‘What’s It Like Being A Housing Bubble Leper?’
One reader wants to know if you’ve taken some personal flak for your housing bubble views. “How could I forget the most personal issue probably facing many on this blog? What’s it like being a Housing Bubble Leper?’ Even now with all the evidence on the streets!!”
“My personal example is with my wife’s family. Her brother’s getting ready to buy a house in Utah for over $300K and her Mother won’t listen to my advise to sell her Vegas home and rent even though she wants to sell in 2 years.”
“My wife says things like ‘oh, you and that silly bubble,’ ‘quit scaring my family.’ ‘It’s their money,’ etc.”
Here is some food for thought:
‘2006 Q1 U.S. Foreclosure Market Report showed that 323,102 properties nationwide entered some stage of foreclosure in the first quarter of 2006, a 38 percent increase from the previous quarter and a 72 percent year-over-year increase from the first quarter of 2005.’
‘Lending institutions sent 14,999 default notices to California homeowners during the October-to-December period. That was up 19.0 percent from 12,606 for the third quarter, and up 15.6 percent from 12,978 for 2004’s fourth quarter, according to DataQuick.’
‘All regions of the state saw an increase in foreclosure activity, ranging from 10.5 percent in the Bay Area to 19.6 percent in Southern California.’
Many posters here have commented on the difficulty in discussing this housing market with family. Some of the graphs look compelling these days, like the Phoenix inventory or the Dataquick data.
Ben, you’re still using AZ time on your posts.
It’s confusing because AZ doesn’t do the daylight savings time thing.
I was a Nasdaq/Tech Bubble leper. I started warning everybody about that a bubble was starting in 1998. I got out in 1999 - went all bonds. I warned my father-in-law to get out (he was up six figures and ended up deeply in debt) and I warned all my bubble-mad-check-the-portfolio-every-hour colleagues every chance I got. I was shunned. When they all got screwed, they were even more angry with me like it was all my fault.
Any advice on the stock market, bonds, etc. now? We’re 70% stocks (in mutual funds) with a nest egg that is probably large enough to retire on now and I want to retire in about five years. But it’s not so large that if we took another beating like we did in 2000 and 2001, we wouldn’t be hurting.
I share your intentions — I have enough to retire and live the (modest) life I have been accustomed to but I’d like to double that without laying awake nights.
I’m half and half short homebuilders and long gold stocks. I figure each of those plays will double in one year. If it takes two years then I guess I’m not as sharp as I think I am.
BTW I think you could enter those positions today — short HB’s and go long gold stocks — and see them both double in a year.
70% stocks might be a bit heavy if you’re only 5 years from retirement.
Bonds have been getting hammered for some time now, so there might be an entry point in the near future, once the Fed stops raising rates. I’ll be looking at some TIPs once the long rate starts falling again.
And I think that everyone ought to have some commodity exposure, although I’m waiting for a pullback before I put any more money into that sector.
As with all free advice, consider the cost, YMMV, etc.
the market is set up for a drop currently. It has a formation called the Jaws of Death a term Larry Williams came up with. It refers to rising stock prices with dropping bond prices. This forms a open mouth or a pac man looking thing on charts. If you look historically some of the biggest declines in history have come from this formation. A good buy spot should set up this fall after a drop. The lag on this type of thing can be 6 weeks to 6 months which is why we have not dropped yet
I’m long very large index put positions. Entered a bit too early but they were and are still cheap.
I’m net short stocks (beta = -0.2) using shorts and puts, long bonds (via mutual funds), long the Aussie Dollar (like 80% of assets), and long gold (GLD, 2% of portfolio). At least some of these bets are working out and the others aren’t causing any pain.
Buy some precious metals ETFs (GLD & SLV or CEF). Buy some foreign currency CDs to avoid the likely dollar meltdown. Australian dollars are a good bet. One place where you can make such an investment is at Everbank. It’s an FDIC insured US bank ***www.everbank.com***.
That might work, but last summer or early Fall, one or more posters here recommended Iceland’s and New Zealand’s CDs. I thought about it, but declined. A month or two ago, both of those currencies took a dive re the dollar, as best I recall.
Iceland got killed on a downgrade, New Zealand doing OK. But I can no longer recommend Everbank as they are skimming the interest rates and charging too much in Fees.
“That might work, but last summer or early Fall, one or more posters here recommended Iceland’s and New Zealand’s CDs.”
I remember that. Take any advice here with a grain of salt.
what about a well diversified mutual fund, such as, an index fund? although it won’t give you a relatively high return, it might be more resistant to a (big) downturn.
Make sure you know what the differences are between owning gold and silver, and owning gold and silver ETFs:
http://etfinvestor.com/
Advice? Buy gold (GLD) and silver (SLV). Silver is taking off. By the end of the year it will be on fire.
Bought a bunch of gold last Aug or Sept, based on the advice here, and it has increased handsomely. Bought it only for insurance, after cashing out, but it’s nice to see the asset appreciate so much as an accidental benefit, of sorts.
Buy gold mining stock Goldcorp, symbol GG. They have the least dollar cost to get the gold out of the earth. Kramer always mentions it as his favorite gold stock which doesn’t hurt one bit. It’s rising rapidly and will continue to do so IMO.
My advice is that after a 4 year rally, the bear market is ready to get back on track again, so sell those stocks soon. Even if you believe it was a bull market, and not a rally, it has gone on so long that we would be due for a serious pullback; so why not pull out and wait for a while to see what happens in the next 6 months or so?
I believe that gold is due for a serious pullback after a great run up. Sentiment is very bullish, as you can see on this blog, and that often means it is time for a pullback.
We have our money in 3 month Treasury bills; quite liquid if you space them out. When a for sure good deal comes up we are ready to go but we don’t think any for sure good deal is available at the moment.
If you are planning to retire in 5 years and you have about enough money, take it out now, you can wait until you are sure before you make your move. Why risk it if you aren’t sure?
If you are into shorting stocks, I think that is a good idea but I wouldn’t put all of my money into it. Just be sure to leave plenty of room for the stocks to go up before they go down so you don’t have to sell on a short squeeze. Short for the long haul! (don’t buy for the long haul.)
