oh Well I look elsewhere.
You can ask what You feel Your House is worth. But Get this. No One, and I mean NO ONE has to buy your House for any price. This goes for any Goods in the world. You don’t have to sell your home for less than You think it is worth. But no one has to buy it for more than they want to pay.
It amazes Me that people get PO because ” No one will Buy my house for what I think it’s worth and that makes Me Mad! I put it up for Sale and Someone has to Buy it!
I’ve been in sales 30 Years. All the BS aside. You can try and add Value through physcology , and try to convince someone why what You have is worth more but when you break it down to the basics there is only one way in the world to sell anything.
Price it at a point where someone else is willing to give You that much money for it. Or You can just keep it. That’s the way it works . Always has. Always will. That’s the basics of selling. What people are willing to pay today has nothing to do with what they’ll pay tomorrow. What You paid has nothing to do with it. If You overpaid , Your Bad.
Buyers will Always determine Maximum Price. A Good Salesman just knows how to find out what that price is.
Great website Ben. I saw this sub-prime mess coming 2 years ago. I knew it was time to sell a few years ago when I see my cleaning lady that could barely speak English, didn’t make so much money and could barely afford a car got approved to buy a house worth about $350,000. I knew then there was trouble brewing ahead. That was about 4 years ago.
The market can and will fall much further. I live in Buenos Aires, Argentina where we have to pay 100% CASH on the table when we want to buy a property. I own lots of property here and although it hurts to pay all cash I like it because it bubble proofs the market as everyone that is buying are serious investors that had 100% of the cash to buy.
The truth is that most people in the USA never have seen the title deeds on their houses and never will. The banks or finance companies own their properties and always will.
Hello Mr. Argentina,
I am really glad to hear from someone from Argentina because you all had an economic collapse a fews years ago and I think the situation that this country is in has similiar attributes to your economic collapse. So I hope you give us all lots of information on how our economic crisis might develop. I remember reading a story of how a cattle truck turned over and people were butchering the cows in the middle of the street. Also how metal was stolen from everything (copper, bronze, etc.) including government seals from government buildings. That’s why I figure that you might as well load up on gold; the best metal of them all.
I think gold did pretty good during the crisis in Argentina, didn’t it?
Hello Swami,
As a lurker I read the blog often but rarely post. I am vacationing here In Buenos Aires for the first time, renting an Apartment in Palmero Soho, and can tell you that the economy here is booming. Prices are very cheap [3 Pesos or so for every $]. Food, drink and clothing are a bargain for us Yanks, probably the last remaining island of sanity in this far overpriced world. What I see is a real estate boom, a very happy and vibrant population, packed restaurants and clubs, families in parks, people dancing in plazas, and perhaps the most beautiful women in the world. I’ve heard this gold crap for 30 years and unless you have bricks of it packed away in your basement, and a way to safely sell if society should somehow melt, then gold is like any other investment, where the value rises and falls often manipulated by speculators. If Buenos Aires is what the coming crash looks like, bring it on.
We moved to SoCal during the last housing boom and *almost* bought at the top. Having dodged that bullet, there’s no way we’d have considered this last run anything but the mother of all housing bubbles regardless of our status.
“The next phase, that no one is talking about, is that inflation is about to go hyperbolic…What will essentially be happening is that you are paying off a fixed price loan with cheaper dollars. ie. if inflation is at 10%, one year from now you will be paying back essentially only 90% of the loan value. In two years, 81% etc.”
Yes, but the price of produce is up 50% from last year this holiday season. (I saw that on the news, but I kinda had already noticed at the Kroger earlier this year.) Then there’s medical care, energy, and all the other stuff that doesn’t count.
If your wages are barely keeping up with the official inflation #s, then it’s a zero sum game. That depreciated dollar will help rent a nicer house that someone else really couldn’t heat, eat, and pay their medical bills inside of anymore.
It’s interesting to watch the local semi-estate rentals languish in the newspaper classifieds. In the category of homes-over-750K (here in a fairly built-out ‘burb where 200K + a bit is the median), sometimes the owners are willing to rent for close to nothing - forget about covering the note, they just want somebody to cover the utilities and maintenance! Such as: $700/month to keep lovely, lush, landscaped grounds watered. (That’s why my landlord’s neighbor’s bill was one month last summer.)
I can see the prices of gall bladder surgery or donuts going hyperbolic. DVDs and houses will chase down the $ left in the consumer’s pocket AFTER having the surgery and the donut, so that 90/81/etc% of (depreciated) loan value will be re-inflated by the proportionate “hit” on your bottom line vs. your renting neighbor’s.
