Do Friends Let Friends Buy Real Estate?
Several readers responded to the idea of talking with friends about the housing bubble. “Any stories to share?; Friends don’t let friends buy Real Estate. Have any readers tried to convince a friend/acquaintance that right now is most certainly not a good time to purchase real estate? I did, and his reaction was startling.”
“Not only did my acquaintance flatly refuse to accept the very real possibility that real estate could substantially decline in the coming years, but his attitude was one of extreme anger (towards me), delusion and denial (that prices could go down). Our friendship is now strained. Do other readers have the same/similar experiences to share?”
Another said, “I have talked a few people into waiting. It took time to convince them, but eventually they got the picture. Seeing that the entire state of Florida is for sale should be a clue.”
And another, “I live in Langley BC, Canada. I try to warn people that prices cannot keep going up for ever. I know many people who are flipping, and I am trying to give them some warning of what is going to happen. One person thanked me for my advice and told me that they will sell at the end of the year.”
“I tell people that property prices have started to fall in some parts of California, and the reactions are varied. Some people acknowledge that it will happen here too, and others do not. The ones that do not, get very angry and come up with a thousand reasons why every body wants to live here, the 2010 winter olypics in Whistler will keep our house prices up, they are not making any more land, and repeat a thousand realtor cliches.”
“Recently a popular radio show announced that at the current rate of appreciation, the average house here will cost $820K by 2010, and people believe it. I’ve talked to a number of poeple that take it as a fact.”
A reader concurred. “I’ve experiened the same thing. Even when you tell people about halting markets and falling prices in the US, Vancouverites are sure that ‘it’s different here’ because ‘everyone wants to live here’ and ‘the Olympics’ (2 wks of snow sports) have made the lower mainland invulnerable to downturns experienced elsewhere.”
“I mentioned future price drops to a colleague yesterday, not thinking anything of it as she bought a decade ago…she suddenly looked worried and said that prices might drop a little, but not a lot. I realized then that she’s been using the equity ATM. It all constantly reminds me of 1981, just before the whole thing collapsed in ‘82.”
One reader warned, “I have had to refrain from talking in certain situations. One of the golf girls bought a Toll Brothers condo a year ago and is still waiting for it to be complete. She has a house in Cave Creek that she paid 190K for. She is in complete denial about the market and thought all she had to do is put a FSBO sign in the front yard and sell in a few days for 400K +.”
Another, “I shut my fool mouth. I just gave up telling people my opinions. Now I just smile, nod, and change the subject in a non-obvious way. ‘I really love the area I’m living in.’… ‘San Diego is one of the nicest areas in the US, don’t you think?’”
One relies on statistics. “When I tell people about rising inventories in bubble markets, they look at me like I have 2 heads. They think if I’ve gotten the info from the internet it can’t be trusted and is probably suspect.”
To which one replied, “You raise an excellent point, which is that for those without at least a good college course in economics or its independent study equivalent, there is no objective means to sort out conflicting viewpoints, and at that point it comes down to a matter of religious dogma. So we all may as well agree to amend the list of topics to avoid in polite company: sex, politics, religion, and the housing market.”
‘there is no objective means to sort out conflicting viewpoints’
Maybe this late in the mania that’s true on a street level, but I can’t help but wonder what might have been different had silly concepts been swatted down for the nonsense they are. Like being ‘priced out forever.’ How could the RE industry or economist allow that myth to take hold? If the media had held more prominent debates early on, people wouldn’t have these dogmatic positions.
As far as a person to person thing, it seems that individual paradigms aren’t easily moved by those one knows. That’s a reason I try to stick to media accounts; if they have a problem with it, take it up with the Wall Street Journal or the Commerce Department. That said, I have learned a lot from those who post here, and blogs are a good way to approach touchy subjects.
This topic is best reserved for family and the closest of friends. I also have a few investor friends that I talk to about the state of the market, plans, etc. When I speak of close friends, I refer to only those who has a real interest in the market. Others either don’t get it or don’t want to get it (denial).
I really like talking RE, so it is difficult for me to keep my mouth shut. But, clearly, it serves no purpose to tell someone who just bought that the market is tanking.
As a psychologist, I advise people to be very careful about offering unsolicited advice (I don’t think I’m breaking my own rule by saying that!). You can lose good friends and cause family dissention very easily. OTOH, if you are asked for your thoughts about RE, by all means say what you think. Ben’s strategy of referring people to published data is a good one.
I agree..talking about real estate is almost like talking about politics or religion.
Exactly. It’s like having a kinky sex habit. It’s fine in the privacy of your home, but you don’t want your boss or your aunt to know about it . . .
