An Unsustainable Dreamland
It’s Friday desk clearing time for this blogger. “The median price for a home in the area that includes Monmouth and Ocean counties rose 1.5 percent in the first quarter. What’s behind the increase in the market? The $8,000 tax credit for first-time homebuyers, which expired on April 30, and low mortgage interest rates helped fuel sales. ‘We had transactions that were literally put together in a day or two to meet that deadline of April 30 to be under contract,’ said Louis Redbord, branch manager at Coldwell Banker Residential Brokerage in Holmdel. Simi Bhatnagar and her husband, Piyush, were renting in Woodbridge before they bought a house in Marlboro in January. They purchased the four-bedroom farmhouse for $589,000, negotiating the price down from about $630,000. ‘It was a buyer’s market,’ Bhatnagar said. ‘We thought prices are quite competitive. They are good and this might be the right time to buy a house.’”
“Median home prices in southern New Jersey in the first quarter of 2010 were down 2.6 percent from the same period the year before. Judith Saylor, with Prudential Fox & Roach Realtors in Northfield, said home prices might fall a bit more in the area, depending on the location. ‘I think we went so high so fast that there’s probably room for some more lowering of prices,’ Saylor said.”
‘One of her listings with a reduced-price sign on it — a 3,300-square-foot historic home on an acre in Linwood — was listed at $849,000 in June and has now been reduced to $719,000, she said. ‘Sellers are still under the illusion that properties are worth so much money, and we’re under the illusion that we can get more than we really can,’ she said.”
“Jim and Joyce Reyes found a three-bedroom house that met their needs and entered into a contract with the seller at a mutually agreed price. But when the appraisal came in for less, the sellers wouldn’t drop the price because they owed more on the house than it was worth. The Reyeses, who began house-hunting in September to take advantage of the first-time homebuyer tax credit, kept looking. They found another house, signed a contract but, after paying for an appraisal and a home inspection, that deal fell through as well. ‘I kind of hate to miss out on the tax credit,’ says Jim Reyes, of Farmington. ‘But I didn’t want to just roll over and buy a house based on that.’”
“‘Right now, I’m very frustrated,’ Reyes says. He still wants to buy a house, even without the tax credit. ‘To me, real estate is a very good investment. I’m spending money on rent that I could be paying the mortgage with. I’d love to be a homeowner.’”
“Clark County’s high-end home buyers are testing the market once again after a two-year hiatus sustained by the recession. Sellers are now willing to accept a loss, as was the case for Kenn and Marie Bartley. The Bartleys have a sale pending on their sprawling mini mansion, which offers majestic views, was listed for about $700,000, down significantly from $795,000, which the Bartleys paid for the property in 2006.”
“Mike Lamb, a longtime broker in Vancouver, says he’s already seeing evidence that market-savvy buyers believe that time has come. He said investors are interested in real estate to hedge their bets against the predicted period of inflation that could follow recession. ‘At this point, there’s a growing sense that real estate is a good investment,’ Lamb said. ‘At least once a week, someone will come up to me and say, ‘I think real estate is where I need to put my money.’”
“The hope of a bustling urban lifestyle in north Arlington also fell short with the collapse of Tom Hicks’ planned Glorypark just a couple of blocks away. Some Chelsea Park residents said they’re disappointed with the lack of development but still don’t regret their purchases. Kennetha Caldwell said she and her husband bought a townhouse right away because they worried the development would sell out. ‘We didn’t want to be one of the people who, down the road, wished that we would have done this,’ said Caldwell, who lives in Edmond, Okla.”
“She said she and her husband planned to sell in about five years. Now, she looks at it as a place for her husband to stay and a fun getaway for the future.”
“Another owner, Mark Glasmire, said he would like more development around the entertainment district, but he sees other benefits. It’s convenient to the airport and his girlfriend’s home, and the Philadelphia Eagles fan enjoys his early-morning jogs around Cowboys Stadium. The one negative, Glasmire said, is that he also expected this to be a good investment, but it might take a while.”
“‘Right now, it’s not looking like I made the right choice,’ he said about the short-term investment. ‘But I would still make the same decision.’”
“After 30-years of working in Florida real estate not much surprises Barbara Watt, yet she has noticed a new trend of late. ‘We were fortunate that one Canadian gentlemen came in recently and got such a good price he brought two more clients in, in the next two weeks,’ she said. ‘Bam, bam, bam, one after the other, it was lovely.’”
“Watt says houses that were selling for more than $1.5 million a couple of years ago can now be bought for $800,000 to $900,000. Watt said the window of opportunity for bargain-basement prices may be closing in Florida. ‘It’s so exciting to see the market coming back,’ she said ‘We’re not there yet in dollar terms but we are in units. It’s turning.’”
“Only about 40 of the 253 condominiums at Regent Park in downtown Hollywood are occupied by people who own them. The rest are vacant or being rented by investors to tenants. They don’t have a stake in the pet-friendly development, so keeping it clean and appealing isn’t necessarily their top priority, said Mitch Anton, the board president.”
“Prices now hover around $100,000 after climbing close to $380,000 during the boom years. Still, Anton said he’s looking forward to the community becoming a desirable destination for first-time buyers getting mortgages backed by Fannie Mae. ‘In the long run, it doesn’t help to have renters in there,’ Anton said.”
“Unemployed? Owe more on your mortgage than your home is worth? Your state might one day pay your mortgage. Giving people free money to cover their home loans is just one of the radical ways that four states — Florida, Michigan, California and Arizona — plan to use $1.4 billion the Obama administration is sending their way to help the unemployed and underwater avoid foreclosure.”
“These proposals may irk Americans who are keeping up with their mortgage payments or don’t want tax dollars used to help their neighbors. But Alan White, a law professor at Valparaiso University, said all homeowners will suffer if neighboring properties fall into foreclosure. ‘There are benefits for all of us for stopping foreclosures any way we can,’ White said.”
