If People Don’t Think Prices Are Going To Go Up
Readers suggested a topic on opportunity. “It was said during the bubble years that for those who were waited the bursting of the bubble would provide great investment opportunities, perhaps the greatest in our lifetimes. Is that still true? And if so, what sort of opportunities and where should we be looking? I ‘always’ believe that ‘everything you you actually need to survive; food, shelter, energy, will rise in price.’ Does this make me a cargo cultist?”
A reply, “No. It just makes you appear to be misrepresenting reality about housing. I too always believe that everything you need will rise in price. I don’t believe that being forced to select 2 out of 3 is sustainable when 1 out of 3 is cost prohibitive.”
One had this, “There has never been a better time to buy a house, at least according to a majority of your fellow Americans. Oops…my bad. I see the article I posted below is three years out of date!”
“April 16, 2009. Americans See Buyers’ Market in Housing. Seventy-one percent think now is a good time to buy a house.”
Another said, “I bought three houses in 2009 and they have proven to be excellent investments. The cash flow is growing, vacancy is very low, and 4% of the loan balance is paid down.”
And another, “In my area we are still priced above 2003 levels, I use the 2001 to 2003 prices as a rough baseline for ‘normal’ or ’semi-affordable,’ so my answer would be no…there are no opportunities of a lifetime. In the last 3 years anything priced at 2001 levels or below were crap and needed many thousands of dollars worth of work. My target is a quality house for $90 to $110/sf, maybe I find one, maybe I don’t…life goes on.”
From Marketplace. “Kai Ryssdal: With the American housing market going the way it has the past couple of years, we’ll take our good news where it comes. Earlier this week, the S&P/Case-Shiller Home Price Index reported a slight — very slight — gain in home prices. A scant tenth of 1 percent. Not great. But you know how we are, right? The facts say one thing, we think another. The editor in chief at Gallup, Frank Newport, is here every week to give us an Attitude Check, what Americans really think about the news of the week, which today flies in the face of those facts I mentioned.”
“Ryssdal: Just because there’s been some buzz this week with the Case-Shiller and all the rest of it that somehow we have approached a housing bottom. Do people believe more broadly that housing is at least not going down any farther? Do you know that?”
“Newport: We have, right now, seven out of 10 Americans who say it’s a good time to buy a house, so that’s a good sign as well in terms of these perceptions, which of course are very important because you have to perceive the reality for the reality to become real.”
“Ryssdal: Whoa. That’s very zen, man.”
“Newport: Very zen-esque, but it’s the key principle of social psychology, regardless of what Case Shiller tells us and all that. If people don’t think prices are going to go up, they’re not going to go buy houses.”
“Ryssdal: What about, Frank, this whole issue of people owing more on this homes than they’re worth, whether they’re underwater or not? Is it still a sizable chunk of the American housing market?”
“Newport: Well it’s pretty negative. In the good ole days, in 2006, 92 percent of Americans who owned a home said ‘it worth more than I paid for it.’ Now it’s 53 who say it’s worth more, but 43 percent say it’s worth less. A lot of those are underwater, we make a presumption. And a lot of those, by the way, are younger homeowners based on our data.”
I will admit it. My wife and I have discussed buying a place for our kids.
Down the street from us is a condo complex. Pre-bubble condos were going for $60-70K. At peak, over $150K. Now you can pick one up for under $30K.
http://www.zillow.com/homedetails/5420-W-Friess-Dr-Glendale-AZ-85306/2126469882_zpid/
This $30K is up from $25K a year ago.
Property taxes are $200-300 a year. $6K down, $24K for 15 years at 3%. PIT would be $190 a month. Add $100 for property insurance and $100 for condo assoc for pool and grounds maintenance and you are only at $400 a month (both of those a guess).
If you can’t rent that out at $600-700 a month, I would be surprised. There are 2 listed for rent right now, one at $700 and the other at $750.
Is property insurance that high for a condo? My insurance is half as much and I have an SFH.
do not know. That was pure guess.