I sold my home in the sfv in august of 2005. i built it in 2002/2003. i rent now. everyone thought i was crazy and still do. i don’t tell people how much cash i walked away with (alot…tax free). most of my friends and family do not believe we are in a bubble. with the exception of my non-homeowner friends waiting for things to cool before becoming first time home buyers.
however, i do get people’s attention when i tell them the story of my first purchase back in 1996. a prime los angeles area duplex that i bought for 225k from a bank. 6 years earlier, it sold for almost 390k. do the math. prices only go up? also, even with that type of correction, there were no “multiple offers.” as memory serves, it was on the market for about 4 weeks before it sold.
I built a house on a lot I’ve owned for several years recently. One of my co-workers overheard a phone conversation and asked my advice in buying property in another state. She said someone from her church has been doing it for a few years and says it’s easy money. I tried to warn her, but I see sales brochures on her desk this morning. Oh, well.
In this case, she asked for your advise, you told her your thoughts…end of story. Not much else you can do. It’s like someone going from doctor to doctor with some symptom, but only believing the doctor who says something similiar to what they believe they have. The rest of the doctors could talk until they were blue in the face, but she would refer to Dr. X who agreed with her.
BayQT~
Not everyone listens to both sides and then weighs “intelligently” the information that is gleaned.
BayQT~
Current house prices are clearly entering the cultural zeitgeist. I was on jury duty this past week, and the absurdity of CA housing costs came up spontaneously with several people. The other jurors represented, as intended, a broad cross section of society. All of them thought prices were ridiculous and most thought they couldn’t hold up–or wondered who could possibly afford to buy.
One retired woman living at the elite Pebble Beach said she couldn’t begin to afford to buy there today (original purchase in 1985). A retired woman said she loved to live by the CA coast but they were selling out and moving to Washington state. A blue collar guy said he expected lots of foreclosures soon. An engineer (who worked for a housing developer) said she guessed that only dual income families were buying.
I stopped warning people two years ago because RE keeps going up here in the Netherlands (and has been going up for nearly one generation now) and nobody wants to listen anyway. Many younger members in my family are playing the RE game and are very proud of their equity gains (every year a bigger home etc.).
If I tell people what price the home they are looking to buy sold for 15 years ago (usually 10-20% of the current price) they get angry, tell me I’m crazy or just say that it proves that RE is the best investment there is.
Of course, this is just how a mania works. People don’t want to listen to anything that spoils the illusion of easy money and will have to learn the hard way.
this is the story I was talking about the other day:
From Dutch history, a real estate lesson
he’s the author of a great book:
The Island at the Center of the World : The Epic Story of Dutch Manhattan, the Forgotten Colony that Shaped America
yes, the Herengracht index - I know all about it
my friend has one of the original indexes (a very impressive book printed about 30 years ago). This kind of history is a very valuable lesson and unfortunately it is often forgotten.
I think one thing in the story in the Herald Tribune (of course, the quote from the Real Estate broker) is not correct: the boom in the Netherlands started around 1992 and not in 1998, it is very simple to see this from the public records. 1998 was probably the start of the most manic phase in Amsterdam with more than 25% yoy price increases and all the crazyness that we witnessed in the US around 2004. By 2001 the mania in Amsterdam was over, but average prices are still rising.
I find that most people are grateful for information that allows them to make more informed decisions. Of course some will go ahead and make whatever decision they feel is right for them, and time will tell if that was a good call or not. I’ve only encountered actual militant stupidity once, from a future FB acquaintance who recently (fool!!!) bought a townhouse in Old Town Alexandria, and confidently told me the boom will continue because the Defense and Security apparatus in DC is adding 16K new jobs a month. (No backing for that statistic, of course, which probably spilled off his realtor’s silver tongue).
I stayed in an Old Town Alexandria Fairfield timeshare 4 or 5 years ago (a friend’s timeshare)….very nice. What’s the main drag there? Cool shops on “main street”. Anyway…I enjoyed my stay. But everything was VERY expensive then! I can’t imagine what housing costs now.
BayQT~
Denial is extremely powerful.How can someone look at For Sale signs everywhere and not see something is up???? Out my window the neighbors house has been up for 3 months now.Haven’t seen anyone look at it even.
I’m seeing more and more prime time TV sitcoms center around RE frauds. For example, CBS’s “close to home” was showing “Land of Opportunity” last night.
When more shows about RE frauds, or why the whole thing is a scam ,come up, speculators that are still holding overpriced properties will be the one in the closet.
Where is the fraud??? IMO if the developer inflates the prices of his houses so that he will make MORE $ ,Good for him. If the F’D borrowers and buyers buy into it ,tough luck.Don’t believe the hype that the brokers and salesmen and women tell you, too bad.
I am scared to tell other than the closest people. I have been so wrong about this market going flat or down in 2002, I need to keep my old mouth shut. I believe its going down but what if somehow with rampant inflation, it doesn’t. I couldn’t stand the responsibility of having others trapped out like me.
