My Q&A
View all >>
Richard's Questions (0)
Richard's Answers (3)
Richard answered:
ELVIS: As a CFA, you may have a client come to you who wants to invest all their money in X.
You would then be bound to make a reasonable investigation into the client's financial constraints, risk and return objectives and their investment experience. You would then be required to provide an analysis not only of their desired investment, but of a reasonable set of alternatives, and to refrain from engaging in investments that would be bad for the client.
This holds true even though that client might well (and probably will) simply leave your office and go find somebody else who will support their foolishness.
You have clearly stated that you will not uphold that ethical guideline, because you believe in a lowest common denominator version of ethics. If another realtor will act unethically, and create a disaster, then you should do it instead, thus locking up the profits for yourself.
Now I understand that you continuously argue that this isn't your fault, but if the NAR is going to engage in advertisement that entices people to purchase, they have an ethical obligation to provide the bad along with the good. You simply can't have it both ways.
If Realtors want to claim they're blameless, they need to stop saying that it's a good time to buy, and truly allow people to act of their own accord. As it stands, you provide enticements and then pretend you didn't, and then you act surprised when people point out that this would be grounds for termination from any respectable and ethical investment firm. If you did this on the stock market, you'd eventually find yourself talking to the SEC.
Sadly, you all seem to think it's okay to do to a group of particularly unsophisticated and inexperienced investors, even though it's one of the biggest investments that said investor is likely to make in their life.
You would then be bound to make a reasonable investigation into the client's financial constraints, risk and return objectives and their investment experience. You would then be required to provide an analysis not only of their desired investment, but of a reasonable set of alternatives, and to refrain from engaging in investments that would be bad for the client.
This holds true even though that client might well (and probably will) simply leave your office and go find somebody else who will support their foolishness.
You have clearly stated that you will not uphold that ethical guideline, because you believe in a lowest common denominator version of ethics. If another realtor will act unethically, and create a disaster, then you should do it instead, thus locking up the profits for yourself.
Now I understand that you continuously argue that this isn't your fault, but if the NAR is going to engage in advertisement that entices people to purchase, they have an ethical obligation to provide the bad along with the good. You simply can't have it both ways.
If Realtors want to claim they're blameless, they need to stop saying that it's a good time to buy, and truly allow people to act of their own accord. As it stands, you provide enticements and then pretend you didn't, and then you act surprised when people point out that this would be grounds for termination from any respectable and ethical investment firm. If you did this on the stock market, you'd eventually find yourself talking to the SEC.
Sadly, you all seem to think it's okay to do to a group of particularly unsophisticated and inexperienced investors, even though it's one of the biggest investments that said investor is likely to make in their life.
Chandler has a point about ethical standards.
A Chartered Financial Analyst is bound by ethical standards that specifically state that "Members and candidates must act for the benefit of their clients and place their clients' interest before their emplyoer's or their own interests." and that they must "have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation or action."
It's unfortunate that Realtors often fall into a similar role, especially with first time homebuyers, but they are not bound to such ethical standards. In fact, many of them have strenuously argued that they have no such ethical duties to their clients, even though they have been hired to assist often inexperienced and unsophisticated investors with one of the most significant financial decisions of their lives.
A Chartered Financial Analyst is bound by ethical standards that specifically state that "Members and candidates must act for the benefit of their clients and place their clients' interest before their emplyoer's or their own interests." and that they must "have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation or action."
It's unfortunate that Realtors often fall into a similar role, especially with first time homebuyers, but they are not bound to such ethical standards. In fact, many of them have strenuously argued that they have no such ethical duties to their clients, even though they have been hired to assist often inexperienced and unsophisticated investors with one of the most significant financial decisions of their lives.
Carl- Agreed. The many Lori Cohen's are why I think the NAR propagandists are going to win in the end. Simply put, there are too many of them, and they're not willing to invest the time to even begin to understand the discussion at hand.
Lori Cohen is a particularly egregious example, since every single part of her post is untrue. It's widely agreed that the housing market (as an average) is, in fact, going to fall further or remain stagnant. We have data from banks, builders and the federal reserve all stating that while they believe the market will eventually go up, that it is still going down. Even the always-optimistic NAR is predicting that new home prices will continue to slide this year, and that existing home prices will be essentially flat (rising an amount less than inflation.)
As such, there doesn't appear to be a substantive argument over whether or not housing prices are going to continue falling in real terms, but only one of how severe the fall will be, how global it will be, and when it will stop.
Then Ms. Cohen makes the ludicrous claim that "It is a better investment than the stock market." Generally when people say one thing is a better investment than another, they mean that it either provides greater return, or it provides the same level of return but with less risk. Housing fails miserably here, as the stock market has had significantly higher average returns than residential real estate over the long term.
I can't find the exact quote, but Carl wrote something about how no other asset puts a roof over your head. This is one legitimate advantage of housing over many other investments. Housing pays a dividend not of cash, but of inflation-protected shelter. This makes it such that if a number of other conditions are correct (e.g. price/rent ratios, expected duration of tenancy, etc.) that it may make a very attractive and reasonable addition to an investment portfolio.
But the idea that it is always a superior investment is just absurd. There are a large variety of situations in which a renter can pay cash for their shelter, invest elsewhere, and end up doing better than if they'd bought and sold.
Lori Cohen is a particularly egregious example, since every single part of her post is untrue. It's widely agreed that the housing market (as an average) is, in fact, going to fall further or remain stagnant. We have data from banks, builders and the federal reserve all stating that while they believe the market will eventually go up, that it is still going down. Even the always-optimistic NAR is predicting that new home prices will continue to slide this year, and that existing home prices will be essentially flat (rising an amount less than inflation.)
As such, there doesn't appear to be a substantive argument over whether or not housing prices are going to continue falling in real terms, but only one of how severe the fall will be, how global it will be, and when it will stop.
Then Ms. Cohen makes the ludicrous claim that "It is a better investment than the stock market." Generally when people say one thing is a better investment than another, they mean that it either provides greater return, or it provides the same level of return but with less risk. Housing fails miserably here, as the stock market has had significantly higher average returns than residential real estate over the long term.
I can't find the exact quote, but Carl wrote something about how no other asset puts a roof over your head. This is one legitimate advantage of housing over many other investments. Housing pays a dividend not of cash, but of inflation-protected shelter. This makes it such that if a number of other conditions are correct (e.g. price/rent ratios, expected duration of tenancy, etc.) that it may make a very attractive and reasonable addition to an investment portfolio.
But the idea that it is always a superior investment is just absurd. There are a large variety of situations in which a renter can pay cash for their shelter, invest elsewhere, and end up doing better than if they'd bought and sold.
I wrote: "That said, I'm stepping away from this thread for a bit until the topics get more interesting"
And I think that a lot of the information I posted is interesting, particularly the presentation from the Fed. It documents a lot of the causes of the credit bubble, which is interesting. But it also gives information on delinquencies, credit conditions, increasing spreads that indicate loss of faith in banks and corporations ability to repay. Lots of data on the housing market, housing futures and pricing, as well as some macroeconomic indicators that show a bad situation looming on the horizon.
Anyway, if you have any questions or opinions about any of it, I think it could be an enlightening and relevant discussion topic. I figure that by providing more context for why I'm bear-ish on housing, it's possible that those who are bull-ish on specific localities might be able to better quantify their reasoning and share it in the thread.
And I think that a lot of the information I posted is interesting, particularly the presentation from the Fed. It documents a lot of the causes of the credit bubble, which is interesting. But it also gives information on delinquencies, credit conditions, increasing spreads that indicate loss of faith in banks and corporations ability to repay. Lots of data on the housing market, housing futures and pricing, as well as some macroeconomic indicators that show a bad situation looming on the horizon.
Anyway, if you have any questions or opinions about any of it, I think it could be an enlightening and relevant discussion topic. I figure that by providing more context for why I'm bear-ish on housing, it's possible that those who are bull-ish on specific localities might be able to better quantify their reasoning and share it in the thread.
regarding the news of the day, I think that the San Francisco Fed charts should be required reading, for anybody who is trying to understand the state of the economy today. It includes reference to nearly every metric that has been mentioned in this discussion, among many others.
News of the Day:
Housing Prices Tumble in 2/3 of US Cities
http://www.bloomberg.com/apps/news?pid=20601103&sid=arfjFulE…
San Francisco Fed Pres Blames Housing for Weak Economy. Notes that Price/Rent ratios are still abnormally high nationally
http://www.frbsf.org/news/speeches/2008/charts.pdf
Bank of America expects higher losses on HELOCs
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3n_42oiZuyM
Toll Brothers Indicates market still troubled (mentions that an unusually large number of buyers are putting down deposits, then changing their mind.)
http://www.forbes.com/markets/economy/2008/05/13/toll-brothe…
JPMorgan Chase CEO: Recession is Just Starting
http://ap.google.com/article/ALeqM5hupjKUS3B8y3rh6ssmn-tnpc3…
Wal-Mart Wary of Second Quarter:
http://www.forbes.com/markets/2008/05/13/walmart-retail-upda…
Bernanke says markets still far from normal:
http://www.reuters.com/article/ousiv/idUSWAT00946720080513
Housing Prices Tumble in 2/3 of US Cities
http://www.bloomberg.com/apps/news?pid=20601103&sid=arfjFulE…
San Francisco Fed Pres Blames Housing for Weak Economy. Notes that Price/Rent ratios are still abnormally high nationally
http://www.frbsf.org/news/speeches/2008/charts.pdf
Bank of America expects higher losses on HELOCs
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3n_42oiZuyM
Toll Brothers Indicates market still troubled (mentions that an unusually large number of buyers are putting down deposits, then changing their mind.)
http://www.forbes.com/markets/economy/2008/05/13/toll-brothe…
JPMorgan Chase CEO: Recession is Just Starting
http://ap.google.com/article/ALeqM5hupjKUS3B8y3rh6ssmn-tnpc3…
Wal-Mart Wary of Second Quarter:
http://www.forbes.com/markets/2008/05/13/walmart-retail-upda…
Bernanke says markets still far from normal:
http://www.reuters.com/article/ousiv/idUSWAT00946720080513
J R wrote: In my opinion, defaulting on one's mortgage is no different from accepting student loans for medical school and then deciding not to pay them back because you decided you don't want to be a doctor you want be a painter.
---
I absolutely agree. And student loans are written such that if you abandon them, they have a right to garnish your wages until such time as the lender has been made whole. So if you walk away, you still end up paying, because the lender decided to insulate themselves from that risk.
In mortgages, they specifically chose not to insulate themselves from that risk, because they believed it made for a more popular product. They made a business decision. They have to live with it. That's part of being responsible.
If I lend money idiotically, with no recourse on default, the people who take my money aren't immoral, I'm just an idiot. This is the situation we face today.
That said, I'm stepping away from this thread for a bit until the topics get more interesting. I'm not interested in your continued personal attacks, nor your continued habit of accusing everyone you disagree with of wanting to be some sort of vicious felon.
---
I absolutely agree. And student loans are written such that if you abandon them, they have a right to garnish your wages until such time as the lender has been made whole. So if you walk away, you still end up paying, because the lender decided to insulate themselves from that risk.
In mortgages, they specifically chose not to insulate themselves from that risk, because they believed it made for a more popular product. They made a business decision. They have to live with it. That's part of being responsible.
If I lend money idiotically, with no recourse on default, the people who take my money aren't immoral, I'm just an idiot. This is the situation we face today.
That said, I'm stepping away from this thread for a bit until the topics get more interesting. I'm not interested in your continued personal attacks, nor your continued habit of accusing everyone you disagree with of wanting to be some sort of vicious felon.
J R: A trade has two sides. If your side happens to make an unexpected win you don't have an obligation to work a second job to pay the other side back.
Heck, I'd argue that doing so is ludicrously irresponsible, as it puts the interests of a random third party above the interests of yourself and your family.
If you're going to get a second job, be a man, and save it for your family.
Heck, I'd argue that doing so is ludicrously irresponsible, as it puts the interests of a random third party above the interests of yourself and your family.
If you're going to get a second job, be a man, and save it for your family.
> Come one people it is no wonder we will all be speaking Chinese in 30 years.
--
Rob Banks/Slash/etc:
Thanks for this random bit of xenophobic racism, to top off your ill-informed Hannity inspired rant. It really made clear that there's no point talking to you.
--
Rob Banks/Slash/etc:
Thanks for this random bit of xenophobic racism, to top off your ill-informed Hannity inspired rant. It really made clear that there's no point talking to you.
JR wrote: Oh really? Both parties agree that the borrower can walk away from the obligation if they think it's worth it to them? That's ridiculous.
---
That's what the contracts say, so yes, that's what they agreed to.
It's not murder, it's not immoral. It's called being smart enough to understand the difference between breaking a contract (and accepting the pre-arranged penalty clauses) and actually committing sins like lying or murdering.
---
That's what the contracts say, so yes, that's what they agreed to.
It's not murder, it's not immoral. It's called being smart enough to understand the difference between breaking a contract (and accepting the pre-arranged penalty clauses) and actually committing sins like lying or murdering.
What?
If you're going to assign a political association to my financial opinions, please assign the correct one: conservatism. It's financially conservative to believe that one should simply follow the letter of the contracts, and then do what is best for you within the bounds of the law.
If you're going to assign a political association to my financial opinions, please assign the correct one: conservatism. It's financially conservative to believe that one should simply follow the letter of the contracts, and then do what is best for you within the bounds of the law.
JR wrote: The flippant attitude in society today. It's truly disgusting to me that people sign a contract and think nothing about walking away from their moral obligations. How much would it take for you to murder someone,
---
No no no no no.
It's not walking away from a moral obligation, it's breaking a two-sided financial contract, according to the agreed upon terms. Comparing it to murder is absurd.
