The Thinking That Never Went Away
Readers suggested a topic on the continuing housing bubble. “How long does it really take for the bubble mentality to go away? There has been a slump (long,long overdue) in the sales prices for real estate for a long time in most of the country. There has been an uptick this spring which seems to be attributable to less inventory for sale and some loosening on borrowing standards. I’ll leave the analysis of how much prices have gone up and where and all that to others if they really want to discuss it. You can call it a rebound or a dead cat bounce or a bump on the long road to real affordability or whatever you like.”
“But what I would like to talk about is the attitude. People are talking about real estate investment as if it is the holy grail all over again. I don’t often bumb up against issues connected to real estate investment in my job, but this week the phone has been ringing off the hook and while the issues vary a little, that is the underlying theme. The [people/things/entities/stuff/whatever] my office deals with are all excited about real estate again. And the people calling are not just somebody in suburban wherever who knows how to get the right phone numbers to call but who don’t usually deal with large issues. They are attorneys who work for clients who pay them lots and lots and lots of money just to answer the phone.”
“So, evidently, 7 years or even more depending on how you measure it, wasn’t enough to change the attitude about real estate. [People/things/entities/stuff/whatever] are still looking at it as a font of money from which to drink as long as you get in at the right time. What does it take to pop the bubble in people’s minds?”
A few short replies, “The end of ‘get rich without actually doing any work’ mentality.”
“The water-cooler perception that its participants are losing money.”
“The government to get out of it and quit pushing it like a drug?”
“I’d guess with unprecedented levels of hair-of-the-dog bubble reflation stimulus, it will take a lot longer than it would otherwise.”
One said, “The only thing that will kill the bubble mentality is actual skin in the game. And it has to be skin which is immediately accountable — no pushing it off to the next quarter or the next year or until you retire to Tahiti with a pile and leave the pending losses to your successor. Nope. NOW.”
“Examples: 1. No more mark-to-fantasy accounting where you don’t see a loss until you sell, which allows you to hold of inventory as long as you feel like it. 2. No more deferred interest, like when WaMu would receive a mortgage payment less than interest and book it as fully amortized. Nope, banks should have to treat their checkbooks like any schmo: what you have is only what you have now, not what you think you’ll get later. 3. No more 0% down, you want a house you need real cash now. 4. And NO MORE selling up the food chain scot free for the fees. If you want to sell a mortgage to Fannie, you have to hold a risky tranche for yourself. And yes, that tranche bites into your reserves, so you can only make mortgages until you run out of reserves. No more infinite deals.”
“In other words, if you want to make money on a mortgage, you’ll have to do it the old fashioned way: by waiting 30 years for someone to work it off. That will kill a bubble, and fast. It will also kill the country.”
There was this, “‘Get Rich Quick’ has always held some appeal to people and driven bubble mentalities. Various gold rushes, tulip bulb mania, stock market bubbles, Florida housing bubble in the early 1920s, recent housing bubble, etc.”
“It is tempting to say that the government leaving the lending industry would stop bubble mentality, but I think that’s false. There were housing bubbles all around the world in countries where there was no government loan guarantees. Now, if you abolish the Fed, that might have an impact, since there would be no one to ‘lean against the wind’ with ultra-low interest rates in tough times.”
And finally, “I don’t think the average American thinks that the housing bubble has popped like we do here at the HBB. In my opinion most people view that home prices have gone down and may be they can buy now cheaper as the escalating prices and equity withdrawals would be a safety net. They also believe that owning a home is a path to prosperity. This thinking never ever went away. It is ingrained in their brains. So they are hoping for or almost assured about equity withdrawals in their future all by their own magical thinking.”
“Another reason is that most people do not have anything going for them in their jobs economically speaking. So owning a home is all they have left of an American dream. Being in debt paying for a car or a house they cannot afford is all they can aspire. Without these items they will feel like a big looser. A home to them is a future magical money tree.”
How many people in the country are against rising prices of houses?
Most people are against rising prices of food because most people don’t live on farms and thus don’t produce food. If they did produce food then they just might be rooting for higher food prices. Same with fuel prices; If lots of people owned oil wells then they would be rooting for high prices of oil, which would translate into high fuel prices.
But most people do not live on farms nor do they own oil wells, but most people do own houses - either own outright or are paying off to own outright, or at least to pay into in order to gain some equity.
And since these people who have an interest in rising house prices vote the politicians who get elected also have an interest in rising house prices.
Lots of people are for rising house prices, very few are against it.
Lots of promotion, little dissension.
This was true in the 1970’s and no one was building $800k condotels in Las Vegas.
The MSM (the shapers of public opinion) have an interest in promoting RE because RE money helps pay their bills.
There is no opposing group out there that helps the MSM pay their bills thus the MSM (again, the shapers of public opinion) never raises the other side of the issue.