Sentiment is very bullish, as you can see on this blog, and that often means it is time for a pullback.
You’ve got to be kidding. This blog is the definition of contrarian thinking. The general population hasn’t a clue about gold.
My advice would be not to listen to 99% of the population when it comes to investing. While US markets may underperform, most international markets still look good, particularly under current conditions.
My top international stock markets are:
Brazil
Korea
South Africa
Korea
North or South?
Just kidding.
Anyways, I also believe GLD might pull back. But not for long. We already had the attempted dip a bit ago. One thing you have to remember is that there are lot more stupid people around than you could every imagine. I was confused by the Nasdaq bubble and still thought the housing bubble would end sooner.
Stupidity goes on and on and on and on…
I intend to hold my gold for awhile. I do expect the deflation to come at some point, but I think it will be pretty well advertised for those of us who at least try to understand what’s going on.
Take a look at a 5 year FIXED annuity. You will get returns higher than a CD and its tas deferred. They are also backed by the insurance co.
You can also pull back some on the stocks. IMHO 70% is too much with only a 5 year time frame. If you have an overweighting in tech or telecom, pull back for more defensive issues such as defense, utilities, and such. I woud also look at foreign markets like china, japan, and hong kong. Precious metals look like they will trade higher but are very volitale. Inflation adjusted Treasuries are a great play right now at over 6%.
You should work back from the point of how much you need to retire on based on the amount of annual income you need. Use about a 5-6% payout from your investments.
Remember, it is better to have return of your principal than return on your principal.
Its the “denial” phase .. it’ll pass .. but might be too late by then.
Atleas u tried.
Had a friend tell me last May they were about to buy a luxury condo because they were tired of the upkeep with their house. He also was going to grab this quickly and then sell his house which “people would line up for”. Cutting to the punchline here, he just accepted an offer this weekend, having carried two homes and a large home equity loan since last June. What’s more, they got $130,000 less than they were certain they would get - a 23% reduction.
When I told him in our first conversation NOT to buy before selling - that prices had gotten out of hand, he didn’t want to hear it and fired back with “no, you don’t understand, houses like ours are special and our RE agent told us she already knows a few buyers who would want it”.
Over this time, I’d email him an occasional bubble article and almost never got a reply. But when I had spoken to him about a week ago he was ready to jump off a roof. I’ve never once told him “I told you so”, but just to get it out of my system, let me say here “what a F’n idiot”. He has now been punished for his stupidity, greed and arrogance.
Chester:
> when I had spoken to him about a week ago he was ready to jump off a roof
Sorry, I don’t understand that phrase: Was he mad in general or at you in particular? Did he make you responsible for his misfortune?
Regards,
Peter
Not too bad from where I sit. I tend not to care what other people think about me.
Popeye once said”I yam, what I yam ,what I yam”
I think it was: “I yam what I yam, ‘n that’s all that’s I yam…”
My chinchilla doesn’t like yams, BTW.
Me either. In fact, if I and my views are held in contempt by this current band of idiots, I feel that I am on the right track!
You don’t like yams, either? What a coincidence!
(sorry, that was lame)
It was once said that Walt Disney would propose new ideas to the board of directors, and if he got even one vote in support of the idea from them he would scrap the proposal.
The question I have is why do so many care what others think of their investments? That’s not info I usually share with people who weren’t specifically soliciting my thoughts directly.
The Mom’s right about one thing: “It’s their money.”
With my family, I’ve just cited facts in a low key way and gone my own way…..It’s my money. After a while, they have started coming around. Some have checked my facts, others have read something in the paper and my little factoids have come to mind.
None are in harm’s way, but all know someone who is.
The mom in the example thinks being nice and keeping the peace is more important than being right or smart or thoughtful.
Think mom, et al should get a sugned copy of “The Three Little Pigs”, next Christmas.
http://www-math.uni-paderborn.de/~odenbach/pigs/pig2.html
There is one guy I work with who still makes comments to me about how it is such a pity that I will always be a “have not”, because I am a renter.
Have not in the sense you have not gotten your ass kicked like they will soon.
Have not as in have not gone upside down. Have not stopped eating more then rice and ramen. Have not moved back with parents. Have not gone bankrupt. Have not stopped being able to enjoy life. Better to be a have not then been had by the bubble.
I eat rice and ramen because I like them! LOL
no better time to be a renter… Mondays’ mexican anarchy…. terror threats looming…. iran… if the SHTF, i don’t want to worrry about selling my house to free up assets.
no better time to be a renter… Mondays’ mexican anarchy…. terror threats looming…. iran… if the SHTF, i don’t want to worrry about selling my house to free up assets.
Exactly right, PTF!
In the earlier topic on which areas get hurt least I offered that it would be the small cities most proximate to the cities which the large urnab equity bandits descend upon. I gave the example up here in Maine of Warerville. Anyway, this afternoon, I just read an article about how a very similar small Maine city, Lewiston, is “the up and coming place in Maine”. http://tinyurl.com/qet23
The NYC/Ct/NJ/Boston crowd has been flooding Portland for about 10 years with things really intensifying in the last five. As a result, prices here are high (for Maine) and many one time Portlanders are heading to the nearest “big” cities such as Waterville and Lewiston for affordability. They have the requisite hospitals and growing culture and both have highly competitive colleges - Colby and Bates, which add to the sophistication. So I say the real estate buck stops here. After this, the only place to go, at least in the northeast, would be the country and it’s just not for most people. Besides, country real estate up here is heavily influenced by vacation homes and I would think these will be the first to go as soon as things get tough.
“The NYC/Ct/NJ/Boston crowd has been flooding Portland for about 10 years with things really intensifying in the last five.”
Yeah. The last 5 years here in VT have been utter chaos with all the Fat Tonys and Hairy Maries descending us like vultures. I don’t know how well these repugnant slobs will fare. I’m not sure who is worse. The part time behemoth driving pigs with grossly overweight butterball brats or the high brow “carry my bags young man” geriatric cases. All of the stink.