Both parties agreed to a deal and certain conditions. If the banks wanted to ensure that people didn't walk away they could either write the contracts such that people are required to have more skin in the game (by refraining from offering super-high LTV loans) or by writing the contracts such that they would have additional recourse beyond seizing the house, should the value have declined.
They chose not to do this because they made a financial calculation (poorly, in this case) that said "The money we'll lose from allowing people to walk in down markets is more than offset by the money we'll make by writing some very questionable loans that contain no significant penalty clauses"
They made a business decision. The home buyers are making business decisions. It's not your moral obligation to pay the bank an extra couple hundred thousand dollars if your area declined. You might consult a lawyer and decide that it's the best course of action, or you might not. But it's a financial decision, not a moral one.
Nobody is being killed. Let's try to be at least a little civil, and refrain from calling each other murderers, or anything else horrible.
---
No no no no no.
It's not walking away from a moral obligation, it's breaking a two-sided financial contract, according to the agreed upon terms. Comparing it to murder is absurd.
Both parties agreed to a deal and certain conditions. If the banks wanted to ensure that people didn't walk away they could either write the contracts such that people are required to have more skin in the game (by refraining from offering super-high LTV loans) or by writing the contracts such that they would have additional recourse beyond seizing the house, should the value have declined.
They chose not to do this because they made a financial calculation (poorly, in this case) that said "The money we'll lose from allowing people to walk in down markets is more than offset by the money we'll make by writing some very questionable loans that contain no significant penalty clauses"
They made a business decision. The home buyers are making business decisions. It's not your moral obligation to pay the bank an extra couple hundred thousand dollars if your area declined. You might consult a lawyer and decide that it's the best course of action, or you might not. But it's a financial decision, not a moral one.
Nobody is being killed. Let's try to be at least a little civil, and refrain from calling each other murderers, or anything else horrible.
So to clarify Ryan's game it is:
Heads, I give you $X.
Tails, you lose your ability to take out new lines of credit for a few years.
I'm pretty sure that every sane member of society will have some value of X where they would play that game. Sure, it's not worth it for $100, but what if you're playing for a year's salary, tax-free. Or two years.
Heads, I give you $X.
Tails, you lose your ability to take out new lines of credit for a few years.
I'm pretty sure that every sane member of society will have some value of X where they would play that game. Sure, it's not worth it for $100, but what if you're playing for a year's salary, tax-free. Or two years.
Realtyexec: I'm not sure what part of my post confuses you.
I've made my living as a businessman, and as such I've had lots of gains and losses along the way. I've had some notable situations where I ended up taking a significant loss in order to provide the agreed upon services to a client, but I never viewed my client as evil in that situation. I agreed to terms, and I was bound to follow the letter of the contracts that I had signed, or to face litigation and the destruction of my personal and corporate reputation.
I view underwater homebuyers to be the same as the clients who cost me money. They're just trying to do what's best for themselves. The fault lays with me (or with the banks in the analogy) for making a poorly considered contract, and exposing themselves to some poorly quantified risks. You learn your lesson, and carry on.
---
That said, when it comes to credit scores, again, I view them as ludicrously unimportant.
First of all, nearly all problems can be solved by simply having some emergency savings. Jittery landlords can be calmed by offering extra months of rent. Cars can be purchased cash. Day to day expenses can go on a debit card instead of a credit card.
Secondly, it's trivial to ensure that even if the husband's fico blows up, that the wife's remain shiny and beautiful.
Thirdly, even a well-meaning family who takes out a 95% LTV (with payments they can afford) is going to walk away if their home dips 30% in value. After all, if your $800k home is suddenly worth $560k, why should you pay $240k of mortgage, when you could save that money for your family and children instead, having only a FICO dent as your lasting damage.
I'm really not sure why you think my post was so shocking. Real estate is nothing but finance, and occasionally somebody is going to get screwed. That's just life.
I've made my living as a businessman, and as such I've had lots of gains and losses along the way. I've had some notable situations where I ended up taking a significant loss in order to provide the agreed upon services to a client, but I never viewed my client as evil in that situation. I agreed to terms, and I was bound to follow the letter of the contracts that I had signed, or to face litigation and the destruction of my personal and corporate reputation.
I view underwater homebuyers to be the same as the clients who cost me money. They're just trying to do what's best for themselves. The fault lays with me (or with the banks in the analogy) for making a poorly considered contract, and exposing themselves to some poorly quantified risks. You learn your lesson, and carry on.
---
That said, when it comes to credit scores, again, I view them as ludicrously unimportant.
First of all, nearly all problems can be solved by simply having some emergency savings. Jittery landlords can be calmed by offering extra months of rent. Cars can be purchased cash. Day to day expenses can go on a debit card instead of a credit card.
Secondly, it's trivial to ensure that even if the husband's fico blows up, that the wife's remain shiny and beautiful.
Thirdly, even a well-meaning family who takes out a 95% LTV (with payments they can afford) is going to walk away if their home dips 30% in value. After all, if your $800k home is suddenly worth $560k, why should you pay $240k of mortgage, when you could save that money for your family and children instead, having only a FICO dent as your lasting damage.
I'm really not sure why you think my post was so shocking. Real estate is nothing but finance, and occasionally somebody is going to get screwed. That's just life.
J R: It's not disgusting to take advantage of an investment where somebody else agrees to bear the downside risk in return for a specific portion of the profit. That's just following the letter of the contract.
To be perfectly honest, I'm still somewhat annoyed with myself that I didn't do this, that instead I worked hard, and risked my own capital to create wealth when I could've made more money and had a lot more time to golf if I had worked as a highly leveraged real estate investor who intended to default.
The whole system was based on greed, that's why those crazy mortgages existed in the first place. I see nothing wrong with a "little guy" flipping the greed back around on the big boys. That's just business.
Though to be fair, at least some of me must not fully believe this argument because all of my houses have been purchased with 20% down conventional mortgages, even during the SoCal bubble.
To be perfectly honest, I'm still somewhat annoyed with myself that I didn't do this, that instead I worked hard, and risked my own capital to create wealth when I could've made more money and had a lot more time to golf if I had worked as a highly leveraged real estate investor who intended to default.
The whole system was based on greed, that's why those crazy mortgages existed in the first place. I see nothing wrong with a "little guy" flipping the greed back around on the big boys. That's just business.
Though to be fair, at least some of me must not fully believe this argument because all of my houses have been purchased with 20% down conventional mortgages, even during the SoCal bubble.
Realtyexec: I think you're being hypersensitive if you read the recent posts as bashing an entire profession.
It's not 'bashing' to point out that Realtors were present (and profiting handsomely) from every horrible transaction that formed the bubble. It's simply a true statement, meant not to blame them in the entirety, but to mention that there's no group as a whole that remains completely without guilt when it comes to the bubble.
You want to pin it all on homeowners, talking about personal responsibility, but that's silly on multiple levels. First of all, it ignores the fact that a homeowner who took out a 100% LTV neg-am mortgage in a crazy market with the intention of defaulting if values went down, or selling if values went up is, in fact, acting very responsibly towards themselves. They're taking full advantage of the opportunities being offered.
Secondly, it's silly to talk about it because in many markets people purchased solely because after 3 years of 25% yoy increases, they became afraid that they wouldn't ever be able to afford a home, unless they bought now, even if it was nearly unsustainable. These weren't financial or real estate experts, they were just people who wanted to take care of their families, and didn't realize that the market might slump 20-30%, leaving them underwater. But again, once it did, it's perfectly reasonable for that person to walk away and let the bank and it's investors take the biggest losses.
Personal responsibility is great, but if you come up to me and say "Hey, I want to give you a million dollars to invest. If the investment goes up, you can keep the profits, but you owe me 6%. If the investment goes down, I'll take the losses", well... who is the irresponsible party in the situation?
It's not 'bashing' to point out that Realtors were present (and profiting handsomely) from every horrible transaction that formed the bubble. It's simply a true statement, meant not to blame them in the entirety, but to mention that there's no group as a whole that remains completely without guilt when it comes to the bubble.
You want to pin it all on homeowners, talking about personal responsibility, but that's silly on multiple levels. First of all, it ignores the fact that a homeowner who took out a 100% LTV neg-am mortgage in a crazy market with the intention of defaulting if values went down, or selling if values went up is, in fact, acting very responsibly towards themselves. They're taking full advantage of the opportunities being offered.
Secondly, it's silly to talk about it because in many markets people purchased solely because after 3 years of 25% yoy increases, they became afraid that they wouldn't ever be able to afford a home, unless they bought now, even if it was nearly unsustainable. These weren't financial or real estate experts, they were just people who wanted to take care of their families, and didn't realize that the market might slump 20-30%, leaving them underwater. But again, once it did, it's perfectly reasonable for that person to walk away and let the bank and it's investors take the biggest losses.
Personal responsibility is great, but if you come up to me and say "Hey, I want to give you a million dollars to invest. If the investment goes up, you can keep the profits, but you owe me 6%. If the investment goes down, I'll take the losses", well... who is the irresponsible party in the situation?
Louis King-
I don't know exactly how often it was done, but I'm guessing you could take a count of SISA and NINA loans and get into the right neighborhood. After all, if you have assets or income, it's going to be simpler to just break out your bank statements or your W-2s and call it a day.
And yes, I know that Realtors didn't underwrite the mortgages, but it's clear from the median price/median income ratios in a lot of neighborhoods that it was an extremely common practice.
I don't know exactly how often it was done, but I'm guessing you could take a count of SISA and NINA loans and get into the right neighborhood. After all, if you have assets or income, it's going to be simpler to just break out your bank statements or your W-2s and call it a day.
And yes, I know that Realtors didn't underwrite the mortgages, but it's clear from the median price/median income ratios in a lot of neighborhoods that it was an extremely common practice.
I wasn't attempting to claim that Realtors are the ultimate bad guys. More just: "one of a large collection of tiny bad guys." or "one of a group of people who probably should've noticed a problem, but didn't, because nobody else did either."
That said, my personal experience is that it['s really common for realtors to try to up-sell once they see your income. Like, you start out saying I want a house that costs $2x. but then once the realtor finds out how much you make, they start showing you homes that cost $3x as well, because they know you could swing it, if you fell in love with it.
Now, I don't blame them for this to some degree, since I've always bought fairly low compared to my income, but my limited anecdotal experience tells me that this is common across income brackets.
That said, my personal experience is that it['s really common for realtors to try to up-sell once they see your income. Like, you start out saying I want a house that costs $2x. but then once the realtor finds out how much you make, they start showing you homes that cost $3x as well, because they know you could swing it, if you fell in love with it.
Now, I don't blame them for this to some degree, since I've always bought fairly low compared to my income, but my limited anecdotal experience tells me that this is common across income brackets.
AJ makes a good point that mortgages aren't the only available vehicle to gain leverage on investments. Even if you ignore the most obvious form of leverage (the margin account, that'll get you 2:1), there are plenty of ways to get levered up far higher than that.
Heck, I could blow all my money on total return swaps, or a single 200:1 forex position and then just *pray*. I'd either be very, very rich, or utterly ruined in no time.
Another good point he makes is that the issue really originated with the buyers of the various CDOs and SIVs, though I'm sympathetic to some of the buyers. The credit rating agencies put them in between a rock and a hard spot by claiming that the crazy MBS nonsense was money-good.
I mean, it's hard for a pension fund controller to explain why it is that he's choosing a 4% AAA investment over a 6% AAA investment, since the AAA is supposed to mean equivalent, nearly non-existent risk.
Heck, I could blow all my money on total return swaps, or a single 200:1 forex position and then just *pray*. I'd either be very, very rich, or utterly ruined in no time.
Another good point he makes is that the issue really originated with the buyers of the various CDOs and SIVs, though I'm sympathetic to some of the buyers. The credit rating agencies put them in between a rock and a hard spot by claiming that the crazy MBS nonsense was money-good.
I mean, it's hard for a pension fund controller to explain why it is that he's choosing a 4% AAA investment over a 6% AAA investment, since the AAA is supposed to mean equivalent, nearly non-existent risk.
Carl: The NAR puts together purposefully deceptive sites such as the hilariously named http://housingmarketfacts.com/
It claims to offer all sorts of facts about the housing market, but the fact is it offers nothing but gloriously positive facts, and many of them are comically irrelevant to the housing market. Many others are just ludicrously deceptive.
I know that the Nuremburg defense is common, but nearly every $500k house that was sold to a $60k family, was sold by a Realtor who directly profited from the transaction. I see your defense of the NAR is that their tactics might not have been that effective, but they felt it was appropriate to spend millions of dollars advertising their propaganda, so clearly somebody at NAR disagrees with your analysis.
It claims to offer all sorts of facts about the housing market, but the fact is it offers nothing but gloriously positive facts, and many of them are comically irrelevant to the housing market. Many others are just ludicrously deceptive.
I know that the Nuremburg defense is common, but nearly every $500k house that was sold to a $60k family, was sold by a Realtor who directly profited from the transaction. I see your defense of the NAR is that their tactics might not have been that effective, but they felt it was appropriate to spend millions of dollars advertising their propaganda, so clearly somebody at NAR disagrees with your analysis.
Welcome Go Cubs. It's extremely refreshing to see a Real Estate Pro who admits that it might be worth waiting a bit before re-entering the game.
Richard please answer the question about the Lake View area of Chicago
---
I was ignoring it initially because the vast majority of your posts are nothing but angry personal insults, designed to inflame the reader. That said, I'll answer it despite your ludicrously unprofessional demeanor.
Your question is akin to people who attempt to disprove global warming by pointing out that someplace was cold today. In large complex systems there are always a few microniches where other forces are in effect at the moment.
There are lots of these examples. in Southern California, I'll use Del Mar as an example. Home values are essentially flat in Del Mar (actually up a slight bit) over the past 2 years, even though nearly all of Southern California has been devastated by the changes in the market.
Knowing Del Mar quite well, I'd say there is likely a combination of factors at work in that locale.