They may have not been building conotels in Las Vegas in the Seventies but for as long as I can remember RE has been pushed. Condotels is just one form. California Pines, Hesperia, Lancaster/Palmdale, etc. are some others.
Ben, in the1970s people had pensions and cheap college etc and less credit. they didn’t need the house appreciation to retire. And the media was 30 minutes of Dan rather.
LOL.
Houses need to appreciate to “retire”? Where do you come up with this stuff?
Yeah, really. Oxide bought into the housing mania hook, line, and sinker.
a before the year 2003 I never heard anyone say their own home is their retirement plan.
Coming from Fresno, traditionally a real estate money pit where houses are like cars and liberal politicians change zoning to allow low class housing to infiltrate and undermine middle class neighborhoods, I never thought of a primary residence as a means to wealth. Or even rental housing, also subject to deteriorating values.
a before the year 2003 I never heard anyone say their own home is their retirement plan.
I recall that meme going back WAY further—it was represented in Money Magazine back when I was young and stupid enough that it was worth reading, back in the late 80’s/early 90’s.
Houses need to appreciate to “retire”?
You can thank the 401K for that.
Back in 2005, at the peak of the house flipping frenzy, I had two co-workers who quit good paying staff engineer positions to flip house full time. Why? One told me he wanted to retire a multimillionaire. Being an engineer, he ran the numbers and figured out that the ole company 401K just want going to get him there.
For many in the middle class, house flipping represented their last chance to grab the brass ring.
I had two co-workers who quit good paying staff engineer positions to flip house full time.
Maybe we should thank the housing bubble for weeding out the gullible people from the work-force.
In the 1990s a young software engineer quit his civil service job because he was doing so well in stocks! Ha!
Then in 2000 I knew a guy at the defense company I worked for in Arizona. He never worked overtime. He was asked once by a manager to start doing it so that he could move up in rank. He was in a trapped ranking for over ten years. Well the guy told me he was making more money in stocks than as a salaried guy. I left in August of 2000 to go consulting. Wondered about that guy. Still trapped in his grade/rank whatever you call it and up Shist creek without a paddle this time.
I think you mention Cronkite.
‘they didn’t need the house appreciation to retire’
If people need some asset to appreciate to retire, there might be a shortfall. For a brief time a few years ago, all sorts of statements were made about the mania. That it was an illusion, we should buy houses to live in and not use them as an ATM, etc. Boy that went out the window. If it was true then, it’s true now.
What millions of people will use to retire is a good question. Savings rates are low, interest rates on savings are almost non-existent. Are we really counting on the wall street casino or house prices to live on for years after we stop working? I’m guessing there will be a bunch of people working longer than they expect.
FWIW, rising home prices did allow my parents to retire in more comfort. They would have been OK if there was less home price appreciation, appreciation was a bonus.
They didn’t sell at the peak, but they sold the home that they owned since 1975 in 2004. After paying off the minor remaining debt (yes, they did refinance to put kids through college, etc.), they took the proceeds and bought a more inexpensive home elsewhere in CA for cash.
Even though one parent worked as a teacher/administrator at a high school, and the other as a low/mid-level employee at a utility, they are now debt free, and combined with 1 pension, 401k’s (they maxed out all they could), IRAs (ditto), and Social Security, they will not be eating Alpo.
They won’t be flying first class, and are careful to keep their money invested in ways to maintain purchasing power, but they won’t be eating Alpo.
I was thinking about this today while out with my 6 month old son, if I was to give one piece of investment advice to my kids, it would NOT be to buy a home (as I’ve said before, housing is consumption, not investment), it would be to start to invest as early as they can.
Create a plan that you can follow without emotion and stick to it.
My own plan for my IRA accounts is to only buy from Schwab’s “A” rated securities in all sectors in rough proportions to the Wilshire 5000, rebalance once per quarter, buying more of holdings that have fallen in price, selling parts of holdings that have risen, and sell 100% of any stock that fell to “C” or lower–and then buy more from the residual cash to try to get back to the Wilshire 5000 balance. So far, it has worked quite well.
With a detailed plan, you resist the emotional response of selling when prices are low, and buying when high.
So they dumped a pile of money in a depreciating asset(negative net), sold at a once in a world history point and magnified their losses by paying a massively inflated price at the same point in history.
There it is folks. Magnifying your losses equals retirement. You can’t retire without magnifying your losses.
…. holy sufferin’ $hit.
My own plan for my IRA accounts is to only buy from Schwab’s “A” rated securities in all sectors in rough proportions to the Wilshire 5000, rebalance once per quarter, buying more of holdings that have fallen in price, selling parts of holdings that have risen, and sell 100% of any stock that fell to “C” or lower–and then buy more from the residual cash to try to get back to the Wilshire 5000 balance. So far, it has worked quite well.