They’re even in Nova Scotia where I have an inherited house. Offering obscene amounts of money for it apparently. Too bad, it ain’t for sale.
LOL. They’re flooding into the Shenandoah Valley region of Virginia, too. It started about 15 years ago but really accelerated over the past five or so. Of course they bring their obnoxious NYC/New Jersey/Mass ways with them, doing things like trying to cut in line in front of the Mennonites at restaturants or generally causing the locals to pray for some heaven-sent pox to strike them all down.
LOL. They’re flooding into the Shenandoah Valley region of Virginia, too. It started about 15 years ago but really accelerated over the past five or so. Of course they bring their obnoxious NYC/New Jersey/Mass ways with them, doing things like trying to cut in line in front of the Mennonites at restaturants or generally causing the locals to pray for some heaven-sent pox to strike them all down.
I wonder if I should tell my new former Long Island friend she shouldn’t be so happy in the country. She is out 20 minutes further from town than I am, surrounded by woods, and LOVES it! I do have to say she is so happy she draws people to her like a magnet.
I heard LI scummers are invading syracuse area.
Are there even any jobs left in Syracuse?
There are very few jobs outside of education and healthcare. That’s why I had to leave. My brother also left, along with about half of my friends from high school. Syracuse (and all of Upstate NY, really) is odd in that it has a very low cost of living but a very high cost of doing business. High taxes, insurance, regulations, and healthcare costs make it so that no one wants to start a business. I don’t know how the place is hanging on.
Almost every person in my family believes there is a bubble so that’s a non-issue. However, almost all of my friends and coworkers belong to the cult of real estate. One coworker of mine sold his place in the Bay Area last summer and moved out of state. I’ll never forget on his last day at work someone asked him why he was moving. He went into a speech about the bubble and how he was taking his money and bailing. Everyone was DEAD quiet and just stared at him like he was an alien. Man, I miss that guy.
(Man, I miss that guy.)
ha ha.
My husband & I have kind of an ongoing joke for two of our friends. We always know when it’s the top of ANY market when friend #1 buys & when the market has already started to head down when friend #2 buys. This goes back to the Nasdaq bubble when friend #1 bought a bunch of Amazon.com at the top & was constantly bragging to everyone about how much money he was going to make & how much he is worth etc. It wasn’t long before Amazon, along with a bunch of other dot.com stocks went in the toilet. This finally shut him up. He bought a house last July in Seattle & again hasn’t stopped talking about how much it has gone up & how much money he is making. For our own sanity we are hoping history repeats itself very soon. I know, not very friendly of us but this is his only bad quality in our opinions- otherwise he is a great person. Friend #2 we have a bit more compassion for- he just has bad timing. He just bought his house the other day.
Anyway, I was raised never to talk about money so I just don’t get these cocktail parties where people are so open about their finances.
Well, Bubblechick, looks like friend #1 timed it pretty well again.
I thought the top was August, but what do I know, maybe it was July.
Thanks for sharing- pretty funny!
I have two friends that bought in the past 2-3 years. Each wants to sell, but not loose the equity they got in the interim. They’re playing hard-nose with the market. Unfortuantely, I don’t think I can talk with them about the market… I get the impression that tehy feel I am part of the problem in their being able to sell.
On the other hand, last summer/fall I forwarded the address for this site to a couple co-workers; one getting ready to jump into the market and another debating his options as a recently newly purchased homeoner (18 mos prior).
I report a success story with each. After educating themselves at this site, the first decided to postpone a purchase. The second sold early at an aggressive price to sell faster… and is now decided to rent until after the market corrects itself.
Unfortunately my gf is not on my side. She thinks prices will remain high.
Dump her. My wife is the creative genius behind the “We Rent!” dance. Y’all can just sit there and be jealous.
There is more to a relationship than money. bmfarly, don’t dump her (for that reason), but be sure not to invest YOUR money into housing now.
“There is more to a relationship than money.”
____________
True when you are dating. False if you are married and have children together. Okay, there IS more to a relationship than money, but don’t underestimate the EXTREME importance of money in a marriage/family. Best to be on the same wavelength WRT finances (and almost everything else, IMO). It SUCKS when you are married and can’t agree on how to make, save or spend money. It sucks even more if you don’t have enough money to live better than paycheck to paycheck. FWIW, discuss before you get married how you plan to handle finances (and don’t forget stay-at-home parenting, save vs. spend decisions, risky or conservative allocations, who decides/ultimately controls $$, what to do in the event of a divorce, etc.). And I wouldn’t recommend buying a house with a girlfriend/boyfriend. It’s a major committment, and you might be stuck together for decades on this investment.
i hear about guys buying houses with their girlfriends and scratch my head. Why not just get married?
As long as your money is your money and her money is her money, let her think anything she wants. Keep the money separate and you will be just fine.
Until you get married. Then you’re screwed!
A good pre-nup takes care of everything.
A pre-nup is only current assets as of the marriage.
What about future assets, and/or worse future liabilities that a wife will acquire. I.E. Credit Card and Mortgage debt.
I’ve been warning people of the bubble for 3 years. I sold my place 2 years ago. I tried to convince one friend last year not to buy their luxury condo since they will soon be upside down and they could rent it for less then half their mtg payment would be. Haven’t heard from him since.
At least I managed to convince my parents not to buy a winter home in AZ until at least 2008.
Has anyone noticed the big housing bulls were also the big tech bulls in 1998-99. None of the tech bulls I knew got out in time.
>>Has anyone noticed the big housing bulls were also the big tech bulls in 1998-99. None of the tech bulls I knew got out in time.
The Nasdaq drop got me, but the RE drop didn’t. I sold my house in December. Some people can learn from experience.
So true. I have several friends that got killed in the NASDAQ into 2002 and took what they had left plus more money and bought spec houses. Bag holders all the way. Hey gimme that bag.
“The Nasdaq drop got me, but the RE drop didn’t.”
What you got yerself there is called Wisdom. The other folks getting burned for the second time never learned to use that little glove thingy for holding hot stuff.
