Returning To A Normal Everything
Readers suggested a topic on changing house styles. “I think we need a new type of house, I say a show on TV about Japanese preform homes built in a factory and set up on location, very nice and no they were not crappy mobile homes. In Phoenix I saw roof truss ( I think that’s what they are called ) built outside from wet Oregon wood brought down weekly on a train. They were some warped trusses by the time they shipped out on a truck to the building site probably Queen Creek or Maricopa.”
“The stick homes ( built like US homes ) are more expensive in Japan and a status symbol.”
Another said, “Builders don’t want to learn a new method. Aerated concrete blocks are the smartest way to build, no termites, no rot, sound proof, fire proof, look like stucco and plaster when done.”
A local perspective, “Around here (California’s eastern Sierra Nevada) we have a few types,
Stick Frame
Log
Post and Beam
Pre-fab
Straw Bale
Steel
Geodesic Dome
Stick Frame is the big winner with pre-fab making big increases.”
A reply, “There is plenty of good design out there. I’m partial to Katrina Cottages. It’s too bad they don’t make those pre-fab. Builders are quite happy with the houses they have. The current McBox with standarized masonite, flush windows, no eaves (to save roofing), and floor plans which maximize plain square footage with few details and less plumbing and electrical are clearly designed for maximum profit on sale, nothing much to live in.”
Voice of America. “McMansions are homes - new and very big homes. The name is borrowed from the ’super-sized’ drinks and French fries and sandwiches at McDonald’s fast-food restaurants. Build a McMansion, and you’ve super-sized the American Dream of home ownership.”
“They’re built by people who want all sorts of amenities and can afford them: lots of bedrooms, a spacious lawn, a three- or four-car garage, maybe even a swimming pool. Throw in a library and a mega-kitchen fit for a king’s chef and the result is a home of gargantuan proportions. But squeeze one onto a modest lot in an older community, and you’ve created, in the eyes of your neighbors, an eyesore that’s absurdly out of scale with its surroundings.”
“For them, a McMansion is not a dream. It’s a nightmare.”
“Communities across the country are passing stricter building restrictions to keep out what some have sneeringly called ’starter castles.’”
“So what’s the backlash to the backlash? In zoning hearings, courtrooms, and online blogs, we’re hearing a lot of sentiments such as this, in response to an MSN Business story online: ‘It is really no one’s business what I decide to build upon my own land or property if I follow the building codes,’ the writer snorted. ‘This is the United States of America, and if I want to build a large or small home, it is my right.’”
The New York Daily News. “Think you are a hero for living in a tiny Manhattan studio? Imagine a family of three in a 320-square-foot home. That’s what one Arkansas family is doing in a fascinating video they submitted to a website that promotes sustainable living. Forced to take on extra work to make mortgage payments on their 2,000-plus-square-foot home, the Jordans found an ad for a local company that would construct custom-made small houses. For less than $20,000, they were able to build the home – and go mortgage-free.”
In the video, Debra Jordan explains that the space - immaculately organized - can now ’sleep six people comfortably, and eight to 10 uncomfortably.’ According to Jordan, downsizing helped the family focus on what matters.”
“‘It’s not what you don’t have, it’s what you do have,’ she said. ‘We just wanted a simple life and this helped contribute to that peaceful feeling. Not always rushing to make payments on a gigantic home.’”
The Australian. “Small is undeniably beautiful for Andrew Maynard, one of the rising stars of architectural environmental activism. Rather than focus on bold stylistic statements, Maynard seeks to maximise the character and absolute functionality of the spaces he designs. ‘We are all about reducing and keeping things small,’ he says. ‘Especially because we do a lot of work in houses and Australian houses are now statistically bigger than American houses. We have the biggest houses in the world.’”
“‘I try to convince my clients that storage is always the biggest part of a brief,’ he says. ‘I guess what we are saying is small houses are really important and a healthy way of living in the future.’”
