Aj

Kevin - then you haven't dealt with savvy buyers if they're not concerned with their home prices. If you payed the break even scenario we were just discussing, you argument doesn't make any sense. First of all, I really don't believe that a 300K house rents for $2500/month. If that were the case, it would be cheaper to pay a mortgage then rent, and I haven't seen any statistics showing that - if you have them, or even a few reasonable comps, please post them. Even if they did, the 30K/year you pay in rent equates to the interest you're paying on your mortgage. In the first year, you don't gain any sizeable equity, maybe a few K in the first year. So it isn't smart to buy now at 6.5% if it prices drop 10% and rates go up 1% to 7.5%.

The tax benefit is real, and like I said discussed in great detail, but for people buying a 300K house its unlikely they'll gain the full benefit (i.e. not the highest tax bracket, etc.).

Bill - Inflation does drive up rents, and when they get high enough, it will make sense to buy, but I haven't seen any evidence of that - any stats showing rent/purchase cost ratios would be interesting.

That said, this thread has got painfully repetitive, but I hate to have people post nonsensical things and not be rebutted. - Wed Jul 23 2008, 08:45

Kevin, Why in the world would you rather buy a $300K house at 6.5% vs a $270K house at 7.5%? The payments are:
270K @ 7.5% = $1,888
300K @ 6.5% = $ 1,896

So, if you assume rates will go up 1% in the next year (FAR from certain), and prices will drop 10% (quite likely in many areas), you save a whopping $8/month by buying now at the lower rate. If you own the house for 10 years, you've saved $8/mo * 120 mos = $960. In exchange for the $960 you save, you have $30K less in equity. If its your personal opinion that you'd like to waste money, that's up to you - but if that's not your goal, your opinion simply doesn't make sense.

What historical stats are you citing that say you can have your house drop 10% in the next 2 years and be even after 3? Real estate appreciates 10%/year?? I don't think even the insanity of the last 10 years minus the recent correction saw that level of growth. Perhaps you meant after 5 years, you'd be break even - also a stretch from historical, and even if that did happen, there's nothing like making the largest investment of your life and hoping for 0% growth for the 1st 5 years! Why not wait 5 years and buy it? The tax arguments, etc. have all been hashed out elsewhere in this thread and I don't think any sane realtor would recommend a house as a good investment if you expect 0% nominal growth for 5 years - and a large loss with respect to inflation. - Wed Jul 23 2008, 04:01

Dionne, the point remains that Israel steadfastly denies having nuclear weapons publicly, so you're claim that "Israel has openly stated that they have pointed at all major cities in EUROPE and USA" is obviously a lie. There's also no credible reason to think that they have any missile capable of reaching anywhere near the US. Go back to the crazy room please. - Fri Jul 11 2008, 09:54

--- (from article linked to below)
The mortgage rules will crack down on a range of shady lending practices that has burned many of the nation's riskiest "subprime" borrowers - those with spotty credit or low incomes - who were hardest hit by the housing and credit debacles. The plan would apply to new loans made by thousands of lenders of all types, including banks and brokers.

It would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.
---

From everything I've read, these rules are going to mess up the current market even more. By placing these added restrictions on lenders, they're going to make it more difficult for existing buyers to refinance and for new buyers to move into the market. By getting rid of the pre-payment penalty, lenders will have to increase other fees to make up for this. This will drive up mortgage costs and keep buyers away. I don't see how this does anything other than make things worse in the short term. - Tue Jul 8 2008, 13:32

Yes Deborah, I would give Fortune a TD for that article (which I've read). The only thing that article says is that prices have dropped a lot. They don't provide ANY reasonable analysis that they're not going to continue to drop, making them bad investments. If there are any factual statistics backing them up, I'd like to see them, but I still haven't. - Tue Jul 8 2008, 05:38

Please post me a credible statistic showing an increase in prices in these markets. - Mon Jul 7 2008, 14:37

I gave you a thumbs down b/c you said the Miami/Vegas/San Diego condo markets are good places to buy. Any reasonable statistic I've seen says that they're not. If you have stats showing otherwise, please post them. - Mon Jul 7 2008, 14:25

Wait, did someone just post a pro-housing article that includes this line:

"Additionally, 326 of 381 MSAs nationwide experienced a decrease in such risk during the first quarter of 2008, revealing that home prices may actually start rebounding in or before 2010 in much of the country." - Wed Jul 2 2008, 13:32

Kenn - I missed your link in the first post. Median sale prices really aren't an accurate indicator since new construction heavily skews them. I have a post somewhere back in this thread that goes into some detail, but I believe the quick estimate I came up with is 1 to 2% of median increase is really based on new home construction - I'm not sure how that scales back over time but I'd be very wary of using median prices to estimate any kind of investment return. Here's a graph of inflation-adjusted housing prices, designed to factor out new construction. - Tue Jul 1 2008, 08:40

Kenn - what stats are you quoting with 6.34% national appreciation? Also, renting is NOT more expensive than buying, as John's post from long ago mentioned. Even if it were, it would still be worth it if you thought home prices were going to drop. - Tue Jul 1 2008, 07:33

Ryan - No, Case-Shiller is not inflation adjusted. I did some looking at the seasonality of the C-S numbers this morning and the evidence is overwhelming. Here are average returns by month (ie. Jan is 1, Feb is 2, etc) from the C-S 10 city index since Jan 1987).

1 0.06%
2 0.12%
3 0.36%
4 0.65%
5 0.92%
6 1.00%
7 0.78%
8 0.59%
9 0.36%
10 0.23%
11 0.03%
12 -0.01% - Tue Jun 24 2008, 14:56

I wouldn't say that's exactly my prediction, if anything, I'd guess we'll fall for another 24 months, and in that time, especially with how inflation is going right now, it's completely possible that 15+% of the 31% needed to fall will come through inflation/appreciation, and you'll end up with a paper drop that would be more like 15% (that combined with 15% inflation/appreciation would even things out). - Tue Jun 24 2008, 13:55

I did neglect inflation - so if you change the growth to 4%, it would be137 now, so we're still 32 points, or 23% above reasonable levels. - Tue Jun 24 2008, 13:22

What exactly doesn't make sense? The index ws at 100.0 in January 2000. If it went up at 2% annually for 8 years, it would be at 117. I hadn't used out a calculator to do the compounding since i thought it would round down, but I don't think 117 vs 116 is the difference you're thinking of. all I did was say 1.02^8 = 1.17.

2% annually is a very generous rate compared to historical studies and it still shows we're well above where we logically should be since 2000.. - Tue Jun 24 2008, 13:15

While Slash should be ignored, I have to point out how wrong he is. If you look at the C-S 20 city index, you'll see that we're back at August 2004 prices (we're now at 169.85, in August 2004 it was at 169.31). Now, what makes that amusing is that the index started being tracked in January 2000 at 100. So from Jan 2000 to August 2004, it went up 69%. Are you really trying to claim that we're back to pre-bubble levels? If you assign a very generous 2% growth rate to housing, it should be at 116 right now ... When it gets there, then you can tell me its back to pre-bubble and not look ridiculous.. - Tue Jun 24 2008, 12:28

Data is here - http://www2.standardandpoors.com/portal/site/sp/en/us/page.t…

If you look at it - at first glance it seems that the rate at which prices are falling is declining. If you look further though, you'll see that the data isn't seasonally adjusted at all, and once you account for that, this part of the year always has rising prices, so its very difficult to make judgements. - Tue Jun 24 2008, 09:06

Brent - To take things a step further I think you place the blame on the ratings agencies that marked these mortgage pools as AAA and the banks/hedge funds/pension funds that bought them.

However, I also place blame on any sales people that lie and mislead their clients to increase their personal wealth. I understand that's human nature, and I'm personally wary of it. But, the realtors on this thread become incredibly angry when you compare them to used car salesmen, even though that really is what they are. They try to market themselves as being independent and helping people, and you'd have to be naive to really believe that, but it is how they present themselves, and its just obviously untrue. I'm curious what they'll say when a 'Real Estate Pro' calls them that .... - Tue Jun 24 2008, 05:28

No JR - you can only lose the amount you put in - the same as a house. The only real negative to the leverage futures provide is that you have to post money as it loses value, while a house will let live with a negative balance for a while. If you don't, your broker will close your position for you. - Thu Jun 19 2008, 05:44

Not true JR. You can buy stock futures that will give you more leverage than a 10% down payment does. And while you're doing it, you'll be paying less in interest then you've been paying on the house. - Wed Jun 18 2008, 19:07

Boomer - Does he make more if the index goes down?? I don't think so. Also - he doesn't calculate the value every month - that's done by S&P based on the only sound methodology for computing home price appreciation. If you want to attack it, offer some reasonable basis.

Pearl - In your example of owning a house for 10 years, and selling it for a 75% increase, you would have made less than 6% annually - that's a) FAR better than housing has done historically b) worse than the S&P 500 has done historically.