“Delinquent homeowners aren’t the only ones who would benefit from these subsidies. In fact, the banks would come away with a huge win, said Mark Calabria, director of financial regulation studies at The Cato Institute. Not only would they have government money securely in hand, but they’d avoid the time and expense of the foreclosure process. ‘This is a lot more than they would have collected otherwise,’ Calabria said. ‘The lenders should bear the losses for this. They are the one who made the loans.’”
“Another concern is that these proposals will dissuade the unemployed from finding work or from relocating to an area with better job prospects, said Casey Mulligan, an economics professor at the University of Chicago. ‘Why should anybody work if you are going to be in your house either way?’ he said.”
“The precentage of homeowners willing to default when the value of a mortgage exceeds the home value — even if they can afford the monthly payment — jumped to 31 percent in March, up from 22 percent a year earlier, according to the Northwestern and the University of Chicago researchers.”
“Paola Sapienza, finance professor at Northwestern’s Kellogg School of Management, says the figure may indicate a decline in the social stigma associated with default, as well as more familiarity with the process. ‘The more people we know who have done strategic default, the more likely we are to do that ourselves,’ she says. ‘I learn from you how to do it and what the consequences are.’”
“The researchers found that the probability of strategic default increases by 23 percent when homeowners learn that a neighbor received partial loan forgiveness. One homeowner Sapienza interviewed ’said he realized he was paying about $2,500 a month on his mortgage and there was a much nicer rental apartment next door for $1,800 with a nice swimming pool,’ she says. ‘He contacted the lender a couple times asking to renegotiate the terms and the third time he walked away and rented next door. He was a senior and had enough cash that he could survive without borrowing and didn’t need ownership of the house because he didn’t care about that.’”
“Ultra-low interest rates fueled the housing bubble, thanks to former Fed chairman Alan Greenspan’s direction. And Americans should brace for another crash because that practice has continued. In retrospect, a growing number of economists and financial analysts believe that Greenspan simply kicked the can down the road and set up the U.S. economy for an even greater recession.”
“Of course, the housing boom occurred not just in the United States, but in many countries. Something so large and widespread was not due to any single cause. Even so, Greenspan’s ultra-low interest rates — fueled by the injection of newly created money into the credit markets — were a necessary condition for the mania that swept the financial world in the mid-2000s.”
“Tragically, Bernanke has decided to one-up Greenspan. Bernanke has brought interest rates down to almost zero and held them there for 15 months. And that’s expected to continue.”
“It is now obvious that housing prices during the mid-2000s were completely divorced from reality and that the U.S. economy was in an unsustainable dreamland. Five years from now, Americans may look back and think the same was true of 2010. Printing money to keep zero percent interest rates has never worked long term, will only postpone the inevitable correction, and indeed make another crash more likely.”
“Over his two decades as chairman of the Federal Reserve, Alan Greenspan repeatedly trekked to Capitol Hill to deliver testimony that developed an unlikely sense of majesty. News networks carried Greenspan’s remarks live, showing deferential senators transfixed by the chairman’s gnomic utterances. For nearly a century, the Federal Reserve—with piles of cash and little public accountability—sat astride the hypothetical juncture of Wall Street and Pennsylvania Avenue. As the U.S. reached monetary policy’s holy grail of low inflation and low unemployment in the late 1990s, Greenspan was exalted as a sort of secular saint.”
“Allan Meltzer, an economist at Carnegie Mellon University and author of a three-part history of the Fed, called the bank ‘one of the most prestigious institutions in Washington, a pillar of strength and a symbol of stability.’ But the Fed’s decision to bail out financial firms after the collapse of Lehman Bros. in the fall of 2008 soured many who had previously held the Fed in awe. ‘No previous Fed ever came close to buying a trillion dollars of mortgages. No central bank in any civilized country does that,’ says Meltzer. ‘The Fed has used its ability to print money to perform a lot of tasks that should be performed by the administration and Congress. That is a breach of its independence.’”
“If you want to understand what went wrong in the housing market, the case of Ruben Rojas is an important piece of the puzzle. Rojas, a real estate agent from Vienna Va., was sentenced to five years in prison in U.S. District Court for his role as the ringleader in a massive mortgage fraud scheme that ran amok in the booming Washington-area real estate market four years ago.”
“The scheme drew in family members, loan officers, other real estate agents, and straw buyers who falsified information about their finances to qualify loans. In still other cases, innocent home purchasers were pushed into mortgages they should not have received, and were left holding the bag when banks foreclosed.”
“And prosecutor Marla Tusk said at Friday’s sentencing hearing that the government brought formal charges for only a small fraction of the fraud that Rojas and his cohorts committed. When police arrested Rojas last year, they estimated that he and others fraudulently purchased as many as 200 properties collectively worth $100 million.”
“In the Eastern District of Virginia alone, which includes northern Virginia, prosecutors have brought more than 50 criminal cases since the beginning of last year, according to U.S. Attorney Neil MacBride, resulting in losses conservatively estimated at $100 million. MacBride said in a phone interview…that while his office continues to investigate mortgage fraud it has also started to pour resources into investigating potential fraud involving the bank bailouts and the federal stimulus legislation, programs that involve the exchange of hundreds of billions of dollars.”
“‘In real estate, there was a ready-made market involving lots of money, and some people took advantage of that,’ MacBride said.”
“The Rojas case, as big as it was, was not the largest mortgage fraud case prosecuted by MacBride’s office. Last year a judge sentenced well-known Bollywood film producer Vijay Taneja of Fairfax, Va., to seven years in prison for a mortgage fraud scheme that resulted in losses of $33 million. ‘He was putting people in homes they couldn’t afford. We’ve all seen the results of this type of behavior in the housing market,’ Tusk said. ‘This is the type of behavior that led to the downfall in the housing market.’”
“U.S. District Judge Gerald Bruce Lee agreed, imposing a five-year sentence that was even longer than what prosecutors sought. ‘Homeownership is part of the American dream. What you did was destroy that dream,’ Lee said.”
