Wednesday, June 14, 2006

Mr. Lereah is Backpedaling!

David 'soft landing' Lereah is backpedaling on his statements as the reality of the declining housing market hits him in the face. Here is his latest drivel:

The housing standoff between buyers and sellers in South Florida will continue for another six months, and then prices in some areas will fall, a well-respected economist predicted Tuesday. In some cases prices may fall by 10 percent to 15 percent, said David Lereah, the National Association of Realtors’ chief economist.
Adjust for inflation, and you have even larger real dollar price declines. Ain't looking so soft!

"Lereah pegged the end of the housing boom to August 2005." Sounds about right to me.

133 comments:

  1. Now he's saying prices will fall? What about the permanent plateau theory?

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  2. David Lereah needs to be taken to task from the mainstream media!

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  3. David Lereah needs to be taken to task from the mainstream media!

    Mainstream media gets revenues from Ditech, Remax, Wiechard and others. They don't want to piss them off.

    Hell if David got 5,000 bucks a month from them I wouldn't blame him if he posted quotes from Realtors without any kind of objective commentary. But then of course he would lose a lot of his audience.

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  4. What happened to my 5-7% appreciation?

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  5. "We're in the state of Florida," said Suzanne Parlick, sales director for Boca Raton-based EB Developers. "Everyone wants to come to Florida."

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  6. It won't be too long before Lereah is saying the same thing (that prices may fall by 10 percent to 15 percent) about the DC market. Its just a matter of time.

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  7. "a well-respected economist"

    HA! That's like calling Bush a Harvard scholar.

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  8. He will soon be dubbed David 'Backpedaling' Lereah

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  9. Maybe Lereah has been sitting on the "Bubbilicious Bench".

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  10. DC: prices won't fall because the gov is here

    Florida: price won't fall because everybody wants to come here

    San Diego: price won't fall because SD is special, the sun is special, the weather is wonderful

    Phoenix: price won't fall because here there is no earthquake, no hurricane

    "you city here": "your special reason here"

    Any more?

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  11. Lereah should be praised for changing his mind/estimates based on the evidence coming out.

    If you wanted predictions of a decline without hard evidence of one from a housing market economist you are dreaming. This shows some integrity. So he's not trying to mislead people, he just wasn't a bubble cheerleader - is that what you wanted?

    I hope that the market does come down as predicted - where do all these millionaires come from?

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  12. Anonymous said...
    Lereah should be praised for changing his mind/estimates based on the evidence coming out.

    If you wanted predictions of a decline without hard evidence of one from a housing market economist you are dreaming. This shows some integrity. So he's not trying to mislead people, he just wasn't a bubble cheerleader - is that what you wanted?

    I hope that the market does come down as predicted - where do all these millionaires come from?


    LIEreah is a professional liar. He has been a bubble cheerleader since day one. He has gone out of his way to hype housing and drive speculation.

    He even published a book entitled: "Are You Missing the Real Estate Boom? : The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them". I've read this book and it's all lies. I recommend you take a trip to your local Borders or Barnes and Noble and read it.

    But you are right about one thing. Economists stay objective and base their analysis on facts. LIEreah did not in his book, never has, and never will. And that is why LIEreah is not an economist, but a professional liar.

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  13. Heh, you can already buy his book for $6 on Amazon.com, down from $19.95 list price. Sounds like his book has suffered a massive decline in value. Maybe it was in a bubble too.

    http://www.amazon.com/gp/product/0385514344/sr=8-1/qid=1150313990/ref=pd_bbs_1/103-1102631-4648650?%5Fencoding=UTF8

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  14. Waiting for GodotJune 14, 2006 3:48 PM

    I equate David Lereah to the guy that watches his friend get plastered at the bar, encourages his drinking, and then watches him stumble to his car and drive off without any concern for the well being of his friend or anyone else. As long as there is never an accident, then there is never a consequence. Did he have anything negative to say about the ridiculous financing options that people used to get into houses that they cannot afford? Maybe he did, and I do not know about it.