Simmsays…
http://www.AmericanInventorSpot.com
AmericanInventorSpot.com
it is very likely that inflation will be rampant enough for house prices to keep climbing (except for maybe a short 1-2 year dip). The problem is that many people are not informed enough to recognize the erosion of the currency, and the fraud that is going on with the CPI numbers.
Even if one sees what is going on with nominal vs. real prices, it is difficult to work around is. Those who are saving for when prices ‘come down’ cannot use a savings account because that will never work. You have to invest in something that will stand up to the forces of inflation, like gold (and hope that Helicopter Ben does not use some dirty tricks to monetize the gold market as well).
just a simple, scary picture of what is happening:
http://tinyurl.com/fplg7
That is scary indeed.
Very scary….Iraq switched to petro euros for oil transactions dumping $10billion US on the market before we invaded them…now they are trading in US Dollars again. Iran I hear is getting ready to switch to petro euros also just at the same time the Fed isn’t collecing M3 data anymore (all US Dollars outside of the US). What kind of game are we playing now?? I think foreign investments is the way to go..greater growth and the dollar getting weak = huge returns.
gee, $10b only. the US dumps about much much more than that a year in the wolrd (700b trade deficit, 200b-300b interest payment to existing debt, etc)
just yesterday i had a friend over and he bought his home in 2003. i dont know the amt. i rent a 4BR condo for 1850 which sold for 466 in aug’05.
First he tried to convince me that with that kind of rent, i could buy some thing similar. I told him, mortgage+HOA+taxes came to 3000 (in aug2005) and now it is more, he kind of shut up that route.
i told him that i’ve lease till 2007 and even if price comes down my 10% by them, i’d come ahead if i buy in 2007 aug. he kind of shut up there too.
when i told him , i’d buy rent+25 premium all inclusive(hoa and taxes).
he said , prices will stablize and it wont come down that much.
it was all clear that he has drun the Kool-aid too much.
knowing him , he might not ahve I/O , but ARM for sure. i dont think he has extracted any equity. still the denial is very strong.
It’s like trying to talk about politics. People will believe what they want, even if the inherently know something is wrong.
What do they say? Never talk to people about religion, sex, or politics? Maybe they should add real estate!
BubbleTrack.blogspot.com
But I don’t really WANT to talk to anyone who can’t talk about all 4 intelligently!
You forgot your spouses parents -Very Taboo!
nhz will like this link
damnit.
http://www.iht.com/articles/2006/03/03/news/tulips.php
“The fundamentals that they cite in support of their reassuring assessments are surprisingly weak at explaining historical prices.”
Classic Shiller.
yes, good to see that this part of Dutch history is becoming popular in US newspapers
there is one catch regarding the index and Shillers remarks: the index shows that home prices are nearly stable if inflation is taken into account. However, if inflation numbers are wrong (and we all know they are, real inflation in the US and Europe, using 1985 calculations, is at least 8% yoy) all bets are off.
In my area of the Netherlands, individual home prices have increased by 500-1000% over a periode of 15 years, while official inflation was +/- 2% yoy. The Herengracht index suggests that home prices have to drop by 80-85% now just to get back to the historical norm. I don’t think that will happen because actual inflation was far higher than the government reports.
P.S.: there are more valuable stories like this. Early in the 18th century my city had a similar boom because of the VOC, the first multinational corporation in the world. Within a few years, many ordinary citizens were speculating in VOC shares.
The value increased so quickly (more than 100% yoy) that after a few years many citizens started building large estates outside the city, with their VOC shares as a downpayment. Of course, this couldn’t last; most of the estates were never finished and the owners went bankrupt.
but nah, this time everything is different
Now there’s a huge untold story: the government’s inflation numbers being WAY off. Does anyone really beileve that inflation is running at less than 5% a year? Check out your own rising medical costs, your own rising energy costs, your own housing costs. Someone’s rigging the CPI (Consumer Price Index). There ARE a few academic econmists who have said so publicly, and BusinessWeek even gave the story minor coverage about a year ago. Try this, if you know the math, calculate your own inflation rate. Don’t be surprised if it tops 10%…
don’t forget food cost as well. average decent lunch seems to jump in price (by about 10%, at least) every year.
both in the US and Europe, actual inflation numbers for mandatory items are close to the yearly M3 growth. Not very surprising to me …
The only stuff that drops in price are widgets from China and other (usually superfluous) items where the price is strongly influenced by increased productivity, technological innovation or tampering with the markets (like government subsidies).
Some think the US is trying to “inflate” our way out of our huge deficit ..$8 Trillion..trying to get to $10 Trillion fast. Also we want a weak US Dollar so the Fed is not doing the interest rate increases that should be done to get the job done. Problem is we have asset bubbles like Gold and I hope not housing. Mr. Forbes says gold over $400 an ounce = inflation.