1) The town is fully built out, and has been for decades. This lack of development means that there aren't lots of new development that was built on the basis of speculation.
2) The tenancy duration is extremely long, and the average age is a bit high. This isn't an area where people generally flip properties. A lot of the people who live in this area are retirees who don't really care what their house is worth, so long as it's near the ocean and the local golf courses. Many others are well-compensated telecom execs, who also don't really care about the equity in their house, because it's chump change compared to their options from Nokia or Ericsson.
3) It has a lower than average rate of rentals, for the type of community. It's a beach community, but most of the homes are actually lived in, rather than rented to tourists or others. This means that again, fewer people were attempting to turn a profit here than elsewhere.
4) It's always been a desirable neighborhood. Some neighborhoods stay desirable for decades or centuries, and those neighborhoods are likely to have less falloff (and in fact, more likely to have increases) than other neighborhoods. In the case of Del Mar, you had a quiet "old money" sort of town that isn't as famous as it's neighbor La Jolla, and isn't as wealthy as it's neighbor Rancho Santo Fe, but it's always been considered a desirable place to live. This adds a dynamic that is similar to Scarsdale, NY, the Main Line outside of Philly, and any number of other towns.
5) IT COULD STILL GO DOWN. I put it all caps because it's important to remember that a trend is not a guarantee, especially when that trend is surrounded by counter forces.
Besides that, there are innumerable other factors at work, but the essence is that even in terrible times one can pick out a microniche that is doing well. Now is a bad time to be a lawyer, but it's a great time to be a bankruptcy lawyer. Now is a bad time to buy housing, but it might be a great time to buy housing in a few very select neighborhoods.
That said, this doesn't justify a default 'It's a good time to buy!' This situation demands that a person understand why a particular neighborhood (like, perhaps, Lakeview) is defying the situation. (is there new high-end construction? is it undergoing retail transformation? has it always been more stable and desirable than neighbors, etc.) After all, nobody is saying "Never buy!", the bears on this thread are simply advocating that one should have a strong argument to buy a particular place instead of renting it. If that argument is present and valid, enjoy your new house. If not, don't be surprised if you look sad in five years.
---
I was ignoring it initially because the vast majority of your posts are nothing but angry personal insults, designed to inflame the reader. That said, I'll answer it despite your ludicrously unprofessional demeanor.
Your question is akin to people who attempt to disprove global warming by pointing out that someplace was cold today. In large complex systems there are always a few microniches where other forces are in effect at the moment.
There are lots of these examples. in Southern California, I'll use Del Mar as an example. Home values are essentially flat in Del Mar (actually up a slight bit) over the past 2 years, even though nearly all of Southern California has been devastated by the changes in the market.
Knowing Del Mar quite well, I'd say there is likely a combination of factors at work in that locale.
1) The town is fully built out, and has been for decades. This lack of development means that there aren't lots of new development that was built on the basis of speculation.
2) The tenancy duration is extremely long, and the average age is a bit high. This isn't an area where people generally flip properties. A lot of the people who live in this area are retirees who don't really care what their house is worth, so long as it's near the ocean and the local golf courses. Many others are well-compensated telecom execs, who also don't really care about the equity in their house, because it's chump change compared to their options from Nokia or Ericsson.
3) It has a lower than average rate of rentals, for the type of community. It's a beach community, but most of the homes are actually lived in, rather than rented to tourists or others. This means that again, fewer people were attempting to turn a profit here than elsewhere.
4) It's always been a desirable neighborhood. Some neighborhoods stay desirable for decades or centuries, and those neighborhoods are likely to have less falloff (and in fact, more likely to have increases) than other neighborhoods. In the case of Del Mar, you had a quiet "old money" sort of town that isn't as famous as it's neighbor La Jolla, and isn't as wealthy as it's neighbor Rancho Santo Fe, but it's always been considered a desirable place to live. This adds a dynamic that is similar to Scarsdale, NY, the Main Line outside of Philly, and any number of other towns.
5) IT COULD STILL GO DOWN. I put it all caps because it's important to remember that a trend is not a guarantee, especially when that trend is surrounded by counter forces.
Besides that, there are innumerable other factors at work, but the essence is that even in terrible times one can pick out a microniche that is doing well. Now is a bad time to be a lawyer, but it's a great time to be a bankruptcy lawyer. Now is a bad time to buy housing, but it might be a great time to buy housing in a few very select neighborhoods.
That said, this doesn't justify a default 'It's a good time to buy!' This situation demands that a person understand why a particular neighborhood (like, perhaps, Lakeview) is defying the situation. (is there new high-end construction? is it undergoing retail transformation? has it always been more stable and desirable than neighbors, etc.) After all, nobody is saying "Never buy!", the bears on this thread are simply advocating that one should have a strong argument to buy a particular place instead of renting it. If that argument is present and valid, enjoy your new house. If not, don't be surprised if you look sad in five years.
J R: Building a custom home is always a bit of an expensive proposition, but many construction costs are, in fact, down from 2004-2005. Drywall, roofing and timber are all more affordable.
Custom construction is more expensive not because now is a bad time to do it, but because it's always more expensive. You aren't amortizing the architectural costs over a hundred homes, and it's significantly more expensive on a per-unit basis to build one of something than it is to build 100 of them, no matter what it is.
That said, now is an excellent time to build, if you're in the market for a true custom-built home. Costs for most materials and labor are lower than they've been in years, and the few exceptions (plumbing, wiring) aren't that significant in the budget total.
(Note: this assumes that you are building in an area where the cost of land is a trivial portion of the acquisition cost. In some markets (NYC/SoCal come to mind) the land might cost so much that it is the only expensive worth counting.)
Custom construction is more expensive not because now is a bad time to do it, but because it's always more expensive. You aren't amortizing the architectural costs over a hundred homes, and it's significantly more expensive on a per-unit basis to build one of something than it is to build 100 of them, no matter what it is.
That said, now is an excellent time to build, if you're in the market for a true custom-built home. Costs for most materials and labor are lower than they've been in years, and the few exceptions (plumbing, wiring) aren't that significant in the budget total.
(Note: this assumes that you are building in an area where the cost of land is a trivial portion of the acquisition cost. In some markets (NYC/SoCal come to mind) the land might cost so much that it is the only expensive worth counting.)
Realtor B/Slash/Mikey/Buster Hymen: My point was simply that if the house is overpriced to the point where rent won't cover expenses, then now is not a good time to purchase, even if there are plenty of renters around.
And the article itself says absolutely nothing about whether or not price/rent ratios make sense, it simply stated that if you already owned, that it's a great time to be a landlord.
And the article itself says absolutely nothing about whether or not price/rent ratios make sense, it simply stated that if you already owned, that it's a great time to be a landlord.
J R Wrote: "I bought my first home when interest rates were 16%. While people can come up with other reasons not to buy now, interest rates are not one of them."
--
Yes, interest rates are low. I used that as part of my argument for why now is a good time to build, assuming inexpensive land.
That said, it's not generally enough to overcome the problems related to mispriced houses that are still undergoing a correction, and was referring to the many other points on the matter which have been discussed thoroughly elsewhere in the thread.
--
Yes, interest rates are low. I used that as part of my argument for why now is a good time to build, assuming inexpensive land.
That said, it's not generally enough to overcome the problems related to mispriced houses that are still undergoing a correction, and was referring to the many other points on the matter which have been discussed thoroughly elsewhere in the thread.
Realtor B: Your article offers no evidence whatsoever that it's a good time to buy rental properties in Chicago, it offers evidence that it's a good time to *already own* them.
It's entirely possible that it's a fine time to buy rental properties in some markets, but the analysis would have to compare the probable downside risk related to value declines, versus the probable income from running it as a rental property. Additionally, it'd have to look at the price/rent ratios, and figure out what sort of income could be generated based on various methods of financing.
It's absolutely true that I'd be pleased as punch if I owned a large portfolio of rental properties right now, but it's equally true that now seems like a very, very difficult time to locate investment worthy properties.
It's entirely possible that it's a fine time to buy rental properties in some markets, but the analysis would have to compare the probable downside risk related to value declines, versus the probable income from running it as a rental property. Additionally, it'd have to look at the price/rent ratios, and figure out what sort of income could be generated based on various methods of financing.
It's absolutely true that I'd be pleased as punch if I owned a large portfolio of rental properties right now, but it's equally true that now seems like a very, very difficult time to locate investment worthy properties.
Joseph Perrone: your idea is flawed in a few ways.
First, I'll grant that there are some places where purchasing is reasonable, or where the expected losses are low enough that many people will choose to accept them, in return for the other benefits of ownership.
That said, much of the rest of your post is nonsense. There is absolutely no reason to believe that the end of the decline will be marked by a single-month 10% increase in housing prices. That's simply absurd, it won't happen like that. In fact, analysis of previous housing busts in the US and elsewhere indicates that prices are likely to remain basically flat for a significant period of time after they have finished declining, and then any upward pressure will be relatively modest.
You also claim that housing averages a 100% return every 10 years, this is flat out false. While it's possible to cherry-pick periods where this was true (specifically by starting shortly before the bubble, and then including it), the long-term average return on the market has been approximately the same as inflation, not 7% as would be required by your claims. And on top of this, it has been common for house values to remain flat over *extremely* long periods of time (10+ years), which is often going to be longer than an owner will hold the particular home.
If your home stays flat for ten years, while you're paying 2x or 3x the rental rate, you're committing financial suicide, unless the home consumes a truly insignificant amount of your income. If you're putting 30% of your income into it though, that's a heck of a lot of labor to get absolutely nothing.
I'm surprised to see an alleged buyer touting realtor lines, but it's not uncommon for uninformed people to advise others to make horrible mistakes. While it's true that California, Florida and Vegas got hit hardest, nearly all markets are expected to be declining or flat for at least 2-3 years. And while you may say "so what if you lose 4%", you're really advocating that they lose 4% of the home value, plus the gap between renting and owning an equivalent home.
On a $500,000 home, this could easily total out to $50,000 of money completely wasted in just a few years.
First, I'll grant that there are some places where purchasing is reasonable, or where the expected losses are low enough that many people will choose to accept them, in return for the other benefits of ownership.
That said, much of the rest of your post is nonsense. There is absolutely no reason to believe that the end of the decline will be marked by a single-month 10% increase in housing prices. That's simply absurd, it won't happen like that. In fact, analysis of previous housing busts in the US and elsewhere indicates that prices are likely to remain basically flat for a significant period of time after they have finished declining, and then any upward pressure will be relatively modest.
You also claim that housing averages a 100% return every 10 years, this is flat out false. While it's possible to cherry-pick periods where this was true (specifically by starting shortly before the bubble, and then including it), the long-term average return on the market has been approximately the same as inflation, not 7% as would be required by your claims. And on top of this, it has been common for house values to remain flat over *extremely* long periods of time (10+ years), which is often going to be longer than an owner will hold the particular home.
If your home stays flat for ten years, while you're paying 2x or 3x the rental rate, you're committing financial suicide, unless the home consumes a truly insignificant amount of your income. If you're putting 30% of your income into it though, that's a heck of a lot of labor to get absolutely nothing.
I'm surprised to see an alleged buyer touting realtor lines, but it's not uncommon for uninformed people to advise others to make horrible mistakes. While it's true that California, Florida and Vegas got hit hardest, nearly all markets are expected to be declining or flat for at least 2-3 years. And while you may say "so what if you lose 4%", you're really advocating that they lose 4% of the home value, plus the gap between renting and owning an equivalent home.
On a $500,000 home, this could easily total out to $50,000 of money completely wasted in just a few years.
Oh, and as for the implication that REALTORs shouldn't post here, I'm tempted to agree, but for different reasons. (mostly that very few of them attempt to offer anything at all. realtyexec is one of the few who at least seem to be trying.)
That said, Paul Francis's contribution to this thread has locked up my business should I ever decide to purchase a condo in Vegas (an idea my wife has put forward several times now.) As such, I have a hard time seeing this as a bad thing.
The businessman side of me views a forum like this as a significant opportunity for professionals to set themselves apart. You won't do so by posting that interest rates are low so it's a great time to buy! But the type of person who actually reads this thread is likely to do business with somebody who shows that they are not simply blindly pushing for any sale.
And besides, surely some of you work on rentals as well, thus putting yourselves in a position to earn a commission by offering the advice that is best for each client and situation, whether it is to buy or to rent.
That said, Paul Francis's contribution to this thread has locked up my business should I ever decide to purchase a condo in Vegas (an idea my wife has put forward several times now.) As such, I have a hard time seeing this as a bad thing.
The businessman side of me views a forum like this as a significant opportunity for professionals to set themselves apart. You won't do so by posting that interest rates are low so it's a great time to buy! But the type of person who actually reads this thread is likely to do business with somebody who shows that they are not simply blindly pushing for any sale.
And besides, surely some of you work on rentals as well, thus putting yourselves in a position to earn a commission by offering the advice that is best for each client and situation, whether it is to buy or to rent.
Realtyexec: you wrote "people have already made up there minds whether they will buy or rent based upon there own beliefs. When they come to me it is not my job to persuade them to buy vs rent."
That may be true in your professional life, but this is a discussion about the virtues and dangers of either decision, an attempt to create a resource for people who have not, in fact, made up their minds.
That said, you seem to imply that people who complain about trite REALTOR answers are somehow "just complaining", when in fact, we are fighting a largely uphill battle to make sure that this resource contains useful information about buying versus renting.
People need to know to do basic things, to include maintenance, HOA fees, taxes, insurance and utilities on their "buy" side equation. Similarly, they need to look at their rent side equation, and ask themselves if they are sufficiently disciplined to invest the saved money, so that they are building overall equity.
People need to be reminded that when calculating tax benefits, that they need to compare realistic numbers, and not to forget that there is a standard deduction for everyone, and that your mortgage interest "benefit" only starts after that.