‘The sentence prompted no visible reaction from Rojas, but his defense attorney, Jerome Aquino, shook his head in disbelief. Rojas would have received an even longer sentence, but he is getting credit for cooperating with prosecutors, whose investigation is ongoing. The judge said he won’t be satisfied that justice has been served until the government has prosecuted at the highest levels.’
“‘I’m waiting for the government to bring in the CEO’s of these mortgage companies, who had to know what was going on,’ Lee said.”
“The successful frauds have had conspirators at all the levels in the transaction. The buyer is often a willing conspirator, along with the real estate agent, the loan officer and the settlement company. ‘It takes a village to pull these things off,’ MacBride said.”
“In 2006, just as the real estate market was nearing its sharp crest, California came marching into New York City. In deal after deal, the Golden State’s two main pension funds, ramped up their previously small New York portfolio. Aggressively bidding on properties. Perhaps offering a window into the funds’ larger troubles today—they are, by some estimates, being swallowed by a $425 billion shortfall for California pensions—the investments are a spectacular lesson in poor timing, and have left a legacy of distressed assets on the New York skyline.”
“A spokesman for Calstrs declined to comment. California’s governor, though, summed it up rather ominously-and accurately. ‘In California, we had the Internet bubble, then the housing bubble,’ Arnold Schwarzenegger said on April 14, in one of his weekly messages to the state. ‘Next is the pension bubble. And it’s starting to burst.’”
“Did you hear the one about the state where the housing market (supposedly) has rebounded after the economy had that near-miss-with-a-depression in 2008/9? Well, here in Massachusetts, the median selling price of a single family home dropped 19 percent from the first quarter of 2008 to the first quarter of 2009. The media is abuzz with an 11 percent ‘rebound’ in prices over last year’s first quarter.’
“Don’t fall into the trap of comparing a 19 percent drop with an 11 percent rebound, and thinking it’s only an 8 percent shortfall. This current rebound would’ve had to have reached 23 percent to bring prices back to where they were two years ago.”
“The repercussions go far beyond the obvious. I heard recently that before the current recession, 25 percent of college tuition bills were paid by home equity lines. Poof! The senior housing and continuing care retirement community (CCRC) industry has been hobbled. Mom and dad won’t move to the nice CCRC until they can sell their house for what they think it’s worth. Ha! Does the typical high school graduate today have a hope of buying their own home? How about the typical college graduate? What happened?”
“My grandmother dropped out of formal school at age 13. She and her husband were immigrants from Austria-Hungary. He was a tailor…she was a seamstress. Somehow they managed to purchase a two-family home with a nice yard and detached garage in central Connecticut. Their cousins from the old country also bought homes within a stone’s throw. My parents, when newlyweds, lived above my grandparents while they saved money to buy their own single family house in the suburbs.’
“How much has changed. Is owning your own home still central to the American Dream? Or were we sold a bill of goods and just witnessed a big wake up call?”
So 8k has sway in a $589,000 purchase? We do indeed live in bazaaro world.
‘We had transactions that were literally put together in a day or two to meet that deadline of April 30 to be under contract,’ said Louis Redbord, branch manager at Coldwell Banker Residential Brokerage in Holmdel. Simi Bhatnagar and her husband, Piyush, were renting in Woodbridge before they bought a house in Marlboro in January. They purchased the four-bedroom farmhouse for $589,000, negotiating the price down from about $630,000. ‘It was a buyer’s market,’ Bhatnagar said. ‘We thought prices are quite competitive. They are good and this might be the right time to buy a house.’”
“We thought prices are quite competitive. They are good . . .” What do you expect from ppl that didn’t realize we were in a bubble at the peak, and failed to check historical pricing ratios and trends? I’m sure the pricing data their Realtor showed them didn’t go much further back than peak pricing, nor did their Realtor bother to realistically explain the potential costs of home ownership versus renting (assuming that the Realtor could comprehend the concept which probably isnt the case with respect to most). The credit was just the final cherry sitting on top of the sundae. Wont they be surprised when they find out that those logs at the bottom of the sundae were in fact not bananas at all, but instead were . . . and the cherry laced with cyanide.
‘ I’m sure the pricing data their Realtor showed them didn’t go much further back than peak pricing, nor did their Realtor bother to realistically explain the potential costs of home ownership versus renting …’
But, home ownership has electrolytes.
Judith Saylor, with Prudential Fox & Roach Realtors in Northfield, said home prices might fall a bit more in the area, depending on the location. ‘I think we went so high so fast that there’s probably room for some more lowering of prices,’ Saylor said.”
“Fall a bit more ?”
Bah…I think that there are a lot more Foxes and Roaches running and scurrying around Realtyland than just this crew of pests!
mikey frantically dails 911 to the Orkin Commandos for an airdrop and tells Smithers to “Release the Hounds”.
Bah…I think that there are a lot more Foxes and Roaches running and scurrying around Realtyland than just this crew of pests!
mikey frantically dails 911 to the Orkin Commandos for an airdrop and tells Smithers to “Release the Hounds”.
LOL!
Roach Coach to the rescue.
It has what Realtor’s crave!
It’s similar to “the stock market only goes up!” arguments that somehow only show the boom times of the 1990’s. It still blows my mind how often during the Bubble supposed authorities got up and said that housing prices have “never gone down” when it was so easy to prove that they were lying. But people bought it - literally - and the Bubble rolled on.
But, home ownership has electrolytes.
It’s got what renters crave.
Awesome.
PPT is out again today.Everytime the market goes down 200 the wheel out obama with biden in the background.
“So 8k has sway in a $589,000 purchase? We do indeed live in bazaaro world.”
Absolutely. I didn’t feel comfortably buying my house (which we paid off in 15 years) until we had enough additional cushion to handle emergency repair (just common sense told us you never know if you need a roof or fence fixed after a storm, or a new water heater, etc. and enough $$$ to pay the mortgage for a year in case we both found ourselves out of work.
All the above was “conventional wisdom” at the time with respect to buying a home. It was just what people did. (
We also bought a home that we could carry on just one of our paychecks, if we absolutely had to. The RealtWhore told us we were “underbuying”.
The result: We have low property taxes, and our house is paid up. Underbuying, my a**!