I have noticed that my stance on RE and continued status of renter almost creates some tension with many of my friends here in So Cal. It seems to be more prevalent now that we have passed the peak. It almost seems they are arguing with themselves now. Many of the people I know here bought in 90’s and didn’t refi up to their eyeballs so they are pretty safe in the event of a downturn. This is strictly an ego thing for them. IMO the next 18 to 24 mos will tell the tale. I will say one thing, we definintely have more hard data to back up our case now. San Diego is sitting on top of record inventory and increasing, OC sales are down 20%+, LA foreclosures are up 63% YOY first quarter (a trend that will only get worse). Centex just took a hit on land valuations in Pheonix, San Diego, and Las Vegas (that was huge). I am really surprised that these things have not sunk in with the RE never goes down crowd. I guess we see what we want to see. I think the reality of this thing will sink in sometime this year. If these bubble markets are sitting on 10 month+ inventories by the end of the year (many are past that right now), and the increase in foreclosures sustains itself (it will more than likely get worse), that will penetrate the psyche. Keep in mind sales are on a down trend and we are now going against record sales through the summer. This is a very pivotal point in this debate.
oh it has sunk in! They are not ready to admit it!
One day they will tell you how they trotted down to the bank and handed over the keys after not making payments for 7 or so months.
And you’ll say it good you got out early before it really gets bad!
Quick, hand me that 2 x 4…there we go…it’s holdin’ it up…
Like others here, I was also trying to tell people to get out of stocks in 1998/1999, that it was a bubble. Same thing there…the “experts” said there wasn’t a bubble, and that was that. I was a bitter idiot because I hadn’t joined in the bubble frenzy (sometimes I do regret my conservative caution).
Even the fact that we sold and now rent seems to make people angry, as if we could cause the bubble to burst all by ourselves. People are constantly calling us with home listings, as if we just couldn’t find the right house. I’ve explained that we’re waiting for the right house **at the right price**. Finding a nice home is easy, it’s the price which needs fixing. Like others, I’ve learned to smile, nod and shut my mouth. The facts will say, “I told you so!” when this all shakes out. I think we bubbleheads won’t have to say a thing.
Someone else posted the inherent nature of being contrarian.
Ridiculed as asset prices skyrocket and everyone thinks that they are getting rich.
On th the flip side hated as everyone is poor and the contrarian is able to pick up smoking deals.
Whenever I mention the term “bubble” the smug latte-drinking birkenstock-wearing natives laugh at me in a patronizing way and tell me how I’ve missed the boat while bragging how they are going to retire early, travel the world, yaddy-yaddy-yadda.
It is hard not to wish for a hard fall sometimes……
The arrogance is very thick up here and my hands are always wet from holding my tongue.
“The arrogance is very thick up here”
Imagine how stupid they’re gonna feel.
Yeah, there sure are a lot of Suzannes (they did the research!) up here in Seattle, including the editoral staff at the Seattle Times. And its not like the dot.bomb was particularly kind to Seattle in 2001-2003. You might just as well wish for a hard fall - I’m sure that old sign “Will the last person leaving Seattle please turn off the lights?” will reappear.
Last year at the beginning of the year I woke up and said to myself
“You got to sell now ,you don’t have time .” I sold the house mid 2005 at what I now know was the peak . At about March of 2006 , i just put “housing crash” in the search mode of the computer on a whim , which led me to Ben’s Blog. I think it was luck . Now I can’t keep my big mouth shut . The people are not exposed to enough bubble data . It was only luck that something inside me told me the days were numbered for a easy get out . So I feel like a lucky person ,but I did hold the property I sold last year for 23 years .
Can you say survival instinct!
It’s funny, I pointed someone to this blog once, and they dismissed it out of hand “because with a name like that, of course it’s biased.”
Tried to explain the data used to support the posts is factual and from sources such as the Census Bureau, MLS systems, etc.
It all fell on deaf ears. It was an intelligent person, too.
it maybe too late for a new topic, but did anyone get burned in the tech wreck and it helped them spot this bubble?
Yes, that would be me.
I had several thousand stock options at my tech job that, had I cashed out at the conclusion of the graduated vesting periods, could have funded years of leisure. To make a long story short, I thought I was rich, did nothing, and after the crash I ended up exercising my options for a sum equal to six weeks’ salary. What I’ll never forget was the feeling that I couldn’t lose–that’s a very dangerous feeling, as I learned.
I recognized a lot of the same attitudes with real estate, and have stayed on the sidelines despite the fact that I am widely viewed here in Florida as an utter heretic. Two years ago, one of my co-workers asked me why I wasn’t buying. I told him I thought this was going to collapse like nothing any of us had ever seen in our lives.
hell yeah. I bought the nasdaq “ultra bull” fund (2x leverage) one week before the tech crash in March ‘00. fortunately, I was legging into it to dollar cost average (another buzz word back then) so I didn’t lose it all.
I had been a stock market bear since ‘95 (when it was fairly priced) and finally capitulated.
with housing, I’ve would have bought in ‘94 or ‘95 but didn’t have the money. By the time I could afford a place ’round ‘97 I was neutral and I’ve been getting more bearish ever since.
This time I WILL NOT CAPITULATE. I will not be the proverbial fat kid at the party who sulks in the corner nursing a beer and then at 2 A.M. strips off all his clothes and jumps in the swimming pool just as the keg fizzles out and the cops show up. My wife has standing orders to tie me to a post to prevent me from buying now.
I’ve shorted a sub-prime lender and bought put options on Fannie Mae. I’m thinking about shorting PMI as well.
the tech bubble was the bubble that he internet created. Housing will be the bubble that the internet bursts.
Yes, was invested in the tech bubble. Made pretty good money. Not a fortune though. Going through that helped spot the housing bubble.
Here’s what’s happening in the St. Louis area- a major builder with a $60k off sale:
http://www.mcbridehomes.com/inventorysale.pdf
I haven’t researched that area, but it would seem to me that St. Louis would be considered one of those “non-bubbly” towns. If that’s true, the fact that builders are super discounting out there, too, should convince those who say otherwise that this is a national bubble - not pockets of suds in select locales like they try to convince the masses of.
ben- can we maybe have a post for john kenneth galbraith? he wrote some good books about money and bubbles.
ditto … I’ve heard some things about him and some of quotes regarding bubbles. Sounded like great words of wisdom.
