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Richard
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Richard answered:
If you take Norm Koehler's advice and only hold the property 3 to 5 years, you're going to eat it in real and nominal terms. Housing prices are essentially flat in most markets but you'll have to pay closing costs, and then the REALTOR®s will also take 6% when you move.
Be careful who you trust, your REALTOR® is not your friend.
Be careful who you trust, your REALTOR® is not your friend.
Thank you Bayou. The most common logical fallacy committed by the REALTORs in this thread is arguing that if you gained nominal money between purchase and sale, it was a good investment.
Generally no consideration of taxes, maintenance, interest or transaction fees. And almost never any consideration of whether there was a more profitable way to get housing and a decent return simultaneously.
Generally no consideration of taxes, maintenance, interest or transaction fees. And almost never any consideration of whether there was a more profitable way to get housing and a decent return simultaneously.
Doris/Zack,
I don't doubt that these investors exist, but I'd refer to them as speculators... or people who made large financial errors and haven't realized it yet.
Any reasonable analysis of the RE sector of the economy today will tell you that rising RE prices aren't something to be concerned about in general. Many markets are still flat or falling in nominal terms, with nearly all markets falling in real dollars.
Now, I know the argument from the REALTORs is (or at least was) about the benefit of leverage. Getting returns on $500k, with only $100k of expenses. But this significantly downplays several enormous realities.
Firstly, for many households a downpayment would be a *huge* chunk of their net worth. Often it's their life savings. By putting it into a house, you're making it incredibly illiquid, as it is incredibly hard to know when a house will sell these days. Sales are down and cancellations are up across the nation. Now, being illiquid is always a disadvantage, but it's an especially large one when the economy is in tough shape, as it drastically reduces your options.
Secondly, it ignores the fact that selling the house not only involves the aforementioned random delay, but also some significant expense in the form of Realtor commission and other closing costs. As such, if you put $100k down on a $500k house, you've already lost about half your money.
Now, this isn't as big of a problem if you're a professional landlord and intend to hold the property for a very long period of time, but if you're just a regular person, your life could easily cause you to move away before you've recouped that initial loss. The average duration of a first-home simply isn't long enough to justify buying in a risky arket.
Thirdly, I think we've all learned that leverage works both ways. If you take your $100k life savings, buy a $500k house and the market value drops another 10% to $450k, you've essentially lost your life savings, once you add up the loss, the sales cost and the closing costs. It's a likely disaster.
And Doris, I have to say. It's incredibly immoral of you to tell people to do what RE investors are doing, the situations aren't comparable in any market condition.
RE investors have much lower transaction costs than members of the public (they aren't paying 6% when they sell, and they're going to pay significantly lower fees on their loans as well.)
If a regular buyer wants to sell, they're going to incur moving costs (and likely a new set of closing costs and what not, on the new abode). If an RE investor wants to sell, they can sell without incurring any of those costs.
RE investors have better connections than regular buyers. They develop relationships with agents who will notify them of homes for sale below normal market prices. (e.g. divorce, death or job relocation situations, where selling the house quickly is a much higher priority than attempting to get face value.)
So no, don't watch the investors. And don't listen to scammers like Doris. They're just in it for their six percent.
I don't doubt that these investors exist, but I'd refer to them as speculators... or people who made large financial errors and haven't realized it yet.
Any reasonable analysis of the RE sector of the economy today will tell you that rising RE prices aren't something to be concerned about in general. Many markets are still flat or falling in nominal terms, with nearly all markets falling in real dollars.
Now, I know the argument from the REALTORs is (or at least was) about the benefit of leverage. Getting returns on $500k, with only $100k of expenses. But this significantly downplays several enormous realities.
Firstly, for many households a downpayment would be a *huge* chunk of their net worth. Often it's their life savings. By putting it into a house, you're making it incredibly illiquid, as it is incredibly hard to know when a house will sell these days. Sales are down and cancellations are up across the nation. Now, being illiquid is always a disadvantage, but it's an especially large one when the economy is in tough shape, as it drastically reduces your options.
Secondly, it ignores the fact that selling the house not only involves the aforementioned random delay, but also some significant expense in the form of Realtor commission and other closing costs. As such, if you put $100k down on a $500k house, you've already lost about half your money.