If you buy a house now, and it drops in 6 months, it was a bad idea to buy (from an investment perspective), regardless of whether or not you sell it. You shouldn't buy it if you think the price will drop - its that simple. There are far more in depth analyses on this thread - but in general, given historical appreciation rates, you have to own a house a long time to make money (>10-20 years). - Wed Jun 18 2008, 17:24

Victor - You certainly did get a thumbs down from me. Not because of what you necessarily said but because you constantly come on this thread, throw out ridiculous accusations and statements, and when you're asked to back them up, you drop off until your posts move far enough down and you hope nobody will remember.

It's obviously not always a good time to buy, as Nicholas pointed out, but that's besides the point. Carl - Why do you think the bottom is now? Intuition or any particular stats? Are you speaking of your market or overall? Just curious since you seem to be one of the (few) level-headed Realtors on here. I personally can't see a national rebound (measured by C-S) in less than 12-18 months, and see 24+ as more realistic.

All the realtors seem to complain that they're trashed for statements on here, and the reason is, they're being asked for more data and consistently fail to provide anything. The only good stats that have been discussed on here are the C-S prices, and they show price declines accelerating. And I'm not talking about stats where you have the median price of a small area with 20 sales/month, which is meaningless. - Wed Jun 18 2008, 15:13

Carl - Richard is right - The entire world consumes about 80M barrels/day. That works out to 29B bbl/year. At last years prices, that's about $1.5T/year (assuming $50/bbl). Of the 80M barrels, 20M is used by us - I don't have exact stats for China, but they most definitely don't use anywhere near 60% of the world's oil (which is what $900B would work out to be). The $700B number that you quote for speculative demand also seems extremely high to me. In August 2007, it was estimated that there was $2.5T in hedge funds. I can't imagine that 25% of their exposure was long oil positions that would amount to anything near $700B. That's just not a feasible number.

At the same time, if you want to talk about great government regulation - kook at how HUD and the Fed has managed the mortgage/housing market (link below). - Fri Jun 13 2008, 17:24

AJ - the issue is the source of the weighed data - read the article If the index is heavily weighed on more volatile markets, it certainly raises questions regarding the biased nature of the index.

Hedging is intended to offset volatility.
_____________________________________
Its not at all true that hedging is "intended to offset volatility", but that's not really important. The Case-Shiller housing futures trade in incredibly small volume (which is why I've indicated on this thread before that using the futures prices to imply where the market is heading is fairly meaningless) and there's no way that they make a lot of money off of them - so to say that they have a financial incentive to make them 'more volatile' to sell more futures doesn't make any sense.

To give you an idea, in all of March 2008, on the CME (the only exchange where these trade), there were a total of 121 futures contracts traded (link below). On each contract, the exchange charges a fee of $1.96. So in the entire month of March, the exchange collected fees for $1.96 * 121 = $237. Do you really think there's a conspiracy to inflate the volatility of the index by pushing down certain parts of the country so they can trade more off of something they make $2850/year on??? Oh, and that's what the exchange makes, I'm pretty sure they don't pay 100% to Macromarkets.

Besides that, if you want, you can argue all you want over how the markets are weighted, but the fact remains, 18 of the 20 individual markets were down last month - its going to be hard to weight that one to be a win. - Thu Jun 12 2008, 05:55

Why would the fact that this data is sold to hedefunds make it biased? Why would hedge funds want to buy biased data? That just doesn't make sense.

Also, the Case-Shiller Index is calculated and maintained by Standard and Poors and Fiserv, with Standard and Poors being ultimately responsible. To imply that Shiller is somehow profiting from negatively biased indices really doesn't make any sense, and to compare that to the NAR bias is absurd.

Of course, this all based on the incredibly unbiased Realty Times ... - Wed Jun 11 2008, 16:02

Nancy - I never said that's all Realtors add value in - I said its the most significant, at least in my view.

I'm not arguing that Jupiter is small so it doesn't matter, I'm arguing that any sample that small is meangingless. If you chose 100 random sales in a month in Chicago and calculated the average, that would be just as meaningless. I'm not saying there's an easy answer, but the point is, the average (which is actually even worse than the median) of 100 numbers doesn't have a lot of meaning. Is there anyway you can find the 'standard deviation' of the sale prices or post a list? In statistics, there's a concept of the 'standard error' or how far off you are when you measure the average of something (such as home prices) by looking at a small sample (such as the sales from just one month). If you have 100 sales, you're standard error is the standard deviation/10. I'd have to guess the standard deviation on those sales as being 150K or more, so those numbers realistically should be read as +/- 15 to 30K. That makes them virtually indistinguishable. Like I said, these are facts, not my opinion. - Wed Jun 11 2008, 14:37

Nancy - Of course realtors want MLS closed - its the most significant advantage they have and adds the most value to using a realtor. That's also why the DOJ broke it up - so we'll see what happens. On the data side, I know you want to cling to your numbers, but that amount of sales simply isn't enough to say anything about where the market is going. For that small of a sample in an incredibly unreliable statistic like median home price, you need to have a much larger change for it to be important. If you have data for a larger area such as a whole county, etc where the number of sales gets into the area of thousands, then its probably useful. You might not like my statements, but they're not my opinions, they're mathematical facts. For tiny markets like that, median price is simply not a useful measure on too short a time horizon. - Wed Jun 11 2008, 14:16

Numbers that small really don't predict anything. The SP/LP is virtually the same (up 2 pts, down 2 pts, up 1 pt). I know people like to draw conclusions based on what data they can find, but the small increases you mentioned are very unlikely to be statistically meaningful (I'd need more data to know for sure). - Wed Jun 11 2008, 13:19

Nancy - Could you please post some stats that support your claim that markets in Florida are leveling off? - Wed Jun 11 2008, 12:07

Christine, It's just ignorant to say that it's always better to own. That's been refuted so many times on this thread. The NY times rent - buy calculator that somebody poster earlier does a great job of showing it.

Even if rent appreciated at 2% and housing appreciates at (a generous) 1% annually, and their default of an $1,100 monthly rent vs 10% down on a $204K house, you have to own for 26 years to make your money back! How is that a good decision? That doesn't even take into account what a poor decision it is if you think prices will fall for the next 6/12/36 (pick your number) months.

I would specifically NEVER listen to what colleagues etc say. Its incredibly well known how biased people are at remember events, some people will always remember the sales that go through, others will always remember then ones that lose. It's like a recent survey I saw where well over half of the people leaving Las Vegas claim they won - no, they didn't. Its just how people perceive things. That's why objective statistics are so important. - Wed Jun 11 2008, 11:01

The seasonal variation in number of home sales is a very well known phenomenon and the NAR # of sales, etc. numbers are seasonally adjusted. Its a very standard statistical procedure where they take each month, and come up with a multiplier to convert that month's sales into an 'annual' rate based on past history, etc. (not sure if they include the Easter phenomenon in there). If you look at the NAR pending sales numbers, its pretty easy to see their multipliers for 4/2007 through now are:

Apr 11.51
May 10.28
Jun 9.50
Jul 10.14
Aug 9.57
Sept 12.46
Oct 12.02
Nov 12.94
Dec 13.64
Jan 17.59
Feb 16.12
Mar 13.17

As you can see, things swing quite wildly throughout the year, the January multiplier being 85% larger than the June number. This makes it pretty clear that sales _should_ be increasing, and you really have to look at y-o-y and seasonally adjusted numbers to draw any conclusions. One thing I have noticed is that they don't seasonally adjust their median home price. - Mon Jun 9 2008, 12:07

Chris, What's silly is buying a home today, if it will cost less tomorrow (at least, its silly from an investment standpoint). If the plan is to live it in for 10 years, because the market "will have gone up by then", that just doesn't make sense. If it will cost less in 6 months, you should rent or whatever else you can, and buy it when it costs less - its that simple.

And depending on circumstances for individual people, I do think it might be much wiser to rent for 15 years instead of buying and paying off a house in that time. If you can rent for less and save that money, it very well might work out better (again, only as an investment). The bottom line is, real estate appreciates very slowly, so unless you happen to have a good reason to think that it will appreciate above the historical average, its probably not smart to buy.

The whole "own nothing" if you rent and "you're paying someone else's mortgage" just doesn't make sense. It would make sense if the rent and mortgage + maint payments were the same, but they're not. As long as people have the discipline to invest their savings, then they'll own 100% of their savings/brokerage account at the end of 15 years. - Mon Jun 9 2008, 10:43

I think, though I didn't give a TD, that its been pointed out many times that if you think prices are going to continue to fall, and nearly every sign points that way, its silly to say that you'll make the money back if you hold long enough. - Mon Jun 9 2008, 09:40

Omegalpha, what data are you considering to say that stocks don't have the potential upside as real estate? I'm not necessarily saying stocks are a better investment - but its simply not true that they don't have the same upside. - Sat Jun 7 2008, 13:17

Did I really see this?

Mary E Scalcucci wrote:
"Florida has always gained appreciation in a steady average and has continued to even in this market."