People need to be reminded that real estate is a highly leveraged investment, that if ttheir life savings of 20% down, and the market declines 14%, that they are essentially bankrupt in the real world. They need to be reminded that there is risk, and that they need to consider it before moving. This doesn't mean they need to do nothing at all, but they need to move with caution.
People need to be reminded that homes are emotional, but more than that, they are financial, and that they need to consider both viewpoints.
I don't think it's your responsibility to tell people to rent if they want to buy an overpriced home. But I do have an interest in helping educate interested parties about the sorts of information that are out there.
Potential home buyers should know that there is a variety of useful information about the market that can paint a picture for them. They should know about the Case-Schiller Index and the picture it paints, but they should also be aware that one can predict inventory by looking at starts versus sales, and that this is not magic or alchemy. It's math and science, and while it's not perfect, it's likely a lot better than asking the advice of somebody who, as you admitted, is there to sell a home.
It's wrong to characterize our struggle against the torrents of repetitive REALTORs as complaining. Perhaps we get bitter because there are relatively few people fighting for education, while there are scores fighting for 'It's a Good Time To Buy!' But it's not complaining, and it's not pointless.
I'm glad Ryan saw John The Bruce's excellent posts and came to a decision on his own. It's my feeble hope that a few other interested people will see this thread and, if nothing else, will come away understanding that home purchases are enormous financial decisions that should be considered in a meaningful way. They should understand that a bad decision could easily wipe out years of savings, and that it is not a no-risk investment. They should understand that there are alternatives.
Personally, this is almost a hobby for me. I'm a semi-retired entrepreneur who has made much of his career in and around the finance field, and who strongly believes that most peoples lives could be significantly improved if they had better access to good financial analysis.
I look at people who try to claim that purchasing should be the default decision, and I cringe, as I see years and years of hard work and labor getting destroyed by a group of people who are giving what can best be described as an 'extremely optimistic and biased' advice.
It's fine if somebody considers everything and decides they're willing to pay the possible penalties and take the risks, but they need to be aware that the risks exist.
That may be true in your professional life, but this is a discussion about the virtues and dangers of either decision, an attempt to create a resource for people who have not, in fact, made up their minds.
That said, you seem to imply that people who complain about trite REALTOR answers are somehow "just complaining", when in fact, we are fighting a largely uphill battle to make sure that this resource contains useful information about buying versus renting.
People need to know to do basic things, to include maintenance, HOA fees, taxes, insurance and utilities on their "buy" side equation. Similarly, they need to look at their rent side equation, and ask themselves if they are sufficiently disciplined to invest the saved money, so that they are building overall equity.
People need to be reminded that when calculating tax benefits, that they need to compare realistic numbers, and not to forget that there is a standard deduction for everyone, and that your mortgage interest "benefit" only starts after that.
People need to be reminded that real estate is a highly leveraged investment, that if ttheir life savings of 20% down, and the market declines 14%, that they are essentially bankrupt in the real world. They need to be reminded that there is risk, and that they need to consider it before moving. This doesn't mean they need to do nothing at all, but they need to move with caution.
People need to be reminded that homes are emotional, but more than that, they are financial, and that they need to consider both viewpoints.
I don't think it's your responsibility to tell people to rent if they want to buy an overpriced home. But I do have an interest in helping educate interested parties about the sorts of information that are out there.
Potential home buyers should know that there is a variety of useful information about the market that can paint a picture for them. They should know about the Case-Schiller Index and the picture it paints, but they should also be aware that one can predict inventory by looking at starts versus sales, and that this is not magic or alchemy. It's math and science, and while it's not perfect, it's likely a lot better than asking the advice of somebody who, as you admitted, is there to sell a home.
It's wrong to characterize our struggle against the torrents of repetitive REALTORs as complaining. Perhaps we get bitter because there are relatively few people fighting for education, while there are scores fighting for 'It's a Good Time To Buy!' But it's not complaining, and it's not pointless.
I'm glad Ryan saw John The Bruce's excellent posts and came to a decision on his own. It's my feeble hope that a few other interested people will see this thread and, if nothing else, will come away understanding that home purchases are enormous financial decisions that should be considered in a meaningful way. They should understand that a bad decision could easily wipe out years of savings, and that it is not a no-risk investment. They should understand that there are alternatives.
Personally, this is almost a hobby for me. I'm a semi-retired entrepreneur who has made much of his career in and around the finance field, and who strongly believes that most peoples lives could be significantly improved if they had better access to good financial analysis.
I look at people who try to claim that purchasing should be the default decision, and I cringe, as I see years and years of hard work and labor getting destroyed by a group of people who are giving what can best be described as an 'extremely optimistic and biased' advice.
It's fine if somebody considers everything and decides they're willing to pay the possible penalties and take the risks, but they need to be aware that the risks exist.
One of the most common REALTOR responses has been one about low interest rates, which has been handily criticized by a lot of posters for ignoring a lot of other issues.
That said, if you're building a custom home, in an area where land is relatively cheap, this is actually quite a good argument that It's a Good Time To Build, since construction costs are likely to rise in forthcoming years, while interest rates remain stagnant, and a custom built home on cheap land is almost entirely based on the actual cost of construction, rather than strangely misshaped market pressures. The only problem is that underwriters are a bit skittish, so it can be annoying.
I felt like I should point this out, as I've recently had a custom house built (although in a country where interest rates are actually very high, to the point where it made more sense to pay cash), and I've been helping a friend who is currently building a beautiful log cabin in the States (though he also ended up paying cash, because he got so fed up with the underwriters, and is anticipating being in a relatively low tax bracket for the foreseeable future anyway.)
That said, if you can handle the nonsense associated with getting a construction loan, it's a sweet time to do it.
That said, if you're building a custom home, in an area where land is relatively cheap, this is actually quite a good argument that It's a Good Time To Build, since construction costs are likely to rise in forthcoming years, while interest rates remain stagnant, and a custom built home on cheap land is almost entirely based on the actual cost of construction, rather than strangely misshaped market pressures. The only problem is that underwriters are a bit skittish, so it can be annoying.
I felt like I should point this out, as I've recently had a custom house built (although in a country where interest rates are actually very high, to the point where it made more sense to pay cash), and I've been helping a friend who is currently building a beautiful log cabin in the States (though he also ended up paying cash, because he got so fed up with the underwriters, and is anticipating being in a relatively low tax bracket for the foreseeable future anyway.)
That said, if you can handle the nonsense associated with getting a construction loan, it's a sweet time to do it.
J R: Which responses should he read? I think the real issue is that if the REALTORs have a coherent, data-backed argument, they're failing to make it.
"Slash" used some data, but it was ludicrously flawed, and amusingly it also demonstrated a year over year price decline.
AJ, John The Bruce, Zack and I have all cited public data from neutral sources, as well as analysis by parties who don't have a financial incentive to call the market in a particular direction, other than how they see it.
Furthermore, the non-professionals have made some very non-controversial stances, such as my statement that people who are simply relocating between houses of similar value should likely purchase with little fear, unless they're purchasing in one of a very small number of very bad markets, but moving from a good market.
In all, nearly all of the non-professionals have taken a bearish stance on the matter, but one which advocates looking at rent/purchase ratios for your specific situation and then making an analysis based on that.
But nearly all the REALTORs are failing to argue in that manner, and only one or two REALTORs have made any meaningful concessions to the standard "it's a good time to buy" argument.
So I ask you in all seriousness, what exactly should Mike be paying attention to? He's making new, interesting, fact-based arguments. They're being retorted by what appear to be nothing more than personal opinions with no substance behind them.
"Slash" used some data, but it was ludicrously flawed, and amusingly it also demonstrated a year over year price decline.
AJ, John The Bruce, Zack and I have all cited public data from neutral sources, as well as analysis by parties who don't have a financial incentive to call the market in a particular direction, other than how they see it.
Furthermore, the non-professionals have made some very non-controversial stances, such as my statement that people who are simply relocating between houses of similar value should likely purchase with little fear, unless they're purchasing in one of a very small number of very bad markets, but moving from a good market.
In all, nearly all of the non-professionals have taken a bearish stance on the matter, but one which advocates looking at rent/purchase ratios for your specific situation and then making an analysis based on that.
But nearly all the REALTORs are failing to argue in that manner, and only one or two REALTORs have made any meaningful concessions to the standard "it's a good time to buy" argument.
So I ask you in all seriousness, what exactly should Mike be paying attention to? He's making new, interesting, fact-based arguments. They're being retorted by what appear to be nothing more than personal opinions with no substance behind them.
Reiterating what Zack said, that bill has a 0.00% chance of becoming a law. The house approves all sorts of idiocy, it's what they do. They pander, they pass stupid stuff, they try to get re-elected.
The senate then says 'no, that's idiotic' and votes it down, 99% of the time.
And that bill would not be good news, that bill would be a travesty. REALTORs would be happy, but it would be bad for basically every other group of people in the country. I tend towards laissez-faire attitudes, but I bet that even Keynes himself would cringe at that bill.
It's designed to accomplish one goal: to get some people re-elected, It might as well be titled the 'Ponies, Rainbows and Unicorns for Home Owners Act'
The senate then says 'no, that's idiotic' and votes it down, 99% of the time.
And that bill would not be good news, that bill would be a travesty. REALTORs would be happy, but it would be bad for basically every other group of people in the country. I tend towards laissez-faire attitudes, but I bet that even Keynes himself would cringe at that bill.
It's designed to accomplish one goal: to get some people re-elected, It might as well be titled the 'Ponies, Rainbows and Unicorns for Home Owners Act'
Realtors: Please follow Trulia Roger's advice, and don't give trite advice that has been given a thousand times.
I'm not asking you to read accounting books like this one, http://img501.imageshack.us/img501/1780/img2591fh3.jpg
I'm just asking you to please refrain from posting GTTB repeats that don't add anything new.
I'm not asking you to read accounting books like this one, http://img501.imageshack.us/img501/1780/img2591fh3.jpg
I'm just asking you to please refrain from posting GTTB repeats that don't add anything new.
Screech wrote: Mike I have been to Las Vegas twice and unlike you I speak from experiences. Like that your mom gives the best bj I ever had.
Moderator: at what point are you going to step in an IP-ban Screech/Rob Banks/Slash/Buster Hymen?
It's idiotic that we're all forced to deal with this noise.
Moderator: at what point are you going to step in an IP-ban Screech/Rob Banks/Slash/Buster Hymen?
It's idiotic that we're all forced to deal with this noise.
realtyexec: so now you're claiming that it's technically true that *some* 580s qualify, when you previously made it sound like a 97% LTV jumbo to a 580 was a lock, and likely to get the same rate as a wealthy 800.
I guess you're not a fraudster to the FHA, I guess you're only guilty of attempting to deceive those of us in this thread, but creating false impressions of reality. Then to insult us personally when we point out that you are, in fact, attempting to deceive us.
You are another one of the many reasons that I wish that the "Pros" would have to post under their real names. I somehow doubt that you'd be so deceptive, rude, aggressive, and dishonest if it might cause you real-world business repercussions.
I guess you're not a fraudster to the FHA, I guess you're only guilty of attempting to deceive those of us in this thread, but creating false impressions of reality. Then to insult us personally when we point out that you are, in fact, attempting to deceive us.
You are another one of the many reasons that I wish that the "Pros" would have to post under their real names. I somehow doubt that you'd be so deceptive, rude, aggressive, and dishonest if it might cause you real-world business repercussions.
Slash wrote:
Zack can we please settle this outside of this chat. Give me contact info and I would be more than happy to meet you beat some sense into you.
See, this is what I meant by problem 2. How can somebody trust or have a reasonable discussion with somebody who is actively threatening violence against other forum members?
Zack can we please settle this outside of this chat. Give me contact info and I would be more than happy to meet you beat some sense into you.
See, this is what I meant by problem 2. How can somebody trust or have a reasonable discussion with somebody who is actively threatening violence against other forum members?
Slash wrote:
March 2007- 24 sales for $11 miilion March 2008 45 sales for $18 million
April 2007- 40 sales for $17 million April 2008 60 sales for $25 million
This translates to:
March 2007: average sale price $458k. March 2008: average sale price: $400k
April 2007: average sale price $425k. April 2008: $416k
So if we decide to believe your figures, you seem to be indicating that Chicago is a declining market. That said, the disparities in the numbers are indicative of two likely problems:
Problem 1) Sample Size. If you don't get a large sample, then factors unrelated to the macroeconomic trends will bias your data and make it useless. One realtor's statistics aren't information, they're noise. Perhaps you have better staff, better contacts or better marketing than you did last year. One needs to zoom out to larger samples to get useful information.
Problem 2) Trustworthiness of data. It's very hard to trust data that comes from somebody who goes around spewing enormous quantities of personal insults. Even if we ignore that sample size issues grossly distort your data, there simply is no way to trust data from a rude and juvenile internet person named 'Slash'.
March 2007- 24 sales for $11 miilion March 2008 45 sales for $18 million
April 2007- 40 sales for $17 million April 2008 60 sales for $25 million
This translates to:
March 2007: average sale price $458k. March 2008: average sale price: $400k
April 2007: average sale price $425k. April 2008: $416k
So if we decide to believe your figures, you seem to be indicating that Chicago is a declining market. That said, the disparities in the numbers are indicative of two likely problems:
Problem 1) Sample Size. If you don't get a large sample, then factors unrelated to the macroeconomic trends will bias your data and make it useless. One realtor's statistics aren't information, they're noise. Perhaps you have better staff, better contacts or better marketing than you did last year. One needs to zoom out to larger samples to get useful information.
Problem 2) Trustworthiness of data. It's very hard to trust data that comes from somebody who goes around spewing enormous quantities of personal insults. Even if we ignore that sample size issues grossly distort your data, there simply is no way to trust data from a rude and juvenile internet person named 'Slash'.