From Scene. “It feels huge. It’s actually a little bigger than what I need. This is a ton of space. It is beautiful. I feel really lucky. These are all phrases Nelsonville area resident Pat uses when describing the house she had custom built for her in 2005. ‘I did intentionally decide to go small,’ says Pat, who grew up near Nelsonville before moving away and living in urban environments like Japan, California and Minneapolis for 25 years. She moved back to Central Wisconsin in 2003, longing once again for tranquil woods, lakes and nature. ‘It’s a beautiful setting,’ she says of the 17 acres of land she lives on. ‘I just couldn’t bear the thought of plunking some big monster (conventional house) here.’”
“In a time when one in five American homeowners owe the bank more than their houses are worth, and foreclosures are at all-time highs, small homes have one more big draw: they’re not only economical to buy, but they’re economical to maintain, renovate and live in. The average American home costs nearly $250,000 and, for most of us, comes with 30 years of American-style debt. And then there’s the depressing statistic that the larger, more expensive homes have been hit the worse by plummeting home values in recent years.”
“A tiny/micro home, on the other hand, can be yours for less than $20,000. And you guessed it: small homes are retaining their value – even in some cases increasing their value despite the current real estate climate. The savings up front with a smaller home is just the beginning. If you ever need to make routine maintenance and repairs like a new roof, paint or flooring, you can bet that price will be a pittance of what you would pay to make those same repairs on a traditional American-sized home.”
“Sonya Newenhouse, founder of a company developing Sears Roebuck-style kit homes that are small (approximately 600 to 1,000 square feet) and so energy efficient that they don’t need a furnace in winter. No, that’s not a typo. With triple-paned windows and 16-inch walls, the little homes will be so energy efficient that it will take the equivalent of two hairdryers to heat the home. In July, Newenhouse, her husband, and a roommate will move into the approximately 1,000-square foot kit home and give it a test run before the kits hit the market.”
“That means no furnace in the winter next year. ‘I still have a hard time understanding, or believing, even, our own energy model that we won’t need a furnace,’ Newenhouse says with a laugh.”
The Wall Street Journal. “A fresh wave of Chinese buyers, coupled with Canada’s already frothy home prices, has vaulted Vancouver into the ranks of the world’s most unaffordable real-estate markets. Bungalows—small, detached, single-story homes, some in need of significant repair—can command prices well above a million Canadian dollars (US$1.02 million.)”
“Some economists are starting to wave warning flags. Royal Bank of Canada says monthly carrying costs—mortgage payments, property taxes and utilities—for a detached bungalow represent 72% of the average Vancouver household income. That is more than double the 32% threshold that Canadian banks use to gauge whether a borrower can handle a loan.”
“‘The prices appear disconnected to the level of activity and the balance of demand and supply,’ RBC economist Robert Hogue says.”
The Oakdale Leader. “When the housing bubble burst, construction ground to a halt, shaky loans crumbled, leaving homeowners in the rubble of foreclosure, and banks became reluctant property owners, overloaded with shadow inventory. That was then — so what does the snapshot look like today? According to longtime Realtor Scott Abell, a man who has ridden many different housing market waves, the snapshot reveals an industry that remains in flux, but there’s hope on the horizon.”
“The good new is properties are selling. The bad news? Well, that’s easy. More than half the sales are comprised of short sales or foreclosures. Builders are slowly returning to Oakdale but it’s a slow crawl compared to the frenetic pace set by builders in 2002. The days of McMansions are over, according to Abell.”
“‘The days of the 4,000 square foot house and opulence…those days have left the building. We’re going to see more practical, modest housing, more of what we saw in 1990,’ Abell said.”
“And the people who will be buying those homes are the same people who are going to help right the housing market again — first time homebuyers. ‘We’re slowly getting out of this slump. It’s not going to happen overnight. But the cure to fixing the real estate market is simple: J-O-B-S. It’s the key to returning to a normal real estate market. It’s the key to returning to a normal everything,’ Abell said. ‘We continue to live in the wild, wild West of real estate. Homeowners who lost their homes in 2008 and 2009 are now returning to the market, buying the same type of home for half as much.’”