I can’t keep my big mouth shut . My neighbor ,(who has 4 properties),actually took my advise and put one of her homes on the market.She priced it cheap and isn’t being greedy and is getting alot of action. Most the people around me are long term holders and they don’t care what the real estate market does .When I talk to a friend of mind who had plans on selling three years from now, I get the deer in the head light fear look .than a change of subject quickly.The subject of a housing bubble is very disturbing to baby boomers who have plans of selling in 1 to 5 years .
Friends who tell friends not to buy risk losing friends.
I talked a friend out of buying in Reno.
She’s renting a nice apartment and will buy when prices go down in a few years.
There’s several people where I work that have IO ARMs. One guy insisted it was good because he could pay more principle when rates go down.
I tried to tell him rates were headed up, but he didn’t want to listen.
What exactly is the ‘median’ price?, from the OC Register.
http://tinyurl.com/g59qs
Kind of interesting. Read about the 25 yr old buying a 400k condo. Jesus. And it was her 2nd place!
From that article:
>I>Andrea Mendoza, 25, bought her second home in January after consulting an agent who helped her find something in her price range. She paid $420,000 for a two-story townhouse in Placentia with three bedrooms and 1½ bathrooms.
“I was excited that we found it for that price,” said Mendoza, who shares her new home with her fiancé, Scott Brown, 27, and their two dogs, Bear and Star. “It was a pretty good deal. The appraisal is higher than what they sold it for.“
That last line makes me nervous. With all of the appraisal horror stories, that line stuck out like a sore thumb.
BayQT~
Dang it! I messed up my italics tag.
BayQT~
My brother-in-law is looking for a home, I tell him to wait. The worst thing someone could get is “housing fever” fearing that the train will leave them. Nonsense.
Real Estate is Cyclical. Most economic investments are cyclical as well. They have ups and downs, but follow a relative rate of appreciation as time goes on. When the rate appreciates to fast, it leads to a correction. Whether you call that correction a “soft landing”, a “bubble bursting”, or a period of “small to no appreciation” it’s all the same.
Just like any other market, real estate has ups & downs. Do you think prices could sustain rising so fast forever? If you do, tell the Easter Bunny I said hello.
-Richie
Tell him I like Rocky Road Easter Eggs and to please bring some.
This is a tricky one alright! The whole reason I started piggington.com was to inform my friends of what was going on. The idea was, rather than getting into debates with them, I said, “do what you want, but promise me you will read this fact-based overview article on the market before you make any decisions.” Once they’d read it, I knew that I had done all I could to help them make an informed decision so I pissed off accordingly.
FWIW people thought I was crazy and occasionally got annoyed with me back when I started the site in spring 2004 (which from a sentiment standpoint was the peak of the mania here in San Diego). But as soon as sales volume started dropping and sentiment backed off… a lot of people came around and were more respectful of the idea that RE can go down.
Rich…Just went to your site…cool…I will visit in the future…
If Real Estate couldn’t go down it wouldn’t be real.
Rich,
I love your site.
After pounding my head against trying to buy here in SD in early 2004, I was still half considering trying to buy again for fear of being priced out. Something seemed really wrong, but I couldn’t put my finger on it. Your site does a fantastic job of putting the SD RE market into perspective and making you laugh at the same time. I have pointed out your website to several confused people I’ve talked with locally.
The ‘crazy’ information that you provide there helped me avoid making a huge financial mistake. Thank you so much.
Cool… I’m glad you found it helpful.
thanks,
rich
heh heh,,,,,
rich, good to see you here. i’m glad you’re on our team
Rich:
Your bubble primer is the best So Cal resource!
I lead off my bubble conversations with your site.
I’ve been wary of the bubble since 2002.
Rich, you may not have saved your friends but you saved 2 of mine. Instead of me explaining the facts to them I just point them to your site (and this site too). You do a great job of knocking down all the false crap they’ve been told by RE agents and the media.
“Recently a popular radio show announced that at the current rate of appreciation, the average house here will cost $820K by 2010, and people believe it. I’ve talked to a number of poeple that take it as a fact.”
Someone should call into this program, after a 20% YoY decline and ask if the same predictive logic could be used to project when average home prices will be zero.
My son in law bought a house for 485k last year,(Fresno) and told me that it would be worth 850k in 8 years when his baloon is due.He, at least , put down 15% plus a piggyback, and has a fixed at 7% (bad credit). My wife told me to shut up about any bubble. Especially at Easter. He didn’t even know that his prop taxes would increase to the new valuation after his purchase. He won’t ask me questions. I told him not to be ashamed for being , ‘dumb’. Should have used the words uninformed and illinformed. He drinks beer with me and is a regular guy and takes care of my daughter like a queen, I like him better than my lawyer daughter-in law who knows it all but nothing practical and even less about real estate.
I don’t know anyone who’s wanting to buy right now (except myself! -when those prices slide)but I do have a few friends who began talking about selling last summer.
Some of these people are fairly stretched as far as the payments go and I tried to tell them it could be their last chance to unload quickly at a really good price.