Mary - perhaps you could tell us a bit more about what you're basing this on? I was under the impression that Florida's real estate market was one of the worst during the current 'hiccup'? - Sat Jun 7 2008, 06:20

Victor, I was only quoting the NAR stats because even your own trade group, with its horrendous predictions, clearly publishes stats that show what a BS statistic median price is. I didn't quote C-S showing it because they're too smart to include this problem in their data.

I've pointed out many times that I know there are intangibles to owning a house - the bulk of this discussion has focused on it as an investment, i.e. why would you buy in this market if you think the price will decline over the next few years. Because of that, I've steered my comments in that direction.

I asked you for a single thing that I've stated that you've debunked - I'm still waiting. - Tue Jun 3 2008, 20:14

Dave- I gave very concrete statistics from the NAR that show that new construction skews the median by about 1% on average. I gave a tiny example b/c other posters didn't seem to follow to the logic I'd presented.

Victor - Tell me what I've said that you've proven wrong? Don't spout off on random topics to hide your lack of anything concrete to say - tell me what you've proven me wrong on. - Tue Jun 3 2008, 16:06

Actually John, Nonrealtor clearly offered a 'wager' based on the 20-city index - I was asking why nobody would take it. Perhaps you should also tell Dave from Washington off for posting about his market?

Dave, when we're discussing real estate as an investment, all that matters is how much a specific home is worth. My point is that just b/c somebody is building more expensive houses near you, doesn't mean that YOUR house is worth more. If I buy a 100K house on a 2 house block, then somebody builds a 900K house next door (knocking down a 100K house in the process), our mean price just went from 100K to 500K, a 400% increase. Does that mean that my house went up? Of course not. While 'median price' might be your standard, but its a bad one - that was my point. - Tue Jun 3 2008, 14:55

No takers for the 20 city composite Case-Shiller index? Any reason? Would anybody even take 1 city out of the index?

Median home prices continue to be a bad measurement for home prices - they are terribly biased by new home construction. Let me explain - using the NAR stats, there are about 5.5M existing home sales every year and about 500K new home sales. So, about 10% of all sales represent new homes.

Now, the same NAR press release (below), says that the 2008 estimated new home median price is estimated to be $238,000, while the median existing home sale price is estimated to be $213,700. So, if you take a set of home sales, where 90% are existing home resales at $213,700, and add in 10% of new home sales at $238K, y ou'd get an 'average' price of $216,130. That's an increase of 1.1% over the existing home resales. That doesn't mean that the average home that existed a year ago is now worth 1.1% more (assuming nothing else changes), it just means that the average it the neighborhood has gone up.

If you bought a $213,700 house last year, it wouldn't be worth $216,130 now - even though the median appreciation would imply that - the average home didn't appreciate at all because of this.

Any chance people will read this and accept that 'median' or 'average' home prices don't mean a lot? That 1.1% bias is huge, especially when you consider that indices that avoid this problem (i.e. the much maligned (on this board) Case-Shiller) show returns less than that, its a huge issue. While my calculation isn't precise (it can't be since they have median not mean numbers and its hard to tell how prices are actually distributed), its hard to ignore this and keep making arguments based on people's local median price. - Tue Jun 3 2008, 12:20

Zack - HOW DARE YOU??? Aren't you part of Our Vast Conspiracy to never post good news about housing? Didn't you get the memo? - Tue Jun 3 2008, 06:57

And I thought Victor had left!! After all, he said he didn't have time to "answer all your moronic comments so I wont' HATERS win as far as spreading their rhetoric". And now he's back!! Maybe he thinks people will forget that he was asked to provide any coherent argument countering the logical data presented against him. Maybe he thinks his authoritative and angry tone will give him some credibility, but I'll withhold that until he offers some reasonable data and opinion on why buying in this market is a good idea. I think it'll be a while. - Tue Jun 3 2008, 06:18

Joep - Perhaps you should look back and find my example proving that buying Microsoft stock is the best thing to do. Cherry-picking dates is meaningless and not really worth a lot of discussion, but I can say that my parents house has gone from $80K to $240K over the last 20 years, annual appreciate of 2.4%. If consider that you usually spend 1% annually on maintenance, that's a terrible return.

Counting on your 10%+ appreciation, is NOT a reasonable thing to do in a buy vs rent analysis. Of course there are cases where buying would work out better, that doesn't make it a rule.

Its interesting that you can remember long sets of boom years in various markets, why can't you admit that what we're in now looks like a long bust cycle and that buying now is probably not wise?

I've posted factual data, and when I post my opinion make it pretty clear. I'm not making (RIDICULOUS, opinion-based) claims that it takes 2 years on average tor recover the transaction costs in buying a house. - Mon Jun 2 2008, 14:13

Greg - You can certainly cherry pick specific timeframes or cities, but long-term home appreciation is nowhere near 5%. Unfortunately data's not great, but I've posted before an article that's refers to the most comprehensive study of historical US housing prices, and they put annual appreciation at 0.4%.

I've read the WSJ article that you mentioned (I think - it was posted on here some time ago) - it represents one fund manager's opinion. I'm far more interested in hard data - and all of that points to a continued decline in housing.

Advising someone to buy a house they might live in for only 2 years is INCREDIBLY unethical and the type of mentality that helped create the bubble that people are suffering from now. Several times on here, I've mentioned to Carl that I find the realtor's comments on here as incredibly unethical, and this is another example.

By the way, you never mentioned why you think the economy doesn't matter in house prices. - Sun Jun 1 2008, 18:28

Greg,
I gave you a thumbs down - your answer was, simply put, horrendously wrong.

In particular, you said:
~~~~~~~~~~~~
2. Real estate should always be bought with 2-5 year horizon.
3. Real estate is predicted to rebound no later than 2010.
4. It takes approx 2 years to recover selling costs for most homes purchase regardless of the economy.
~~~~~~~~~~~~

Real estate should be bought with a 2 - 5 year horizon? There's no reasonable buy vs rent analysis that will have you making money after 5 years in most markets, let alone 2. With a 6% sales commissions and 1-2% in closing fees, its simply ridiculous to expect to make money on an average house purchase after 2 years.

What forecast are you looking at that predicts real estate to rebound no later than 2010? Why do you think that's right? You post something like that with no factual basis, let alone a link to who ever's opinion this is.

Then you say that it takes 2 years on average to recover selling costs? Average real estate appreciation in the US being 0.4%, it takes a LOT more than 2 years to recover the 7-8+% you should expect to pay in roundtrip fees when buying and selling a house. Also, why in the world would you think that the state of the economy doesn't matter?

In a thread FULL of BS realtor propaganda, your post is pretty close to taking the cake. So if you want to know why you got a thumbs down, there you have it. - Sun Jun 1 2008, 14:57

RealtyExec - First you point to a few articles in the media claiming the mkt is great, then you imply people are dumb for waiting for until "the media says its a great time". Should we or shouldn't we listen to the media? I personally wait for numbers rather than the media's spin on them.

New home sales were up, not overall home sales (I think new home sales make up only about 10% of all sales). All that an increase in new home sales really means is that builders are getting people to buy, that doesn't mean that they're not selling at low prices. In fact, the article notes that prices are up 1.7% over last April but that those numbers are very volatile and don't include seller concessions. Also, the second article you posted actually mentions last month's NAR data showing that existing home sales were down 18% over last years so it seems that the increase is limited to new homes.

The other article makes it clear that lenders are selling foreclosures dirt cheap. That's great, and it will hasten the decline to reasonable levels, but its hardly a sign that now is a great time to buy. There surely are some great 'steals' to be had right now in short sells and foreclosures, but I hardly think its a good sign for buying in general. In the LA times article they point out that sales were up 41% in Sacramento, but that the median price was down 34%. How does that make this a good time to buy? Are inventories back to normal levels? Have the banks gotten rid of most or all of their foreclosure properties? The stats simply don't back that up.

Until prices hit the level supported by the early 2000-2001 demand (which is what we're back to with tightened credit) or real income in the US surges, prices will continue to fall. I'm yet to hear a rational argument against that. - Tue May 27 2008, 10:24

The latest Case-Shiller data was published this morning. A record 14.1% decline in the first qtr, led by Las Vegas at -25.9%. 19 out of the 20 areas were down, only Charlotte was +1%. - Tue May 27 2008, 06:37

RealtyExec - I'd be very cautious looking at numbers that say "April Sales are up from March Sales" since April is a much bigger month for sales. In fact, looking at the NAR monthly sales volume figures and how they seasonally adjust it, it looks like April should be 17% higher than March to start with, so most of sales volume increase is explained by this. - Sat May 24 2008, 06:43

" May 23 (Bloomberg) -- Sales of previously owned homes in the U.S. fell in April and the supply of unsold properties reached a record, signaling no let-up in the housing slump.