“Abell said. People need to remember to make decisions that aren’t based on fear or greed. If the house you’re in is a good fit, don’t move. Stay, continue to build equity, Abell added. ‘I always tell people, ‘if it ain’t broke, don’t fix it’,’ Abell said.”
“For Oakdale, and the Central Valley, recovery is slow and painful, but it’s coming. ‘There’s a lot more good things than bad. It’s still a community that’s doing a lot better than most and it’s a great place to grow kids,’ Abell said of Oakdale. ‘There’s no place in the Central Valley I’d rather live.’”
“They’re built by people who want all sorts of amenities and can afford them.”
You lost me on that “can afford them” part.
Yeah… My Bull$hit Detector blew fuses when I read that one. I had to check the date of the article.
Small is nothing new…It just went out of favor for quite awhile…Anybody over 50’s years old on this board knows exactly what I am taking about because they likely grew up in a small house…Probably with only one bathroom…
I grew up in a big house, but not by today’s standards. There were seven kids in my family, and nobody had a room to themselves. There were two bathrooms.
This issue goes in a lot of directions. For instance, a few years ago when the second-home luxury market was saturated in Sedona, I considered moving from the ordinary, older rental into a new place with a pool, etc. It was about $1000 more a month. The more I thought about it, I realized what I could do with that extra saved money each month. How I’d probably get tired of the pool and couldn’t use it much of the year anyway. My kitchen cooked food just fine. I ended up staying put.
7 brothers & sisters eh Ben…Well, you may have had a big house but I bet that two bathrooms were a challenge at times…
I grew up in a two bedroom one bathroom house with a brother & sister…Parents converted the one car garage to a bedroom which my older brother & I shared if you want to call it sharing…He is five years older than me so he pretty much got his way in the room…
I think that’s how much has changed. I don’t recall it being any big deal about the bathrooms. Of course, it was five boys and two girls, so that may have cut down on the mirror time. Now, getting us all in one room to eat was a challenge!
If I had to guess that house is about 2300-2500 sq ft.
Was out kayaking yesterday, and looking at the houses on the waterfront of Lake Sammamish.
It was interesting to see one “small” house amongst the sea of garage-mahals. One person apparently can afford the property taxes and resisted the urge to sell to developers. So there’s at least a reminder of the size of house that used to be common along the waterfront - it wasn’t always 5000 sq ft beasts.
starter castles
LMAO!
When I was a kid my “starter castle” was a 8′X38′ trailer!
I lived in an 8-wide for awhile. The living room was nice because the TV screen was so close.
On House Hunters on HGTV the other night, a late 20ish couple were looking for a home in Doylestown, PA. Their realtor first took them to a giant McMansion with two sitting rooms in the master bedroom.
To their credit, they looked very uncomfortable with the idea of buying such a monster. You could almost see them calculating the carrying costs in their heads as they moved through the house.
They bought the smallest of the three homes seen on the show. No granite countertops.
My first experience of a McMansion was visiting a work friend’s new house and seeing lawn furniture in the lobby sized living room. And we’re talking tube steel and woven K-Mart lawn furniture, not the fancy stuff you see in high-end catalogues. Bedrooms just had mattresses on the floor. I’ll take my small home that I can afford to furnish thank you very much.
In the 3+ years I have followed real estate, I’ve seen a lot of nice (and not-so-nice) houses with mattresses on the floor (no bed frames).
I can understand the lack of fancy headboards and bedroom furniture, but the metal bed frames are like 50 bucks tops. Wow these folks are living close to the edge.
“Their realtor first took them to a giant McMansion with two sitting rooms in the master bedroom.”