RW, how has your approach performed relative to just buying something like a low-cost Wilshire 5000 index fund, or the Vanguard Total Stock Market Index Fund?
Oxide’s right. My families’ homes were paid off. The point was not to sell the house at a profit. You would still need to have savings. The point was to lower your housing costs in years where you were no longer producing an income besides any investments you might have. They lived in these homes for the cost of the (then) low tax bill and maintenance which was meager because the homes were smaller and simpler. Back then when there was a leak in the sink, you could call your neighbor to help you, not an expensive plumber. In my great grandparents’ and one grandmother’s case they lived in those paid off homes into their late 90s.
How much would they have had to save earlier to pay that 30 years of rent?
Maybe it was more important when you felt tied to and a part of your neighborhood where there was also a support system. I don’t know if that exists in very many places anymore.
Thank you snowgirl.
I have been posting about the “20 years of free rent” for quite a while now and it seems to go right over the heads of HBB. They all seem to think that I want the appreciation now and that I’m going to “walk” if I don’t get it. (Maybe they keep harping on this because they’re the short-sighted ones?)
I’ll get 20 years of free rent even if the house value falls to 0.
Paying a massively inflated price for a depreciating asset and then doubling your costs by financing it is free?
Explain how that works.
For many, rising house prices mean higher property taxes, disruption in the neighborhood as houses change hands, more local building chaos, traffic issues etc. — all anathema to the average homeowner’s peaceful enjoyment of their property, so no. I don’t think most people are for rising house prices unless they’re serial equity suckers, which I would argue is a relatively small percentage of total homeowners.
Sometimes a house is a home.
‘I don’t think most people are for rising house prices’
You’ve got a point. I’ve never had a chat with someone who said, ‘man I wish the value of my house would go up.’
This past week, as I was reading articles for this blog, every single report stated unequivocally that higher house prices were ‘good’ news. And I mean the writers are stating this. It’s not a quote, or put out as an opinion, but published as accepted fact.
This past week, as I was reading articles for this blog, every single report stated unequivocally that higher house prices were ‘good’ news. And I mean the writers are stating this. It’s not a quote, or put out as an opinion, but published as accepted fact.
This is the popular delusion essential to the housing bubble.
I don’t agree, Ben. Everybody who overpaid during the bubble but could still make payments during the crash probably wishes the value of their homes would go up, at least to what they paid for it. There is some peace in knowing that if you had to sell, you at least didn’t need to bring cash to the table.
That peace doesn’t exist for you or anyone else who financed a hosue 1998-current….. and never will.
Approximately 65% of households directly benefit from rising home prices.
And since self-interest is a powerful force, it’s hard to imagine less than 65% of households really want home prices to fall.
‘Everybody who overpaid during the bubble but could still make payments during the crash probably wishes the value of their homes would go up’
I know two people in this situation who talk with me about it. Neither has ever said anything about prices going up. They may think it, but never have said that to me.
‘it’s hard to imagine less than 65% of households really want home prices to fall’
You’re missing the point. I’ve been around long enough to know that people didn’t used to discuss house prices in this way at all. They might say, this neighborhood is going down hill or the new road has made things better, but this fixation on rising prices is not normal. IMO it’s a function of how long the bubble has been ongoing.
“…this fixation on rising prices is not normal. IMO it’s a function of how long the bubble has been ongoing.”
Moreover, economists and MSM journalists who chronicle the bubble are in extreme denial about this aspect of housing bubble abnormality.
“You’re missing the point. I’ve been around long enough to know that people didn’t used to discuss house prices in this way at all.”
I agree, but I don’t think that was Combo’s point. I think Combo’s point was that government policies that promote higher home prices are deeply rooted in the populace.
The populace just wasn’t always obsessed with home prices.
‘I don’t think the average American thinks that the housing bubble has popped like we do here at the HBB’
I must have missed the meeting where this was decided on, because I wouldn’t keep this blog going if I thought the bubble had “popped”. All I have to do is look around Flagstaff Arizona. Prices are 8 to 10 times median incomes. It’s a little lower, but it hasn’t “popped”. And I can see it in the news from other parts of the country/world. Heck, you can see it in posters here. Just the other day we had a round of comments about how they had bought a house and were no longer “locked out”. We see posters bragging about 15% gains in “the last few months”. Every single bubble cliche has been reenacted. Writing letters to owners, camping out for open houses, wild condo selling parties, you name it. Hello! The bubble is still here!
“Popped”?
Hell…… the entire northeast and mid-atlantic is just entering it’s next phase down in prices.
A certain amount is just BS. Like the lady I had in a post from Idaho recently. When asked about the increase in prices, she replied that her appraisal came in 40k lower. Recall that in 2005, median prices were reported to still be rising in Denver, and no one believed it. It was just the mix of what was selling. There is so much manipulation going on, statistics aren’t very meaningful. House ownership in the US is falling and has been for years.