Now, this isn't as big of a problem if you're a professional landlord and intend to hold the property for a very long period of time, but if you're just a regular person, your life could easily cause you to move away before you've recouped that initial loss. The average duration of a first-home simply isn't long enough to justify buying in a risky arket.
Thirdly, I think we've all learned that leverage works both ways. If you take your $100k life savings, buy a $500k house and the market value drops another 10% to $450k, you've essentially lost your life savings, once you add up the loss, the sales cost and the closing costs. It's a likely disaster.
And Doris, I have to say. It's incredibly immoral of you to tell people to do what RE investors are doing, the situations aren't comparable in any market condition.
RE investors have much lower transaction costs than members of the public (they aren't paying 6% when they sell, and they're going to pay significantly lower fees on their loans as well.)
If a regular buyer wants to sell, they're going to incur moving costs (and likely a new set of closing costs and what not, on the new abode). If an RE investor wants to sell, they can sell without incurring any of those costs.
RE investors have better connections than regular buyers. They develop relationships with agents who will notify them of homes for sale below normal market prices. (e.g. divorce, death or job relocation situations, where selling the house quickly is a much higher priority than attempting to get face value.)
So no, don't watch the investors. And don't listen to scammers like Doris. They're just in it for their six percent.
If you haven't seen it yet, there's some new bipartisan idiocy going around, in the name of the FHA Modernization Act of 2008.
If passed, it would reauthorize FHA DAPs, so now if you want to sell to somebody who doesn't have adequate downpayment, you can just charge more for your house, then have your "non-profit" "gift" then the rest. Clever scam, that.
But the true show of ignorance are the proposed changes to high-risk borrowers. As it stands, a high-risk borrower has to pay a higher rate to start, but if they make 2 years of payments without issue, they can have their rate adjusted. This proposes not just to adjust the rate downward, but also to refund the higher premiums that the borrower paid in.
So presumably, defaults will be dealt with using the pool of money that was not paid in, by the borrowers who are defaulting.... or the American taxpayer. Whichever is more solvent.
*sigh*
If passed, it would reauthorize FHA DAPs, so now if you want to sell to somebody who doesn't have adequate downpayment, you can just charge more for your house, then have your "non-profit" "gift" then the rest. Clever scam, that.
But the true show of ignorance are the proposed changes to high-risk borrowers. As it stands, a high-risk borrower has to pay a higher rate to start, but if they make 2 years of payments without issue, they can have their rate adjusted. This proposes not just to adjust the rate downward, but also to refund the higher premiums that the borrower paid in.
So presumably, defaults will be dealt with using the pool of money that was not paid in, by the borrowers who are defaulting.... or the American taxpayer. Whichever is more solvent.
*sigh*
Las Vegas Realtor: is there any pricing data for the latest quarter? DataQuick only has Q1 on their site, and it was a disaster, and C/S shows LV was still a declining market as of April.
Also, do you have any vacancy rate information, (preferably with single family homes and condos split out seperately, and *including* new inventory.)
The sales volume increase implies that prices in LV have dropped to a point where it's less obviously financial suicide, but I'm definitely not sold on the idea that LV is at the bottom, not without some more data.
After all, LV as a city is struggling hard. I'm getting better offers from the casinos than I've ever seen before. $49 rooms at Bellagio, $0 rooms at MGM Grand, and god only knows how many projects have stalled or been cancelled in the city. As far as I know, CityCenter is still go, but almost everything else has been canned.
You sound optimistic, like a salesman should, but I'm curious if the data actually backs up your optimism, or if that was just a sales pitch, based solely on the fact that a slightly larger number of people are now buying homes in Vegas.
Also, do you have any vacancy rate information, (preferably with single family homes and condos split out seperately, and *including* new inventory.)
The sales volume increase implies that prices in LV have dropped to a point where it's less obviously financial suicide, but I'm definitely not sold on the idea that LV is at the bottom, not without some more data.
After all, LV as a city is struggling hard. I'm getting better offers from the casinos than I've ever seen before. $49 rooms at Bellagio, $0 rooms at MGM Grand, and god only knows how many projects have stalled or been cancelled in the city. As far as I know, CityCenter is still go, but almost everything else has been canned.