If you will notice, it is no longer the master bedroom, but the “master” on each and every show, which unnerves me.
LOL.
How apt.
“I think we need a new type of house, I say a show on TV about Japanese preform homes built in a factory and set up on location, very nice and no they were not crappy mobile homes.”
In the industry these are known as modular homes. They’ve been around in the U.S. for a long time. Modules are built in a factory and shipped to the site where they’re placed on properly-sized foundations and connected together. No, they’re not mobile homes. They can be 2-story designs, and some might even be considered McMansions based on their size.
Google “modular homes.” Lotsa links.
Modular construction can be better if shop QA/QC is a priority. It’s no different than pre-cast versus cast in place concrete structural elements.
The name is borrowed from the ’super-sized’ drinks and French fries and sandwiches at McDonald’s
Interesting. I never thought of the “Mc” in McMansion as referring to supersized. I thought it referred to the cookie-cutter standardization of the menu items; e.g. the Big Macs are exactly alike no matter where in the country you are.
agree, I always thought it referred to cookie-cutter/all the same type buildings…
I always though it referred to the tastelessness of the house.
I always thought it pointed to the cheapest possible construction. and the heartburn.
It always evoked the big ol’ greazy dump that McDooDoo would cause two hours after consumption.
Yeah, cookie-cutter standardization and poor quality. Just like Mickey D’s.
And the McMinimum wage paid to McD’s and homebuilder employees alike. Not to mention their similar legal status…
Hence this is why I call the music today McMusic …cheap disposable and not worth paying for.
Read all about this building block and tell me this is not the best solution e-crete.
E-Crete blocks are a solid, high-performance concrete block used for over 75 years in a variety of commercial,x industrial and residential construction applications worldwide in a variety of climates. E-Crete is affordable, readily available, and can give perceptive designers an edge in a very competitive market. E-Crete is price competitive with other building materials and offers benefits that can reduce overall project costs. Lightweight E-Crete yields overall structural economies by reducing the mass that must be considered in seismic design and the dead load transmitted to foundations and superstructure members. E-Crete installs easily without special crews or equipment.
there is now best solution
design requirements often require stick framing. it’s hard to achieve architectural features with most other methods.
many years ago i got a piece of wisdom from a general contractor with more experience than i have. he said “it costs what it costs and you can’t change that.” construction methods and techniques that have taken decades to develop tend to make sense and don’t generally get replaced by new / better ideas.
each design type is a compromise and time and again we return to traditional designs
Funny how in some industries we have to change how we do things, or die, but builders get all smug about how it’s their way or the highway.
At last week’s Memorial Day parade DH ran into one of his longtime hs friends who’s one of those guys that knows everyone and everything that’s going on. His Dad was kind of a local institution in the 70s. Anyway we were marveling at all the spending /commercial building going on into the area’s village of late. One project is funded w/NY Environmental Protection money (in a commercial area-ha ha), one is an orthodontist office that is building a new building instead of taking over empty space, another spread is going to be a professional building w/a bank and other businesses and of course there is our expanded fire station. I looked at him and said where is all this money coming from and how is the spending getting approved. He looked at me and said, well you know the whole town board are realtors or linked to that industry, dont’ you?
So assure a young couple starting out in their early twenties that the construction of their home will last through the warrantees, that their jobs and salary levels will last through their mortgage, and maybe they will buy a 1200 square footer starter in Oakdale. What type of work is in Oakdale?
As long as their jobs and salaries last through the mortgage and pays for a reasonable car and 401K, perhaps state school for the kiddies, what does it matter what type of work it is? No everyone wants to be rich and lord it over their neighbors.
I grew up in a McMansion with a yard and a huge, finished basement, and I liked it. 320 sq ft. in Arkansas is silly.
In my head I figure 300-400 sq. ft. per person. Right now my family of 4 is in 1,300 sq. ft. and it’s perfect. Not too big, not too small. I wouldn’t want to go much over 1,600 sq. ft. as it would be too much to maintain.