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  15. Waiting for Godot said...,

    WOW! :-)

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  16. "If you wanted predictions of a decline without hard evidence of one
    from a housing market economist you are dreaming."


    There has been overwhelming evidence all along that
    this is a bubble.

    How come Schiller and UCLA Anderson came to a different
    conclusion than Mr Lereah?

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  17. PLEASE STOP POSTING IN MY NAME. I'VE REPORTED YOU TO DAVID.

    I guess when you can't discredit information being presented to you you will try to discredit its source, huh?

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  18. AFTER YOUR HAVING POSTED IN MY NAME IN JUST ABOUT EVERY THREAD ON THIS BLOG OVER THE PAST COUPLE DAYS, I HAVE ASKED DAVID IN THE INTERESTS OF FAIRNESS TO BLOCK YOU FROM THIS BLOG. THE CREDIBILITY OF THIS BLOG ITSELF IS THREATENED WHEN SOMEONE POSTS UNDER OTHERS NAMES SEEKING TO DISCREDIT A POSTER BECAUSE THEY CAN DISCREDIT ITS ARGUMENT. IF YOU CAN'T DEAL WITH FACTS THAT OTHERS PRESENT THAT YOU DON'T LIKE TO HEAR, THEN YOU SHOULDN'T BE BLOGGING.

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  19. "Lereah should be praised for changing his mind/estimates based on the evidence coming out."

    Lereah had no other choice but to fess-up. What more evidence does anyone need, the writing has been on the walls for months. The leech and his under leechs need and want the American people to buy..buy..buy!

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  20. Someone should put together a post titled: "The Evolution of Liareah". It would be a list of quotes from the NAR mouthpiece in order of utterance from over the last two years. It could start with the new paradigm, quotes from his book, etc. and end with the second great depression and his new book: "You actually listened to me?"

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  21. With the truth appearing everyday in news that many markets including Florida are faltering, Lereah has little choice in 'changing his views'. Nonetheless this does diminish his credibility greatly. If this thing does end up as a 'crash landing' Lereah will be a man that few poeople will ever hear from again.

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  22. I'm sure the David Lereah Watch blog could easily come up with an "Evolution of Liareah" quote-by-quote. He said the following as recently as May 15:

    "The law of supply and demand works." (Referring that he is bullish on Florida, Arizona and Nevada because of population increases)

    And this gem:

    "Condo conversions are good because the property is already there."

    LOL!

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  23. Waiting for Godot -- "I equate David Lereah to the guy that watches his friend get plastered at the bar, encourages his drinking, and then watches him stumble to his car and drive off without any concern for the well being of his friend or anyone else. As long as there is never an accident, then there is never a consequence."

    Excellent analogy.

    If Lereah acknowledges that the top was August, and if he is an economist of national stature, then surely sycophants nationwide constantly feed him data and, of course, he intelligently analyzes that data. So why has it taken until now for him to call August 2005 as the top in Florida when others, in this and other blogs, did so many months ago (at a time during which he continued to cheerlead)?

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  24. In some cases prices may fall by 10 percent to 15 percent, said David Lereah, the National Association of Realtors chief economist.

    About time too!... for this pyramid scheme to come down to earth. Cheers!

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  25. 10 percent to 15 percent is not what the Bubbleheads have been hoping for ... they've been cheering for 50% ... 10 percent to 15 percent over all markets and over all types of property is not a bubble bursting ... how does Lereah's prediction validate what the bubbleheads have been rooting for? It would be interesting to know if housing prices had a short and shallow drop too before the last great inflation cycle in the 70s sent them through the roof. In case you missed it in an earlier thread, we're definitely in the same position now as then:

    http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BA7DB7B95-7C58-41FB-AF89-1F65136D670E%7D&dist=rss&siteid=mktw

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  26. Clearly, Lereah took liar lessons from the best liars of them all: RepubliKKKans.