Purchases declined 1 percent to an annual rate of 4.89 million, higher than forecast, the National Association of Realtors said today in Washington. The median price dropped 8 percent from April last year, the second-biggest drop. " - Fri May 23 2008, 08:59

I believe that in 3 years you will be able to purchase at or below the price now, which means you're better off waiting. Simply put, with tighter credit, there are not enough buyers to raise prices. The looming ARM resets (posted by zack below) also make it clear that there are going to be a lot more people in trouble - the only way I see this changing is government intervention, which will be obvious and give potential buyers time to get in the market. - Tue May 20 2008, 14:07

Caren - You make no sense. What point do you think needs to be proven? I have long said that housing prices are NOT like stock prices b/c stock prices don't follow long-term trends and are thus much much more difficult to time than the real estate market. That's the whole point people have been trying to make on here. That doesn't mean that looking at the stock market as an alternative investment to housing is a bad thing.

If anybody likes to dodge factual posts its the pro-housing folks. I'm yet to get a single good point against the MSN article I've posted that makes a very compelling case against owning. - Tue May 20 2008, 07:05

Since you asked Bill, I'd have to say I think you're wrong. The general consensus that I've pickedup from the 'non-realtors' on here, is that you should wait until prices stabilize for at quite a few months (I'd say 6 but not sure its been discussed that much), then consider buying. As long as they're continuing to fall, and every statistic and metric available says that we've not reached a bottom (I'd settle for 3 or more months of rising prices as measured by Case-Shiller), why would you want to buy an asset that by all accounts is going to decline.

Your comment about a 20-30% drop doesn't make a lot of sense since in the last 20 years (which seems to be all of the pro-purchasers like to talk about), the largest decline has been 15.8% (which just happens to have been the Feb 2008 C-S data). - Mon May 19 2008, 17:03

Caren, If you read the thread, you'll see that I never said that. If you're so offended by being misquoted, perhaps you shouldn't misquote me. Oh, and its Borders, not "Boarders" since you seem concerned about it - unless you're describing people who spend their whole day there reading and sipping coffee .... - Mon May 19 2008, 12:50

Comparing something to what you bought it at is never a good idea - you need to compare something to what its worth now. If I bought a stock and it dropped, the decision of whether or not to buy more would/should not be based on when I've bought in the past, it would be based on what I expect it to do in the future. Either a) you expect to go up and should be long, or b) you expect it to go down and you should be short or flat (excluding transaction costs that make quick entries/exits difficult, etc).

Its silly to compare an investment to what you got in at except in a historical concept of evaluating if you're ideas were right.

I'm not arguing that people can't money in real estate - given that there is so much friction in the market, if you're willing to do enough research, etc., you can certainly buy undervalued properties, the same as stocks. But the vast majority of people (myself included), don't have the ability to do that and buying a home as an investment isn't a wise choice vs other options. Plenty of people make money by getting lucky on investments, and you can always find people who succeeded with a specific strategy, some of them are right, but most are just lucky. I'd suggest reading "Fooled by Randomess" by Nicholas Taleb for more info on the idea. - Mon May 19 2008, 08:37

Caren - From an investment standpoint, if you think your home will decline in value in the next few years, then yes, you're a fool if you don't sell it. I do realize there are lots of intangibles with a house, and I know those vary widely from person to person. I can't say that I'd want to leave my long-term home if I thought prices are going to drop 5%, but if was 20%+ I have little doubt that I'd move and rent somewhere, instead of pouring a ton of money into a different declining asset.

Joep - I'm not sure who you're referring to, but if there are any good points directed at me that I haven't refuted, please let me know what they are. - Mon May 19 2008, 07:40

Caren - My example was an obvious joke because of the inane comments I was replying to. However, stock index returns over hundred of years is a perfectly fair example, and FAR outperforms real estate as an investment. If you want to dispute that, please post some evidence, as I've posted plenty on the other side. - Mon May 19 2008, 07:19

Caren - You're a fool if you hold your house thinking it will drop to 300K - which I know is not what you said. But its not wise to say that you'd be happy if it drops to 300K either - if you own an asset worth 500K and it drops to 300K you've lost 40% - it doesn't matter what you bought something at - what matters is what its worth today. Any other way of looking at it is foolish and irrational. - Mon May 19 2008, 06:50

Did Victor really claim that an asset returning 0.4% (not 0.04%) above inflation over 120 years is a GOOD investment? I hope I misunderstood. Perhaps you'd like to comment on the facts? Why do you think a 0.4% annual real return is a good thing? Could you also comment on the points in the article I posted, which argues (persuasively) that the major increases in home prices have been due to structural changes to encourage home ownership, and that without these changes housing wouldn't have appreciated at all?

I don't think I've ever advocated owning stocks as the best investment, but since you keep bringing them up, there are a few things people need to keep in mind. The _return_ of an investment isn't actually that important. As any financial analyst will tell you, its the tradeoff of risk vs return that really matters. If something returns 10% but has a volatility (standard deviation) of 20%, its not really a better investment than something that returns 5% with a volatility of 10%. Both of them can earn you the same return with the same risk if you simply buy twice as much (I've slightly simplified things by ignoring the cost of borrowing). The stock market is certainly much more volatile than housing, and if I could afford a $100K of risk in a housing market investment, you probably shouldn't have 100K in play in equities.

What people usually talk about is the ratio of average returns to volatility. For the stock market, historical returns have roughly been 7.5% with a volatility of about 12-15%, giving around of about 0.5 to 0.6. Unfortunately, I don't have the data to calculate the volatility of housing, but given that the returns are just 0.4%, I really doubt the volatility is low enough to give real estate a better risk/return profile than stocks. - Sun May 18 2008, 05:56

Victor - Have you read this thread? I've pointed out lots of intangible qualities of real estate that making owning make sense. What people have also said is that comments like "Buy now if you plan on owning for 10 years, even if it goes down, it will come back up" - these comments really make no sense and have been thoughtfully discussed at length. Sandra made a ridiculous comment about how there was one happy homeowner, and implied that owning a house is a good idea. So I came up with an obvious example of how somebody can come up with an example like that for almost any asset. While I'm certainly worried that absolutely every record of me owning a stock, which would include my brokers records, clearing firm records, exchange records, and my email records, could happen, I'd be far more worried if I owned a house in New Orleans, Florida, anywhere near a fault, anywhere with tornadoes, etc.

If you'd like to discuss a few facts, why would you want to own an asset that has historically appreciate 0.4% above inflation over the last 120 years? How do you counter all of the points made in the article that I posted some time ago - http://articles.moneycentral.msn.com/Banking/HomebuyingGuide…
that makes an incredibly compelling case for why real estate is a bad asset to own. Aside from the intangibles, there are certainly tax benefits to owning, and for some people it will make sense (its a large part of the reason I bought since I pay city/state income taxes). For many people, it will not. Unfortunately, if everybody isn't buying a home, and moving to a bigger one as soon as they can, you won't make your 6%, so I can see why you'd advocate.

You also said that if property values fall, rents wont. That's simply not true. Do you think everybody that bought a condo or house in Vegas 2 years ago is thrilled that they chose real estate?

As for your comments about 'not owning' since I'm in a co-op, there really aren't a lot more options in Manhattan. I could always choose to live near you in beautiful Edison, but I've decided to stay in Manhattan so you'll have to excuse me if my options are more limited. Co-ops are cheaper than condos, the only other option in the city, but that's only because condos can be used as investment properties without all of the restrictions on co-ops. That also means that co-ops are far nicer to live in as they're mostly owners. My investment has turned out well, that doesn't mean it was a wise choice. - Sat May 17 2008, 15:44

Victor - If you bothered to read any of this thread before replying, you'd know that I do in fact own a co-op - a decision that has worked out ok for me since the NY co-op market has avoided most of the credit issues, but in retrospect wasn't a wise choice. Yes, its true - you can make money on something even if it was a poor choice - the outcome doesn't define if I made a good decision.

If you can't recognize my stock market example as a ridiculous parody of Sandra's proclamation that since her parent's made money on their house, housing is a good investment, then you're utterly clueless. - Sat May 17 2008, 12:21

Buying a house is NEVER the right idea but buying MICROSOFT stock is ALWAYS a GREAT idea. My parents bought $25,000 in MSFT in 1986, then they sold it December 2007 for $11,000,000!!! That's right, $11MILLION dollars so I think its really obvious that you should ALWAYS buy Microsoft. If they would have held until now, they'd only have $9.4 million, but oh well. I mean, why keep your money in real estate where your just paying a TON of interest to somebody else? - Sat May 17 2008, 06:46

Paula -
You said you advice your buyers what is right for them, well you were offering advice, and you said it's always a good time to buy. I'm not putting any words in your mouth - "Renting no matter what is a bad idea". How can you say that prices might go down a bit, but not much? Even if you think that's the case, we've rehashed a dozen times that its silly to buy if prices are going to go down (or staying flat for a while), even if you do wait 5 years. You're paying more every month, and wasting all of the returns that your down payment could be earning. What makes you think that owning real estate is a good way to build equity in your portfolio? What statistics are you basing this on?