You sound optimistic, like a salesman should, but I'm curious if the data actually backs up your optimism, or if that was just a sales pitch, based solely on the fact that a slightly larger number of people are now buying homes in Vegas.
Real Estate has never gone down in value over a 10 year period.
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Please tell that to people who bought property in Los Angeles in 1989. Their homes didn't reach the value attained during that mini-bubble until the new national (and partly global) real estate bubble came to save their hides.
Or people who bought in Tokyo, during their bubble.
http://www.dailywealth.com/images/charts/2007/mar/20070323-c…
I mention these specific places because it's true that in the absence of a bubble, RE has tended to go up, but when one seeks out specific cases where bubbles have occurred, it has decimated RE for years and years after. There's no reason to believe that this bubble is special, and won't be followed by an extended period of suck.
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Please tell that to people who bought property in Los Angeles in 1989. Their homes didn't reach the value attained during that mini-bubble until the new national (and partly global) real estate bubble came to save their hides.
Or people who bought in Tokyo, during their bubble.
http://www.dailywealth.com/images/charts/2007/mar/20070323-c…
I mention these specific places because it's true that in the absence of a bubble, RE has tended to go up, but when one seeks out specific cases where bubbles have occurred, it has decimated RE for years and years after. There's no reason to believe that this bubble is special, and won't be followed by an extended period of suck.
More fun with Mortgage Backed Securities. The ABX indices give some really good feedback on the state of the world, when it comes to confidence in various mortgage backed securities.
Here's a primer on how to read the ABX price tables:
http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e070225
And here are the current tables:
http://www.markit.com/information/products/category/indices/…
Fascinating stuff, isn't it?
Here's a primer on how to read the ABX price tables:
http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e070225
And here are the current tables:
http://www.markit.com/information/products/category/indices/…
Fascinating stuff, isn't it?
San Diego: http://www.dqnews.com/Charts/Monthly-Charts/SDUT-Charts/ZIPS…
Las Vegas: http://www.dqnews.com/Charts/Quarterly-Charts/Las-Vegas-Char…
And I don't have detailed Miami breakdowns, but the C/S Miami Index shows it's off 24.56% YoY.
Care to share your references, Madey?
Las Vegas: http://www.dqnews.com/Charts/Quarterly-Charts/Las-Vegas-Char…
And I don't have detailed Miami breakdowns, but the C/S Miami Index shows it's off 24.56% YoY.
Care to share your references, Madey?
The Realtor Code of Ethics currently states:
Article 2: REALTORS® refrain from exaggeration, misrepresentation, or concealment of pertinent facts related to property or transactions.
Article 11: REALTORS® are knowledgeable and competent in the fields of practice in which they engage or they get assistance from a knowledgeable professional, or disclose any lack of expertise to the client.
Article 12: REALTORS® paint a true picture in their advertising and in other public representations.
I'd strongly argue that there are a large population of REALTORS who are grossly in breach of Article 11, because they routinely give advice in fields where they are not knowledgeable or competent. Nearly every GTTB post is in violation of this, as they often implicitly or explicitly claim expertise in financial and economic matters.
As such, I'm altering my complaint to be not that the NAR lacks rules telling REALTORS to behave themselves, and to refrain from feigning expertise where none is present, but that the NAR clearly does not enforce their ethical code. As such, what good is any of it?
If I know that REALTORS aren't actually punished for falsely claiming financial expertise, why should I believe that they will obey any other aspect of their code? Why should I trust them at all?
Article 2: REALTORS® refrain from exaggeration, misrepresentation, or concealment of pertinent facts related to property or transactions.
Article 11: REALTORS® are knowledgeable and competent in the fields of practice in which they engage or they get assistance from a knowledgeable professional, or disclose any lack of expertise to the client.
Article 12: REALTORS® paint a true picture in their advertising and in other public representations.
I'd strongly argue that there are a large population of REALTORS who are grossly in breach of Article 11, because they routinely give advice in fields where they are not knowledgeable or competent. Nearly every GTTB post is in violation of this, as they often implicitly or explicitly claim expertise in financial and economic matters.