My ideal is closer to 3,000 sf. But I work at home and am anticipating an in-law (or two) moving in sometime in the next decade.
3000 squares????? WTF!
Our ideal shanty is a single level, clean lined, vinyl sided and tyvek’ed, metal roofed, 1600 sq ft structure. No Drive-It, no wood siding, no gingerbread like wallpaper/knockdown wall finishes/exotic woods/blah blah.
And it’s amazingly difficult to find something like this in good condition that is newer than say 1990.
My ideal is this cutie patootie:
http://details.coolhouseplans.com/details.html?pid=chp-5664&ArchStyle=Tudor&FoundID=3&sid=chp23&ordercode=C101
Scroll down to see the floor plan. I would probably add another 4 ft on the nook side to provide a little more balance and a staircase to a basement. Or it would be a good in-law suite or guest house.
That would make a nice cabin but a very small long-term living space. Measure your furniture (including what you might like to own ‘if you had the space’) and try to place it in that floor-plan. Unless you’re a minimalist, you’ll have some trouble. experto crede
30,000 SF would be too small for me and an in-law…
lol
I grew up in a behemoth home, too, Muggy, and it seemed there was never enough privacy.
But a youth misspent in ski resorts taught me early on that small is better. When one’s monthly heating bills approach one’s monthly rent, one quickly realizes that a bed, a bath, a wall for books with a corner to hang clothing, and a surface to cook on are all that one “requires.” The rest is a matter of storage. 300 sq feet for one person is HUGE by most of the world’s standards; sometimes I think that America is all about waste.
Body heat warms a small space. A pilot light on the stove and incandescent bulbs warm a small space. South windows warm a small space. Sweaters are good. I learned these lessons well and put them to excellent use when I built my own (small, green, passive HVAC,) house. How much square footage of the average McMansion goes to waste, I wonder? 20%? 50%?
Of course, children add another variable to the equation. As does having ready access to public and outdoor spaces.
AHansen –
We’re thinking along the same lines as you and your place once we get our land. Did you design it yourself or did you buy plans? MrsBubble, Bubblebino and I are in 900 sq ft and wouldn’t need much more than that. Thanks.
MrBubble
Hi Bub,
I’d lived on site for nearly a decade and knew the raw land well, so when I built on it, I knew how to site the house to take advantage of sun, shade, prevailing winds, solar, hydro, , elevation, soils, where to put the well, plant the various gardens and orchards, the animals, etc. I HIGHLY recommend camping on-site for as many seasons as you possibly can to get an idea about layout, acoustics, climate, terrain, utilities, materials, design, neighbors, etc. And keep a record of all your ideas and observations.
I made the co$tly mistake of working with Lindal Cedar Homes (a custom “packaged home” outfit,) to begin with, and found it a hugely unsatisfying ripoff (ymmv.) Eventually, I took my book of sketches to an architect whose work I liked, gave him my budget, and let him do his thing. The whole project took about two years to plan and permit, and another two to build, (I was the general contractor, hired a competent foreman to supervise the subs, and did much of the day-to-day apprentice work and all of the procurement myself.)
It was a lot of work, but I ended up with EXACTLY what I’d wanted for the better part of my adult life– at a price I could afford.
I’ve lived here in my house for eleven years now with nary a problem, and I’ve loved every single day of it.
If you’d like to contact me offline to discuss, please feel free. I’m at dee vee ess en tea tea at bee en eye ess dot net.
PS. It seems to me I started writing this same thread for Ben’s forum about three years ago, and it didn’t end up so well….
Try living in a 20′ RV and then you’ll truly understand “what you need”.
I grew up in a small house and it sucked royally. 7 people in 3 bedroom 2 bath, 1200ish sq ft. Growing up in a house with no privacy is like being a celebrity but all the time. Fortunately the yard was large so you got a little bit of time away from everyone else to hang out in your own head if you went outside. Of course, the ‘yard’ had no trees because it had a septic system, so it was more like a football field.