Nobody wanted/wants to hear that. They firmly believe RE will always go up. Appreciation may slow to 5-6% a year but it will always go up.
One plans to put the house up summer ‘06 (!).
I’m thinking by then the slide will be totally OBVIOUS to everyone, including those who have been doing everything to remain in complete denial this past year.
And I do mean everything. With properties piling up and 30% of the market price reduced, you have to be in pretty strong “don’t confuse me with the facts ” mode to believe your house will be worth more next year than this.
According to the follwoing article in today’s NY Times, there is no bubble:
http://www.nytimes.com/2006/04/01/business/01bubble.html?pagewanted=2
For example:
The problem is that there has not been a good way to compare rents with homes. Indexes that try often end up comparing apartment rent with prices of a single-family home. A result, the Smiths said, is inflated price-to-rent ratios that are displayed as evidence of a bubble when one may not exist.
The Economist has done a far better investigation into this issue; although there are many catches, price-to-rent ratios are definitely in a bubble in many countries (including some ‘hot areas’ in the US).
That is a terrible summary. The piece explains that some areas that may seem overly inflated might not be so bad off. They specifically call out some areas as being more than 50% overvalued according to this theory. Saying highly valued metro areas could be that far out of whack according to the most reliable calculations available sounds like a call of bubble to me.
Why is immigration such an issues right now? After many years of happily accomodating the illegal work force, because many of us rather borrow than take a low paying low prestige job to finance our lifestyle, all of a sudden the illegal immigrant is the public enemy # 1 and all that harbor them…
Could it be that the forces who have orchestrated this economic climate are seeing the next phase and preparing the ground for it. Meaning, that after the dust settles and the lifestyle of playmoney is all but sickening regret filled memory (yes, just like the morning after heavy drinking), all those jobs currently filled by immigrants will be fought over by broke americans.
There is no question that when you hear that new jobs have been created in America, for the most part they’re low paying. Your hypothesis is hardly far fetched. It would be the next step down in the progression. If we need places to put jobless Joe McMansion and centless Cathy Condo, just kick out some illegal aliens.
It’s the accordians. A people can only tolerate so much.
Many folks (including myself) have been saying the illegals are toast once the economy tanks. But I don’t see that it is suddenly an issue ‘right now.’ Only if you are a ’smart, educated, open-minded’ fool could you have missed the build-up of anti-immigrant sentiment over the past few years.
3,000,000 illegal crossings a year and a high birth-rate is eventually going to be noticed by Joe Sixpack. Here in California, half the stations are in Spanish! And what *really* gets the young Whites pissed off is when their rock station goes Mexican.
Demographers have good news for you. The Hispanic population is normalizing growth faster than any other immigrant group in history. The bad news? That growth was the only thing keeping our population growth dynamic from going backward just like old Europe. Will Joe Sixpack be okay when Deflation replaces growth?
why immigration? just to confuse us because of the coming election.
You go!
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/30/AR2006033002349.html
Talk Is Cheap. Housing Isn’t.
Over Dinner, the High Price of Real Estate Is Food for Thought — and Indigestion
For three years, there has been a spirited but light-hearted dispute between Milton, a homeowner, and Cave, a renter, who are both Washington area natives. Milton, married with a 16-month-old daughter, bought a townhouse in the Lorton area for $210,000 in early 2004. Since then he has been ribbing Cave, who is single but who has saved enough money for a down payment, about his failure to make a purchase.
Milton likes to remind Cave of how much housing prices have risen since he bought his townhouse, smiling as he mentions the recent tax assessment he received, which indicated the value of his property had gone up $30,000 in a year.
“Two years ago, he should have bought,” Milton told the group, nodding to emphasize his point. “At some point you’ve got to get in. Real estate is the only sure investment.”
Cave, however, cited a spate of recent news stories reporting declining sales prices and rising inventories of unsold homes, speculating that values could fall further and cause people who buy now to lose money. “It’s a mistake that could be life-changing,” said Cave, who rents a condo in Arlington for $1,400 a month. (His search for a condo was featured in a Washington Post Real Estate section article last week.)
. . .
“It seems like it is absolutely impossible, but look at the rental — you pay the same amount for rent,” Casey argued. “It isn’t like it’s absolutely impossible. I could be renting and throwing away a great amount every month. . . . It’s like putting my money into a savings account.”
Homeownership makes Casey feel as if she has more control over her destiny, even though she pays 75 percent of her net income for housing, including the monthly co-op fee.
She’ll see how little control she has over her destiny when she needs to sell it and she’s at the mercy of buyers who are pissed off about this crap of the past few years and don’t care what she “needs” or thinks here shitbox is worth.
Look at the photo: these people are children - they should be enjoying their life and having fun, not worrying about real estate. The two who haven’t bought seem sensible, while the two who have seem like unthinking fools who repeat the catch-phrases of realtors. Figures.