No realtyexec, you clearly stated that a person with a 580 FICO could qualify for such loans. I simply don't see how that's possible unless you provide a fraudulent alternative FICO score.
It's amusing that you quickly changed your original claim when I pointed out that you were advocating illegal behaviour. Suddenly you claim you argued about no credit score when your original post clearly said 580.
As per Trulia guidelines, I'll refrain from insulting your character, but I'd advise anybody who is considering believing you to read your earlier posts carefully, and make a decision for themselves as to whether or not they'd be a fool to believe you.
It's amusing that you quickly changed your original claim when I pointed out that you were advocating illegal behaviour. Suddenly you claim you argued about no credit score when your original post clearly said 580.
As per Trulia guidelines, I'll refrain from insulting your character, but I'd advise anybody who is considering believing you to read your earlier posts carefully, and make a decision for themselves as to whether or not they'd be a fool to believe you.
Realtyexec: but the FHA guidelines state that one may only use non-traditional means of proving credit worthiness if the FICO record is too thin or non-existent, it isn't to be used as a replacement for a bad FICO score as you suggested.
I'm sure that using it as a replacement for a bad credit record is a common form of fraud, but simply put, I don't see any evidence that people with lousy credit are actually able to get the loans you suggest are available. Furthermore, the $500k loan you mentioned would only be available in a minority of markets, and it would not necessarily be comparable to a loan by an 800 FICO score high earner, because such a person might get their loan without FHA involvement, at lower rates.
Given additional context, it almost seems as though you're promoting fraudulent FHA applications, with improper use of non-traditional creditworthiness applications. In fact, it seems that you were fairly clearly attempting to deceive either the readers of this website, or the FHA. I hope it was the former, since while that's evil, it's not a felony.
I'm sure that using it as a replacement for a bad credit record is a common form of fraud, but simply put, I don't see any evidence that people with lousy credit are actually able to get the loans you suggest are available. Furthermore, the $500k loan you mentioned would only be available in a minority of markets, and it would not necessarily be comparable to a loan by an 800 FICO score high earner, because such a person might get their loan without FHA involvement, at lower rates.
Given additional context, it almost seems as though you're promoting fraudulent FHA applications, with improper use of non-traditional creditworthiness applications. In fact, it seems that you were fairly clearly attempting to deceive either the readers of this website, or the FHA. I hope it was the former, since while that's evil, it's not a felony.
Realtyexec: who exactly is it that is backing these non-conforming, 97% LTV mortgages to recently bankrupt, sub-prime, non-citizens who received $15k as a gift?
I'm not doubting you, but I might want to short somebody's stock.
I'm not doubting you, but I might want to short somebody's stock.
The other thing that really got me about the article, btw, was his claim that incomes are rising. Average income is up slightly, but median income is dead fat since 2000, indicating that all the gains are going to a small group of people, and that most Americans are doing significantly worse than they were 10 years ago.
Combine this with the significant inflation and the 'technically-not-a-recession' lack of growth, and it seems pretty clear that while the basic premise of the article is correct (that things turn around eventually, and that while the worst may be past in many markets, there's still some ground to cover before we reach a real bottom.
Sadly, the headline didn't really match the article, as is so common in the news biz.
Combine this with the significant inflation and the 'technically-not-a-recession' lack of growth, and it seems pretty clear that while the basic premise of the article is correct (that things turn around eventually, and that while the worst may be past in many markets, there's still some ground to cover before we reach a real bottom.
Sadly, the headline didn't really match the article, as is so common in the news biz.
I had a lot of issues with that article, but this is what stands out:
First, the actual article calls for a slowdown in the rate of decline, NOT an increase or a complete halt to it. That is specified as a longer-term effect. He points out that the inventory is currently at about 11 months, similar to pre-bust levels of previous busts, indicating that substantial drops are still looming.
The article itself is bearish, but it argues that perhaps the decline has now reached a point where we can compare it to previous economic trends, and stop being afraid that it is a complete unknown. It does NOT call a bottom on actual retail housing prices, and it predicts further decline there.
It's pathetic that so many REALTORs are pointing to the headline and claiming it's a Great Time To Buy, when the article itself calls for further price drops. It's just a sensationalistic headline on an article that implies that maybe 2009 or 2010 would be an okay time to buy.
First, the actual article calls for a slowdown in the rate of decline, NOT an increase or a complete halt to it. That is specified as a longer-term effect. He points out that the inventory is currently at about 11 months, similar to pre-bust levels of previous busts, indicating that substantial drops are still looming.
The article itself is bearish, but it argues that perhaps the decline has now reached a point where we can compare it to previous economic trends, and stop being afraid that it is a complete unknown. It does NOT call a bottom on actual retail housing prices, and it predicts further decline there.
It's pathetic that so many REALTORs are pointing to the headline and claiming it's a Great Time To Buy, when the article itself calls for further price drops. It's just a sensationalistic headline on an article that implies that maybe 2009 or 2010 would be an okay time to buy.
Tim: If the market is as stable as NAR would like us to believe, there really should be very little exposure. After all, most people stay in their homes for a number of years, giving the market time to correct.
The reality is that if you accept NAR talking points as truth, the idea should not only be workable, but it should be a fantastic offering both for the REALTORs who profit from every trade, and for skittish buyers.
Amazon.com can offer me a lowest price guarantee, why can't NAR?
The reality is that if you accept NAR talking points as truth, the idea should not only be workable, but it should be a fantastic offering both for the REALTORs who profit from every trade, and for skittish buyers.
Amazon.com can offer me a lowest price guarantee, why can't NAR?
JR: Please stick to the topic at hand instead of attacking me personally.
If you're unable to do that, please refrain from responding entirely. It's unprofessional, impolite and unhelpful.
I made a sincere proposal for a suggestion that the NAR could sponsor a product that would alleviate a significant concerns thus providing significant value to all parties involved. I, for one, know that I would love an inexpensive put for my property, if I was buying something of significant value with an intention to move in the reasonably near future.
It takes two people to make a trade. I'm stating that I'd buy such a product if it was available at a reasonable price. You, on the other hand, are insulting me personally and generally avoiding discussing the matter.
It's sad that good REALTORs have their reputations hurt by aggressive, insulting, rude and anti-social jerks like yourself. I really wish you would post under your real name so we could find out what the NAR thinks of people like yourself. My guess is they'd tell you to SHUT UP.
But maybe I'm wrong. Maybe NAR likes it when REALTORs berate their customers and insult them and generally treat them like crap.
If you're unable to do that, please refrain from responding entirely. It's unprofessional, impolite and unhelpful.
I made a sincere proposal for a suggestion that the NAR could sponsor a product that would alleviate a significant concerns thus providing significant value to all parties involved. I, for one, know that I would love an inexpensive put for my property, if I was buying something of significant value with an intention to move in the reasonably near future.
It takes two people to make a trade. I'm stating that I'd buy such a product if it was available at a reasonable price. You, on the other hand, are insulting me personally and generally avoiding discussing the matter.
It's sad that good REALTORs have their reputations hurt by aggressive, insulting, rude and anti-social jerks like yourself. I really wish you would post under your real name so we could find out what the NAR thinks of people like yourself. My guess is they'd tell you to SHUT UP.
But maybe I'm wrong. Maybe NAR likes it when REALTORs berate their customers and insult them and generally treat them like crap.
Let me address a few points:
JR: I'm just drawing from the responses found on this board. I admit that it's possible that the sample size is not enormous, but it does appear to be skewed very significantly towards the 'buy now' crowd.
Secondly, I'm not angry with anybody. I'm proposing a business plan that would, in fact, be fabulously profitable if the market is at or near recovery. If you guys are able to prove this is the case, even in limited markets, somebody should be able to create the product and make (literally) millions of dollars off of my idea. It's silly to accuse me of being angry when I'm proposing an incredibly valuable business plan and am explicitly not claiming rights to it, nor am I requesting commission.
Carl: I suggest that REALTORs offer it not because I view it as a burden, but rather it's a golden opportunity. Imagine for a moment a product that not only increases the number of sales that one is able to close, but also provides an additional profit stream on top of that!! If one truly believes a market has recovered, this is a fantastic opportunity. This would be vastly larger and more profitable than home warranties, or mortgage commissions.
I think a model for this would be the sorts of contracts that are often offered by major companies to their executives. These executives are often required to move fairly often during their development (every 3 years is typical). As such, the companies guarantee that they will purchase the employee's home for the original purchase price + costs if the housing market in the area falls or remains stagnant.
I know it would need to be sold and backed by a large organization, but if NAR truly believes now is a great time to buy, the creation of such a financial product (even if it was limited in scope to certain neighborhoods) would do wonders to increase liquidity in the residential real estate market, which would benefit REALTORs greatly.
JR: I'm just drawing from the responses found on this board. I admit that it's possible that the sample size is not enormous, but it does appear to be skewed very significantly towards the 'buy now' crowd.
Secondly, I'm not angry with anybody. I'm proposing a business plan that would, in fact, be fabulously profitable if the market is at or near recovery. If you guys are able to prove this is the case, even in limited markets, somebody should be able to create the product and make (literally) millions of dollars off of my idea. It's silly to accuse me of being angry when I'm proposing an incredibly valuable business plan and am explicitly not claiming rights to it, nor am I requesting commission.
Carl: I suggest that REALTORs offer it not because I view it as a burden, but rather it's a golden opportunity. Imagine for a moment a product that not only increases the number of sales that one is able to close, but also provides an additional profit stream on top of that!! If one truly believes a market has recovered, this is a fantastic opportunity. This would be vastly larger and more profitable than home warranties, or mortgage commissions.
I think a model for this would be the sorts of contracts that are often offered by major companies to their executives. These executives are often required to move fairly often during their development (every 3 years is typical). As such, the companies guarantee that they will purchase the employee's home for the original purchase price + costs if the housing market in the area falls or remains stagnant.
I know it would need to be sold and backed by a large organization, but if NAR truly believes now is a great time to buy, the creation of such a financial product (even if it was limited in scope to certain neighborhoods) would do wonders to increase liquidity in the residential real estate market, which would benefit REALTORs greatly.
The NAR is filled with hundreds of thousands of REALTORs nearly all of whom claim that now is a good time to buy.
If they really believe their propaganda, that the bottom has come and now is a great time to buy, they should step up and offer cheap insurance against capital losses. Such a product would offer great value to jittery homebuyers and would do much to stabilize the market.
Sadly, we aren't going to see that, because all of the people with finance backgrounds have proven and reproven that house prices aren't done falling, and that they're likely to remain flat for a while after. But REALTORs, if you really believe anything you say, please prove me wrong, and work to offer an inexpensive insurance against losses. Something akin to buying a protective put in a major market.
If you're right, the product will be fabulously profitable, and will simultaneously work to stimulate the market. If you're wrong, at least you'll have put your money where your mouth is for once.
If they really believe their propaganda, that the bottom has come and now is a great time to buy, they should step up and offer cheap insurance against capital losses. Such a product would offer great value to jittery homebuyers and would do much to stabilize the market.
Sadly, we aren't going to see that, because all of the people with finance backgrounds have proven and reproven that house prices aren't done falling, and that they're likely to remain flat for a while after. But REALTORs, if you really believe anything you say, please prove me wrong, and work to offer an inexpensive insurance against losses. Something akin to buying a protective put in a major market.
If you're right, the product will be fabulously profitable, and will simultaneously work to stimulate the market. If you're wrong, at least you'll have put your money where your mouth is for once.
Paul Francis wrote: Pre 2002, Rent vs. Buy calculations were expected to be known and we did them all the time --- for whatever reason, that became a lost art. There are plenty of bashers on here that can form their own opinions as to why...... But don't make generalized statements that it is not possible because you are incorrect.
This is a phenomena endemic to nearly all economic bubbles. If you look back at the dot-com era you can find numerous screeds about the uselessness of a company's P/E ratio when performing a valuation, but the reality is that people were unable to maintain their castles in the sky after both the RE and dot-com booms.
It's true that a "basher" could claim that the fundamentals were abandoned maliciously, but having worked for dot-com companies in the 90s, then having owned southern california real estate in the early '00s, I don't believe it was malice. More just a combination of optimism, greed, and access to absurd amounts of capital that made everything go nuts.
This is a phenomena endemic to nearly all economic bubbles. If you look back at the dot-com era you can find numerous screeds about the uselessness of a company's P/E ratio when performing a valuation, but the reality is that people were unable to maintain their castles in the sky after both the RE and dot-com booms.
It's true that a "basher" could claim that the fundamentals were abandoned maliciously, but having worked for dot-com companies in the 90s, then having owned southern california real estate in the early '00s, I don't believe it was malice. More just a combination of optimism, greed, and access to absurd amounts of capital that made everything go nuts.
I hope that a trulia representative will address this problem the right way. By more thoroughly banning "Buster Hymen"/"Rob Banks". IP Ban the sucker.
This fellow clearly has no interest in the subject at hand, and is also clearly engaged in ban evasion, as "Buster Hymen" has already been banned and now he's breaking the guidelines with a second account.
This fellow clearly has no interest in the subject at hand, and is also clearly engaged in ban evasion, as "Buster Hymen" has already been banned and now he's breaking the guidelines with a second account.
Paul Francis,
Great article. Krugman's blog has been quite interesting as well for a few years. He (along with Calculated Risk, Dean Baker, and a few others) predicted the housing bubble and he also came up with some of the most useful metrics to think about the credit crunch.
I'm really impressed that a REALTOR would link to it, given that it takes a stance that some markets are very bad places to buy at the moment, and I want to pat you on the back for doing so. This has been one of my key points all along, that simply saying "interest rates are low!" isn't good enough to protect the potential buyer. That the buyer also needs to look at real information about their specific locality, to determine the best course of action.