I’m not known to be bullish on housing but with numbers like those, even I could be persuaded.
Bet you could shave off $5-7K off the price with aggressive negotiation too.
The only issue is the neighbors — or the financial institution holding most of the units. If they stop paying the common charges and you start carrying the whole building, you’re dead.
Looks like near 15th and Thunderbird? I don’t know much about the area but have friends near 19th. Property taxes of only $300 per year! If I was 20-something in Phoenix, I would want something like that. Assuming a paid off economy car thrown in, and no matter what the job outlook the next ten years, I would always find work to easily pay the $300 tas, car expenses, insurance, and the like. Seems a carefree deal.
Good idea for giving something back to the young people, as social security won’t be around for them.
“Good idea for giving something back to the young people, as social security won’t be around for them.”
Fine. Shut it down and return every last penny of my contributions. The GOP continues to make this a part of the platform. DO IT.
Your contributions were paid out to previous generations.
Social Security hasn’t been a pay-in-get-back system since 1939.
What are the numbers? Collect $800B last year, spend $750B. Total amount in the trust funds would be expended in less than 5 years.
In principle, couldn’t the Fed invoke QE3 (or QE4, QE5, whatever round they are on by then) to pay off all Social Security contributions?
I’m not suggesting this as a sound policy; merely commenting on its technical feasibility. Am I correct?
QE the Fed has not been buying from the treasury directly, so hasn’t actually put money into circulation. It has been taking loans off the books of banks, freeing up room in the reserves for them to make more loans.
The federal government could borrow some… oh, I do not know.
Median income $50K, 14.6% = $7K a year… average of.. say… 25 years in workforce (more boomers in the top half of the 45 than busters like me in the bottom half….
So, they may owe an average of? $175K per household. 100 million households = $17.5T. If that was all bought by the Fed.
Fed balance sheet is up from $1T to $2.5T from QE1 and QE2. So we’re talking an increase in the balance sheet by a factor of 7.
I think the Fed balance sheet increasing by a factor of 7 would be… what’s the word? Oh, right, marginally… hyper-inflationary.
If we have $38T money backed by that $2.5T we have a leverage of 15.2. If we upped the reserve requirements from the current 3%, to say… 50%, then all that extra money may not even be all that inflationary.
Banks, however, would not be able to make insane profits, if they could only loan out half the money that is deposited in them.
“It has been taking loans off the books of banks, freeing up room in the reserves for them to make more loans.”
So I thought. In this case, the money the Fed uses to buy assets becomes a liquid asset on the bank’s balance sheet, which it can presumably use to buy stocks or do whatever else it wants with the money, within regulatory constraints (e.g. minimum reserve requirements).
and return every last penny of my contributions ??
Thats not acceptable as far as I am concerned…I starting paying the SS tax in 1969…Still paying into it X-two since I am self employed….I did not buy into a interest free loan program…
“Still paying into it X-two since I am self employed….I did not buy into a interest free loan program…”
I am of divided mind on your ‘X-two’ point.
Since some of my income, and all of my wife’s, is self-employment income, I find the marginal self-employment tax extremely onerous. In particular, it provides a major incentive to invest in business assets and take a depreciation allowance, rather than throw away over 15.3% (or whatever the current figure is) off the top, before even considering federal and state taxes.
The part of me which disagrees has earned W-2 income for a quarter of a century already. The half of the ‘X-two’ tax you think W-2 earners don’t pay is money the employer has to pay into entitlements programs as overhead. Economists have a complicated explanation for how much more employees might be able to earn if the employer were not burdened by the payroll tax, but the simple qualitative answer is that employees would receive at least part of the which might otherwise be paid out in payroll tax.
Further, though most economists are probably reluctant to point this out, the payroll tax overhead incurred by employers also provides disincentive to create jobs and motivation to hire more contract employees. Social Security is a jobs killer.