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  27. interesting chart:

    http://www.census.gov/const/uspriceann.pdf

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  28. "10 percent to 15 percent is not what the Bubbleheads have been hoping for ... they've been cheering for 50%

    This is just the beginning.
    He will get there.
    No rush.

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  29. Lingus said...
    "Clearly, Lereah took liar lessons from the best liars of them all: RepubliKKKans. "

    lmao..lereah says what he hopes sounds good to people, case closed. it seems that there is no fact based in what he says..so i cant come to any other conclusion.

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  30. Sometimes "you just can't win" no matter what you do. Whether you choose to continue to be a renter or go and finally buy that house, either way you'll be paying more each month ... either in the form of increased rents or because of higher interest rates. Either way, if you're not already locked in, you're in for higher monthly housing costs.

    "Inflation Mounted Swiftly In May"

    By Nell Henderson
    Washington Post Staff Writer
    Thursday, June 15, 2006; Page D01"

    http://www.washingtonpost.com/wp-dyn/content/article/2006/06/14/AR2006061400516.html

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  31. lance,

    You are exactly correct. 30% price drops together with 30% interest rate increases. We have already moved from the low of around 5% to 6.5% currently. Looks like 30% to me and definately going higher.

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  32. va_investor,

    "You are exactly correct. 30% price drops together with 30% interest rate increases. We have already moved from the low of around 5% to 6.5% currently. Looks like 30% to me and definately going higher."

    Yep ... and now those who can pay cash for the properties will come in and buy the foreclosures et al. at 10% - 15% discounts. I'll bet a lot of the cash-happy Realtors will be among those cash buyers. Life sure isn't fair.

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  33. Ah yes. Flipping out foreclosures to the bubbleheads. Still profiteering at the expense of the masses.

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  34. Isn't cheering that the price of your home skyrockets so that others (the poor) are priced out "profiteering at the expense of the masses." ?????

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  35. An all-cash offer 10-15% below peak price will probably get you a house, like, this afternoon, Lance. Are you saying we've hit bottom? BWAHAHAHAHAHAHAHAH!

    Good luck with that.

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  36. Last I heard, 70% of the population are owner's. I am sure a certain percent rent by choice.

    So how many are being hurt by high prices? Wouldn't hoping for falling prices being "profiteering" by the bubbleheads?

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  37. dc too,

    Lance probably meant 10-15% off FMV. I would say up to 20% is probably more accurate. It all depends. At the peak of the market, idiots were paying fair market and above for foreclosures.

    If a bunch of bubbleheads are at the sale, they very may well over-bid due to lack of experience.

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  38. If a bunch of bubbleheads are at the sale, they very may well over-bid due to lack of experience.

    Well at least you are acknowledging foreclosures will happen.


    Wouldn't hoping for falling prices being "profiteering" by the bubbleheads?

    Were'nt the "housingheads" hoping to make profits by selling
    their units to a greater fool?

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  39. proposition joeJune 15, 2006 10:35 AM

    Only about 20% of so called "homeowners" actually own their home. The other 80% are bitter desperate home-debtors. Home-debtors are slaves to their houses. If they stop making their payments the sheriff will arrive and remove them. If they stop paying their taxes the same thing will happen. Desperate embittered home-debtors live a life of regret and servitude to their mortgage holders. Renters don't have regrets, only freedom.

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  40. yes, bubbleheads and housingheads are all looking out for number one. Shocking!

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  41. Anon 7:11, a "profiteer," by definition, is someone who realizes outrageously high profits on the sale of essential goods - usually during a time of emergency.

    It is difficult to identify a "profiteer" in a falling market. Besides, there is no housing shortage in DC or its environs. Anyone gainfully employed should have a roof over his head. Thus, no emergency either.