They are academics. Writing papers about stuff is what they do. They had to buy a house and it was enough of an issue, they paid nearly a million dollars, that they wrote about it too. If academics were running around “enjoying life” THEN it would be potentially worrisome. Publish or die is a lifestyle people choose, dig?
I can’t get over how young these kids are. I mean, 25 and owning your own place? What about career changes? What if a job opportunity forces you to move to a new state? What about vacations? What about marriage, kids? And how does a 25 year old swing spending 75% take-home pay on housing? Maybe I’m naive and everyobdy has rich parents, or lots of credit cards.
say what- it looks like the illegals, Mexicans in particular, are being set up as a scapegoat for when the economy breaks.
This “problem” of illegal imigration has been around for too many decades to have it suddenly pushed front and center the way it has been in the past couple weeks.
Exactly my point!
This is a subject dear to my heart. My friend who bought in a major bubbl area in 2004 is in a real bind now. He refulsed to sell last summer when people were banging on his door asking him to accept a 70% profit in one year. Said he’d be “homeless.” Jesus. So now, he’s lost his job, has no cash and needs to sell. Unfortunately so do 19 others in his complex of identical townhouses. And none of them are willing to price aggressively at all. So they all just sit there. You know what? I have no sympathy. Iven if he took the last sale and dropped down 10% from that price to sell his quickly, he’d make an obscene profit. If he won’t do that, then starve.
yes, sounds familiar. I know people who are sitting on more than 500% profit, don’t want to lower their asking price, and complain that their home is not selling because of the few people who are claiming that housing is in a bubble …
So when this “crazed” friend looses it (financially,psychologically) he can take his anger out on the illegal immigrants who are taking all the jobs and as a result the honest, hardworking americans could’t buy his overpriced ridiculous excuse of an “investment”. Did you know guys that less than 50% of americans reach the formal operations stage of development. Meaning that less than 50% are able to engage in abstact thinking, which is a key element in being able to connect the dots in any environment.
If you want to see the proof of your statement, simply turn on any prime time television show. Preferably on a 52″ plasma TV. LOL
This comment by a reader got caught up in the software:
‘Yes i have had several conversations with relatives as well as business associates. Such talk is very much as the article above.
Now as to my 50+ year old relatives. Four years ago, the couple decided to “tie” their lotto fortunes to the LV real estate market. ” Their mantra “show me any one in the last 20 years that lost money in this market!!Q#@$.” So, they borrowed on the “plastic” 0% for six months option, took a loan on the 401k, and refinanced their home taking out most of the 12 years of equity build. I think they even borrowed on their kid’s college funds. Back then, they valued my opinion - did I think it was a good idea? (never once disclosing the arangements for their inital investment until much later). The 1st transactions worked out for about 18 months, as real estate boomed. However, in November of 2005 a deposit on a “new build” found them trapped due to Pulte’s across the board price drop of 25%….We told them sacrifice the $20,000 deposit on the $445,000 sales price, and WALK. (445,000* 25% = $112,5000 inbedded loss). Needless to say this advice was not heeded. After 5 months they found a rentor but the motgage payment exceeds rent by $600-800 /per month. It has been DOWNHILL on this subject ever since. Last week I brought up the Flippers in Aliante N.Las Vegas, that I read about on http://www.Bubbletracking.blogspot.com. Abruptly the angered response was “they are gone from the market.” At that point, i realized there was no discussing this realtors FATE. He and his wife had 18 homes “unrented” 8 of 18 listed on MLS (”as brand new never lived”) and 6 in preforeclosure. Obviously my relative must have been knowledgable about the “buy side” only of the local market, because clearly this realtor has not left the “sell side” market! {Moral - Know your market & investments!}
With business associates, many folks are investing in 1st TD’s to land banking speculators. In fact, most of the deals are for this purpose, as the “banks” aren’t even that greedy!*(thanks to regulations). Traditionally (5yrs ago)the LTV (loan to value) was 50%. However land prices skyrocketed 250% due a BLM land Cabal of a false land shortage squeeze, (posted about yesterday). However, as the prices rose, the collateral “LTV” dropped to less than 75% on average. My warnings about,-1) the false fraudlant appraisels, 2) land bankers inevitably over leveraged and first musical chairs lost when the bust occurs, 3)lack of security and documentation required by law, 4) nor the recurring slow / late payments and automatic extension options being routinely “exercised, as well as, actual defaults (that all still worked out todate) were ALL ignored.
I was mostly greeted as a lunatic, too conservative, and “what did I know”, they had been investing in these TD’s for years (all of 4yrs. since the bottom dropped out of equities in 2000). The signs of my prudent comments came to initial fruition, March 30th. See Ben’s headliner yesterday LV land values drop 47%…Now I am not a rocket scientist investor like these TD glutens, but i know that 47% drop on a $1 million dollar Appraised Market Value far exceeds their 25% LTV collateral protection….Now the complicated process of foreclosure surely begins all tangled up in the fraud from hard money brokers and appraisers. Its funny how “money” makes many people so arrogant! Now conversation will become even more difficult as their Hubris melts to self-deprecation.’