I didn’t buy into anything… this was all in place when I got here. I send them money every quarter because they will send men with guns to take me away to prison if I don’t.
It’s as simple as that.
Point taken Pbear…However, given the way companies are ran today, I have significant reservations that an elimination of the employer contribution of the SS payment would generate one penny of extra pay to the employee…
I didn’t buy into anything ??
You bought into it when you decided what type of employment you were going to pursue…Many millions of people in this country pay nothing into social security….
What type of employment doesn’t involve paying Social Security?
Oh there are many…Teachers in California is just one…
“…given the way companies are ran today, I have significant reservations that an elimination of the employer contribution of the SS payment would generate one penny of extra pay to the employee…”
That’s because you are ignoring competition among employers for workers.
Under the current employment situation, where there is a relatively large number of prospective employees per job opening, you are generally right: If the ER portion of the payroll tax were eliminated tomorrow, employers might feel no need to increase wages in order to attract workers, and hence might simply divert the newly freed money to top management’s further enrichment.
In a more normal hiring environment, wherein employers have to compete on the margin for workers, those employers who reallocated payroll tax payments to wages would have an advantage over those who did not; the latter would be left out in the cold with respect to competition for the best workers.
The same comments apply in the current environment to highly-sought employees with specialized skills which foster competition among employers. A decreased tax burden would likely translate into some increase in pay for high-value workers.
“I didn’t buy into anything ??”
You can always leave the country if you don’t like to pay F.I.C.A.
A decreased tax burden would likely translate into some increase in pay for high-value workers ??
On the margin maybe for a few but for most I think not…I think the savings of a elimination of the employer contribution to SS would mostly trickle UP…
“… and no matter what the job outlook the next ten years, I would always find work to easily pay the $300 tas, car expenses, insurance and the like.”
“…I would always find work…”
Maybe …
I have never seen an instance where McDonalds is not hiring.
My son has applied at about 20 fast food places, including 4 McDonalds. Not a single call back.
Perhaps the problem is that he took French instead of Spanish in high school.
Have him try S-Bucks. My daughter got hired there after having the same experience your son is currently having.
espanol not required.
Actually, that is 55th avenue, not 15th.
Son is 18. Volunteered at the hospital in the gift shop for 4 years, so has retail experience. Volunteered in the hospital’s transportation department for 3 years, so has other work experience. Letters of recommendation from bosses in both departments.
Was the 2nd in command of his high school ROTC unit, so is clean cut, polite, is always “yes sir, yes ma’am”.
Been putting in 10-20 job applications a week for 2 months since turning 18, without even a SINGLE call back. At first he could blow it off as still being in high school. But, 3 weeks since graduation, and still not even a single call. Not one.
Good luck to your son. My daughter is just a little younger, and a lot less diligent in sending out applications. So far she still expects us to let her use the car all the time and put gas in the tank, with no sign she has landed a summer job…
I have a friend with three daughters, 18, 16, 13. They seem to think that money just grows on trees, as the two of driving age think nothing of burning up a tank or two of fuel per week chauffeuring friends all over town. The oldest never even tried to get a job, though she is going to school. She works part time for her father as a bookkeeper, and does an awful job. She doesn’t even care, making the same mistakes over and over. The kids eat sushi with their friends a few nights a week, on dad, and don’t do their chores. It’s his fault, and he knows it, but he continues to give them everything they want. I have a hard time imagining them doing anything for themselves, ever.
“Property taxes of only $300 per year! ”
Not sure what is up with it. The assessor’s web site shows taxes soaring from $550 a year a decade ago, to peak at $720 in 2009 (based on on 2007 peak price), then crashing back to $229 for for 2011 (based on 2009 price).
Taxes are based on the value 2 years prior since it seems to take two years for them to do the assessment, run the math, and mail you the bill.
Always a dreamer. Some just never seem to learn. After years of printing and giving money to the banks to do whatever they want is now coming due. “Reality is here”.
Hope you are prepared!