If the bubble were truly history, rather than history in the making, I am quite sure most of us who post here would stop, as there would be nothing of interest to discuss.
It’s the bubble’s staying power which captures our ongoing fascination.
As for the primary question, ‘what does it take to pop the bubble in people’s minds’, I would suggest a mania exists nowhere else but in the mind. It’s a difficult concept. Like the saying, people lose their minds in herds but gain them back one at a time. An individual has to come to some sort of clarity. Try to get 10 people to do that at once.
So we would need to have millions of people arrive at the conclusion, one by one, that houses will not move up significantly in price. (This begs the question, how did they ever come to believe such a thing in the first place). The simple answer is for them to see it fall in price and stay there. From my experience with the RE bubble in Texas, hope lingers for years. Many of us had it in the back of our heads that the boom might return. Oil would shoot up, the abandoned construction projects would be completed. This was slowly replaced with despair. Eventually it was accepted and we moved on with our lives.
Here’s one thing we’ve talked about that doesn’t pop the bubble mentality; the so-called tearing the band-aid off slowly. Didn’t that morph quickly into gobs of moral hazard, wasted trillion$ and more RE speculation?
This situation isn’t new. Happened in Canada, London, China, Australia and apparently, Dubai. What different about this point in history is the US economy stinks.
“…hope lingers for years.”
Yep. Even for millennia in some cases.
And btw, if anyone can explain the technical difference between Jesus cults and John Frum cults, please elaborate.
People & Places
In John They Trust
South Pacific villagers worship a mysterious American they call John Frum - believing he’ll one day shower their remote island with riches
By Paul Raffaele
Photographs by Paul Raffaele
Smithsonian magazine, February 2006, Subscribe
Villagers on the island of Tanna dance in John Frums honor each February 15. Clan leaders first saw their Yankee Messiah in the late 1930s. He later appeared to them during WWII dressed in white like the unidentified navy seaman.
In the morning heat on a tropical island halfway across the world from the United States, several dark-skinned men—clad in what look to be U.S. Army uniforms—appear on a mound overlooking a bamboo-hut village. One reverently carries Old Glory, precisely folded to reveal only the stars. On the command of a bearded “drill sergeant,” the flag is raised on a pole hacked from a tall tree trunk. As the huge banner billows in the wind, hundreds of watching villagers clap and cheer.
Chief Isaac Wan, a slight, bearded man in a blue suit and ceremonial sash, leads the uniformed men down to open ground in the middle of the village. Some 40 barefoot “G.I.’s” suddenly emerge from behind the huts to more cheering, marching in perfect step and ranks of two past Chief Isaac. They tote bamboo “rifles” on their shoulders, the scarlet tips sharpened to represent bloody bayonets, and sport the letters “USA,” painted in red on their bare chests and backs.
This is February 15, John Frum Day, on the remote island of Tanna in the South Pacific nation of Vanuatu. On this holiest of days, devotees have descended on the village of Lamakara from all over the island to honor a ghostly American messiah, John Frum. “John promised he’ll bring planeloads and shiploads of cargo to us from America if we pray to him,” a village elder tells me as he salutes the Stars and Stripes. “Radios, TVs, trucks, boats, watches, iceboxes, medicine, Coca-Cola and many other wonderful things.”
The island’s John Frum movement is a classic example of what anthropologists have called a “cargo cult”—many of which sprang up in villages in the South Pacific during World War II, when hundreds of thousands of American troops poured into the islands from the skies and seas. As anthropologist Kirk Huffman, who spent 17 years in Vanuatu, explains: “You get cargo cults when the outside world, with all its material wealth, suddenly descends on remote, indigenous tribes.” The locals don’t know where the foreigners’ endless supplies come from and so suspect they were summoned by magic, sent from the spirit world. To entice the Americans back after the war, islanders throughout the region constructed piers and carved airstrips from their fields. They prayed for ships and planes to once again come out of nowhere, bearing all kinds of treasures: jeeps and washing machines, radios and motorcycles, canned meat and candy.
But the venerated Americans never came back, except as a dribble of tourists and veterans eager to revisit the faraway islands where they went to war in their youth. And although almost all the cargo cults have disappeared over the decades, the John Frum movement has endured, based on the worship of an American god no sober man has ever seen.
…
And John Frum returned in the form of the cast and crew of the TV show, “Survivor”. Now the locals can pray to Mark Burnett (and his Surfer Dude Jesus from “The Bible”).
It is not “the Bubble”. It is multiple bubbles differing geographically by region and business climate. San Francisco vs. Detroit. C’Mon.