As such, I'm altering my complaint to be not that the NAR lacks rules telling REALTORS to behave themselves, and to refrain from feigning expertise where none is present, but that the NAR clearly does not enforce their ethical code. As such, what good is any of it?
If I know that REALTORS aren't actually punished for falsely claiming financial expertise, why should I believe that they will obey any other aspect of their code? Why should I trust them at all?
The_Bayou: I think you're misreading my primary complaint, which is that many Realtors dole out bad advice in their professional capacity, instead of simply refraining from commenting on those matters.
If Realtors all took an ethical baby-step forward, and simply refrained from giving their assessments of "good time to buy", that would go a long way to ensuring that unsophisticated buyers wouldn't be operating on bad advice (since they wouldn't have been given any advice at all.) I honestly don't understand why so many Realtors are hostile to this idea, when it would only harm bad operators, and it would add value to the Realtor certifications.
We all understand that if we ask our stock broker for portfolio recommendation, that it's not a guarantee that things will go well. But I've never had a financial professional of any sort say "GM always goes up" or even "GM always goes up, long-term." And that's part of the reason most people are okay with their market losses. It's made clear to everyone at every possible turn that they're accepting risk.
It seems to me that RE professionals should either stop doling out "GTTB" advice, or they need to start qualifying it by reminding everyone of the dozen or so ways in which they are *not* similar to actual financial professionals, despite the fact that they are assisting in what are likely to be the largest financial transactions of most people's lives.
If Realtors all took an ethical baby-step forward, and simply refrained from giving their assessments of "good time to buy", that would go a long way to ensuring that unsophisticated buyers wouldn't be operating on bad advice (since they wouldn't have been given any advice at all.) I honestly don't understand why so many Realtors are hostile to this idea, when it would only harm bad operators, and it would add value to the Realtor certifications.
We all understand that if we ask our stock broker for portfolio recommendation, that it's not a guarantee that things will go well. But I've never had a financial professional of any sort say "GM always goes up" or even "GM always goes up, long-term." And that's part of the reason most people are okay with their market losses. It's made clear to everyone at every possible turn that they're accepting risk.
It seems to me that RE professionals should either stop doling out "GTTB" advice, or they need to start qualifying it by reminding everyone of the dozen or so ways in which they are *not* similar to actual financial professionals, despite the fact that they are assisting in what are likely to be the largest financial transactions of most people's lives.
The bear market is here.
DOW off 20.8% from the peak of Oct 9, 2007.
S&P 500 off 19.4% from the peak of Oct 9, 2007.
Nasdaq off 21.3% from the peak of Oct 30, 2007.
and the victims are showing up in HELOCs (among other places)
Overdue Home-Equity Credit Lines Rise Most Since 1987, ABA Says Home-equity lines of credit at least 30 days past due rose 14 basis points to 1.1 percent of accounts for the quarter, the Washington-based group said today in a statement.
And it's getting (more) international:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aec7reukWrjI
Wonder when the excitement will end....
DOW off 20.8% from the peak of Oct 9, 2007.
S&P 500 off 19.4% from the peak of Oct 9, 2007.
Nasdaq off 21.3% from the peak of Oct 30, 2007.
and the victims are showing up in HELOCs (among other places)
Overdue Home-Equity Credit Lines Rise Most Since 1987, ABA Says Home-equity lines of credit at least 30 days past due rose 14 basis points to 1.1 percent of accounts for the quarter, the Washington-based group said today in a statement.
And it's getting (more) international:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aec7reukWrjI
Wonder when the excitement will end....
P.S. Happy Holidays, everyone. Enjoy the long weekend!
JR: It's clear you don't get it. When Emily told you to forget our encounter happened and stop writing about it, that meant stop writing about it.
What are you doing, just trying to re-prove (for the umpteenth time) that you are unable to keep a promise that you made to somebody? We already know that you're a liar. Shut up.
What are you doing, just trying to re-prove (for the umpteenth time) that you are unable to keep a promise that you made to somebody? We already know that you're a liar. Shut up.
JR: Perhaps English isn't your native language, but "routinely" and "a lot" are basically synonyms. I've indicated that many realtors are dishonest (or ignorant, which rounds to the same thing when it comes to quality of advice), but not all. Please stop twisting my words.