My dad was a construction guy and parents had plenty of money (have a 2nd home, also small) and easily could have added on, but didn’t want to pay more taxes. (The taxes were about $1000 a year for a house and acre worth $50k in the ’80s-90’s). I still consider that to be a bit too anti-government.
Oh yeah, now those 5 kids have kids of their own, and guess how often they can visit that dinky place?? Almost never, because we don’t all fit and the town is small and there aren’t much in the way of hotels. I’ve not seen all my brothers and sisters at the same time at the house we grew up in 20 years.
So yeah, alternate view: F**** small houses.
LOL. Well, your parents didn’t have to downsize when you left home.
The interest in living debt free and simple/minimalist is an interesting trend. I suppose I am a decade early to the party.
Living trees are a lot better for the “inner peace” than several thousand square feet of hardwood floor.
It’s nice to see points we have made repeatedly on this board showing up now on the editorial page of the Wall Street Journal.
I would say that’s progress!
THE WALL STREET JOURNAL
REVIEW & OUTLOOK
JUNE 3, 2011
The Housing Illusion
Washington policies have only prolonged the pain.
Financial markets took a big tumble Wednesday on a series of lackluster economic reports, but the more distressing news was intellectual. Despite at least a decade of contrary evidence, the media and business classes still clamor for a miraculous housing recovery that will save the U.S. economy. The sooner we shed this illusion, the faster America will return to more robust and sturdy growth.
The Standard & Poor’s/Case-Shiller housing survey kicked off the latest bout of pessimism with news that home prices fell another 4.2% in the first quarter. Prices have fallen for eight straight months, after the false dawn of 2009-2010, and average home prices are down to levels last seen in 2002. The Case-Shiller 10- and 20-city indices are back to the level of 2003. Catastrophe, double-dip, threat to recovery! cried the crowd.
Price destruction is rarely fun, and it’s especially painful for Americans who have come to think of their home as their main asset and retirement nest egg. Yet this mindset has been part of our economic problem. A home’s main economic purpose is—or should be—shelter. During the mania of the last decade, housing too often became an investment out of proportion to any sensible contribution to national wealth and well-being.
Fueled by subsidies and easy credit, with mortgages guaranteed by taxpayers, we built McMansions and vacation condos on the assumption that prices would never fall. The resulting bubble saw prices rise faster than any time in modern history, so much so that even after four years they still have further to fall before they reach pre-mania levels.
The clamor to boost housing as an economic savior is especially odd because we’ve tried this before with dire or fruitless results. The start of the last decade’s mania was Federal Reserve Chairman Alan Greenspan’s attempt to boost housing to substitute for the impact of the dot-com crash and 9/11. It worked for a while but created the bubble that led to the panic and meltdown.
Since the housing market began to turn in 2007, Washington has tried to keep prices from falling with every policy gimmick known to politics: Foreclosure mitigation, more guarantees from the FHA, higher guarantee thresholds from Fannie Mae and Freddie Mac, Fed purchase of mortgage assets, and the $8,000 home buyer’s tax credit promoted by the White House and Georgia Republican Senator Johnny Isakson.
Their main result, other than subsidizing some Americans at the expense of others, has been to sustain the housing recession over a longer period of time. The price decline would have been sharper without them, but the recovery would have happened sooner and would probably be well underway by now.
On the Trail Columnist John Fund analyzes the impact of today’s downbeat economic news on the President’s re-election chances.
Prices are continuing to fall again because we still have too much housing stock. That excess needs to be cleared, and the inevitable foreclosures need to be processed and the homes resold before prices can find a new bottom. After years of forlorn attempts at price levitation, rapidly clearing that stock to find that bottom ought to be the main goal of housing policy. Only then will a recovery begin.