Flak? Absolutely right.
For example,two of the last 3 weekends I have had family members all say that I’m insane for not getting into a house. One asked if we were still looking for a place and when we were going to buy. Several audibly gasped as my spouse announced that we were looking at a 3-5 year time frame before considering buying at all. Explaining that the market is in trouble here in San Diego is like trying to teach a cow to tap dance. Lots of blank stares, no matter how simply you state anything.
I’ve been sitting this out for two years now after realizing that the RE market wasn’t all it seemed to be here. As far as the reactions from friends and family, nothing has really changed in that time. Even with the media coverage of the market’s cooling, the comments are still the same knee-jerk baseless reaction. “You’re throwing your money away on rent!” Though we are saving and living well below our means, I strongly suspect that family members feel our choice is a bad influence on those who haven’t already bought.
One relative has HELOC’d into serious financial trouble in an area that can only crash, and yet somehow my choice not to buy a home seems to be more controversial. Go figure.
I have friends in San Diego and see the same reaction. It’s baffling given San Diego has a record inventory and growing and really slow sales. I love this quote for Robert Prechter
“No matter how much talk of a bubble there may be, homeowners continue to demonstrate that they have no clue about the ramifications of one. Included in the survey were respondents with adjustable-rate mortgages, a quarter of whom said they “aren’t sure they’ll be able to make their monthly payments if interest rates go up.” Even among the financially strapped, the very concept of falling real estate prices is not a consideration. And, as the latest housing figures attest, this is in an environment in which prices actually are falling! The denial runs so deep, it’s not even denial anymore. It’s some kind of epic disconnect between the reality of a newly-falling housing market and an unwritten social contract that says home prices do not fall. Whatever this delusion is called, it cannot last much longer.”
Great quote, LARenter. It captures the situation and the rationalization so well. A comment I heard recently from someone who owns in a very expensive subdivision here sums it up for me. “Yeah there’s 7 houses for sale in our neighborhood and some people can’t afford their homes anymore, but even so, prices can’t possibly go down.”
A friend of mine in SD called me the other day, saying “hey, I think it’s time to buy”. He’ll be late for his own funeral, so this is a huge harbinger of things to come with me.
This, after watching his (well off) friend barely pay the mortgage on her 600k house down there?
He’ll probably live to see another day though — he also thought it was a good time to buy tech in 2001 and didn’t bother… whew!
Yea,
Here in Ashland, Oregon it cuts both ways. For many years, Ashland has been a great American and Oregonian town. Good schools, trails, woods, community, etc. Now, as we host a widening stream of CA Bay Area refugees/retirees/telecommuters, prices have shot into the stratosphere and the town is turning upside down. Now we have Bay Area prices ( most decent homes running $500-$800k) and Oregon wages. Medford (county seat 12 miles away and ~$100-150k less for a typical 3/2 1500 sf. home) was recently listed as ~70% overvalued. Most working folks with families of just regular folks from Oregon cannot afford to live in Ashland (2 of 5 schools have recently closed due to falling enrollment). It has een called a “town where liberals come to die” (and usually in very large houses).
Many folks like myself feel priced out or sidelined by such insanity, while the recent CA immigrants are considering whether to buy their second or third home in Ashland or Bend. So, the have nots view the bubble popping as a way to move back into town, repopulate the schools with kids, and get on with life,etc. Bring it on baby!!! However, my friends from the Bay Area, accustomed to grotesque inflation and banditry there, would rather the whole town turn to condos and golf courses, so long as they can keep getting their double digit home appreciation. Oh no!!!
So, it depends upon who you talk to. I say let the bubblers may their money, somewhere, but just let the rest of us keep our town.
If equity-rich immigrants, many of whom also have sizeable retirement incomes, relocate to Ashland for its quality of life, real estate prices there are no longer tied to the local Ashland economy, and the locals get bid out of the market. The same thing is happening on Oregon’s southern coast. Unfortunately, a lot of other nice places are going to get hit this way, because a lot of relatively wealthy California retirees want to relocate upon retirement.
I am sure that during the tulip mania, if you told someone that tulips were in a crazy mania, you would be a tulip bulb social leper. I am sure that a lot of those tulip speculators had the same smugness when they were making their fortune in tulips during the boom years of the mania.
In my cirle (LV) there is a substantial commitment. One couple who that porperty prices were outragious vs rental income sold out. But then what did they do ? Lent money to a land sepculators at the top. So despite being smart on one hand they became trapped by their greed!
Now another couple knew it was the wrong think to get over leveraged in the past two years but “it was their SHOT at riches, and they were taking it” Now with $80k in credit card debt overleveraged properties (3) and a negative cash flow that would choke a horse…they still think in 3 yrs prices will bail them out!
As for being a leper, aka conservative voice in the wilderness that hadn’t yet lost its head..it was very lonely for a while BUT with several big name investor Condo deals blowing town, USA Capital hard money lender possibly caught in a “ponze scheme?”, respect has returned BUT HOPE springs eternal! All participants beleive, “THEY will get out in time unscathed” !
IF 80% americans are homeowners? who is left to buy?
25% annual increases are normal, except for the last 50-100 yrs?
Yeah my family all lives in Vegas and they all think I’m full of hot air. A lot of the problem is the media. “Oh, the news says the housing market is healthy”, or “where do you get your facts”. One relative bluntly told me “you need to tone down that bubble talk; a lot of us have mortgages”.
In regards to “it’s their money”, the problem with me is that they are always hitting me up for money. If they want to ignore my advice that’s fine, but whey they eventually turn to me after the fact they’ll get a “I told you so”.
That’s the “good” scenario. The bad one is that Bernanke tries to bail them out, even partially succeeds too. What happens to your USD savings then?
Seriously, it’s all good to step off the tracks with the oncoming train, but what if it’s about to derail and spew toxic fumes all around? Got your gas mask?
Anyone who I mention this blog and its links to refrain from patting me on the head. Still I can’t help but think they believe me to be a little looney.