My fascination is seeing what areas are currently thriving, those who are currently declining, and why. That is why I have been here forever. Intellectual curiosity and retirement. Great combination.
That is why I have been here forever. Intellectual curiosity and retirement.
I’m like you, wondering how all this is going to turn out.
As a re-entry homeowner, I am against rising prices for a multiple of reasons, and my property tax bill is one. The stability of the neighborhood is another.
The bubble in So Ca took a breather when we bought (after our broker got the price down a lot) but we knew it wasn’t over. Costs for a roof over our heads, taxes, utilities is under $600/mo. We have gratitude for our buyer broker being a hard-a**.
(He’s not hungry for his next meal, so he can be ruthless.)
How many hundreds of thousands of dollars did you overpay?
We did not overpay that much. In reality, it was around $60K, which in 2 years will be paid for in not paying rent. So we did well, and the numbers pan out for us.
$600/mo is a good old age number. If the shtf, we could still afford this house. How many homemoaners can say that. We dealt with our reality and made a good decision.
What did you pay per square foot?
Housing Analyst
Bottom line, we have to pay to live somewhere. We did the best we could under our circumstances and are grateful we are in a paid off remodeled sanctuary that we call home and our monthly nut is on the cheaper side. So Ca’s inventory is dry to the bone. That breather we got, we feel is a gift. Our buyer’s broker got us the best deal he could. We settled at 10’s of $1,000 less than the offers we were up against. Our hearts & WALLETS sing in joy.
Housing isn’t a paint by numbers game. All our circumstances are unique. Glaucoma and a change in income is part of our story. Lighten up, man.
What did you pay per sq ft??????
What did you pay per sq ft??????
Of the lot or the house?
…. and in walks the HBB knitting circle drama queen.
Answer the question TearsOfDebt….. what did you pay /sqft?
pimp
I’m no drama queen and I find that very low class of you.
We paid much more per sq ft then we did in 1998 for our 4,000 home. NOYB what we paid.
How many of you attackers own a home, (with a mortgage) or even wrote a check and paid for it outright? You’re all so narrow minded and nasty.
What does it cost you to house yourself every month?
We were paying $30K a year on rent. We are elated to own this adorable home outright. We’re happy. Chill out.
In other words, you got ripped off and overpaid by $300k+.
I’d be crying too.
sq ft cost vary per location, neighborhood, one vs. two story (in So Ca), school districts, job corridor, etc. How can you put a judgement on what we paid, when each micro market is different?
Just asking. Are you attackers Gods of Housing?
btw, I am licensed in Ca. My shopping center career included leasing and my former REIT employer required it.
Nobody is asking about neighborhoods.
What did you pay /sqft for your DebtDump?
inchbyinch (Awaiting?),
Just wanted to congratulate you on your purchase!
I saw your posts awhile back, but never got to the threads in time for you to read them (still might not with this one).
Anyway, you and I have talked about our particular circumstances, and having similar preferences and financial situations, we both did the right thing for our families.
Personally, I KNOW we overpaid compared to what the price would be absent all of the manipulation, but with the kicking of the can going on for so long, the rent paid in the meantime pretty much offset the price reduction we got by waiting. Just because some of us HBB’ers bought, it doesn’t mean that we’re now Kool-Aid drinkers.
May you and your DH have many joyful, wonderful years in your home!
‘the rent paid in the meantime pretty much offset the price reduction we got by waiting. ‘
DoublinG your monthly costs for 30 years is less costly than rent for 24 months?
On what planet?
CA renter
Thank you for the well wishes. I did read your post above.
We bought a 1900 sq ft one-story rancher w/ a pool. We gutted the interior (which I recall you did the same) and moved into this sanctuary after the 3 month remodel.
We actually lived on a mattress in the back bedroom, not moving our belongings in. Around Christmas, we moved everything in. We got to pick everything to our taste, and having always bought new, we always were limited to builder’s choices. This home is truly our taste. Chocolate cabinets, all wood floors, LG Appliances, round ba mirrors. taupe walls I picked. It’s really pretty.
We are sooo happy. We just love living in this neighborhood, and really enjoy this home.
Hope your home turned out pretty as well. Hope your family is happy and healthy. And thanks, CA renter, for spreading some sunshine
CA renter
We also got so sick of paying rent as well , and realized if you’re going to bleed money, might as well bleed it into a home. As I always say, life doesn’t have a reset button.
Since we’re never selling (toe-tag home), we did the right thing for us and you ditto.
Renting for half the cost of paying an massively inflated price for what is always a depreciating asset is “bleeding money”?
What did you pay /sq ft?
Inchbyinch, I paid $10/sf for my house and PW still lashes out at me. It seems to be a knee jerk reaction to anyone who owns a house.
Stop your pandering. Post a link and back yourself up. You won’t because you can’t. You can’t because you’re lying.