This thread has 881 replies now - many of them, the first 100 or so were well thought out contributions. Now those are far too rare and buried in the BS company line that realtors keep spouting - I don't care what your sales are, when you make ridiculous statements like you have, you're not better than them. - Fri May 16 2008, 12:33

Wow - an investment that's good if you buy at the right price and sell at the right price!!!!!!!!!!!!! Where do I sign up? - Fri May 16 2008, 12:03

Good point chandler - I forgot that if you rent and stay in the same place for 2 years, you've payed 4.2% of your rental value as commission - a steal compared to the the 6% of the house you pay your realtor for a sale. By far the rental is a better deal! Even on the fictional 300K house, the sales commission is 18K - 9 times the rental commission. - Fri May 16 2008, 11:57

Paula, Perhaps your business is thriving because of your incredibly unethical and untrue statements. Do you really think "real estate is always a good investment"? To make a painfully obvious counterpoint, it doesn't pay to buy if you're not going to hold for a while (your own trade group says median homeownership is < 7 years). It also doesn't pay to buy if the market is declining (like it is now). How can you say "Renting no matter what is a bad idea" with a straight face? Is renting smart if you don't have enough money saved to make a comfortable down payment? Is renting a bad idea if you think the market will decline 10% in the next 12 months? The contribution to equity in the early part of a mortgage is FAR less than the fees associated with buying/selling a house - enough that it makes no sense if you're not going to live there for a while.

Your $2,000 rental analysis makes no sense. You complain about the upfront security deposit that somebody needs to make - I seem to recall housing requiring a small upfront payment, that's typically more than several years rent. Perhaps your clients were all the people who are upside down in their reverse amortization arms, but these days, some down payment is required from everybody. You blatantly ignore that your security deposit comes back to you. Then you compare the rent to owning a $300,000 home. The studies cited earlier on here make it very clear that a $300,000 home doesn't rent for $2k/month - they rent for much less. Typically, a 2K in rent equates to a house with 3K+ in monthly expenses, so you can pay 2K and rent, or 3K and own. For that extra 1K each month, you get to a few hundred dollars in equity (for the first few years), you get your down payment tied up, and you're slowly aspiring to own an asset that has beaten inflation by 0.4% each year for the last 120 years. Does that sound like its always the right choice?

Your ridiculous assertions are sadly echoed by too many (but not all) Realtors and are the cause of the animosity on this thread. Your sales volume doesn't tell me anything about your ability to analyze if buying vs renting is a wise financial decision - but I don't think I need much more info than your first post to sum up what you know. - Fri May 16 2008, 11:51

Housing starts post surprising rebound
http://www.msnbc.msn.com/id/24664672/

U.S. Builders Broke Ground on Fewest Houses Since '91 (Update2)
http://www.bloomberg.com/apps/news?pid=20601087&sid=azqS_xhB…

I love it - same story - 2 very diff't headlines. Summary - Very low housing starts for SFHs, rebound in building apartments. Just goes to show how meaningless most of the media's reports are. - Fri May 16 2008, 06:22

Elvis, the problem is, it's not their money at risk. As long as they were able to package and sell these mortgages they had no skin in the game and no motivation to fully qualify clients, etc.

For (better or) worse, the NAR DOES promote home ownership as a great investment, and continues to push people to buy homes. This was a huge factor on the demand side and this coupled with the new financing options created a massive bubble. Now that nobody's buying these mortgages, the demand has dropped and so have prices. Given that the number of buyers is back to 2003-2004 levels, that's the only place it makes sense for prices to settle at (subject to inflation, and our almost non-existent wage growth).

Every reasonable metric posted on this site, especially the fed charts from Richard, and the median disposable income:median house price ratio charts that RealtyExec posted, point to a continued decline. After looking at the housingmarketfacts.com site that was posted earlier, there is NO doubt that the NAR promotes home ownership to an unethical, irresponsible level and bear a huge chunk of the blame for this.

For people that are foreclosed on, I absolutely blame them for taking out mortgages they can't afford. However, there were many responsible home owners who bought without their means, and are losing tremendous value b/c of a bubble that they didn't help create or profit or from. - Wed May 14 2008, 07:24

Ultimately, a lot of the fault lies with the people who chose to buy these mortgage backed securities - and they are the ones that are losing the most money (on behalf of their investors). I'm sure there were deceitful mortgage brokers who pushed people into loans they shouldn't have had, but consumers were the ones signing on the dotted line - and I personally don't sign a commitment for hundreds of Ks without understanding it.

At the same time, NAR did everything possible to promote home ownership as a great investment - and I think on this thread we've shown tons of reasons why its not for many (most) people. The site that richard posted (housingmarketfacts.com) certainly promotes it to a fault - statements like:
"a normal appreciate rate of 5%" regarding home prices - this isn't at all realistic. At the same time, it promotes the tremendous leverage of a 5% down payment on a house as a selling point. It makes no mentions of the downside, or the fact that investors can easily leverage the same amount (and at a lower interest rate) in the stock market. This is outrageously false and deceptive, and it takes an amazing amount of chutzpah to leave a site like this up. - Mon May 12 2008, 13:38

GoCubs - I hadn't seen the link before, but mean or median prices increasing does NOT mean that the same condo is worth more now than it was a year ago. Means and medians in a small area can be very heavily skewed by the relatively small number of sales, the shift that high end markets might be moving while low end ones are not. It also can be heavily skewed by new developments that sell for more than older buildings. I'll admit my complete ignorance on this area in particular, I'm just saying that MLS numbers of avg sales price don't mean that houses in the area have appreciated.

Regarding the worst posts on here, Realtor B as well as Rob Banks/etc. have posted many vial things - my favorite being a mother's day wish for ill will for the moms of the people he doesn't like. This explains several of my comments of how he must be making his mom proud. At the same time, I obviously don't endorse harassing people at their workplace. - Sun May 11 2008, 18:01

Realtor B - Do you have any links to unbiased statistics that show that Lake View IS going up in price? - Sun May 11 2008, 15:26

Realtor B - If you'd read my response below, you'd see that I did read your article. And I believe I pretty plainly explained why I didn't think buying, even if you can get rents equal to PITI after 20% down isn't always a good idea. Its certainly true that if people aren't buying they are renting and rents will eventually go up - not necessarily that much if there are lots of homes for rent, and it seems like people are renting in some areas if they can't sell. But getting 25% more in rent for a year or two, while your property plummets in value doesn't make a very good investment. Instead of posting another stupid response, why don't read John's link to the CEPR study of rent vs own in major areas and compose something fact based and coherent and then we can discuss that. If you don't want to do that, go ahead and post profane messages questioning my literacy and wishing somebody else's mother to get sick - oh, and keep making your own mom/wife/family proud in the process.

While I'll certainly agree that Mike is a bit blunt in his posts, its amazing how the most immature and inane continue to come from the 'pros' (not an indictment of all of you of course).

In the mean time RealtorB, your maturity continues to impress me. - Sat May 10 2008, 17:11

Wow Realtor B - you sure do have a ton of great info to back up your claims!! I can only think how proud your mother must be of you and the great things you have to say. - Sat May 10 2008, 14:25

Realtor B - Of course as there are fewer buyers, rents will rise. Eventually they'll rise enough to make it a good deal to consider buying. But before you consider buying, you have to price in the fact that a rational observer expects prices in most US markets to fall. Personally, I think they'll fall back to near 2002-2003 levels since that's about the time before we had a huge swell in buyers - there's always the possibility (nightmare in my book) of Barack or somebody subsidizing/guaranteeing more loans to stop this fall, but short of some socialized mortgages that increases the pool of buyers. So while rents might be rising, they're very far away from where they make sense.

Based on John's CEPR study posted far below, there aren't many areas in the country where PITI w/ 20% down isn't well above rent. Even if it were to be equal, you'd still have to consider the significant chance that prices will continue to decline. Even if they don't, you're treading water in terms of your payments, you're building a very small amount of equity, and you've invested your down payment in an asset that appreciates at 0.4% annually while incurring 6+% transaction costs.

Perhaps if you're someone who puts a new TV on lay-a-way at wal-mart the enforced savings plan does make sense. - Sat May 10 2008, 10:41

JR - Nobody was implying you shouldn't buy b/c of interest rates, they were saying that the oft-repeated argument of "Buy now while rates are 6% b/c if rates go up 1% and house prices drop 10% you haven't gained anything". That argument has been dissected quite a bit below and just doesn't hold much water. - Sat May 10 2008, 07:04

Carl,
You noted that the ratio of house price to income in 1999 was 2.5 and in 2007 was 4.5.

If we say the median income was 100K and homes were 250K in 1999, now, with salary increases we can say that salaries are around 125K (the US dept of bureau and labor stats show about 7% after inflation growth since 2000, about .8% annually, so 125K is my best estimate of roughly 2% inflation per year + wage appreciation).

If the current ratio is 4.5, that 250K house is now at 562K. If wages grew the same 25% over the next 8 years, to 157.5K, the same house would have to fall to 393K for it to be back to the same 2.5 ratio. So the question remains, if you expect your house to depreciate 30% over the next 8 years, how is this a good bet?