If we do sell this home and go to a rental I suspect the rumors should start in around the Stepford Town how we must have sold because we had “money troubles”. Maybe I should rent here and not in the target town just to watch the “show” when they realize the trouble some of them are in. Already know of a few that are leveraged to the hilt for their dream home.
got fired from investor’s trust mortgage last year,boss asked if i thought there was a bubble? i said god yes,was told if i had a negative attitude i was in the wrong business.i told the boss i wasn’t negative i was simply not blind,stupid or dishonest.byeee
Niiiiiice!
Good riddance to that job, eh?
and your name probably won’t be on the defendent side of the class action lawsuits Investor’s Trust will be seeing in coming days…
Like a stopped clock which is right 2x a day, i feel my house bearishness, in place since about 1998, is soon to be justified…
You are the definition of perma-RE bear.
1998 was as close to fairly valued in CA.
The SJ area was drunk on stock options in ‘98, and housing to buy or rent was already beyond the fundamentals; I know because I’m supporting a family of four, and we moved away that year.
The buy v rent delta wasn’t out of line, however. I WISH I bought back in 95-96 in Berkeley when I got into grad school, I would have saved a ton of money.
1998 was the last time housing wasn’t ridiculously overpriced here in MI too, imho. It’s also where real wages are stuck currently, no?
that reminds me I keep meaning to look at comps from 1998 for estimating a current range in case hubby gets so itchy he feels the need to make an offer on something…
Portland, Mainer:
Go into gold.
GLD (streetTRACKS Gold Trust http://finance.yahoo.com/q?s=GLD&d=t) is one stock ticker that tracks gold per ounce price. It’s up almost 60% since this year. What else in the world right now goes up 60% in a freaking year?!?!
GSS (Gold Star Resources http://finance.yahoo.com/q?s=GSS&d=t) is a Ghana [West Africa] gold mining company that has performed very well as of Friday; +9.27% in a day. It might continue, but who knows (my money is in GLD), but they look promising.
For the “follow the crowd” crowd, there is SU (SunCor energy, the tar sands in Canada with the greatest proven reserves in the world [just hard to extract]): Up over 150% YoY.
Those scraps of paper named dollars you own don’t have any intrinsic value. Money has the same value of pages of the newspaper when it’s devalued enough. I know you you’re familiar with Germany back in the early 20th century, and how people burned the money to keep warm, because it became worthless!
The world isn’t valuing $$$ as much anymore. And being down (lost 33% in a year compared to the Euro), that messes with the ‘profits’ you have from any area that involves dollars.
What has intrinsic value? Commodities do. Gold does, Oil does, Silver does. Hell, even houses and land do (when they’re not overinflated in value as today)
What’s happening to the dollar fall will continue unabated until the hard assets values in this country (housing, land) match those in up and coming countries that hold all our debt. Some say the ‘day of reckoning’ for the dollar is as close as September 2006.
Hosuing bubbles happen. Fiat money loses it’s value over time. Find something that is outside of both of these.
Right now that something is mineral/oil commodities.
The crashing of the housing bubble will crush the commodity and stock bubble due to the destruction of wealth. There will be another time too buy gold. It is not now.
Bingo. Kudos for voicing an opinion that some here don’t want to hear. Commodities are being chased by paper wealth. When the weatlh dries up so will the ability to bid up the price AND the so will the demand that makes the commodities worth anything in the first place.
But gold isn’t really considered a commodity, instead it is seen as replacing paper currency as a store of wealth. if people think gold is the only real alternative to (any) currency, then when the paper wealth “dries up” as you put it gold will go up in value. the wealth doesn’t “dry up” — at least, some of it won’t — just the value of the paper does.
Not a commodity = demand is completely speculative = demand can be very volatile. Gold prices depend on the percentage of people who are worried about hyperinflation and currency collapse. Gold might be a good investment if you think that a stagflation and recession in ‘07 will greatly increase the percentage of people who are worried about this. Keep in mind that barring a total dollar collapse (double digit inflation per MONTH) it is a purely speculative bet.
“And being down (lost 33% in a year compared to the Euro), that messes with the ‘profits’ you have from any area that involves dollars.”
But what if you are not planning to buy anything denominated in Euros? What if you are planning to buy a house? In that case holding dollars makes sense because the price of houses in dollars will be dropping.
I’m with Patriotic Bear and Robert Cote. Forget stocks, commodities and precious metals for the moment.
I agree absolutely with the destruction of wealth. Your opinion is quite rational.
Unfortunately the market is not. Buying GLD now is akin to buying a house in 2001. It is too expensive. I believe it will continue to rise for awhile.
I think you’re just bitter you didn’t buy a year ago.
Crap. Did I just say that?
Unless of course the federal banks just print more money, just like they have been at breakneck paces for years.
So many people got their azzes kicked in both gold and oil in the past 20 years, like you wouldn’t believe.
I like it when a commoditty or any market item goes up in price, how suddenly there are a lot of postdicting “experts”, and telling you buy - tech stocks, housing, oil, gold, and so on. Just last weekend I heard a radio investment advisor, telling how oil is so damn precious, and that there is huge infrastructure to get it to the pump, and that $75/b is a fair, if not a bit low, price. The only thing that of course he forgot it why it was $20/b a few years ago, and why he didn’t predict $75 way back then, if oil is so damn precious.
All investment advices based on obvious observations are worthless and make a losing strategy.
I am definately a housing leper. I live in BC, close to Vancouver. Houses are still selling in manic mode here and when I mention bubble I get lots of disbelief. I think owners are so hypnotized by the wealth effect that my bubble talk bounces of their sphere. My point to these “wealthy” land owners is that when the music stops it is too late. Do they listen - HELL NO! I am buying gold bullion, have been for a few months, got PM stocks, paying down debt attempting to secure my family from the aftermath. I am sick of crying wolf, I am just doin my thang!
We sold our home in Summer 2004, which might have been a bit early, but in our section of the East Bay (California), higher-end homes were taking 2-3 months to sell. Our home did sell quickly for the listed price. Today, 18 months later, three homes comparable to ours have sold for $100K under their listed price. And the original listed price was no higher than our listed price. Plus, the homes took over 6 months to sell.