That said, it is true that I dislike many Realtors. I dislike them because you're a Realtor. I dislike them because you (and so many others) disavow any responsibility for the advice you give, claiming it's the buyer's own fault for doing something stupid, even if your advice contributed significantly to their decision.
I dislike them because they insist on getting compensated in a manner which only rewards sales. If you were paid as hourly consultants you'd have no reason to remain ignorant of the downsides of the mixed blessing that is property ownership. But as it stands, you have strong financial incentive to pretend those downsides don't exist, and to downplay them publicly, and as Upton Sinclair quipped: "It is difficult to get a man to understand something when his salary depends on his not understanding it."
I dislike them because in my experience, they're greedy. I ask to see houses in one price range, but as soon as the Realtor sees my financial statements that go in with my first bid, they start showing me houses that cost hundreds of thousands dollars more than what I'm interested in. Hoping that I'll fall in love with one of them, make an emotional decision, and give them a nice payday.
I dislike them because of the many Realtors I've dealt with, I've had good experiences with a grand total of two of them. And I wish that the good ones would stay, and reform the trade, and that the bad ones (read: you) would just go ruin something else.
That said, it is true that I dislike many Realtors. I dislike them because you're a Realtor. I dislike them because you (and so many others) disavow any responsibility for the advice you give, claiming it's the buyer's own fault for doing something stupid, even if your advice contributed significantly to their decision.
I dislike them because they insist on getting compensated in a manner which only rewards sales. If you were paid as hourly consultants you'd have no reason to remain ignorant of the downsides of the mixed blessing that is property ownership. But as it stands, you have strong financial incentive to pretend those downsides don't exist, and to downplay them publicly, and as Upton Sinclair quipped: "It is difficult to get a man to understand something when his salary depends on his not understanding it."
I dislike them because in my experience, they're greedy. I ask to see houses in one price range, but as soon as the Realtor sees my financial statements that go in with my first bid, they start showing me houses that cost hundreds of thousands dollars more than what I'm interested in. Hoping that I'll fall in love with one of them, make an emotional decision, and give them a nice payday.
I dislike them because of the many Realtors I've dealt with, I've had good experiences with a grand total of two of them. And I wish that the good ones would stay, and reform the trade, and that the bad ones (read: you) would just go ruin something else.
JR and I were both told not to discuss any missives that either of us sent to each other publicly, as a condition for unbanning from the site.
But hey JR, nice work breaking your word again. I'm sure Emily and the trulia customer service people will be thrilled that they get to delete more of your messages, because you continue to be a ludicrously dishonest "person".
But hey JR, nice work breaking your word again. I'm sure Emily and the trulia customer service people will be thrilled that they get to delete more of your messages, because you continue to be a ludicrously dishonest "person".
Hey Gene Pool / Slash / Go Cubs: There are plenty of incidences, feel free to find them yourself.
Excuse me. "Zack pointed out CORRECTLY?" that many RE agents lie and distort? You guys are in fantasy land, and in your fantasy land, the realtor is the perpetrator just by the act of breathing.
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Two points: Point #1, nobody has claimed that the realtor deserved to be shot. Nobody.
Point #2: Yes, correctly. It's not fantasy to see that many realtors claim it's a good time to buy. Read this thread. Read these forums. Realtors are constantly telling people to ignore downside risk, they're telling everyone to buy, be they short-term or long-term buyers.
People on these forums routinely ask for financial advice on a major decision, and a large portion of the Realtors on this site answer "you should buy" no matter what the facts of the matter are. Not all Realtors go around doling out horrible, ill-informed and destructive financial advice, but a huge number of them do so.
So please don't pretend that it's "fantasy-land" to point out that a lot of Realtors will always tell you that it's a good time to buy, just so long as it isn't a Realtor-free owner to owner transaction. You're the one in fantasy-land, JR. Wake up.
(But hey, thanks for re-proving my point that many Realtors are dishonest and that they hate their clients. I love it when you post, because you do more damage to the Realtor brand than I ever could.)
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Two points: Point #1, nobody has claimed that the realtor deserved to be shot. Nobody.
Point #2: Yes, correctly. It's not fantasy to see that many realtors claim it's a good time to buy. Read this thread. Read these forums. Realtors are constantly telling people to ignore downside risk, they're telling everyone to buy, be they short-term or long-term buyers.