Meanwhile, the decline in home prices is good news for millions of young families and renters who were once priced out of the housing market. The National Association of Home Builders and Wells Fargo maintain a Housing Opportunity Index that measures the percentage of American homes sold that are affordable to families earning the national median income. The nearby chart shows that nearly 63% of homes were affordable by median earners in 2000, but only 40.4% at the height of the mania in 2006. Today, median earners can afford nearly 75% of all homes sold.
The larger economic theme here concerns the nature of what constitutes the kind of resilient, sturdy expansion that the U.S. needs. The Obama Administration and Chairman Ben Bernanke’s Federal Reserve have bet on a recovery based on reflating asset prices with easy money, federal spending and temporary stimulus programs. Part of that bet was reflating the housing bubble.
The results are what we now see: higher stock prices for Americans lucky enough to own shares, but 2% growth and mediocre job creation, a housing recession stretching well into its fourth year, and soaring commodity prices that reduce real income growth.
Housing is a major part of the U.S. economy but it needs to shrink from its artificial, subsidized share of U.S. wealth to a level that is sustainable based on population, income and productivity growth. A healthier economy must be built on capital investment in plant and equipment, new ideas and new companies. We need an investment boom, not another housing bubble.
“…the media and business classes still clamor for a miraculous housing recovery that will save the U.S. economy…”
To which of these two classes does the Federal Reserve Board belong?
“Fueled by subsidies and easy credit, with mortgages guaranteed by taxpayers, we built McMansions and vacation condos on the assumption that prices would never fall. The resulting bubble saw prices rise faster than any time in modern history, so much so that even after four years they still have further to fall before they reach pre-mania levels.”
Here is a hypothesis for psychobabble economists to ponder:
The more prolonged and extreme the irrationally-exuberant beliefnis that prices will always go up during the expansion of a bubble, the more protracted and extreme the price declines will be when the bubble inevitably pops.
At least another five years to the RE bottom. And my mood today is in alignment with Combo’s thinking: cash is king. Still, I think Combo should have 90% cash and ten percent gold and rebalance yearly!
I recall back in 2001 very few people wanted gold. Now a lot of people want gold. I keep eating to buy more but my Excrl spreadsheet numbers say my asset allocation is just right! Haven’t bought gold for over teo years.
“eating”/”wanting”
very freudian
“I recall back in 2001 very few people wanted gold.”
I recall the price back then was in the neighborhood of $300/oz.
“Now a lot of people want gold.”
Yes — now that its price has quintupled, to $1500/oz.
And I expect that desire to ebb once gold prices eventually mean revert, as this is the usual pattern of irrational exuberance which fuels, then collapses bubbles. I note that a lot more people wanted houses back in 2005 than they do now, after prices have fallen by 30%-50%.
I’d like to think that cash is the new contrarian thing that one will profit highly on. So many people on main street snickering about the “paltry” 0.2% yield of the 52-week T-bill. Makes me want to buy more.
However 0% fixed rate Series I bonds currently have a variable yield of 4.6%, which is 2.3% annualized. One could buy right now, $5,000 worth of electronic savings bonds and $5,000 worth of paper bonds, redeem it all in a year, get the 3 month interest penalty for selling within five years, but still have 1.75% yield after the penalty. Try that in a CD. $10,000 with a 1.75% yield in 12 months.
Yes, holding cash is most definitely the most contrarian position right now — by a long shot.
From PB’s link:
Prices are continuing to fall again because we still have too much housing stock.
————–
I do wish they’d stop thinking that housing prices are dropping only because of the inventory. Housing prices are dropping because current prices **are not affordable** to the people who would like to buy them.
Sometimes, people get hung up on the “supply and demand” part, without understanding the function of price.
“Some economists are starting to wave warning flags. Royal Bank of Canada says monthly carrying costs—mortgage payments, property taxes and utilities—for a detached bungalow represent 72% of the average Vancouver household income. That is more than double the 32% threshold that Canadian banks use to gauge whether a borrower can handle a loan.”