“Stop your pandering. Post a link and back yourself up.”
Was that directed to me? Because there’s a government
link that shows what I paid for my house and I’ll send it to someone I trust but I have no interest in revealing personal information to someone who is openly hostile.
You made the claim. Back it up.
Is there anyone on this blog whose word you believe?
back. it. up
pimp
$300K overpaid. Are you drinking? No way. We truly got a pretty good deal. Our broker even told us not to submit generous offers on a few homes, since he thought we would overpay. We paid over $300K, not overpaid by $300K. Did you pull that number out of your arse?
You got ripped off. Just like millions of others.
If you add at least one payment a year to principal, you can pay it off in 17 years. Drop the “P” and “I” from PITI.
Very doable.
It’s a home, not an investment (bad) that Housing Analist or Pimp negativists would promote.
Still, be a well-informed buyer. Watch out for bouncing dead cats. Our house is long paid off. Four refinancings with no HELOC. All the background crap was extraneous noise. Paid off early even while improving the home by the initial purchase amount, or more.
And you’ll lose money at current inflated asking prices. ALOT of money.
Robin
Paid cash for our adorable ranch home and the remodel as well. You’re right, it is a home. Everyday, we wake up joyous and calm. There is no place like home.
What did you pay /sq ft?
Why did you over pay by hundreds of thousands?
‘We have gratitude for our buyer broker being a hard-a**’
The other day I spoke with a UHS who told me “I think it’s going too fast.” This is rare in the business. The REIC is behaving shamefully right now, IMO.
I know an older Realtor who lost everything. Her house, her savings, her car. Yet, she was recently commenting how a certain area was “really going to take off.” It’s almost like a brain-wasting disease with these people.
I love your comments. They’re dead-on target.
The REIC is behaving shamefully right now
This is nothing new. When have they ever behaved with integrity?
Between depreciation which occurs naturally and imposes massive losses on the owner and deflationary forces, imagine just how little a house is worth.
You’ve never bought or sold a house in your life have you ?
You’ve never told the truth in your life have you?
“In other words, if you want to make money on a mortgage, you’ll have to do it the old fashioned way: by waiting 30 years for someone to work it off. That will kill a bubble, and fast. It will also kill the country.”
There ya go: WHAT’S GOOD FOR THE HOUSING BUBBLE’S CONTINUATION IS GOOD FOR AMERICA!
Imagine how much money would have been available, both public and private, for economic growth had housing been allowed to return to affordable levels.
Wouldn’t your scenario have required some large banks declaring bankruptcy?
PeakHubris -Absolutely, you’re spot on. Add to that how many lives have been derailed from waiting this nightmare out. Sad state of affairs my friend, and people still have faith in the so called leadership and FIRE sector. Oy vey.
Add to that how many lives have been derailed from waiting this nightmare out.
Yeah, it’s been horrible. Sometimes I just cry in the BMW. And when that gets uncomfortable I switch to the Mercedes :-).
Yeah….. my bank account is shedding green colored paper tears….. hundreds of thousands of them.
Carl
Not the a-hole gamers in life, but those with a life plan to just buy a home. People like my husband and I. No debt, 850 fico scores, responsible folks. The good people got the shaft with appreciating prices. The gamers won big time, I agree. We went to the auctions and belonged to foreclosure radar. I could tell you stories that would curl your hair. Don’t get me started.
And you paid the inflated prices….. and got ripped off.
Not the a-hole gamers in life, but those with a life plan to just buy a home.
OK, so we’re in agreement that the whole thing is gamed. What is so critical about the “life plan” that it’s worth getting gamed for?
” What is so critical about the “life plan” that it’s worth getting gamed for?”
Inch by inch has laid out the reasons why they bought when they did. Moving is disruptive and will get more so as they age. The additional control of their housing situation that they got by buying was worth “getting gamed for”. Not every decision is completely monetary.
uh huh…. ok. And you believe this ruse or have you decided to become a part of it?
One more time. You have to pay to live somewhere, and we purchased under $400K in So Ca (cheap for the area we live in) and are debt free. I’d say, we’re doing quite well. All the remodel is cash as well, and we still have savings.
The end. This blog is becoming yentaville.
One more time=one more lie or denial in your case.
Now answer the question.
What did you pay /sq ft?
Answer Carls question
What is so critical about the “life plan” that it’s worth getting gamed for?
“Imagine how much money would have been available, both public and private, for economic growth had housing been allowed to return to affordable levels.”
Yep, hence the love affair with appreciation, even for retirement purposes. For the folks shelling out 30%, 40%+ of their income to pay for the roof over their head, how many of them would be interested without the lure of appreciation? Plenty of other ways to get tax write offs, including retirement accounts.
And what happens when interest rates move up? Is that when the cookie crumbles?