On a side note Carl - I asked you something earlier that I think might have been lost in the noise. You said you'd heard of unethical realtor behavior but never seen it. Do you not consider all of these posts saying things like "Homes ALWAY go up" to be unethical? - Fri May 9 2008, 13:35

Great link Aileen! I've looked up a few others. The link you posted showed that annual sales are at 4.95M in the 1st quarter of 2008, but expected to rise to 5.82M by the 4th quarter.

In this release, in January 2007, first link below, they project annual sales of 6.52M in 2007. However, this release, http://www.realtor.org/press_room/news_releases/2008/ehs_jan… in January 2008 says there were only 5.65M sales in 2007.

I'm not sure how much faith I'd put into their projections - in Jan 07 they projected 6.52M sales for 2007 but ended up with 5.65M, overprojecting by more than 15% - a huge error when you consider that the range is really only within a few million. Further more, they said that this represents the beginning of a trend of upward home sales, yet the release you posted, from this month, projects only 5.39M this year, even lower than the 2007 actual total of 5.65 and FAR lower than the 2007 estimate of 6.52M. Clearly these forecasts are worthless NAR drivel. Here are some past NAR release titles:


* NAR Sees Opportunity Knocking for Many Buyers, But Timing is Key (01/08/07) http://www.realtor.org/wps/wcm/connect/ro-content/ro/press_r…

* Gradual Rise Projected for Home Sales (01/09/07) http://www.realtor.org/wps/wcm/connect/ro-content/ro/press_r…

* Existing-Home Sales To Improve, With Later Recovery For New (02/06/07) http://www.realtor.org/wps/wcm/connect/ro-content/ro/press_r…

* Fourth Quarter Metro Home Prices & State Sales Likely Have Hit Bottom (02/14/07) http://www.realtor.org/wps/wcm/connect/ro-content/ro/press_r…

* Housing Recovery Likely This Year, But Timing Isn't Clear (03/13/07) http://www.realtor.org/wps/wcm/connect/ro-content/ro/press_r…

* NAR Forsees Short-Term Impact on Housing Market From Subprime Reforms (03/30/07)
http://www.realtor.org/wps/wcm/connect/ro-content/ro/press_r…

If this isn't amusing enough, the link below takes you to their press room archives, after all I only took highlights from 2007Q1 - there are many more to be found. If we're going to point out NAR studies, I thought a little historical perspective might be nice. Enjoy! - Fri May 9 2008, 13:12

BEST ANSWER
You left out the part where they say that prices will bottom out sometime later this year ... The article also says they're projecting a 24% drop this year, in March they were projecting a 9.5% drop. Sounds like they really know what's going on - its been 2 months and they've revised their figure from -9.5% to -24%.

To really get to the heart of the problem, look at this graph of ARM mortgage volumes that are set to reset in the upcoming years .... http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-rese…
The volume of option arms to reset is really scary. - Thu May 8 2008, 19:42

Slash, what I'm unclear on is why the mix of people looking for condos vs houses has changed from last year to this year. - Thu May 8 2008, 13:23

Slash,
Did the time of year that kids go to school change? I'm confused what changed year to year to change that ratio? Are you perhaps implying that taking a tiny sample is meaningless? NOOOOOOOOOOOOOOOOOOOOOO. That couldn't be it. - Thu May 8 2008, 12:56

Slash - How do sales numbers from one office prove anything? Numbers that small are meaningless. Amazing how you belittle people because you have nothing useful to say. I hope your clients this year are enjoying the 409K avg price vs the 437.5K that your numbers say they got last year. Here are some other, clearly less reilable, sources of sales volume for the past few months.

Trulia's numbers for Chicago (link below) show 9600 sales in Feb-Apr 08, down from over 15,000 in the period 1 year before. http://www.trulia.com/real_estate/Chicago-Illinois/#stats_n_trends

Referring to March 2008 numbers from the NAR - "Sales remained dismal, declining 11.5 percent, to 2,045 sales of homes and condos, compared with March 2007"
http://www.suntimes.com/business/909722,CST-FIN-tick23.article - Thu May 8 2008, 12:45

RealtyExec, You clearly intended to show how anybody with terrible credit can still get loans, while in reality on a small fraction of people will have absolutely no FICO score, and then need to show alternate forms of credit. The fundamental problem remains that the pool of buyers right now is back (or even smaller) than the pre-runaway days. Given that the demand is as low or lower than before the run-up in prices, and that the supply is much great due to new home building, there's absolutely no reason to think that inflation-adjusted prices won't settle at or below what they were before loose credit created the bubble. - Thu May 8 2008, 12:06

Louis,
Simply put, you make no sense. You claim you're building equity and that's the value, then a few paragraphs later, you argue that people expect other assets to depreciate, so why not houses? You also talk about the nice intangibles of owning (which I agree with), but then make a financial argument about house prices since 1989. You can't even put together a coherent argument over a few paragraphs. By the way, if you bought your house in Feb 1989 in Chicago, and it appreciated at the Case-Shiller rate, it would have gone up by 124% (the Chicago index went from 68.3 to 153.33), so perhaps you're right. If what you're looking for is 1.9% annual return - housing is THE way to go.

And remember, studies by 100% of people named Slash, show that sales are going faster than ever!

BUY NOW BEFORE ITS TOO LATE
REAL ESTATE ALWAYS GOES UP - Thu May 8 2008, 11:16

Helene - "This is not the time to think...it's the time to act!" I think you've just summed yourself up very nicely - thanks! - Thu May 8 2008, 08:19

Deborah - The fundamental problem, that I think Ben was referring to, is that there are far fewer buyers who will qualify now than there were 2 years ago. Simple supply and demand says that now that fewer buyers can demand these houses, but we still have an enormous supply targeted towards the old number of buyers, prices will not be able to increase any time soon.

Carl - I can't say anymore than I already have about why I think buying a house right now doesn't build wealth. There are obvious intangibles and come into play, and that is a person by person decision, but with the markets now, there aren't a lot of people for whom buying is a smart financial decision. As you continue to defend realtors, more and more continue to post their inane "Buy Low Sell High 'Law'" comments. - Thu May 8 2008, 07:44

Yes Carl, I'm proposing that you should rent if you think house prices will fall. If you can't find a comparable house to rent, considering all of the costs, etc, then you should buy. But given that rents are significantly lower in most markets, as the article discussing rents vs purchases that John posted long ago shows, I find it unlikely that you can't save money by renting.

When you buy a car, you expect it to decline, and make a purchase knowing that and the economic rationale are completely different. People don't buy their cars to build wealth, like most everybody advocates for real estate. I've never said that any purchase in the last 20 years was foolish, but many were (my own included). If you have no reason to believe that home prices will decline and you pay a relatively high tax rate, then I think purchasing can make sense, but it does require a quite involved analysis, and given that its pretty clear that prices will decline for at least the next 6 mos, purchasing now in Chicago and almost all other major markets is, in my opinion, a bad idea. I base this on the stats that we've all discussed ad nauseum.

You can hurl all of the personal insults you want, it won't replace you're lack of knowledge. - Thu May 8 2008, 06:57

Dann - Did you read my post:

"Dann - In the WSJ you read the opinion of one hedge fund managers, many disagree. It also, as Richard explained, doesn't say we're at a bottom. "

Richard did a great job of stating it so I won't repeat.

JR - As i mentioned before, I own the apartment I live in. In retrospect it was a somewhat dumb decision but it worked out well. The credit issues haven't had too much of a hit in Manhattan. That said, I am selling now.

Karen, while markets are indeed local, the problem causing the current housing collapse is mostly national in scope. Its a credit issue, not a local economic downturn. There are certainly markets that haven't gone down, but I'd venture to say (and this isn't something that can be verified), there aren't many markets that aren't lower than they would have been if the current credit issues weren't involved.

My statistics aren't skewed - they have a few known limitations that I've always made clearly - namely the markets covered -but there is no serious problem with the numbers themselves. On the other hand, the NAR stats have a fundamental flaw in what they measure. - Thu May 8 2008, 06:50

People seem to keep asking for this thread to be killed, I'm a bit confused why they don't stop reading it. I find it astonishing that so many lemming realtors continue to post the company line, yet a few that actually think continue to defend the profession as a whole, rather than simply admitting that there are a ton of bad ones out there.

Carl - You say you've heard of, but never seen deceptive practices. What about all of the posts on this board, such as the ones below. On another note, you said you don't see what a declining market has to do with when to buy a house. As I've shown in detail in earlier posts, it has a LOT to do with it. Home prices are a very trend bound market. If they're declining now, it will take quite some time for this to stop and reverse, so buying when you know you'll be losing money is just dumb.

Leslie, What does it mean that real estate has always been a good LONG TERM investment? Inflation adjusted real estate has grown at 0.4% annually since 1890 - that doesn't sound like a great investment to me.

Nancy - You said "I always counsel my buyers before they purchase to plan on staying at least 3 to 5 years". If a buyer stays to 3 to 5 years, they're paying 1.4%-2.3% (I'm assuming 6% for a realtor plus 1% in other costs) annually to own a home. In any normal housing market, that's completely irrational.