This has nothing to do with illegal immigration, though illegal immigrants do a lot of the new construction (often with very bad results). The immigration issue is coming up because it has been a scary problem since 9/11, and because many southwestern states are demanding federal intervention. So are something like 80% of voting Americans, according to many recent polls. People are just fed up.
The housing bubble has been going on for quite a while, too. I know everybody here points to 1999 or 2000 as its birth date, but I remember laughing at inflated house prices ten years ago, especially in my neighborhood, which Yuppies had taken over. I don’t think house prices have been rational since the early 1980s, before there were Yuppies, and Dinks, and Herbalife, and “This Old House” on PBS. When local supermarkets started having wine and cheese-tasting events, I knew we were doomed. Deisgner labels, leased luxury cars, and a zillion other pretensions became the norm, and we were suddenly a nation of obnoxious 20 Something and 30 Something phonies faking wealth and power, rather than actually owning either.
At least that’s my cynical take on it. The popularity Joan Collins in shoulder pads sort of said it all.
That is the point! it has nothing to do with the illegal immigrants but all of a sudden illegal immigrants are the main problem facing this country in the radar of many people and the main media. Why? Illegal immigrants have no power, politically or economically. As an illegal all you can do is to survive so why are they such a threat while our economy is in shambles and our collective attention should be turned to something more progressive than the illegal immigrant problem.Although in order to get those jobs back we kinda have to do somethig about them, send them to India to do our outsourcing work?- but you are right the Joan Collins shoulder pads did reflect a change in how we “wanted” to live and lived.
Well, illegal immigrants are bankrupting California, Arizona, Texas, and New Mexico, so they do pose serious problems that cannot be ignored. And their demonstrations, complete with Mexican flags and nasty threats, haven’t helped the situation.
At least, if we have a depression, there won’t be so many Americans hiring illegal immigrants in hopes of pocketing the savings. I figure, if one has to get an illegal maid because one can’t afford a legal maid, than one should clean ones own house.
Which makes me wonder how many people buying 5,000 sq. ft. houses with hinky loans know how to clean or maintain such properties, or have the finances to hire those who do. I can’t imagine what some of these places must look like after a few months or years. I doubt many buyers, especially young ones, factor upkeep, cleaning, and gardening into the cost.
That reminds me of when I was single and dating. Any guy who could not open the hood of his car and change the oil or at least know what the hell he was looking at was off the list immediately. I wanted a man, not a soft girly boy. I ended up with a very smart man who was the law review editor in his class but also grew up on a farm in Nebraska and can fix anything.
Why are illegals considered a threat? I consider them a threat because they don’t have a social security #. The percentage of my paycheck paid to medicaid, fed and state taxes, and social security have skyrocketed…..and I think those 11 million not paying into it are part of the problem.
They also don’t have medical coverage….and our ERs are already strained to the gills. Part of why medical coverage is escalating is that the write-off of the hospitals’ losses. Hope that Bird Flu never develops. It’s already a 3 hour wait in some places w/o an epidemic.
I don’t like that our schools, already behind Europe, India and China, have to dumb down even more because of all the English as 2nd language kids that are in the class. They may be smart or smarter than our kids but if they don’t understand the language…..
Last but not least I don’t like that our laws are worthless and ignored. If you’re legal welcome! But if not, you just cut in line before all the others that care about our laws. I’m not really sure why people aren’t concerned about our laws being worthless.
I wonder how many people realize that big business benefits from employing these lower paid workers while John Q. Public picks up the tab for the what they don’t pay in. It’s business that’s reaping the benefits on this one.
Sorry….I just had to vent on that one. I’ve watched them march all this week and my blood is boiling….nothing personal to any particular blogger though.
I used to be angry about all the illegal immigrants, until I found out that a lot of people who don’t speak English are actually LEGAL immigrants! And then I found out that a Canadian woman and an English woman (from London no less) were ILLEGAL immigrants! Whoo boy! (The company I used to work at had less than 100 employees so they didn’t really check everyone good until they were absolutely forced to.)
Anyway, I no longer look at illegal immigration as being so cut and dried anymore.
They dumb it down not because of immigrants but so TV-saturated, XBox-addicted, near-illiterate American children can still pass. Seriously.
I agree - immigration will be a whipping boy for the Bush admin to explain how the economy wasn’t wrecked by cheap credit, deregulation and outsourcing, but by a bunch of poor Mexican labourers. Them, and that global savings glut.
That’s how you keep the population in line - create an external enemy, rally the populace around the flag, and accuse dissenters of a lack of patriotism. Works every time.
War, what war?