Even when we bought, 18 years ago, $8,000 more wouldn’t have substantially changed what we bought. With prices now 3x what they were back then, I can’t imagine that $8K would me more than a spit in the ocean…
Reuven,
Great personal story. That was the path my family was on before we got caught up in OR realty frenzy. We had a perfectly adequate 3/2 roughly 1,200 s/f that my VA Disability check could have almost covered.
But this was the Rockin’ 90’s and OR was awakening from a deep slumber. Ahead of the curve nationally speaking and nowhere’s near the coming tsunami, but good, times were good.
Where we differed as a family is that the money we borrowed ‘against’ the house went back IN the house! Primarily a very nice 50 yr. all metal roof, driveway, finished the garage and much wiring, plumbing and landscaping.
By the time we were done, it was worth quite a bit more than what we owed and you could see this coming so we sold ( early ) in 2004. Not in anyway looking for a pat on the back but it’s very different than having spent the money on what polly refers to as “Adult Toys”. Imagine for an instant just how much better off we’d be had this ( rather traditional ) practice continued? At least the value would be ‘there’. As far as ‘we’ were concerned ( we -were- spending the money on ourselves! )
The difference during the Nat’l Bubble was that flippers/loanowners became very adept at getting the most out of bilking the brunt for personal consumption while short-changing the bank and prospective buyer. You could almost call it an art form.
Let’s check back on those unsuspecting fools in 9 months. 53% of people using Obama loans are defaulting in less than a year.
53% of people using Obama loans are defaulting in less than a year.
Which just goes to show you that those who are already in default are at a high risk of re-default.
I have been following resales in several communities, curious as to what effect the expiration of the tax credit would have. I have noticed what appears to be a 50% drop in sales in the lower end (less than 400k) so far (e.g., communites that normally had 4 sales a week are down to about 2). As others indicated, it may take until Fall for decreased sales to be fully reflected in lower prices. The frustrating thing is that I have also seen a decrease in the number of foreclosures listed. That problem may resolve itself as all those marks that bought homes using the tax credit as a downpayment begin to go under water.
I’ve also noticed a slow down in new inventory for the lower priced 3 bedroom houses in Northern New Jersey. I wonder if the 8k tax credit not only brought demand forward, but inventory as well. If there’s less inventory hitting the market that might keep prices going sideways instead of dropping.
We started to go house hunting in person, and see what we could find. Our non-virtual education has begun. Some of the over priced trash (so far) in the Los Angeles area (post WWII ranch pool homes), 4+2’s, are wishfully priced at $500K, coming down from $520K ($8K days). Our tour guide is nice, but hasn’t bought a home in her life, and evidently thinks money grows on trees. At least we like her. We have duct tape in the trunk
This is going to be a long journey. No rush.
The banks have gone back to sitting on the Shadow Inventory. The tax credit brought out another wave of knife-catchers so the banks could get bidding wars going and sell the houses at overvalued prices. But without that stimulus, people will expect a more reasonable price for the house, so the banks just won’t sell them until they have to or another stimulus comes into play to encourage more speculation and stupid buying.
In the neighborhoods I drive through on the way home from work, I noticed a lot of houses going to ’sold’ pretty quickly (a few weeks) the last few months where before they lingered for months or more.
It’ll be interesting to watch with the credit gone how things play out now.
sfbubblebuyer
Probably some good uhs con job, a drop in price, and I would assume an entry market neighborhood, is what you’re driving through. The FHA loans are sucking in the people who are entitled to a first home, regardless of their savings. What city? What’s the price range and size of homes that are selling like hot cakes? (Guessimate or zillow and answer later.)
It’s in Redwood City. I drive through whipple/woodside streets as I head back past Alameda.
The expensive houses west of Alameda still sat mouldering at their expensive prices, but the houses in the flat area seemed to be moving briskly.
There were some ridiculous prices that couldn’t have been affected by the buyer’s credit (900k+) but some 600k prices that probably were.
“still sat mouldering at their expensive prices”
? What, one can’t be.., ‘briskly’ mouldering?
You know, that’s a word that should be invited into the inner circle of bubbleblogging terminology. Do I have a second!?
sfbubblebuyer
Thanks for the clarification. Wow. Do they want to adopt me?
“The reseachers found that the probability of strategic default increases by 23 percent when homeowners learn that a neighbor received partial loan forgiveness.”
Totally unexpected behavior by underwater homeowners. Nobody could have possibly predicted this would occur.
My concern is how all these adjustments to debt are going to be hidden in the county recorder’s data. Will a disclosure code be available for the REIC only, so us future buyers are left in the dark. Makes it kind of hard to evaluate a neighborhood, when you don’t know what’s really happening or happened.
Reminds me of the re-list/dom games in the mls.
You have to look up the mls history of the property to disclose the hidden dom history.on/off, wait, on/off, wait….
These ‘principal’ modifications should be recorded as new sales prices, since that’s effectively what happened. They short-sold their house to themselves.
sfbubblebuyer-
“Should” isn’t always an action. Sometimes it ends as a thought. I’m licensed in Ca.
For instance, there are comments only agents see in the mls. It’s blocked from the public.
sfbubblebuyer
Think two sets of books, per se, but within the county recorder’s database.
Good morning. Got gold, or silver?
silver now at 63:1 ratio to gold (over the historical 52:1)
Cash for me. When the herd has already moved into metals it is too late. I don’t like to buy anything at all time highs. I prefer lows.
“When the herd has already moved into metals it is too late.”
This is true of most everything, it is especially true of stocks. High volume is the friend of the seller, low volume the friend of the buyer.
It is especially true of houses, especially right after government stimulus sparks a debt cat bounce.