People on these forums routinely ask for financial advice on a major decision, and a large portion of the Realtors on this site answer "you should buy" no matter what the facts of the matter are. Not all Realtors go around doling out horrible, ill-informed and destructive financial advice, but a huge number of them do so.
So please don't pretend that it's "fantasy-land" to point out that a lot of Realtors will always tell you that it's a good time to buy, just so long as it isn't a Realtor-free owner to owner transaction. You're the one in fantasy-land, JR. Wake up.
(But hey, thanks for re-proving my point that many Realtors are dishonest and that they hate their clients. I love it when you post, because you do more damage to the Realtor brand than I ever could.)
JR wrote: Obviously he had a target, but he was a kook. So you're somehow justifying this shooting because a kook thought he was wronged.
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Nobody is justifying the shooting. Please tell the truth for a change. I know it's hard for you.
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Nobody is justifying the shooting. Please tell the truth for a change. I know it's hard for you.
JR: How can you say that the occupation of the victim was incidental? Unless you were the murderer in this case, you can't.
Zack pointed out, quite correctly, that many RE agents lie and distort the probability of a home reaping significant financial rewards, and as such, these lies and distortions may have incited the attack.
That said, it's all speculation. But one thing is for sure: If you do business by lying to people about the risks and profit potential associated with major investments, some of those people will get extremely angry. And some extremely angry people do really stupid things.
Until RE agents start abiding by a code of ethics when it comes to the financial aspect of these transaction, it's hard to imagine how the general public will think of them as anything more than high-priced used car salesmen, full of lies, deceit and hatred toward their clients. (A hatred which you have already neatly proved in previous posts.)
Zack pointed out, quite correctly, that many RE agents lie and distort the probability of a home reaping significant financial rewards, and as such, these lies and distortions may have incited the attack.
That said, it's all speculation. But one thing is for sure: If you do business by lying to people about the risks and profit potential associated with major investments, some of those people will get extremely angry. And some extremely angry people do really stupid things.
Until RE agents start abiding by a code of ethics when it comes to the financial aspect of these transaction, it's hard to imagine how the general public will think of them as anything more than high-priced used car salesmen, full of lies, deceit and hatred toward their clients. (A hatred which you have already neatly proved in previous posts.)
Yahoo/Slash/Go Cubs: We missed you! Welcome back. Please continue to litter the forum with awful, useless and inflammatory posts! That would be perfect!
AJ: Not to mention "PMI’s Chief Economist David Berson expects home prices nationwide to continue falling into at least 2009." Greg is not only making a post that calls for continued degradation in the housing market, but one that implies that it is possible to time the market.
This confuses me. I'm left with a few likely explanations:
1) Greg didn't read the article.
2) Greg didn't understand the article.
3) Greg is slyly admitting that he was just trolling with his previous article.
So Greg, help us out. Why are you now posting articles that suggest the market is going down, and that market timing is feasible?
This confuses me. I'm left with a few likely explanations:
1) Greg didn't read the article.
2) Greg didn't understand the article.
3) Greg is slyly admitting that he was just trolling with his previous article.
So Greg, help us out. Why are you now posting articles that suggest the market is going down, and that market timing is feasible?
Greg: This is the real problem with punditry. Many people (such as yourself) give the pundits credit even when their track record shows they don't deserve it.
You're pretending that these people are experts when they clearly and publicly misunderstood the nature of housing price increases earlier in the decade, and then proclaimed that nobody could've seen these problems coming when they got it wrong. But the fact of the matter is that plenty of analysts got it right.
There are lots of smart analysts who publicly warned that it was a bubble, that it would burst, and that a situation like we have now would result. Many of these same analysts (the ones who correctly identified the condition of the RE markets before it was obvious to all) have gone through the data and come up with reasonable predictions on how far they expect the market to fall in various places, why they expect it, and what sort of timeline is expected.
So really, who should we believe?
a) The people who got it wrong, and don't appear to use any significant analysis to explain their statements.
b) The people who got it right, and are continuing to share the analysis behind their statements.
Personally, I'm going with the second group, but you won't be alone if you prefer the first.