Short and sweet but no matter how many times said works every time!
if you want to pinpoint the start of this madness I suggest 1987, when the previous wizard of Oz took over at the FED.
looking at the amsterdam chart from the shiller article from the other day, it appears that RE amsterdam topped around 1730. do you get a sense that it’s getting back to those levels?
certainly not back to 18th century levels, because the value of the currency is a far more important factor now than anything else. The Dutch economy topped around 1730, same for the local economy of my city - it never recovered.
I lived for some time in a big home from the 17th century for which there were price records dating back to the second half of the 19th century. In the 17th century it probably cost around 1000 Dutch guilders (florin).
Somewhere around 1880 (if I remember correctly) it was sold for 1100 guilders - the local economy was in bad shape at that time, so it was probably ‘undervalued’. This makes for very little price increase in 250 years, certainly below ‘inflation’.
The next 100 years or so it was government property, so there are no price data. I purchased around 1990 for 350.000 guilders, and the current value is +/- 2.4 million guilders (1.1 M euro). You can clearly see that the price increase is getting parabolic in the last century.
the interesting thing is that really nothing important was changed to this home in all those years that could seriously influence the value (except maybe all the changes from the current owner). It was just kept in good order with changes to keep up with home technology and standards of luxury of the time.
Middle of last year (basically the market peak), my housemate at the time, already in deep credit card debt, decided to buy a condo. I gently suggested that the market might be peaking, and that the rate on his ARM could only go one way: up. I was snapped at and told to stop insulting his personal decisions. Apparently I was out of line since prices had risen for the previous five years (or something like that). Fortunately he was buying to live rather than flip, but apparently the realtor or lender told him he could expect appreciation. I was just trying to advise caution, but ended up with an interesting lesson in markets and psychology. I don’t know if his home has appreciated or not, and the story isn’t over, but I don’t see any way that he could have improved his long term financial situation. Even if he’s made money on paper, how much is the risk of thirty years of debt service worth?
If he resorts to credit cards (M/C) Priceless!
Do Friends Let Friends Buy Real Estate?
How about Do Friends(and Relatives) Let Friends(and Relatives) Go In Realestate when Friends(and Relatives) are young and inexperienced and don’t listen ? ?
i get at least one person a week asking my opinion. being a cpa, it comes with the territory.
i’ve steered 3 people away from purchasing (that i know of…)
Talk to everyone you know about the housing bubble.
It is a psychological phenomena. Talk is what will break it.
It may be uncomfortable but life is uncomfortable.
Here is what I just sent a lukewarm bubble friend to get him started.
Here are some housing bubble reference materials.
Best Primer on the web.
http://piggington.com/bubble
MSA data population growth and housing growth.
http://www.housingbubblebust.com/PopHsgRates/MajorMetrosPopHsgRates.html
Inventory tracking for bubbly cities, check out the quadrupling of inventory for sale in Phoenix. And the doubling of OC.
http://bubbletracking.blogspot.com/
Housing asking price tracker
http://www.benengebreth.org/housingtracker/location/California/LosAngeles/
Blog with all bubble news all the time.
http://thehousingbubbleblog.com/
OC Register reports over 10 months of inventory in OC.
http://blogs.ocregister.com/lansner/archives/2006/03/selling_a_home_youre_not_alone.html#comments
National bubble info
http://www.cepr.net/publications/housing_fact_2005_07.pdf
http://www.cepr.net/pages/housing_bubble.htm
http://www.npr.org/templates/story/story.php?storyId=4679264
Lastly, the funny ones. Read there is no housing bubble from the bottom to the top.
http://thereisnohousingbubble.blogspot.com/
http://www.fantasylandmortgage.com/pages/944526/index.htm
http://www.housingbubblecasualty.com/
http://patrick.net/wp/?p=63 (glossary of bubble terms)
There are 6 teardown and build 2 spec homes within 2 blocks of us right now.
One other thought on this blog.
When people ask where I live. I say Huntington Beach.
They usually say how can you afford that aren’t all homes there over a million bucks.
I agree with them if we were dumb enough to buy.
I pay $2,000/month to rent what would cost $7,000-8,000 to buy.
I am “saving” $5,000/month by renting in my neighborhood.
The conversation just ends in wow!
why argue, just bet
it shuts them up instantly
yoy down by sept/oct
how much you wanna bet ??
My friends husband is a realtor, and I told him 2 years ago I thought it looked like a bubble. I sold what I had, socked away the money, and didn’t hear from him until about a week ago. He e-mailed me, and said “still waiting for the bubble to pop?” Arrghh. I know it’s there, but made me feel kind of silly. I need to be vindicated. When are we going to see some BIG drops to prove we were right all along? I live in Covina, Ca. Average price for a 3/2 is 550,000.
hold on … in Europe well-informed people have been waiting already five years for the coming crash. They are certainly priced out by now and have no other choice than waiting until common sense returns in the housing market.
Check out hedgestreet.com and see what the option ccost of puts on the housing value Sept-Oct strike is.