In the meantime, we moved to a very nice rental home to wait out the bubble. However, I have been told many times by friends: “I guess you could have sold your home for a lot more if you waited!” When I correct them using the hard facts, they express disbelief. And of course they are very smug about what they perceive as their continued appreciation gains.
One problem that confuses everyone is the compression of home prices. In the same area of the East Bay (Tri-Valley area), 2 bedroom condos that went for $200K new in 1997 sold for $400K in 2003, $500K in 2004 and $600K in the first quarter of 2006. Yet many homes on the high-end, over $1 million, are sitting.
So depending on what price point, size and neighborhood one is looking at, even in the same zip code, there are considerable variations.
Zillow is going to be a good way to track changes, especially for the same address. As new “comps” come in over the next few months, Zillow estimates should show downward trends. I tell people to monitor their home on Zillow for one full year, then come back and talk to me about the bubble.
I’ve seen first-hand the personal effects that the RE meltdown is having. At my work the marketing VP is (or at least was) a true believer that prices never go down. He flat-out told me I was crazy if I ever thought prices would drop, and tried to make me look like a fool in front of investors. I calmly argued my case and for the most part bit my lip. So he bought himself an expensive car, a vacation home for ski trips in Vermont, and other trappings of a very lavish lifestyle. After all, his house made him rich, and it was going to make him ever richer.
That was 1 year ago. Now things have changed. He bought a huge house in a trendy Boston suburb a few years ago on a time-bomb mortgage. Now (I strongly suspect) he’s behind in his payments and he’s been trying to unload it on some other sucker for nearly 6 months. He’s a mess and is really falling apart, making some completely idiotic decisions on the job. I guess having $ 1M of debt crushing down on you takes its toll. If you even bring up housing prices around him he looks really depressed. So I still bite my lip. A bear doesn’t get the feel good, new paradigm, “this time it’s different” group-think euphoria that bulls get. A bear’s only consolation is that he is RIGHT.
Well said…
If you value your job allow me to suggest you start covering your a$$, and checking out very carefully whether there’s any way in which this dodo can drag you down with him if he crashes and burns.
Anyone arrogant enough to belittle you in front of clients when he thinks he’s a winner and you’re a loser, is usually very, VERY vindictive when the truth sinks in.
The belitting in front of clients pissed me off a lot, I must say. I’ve already been told I can get my last job back if I need it. I just may.
Not to be too Machiavellian, also check to see if there is some way to get in good with those who surround him, the clients, the higher ups, etc. Let them see your competence and intelligence so you can move up when they fire him…
My husbands ex-boss bought a 1.2M dollar I.O. house in the bayarea in 03. Couldn’t afford it- whats new? She called my husband about 6 months back to brag about how much equity she had in it now. She mentioned also her and her husband want to buy a condo in China! Mind you, this person bought into Enron and lost it all because she thought it was going to “come back”. my husband told her that interest rates were going to go up eventually, and she said- “what? they are at a historic low, they arent going anywhere”. We sold our bayarea house in Sept 04″ everyone at my husbands work thought we were out of our minds to sell and move here to Reno. I just wish I could see the look on all their faces when reality sets in.
Wow. For them to claim that “interest rates are not going anywhere” is very idiotic. How can they guess something like that? Are these former 60’s flower childs?
Yes! with rich parents to support their mistakes. Its not the first one or the last I am sure.
They sound a lot more like 80’s young republicans.
It’s not a slam dunk that interest rates are going up.
The receptionist at my office was commenting about a 1950’s 3-bedroom, 1400 sq. ft. house in NOVA priced at $500,000.00 as being “reasonable” and thinking that she and her “baby-daddy” (unmarried, uncommitted, no-child-support-paying freeloader) might try to buy it. HOW? I asked. There’s no way they could qualify under any rational lending standards. She felt absolutely positive that she could get a loan. I suggested that she actually sit down and work through the numbers on paper first. To the best of my knowledge, she has not done so. She has not bought a house either, but she’s now talking about “equity-sharing” agreements.
So apparently that’s the new solution contemplated by the younger generations. “Sharing” equity with someone. Presumably someone who has good credit, liquid capital burning a hole in their pocket and who has no sense of whether the market is hitting a plateau or a top, who will get involved with people barely into their twenties with no marriage and a yound child and hope that the house will appreciate in the future. What a plan.
It all makes you wonder about the quality of education which is being provided by daddy State. I don’t remember economics being on the curriculum of any high school nor do I recall anyone being forced to read Adam Smith or Galbraith or Hayek. Heck, kids barely even read the Constitution and can’t usually tell you anything substantive about their “rights” other than that you can’t mess with them “or else!” Fine. Why bother? The market will teach them the error of their ways with an iron fist.
I think money might be made in setting up soup kitchens and work crews. That, and security firms, to help the prudent investors and truly wealthy hang on to their gains against mobs of gravely disenchanted youth who have an overwhelming sense of entitlement.
Students in San Diego (whole state?) take gov and econ as semester courses. I ain’t saying they learn much - but just be sure to keep the blame where it belongs… the families. You want quality education? Allow me to do what today’s parents DON’T do - discipline.
Amen! (former teacher here as well)
Some of us still believe in discipline.
i know this is OT, but as a developmental psychologist, I always wonder what people mean when they use the term ‘discipline’…is it code for physical punishment ( I hope not) or just meant to mean setting limits and indicating that the world doesn’t exist to serve junior?
I think one of the ways in which our society currently creates materialistic and bratty children has lots to do with not meeting the *real* needs of young ones–a need for feeling safe and cared for and attended to and cuddled/held lots while very young–and instead providing poor substitutes–stuff/toys/big well decorated rooms/entertainment from screens big and small.
That it’s not so much a lack of “discipline” so much as a lack of community and interpersonal connection that leaves kids to become mostly consumers and competitors in a ruthless race to get the most stuff in this world. Does anyone recall before 9/11 how some had bumper stickers saying “whoever dies with the most stuff wins”? And I don’t think it was meant to be an ironic comment, but a guiding philosophy!
quality time is another word for not enough time
“That, and security firms, to help the prudent investors and truly wealthy hang on to their gains against mobs of gravely disenchanted youth who have an overwhelming sense of entitlement.”