I will refrain from making the comment that I would love to make.
I would love to suggest that it is borderline abusive to saddle your son with any debt at all. He may not want to live on that street, city or state. Since you cannot afford to “buy” the place, but see it as a sure fire “investment” you are simply betting on red with money that you don’t have and cannot afford to lose, and will use your kid as the addict’s excuse. He might not want to flip burgers at the all day Spanish Macdonalds for the next 30 years. Just a thought.
I said my wife and I are thinking of buying for our children. We would own it and let them live in it.
I have a 25 y/o daughter with a 3 month old baby that is renting a condo while trying to save for a house. She could save faster if she were renting from me at $500 instead of someone else for $900.
My 18 y/o will be living with us for the foreseeable future, but at some point, a year or two from now, I could see him wanting to move out. Maybe he’ll want to buy it off us, or maybe just live in it at our carrying cost for awhile.
And, as it turns out, that unit is already under contract. There are a couple others we’re looking at now.
Actually you are not considering buying. You are not able to “buy”. You are considering going into more debt in the name of “it’s for the children” on speculation that profit will be made. Then you are expecting the son to “carry” it for you, imprisioning him both financially and geographically. your own debt adventures have been fiascos and you want to trap your adult son in the family dynamic.
I am not pointing this out for your benefit. It is a case study in imprudence and down generation abuse. Nothing personal.
“This $30K is up from $25K a year ago.”
Other than the possibility that prices may drop a bit in the wake of whatever comes out of the Eurozone financial crisis, including potential downturns in Canada and China that could knock the all-cash investors from those countries out of local U.S. residential property markets, where is the downside of buying a condo for $30K, particularly if a family member will actually use it as a residence? Considering how far prices have fallen, it seems reasonable to guess they won’t go that much lower from where they are now…
Even a 50% drop is only a net loss of $15k.
“There are 2 listed for rent right now, one at $700 and the other at $750.”
Usually the ones still listed for rent are the ones that are asking too much and therefore do not rent. I would find out what people are actually paying for rent before you pull the trigger.
Which is why I placed my “I’d be surprised if it didn’t rent for” in the $600-700 range. I’m well aware I’d have to undercut the two that are currently listed as for sale.
Beware the HOA “Special Assessments”
Just had a buddy get a $5,000 “Special Assessment” as their new roof was leaking and needed to be replaced…
““It was said during the bubble years that for those who were waited the bursting of the bubble would provide great investment opportunities, perhaps the greatest in our lifetimes. Is that still true?”
No, it’s not true. I am merely hoping to break even. It’s possible that buying/renting will both equate to “throwing money away” in my lifetime, unless I buy one of those condos Darrell is talking about.
I think if I left Florida I’d feel better about a lot of things. Mostly, I need an affordable place to raise children.
As long as you have the starry eyed “Rich Dad” and “Montelongo” graduates going to every city and buying up homes like locusts…”normal” buyers are going to be screwed for a while. Going to take even more patience and some really thick skin to sit out this next round.
House came on the market 8 days ago around here 1800+sf, semi-clean and a decent size lot for a cookie cutter neighborhood.. Comps are 195k, listed at 239k, had 8 offers with one accepted today. Will take a while to see what the final was, there seems to be quite a bit of back pressure in this neighborhood, too many buyers for too few homes.
I wonder how high of a price the back pressure supports in this area in regards to qualification? 250k? It has to be much lower than the 2005 bubble due to no pay option type arm loans…yet. I told the wife we are going to have to enjoy renting a while longer and stay out of this crazy suckers market.
It’s your government at work providing an endless stream of howmuchamonthers making for a very crowded trade.
You buy in that trading environment, you’re fawked for life.
You are correct.
We have officially thrown in the towel and plan to sit it out indefinitely.
“We have officially thrown in the towel and plan to sit it out indefinitely.”