For instance, if there was much government-fueled housing mania activity going on at the end of April, we might see a nice run of ‘lower than expected’ home prices over the next little while. Listening to these morons recite the Used Home Seller litany of reasons to buy makes me want to hurl:
‘We had transactions that were literally put together in a day or two to meet that deadline of April 30 to be under contract,’ said Louis Redbord, branch manager at Coldwell Banker Residential Brokerage in Holmdel. Simi Bhatnagar and her husband, Piyush, were renting in Woodbridge before they bought a house in Marlboro in January. They purchased the four-bedroom farmhouse for $589,000, negotiating the price down from about $630,000. ‘It was a buyer’s market,’ Bhatnagar said. ‘We thought prices are quite competitive. They are good and this might be the right time to buy a house.’”
Natalie-
Do any asset classes, other than cash, appeal to you now?
We are in a very strange market now, IMHO.
Nothing appeals to me. We have debts we can’t pay, and they will either be written off in bankruptcy or inflated away.
Bonds get creamed either way. Stocks and real estate might be stable or rise if we get inflation, but not in real dollars.
Inflation will eat away at the value of money stuffed in the mattress, though not necessarily three month T-Bills. So that’s cash to me. Theoretically, the need for the federal government to borrow more will induce it to pay short term debt even if it defaults on long term debt or inflates it away.
Although I can imagine a scenario in which the federeal government declares a state of emergency and automatically rolls over 3-month T-bills at an interest rate of zero, unless a “hardship” need for the money can be proven, even as inflation rises.
All the other assets are overpriced in any environment in which the federal government is not pumping up the economy with a deficit of 10 percent of GDP while interest rates and inflation are zero. Can that continue indefinately? How does it end?
I actually am very conservative. I went 100% into CDs in the peak, and started dollar cost averaging back into the stock market on major dips beginning last year. I try not to day trade, but will sell if prices are getting ahead of themselves (e.g., brought C last year, and sold after 100% return and diversified). My personal belief is that stock prices will bottom out during the next 12 months but it will be extremely erratic, and who knows when, so I continue to keep a significant reserve of cash or cash equivalents (mainly in a 0.9% money market right now :() and pick a little stock up on major corrections. I prefer to be a passive long term investor, although that is hard in a period of bubbles. I am now mainly buying Vanguard ETFs for the long haul (no commission trades and lower fees than mutual funds). I mainly stick with a mix of large, mid and small caps (vv, vo, vb, and vxf) with around 15% exposure to foreign stocks (vwo, vss, veu) and some exposure to sectors such as tech and financials (vgt and vfh). For myself, I determined how much I eventually wanted invested, and how long I thought the correction may take. Then I determined how much principal I would have to invest each month during such period on an equal basis to get there. During any given month I invest 0-200% of such monthly amount on major corrections depending on my feelings about the market at the time. It has worked out well for me so far. Good luck. . . and no I do not work for Vanguard. They just have no commission ETFs with low fees, and I think they will do just as well as most mutual funds.
Sound like you got it together.I too would stay away from gold and silver for sure.We a re a lot closer to a top than a bottom.I wouldn’t buy into this stock market right now.Can you tell me why PCLN is trading > 200?
“I try not to day trade”
As do we all Natalie, as do we all.
I wouldnt invest in priceline because I personally dont like their product. Particularly the fact, unless they changed, that you have to bid on a class of hotel, and not bid on the hotel you want (unless you are willing to pay a higher rate for it). Im too much of a untrusting control freak to not pick out my hotel. Also, I have not seen their contracts with hotels to know the true value of their exclusivity rights. Without them, it would seem to be a highly competitive market.
PCLN was about 250 now about 200.there is a high short interest in that high flyer.Reminds me of pets.com really.
“Do any asset classes, other than cash, appeal to you now?”
Brass and lead.
Nice informative response to the question Natalie…
Thanks for writing today, Natalie. I think you are giving some readers some good ideas on how to stay diversified in sensible, low-cost ways.
A certain investment opportunity is available to me that was not previously available. I am starting to write 30-year mortgages on actual houses at rates in the 7.5%-8.5% range. Yes, I am vulnerable to big inflation if it comes. These opportunities were not previously available, because (a) a few years back, ANYBODY could get better terms than that from a bank, and (b) in 2006, 07, 08 I would not have been willing to write a 30-yr mortgage at all. Almost all my business used to be 15-year notes on lots-with-mobile-homes.
So, what am I betting on? (a) That further depreciation of houses will be slow. (b) That some of my new clients will eventually repair their credit and be able to get cheaper financing elsewhere. (c) That they won’t be tempted to walk away from their 20% down payments very quickly.
az_lender,
Good for you. It’s just so obvious that nearly everyone else in RE clearly has NO such designs? Sound business principles be damned.., they want nothing more than to relive the Glory Days!
And they still haven’t a CLUE as to how manage the downside if their “make lots of money plan” predictably fails.
Hard Money AZ Lender? Actually those terms seem pretty fair for that.
az_lender,
Did you make it to Africa? If you did how was the trip?
Dude, the herd is nowhere near gold and silver yet.
When that cash in your hand starts to go south it will be too late.
bob
P.S. your part of the herd.
When people don’t hold the physical, they’re going to be shocked to find exposed the fraud that has been perpetrated upon them in the form of multiple “claims” of paper gold.
$1250/oz. for gold will be child’s play by then.
Manipulation has a nasty end.
“Cash for me. When the herd has already moved into metals it is too late. I don’t like to buy anything at all time highs. I prefer lows.”
Cash for me too!!
My mom trusts me with cash.
(silly woman)
Buy PUTs at all time highs ! Play it both ways.
Dang — I should have listed to the gold bugs while I had a chance. Now I am priced out of The Precious™ forever.
Those gold bugs without income are eventually going to be gold sellers. My guess is they number in the millions. We shall see.
“without income”
You couldn’t just shave a bit off every month to cover your living expenses? Who knew that. Excellent point Screwed. You don’t mind if we call you Screwed for short do ya’?
Gold Bugs? Millions? Herd?
Maybe but I remember a couple years ago none of my friends had gold, knew how to buy gold, or had ever seen a gold coin before. None.
A real $20 liberty blew their minds. (”It’s so heavy“)So did the little French coin with the chicken on it.
I’m just wondering how many people with stocks, bonds, houses or whatever know anything about investing in gold at all.