At just 72% of average Vancouver household income, I’m surprised economists have noticed any problems just yet.
They’re counting of rich mainland Chinese to snap everything up in cash only transactions and then sit on it forever.
I have an upper class Mexican friend who fits this bill. His dad bought a vacation house in Leucadia, CA (San Diego ) in the late 70’s. He paid cash for it, which blew the developer away. His dad passed away but the vacation house is still in the family.
Of course the real question remains: just how many rich mainland Chinese are actually buying houses in cold and dreary Vancouver? Probably not all that many.
Once I was told by a Canadian that it is quite easy to relocate to any of the territories once under the British Crown. So it’s not just ex-HK people moving to Vancouver, you see your share of other global expats, such as the ubiquitous Punjabi raspberry growers in Abbotsford living in their huge compounds. Vancouver (and Lower Mainland BC) just happens to be a desirable place to live - not to imply that there isn’t a bubble there.
Overpaying for 5,000 square foot McMansions is so 2000s. Overpaying for 1,000 square foot kit homes is the new black. Buy now or be priced out forever!
LOL - a downpayment is…a…’civil rights’ issue?
The evil white man at it again…
——————-
U.S. Mortgage Proposal May Result in ‘Rental Entrapment’
Business Week | 6/2/2011
Posted on Sunday, June 05, 2011 11:06:43 AM by Altura Ct.
Minorities and the working class may find it harder to buy homes under a U.S. plan that would require larger down payments to qualify for lower-cost mortgages, according to lenders, consumer groups and lawmakers.
Bankers and consumer advocates, often at odds on policy issues, united today to make the case for revising the government proposal and released data that they said shows the rule would deny loans to millions of borrowers while doing little to reduce defaults.
“This is a civil rights issue,” John Taylor, chief executive officer of the National Community Reinvestment Coalition in Washington, said in an interview. “It falls around people of color. It’s a class issue.”
The rule could lead to “long-term rental entrapment” for “large numbers” of Americans who would need at least a decade to save for a 20 percent down payment, said David Stevens, president of the Mortgage Bankers Association. It would take at least a decade for a family to save that much in Los Angeles, Philadelphia, Seattle, and Birmingham, Alabama, he said, citing U.S. and industry data on household incomes and home prices.
“The rule could lead to “long-term rental entrapment” for “large numbers” of Americans who would need at least a decade to save for a 20 percent down payment…”
Oh, the horror! Suggesting people save and wait until they can actually afford the house.
Everyone seems to have forgotten this was standard before the bubble - 10% or 20% down, 3 years of tax returns, 6 months cash in the bank, no other debt, etc. It used to take years to be in a position to borrow hundreds of thousands of dollars for a home purchase.
How about the long term rental entrapment of living in a 2 family house over your grandmother till i was 9, so my father could save $$$ build his own 2 family house and we can move downstairs?
I’m mixed on this because I DO think that owning a house is a good bet, mostly because one can control their housing costs in retirement (IF the house is paid off).
I do not want to live in a society where only the wealthy own real estate, and everyone else (especially the working class) is obligated to pay them rent, for life. It’s something that has bothered me greatly about this bubble and subsequent burst. So many cash purchases are preventing working people from buying their own homes.
The first thing we need to do is change all laws that make “landlording” a business. You are an investor when you invest on the supply side — direct loans to start-ups, loans to businesses that want to expand, etc. You are a speculator when you “invest” on the demand side, and expect someone to pay you rent because you’ve blocked them from the market, or when you expect someone else to buy the item from you for more money in the future.
We need to eliminate all deductions for landlords (and no Prop 13 protection for anything other than a primary residence in California), except for those who own apartments or other structures specifically designed to be rentals. Of course, if a LL were to abide by certain rent control laws — passing the benefits of the deductions to their tenants, that could be considered as well.
I can rent for half what it would cost me to buy. Some trap!