You're pretending that these people are experts when they clearly and publicly misunderstood the nature of housing price increases earlier in the decade, and then proclaimed that nobody could've seen these problems coming when they got it wrong. But the fact of the matter is that plenty of analysts got it right.
There are lots of smart analysts who publicly warned that it was a bubble, that it would burst, and that a situation like we have now would result. Many of these same analysts (the ones who correctly identified the condition of the RE markets before it was obvious to all) have gone through the data and come up with reasonable predictions on how far they expect the market to fall in various places, why they expect it, and what sort of timeline is expected.
So really, who should we believe?
a) The people who got it wrong, and don't appear to use any significant analysis to explain their statements.
b) The people who got it right, and are continuing to share the analysis behind their statements.
Personally, I'm going with the second group, but you won't be alone if you prefer the first.
More naysaying:
Billionaire investor Eli Broad [the founder of homebuilder KB Home] said the U.S. economy is in the ``worst period'' of his adult life as a housing market recovery remains ``several years'' away.
Billionaire investor Eli Broad [the founder of homebuilder KB Home] said the U.S. economy is in the ``worst period'' of his adult life as a housing market recovery remains ``several years'' away.
The NY Times has come out in favor of a complicated system of housing price supports in their latest editorial.
Curious what the reactions here are. Personally, I think the idea is a complex and idiotic way to let banks dump some expenses on the government, while doing nothing to solve the housing oversupply problem.
That said, it's hard to imagine a solution to the housing oversupply issue that doesn't involve burning a few cities to the ground, or waiting a number of years, and hoping that some of the builders who sprung up during the bubble close shop, and start earning their money in a more reasonable way (perhaps late-night infomercials.)
Curious what the reactions here are. Personally, I think the idea is a complex and idiotic way to let banks dump some expenses on the government, while doing nothing to solve the housing oversupply problem.
That said, it's hard to imagine a solution to the housing oversupply issue that doesn't involve burning a few cities to the ground, or waiting a number of years, and hoping that some of the builders who sprung up during the bubble close shop, and start earning their money in a more reasonable way (perhaps late-night infomercials.)
Things aren't so bad in Kansas City.
Los Angeles on the other hand, that's a whole different story.
Some fun historical Median Price / Median Income charts for you all to enjoy.
Los Angeles on the other hand, that's a whole different story.
Some fun historical Median Price / Median Income charts for you all to enjoy.
Fascinating new study!
http://www.jchs.harvard.edu/son/index.htm
Harvard's Joint Center for Housing Studies has released a new report "The State of the Nation's Housing 2008", and if you're considering buying a house right now, you should take the time to read this before you make your decision.
http://www.jchs.harvard.edu/son/index.htm
Harvard's Joint Center for Housing Studies has released a new report "The State of the Nation's Housing 2008", and if you're considering buying a house right now, you should take the time to read this before you make your decision.
JR: In your past few posts you've claimed people are saying "always rent" now you're claiming that real estate bears want government mandated interest-rate locks. I haven't seen any of the RE bears on this forum saying any of those things.
Can you provide links where John the Bruce, AJ, Zack or I have said any of those things? Or were you lying. Again.
Can you provide links where John the Bruce, AJ, Zack or I have said any of those things? Or were you lying. Again.
Wayne Beals wrote: . Despite the price slashing and our aggressive negotiations, the sellers of the new home made over 415% from their purchase in 1991.
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No. They didn't.
If you ignore the money lost to interest, taxes, maintenance and renovation, they made 8.7%/yr.
If you include those figures, they're probably somewhere in the neighborhood of inflation. Not a very impressive investment... unless of course you ignore a huge percentage of the costs, and then give a 17-year yield.
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No. They didn't.
If you ignore the money lost to interest, taxes, maintenance and renovation, they made 8.7%/yr.
If you include those figures, they're probably somewhere in the neighborhood of inflation. Not a very impressive investment... unless of course you ignore a huge percentage of the costs, and then give a 17-year yield.
Carl-
A few of your base facts appear to be wrong. China's oil consumption as of 2005 was 6.534 million bbl/day. With their expected growth in usage, they're probably around 8.1m bbl/day today. While 2.9 billion bbl/year is a lot, it's not $900b/year.