Rio,
Let alone even a rudimentary understanding of the mechanics that go into -producing- Gold. Practically every conversation regarding “The Heft” starts w/ the spot market and rarely works it’s way backward.
Let’s not talk about the drudgeries of fuel costs, political risk, mining contracts etc. ( let’s talk about paper money and how smarter you are than everyone else )
I love the look and feel of gold. Not a gold bug, just love looking at gold.
If you take your statements and replace the word “gold” with “breasts” it is really hilarious. Just saying. Hey, it’s Friday afternoon.
Too funny. I could also replace the word “gold” with “chests”. More to my taste.
Like Chevy Chase in “Spies Like Us” where he puts his hand on Donna Dixon’s breast and says “Look! I have no feeling in my hand, why I could leave it here all DAY and not ‘feel’ a thing?”
“If you take your statements and replace the word “gold” with “breasts” it is really hilarious. Just saying. Hey, it’s Friday afternoon.”
I did it.
So what in the hell is a “breast bug” ?
An insect worth keeping as a pet.
The herd is buying gold and silver? That is news. I don’t know of a single person at work that is buying. In fact, if I talk about metals they still look at me like I’m crazy. I don’t know of any friends that are buying. They don’t look at it like a sign of insanity. They think the price is too high.
I told a colleague and good friend that I thought gold and silver were a necessary item to buy to protect from government, and central bank, madness. I was not even sure of myself at that time. The price was ridiculously high. This friend of mine confirmed a year later that he felt I had become certifiable at the time I made those statements to him. That was in 2006. Krugerands at that time were going for about $620 for a one ounce coin. Today they are over $1,250. That price seems very high to me. What will I be saying about that thought 4 years from now? That friend has still never bought a gold or silver coin.
We were recently in the Czech Republic. I had brought an American Eagle silver coin with me. I brought it for luck. Brilliant move! After a volcano exploded and stranded us I figured I needed to get rid of that thing. I had flashbacks to that old Brady Bunch episode when they were in Hawaii. In our extended stay I had gotten pretty close with the front desk guys. On one of the last days I handed the eagle to one of them and told him it was his. His eyes lit up. His gratitude was sincere and excessive. It was clear that he had no silver coins, let alone gold.
I am not a gold bug but to say that the herd is flocking to metals seems pretty hard to back with facts. Somebody please give us examples of the herd selling off their flat screens and ATVs to buy up eagles, pandas and Krugerrands. That would be helpful.
That is one of the great Brady Bunch sequences–the tarantula on the bed, Greg’s surfboard wipeout, the whole nine yards.
That’s what makes this astounding. There IS no herd, yet, and we have all-time nominal highs.
Not to disparage Natalie and the others for making diversified investments, of course, that’s smart.
And if you know what you’re doing, you can daytrade a volatile market. In and out, in and out.
And I wasn’t just talking about gold, of course, but also the poor man’s gold which is lagging the ratio track.
“Those gold bugs without income are eventually going to be gold sellers. My guess is they number in the millions. We shall see.”
Every time that I go into Pacific Grove I stop by a local jewelry shop to talk to the owner about gold pricing for fun. He usually has a constant influx of new pawn or junk jewelry being unloaded for gold content. Seems a lot of the elderly are either needing the cash or see this as a time to unload.
Another jeweler in Carmel told me that his clients are older and no longer buying and that he needs to replace them with a younger set, but the younger sets can’t afford Carmel.
“Another jeweler in Carmel told me that his clients are older and no longer buying and that he needs to replace them with a younger set, but the younger sets can’t afford Carmel”
Yeah, plus they’re like Monty Burns and those great big old 18k Rolexes are just getting too heavy to wear.
Pretentious town, Carmel. If I had to buy gold, Carmel would be the last place — I can imagine the markup at around 1,000%.
Next year, we’ll be seeing the same complaints: “gold is too high”, “it’s a bubble”, “the contrarian play is to be short gold”. Of course, the price may be a lot higher then, but at least the paperbugs won’t need any new “arguments”.
“To me, real estate is a very good investment. I’m spending money on rent that I could be paying the mortgage with. I’d love to be a homeowner.”
It has been and could be a good investment, for those who plan to stay in a community. But of course it depends on the price.
Still too high in the NY area IMHO.
For one thing, let’s see what kind of tax burden and public services young couples will be facing after the bills from Generation Greed come due. Then subtract the cost of private schools, private bus transit, private parks and private libraries from what they are willing to pay in a mortgage. Their taxes will be going to past debts, pensions, and retiree health care.
real estate is a very good investment ??
All depends on timing…Give me great timing over smarts any day…Good timing can make anyone look “real smart”…
Five very large gold stars.
Then subtract the cost of ??
The increasing cost of everything that you “Need” plus the the unavoidable increase in taxes & fee’s that are coming..
scdave,
I have an older group of clients I’ve worked w/ over the years and they’ve done very well for themselves in CRE. What a lot of the RE Newbies totally fail to realize is that, it took the years… to get (1) comm. bldg. completely paid off.
They used that as their ‘base’ from which to employ that -positive- cash flow into other acquisitions and to cover maint. expenses, taxes etc. They have also formed a Legislative Watch so they’re not ‘blindsided’ by new fees and taxes coming down the pike. Well, no one wants to do things that way any more!
( Certainly not this latest merry band of REIC’sters? )
Anybody I ever talk to about RE seems to think it’s a get rich quick scheme, even now. They think you flip properties and leverage the profits into more properties to flip, and leverage THOSE profits ad infinatum.
Nobody wants to be a boring landlord.
*rolls eyes*
sfbb,
LOL! They donk ‘think’ it’s a GRQS ( they know! )
These guys ( family biz ) took reduced salaries for a number of years in order to pay the note off. Hell, even today they don’t draw ‘that’ much in salary?
They’re reluctant to sell b/c they figure, they did so much due dil. going ‘in’ ( why would they bail just for a few quick bucks? ) So there ‘are’ legit people/firms out there but if you think WE complain about all the playuhs out there!?