Same here…at least up until the point when other priorities crowd out continuing the current policy of artificially propping up U.S. housing prices. I’m guessing this priority will alignment will happen involuntarily at some point over the next five years…
The supposed great investment opportunities were to come when those with some savings found distressed sales with no competition from credit volunteers. The trouble is, the FedGov has ensured that most everyone still has easy cheap credit (for houses at least). Savers cannot compete with easy credit.
You can keep your freedom though, and stay out of debt. It will be lonely.
“You can keep your freedom though, and stay out of debt. It will be lonely.”
I’m there, dude, and it’s not too lonely now that the wifers is finally on board.
You can keep your freedom though, and stay out of debt.
We’re completely debt free homeowners. Just mentioned that to someone earlier today at a graduation party, and several heads panned to see who was talking. I thought about pointing out my wife’s family car, the oldest vehicle there, but I decided to keep quiet being that we live in a small town.
I understand how you feel we feel the same way. I also live in FL and see home prices rising due to low rates what will happen when rates go back up I think will be back to more of the same.IMHO So if I BUY NOW HOW COULD I SELL AT HIGHER RATES ?
Go for it dude! But check out the financing of the housing association first. That sounds like a very low price to me. Do you have cash or do you have to get a mortgage? Even if you get a small mortgage it can be accelerated to pay it off sooner.
Does it seem to anyone else that the global financial system is currently stretched to the breaking point?
What will give when it breaks? Or will the break be successfully avoided?
The tension in the situation is heightened by the fact that this is a U.S. presidential election year — just as it was in 2008.
Only time will tell whether and how the blowback from this latest leg down in the international banking crisis will impact the U.S. housing market.
One thing is for sure: Those who are fascinated by the policy response to international financial crises can look forward to a summer of sitting on the edge of their seats.
Bund, Treasury, Gilt Yields Drop to Records as Euro Crisis Grows
David Goodman and Keith Jenkins
Friday, June 1, 2012
June 1 (Bloomberg) — German, U.S. and U.K. yields fell to all-time lows after Spanish Economy Minister Luis de Guindos said the future of the euro is at stake, driving demand for the safest government securities.
German two-year note yields fell below zero for the first time and 10-year yields on Austrian, Dutch, Finnish and French bonds also fell to records as a report confirmed euro-region manufacturing contracted in May. Spain’s 10-year yield exceeded 6.5 percent for a third day after de Guindos told a conference in Sitges, Spain, yesterday that we’re in a “very difficult situation.” The euro slid to a 23-month low versus the dollar.
“There is a real sense of impending panic spreading now and that’s exacerbating all of these moves,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. “Safe havens are alive and well and risk aversion is likely to intensify as long as Europe’s problems remain unresolved.”
…
The other big question is if the U.S.A. Will go the way of Japan (birth dearth, decline in real estate prices for more than 22 years).
America has a variety of natural resources. Japan has none or little and killed off its nuke industry. The average Japanese is far more racist than Americans. Creativity among Japanese hardly exists.
Is the western birth dearth a bad thing for American stock indices?
Should the religious right take over all the guns and force whites to marry and copulate? (I am half serious on that. Right wing sites I have seen blame abortion, individualism, and selfishness…hey, all Ayn Rand ideas…for the decline in births).
Some conservative sites still insult childless boomers who are white collar professionals by saying less educated people are less likely to marry. Yet they fail to mention less educated people are having more kids while more educated ones are having fewer kids. Which is it? I see more likely an emerging idiocracy.
Muslims are breeding like flies. Maybe they will transform I to productive capitalists and turn to reason and be the big economic growth engines of the century?
Is the western birth dearth a bad thing for American stock indices?”
sure look’s like it
I’m missing the connection.
“It was said during the bubble years that for those who were waited the bursting of the bubble would provide great investment opportunities, perhaps the greatest in our lifetimes. Is that still true?”
There were two things about the Housing Balloon that I found advantageous:
1. It showed me how corrupt, stupid and delusional my fellow Americans are. Whatever hope I had for my nation, my people and my future, was obliterated. And I don’t miss it.