Imagine how much money would have been available,
We’d all be rich, just like everyone was when prices crashed in the last Great Depression.
You mean when they did the exact same thing as they’re doing now, with the same poor results?
‘just like everyone was when prices crashed in the last Great Depression’
I’m so sick of this argument. What proof do you have that that would have been the result? Because George W Bush said so?
The last time we had such a massive bubble burst, we had a devastating great depression, followed by a world war.
Why should we expect something different this time?
That’s not proof, that’s ancient history and an incomplete version to boot. There was no government debt involved, so why not do what Iceland did and put these criminals in jail? Let them go bankrupt. We’d already be moving into recovery if we had followed this much more recent example.
Funny how the people who whine the most about wall street are all for handing them hundreds of billions of dollars when they screw up.
I question whether the tiny nation of Iceland is a relevant example.
Funny how the people who whine the most about wall street are all for handing them hundreds of billions of dollars when they screw up.
I wholeheartedly opposed the ending of the Glass Steagall Act, which I think began this whole mess. The big banks went back to doing the very same things they used to do back when we had a crash every decade or two, in the Good Old Days.
I never favored the bailout rescue of big banks. I also never favored the idea of letting everything crash to the ground. There is a middle ground.
“I never favored the bailout rescue of big banks. I also never favored the idea of letting everything crash to the ground. There is a middle ground.”
Hah! It’s one or the other. You either let them fail, or you give them bail. You can’t ride the fence on this one, bucko.
You either let them fail, or you give them bail.
You don’t know what you’re talking about. There are a million shades of middle ground. You can fire the BOD, and then bail the banks. You can wipe-out the stockholders, then bail the banks. You can wipe out the stock and bond holders, and then bail the banks. You can let the big banks fail, and protect the middle and small banks. You can let the big and medium sized banks fail, and protect the small ones.
You can do a million other things, including many of the things Iceland did. They didn’t bail the big boys, but they didn’t let it it all fall down either.
“I question whether the tiny nation of Iceland is a relevant example.”
[Raises hand and waives it in the air]:
BECAUSE THEY UPHELD A RULE OF LAW IN THE BANKING SECTOR, INSTEAD OF BAILING OUT CRIMINALS TO THE OBSCENE TUNE OF HUNDREDS OF BILLIONS OF DOLLARS.
BECAUSE THEY UPHELD A RULE OF LAW
How so?
The end of The Glass Seagall Act was the beginning of the end.
Be happy folks. This will never again be the America or World we grew up in.
Once you digest that fact, you have gratitude for the resilience you have.
I’m going outside to watch the sunset by my “cement pond”. Good night.
most people basically rent from the bank. The avg homeowner moves every 7 years. I f you are paying on a 30 yr mortgage how much have you paid towards principal? well basically nothing. I guess you can hope for prices to go up to compensate from the complete hosing you take by the bank.
I guess you can hope for prices to go up to compensate from the complete hosing you take by the bank.
And for a long time that worked. But now?
“If you are paying on a 30 yr mortgage how much have you paid towards principal?”
At 4% interest: 14.1%
At 7% interest: 9%.
Yeah, it’s frontloaded pretty bad.
If you do the extra-payment-per-year thing,
4%: 26%
7%: 16% .
But keep in mind when rates were 7%, people put 20% down…
I don’t understand the fixation people have with the 30 year mortgage.
A 30-year loan only carries a slightly higher APR than a 20, 15, or 10-year loan.
In case a spouse or partner (or you) suffer(s) an illness, layoff, or other life change, it’s the lowest sustainable payment. Common sense. Simple logic.
More flexibility. Especially at the artificially-supressed rates we now enjoy. Just buy smart. Or, great time to refinance if you are not currently underwater.
The one thing that will end the housing bubble is to bring back rent control
Whaa? How about just have banks follow standard accounting practices?
Do not agree w/ the posts asserting that buying is always a mistake right now. If I could have closed a deal for $250K w/ $50K down my payment would have been about $1000/mo, $500 less then I pay in rent…however thanks to the flippers and speculators in my area it was not to be, bid on several places and was ignored due to cash offers, gave up last year and am now on the sidelines. On a happier note have been reading this blog for maybe seven years or so and sold my last place quickly in the spring of 2007 thanks to what I learned here…felt the crash was imminent. Anyway really do hope the speculators get a SERIOUS haircut, they have made buying for the right reason (to LIVE in the house) very difficult for many and are not good for neighborhoods either.
Agreed. We bought a fixer upper in northern new england w/ only 5% down, have slowly finished the house, and refinanced last year. We could sell tomorrow at a profit easily, but we would have to pay 500 more a month for a rental than our mortgage cost us. Plenty of people in this area are in the same position as us, although others I know did buy mcmansions at the height and can’t unload them now…. So it is on a case by case and regional basis.