Ken said "the Schiller index is putting the country in a panic looking at 20 markets. However - of 330 markets - 78% are rising." If you read the article, it clearly says that they see issues with both sets of numbers, but Ken doesn't mention the obvious flawas in the 78% number. Any analytical reader of the article will realize that the issues in the NAR numbers FAR outweigh the C-S issues.

Dann - In the WSJ you read the opinion of one hedge fund managers, many disagree. It also, as Richard explained, doesn't say we're at a bottom.

Karen said "Sellers are desperate and willing to negotiate and interest rates are still at all time lows." All-time lows??? - Thu May 8 2008, 06:07

Terra,
How can you say that you're very trustworthy and say its always an up market? Was it an up market in most of 2006 and 2007? - Wed May 7 2008, 13:41

Does anybody else think Deborah's statement crosses the line by a long shot when she says things like:

"Statistics show that people who are buying now whether it is for the first time or as an investor they are getting into a market that provides them equity right off the start. Home prices are at an all time low and between short sales and foreclosures the market is an open buffet to the savy shopper."

What houses are people buying that provide them equity right from the start?? Is she counting the down payment as equity? And while I've been as pessimistic as anybody about current/future prices, I'd hardly say that they're at all time lows. These are the types of statements that should result in some type of discipline.

For the record, this is why many people on here are hostile to realtors. While I know they aren't all like this, this and Ryan's post from earlier are examples of outright dishonesty. Perhaps I'm wrong - Deborah, would you care to send me these statistics? - Wed May 7 2008, 09:40

If your house declines for 2 years, then climbs from 28, it is a declining asset and you'd be far better off buying it in 2 years than now. The logic of this has been rehashed many many times below. If I could have the same monthly payment, one with a higher house price and lower interest, and another with a lower house price and a higher interest, the choice is obvious. Having a lower house price is far better because a) you can deduct the interest on the higher mortgage and b) you can always refinance later if rates drop.

The tax break certainly helps, but as the rental summary which has been pointed to oh so many times shows, unless you're paying a tremendously high marginal tax rate, it won't overcome the difference in most areas. You're $1,000 mortgage payment buys a $165K house. A 1% annual maintenance estimate would cost you $140/month. That excludes any insurance, which I'd guess $50/month is a fair estimate for. Now you've spent $190 of the $260 deduction but this never seems to get mentioned. Homes are expensive to maintain and repair.

Dann - you claim that everybody is out to get you b/c you're an agent, but you never respond to questions about why you think the way you do. You still haven't responded to my comment of why it doesn't make sense to ignore non-conforming loans. Instead you post random fragments with shaky numbers, and claim that gives you the same ground to stand on as people that post well reasoned, well-backed arguments. Maybe that's why people are out to get you. - Thu May 1 2008, 09:26

I'm always amused when people post anonymously. Having no clue what you sold in 2007 or so far in 2008 or who you work for its useless to comment. If you have solid data of any meaningful scale of what sales volume has been done, feel free to give it.

I'd rather not delve into who's city is bigger than who's. Suffice it to say that I moved to NYC under a contractual obligation, and now never want to leave but that's not really the debate here - to each his own.

While I don't live in Chicago, I'd say a bird's eye perspective based on stats is probably more accurate than anecdotal stories. Real estate markets simply don't move change fast enough for sales numbers from last month in aggregate being a bad gauge of what's happening - far better than what one salesman did. I've never claimed to have intimate knowledge of individual chicago neighborhoods, and I'm sure some are fine. As a whole, they are not. This is an indisputable fact for anybody who looks at the data logically. That seems to be a small group. - Wed Apr 30 2008, 17:48

Dick - if that is your real name, and I have little doubt that it is, I'm a bit unclear. You've just started bashing people, yet provide absolutely no reason. Could you clarify a bit? Is discussing the truth considered 'troublemaking'? I guess if I was a realtor, i might agree. - Wed Apr 30 2008, 15:48

Dann - I'm not sure I follow that logic. The houses that were bought with subprime mortgages are very likely to be the ones selling at low prices and pulling down the overall average. This is very relevant to the value of the house today. While later, you'll may or may not be selling to someone with a conventional mortgage (and there are lots of mortgages that aren't conventional but also aren't subprime), that doesn't really affect the value of the house then.

These mortgages are what is driving the price of all housing down and to neglect them doesn't make sense. This is not something that OFHEO leaves out because they think it improves their statistic, they simply don't have the data since they get their data from mortgages the gov't agencies own. - Tue Apr 29 2008, 17:55

Dann,
While I doubt you'll believe me, I really don't ignore your arguments. But I'm a logical, fact-oriented person. I don't know which specific Trulia data you're discussing, but home prices always have a lag after closing until they're incorporated into various statistics. For example, the NAR didn't publish Mach data until 4/22, I realize that's better than the case-shiller lag, but still far from perfect. At the same time, there are many obvious flaws in looking at median sales price, new buildings opening is the simplest example. If I sell 200 new condos in a bldg during a year, that are priced at 2x the median home price before this bldg existed, they'll obviously raise the median sale price, but they don't mean that my rundown studio a block away has risen by much. While the delay in Case-Shiller is frustrating, same home re-sales are by far a more accurate way to measure things. The only other price measurement I know of that uses re-sales is the OFHEO home price index, but unfortunately, its only updated quarterly (and then still released almost 2 months after the quarter ends). Furthemore, since one month's c-s change is very correlated to the next months change, knowing what happened 3 months ago is a VERY good predictor of what's going to happen next month.

The fed oversight report you mention has a glaring flaw, its based on mortgages owned by fannie mae/freddie mac - which means by and large it only represents homes not owned by subprime borrowers.

I also agree its frustrating that C-S focuses on such broad areas, but to get a signficant number of sales, that's really what's necessary. You're essentially try to gauge the 'average' price of a large number of homes by taking the calculated price from a small sample of transactions. For example, in Chicago, based on the Trulia 'number of sales' stats, there are roughly 4000 sales/month. While I don't know the standard deviation of home sales, if the 'measured' average home price is 250K w/ a standard deviation of 250K (which is probably way too low), there's a 95% chance that the true average lies between 242K and 258K. That's a huge window of over 3% in each direction, so moves of 1% from month to month measured like this aren't very reflective at all. If instead, you expand to the entire metropolitan area and have 4x as many sales, then your error is only half as much. When you look at stats on the neighborhood level, the problem gets dramatically worse.


I will also point out that C-S has one pretty bad flaw, which is that it excludes all coops and condos. However, given all of the issues, with other measures, this seems the least significant to me.

So, these are the reasons that I'm far more interested in C-S data vs the other 2 sources you cited. When looking at a particular house, I'd obviously look at the best comps possible including how recent they are. But, when looking at a broader market for overall trends, there's no better data source. I've made most of these points a few times below, but people keep posting and ignoring those, so I'm not sure this will really matter. - Tue Apr 29 2008, 10:50

Of course it is - so is buying a house with 5% down - isn't leverage great? You'd have to be pretty dumb to use the full leverage of these futures, just like people were really dumb to take mortgages with a tiny percent down. That's not to say that if you have 50K to invest, you shouldn't buy 200K in futures, which requires 10K, amd putting the other 40K into a money market, and investing that way. Then you're leveraging up 4x, the equivalent of putting 25% down on a house and you're far less likely to lose your shirt. - Mon Apr 28 2008, 19:42

Paul - Finding a way to leverage money cheaply in the stock market is very easy - buy stock index futures. You put up approximately 5% and your account is adjusted daily based on the movements of the index. If it drops too low, they'll sell your futures if you don't post more cash - its that simple. You're implicitly 'borrowing' money through the futures, but you're borrowing at a very low rate, nearly the gov't t-bill rate - the reason being that people that sell you these futures, banks, borrow at a very low rate, and so that's implcitly passed on to you. These rates are by and large better than the interest rates you'd get on a mortgage, so in that sense, its a better deal.

On the flip side, while you can't lever up 10 or 20:1 like you can with houses, with a standard brokerage account, brokers will let you lever up 2:1. And yes, your margin interest is deductible, the same as it is for houses. That said, the rate is higher, so I'd advise index futures if 'cheap' leverage is what you're after.

Since the grammar is somewhat poor, I'm not sure what this means:

"I have no argument on the better investment for return and safety. My 100 shares of Bank of America should come back. My stem cell company - PSTI- should do well."

I assume its a sarcastic statement about stock returns. I would never advocate buying single stocks for novice investors. In fact, I don't think there are many 'pros' that do it well either. Its easy to prove that if you think there are two stocks with the same returns and volatility, the smartest thing to do is to split your money between. This is why, if you don't have any particular insight, buying indices is a far wiser investment than buying individual stocks. Rather than buying BAC, I'd advise XLF, a 'stock' that trades as a basket of financial companies in a single product. That said, I agree that stocks are riskier over the long-term, but their returns are also significantly better than real estate.