2. It provided me with housing that was so cheap that I’m not going to tell you a number. You just won’t believe it. Nobody online does when I tell them.
I ran out and bought housing (after being a lifelong renter) after the 2008 election. Prices around here utterly cratered. I was unemployed, but finding a place using my savings wasn’t difficult. What WAS difficult, was finding a place without serious disadvantages. Since I live in a Rusty City, I’d given up on finding housing outside what I commonly perceived as crime zones; either you live in affordable housing with crime being a threat, or you live in mortal terror of losing your house to a banker while the outside streets offer no threat. I preferred the threat from the underclass instead of the threat from the overclass. So I attended auctions and was outbid several times, until my moment arrived. I laid down my cash, sailed through the title process and I was done.
Now I won’t pay a landlord (like I had for decades) or a bank ever, ever again. That’s decades of property-tax-only living. And I’m making use of my property for energy efficiency. Brick is a marvelous building material, which explains why nobody in the middle class touches it anymore (it being too expensive to build in, and commonly being associated with “old housing stock” i.e. the untouchables of the pre-rich). Its thermal inertia is literally astounding, and I haven’t used natural gas for heating in years. I have windows in sun-facing walls that end up warm to the touch on a sunny day in winter, due to my designs.
So after renting for decades and living in tiny spaces while my landlords lived like bankers, sipping hugely from my sweat, I’ve finally won. My powder was dry… but a time of great moisture was arriving, as I could clearly see, and so literally speaking, my renting from 2009 to today would have driven me into the homeless shelters by now. The advantage wasn’t so much monetary but a matter of survival.
Congrats! Great story of personal financial success achieved through patience, prudence and perseverance…
And congrats for having a steady job in a Rusty City. I assume you’re again employed? Those are the people in the best position. A $60K job in an area where a pretty good house is $115K.
Interesting story. Thanks for posting.
Brick? SWEET timeless material however a notorious thermal bridge.
“It was said during the bubble years that for those who were waited the bursting of the bubble would provide great investment opportunities, perhaps the greatest in our lifetimes. Is that still true? And if so, what sort of opportunities and where should we be looking? I ‘always’ believe that ‘everything you you actually need to survive; food, shelter, energy, will rise in price.’ Does this make me a cargo cultist?”
———–
Some of the real estate that we are seeing (land, commercial buildings, industrial, etc.) are among the cheapest those in our office have seen. And the experience goes back several cycles.
Frequently, we talk about how the opportunity to buy hard assets as cheaply as today may not come back around in our lifetimes. There will be other cycles…there always are…but likely not to this extreme.
Finished residential lots for 10-15% of the debt levels (most of the debt was used to construct improvements)…buildings that are less than 5 years old purchased for 40% of what they cost to build just a few years ago…older buildings at 15-20% of what they would cost to replace today.
Some of the newer stuff was built in areas where it should have never been built. Some of the older stuff is obsolete. Overall though, if you are selective, the prices are very low.
This opportunity was there to buy publicly traded REITs a few years ago. Those values have generally recovered. When the prices were bottoming in the REITs a few years back, they were effectively valuing the real estate at unprecedented discounts. Many people were too afraid to take advantage of the discounts (which is why the discounts existed in the first place).
“It was said during the bubble years that for those who were waited the bursting of the bubble would provide great investment opportunities, perhaps the greatest in our lifetimes. Is that still true? ”
I’m in the process of buying a 1650 sq ft house for less than I sold a 1166 sq ft townhouse for both in the same expensive area. I was able to put down 20% and still have savings thanks to the timely sale of the townhome. Maybe this will be the best financial deal I’ll ever acheive ? My start-up that went public sure didn’t turn out to make me much money not after the down rounding and other BS we endured. My stock market investments flat, bonds up a little but future returns will certainly be flat to down. Yea this housing bubble will probably turn out to be the biggest net gainer of my lifetime.
Prices up or down who cares no jobs no sales