Amusingly, my wife was trying to talk me into buying a condo in LV yesterday, so I could more easily spend my weekends playing poker and such, so if she had her way, I'd need to give you a call. As it stands, I'm planning to sit out of the LV market for a while, but if I change my mind, you're the first guy I'm calling.
Great article. Krugman's blog has been quite interesting as well for a few years. He (along with Calculated Risk, Dean Baker, and a few others) predicted the housing bubble and he also came up with some of the most useful metrics to think about the credit crunch.
I'm really impressed that a REALTOR would link to it, given that it takes a stance that some markets are very bad places to buy at the moment, and I want to pat you on the back for doing so. This has been one of my key points all along, that simply saying "interest rates are low!" isn't good enough to protect the potential buyer. That the buyer also needs to look at real information about their specific locality, to determine the best course of action.
Amusingly, my wife was trying to talk me into buying a condo in LV yesterday, so I could more easily spend my weekends playing poker and such, so if she had her way, I'd need to give you a call. As it stands, I'm planning to sit out of the LV market for a while, but if I change my mind, you're the first guy I'm calling.
Carl Witzig: I already answered your question in my post.
Dann, I appreciate your attempt to participate in the forum. It's clear that English is your second language, so perhaps you're misreading what myself, AJ and others are saying.
We're simply offering constructive criticism. I'd be thrilled if you could provide interesting and strong retorts to our criticism as that would result in everyone working from better knowledge. Unfortunately, so far it seems that most of your criticism has been incorrect and when people have called for more detail on a subject from you, you've failed to give it.
I would've thought that everyone would be interested in better knowledge, particularly people who aren't REALTORs. I'm not trying to "win" the conversation, I'm trying to gain knowledge.
It's a shame that you feel that the only way a conversation is worth participating in is if everybody claims that you are unquestionably correct. Perhaps someday you'll become more acclimated to American society, and will realize that this is how we arrive at strong conclusions, that with no discussion and no critical analysis, there is no certainty.
Until then, I hope you enjoy your stay here, but you're going to have a hard time if you start off with the assumption that all of your ideas are perfect and that all criticism is completely unwarranted.
We'll miss you.
Richard
We're simply offering constructive criticism. I'd be thrilled if you could provide interesting and strong retorts to our criticism as that would result in everyone working from better knowledge. Unfortunately, so far it seems that most of your criticism has been incorrect and when people have called for more detail on a subject from you, you've failed to give it.
I would've thought that everyone would be interested in better knowledge, particularly people who aren't REALTORs. I'm not trying to "win" the conversation, I'm trying to gain knowledge.
It's a shame that you feel that the only way a conversation is worth participating in is if everybody claims that you are unquestionably correct. Perhaps someday you'll become more acclimated to American society, and will realize that this is how we arrive at strong conclusions, that with no discussion and no critical analysis, there is no certainty.
Until then, I hope you enjoy your stay here, but you're going to have a hard time if you start off with the assumption that all of your ideas are perfect and that all criticism is completely unwarranted.
We'll miss you.
Richard
Carl - that sheet might be useful if you're already set that you're going to be purchasing real estate and renting it out. It doesn't come close to the sorts of analysis that I was referring to, though.
All of the rent v. buy calculators I've seen were primitive at best, and I've never seen one that can estimate the cost of moving now versus moving later.
All of the rent v. buy calculators I've seen were primitive at best, and I've never seen one that can estimate the cost of moving now versus moving later.
Andrew Himes, this has been rehashed a dozen times in this thread, but let me do it again because you decided that you didn't need to read the thread before responding.
1) The idea the interest rates are about to skyrocket without warning is deeply flawed.
2) Secondly, if interest rates did skyrocket, house prices would fall further in response to the change. After all, people only have so much money and they're really saying 'this house is worth 30% of my paycheck', not 'this house is worth $200,000 no matter what the mortgage is.'
3) Thirdly, it's possible to get a new interest rate in the middle of a loan, it's not possible to get a new purchase price.
4) Your example of $190k versus $200k, is almost noise, but many of the people here are looking at homes that are currently running $1m, and appear to be overpriced by a solid 10%. That's a possible $100k mistake that you could be compounding.
5) The analysis isn't as simple as looking at the monthly payment and saying 'it's slightly higher'. What you really need to do is first calculate the net present value of the cashflow if you move right now. Then you need to ascribe some probabilities to the various market conditions (re: house price and interest rates). Then you need to calculate the net present value of for each of those possibilities, and calculate the weighted average of them, using the probabilities as the weighting factor. And when calculating these cashflows, you need to ensure that you include everything, be they taxes, HOA/maintenance fees, differences in predicted utility costs, etc.
Then if the difference is statistically significant, you can clearly say that one is the better decision than the other, based on current available knowledge. If they aren't, then you can just do whatever you like, because you have no way to tell which is the better decision.
Unfortunately, the math isn't simple and as far as I can tell there aren't any pre-rolled spreadsheets that are made to assist with this problem in a meaningful way, but that's how I would approach the problem. After all, if you could be making a $100k+ mistake, it's worth spending a day or two in Excel to make sure you're reasonably confident of your decision.
After all, as has been pointed out numerous times in this thread, there are lots of times where a person will do better by renting (even long-term!) than buying, so long as they're wise with the money they saved.
So contrary to Dann's griping, no, we're not bashing you because you're an agent. We're bashing your advice because it appears to be shallow and flawed.
1) The idea the interest rates are about to skyrocket without warning is deeply flawed.
2) Secondly, if interest rates did skyrocket, house prices would fall further in response to the change. After all, people only have so much money and they're really saying 'this house is worth 30% of my paycheck', not 'this house is worth $200,000 no matter what the mortgage is.'
3) Thirdly, it's possible to get a new interest rate in the middle of a loan, it's not possible to get a new purchase price.
4) Your example of $190k versus $200k, is almost noise, but many of the people here are looking at homes that are currently running $1m, and appear to be overpriced by a solid 10%. That's a possible $100k mistake that you could be compounding.
5) The analysis isn't as simple as looking at the monthly payment and saying 'it's slightly higher'. What you really need to do is first calculate the net present value of the cashflow if you move right now. Then you need to ascribe some probabilities to the various market conditions (re: house price and interest rates). Then you need to calculate the net present value of for each of those possibilities, and calculate the weighted average of them, using the probabilities as the weighting factor. And when calculating these cashflows, you need to ensure that you include everything, be they taxes, HOA/maintenance fees, differences in predicted utility costs, etc.
Then if the difference is statistically significant, you can clearly say that one is the better decision than the other, based on current available knowledge. If they aren't, then you can just do whatever you like, because you have no way to tell which is the better decision.
Unfortunately, the math isn't simple and as far as I can tell there aren't any pre-rolled spreadsheets that are made to assist with this problem in a meaningful way, but that's how I would approach the problem. After all, if you could be making a $100k+ mistake, it's worth spending a day or two in Excel to make sure you're reasonably confident of your decision.
After all, as has been pointed out numerous times in this thread, there are lots of times where a person will do better by renting (even long-term!) than buying, so long as they're wise with the money they saved.
So contrary to Dann's griping, no, we're not bashing you because you're an agent. We're bashing your advice because it appears to be shallow and flawed.
Max Vogt: You're claiming rentals are red hot at the moment, but I'm curious if you have any data to back that up.
A few days ago the Census Bureau reported that the rental vacancy rate is up from last quarter (to 10.1%), and is about as high as it's been since 1995 (when the data started). The homeowner vacancy rate also hit a record, indicating that there are lots of homes sitting idle right now.
In addition to this apparent increase in supply, the rental data I'm looking at seems to indicate that rental prices have increased about 1-3% YoY, depending on the exact market, which means that it is either below, or tracking inflation in nearly all markets.
I'm curious, do you have any high-level statistical data that contradicts this, or is this yet another case of a real estate pro claiming one thing, and the data telling a very different story?
A few days ago the Census Bureau reported that the rental vacancy rate is up from last quarter (to 10.1%), and is about as high as it's been since 1995 (when the data started). The homeowner vacancy rate also hit a record, indicating that there are lots of homes sitting idle right now.
In addition to this apparent increase in supply, the rental data I'm looking at seems to indicate that rental prices have increased about 1-3% YoY, depending on the exact market, which means that it is either below, or tracking inflation in nearly all markets.
I'm curious, do you have any high-level statistical data that contradicts this, or is this yet another case of a real estate pro claiming one thing, and the data telling a very different story?
Buyers should be aware of a few problems with absorption rate analysis.
One major issue is that of sample size. If there are very few homes on the market in a particular town, then the absorption rate will be quite inaccurate. To make it clear, imagine a town where there are 30 homes for sale. If 3 of those homes sell, it'll look like a mediocre 10 month absorption rate. But if 2 additional homes were "priced to move", because the sellers needed to cash out fast, the town appears to have a 6 month absorption rate. This is less of an issue with larger areas, but if you're comparing absorption rates in small towns, it's going to very random and dependent on the reasons for sale.
Also, note that the absorption rate isn't quite accurate in that it's common for a builder to list only a small fraction of their actual inventory. As such if you're comparing a town that is fully built out to one with a number of new developments, the latter town could look better than the former, despite having just as many (or more) vacant homes. It's simply that newly built homes might not be in the MLS, so the figures are coming out overly rosy.
This is one of those situations where it's a real shame that the MLS data isn't freely usable by non-pros. It'd be interesting to see how well absorption rate correlates to the public data on pricing. Unfortunately, this analysis can only be done by a REALTOR, and to do it well would require a REALTOR who was also well versed in financial statistics.
One major issue is that of sample size. If there are very few homes on the market in a particular town, then the absorption rate will be quite inaccurate. To make it clear, imagine a town where there are 30 homes for sale. If 3 of those homes sell, it'll look like a mediocre 10 month absorption rate. But if 2 additional homes were "priced to move", because the sellers needed to cash out fast, the town appears to have a 6 month absorption rate. This is less of an issue with larger areas, but if you're comparing absorption rates in small towns, it's going to very random and dependent on the reasons for sale.
Also, note that the absorption rate isn't quite accurate in that it's common for a builder to list only a small fraction of their actual inventory. As such if you're comparing a town that is fully built out to one with a number of new developments, the latter town could look better than the former, despite having just as many (or more) vacant homes. It's simply that newly built homes might not be in the MLS, so the figures are coming out overly rosy.
This is one of those situations where it's a real shame that the MLS data isn't freely usable by non-pros. It'd be interesting to see how well absorption rate correlates to the public data on pricing. Unfortunately, this analysis can only be done by a REALTOR, and to do it well would require a REALTOR who was also well versed in financial statistics.
Carl Witzig-
First of all, I'm glad to be out of line. If I fail to respond to your lies, it's likely that somebody could mistake the lack of response for agreement. This way it is clear that I believe you to be a deeply hypocritical liar, with no respect for the members of this board, or for your clients.
Secondly, if you had in fact read the thread (as you claim to have done) you would already know the various scenarios for which I advocate different positions, and what variables I think are worth examining. Also, you'd know that I recently purchased so you have misrepresented my stance. That said, I thank you for the additional confirmation that you are a serial liar.
Thirdly, I find it fascinating and enormously hypocritical that there are literally dozens of posts from REALTORs suggesting that people should time the market by purchasing right now, but you haven't criticized them at all. Instead you criticize the financial professionals who are looking at the same data and saying 'perhaps you should also do an analysis of the likely financial effects of waiting.' I take it that you believe it's okay to time the market, but only if you believe that NOW is the time to buy.
Lastly, there are these things called paragraphs. They break your posts into groups of ideas that make them easier to read. Using them not only makes you appear more literate, but it also shows respect to others, by making it easier for them to read your posts.
That said, perhaps you want to continue avoiding their use, because your posts are better left unread.
Thank you again for re-proving that you are a serial liar. I couldn't have asked for a more perfectly hypocritical and self-impeaching response.
Regards,
Richard
P.S. Attached is a website that might help you clarify your future communications.
First of all, I'm glad to be out of line. If I fail to respond to your lies, it's likely that somebody could mistake the lack of response for agreement. This way it is clear that I believe you to be a deeply hypocritical liar, with no respect for the members of this board, or for your clients.
Secondly, if you had in fact read the thread (as you claim to have done) you would already know the various scenarios for which I advocate different positions, and what variables I think are worth examining. Also, you'd know that I recently purchased so you have misrepresented my stance. That said, I thank you for the additional confirmation that you are a serial liar.
Thirdly, I find it fascinating and enormously hypocritical that there are literally dozens of posts from REALTORs suggesting that people should time the market by purchasing right now, but you haven't criticized them at all. Instead you criticize the financial professionals who are looking at the same data and saying 'perhaps you should also do an analysis of the likely financial effects of waiting.' I take it that you believe it's okay to time the market, but only if you believe that NOW is the time to buy.
Lastly, there are these things called paragraphs. They break your posts into groups of ideas that make them easier to read. Using them not only makes you appear more literate, but it also shows respect to others, by making it easier for them to read your posts.
That said, perhaps you want to continue avoiding their use, because your posts are better left unread.
Thank you again for re-proving that you are a serial liar. I couldn't have asked for a more perfectly hypocritical and self-impeaching response.
Regards,
Richard
P.S. Attached is a website that might help you clarify your future communications.
Paul Francis: I see that your REALTOR friends are voting you up, but the fact remains that in a standard transaction, 6% of the value of the home is split between all the associated REALTORs.
It's a shame that you read such a fascinating thread (especially the beginning part) and your reply is to imply that a 6% total fee is somehow less significant to the owner simply because it's split between two agents, and their employers. It's an even bigger shame that your agent friends feel that this is worth giving a thumbs up to.
It's a shame that you read such a fascinating thread (especially the beginning part) and your reply is to imply that a 6% total fee is somehow less significant to the owner simply because it's split between two agents, and their employers. It's an even bigger shame that your agent friends feel that this is worth giving a thumbs up to.