Their CPA told me they could get by on 50% Occupancy. NOT… that they’d ‘like’ it, but get by.
Sounds like a good deal. It’s good knowing there are people who use their profits to fuel growth instead of debt. It’s pretty easy to believe the whole world is insane when you talk about real estate and investing these days.
I wonder if there is some small rational thought behind some of these people who “yearn” to buy. I can rent well below my means and have absolutely no problem socking an equivalent amount in savings - well, actually it is a little more, but with a few big purchases averaged in per year, it is about the same. This is all outside of 401(k) and Roth contributions.
But if a person realizes that they will never be able to build up a large chunk of money (beyond the standard emergency fund, tax advantaged retirement account, etc.) without spending it on junk, if they recognize their psychological limitations just won’t allow it, maybe getting into a house is a good idea. Not when prices are completely out of whack, but well before people who have a modicum of self-control and the ability to do long division would take the plunge.
Because if you have to choose between a few extra years of renting from the bank and stupidly getting used to a lifestyle that includes contantly spending every penny on adult toys, I’m not sure that one is all that much better than the other. And if you can stay employed in the same area for a long time, the house will eventually become something of a mechanism for savings in the form of increased principle payments. Going to Disney World and/or Club Med every year never will be. At least the house could eventually allow you to live with property tax/maintenance costs that should be below that of rent.
polly,
Nevermind Post Of The Day ( that’s the POTW! ) Yes, most assuredly, this is why I had so many reservations regarding “Real Estate-based Consumption”!
People always talk to me like I haven’t “been there”. Look, all throughout the 90’s, Oregon RE was rockin’! Since we only paid $120k for our second house and prices were coming off the floor from our Depression of the late 80’s.., there was nothing but ample opportunity for MEW extraction.
Self-control is a big part of it and -both- spouses have to have it! Sadly altogether too many Americans feel that contributing at a level of “employer match” in their work plan constitutes “savings”! And we’re not ‘total’ squares here at HBB, we go on vacations and do fun stuff, we just don’t borrow against our home’s equity to ‘do’ it? And for some of us ( not any more! )
So you’re not going to take out a second mortgage to buy a boat with which to go sailing? Why do you hate Amurrrica so?
sfbb,
Not that I wouldn’t like one? I’ve done the math on maint. storage, docking fees, slip, insurance ( somebody stop me! ) and it doesn’t add up even if you own it outright?
Yah, it’s much cheaper to rent one. I belonged to the sailing group at my college, and that was cheap sailboat fun. I can’t imagine owning one that was too big to be pulled out of the water and towed easily away, though. The boats I learned on we hauled out of the water on hand trucks. That’s just about the right size for me.
sfbb,
Some of the yacht mfrs. have tried similar schemes ( and I don’t intend that as derogatory off the bat? ) where partial ownership was possible.
Unlike RE, they actually wanted some skin in the game. 20 to 30% down. They would manage it as part of their rental fleet and homeport them in the Bahamas or wherever. Take care of the maint. etc. and rent it out ‘for’ you.
Mindful, this in the 90’s before Condotels really took off. Well not that they ever gained meaningful traction? But the Rental Income Projections looked fanciful to me. I just didn’t see how it could have pencil’d out so I dropped that too. Last I checked they’re OOB.
I saw advertising for that as well. It seemed ludicrous at best. I assume places that rent the boats have a ’sinking asset’ assumption built into the model and own enough boats that one going down doesn’t destroy your company. Owning ONE boat that you rent out to yahoos, and a leveraged one at that, seemed way too risky.
Owning a house went from being a forced savings plan to being a forced savings withdrawal plan for some people. They just heard that “equity” calling their name. They couldn’t leave the poor thing locked up, looking all droopy eyed and sad that way.
Hides my Mouse Ears from Polly.
WT:
Just wait till the 10-15 year 421a tax breaks get closer to expiring….I doubt all those high falutin yuppies can afford to pay full taxes on their luzzyorie Long Island city Kondo. Then what?
“After 30-years of working in Florida real estate not much surprises Barbara Watt, yet she has noticed a new trend of late. ‘We were fortunate that one Canadian gentlemen came in recently and got such a good price he brought two more clients in, in the next two weeks,’ she said. ‘Bam, bam, bam, one after the other, it was lovely.’”
______________________________
I was reading the paper this morning and glanced at one section’s back page, an enormous color advertisement by the realty firm Smith & Associates showing homes for sale and schedules for open houses. The prices were absurd and looked like 2006. It was then that I realized that it wasn’t Tampa locals, Floridians, or even Americans who were the target market.
Well snake charmer, as summer approaches all but the Orlando market tend to dry up. All of the tourist/secondary market will be back at home. Reality will hit and hit big time soon. Palm Beach County alone is estimated to have 50,000 units ready to come online due to foreclosure. What’s that going to do to prices?
Another Canadian gentleman…
During the Florida 80’s Boom, Bust and Recession, something happened and it clobbered some Canadian wheelers and dealers in the Farm/Grain business and it happened fast.
My uncle rented a house at the time and played cards with some of them as he had been in the US Grain business himself. One of his desperate Canadian friends needed quick capital for his businesses and was trying to sell his nice Florida 3br pool house in a hurry in a dead housing market.
My uncle made him what he though was a very low cash offer with and a on the spot “earnest money” deposit and his Canadian snowbird friend gratefully accepted it.
His friend managed to save his business but my uncle felt a little bad because he felt that he stole the house. His friend always said “No, you saved my stupid butt when no one else would”.
It happened a lot.
I could see this type of thing happening again.
“I made him an offer he couldn’t refuse.”
Watt said the window of opportunity for bargain-basement prices may be closing in Florida.
When the Canadian buyers see their Florida property tax bills and their summer electric bills (or the mold remediation bill if they turn off the A/C over the summer), they’ll be taking a hike, and a 50% or better haircut…
“One homeowner Sapienza interviewed ’said he realized he was paying about $2,500 a month on his mortgage and there was a much nicer rental apartment next door for $1,800 with a nice swimming pool,’ she says. ‘He contacted the lender a couple times asking to renegotiate the terms and the third time he walked away and rented next door. He was a senior and had enough cash that he could survive without borrowing and didn’t need ownership of the house because he didn’t care about that.’”
and all this time i thought i was a heterosexual male…i love this man (site unseen).