I’ve always considered my home as both, an asset and a home. As a home it meant that the economics that it was the best value possible was not the end all and be all in importance. As an asset it meant that there was a point that the economics and asset valuation of it would would prevail over it being a home.
There was a two year struggle period between home and asset, a home I love that I thought when I bought it I would live there “forever.” The economics of a 20% pay cut and rising interest rates changed a 8-10 year plan to pay off the home to 20 years. The asset inflation was 60% over 4 years.
I am in the process of selling, but that love of home is very bitter sweet.
Unless home prices are going up I would rather rent.
“Would we have the same opinions about the ‘paper gains,’ and be so adamant that sellers lower their prices if it was our home equity on the line?””
Yes…even though I rent, I still own two houses.
Keeping house prices out of reach of young, up and coming people (including my children) doesn’t seem like a good idea to me…better that they (house prices) correct, and stabilize to a level consistent with actually being able to afford to live in them without the risky financial alchemy that so many have been practicing.
“would I feel the same way about the housing bubble if I had bought a home for $200K several years ago, that at the height of the bubble was worth $700K and is now worth $500K because of the bursting of the bubble?””
Answer: “woohoo, I’m still up $300k!”…my retirement doesn’t rely on housing prices going up.
This is a super-easy question to answer. I sold my place at the top of the market because I knew it would never be worth that much again. I knew that I personally would be kicking myself if I had to watch it lose equity, and I knew it would. Most homeowners could have done this if they wanted to. My place wasn’t worth that much though I did realize a nice gain. If I had been sitting on a couple hundred thousand dollars I would sell in a heartbeat. I find it hard to understand why other people don’t feel this way. I mean, if someone is just going to give you several hundred thousand dollars for basically nothing, how can you walk away from that.
It also kills me when I hear the stories of people trying to sell, rejecting an offer then not being able to get another offer even close to the original. I just want to smack them! How can they be so stupid?
They say you shouldn’t time the RE market, that has never made sense to me. It seems that RE moves in geological time so how hard is it to know if you are in an up or down market? If housing prices suddenly double and even triple within a few years, how can you not know that this is going to crash and it cannot last? I do not consider myself to be some sort of supergenius. I have a disconnect with others and just don’t understand how so many (some very educated and smart) people can make such bad decisions. It’s completely mysterious to me, and I think that’s part of the reason I’ve been so preoccupied with this whole thing, trying to figure out that disconnect.
It is somewhat unclear to me why most homeowners (even those that realized massive gains in home appreciation) believe that the bubble operated in their best interests. Clearly, if it was an investment property, or they had the intent to downsize and/or move to a lower cost community, they could cash out. If, however, they are the typical homeowner that owns only one home and wants to stay in the same area, didnt it actually hurt them? Higher prices mean higher taxes and insurance, and higher transaction costs (real estate agent fees etc) upon the sale. If they want to move or upgrade, the new home would have gone up in value as well. Thus, wouldnt these ppl be better off if the bubble never happened, and their tax and insurance bills remained modest. Am I missing something, or is it just bragging rights? I realize they could of have pulled the equity and used their home as an “credit card” but again isnt this actually against their best interest because it puts them danger of going upside down in their mortgage. Clueless in ATL.
Mike, you’re not clueless…they are. You are 100% correct. The only people who benefitted from this bubble are the ones who sold to rent or who flipped and got out in time. Even those who wanted to move up (no matter how modest), could not do it because of the higher prop taxes. Also, the higher price for the move-up home negated any benefit from the starter home.
All in all, a very bad thing.
I had the same thought watching “My House is Worth What?” or whatever it is called. Ppl get so excited when they hear someone tell them how much appreciation they made sitting on their ass. If this is their only home and they intend to live in the same area for an extended period I was thinking economically shouldnt it be irrelevent. I guess they are excited about being able to tap into that equity to buy Range Rovers or build additions. Since those who read this blog know that just means they will have an upside mortgage, such programs are very irresponsible. Not once does anyone explain to the dumb sheeple that this just means that they should look forward to higher taxes and transaction costs, and that its just meaningless paper money unless they sell and move to another area such as Detroit that is much cheaper.
Ben the next blog should be about recession. The recession will affect every body people with or without houses. Sharing information from around the country by real people will give us unity and the ability to get thru it easily. Please think about it.
Thank you and have a great weekend everybody