I would like to summarize the REALTOR answers:
If this question is asked in 2003: You have to buy RIGHT NOW, the markets are going up, and will definitely always go up!
If this question is asked in 2008: Don't try to time the markets, the market might not keep going down. It might suddenly skyrocket again like it did 2003. And it might happen so quickly that you will have no time to react. It could happen in days! hours!
If this question is asked in 2003: You have to buy RIGHT NOW, the markets are going up, and will definitely always go up!
If this question is asked in 2008: Don't try to time the markets, the market might not keep going down. It might suddenly skyrocket again like it did 2003. And it might happen so quickly that you will have no time to react. It could happen in days! hours!
No Carl. We're criticizing opinions that don't seem to be rooted in a basic analysis of a person's actual needs.
Secondarily, I'm criticizing opinions that are clearly written without any respect for the readers. An example would be your post, which clearly ignores the 289 answers prior to it (specifically the first 100 or so, which offer a lot of insights into what sorts of things a person should consider for various scenarios.)
Furthermore, your opinion is hard to read because you didn't organize it logically, failed to create structured paragraphs, and in fact spent so little time composing your response that you opened with "I getting confused."
If "you getting confused" perhaps you should just sit this one out. It's clear that the productive discussion is due largely to a small number of posters, and a small number of posts, most of which occurred earlier in the thread. You, like so many other REALTORs, are adding nothing productive, factual or interesting.
Please do us all a favor and read the entire thread, then post. You'd be surprised at what you found. That said, don't worry, I know you won't do so. After all, it seems as though your primary goal was to reinforce the many negative stereotypes to which you REALTORs appear to be obliged to actually uphold.
That said, I'm glad the thread exists, there are about a half-dozen REALTORs who have shown themselves in this thread to be intelligent, critical, and interested in the best welfare of their clients. You are not one of them.
Secondarily, I'm criticizing opinions that are clearly written without any respect for the readers. An example would be your post, which clearly ignores the 289 answers prior to it (specifically the first 100 or so, which offer a lot of insights into what sorts of things a person should consider for various scenarios.)
Furthermore, your opinion is hard to read because you didn't organize it logically, failed to create structured paragraphs, and in fact spent so little time composing your response that you opened with "I getting confused."
If "you getting confused" perhaps you should just sit this one out. It's clear that the productive discussion is due largely to a small number of posters, and a small number of posts, most of which occurred earlier in the thread. You, like so many other REALTORs, are adding nothing productive, factual or interesting.
Please do us all a favor and read the entire thread, then post. You'd be surprised at what you found. That said, don't worry, I know you won't do so. After all, it seems as though your primary goal was to reinforce the many negative stereotypes to which you REALTORs appear to be obliged to actually uphold.
That said, I'm glad the thread exists, there are about a half-dozen REALTORs who have shown themselves in this thread to be intelligent, critical, and interested in the best welfare of their clients. You are not one of them.
Victor Shmell wrote; "In my neck of the woods it is a perfect time to buy because the number of homes for sale is large and the number of qualified buyers willing to buy is low. This has created a market where the competition for the available buyers is producing lower prices,"
You've indicated that prices in your neighborhood are falling. Using basic supply/demand figures, it's reasonable to believe that they will continue to fall until they hit a level where buyer and seller demand is approximately equal.
As such, you've indicated that your neck of the woods has falling prices that are likely to fall further, yet you advise purchasing on that basis.
I guess it doesn't really matter for you if the price goes down further, seeing as you'll have already collected your 6% and moved on.
You've indicated that prices in your neighborhood are falling. Using basic supply/demand figures, it's reasonable to believe that they will continue to fall until they hit a level where buyer and seller demand is approximately equal.
As such, you've indicated that your neck of the woods has falling prices that are likely to fall further, yet you advise purchasing on that basis.
I guess it doesn't really matter for you if the price goes down further, seeing as you'll have already collected your 6% and moved on.
Dann-
Gven that you have purchased over 100 homes, are currently selling several properties, and make your living in real estate, it would be nice if you would change your account to identify yourself as a Real Estate Pro, in the interest of clarity.
I'm sure you believe it's better propaganda to portray yourself as primarily just being a home seller, but that's incredibly dishonest, and it makes Real Estate Pros look quite dishonest.
Say what you want about the 100+ useless REALTOR replies in this thread (not to insult the dozen or so quality REALTOR replies), most of them at least had the decency to admit that they were posting from a particular standpoint. Your failure to do so makes you seem somehow more corrupt than any of them.
Regards,
Richard
Gven that you have purchased over 100 homes, are currently selling several properties, and make your living in real estate, it would be nice if you would change your account to identify yourself as a Real Estate Pro, in the interest of clarity.
I'm sure you believe it's better propaganda to portray yourself as primarily just being a home seller, but that's incredibly dishonest, and it makes Real Estate Pros look quite dishonest.
Say what you want about the 100+ useless REALTOR replies in this thread (not to insult the dozen or so quality REALTOR replies), most of them at least had the decency to admit that they were posting from a particular standpoint. Your failure to do so makes you seem somehow more corrupt than any of them.
Regards,
Richard
Sandy and Jay's answer is the reason that it's hard to take REALTORs seriously as anything but self-promotional shills who have absolutely no interest in anything but 6% of your house, on a repeated basis.
It's clear that their answer was written by somebody who saw a 272 answer thread, but didn't have the common courtesy or respect to read the thread above it. If they had, they would see that nearly every aspect of their post has already been picked apart in gross detail.
Beyond that, the rest of your post is almost an invitation to financial suicide. You're suggesting that a 100% LTV loan is bad, simply because if the property value goes down significantly the buyer can walk away.
You're suggesting it's somehow better for the buyer if they are forced to lose a large sum of money if the market goes down even trivially. It's better for the bank, but not for the buyer.
All in all, it's clear that you don't have the buyers interest at heart, that you don't respect buyers enough to read threads before you post, and in general, I would point to you two when some of the better REALTORs complain that people don't respect their profession. I don't respect the profession specifically because of lazy, willfully ignorant, buyer-hostile agents who say things like "It's a good thing if you lose half your life savings on a market downswing, because you'll take it seriously."
Hopefully the recession will clear the profession of the likes of you.
It's clear that their answer was written by somebody who saw a 272 answer thread, but didn't have the common courtesy or respect to read the thread above it. If they had, they would see that nearly every aspect of their post has already been picked apart in gross detail.
Beyond that, the rest of your post is almost an invitation to financial suicide. You're suggesting that a 100% LTV loan is bad, simply because if the property value goes down significantly the buyer can walk away.
You're suggesting it's somehow better for the buyer if they are forced to lose a large sum of money if the market goes down even trivially. It's better for the bank, but not for the buyer.
All in all, it's clear that you don't have the buyers interest at heart, that you don't respect buyers enough to read threads before you post, and in general, I would point to you two when some of the better REALTORs complain that people don't respect their profession. I don't respect the profession specifically because of lazy, willfully ignorant, buyer-hostile agents who say things like "It's a good thing if you lose half your life savings on a market downswing, because you'll take it seriously."
Hopefully the recession will clear the profession of the likes of you.
Housing price studies:
If you believe in the wisdom of markets, check real estates futures markets here: http://www.cme.com/trading/dta/del/product_list.html?Product…
The Federal Reserve has released their Beige Book here:
http://www.federalreserve.gov/fomc/beigebook/2008/20080416/d…
There are record price drops here and news of a slow spring here:
http://www.dqnews.com/News/California/Southern-CA/RRSCA080415.aspx
http://lansner.freedomblogging.com/2008/04/15/march-home-pri…
The NAHB President is quoted as saying:
“With the traditional home buying season now well underway, we have not seen the bump in sales activity that we normally would this time of year,”
http://www.nahb.org/news_details.aspx?sectionID=0&newsID=6962
We have news of foreclosures skyrocketing (another sign of a soft market):
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahJfJhKyxAWI
And lastly (for now), I'd point out that there was an enormous explosion of realtors during the boom:
http://www.realtor.org/libweb.nsf/pages/fg003
The end of the boom means that there are now 1.3 million people sharing the commissions that in the past would've been split between maybe 700-800k people. That's a lot of people with a lot of motivation to... let's say to be "optimistic".
I look forward to seeing some hard scientific references from the real estate pros.
If you believe in the wisdom of markets, check real estates futures markets here: http://www.cme.com/trading/dta/del/product_list.html?Product…
The Federal Reserve has released their Beige Book here:
http://www.federalreserve.gov/fomc/beigebook/2008/20080416/d…
There are record price drops here and news of a slow spring here:
http://www.dqnews.com/News/California/Southern-CA/RRSCA080415.aspx
http://lansner.freedomblogging.com/2008/04/15/march-home-pri…
The NAHB President is quoted as saying:
“With the traditional home buying season now well underway, we have not seen the bump in sales activity that we normally would this time of year,”
http://www.nahb.org/news_details.aspx?sectionID=0&newsID=6962
We have news of foreclosures skyrocketing (another sign of a soft market):
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahJfJhKyxAWI
And lastly (for now), I'd point out that there was an enormous explosion of realtors during the boom:
http://www.realtor.org/libweb.nsf/pages/fg003
The end of the boom means that there are now 1.3 million people sharing the commissions that in the past would've been split between maybe 700-800k people. That's a lot of people with a lot of motivation to... let's say to be "optimistic".
I look forward to seeing some hard scientific references from the real estate pros.
Karsten Torch's claim that he can find an economist to dispute each of Zack's claims is absurd. Zack isn't citing economists, he's citing exact precise econometric statistics. The only place he mentioned an economist was while referring to Jerry Murphy's post.
Karsten Torch is dishonest and attempts to scare people by implying that a 1% jump in mortgage rates could occur at any point in time. In reality, mortgage rates are generally tied to 30 year T-bonds and 10 year T-notes, and thus can be forecast with reasonable accuracy.
Additionally, It's clear from his post that Karsten doesn't know how mortgages are priced, but is willing to pretend otherwise. This alone should be evidence that his posts should not be trusted to contain any facts. (or as he likes to refer to them: opinions.)
Furthermore, Karsten Torch is deeply manipulative when he writes "prices are can be pretty sure that our market is near the bottom (note I didn't say it IS the bottom". Of course he didn't say it IS the bottom, that's obviously and provably false. He said it's *near* the bottom, which means nothing. It says nothing about the likely forecast for where the bottom will be.
Beyond that, price declines in this sort of market are usually followed by prices that skip along the bottom for an extended period of time, so even if prices were definitely at the bottom, that wouldn't imply that there's a significant reason to rush into a purchase.
I'd point out that the JPM earnings call earlier today predicted a 7-9% decline in housing prices in the 8 remaining months of 2008. That doesn't even get into the possibility that 2009 could also be a bad year. Some people could say this is one opinion versus the other, but in this case it's a company warning investors that they are likely to take an enormous loss, versus some guy on the internet who is trying to make a buck on a sale.
Finally, it's true that a 1% gap in interest rates equates (in monthly payments) to about a 10% decline in prices, assuming a 30 year fixed, but again, there is no reason to believe that interest rates are going to increase significantly this year.
If Karsten has any econometric evidence to prove that mortgage rates are likely to rise significantly or that housing prices are likely to level, I'd love to see it, but I won't hold my breath.
After all, the only thing I learned for sure when reading his post is that many Realtors are serial fabricators who should not be trusted if one likes one's wallet.
Karsten Torch is dishonest and attempts to scare people by implying that a 1% jump in mortgage rates could occur at any point in time. In reality, mortgage rates are generally tied to 30 year T-bonds and 10 year T-notes, and thus can be forecast with reasonable accuracy.
Additionally, It's clear from his post that Karsten doesn't know how mortgages are priced, but is willing to pretend otherwise. This alone should be evidence that his posts should not be trusted to contain any facts. (or as he likes to refer to them: opinions.)
Furthermore, Karsten Torch is deeply manipulative when he writes "prices are can be pretty sure that our market is near the bottom (note I didn't say it IS the bottom". Of course he didn't say it IS the bottom, that's obviously and provably false. He said it's *near* the bottom, which means nothing. It says nothing about the likely forecast for where the bottom will be.
Beyond that, price declines in this sort of market are usually followed by prices that skip along the bottom for an extended period of time, so even if prices were definitely at the bottom, that wouldn't imply that there's a significant reason to rush into a purchase.
I'd point out that the JPM earnings call earlier today predicted a 7-9% decline in housing prices in the 8 remaining months of 2008. That doesn't even get into the possibility that 2009 could also be a bad year. Some people could say this is one opinion versus the other, but in this case it's a company warning investors that they are likely to take an enormous loss, versus some guy on the internet who is trying to make a buck on a sale.
Finally, it's true that a 1% gap in interest rates equates (in monthly payments) to about a 10% decline in prices, assuming a 30 year fixed, but again, there is no reason to believe that interest rates are going to increase significantly this year.
If Karsten has any econometric evidence to prove that mortgage rates are likely to rise significantly or that housing prices are likely to level, I'd love to see it, but I won't hold my breath.
After all, the only thing I learned for sure when reading his post is that many Realtors are serial fabricators who should not be trusted if one likes one's wallet.
One concession I will make towards purchasing: If you're selling one home, and purchasing another of similar value, then it probably doesn't matter that the market is down.
If you're increasing the number of homes you own, or if you're buying a home in a significantly higher class than your existing one, the problems relating to volatility and downside risk on a highly leveraged investment are far more significant.
Perhaps there would be a consensus if we came up with a few scenarios:
Selling a $300k home and buying a $350k home -- doesn't really matter when you do it, as your downside risk is similar in both the current and future position.
Buying a new home or a second home -- matters greatly when you do it. Careful consideration should be made to examine local price/rent ratios and property tax rates to determine if it's wise, but renting will often be a better deal here, particularly if you are not planning to stay in the property for an extended period of time. I strongly suggest that this group of people talk to financial planners, not Realtors, if they aren't comfortable analyzing the options for themselves.