The $600b/yr also seems, to put it politely "extravagent". I understand that there's some debate as to whether speculators are providing a valuable service to the markets, or if they're simply providing a valuable service to themselves, but they aren't without risk. And beyond that, it seems absurd to claim that people should be forbidden from buying things that they simply plan to sell later.
I'm all for lynching the bad guys, but I don't think you've identified the bad guys.
A few of your base facts appear to be wrong. China's oil consumption as of 2005 was 6.534 million bbl/day. With their expected growth in usage, they're probably around 8.1m bbl/day today. While 2.9 billion bbl/year is a lot, it's not $900b/year.
The $600b/yr also seems, to put it politely "extravagent". I understand that there's some debate as to whether speculators are providing a valuable service to the markets, or if they're simply providing a valuable service to themselves, but they aren't without risk. And beyond that, it seems absurd to claim that people should be forbidden from buying things that they simply plan to sell later.
I'm all for lynching the bad guys, but I don't think you've identified the bad guys.
JR Wrote: Oh my let's everyone rent because we might have to move suddenly.
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Are you being deliberately obtuse?
Nobody has suggested "always rent" as an answer. The *actual* suggestions that have been offered are:
a) sometimes rent, after careful consideration of financial and life circumstances.
b) always buy.
Nobody has ever stated, or even intimated that one should "always rent".
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Are you being deliberately obtuse?
Nobody has suggested "always rent" as an answer. The *actual* suggestions that have been offered are:
a) sometimes rent, after careful consideration of financial and life circumstances.
b) always buy.
Nobody has ever stated, or even intimated that one should "always rent".
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.
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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.
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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.
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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.
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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.
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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.
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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,
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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.
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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.
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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.
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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
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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.
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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."
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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.
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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:
The short answer is that anybody giving a definitive "yes or no" answer is giving you bad advice, because there's not enough information available for us to evaluate the home.
We don't know what he's worth, what his investment objectives are, what his risk tolerance is like, what his investment objectives are, or what his priorities are in life.
To give a simple example, if he's a very conservative investor, his expected risk-adjusted return might not offset the mortgage costs, so the free cash wouldn't be a benefit.
Or if he's an extremely aggressive and risk-tolerant investor, he might expect such high returns that having the free cash would have significant value.
Or if he has a high net worth (say, several million dollars) he might simply prefer the simplicity of not having a mortgage.
I hope this illustrates that this isn't a simple, cut and dry situation, and there's isn't a "right" answer, so much as there are correct answers for particular individuals, depending on their exact situation, ideas and goals.
We don't know what he's worth, what his investment objectives are, what his risk tolerance is like, what his investment objectives are, or what his priorities are in life.
To give a simple example, if he's a very conservative investor, his expected risk-adjusted return might not offset the mortgage costs, so the free cash wouldn't be a benefit.
Or if he's an extremely aggressive and risk-tolerant investor, he might expect such high returns that having the free cash would have significant value.
Or if he has a high net worth (say, several million dollars) he might simply prefer the simplicity of not having a mortgage.
I hope this illustrates that this isn't a simple, cut and dry situation, and there's isn't a "right" answer, so much as there are correct answers for particular individuals, depending on their exact situation, ideas and goals.
Richard answered:
For fun, I plugged Zack's numbers into the NY Times calculator, which uses defaults that they believe to be reasonable for the near-term future.
The result, using default settings for all taxes/growth rates/etc: "Buying is never better than renting over 30 years."
To make it better, you have to use bubble-tastic levels of annual home price appreciation, which simply aren't realistic.
The result, using default settings for all taxes/growth rates/etc: "Buying is never better than renting over 30 years."
To make it better, you have to use bubble-tastic levels of annual home price appreciation, which simply aren't realistic.
Wow, Zack was certainly thorough there. As for the rent versus buy calculators, the NY Times has a great one that you can use to compare specific scenarios:
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAP…
Plug in your numbers and see how it stands. I'd be shocked if buying came out ahead for that sort of short time period. Generally speaking, the only person who wins in a short-term purchase is the Realtor.
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAP…
Plug in your numbers and see how it stands. I'd be shocked if buying came out ahead for that sort of short time period. Generally speaking, the only person who wins in a short-term purchase is the Realtor.
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