As for rental inventory, I think that's more complicated. If rental inventories really are that low where you live, then I suspect that rents would rise until buying again became the wise decision. At some point it will reach an equilibrium, but as the report John posted earlier shows, renting is significantly cheaper than owning, which would imply that most of the country does not have a lack of rental inventory. - Mon Apr 28 2008, 16:31

Carl - You've conveniently ignored my reply about timing the market. I can't imagine why - surely you can help me understand what you know. There is an alternative option to buying a house - its called renting. I wasn't aware that the only options for investments were housing, annuities, and hedge funds. If you look far enough down, you'll see where I've show that if you can return 6%, you're better off renting than buying (based on some other assumptions of course). You obviously realize that the S&P returns over that on average. There are numerous other debt instruments that also offer high yields. If you truly believe that stocks are too risky, then you could invest in a high-yield jumbo CD that runs around 4%+ and my analysis below would mean that you lose about $10K - but only if you assume you pay no realtor commissions (which, based on what realtors have told me means you'd have to pay somebody to even consider looking at your house). If you do pay commisions, then owning is still clearly a bad choice. And that gives you an absolutely risk free investment, vs buying a house where you, as people seem to forget but recently have been reminded, you have a substantial risk.

Your entire premise that buying a house is good if you're going to live there, but not if you're using at as an investment makes no sense - there aren't any financial arguments that you can make in this regards. You can certainly argue intangibles like security, etc. and those are valid points, but to attack it from a financial perspective makes sense.

As an aside, I hardly think that investing in a hedge fund is 'nuts' - surely you realize that many hedge funds are doing quite well since market volatility is so high right now. Surely you don't believe the exaggerated media reports that make it sound as if every financial company is teetering on collapse. - Mon Apr 28 2008, 14:32

Brett - you claim that there is no investment class that has the same upside as Real Estate but that's simply not true. What do you define as the 'upside' of real estate? What other characteristics are you considering, such as volatility, protection against inflation, dividends, etc.? There are so many things out there that can meet specific investment goals. - Mon Apr 28 2008, 13:10

Carl, How can you claim that you've read this entire thread and don't know why somebody who needs a house over their head wouldn't buy? There are dozens of thoughtful posts explaining exactly this issue. But you a) clearly didn't understand the thread, even if you did actually read it as you claim and b) have the audacity to criticize people for clear responses that address your own issue.

You're asking things like how do short sales have anything to do with the question. I'm a bit confused to how that's even a question. You don't think that a market where banks are so willing to take write downs represents a market in trouble? It certainly doesn't sound like the banks think these markets will rebound any time too soon.

I won't address the myriad of other reasons not to buy, that have been covered already. What I will say is that your analogy to timing the stock market is painfully wrong. Stocks are incredibly liquid, its perfectly normal for a hedge fund to buy and sell a stock within a few seconds. Prices move incredibly quickly, and incorporate all of the information that's out there very rapidly because it is such a liquid market, with so few instruments. By contrast, there are less homes sold annually (approximately 5M) than the number of equity trades on US exchanges in a day. Timing the stock market is inordinately harder - this is one of the many reasons that the stock market is in fact more volatile than housing markets - it simply moves faster.

Let me make it a bit clearer. If I take the case-shiller composite index since 1987 and calculate the correlation of monthly returns, with the return of the month before, I get a value of 94%. This means that the majority of the change in this month's housing prices are the same as they were last month. If I do the same thing for monthly returns of the S&P 500, the correlation is -3% - not statistically different than 0. There can't be more clear proof that timing the stock market on any kind of long-term scale is impossible, but timing housing on a long scale is in fact much much easier. There is obviously a long lag in getting housing data, etc, but this kind of data can't be ignored, and its clearly possible to make smart purchase timings and now is clearly not a smart time to buy in terms of home price appreciation. - Mon Apr 28 2008, 11:31

I agree with Ken that its always nice to see more data, but keep in mind that the OFHEO stats only include mortgages owned by freddie mac/fannie mae so they're mostly conforming. - Mon Apr 28 2008, 07:03

Let's take a bit more of a look at your example Patrick. If I buy a $500K house and put 20% down, I'd have a $400K mortgage. That mortgage would involve a monthly payment of $2,398/month. Over those 5 years, you'd pay $116,109 in interest and $27,783 in principal. After 5 years, you'd still owe $372,217 in principal on your mortgage, and after you sell your house at $525K, you'd walk away $152,783.

At the same time, if you'd invested your $100K at 6%, you'd now have $134,985.

Now, if the house rents for $1500, as in your example, your cash outlay would be $90K as you mentioned. If you owned the house, your cash outlay would be $143,892, so you would have spent $53,892 more, to be able to have 152K instead of 134K, a net loss pf $35,892 because you bought. Now during that time, you'd have payed $116K in interest, at an effective 30% tax rate, that would be a savings of $34,800 on your taxes, still a net loss of $1,092. That of course assumes that you incur not transaction costs on selling your house, if you payed the normal 6%, you'd be out a total of $32,592 between commissions and the loss by owning in the first place. Of course, you usually pay far more in fees, etc that just the realtor's commission so the loss is acutally higher.

The only real assumption in the analysis is that monthly costs for a home that incurs that $2400/month in mortgage costs will rent for $1500. As the report that John earlier referenced says, this is spot on for Chicago. The monthly rental costs run at about 63% of the total cost of ownership.

I'm not saying that owning a home is never smart (I own the apartment I live in), but its not always as clear cut as it seems. If your effective tax rate is higher (here in NYC it certainly is, Chicago I don't know enough about), then it definitely makes more sense. At the same time, if inflation is your biggest concern, there are many assets that track inflation better than housing, such as TIPS, etc. - Thu Apr 24 2008, 18:51

Yes Patrick - I will find other stats that say the opposite. Mean/median home sales don't mean a whole lot. If I tear down an old building, and build a new 100-unit condo bldg that all sell for an average of, say $1M, in a neighborhood with 400 other sales at $800K (imagining that's absolutely no change over a year ago), then I can say that average home price is now $840K - a 5% increase even though the homes aren't worth any more than they were a year ago.

That's a fundamental problem in looking at average prices, and its why Case-Shiller and OFHEO both use for their indices. OFHEO has another fundamental flaw, which is that they only use data from Fannie Mae/Freddie Mac so it only includes conforming mortgages.

While Case-Shiller isn't perfect, it does work well for Chicago where they cover that specific metropolitan area, and the stats show Jan07 to Jan08 being down about 6.8% so I find it hard to believe that 70% of neighborhoods are in fact up.

Given the choice of believing an independent index with a far better methodology or the 'Homes' magazine of a local paper, I think I'll take the independent index. - Thu Apr 24 2008, 12:52

Dann, Median home prices are a fairly poor indicator. A far far better indicator is change in price of same home sales, which is exactly what case-shiller tracks. They look at what each house sold this quarter was last sold at, apply various filtering techniques, etc. and come out with their numbers. Housing prices change over time for a number of reasons, one of them being the influx of new inventory at higher prices that makes things look like they're going up even when they're not.

The one worthwhile stat that they quote is sales volume which is down 11.5% in chicago and 19% in the metropolitan area.

Also, interesting that you omitted the following comments from the article:
~~~~~~~~~~~~
Yale economist Robert Shiller, who developed one of the widely followed gauges of home prices, said in a speech Tuesday that home prices, which have fallen about 15 percent from their peak in 2006, may fall further than the 30 percent drop experienced during the Great Depression, so far the biggest decline in home prices in the country.

"Basically we are in uncharted territory," Shiller said, noting that the 85 percent rise in home prices from 1997 to 2006 after adjusting for inflation had represented the biggest housing boom in U.S. history, so the fall in prices could be just as historic. - Wed Apr 23 2008, 10:37

Ryan - The futures contract trade such that if you buy them, you receive/pay the difference between the price you buy the future at and the price of the case-shiller index when they expire. For this set of data:

MAY08 ---- ---- ---- 153.80A ---- UNCH 153.80 3
AUG08 ---- ---- ---- ---- ---- UNCH 150.40 26
NOV08 ---- ---- ---- 147.20A ---- UNCH 147.20 8
FEB09 ---- ---- ---- 141.80A ---- UNCH 141.80

The future expiring in May08 at traded at 153.80. The last case-shiller update I know of has it at 156, so if you think housing prices in Chicago will go up (or drop by less than 2.2) you should buy the future at this price. If the index price in may08 is 158, you'd make a profit of 158-153.8 = 4.2. Now, for the real estate futures, each 'point' is $250, so if you traded one contract, you'd have made 4.2*$250 = $1050. The Feb09 future traded at 141.80, showing even more pessimism.

Now, the big caution, is that these futures are incredibly illiquid. None of them even traded yesterday. The last column gives you the 'open interest', which is the number of contracts that are currently open in the market, i.e. have been bought but not sold back. The August 08 at 26 contracts is the highest - this is remarkably low, and most of the day, there's not even an active bid to buy or offer to sell. Because of that, I'd caution you against looking too much at these products. Unless you're on the CME floor, you have no real way of knowing the real current price on these. That said, the recent trades certain