Selling a home of significantly lower value than the new home: the dangers of highly leveraged investments (read: homes) become very important here, as the downside risk isn't comparable between the two. In this case, it's almost always going to be wise to wait for the prices to recover and start having upward pressure before purchasing.
If you're increasing the number of homes you own, or if you're buying a home in a significantly higher class than your existing one, the problems relating to volatility and downside risk on a highly leveraged investment are far more significant.
Perhaps there would be a consensus if we came up with a few scenarios:
Selling a $300k home and buying a $350k home -- doesn't really matter when you do it, as your downside risk is similar in both the current and future position.
Buying a new home or a second home -- matters greatly when you do it. Careful consideration should be made to examine local price/rent ratios and property tax rates to determine if it's wise, but renting will often be a better deal here, particularly if you are not planning to stay in the property for an extended period of time. I strongly suggest that this group of people talk to financial planners, not Realtors, if they aren't comfortable analyzing the options for themselves.
Selling a home of significantly lower value than the new home: the dangers of highly leveraged investments (read: homes) become very important here, as the downside risk isn't comparable between the two. In this case, it's almost always going to be wise to wait for the prices to recover and start having upward pressure before purchasing.
Jerry Murphy's answer is unintentionally hilarious. While Zack is correct that sometimes houses go down, I want to talk about Jerry's anecdote a bit more.
Los Gatos, CA is clearly a very desirable neighborhood, and as such was likely one of the best real estate investments possible. In fact, it's such a good investment that somebody who makes a living by convincing people to purchase real estate cherry-picked it for an anecdote.
And it's true, that's a very good return, better than the S&P 500. But only by the slightest amount. If that house had, in fact, been bought in 1958 instead of 1960, then his "fantastic" example is only as good as the S&P index. (And that's excluding the fact that the homeowner paid a significant sum of property taxes over the years, above and beyond basic maintenance.)
So I suggest people listen to Jerry Murphy, and recognize that if you're really lucky, and choose a quality house in a good location, then you'd still do better putting your money in the market.
Savvy investors will buy enough home to meet their needs, and invest the rest in a diversified portfolio. Realtors don't want you to be savvy.
Los Gatos, CA is clearly a very desirable neighborhood, and as such was likely one of the best real estate investments possible. In fact, it's such a good investment that somebody who makes a living by convincing people to purchase real estate cherry-picked it for an anecdote.
And it's true, that's a very good return, better than the S&P 500. But only by the slightest amount. If that house had, in fact, been bought in 1958 instead of 1960, then his "fantastic" example is only as good as the S&P index. (And that's excluding the fact that the homeowner paid a significant sum of property taxes over the years, above and beyond basic maintenance.)
So I suggest people listen to Jerry Murphy, and recognize that if you're really lucky, and choose a quality house in a good location, then you'd still do better putting your money in the market.
Savvy investors will buy enough home to meet their needs, and invest the rest in a diversified portfolio. Realtors don't want you to be savvy.
Richard answered:
"Also, since you are getting a mortgage, it cost is approx. $6.00 per thousand per month. And if you are losing the home of your dream because of say $60.00 per month ($10,000) or one cup of coffee at DD's per day - cut out the caffeine - it has gotten to your head anyway."
I take a few criticisms of this. First of all, it's hard to believe that anything is the "home of your dream" unless the purchase involved long conversations with the architect. It's more likely just a very nice home that could be replaced by dozens of comparable homes.
Secondly, you suggest that overpayment isn't a big deal, and this might be true if we're discussing $10k gaps on dream homes, but it's quite a big deal on $500k-1m homes that could easily drop in value by 10% or more. As Zack noted, a $50k gap between purchase price and the bottom of the trough is an extra $300/month.
Zack was kind and described that as a $54,000 mistake in his scenario. In reality, if you had an extra $3600/yr for 15 years, you could go out to a nice dinner once a month for 15 years and end up in your situation, except better fed. Or you could invest it in the markets and end up with something a lot closer to $100,000 in the bank.
The market got disconnected from reality because of a combination of your logic, and the greater fool theory of real estate investment, and it will correct as more people recognize that you're simply not correct. The money really does matter.
I take a few criticisms of this. First of all, it's hard to believe that anything is the "home of your dream" unless the purchase involved long conversations with the architect. It's more likely just a very nice home that could be replaced by dozens of comparable homes.
Secondly, you suggest that overpayment isn't a big deal, and this might be true if we're discussing $10k gaps on dream homes, but it's quite a big deal on $500k-1m homes that could easily drop in value by 10% or more. As Zack noted, a $50k gap between purchase price and the bottom of the trough is an extra $300/month.
Zack was kind and described that as a $54,000 mistake in his scenario. In reality, if you had an extra $3600/yr for 15 years, you could go out to a nice dinner once a month for 15 years and end up in your situation, except better fed. Or you could invest it in the markets and end up with something a lot closer to $100,000 in the bank.
The market got disconnected from reality because of a combination of your logic, and the greater fool theory of real estate investment, and it will correct as more people recognize that you're simply not correct. The money really does matter.
Richard answered:
ELVIS: Again, you're lying. The whole MLS is not available through that website. A subset of the data (the IDX data) is available, and it is only available if one agrees to a license that forbids almost any sort of creative use of the data.
It's sad that you can't see how wrong you are. Sad, but unsurprising. After all, you've already admitted that you are willing to work against the wishes of your clients if your trade organization thinks it's better for you.
I assume you will have more useless spin pretending that you and J.R. are something other than customer-hostile leeches, but I will continue not to believe it.
It's sad that you can't see how wrong you are. Sad, but unsurprising. After all, you've already admitted that you are willing to work against the wishes of your clients if your trade organization thinks it's better for you.
I assume you will have more useless spin pretending that you and J.R. are something other than customer-hostile leeches, but I will continue not to believe it.
J.R. I'd post anonymously as well, if I was as customer-hostile, argumentative, and unhelpful as you.
It's clear that you don't care, even slightly, about your clients or potential clients. It's clear that you don't care about the future of your profession. It's clear that your only interest is yourself, today.
You are, basically, the cartoon of the lousy real estate agent. "I know it's in my client's best interest to share this data, but who cares about that guy, I wanna be the gatekeeper to some data!"
ELVIS: It's fine to hate people who openly admit that they are purposefully screwing their customers for their own benefit as both you and JR have done by supporting restrictions on real estate data, even when freeing it would be better for both buyers and sellers.
Furthermore your analogy about a survey is idiotic at best. If you ask me who I'm voting for, you own the compiled product, but you don't own the specific data. You can't prevent me from telling everybody else who I'm voting for. You can't setup legal contracts that forbid people from getting surveyed by other firms.
The MLS exists not because of hard work, but because of momentum and legal documents that forbid many forms of competition.
That said, the whole thing is moot as you actually agreed with me that it would be in the customer's interest to disseminate the information, yet you still argue against it. I understand the urge to stick up for your fellow REALTOR but the fact is you're both wrong, and you're both acting against your customers wishes.
The funny thing is that I'm certain my desired outcome will occur within a 10-15 year timeframe, despite customer-hostile dinosaurs like you guys, arguing that you should be the gatekeepers.
Remember, you're supposed to serve your clients, not vice versa. If you try doing so, maybe you won't get so much hate. or as J.R. delusionally refers to it "prejudice".
It's clear that you don't care, even slightly, about your clients or potential clients. It's clear that you don't care about the future of your profession. It's clear that your only interest is yourself, today.
You are, basically, the cartoon of the lousy real estate agent. "I know it's in my client's best interest to share this data, but who cares about that guy, I wanna be the gatekeeper to some data!"
ELVIS: It's fine to hate people who openly admit that they are purposefully screwing their customers for their own benefit as both you and JR have done by supporting restrictions on real estate data, even when freeing it would be better for both buyers and sellers.
Furthermore your analogy about a survey is idiotic at best. If you ask me who I'm voting for, you own the compiled product, but you don't own the specific data. You can't prevent me from telling everybody else who I'm voting for. You can't setup legal contracts that forbid people from getting surveyed by other firms.
The MLS exists not because of hard work, but because of momentum and legal documents that forbid many forms of competition.
That said, the whole thing is moot as you actually agreed with me that it would be in the customer's interest to disseminate the information, yet you still argue against it. I understand the urge to stick up for your fellow REALTOR but the fact is you're both wrong, and you're both acting against your customers wishes.
The funny thing is that I'm certain my desired outcome will occur within a 10-15 year timeframe, despite customer-hostile dinosaurs like you guys, arguing that you should be the gatekeepers.
Remember, you're supposed to serve your clients, not vice versa. If you try doing so, maybe you won't get so much hate. or as J.R. delusionally refers to it "prejudice".
J.R. Off the top off my head, access to full (security-redacted) MLS databases would be of incredible use to buyers, sellers, appraisers, insurance companies, financial consultants, marketers, builders, contractors, and entrepreneurs.
Such availability could create an improved market for broker and agent tools (customer management, automated valuation, easier and more accurate screening of possible properties), as well as better tools for investors, and a smoother experience for both buyers and sellers.
I'm an entrepreneur, so to me the value of opening the data is obvious. To me, I see clearly that you will make more money with it open that with it closed, and that the REALTOR brand would become more firmly entrenched as it would discourage the creation of alternate markets and solutions.
It's a shame that you don't see that by keeping a monopoly on the information, all you're really doing is stifling progress in your own field, which frustrates everybody by creating needless inefficiencies.
That said, even if you don't agree with that, I hope you'll consider that from the property seller's viewpoint, the data is not yours at all. The data is theirs, and they likely want it published as widely as possible. You happen to be given the data by the seller, because it is in their interest to do so.
It's unfortunate that you then mistake the seller's data for your own, and act solely in your own interests instead of those of your client.
People are right to hate you. It's not prejudice, is that you have openly admitted that you are working against your clients wishes, and that you do so with no regret or shame.
Such availability could create an improved market for broker and agent tools (customer management, automated valuation, easier and more accurate screening of possible properties), as well as better tools for investors, and a smoother experience for both buyers and sellers.
I'm an entrepreneur, so to me the value of opening the data is obvious. To me, I see clearly that you will make more money with it open that with it closed, and that the REALTOR brand would become more firmly entrenched as it would discourage the creation of alternate markets and solutions.
It's a shame that you don't see that by keeping a monopoly on the information, all you're really doing is stifling progress in your own field, which frustrates everybody by creating needless inefficiencies.
That said, even if you don't agree with that, I hope you'll consider that from the property seller's viewpoint, the data is not yours at all. The data is theirs, and they likely want it published as widely as possible. You happen to be given the data by the seller, because it is in their interest to do so.
It's unfortunate that you then mistake the seller's data for your own, and act solely in your own interests instead of those of your client.
People are right to hate you. It's not prejudice, is that you have openly admitted that you are working against your clients wishes, and that you do so with no regret or shame.
Zack made an excellent point, but I think Elvis missed it.
The real estate market is essentially a financial market. Buyers and Sellers engage in transactions that are facilitated by REALTOR®s and recorded in the MLS. The REALTOR®s are compensated for enabling the transaction and for providing a marketplace in which the Buyers and Sellers can choose to do business.
This is all very similar to other financial markets, with one glaring difference. Other financial markets allow access to far more data, both current and historic. IDX data is equivalent to a stock market ticker with nothing but Ask prices. It tells you how much somebody will definitely sell for, but it doesn't allow for any interesting analysis.
This is bad for both buyers and sellers as it makes it very difficult to calculate an ideal asking price (one that maximizes profit while creating a probable sale in the desired time period) and it also makes it hard for buyers to feel confident that they are making a smart decision.
I understand that most buyers and sellers wouldn't know what to do with the data, but many of us know exactly what we'd do with the data, and as such it should be made available to us, for a fee. Most people would continue to rely on expert advice from their REALTOR®s.
I'm not lobbying for full free access to the entire MLS. I'm suggesting that access to a complete, but security-enabled (no lock box codes, etc) version of the MLS data should be made available to anybody who is willing to pay a standard fee that applies to professionals and non-professionals alike.
I'm sure that some minority of "gatekeeper only" REALTOR®s would be harmed by the availability of this data, but those of you who know your jobs and add value would almost certainly end up doing a better job, more quickly, as more advanced third-party tools are created to assist in house purchasing and selling.
The real estate market is essentially a financial market. Buyers and Sellers engage in transactions that are facilitated by REALTOR®s and recorded in the MLS. The REALTOR®s are compensated for enabling the transaction and for providing a marketplace in which the Buyers and Sellers can choose to do business.
This is all very similar to other financial markets, with one glaring difference. Other financial markets allow access to far more data, both current and historic. IDX data is equivalent to a stock market ticker with nothing but Ask prices. It tells you how much somebody will definitely sell for, but it doesn't allow for any interesting analysis.
This is bad for both buyers and sellers as it makes it very difficult to calculate an ideal asking price (one that maximizes profit while creating a probable sale in the desired time period) and it also makes it hard for buyers to feel confident that they are making a smart decision.
I understand that most buyers and sellers wouldn't know what to do with the data, but many of us know exactly what we'd do with the data, and as such it should be made available to us, for a fee. Most people would continue to rely on expert advice from their REALTOR®s.
I'm not lobbying for full free access to the entire MLS. I'm suggesting that access to a complete, but security-enabled (no lock box codes, etc) version of the MLS data should be made available to anybody who is willing to pay a standard fee that applies to professionals and non-professionals alike.
I'm sure that some minority of "gatekeeper only" REALTOR®s would be harmed by the availability of this data, but those of you who know your jobs and add value would almost certainly end up doing a better job, more quickly, as more advanced third-party tools are created to assist in house purchasing and selling.
Richard is a member of Trulia Voices:
Get the inside scoop on your area and home buying and selling.
Ask and answer questions about real estate.
Build your profile and contact home buyers, sellers and agents.