‘We could sell tomorrow at a profit easily’
LOL
Care to wager on that tall tale?
Ummm, in case you haven’t noticed. houses are selling just fine - at least in New England they are. What, you think no one in the entire country could sell their house at a profit after 5 or 6 years? The house next door was a flip, and it sold for $30,000 over asking price in 5 days, w/ 6 different offers to choose from.
Thinking no one is making any money off of real estate/real estate can’t go up ever, anywhere is just as bad as people who think you can never loses from buying real estate…
Wrong again.
Sales across NE are half what they were…. and falling. As are prices.
And if you think you’re going to somehow profit from a SFR, you’re in for a mighty rude awakening.
Prices are up in new england year over year in the reports I have seen. Sales are very strong in my area this spring. I’ll be fine either way though, as our mortgage is much cheaper than renting…
I think generally, houses are overpriced, but if you think you can make blanket statements about every house and region in the country, you are the one in for a rude awakening, when your predictions do not end up holding water…
Wrong again. Prices are down in the northeast and in fact the declines are accelerating and still massively inflated.
You made a tragic error and paid a grossly inflated price when you could have rented for a small fraction of your inflated costs.
I don’t make “predictions”. I merely state the truth.
Yeah, think I’ll be alright. Rentals would be at least 500 a month more than my mortgage… That is why we ended up buying…
Post 1 link showing prices are down and losses are accelerating in New England year over year, and I will gladly apologize and say I was wrong.
That’s already been done for NYC, Boston and Hartford.
And the reality is rental rates are half the cost of buying at current inflated asking prices of resale housing.
Nice try though.
Just to help you out a little geographically, NYC is not part of new england… Maybe that is why your numbers are off?
Just to help you out a little geographically, Boston and Hartford is.
Maybe you’re the same old liar hiding behind an alter ego?
Which one would that be? I really am interested if you have some top secret numbers no one else has seen. It would help me out, I would be ahead of everyone else… Thanks.
You’re underwater and sinking…. just like millions of other suckers who paid inflated prices for what are always rapidly depreciating houses from 1998- current.
Carry on sucker.
“The house next door was a flip, and it sold for $30,000 over asking price in 5 days, w/ 6 different offers to choose from.”
The problem with bubbles is that they eventually collapse, leaving somebody holding the bag with massive losses.
Try not to be the guy who catches a falling knife, just before all the other speculators race through the exit and leave you holding the bag on massive losses.
I agree, I am not speculating though. I waited 7 years to buy a house when i finally did, because the frenzy was rediculous. And it seems to be happening again for some reason - low inventory maybe, I don’t know… Just saying what I am seeing on the ground.
“And it seems to be happening again for some reason…”
Did you somehow miss the memo on the Fed’s housing bubble reflation program?
“Did you somehow miss the memo on the Fed’s housing bubble reflation program?”
True, I more meant the frenzy part though, with multiple offers way over asking prices. Low inventory is part of it here, as are the transplants from major cities w/ cash offers. And I know that is a cliché, but it is still happening here.
Nonsense.
And what’s more egregious as you fail to disclose where “here” is.
You not providing a link of your “fact” that prices are down year over year in New England.
It’s been posted over and over again. Further to the point, Portland, ME is cratering too.
Now where is “here” you coward.
Well, humor me, and post it again. You can’t, because it is not true.
EVERYWHERE.
hmm, interested in that link you will provide showing portland maine is cratering in 2013. BTW, it is not anywhere near hartford or nyc in case you try to find it on a map…
Answer up. Where is “here” you coward?
I’ll tell you as soon as you provide a link for all your bluster. It is northern new england. If you can show that northern new england real estate is down in 2013, I’ll tell you where I am to prove you wrong, You lose either way…
Post the the NE shantytown you coward.
And a new house is going to sell for more after 6 years of use?
Are you deluded? Houses depreciate like ALL manmade items.
We fixed it up, so it is better than when we moved in. So, as I said, after expenses, we could sell now at a profit.
Just like prices don’t always go up, they don’t always go down…
So you threw good money after bad on a depreciating asset.
Brilliant.
And yes…. housing depreciates. ALWAYS.
Really, odd, I know quite a few people who have sold their depreciating assets for a profit, over and over and over again. But ok…
Prove it. You won’t because you can’t. You can’t because you’re being untruthful.
You don’t even know NYC isn’t part of New England, how would you know one way or another?
Prices are falling in NYC too. Get over it.
Pimp Watch, get off the Oxycontin! Stop partying with Rush. You are anally ruining Ben’s great blog discussions.
Is that your goal?? ASS@@le?
No my friend. You liars have your NAR funded forum. Now beat it.
In every party there is one who through his all too credulous avowal of the party’s principles incites the others to apostasy.
-Neitzsche
dog