Who cares about worshipping the God of Fair, Isaac when you’re a senior?
For those that may not be familiar ( and GOD isn’t it grand to hear Ben say “It’s desk clearing time”! ) the Clark County story linked above isn’t Vegas, it’s actually coverage on the more “realistic” Vancouver, WA. Or The Couv if you prefer?
When you’re ‘listing’ a home purchased for $795k ( in 2006 no less ) for the more ‘realistic’ price of $700k.., clearly we have a long way to go. Hysterical relitter quotes up in that mother.
Yeah, I lived in the ‘Couv for awhile in 2008-2009. $800K in 2006 should equate to about $500K today. The buyer clearly overpaid big time…
What’s that old saw about “There’s a sucker born every minute!”?
VegasBob,
Well then you know what I’m talking about. Given Clark County wasn’t ‘part’ of the UGB ( Urban Growth Boundary ) that relitters love… to talk about so much here, there were NO restrictions to building on that side of the Columbia River!
Kah-slam. Dit! Bop. Thwap.
“Watt says houses that were selling for more than $1.5 million a couple of years ago can now be bought for $800,000 to $900,000. Watt said the window of opportunity for bargain-basement prices may be closing in Florida. ‘It’s so exciting to see the market coming back,’ she said ‘We’re not there yet in dollar terms but we are in units. It’s turning.’”
If she opened the window, she might see and possibly smell some oil. The only thing that might be closing is the opportunity to sell.
“Watt says houses that were selling for more than $1.5 million a couple of years ago can now be bought for $800,000 to $900,000.”
I believe they made a slight typo on her last name. One of those “t”s is in the wrong place.
“Only about 40 of the 253 condominiums at Regent Park in downtown Hollywood are occupied by people who own them. The rest are vacant or being rented by investors to tenants. They don’t have a stake in the pet-friendly development, so keeping it clean and appealing isn’t necessarily their top priority, said Mitch Anton, the board president.”
I’ll bet that this pet-friendly complex sounds like a kennel. Which isn’t going to do much to attract buyers. (Who wants to be surrounded by 24/7 barking?)
Who wants to be surrounded by 24/7 barking?
+1000
Mitt Romney’s boyhood 5000sq foot home about to be razed as detroit dumps useless housing
http://online.wsj.com/article/SB10001424052748703950804575242433435338728.html
You don’t see him offering to step in and save it from the bulldozer, now do you.
If the rest of the block is getting razed, imagine how large a yard you could have! And you could turn it into some kind of charity housing and make some campaigning hay for your next run at the white house.
Been absent for a while but this one brought me back.
I bought a home in Aug 09 in foreclosure for 420. The home needed 35K to right it. The 10 home development is 4 years old.
All the homes are relatively similar. The first victim in the neighborhood paid 850 in Aug 07. At a Labor Day get together he taunted me several times joking that there was toxic material under my home.
6 months later my home sold to the original owner for 775. In Aug 08 the neighbor directly across from me and the last into the neighborhood paid 650.
Well, the 850 guy just put his home on the market. The home next to him down the street has been on for 2 months and dropped from 629 to 609.
So, the 64K question … What does he list his house for. A whopping 749. Good luck with that.
Interesting stats on Las Vegas High Rises - no date, probably from late last year, though.
Here’s one to piss people off — home sellers are cutting prices now that the first time homebuyer tax credit has expired.
“The expiration of the credit could be prompting home sellers to slash prices: 22% of listings on the market as of May 1 experienced at least one price reduction — that’s a 10% increase from the previous month, according to data from Trulia.com. ”
http://www.marketwatch.com/story/as-tax-credit-ends-some-home-sellers-drop-prices-2010-05-14
Meaning that the net effect for first time homebuyers was a bigger federal debt to pay back, not a lower cost of housing. That federal money was in fact transferred to home sellers: older generations and the banks.
OTOH, this was the largest inventory cleaning frenzy in the last few years. If you’re still standing firm w/o a SOLD sign swinging in your front yard, you may be feeling the cold smack of reality.
Here in Tucson, I’m seeing the inventory on the climb. Yes, the tax credit frenzy did clear out some of the backlog, but there are a lot of places that didn’t get rescued from the housing dog pound.
Az Slim
“housing dog pound”
LOL
As one guy put it ,if you needed to depend on 8k to buy a house then maybe you shouldn’t be buying a home?
“The hope of a bustling urban lifestyle in north Arlington also fell short with the collapse of Tom Hicks’ planned Glorypark just a couple of blocks away.”
Does the collapse of a “Glorypark” result in a “Gloryhole”??
She and her husband were immigrants from Austria-Hungary. He was a tailor…she was a seamstress. Somehow they managed to purchase a two-family home with a nice yard and detached garage in central Connecticut.
My grandfather was a cook and my grandmother was a maid and both escaped from Austria-Hungary. They bought a nice house in Westchester County (just north of NYC). I loved the place because every square inch of the lawn was productive. Potatos, pear trees, apple trees, chickens, veggie gardens, etc. Lawns were for suckers!
The TAXES alone on that house requires a six figure income today…
FWIW sold my own place in northern Calif. quickly in Spring ‘07 thanks to what I learned here and got out just in time…was back in that town today for a visit, drove by, and my old place had all the signs of a walkaway…overgrown yard, a tattered flag flying, no parked vehicles, no for sale sign, etc. Got home and checked the web, sure enough a NOD was filed recently, was a little sad but not too surprised (the buyer is a pretty awful person, enough so to have made the local paper a few times since the sale, but that is another story…)
The way I look at it, if the whole system broke down and there was one McDonald’s left and the sign outside said cash only then pity the poor soul who has everything in stock certificates or gold or silver bars I wonder how they taste with salt and pepper?