    Besides, any "hoping" around here probably has more to do with the affordability of purchasing a house. And none of this discussion is really about "hoping," per se. The market is going to do what the market is going to do, regardless of what any of us "hope."

    The whole point of David's blog is to point out what is obvious to many of us, that housing has been subjected to a financial mania, a "bubble," and that history teaches these circumstances are always followed by a rather ugly mess, financially.

    So, is there (was there) a bubble, or, a "new paradigm?" That expression is really very funny - employed when no other explanation is available for rapid price increases and thus a warning in and of itself. Think about it.

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  42. Sure we will see the cycle in which some "investers" have there way with the market again after it goes to a netural state! Seeing that most of the "investors" are losing their investment money right now, won't leave to many in that sweet spot to buy again for many years. Except for the pro's in some level. Most of the flippers out there right now are new to the concept and are losing big.

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  43. Joe,

    It is more like 40% that own free and clear. Homeowners can stay as long as they make their payments and will eventually own free and clear.

    Renters are subject to the whim of their landlord in addition to being put-out for non-payment. Moving is not fun.

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  44. "Renters are subject to the whim of their landlord in addition to being put-out for non-payment."

    So owning is not all that different from renting.
    Home Renters don't pay the rent on the house they are kicked out.
    Home Debtors don't pay their rent for the money, they loose their homes.

    That's fair.

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  45. Joe,

    I know a fair number of "homedebtors" and none of them are desperate or bitter. What percentage of homeowners do YOU think fall into that category?

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  46. Joe's comments are assinine. If you want to live your life renting, then bully for you. Personally, I prefer not having to worry about my landlord jacking the rent on me or giving me 30 days notice to move out. And I like having a piece of land that I can call my own. It's what makes me happy. Others prefer not owning and that makes them happy. Not sure why then Joe sounds so bitter for someone who should be euphoric at being in the minority as a permanent renter.

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  47. Landlord "jacking the rent?" That's harsh - you win.

    Unless, having the mayor "jack the taxes" feels better. Which reminds me, I've heard property taxes have gone up lately. Could this be true, or is it an Urban Legend? Rents been flat for 3 years, that's for sure.

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  48. " Personally, I prefer not having to worry about my landlord jacking the rent on me or giving me 30 days notice to move out."

    Thats only if you are doing a month to month. Get a clue

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  49. So you get a year-long lease. Big deal. Lots of peace of mind there. I've had some tenants for ten years or more. I'll tell you it can be quite traumatic when I tell them I am selling and they have to move.

    Once you are older or have kids, moving is a big deal. Rent if you want; but owning is critical for a comfortable retirement.

    I don't buy the argument that all this money being "saved" by renting is being put aside for retirement. In my experience, what comes in - goes out.

    I guess it must be only renters bucking the negative savings rate trend.

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  50. Folks, this is a bubble blog. Go to www.meritsofhomownersip.blogspot.com if that is what you want to discuss.

    I've said it before, I'll say again, owning the house you live in, over the very long term, is a good idea. Flipping houses amidst an easy money mania is incredibly risky on the other hand, and will likely provide many of we renters an opportunity to buy low, short-term, and hold. That is how you make money, for Goodness sake, not by buying high and hoping prices go even higher.

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  51. Actually, when I rented, there was always a provision in the lease saying that the landlord could give me 30 days notice and kick me out, so long as he returned the security deposit.

    And, as va_investor points out, moving to a new place may be easy as a single person, but it's an absolute nightmare if you have children. Anyone wanna debate the benefits of having to move in the middle of the school year when you have kids?

    I also agree with his comment re: supposedly saving the difference between costs saved in renting vs. buying. Unless bubbleheaders are a rare breed distinct and separate from American society, they aren't saving anything more than the average American. If bubblehead renters were saving that monetary amount, that would be fantastic! However, it's statistically certain that they are not. There's something to be said for the forced savings aspect of homeownership, although that should not be the reason why someone chooses to own.