Riots are coming, no doubt. Invest in guns and ammo. 7.62×39mm 1,000 round cases used to be $75 a case at the gun show. Now it’s $150/case where I live, $200/case on-line auctions and other bubble areas. People claimed shortage and everyone went out (who should have stocked it to being with) and purchased everything in sight. All it will take is two or three cargo containers full of this stuff to hit the West or East coast and these idiots buying at $200/case are gonna fill stupid when it’s back down to $100/case.
This afternoon I viewed a condo conversation that was having it’s ‘grand’ opening in Central Denver. This 35 year old 8 story apartment building has been given the normal sprucing up and granite counter treatment. The price? Around $285/sq ft, with a parking space $25k extra. This is a high price for an old building conversation here. And this in the midst of a glut of resale condos in the Denver market. Condos in particular are NOT selling here. Most people who do manage to find a condo buyer are selling for less than they paid 3 or 4 years ago.
At this open house I overheard a young girl who was showing a friend the unit she reserved yesterday. It was all I could do to keep my mouth shut. (but I did since it’s none of my biz)
My question is: why are people SO WILLING to over pay? I was raised to expect value for my dollar, an approach that seems almost quaint these days. I blame much of the bubble/overpriced real estate situation on people’s willingness to pay almost any price asked! Why are so many Americans so careless with their finances?
People are willing to overpay because they are terrified of missing out. There is still the general feeling that we are in housing boom times and that property values will continue to skyrocket. Once people realize we have turned the corner they will be much less willing to overpay.
If the majority were right the majority would be RICH but we all know differently. Quietly make up your own minds based on factual material and relax quietly…..
Your correct. Many times, when I am discussing real estate with someone, I will ask them if they follow the Ben Jones Blog or realestatedecline.com , etc and they always have never heard of these web information portals. 99% of consumers just go by what is in th newspapers. I guess many people are just too busy for the web due to kids, work, etc. Too bad for them! Let them overpay.
“Why are so many Americans so careless with their finances? ”
There is no such thing as a hard life anymore. We get heat and air at the flick of a switch. We get all kinds of awsome healthcare and many folks who would be dead are alive because of it. We don’t have to hunt for food and build fires to stay warm. Oh, and we have to have housing so that _every_ person in the family has their own bedroom, even the 2 and 4 year olds.
This is _all_ because of government intervention of some kind. Government is _always_ there to back you up, to let you live a good life. They were responsible for folks getting rid of debt and ’starting over.’ We have created a nation of sheeple….they will die with the rest of the heard. I honestly wonder how many folks would not kill themselves if we had to live like in India.
The burnoff is not just going to be ugly, in my opinion, it will be deadly. It will spread worldwide. It wouldn’t surprise me if the powers that be want it that way. The folks who prepare and survive are the kind of folks you want working in your country (the average Joe with a brain). The idiots and layabout welfare types are the ones you want gone.
don’t forget the survivors will include the rich idiots, rich mean, rich untalented, etc. and they will running the lives and futures of most of the talented, intelligent, etc, but poor and not so poor (if there’s anybody left in that area). how would you want yourself to be in the latter category?
I disagree about the reason of being careless with finances. In Europe, the welfare state is even more generous, but people on average save more than Americans. Why?
The night superintendent came into my area of work last week. He just recently got his RE license. He was talking about houses with one of my co-workers. I started talking about the bubble and the information I have learned here and he whipped around and said No bubble here. DC yeah, but not here.
I was going to start in on why there is a bubble here, not only housing but credit bubble when I realized something just as important as the bubble. My co-worker was in the market for a house and the boss was down there working with him on it. I decided silence was the better part of valor that day and dropped it.
Nope, no bubble here. People who are smarter than me say that, so that is what the truth is. Hah.
I’ve found myself in similar situations. Two guys I work with both bought houses 45 mins from work (25 miles) on a good day. Nice houses but typical suburban B.S. I feel a little sorry for both of them because they are both looking for new jobs out of state and will be forced to sell if they find a new job.
Another co-worker drained her 401k last month to buy an investment property. At this time she has been unable to acquire insurance for it because of the hurricanes and at the same time, the insurance was cancelled on her primary residence. I can see her stress building but she’s very nice and I hope it works out for her (almost certainly won’t short term).
A smart friend of mine sold out in 2005 and moved to Nashville. He made $90k on a 20 year old house in 2 years and bought a house in N’ville twice as large for $50k less than for what he sold the FL house. Of course he was ridiculed by our other friend who believes real-estate only goes up.
I just keep my mouth shut most of the time. I talked pretty heavy about the bubble the past couple years and now that everthing I said is coming true I don’t want them to blame ME and like-minded folks for the catastrophe.
bill bonner said it best when he said something like “people have a habit of believing what they would never believe when they have to believe it.”
housing only goes up fits that category. lots of people have so much money in the game they have to believe it’ll never go up.
…never go down.
But we definitely get the point.
I was a housing leper in California. Finally left. VIndication coming, to all those that chided, why don’t you buy. A posting just above gave number about values falling in TriValley area of SF Bay.
I keep hearkin about: ‘there is only so much land, and more people and……’ so forth.
I just was in and out of the market in 1985, 1990, 1998 and 2000. There is nothoing different.
In fact the last time I took the chance to explain I asked what happened to family dairy farming?
Land is better used when you build up.
What makes anyone think the American dream in 10 years will be the SFH in exurbia??????
I think about the ‘we’re running out of land’ argument as I drive through the vast waste (meaning empty) land all the way from Los Angeles to SF, LA to Flagstaff, Flagstaff to Albuquerque, etc. We are sure running out of land.
This “leper” spends his money putting small classified ads in local newspaper real estate sections that read:
HOUSING BUBBLE INFORMATION
http://www.thehousingbubbleblog.com
For about 25.00 a pop I can do heaps of psychological damage to the local market. I encourage everyone to do this also.