    And once again, I am amazed by the bitterness of bubbleheaders with regards to home ownership. Yes, this site is dedicated to the premise of a bubble. Does that mean that no dissenting opinions are desired? How secure can bubbleheaders' faith be in their dogma if they don't want to face any heretics' views, but rather have nothing more than an echo chamber with fellow believers?

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  52. Fritz,

    I am inclined to believe forced savings is a good thing.

    Largely because those of us who prepare for retirement will be paying the freight for those who don't.

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  53. I agree that the forced savings is a good thing (same reason I am all for employers automatically enrolling their workers in 401k plans and deducting some low amount of money from each paycheck). My point was only that the forced savings aspect should not be the sole or determinant reason for purchasing a home.

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  54. Fritz,

    The reason why some bubbleheads are bitter is because they can't afford to buy property. It's that simple. At one time, you could afford to buy a house or a condo with a moderate income. People bought property with fixed mortgage rates with sizeable down payments. Not anymore...at least not in the Washington-Baltimore region.

    Sure, there are some affordable properties but they are located in high-crime, low retail areas.

    This housing bubble is pure economic rape against middle income residents. Greedy home sellers and careless home buyers are guilty of creating this bubble. The Real Estate industry is guilty of keeping the bubble afloat with record profits.

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  55. There's something to be said for the forced savings aspect of homeownership

    If that was the case, why would people take out Interest only loans in such
    huge numbers. Why use ARMS when it could force you save by making higher
    payments.

    Obviously these speculators / investors have ruined the housing market for
    every one else as well.

    For owners who are buying for all the right reasons, will also
    get hurt badly when the speculators get killed.

    I dont think anybody here denies the benefits of home ownership.
    But to buy in the bubble market of the last few years ( and today)
    is financial suicide.

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  56. "If bubblehead renters were saving that monetary amount, that would be fantastic! However, it's statistically certain that they are not."

    Hmmm...I save almost 4K a month. Statistics, shmatistics. If I bought a house right now, where would that 4K be "saved"? Nowhere, for the first few years, as it would mostly go to interest. Granted, home ownership is like that even when there's no bubble, but right now, I save a fortune by renting, and my money is there when I need it, not tied up to go towards interest payments on an "asset" that by all accounts is likely to decline over the next few years.

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  57. ihateyuppies,

    I am sure that if you were selling a home you wouldn't be greedy and try to get top dollar. You would make a partial gift to a poor priced-out renter. How noble.

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  58. Fritz, we invite dissent. First, the housing heads said, "there is no bubble, you are all bitter renters, prices will go up forever." Well, they ain't going up any more. Actually-whoops- they're falling. So it isn't a "new paradigm" after all. Imagine that?

    Now we are being told what a wonderful, virtuous thing it is to own a house. Anyone who pats himself on the back (deservedly) for exercising good judgement and staying away from real estate is now a "homeowner hater." Good grief.

    I'm glad you own a house that you like. I hope you can afford to keep it, come what may. And I am terribly sorry if any delusions of early retirement, soley paid for by holding a house for a decade, have been dashed.

    The bitterness is coming from those who will lose their livelihoods - real estate agents, etc., not from renters. Are we a little smug right now? Yeah, maybe, but no where near as smug as all the homeowners who thought themselves "smart" when prices were rising, in the olden days.

    How much does a mortgage payment rise with a one percent increase in the underlying rate? Twenty percent, right? Secured by an asset that is falling in value? What a great deal.

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  59. I too save a few thousands every month.
    I am using them to bet against a
    real estate decline.
    And these investments are up 75% since Feb when I started.

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  60. dc_too,

    Yeah, you're right. All or the VAST majority of homeowners bought in the last TWO years with zero down, interest only adjustibles. Keep telling yourself this and maybe your dreams of a 50% crash will come true.

    If you are going to debate, at least use reasonable facts.

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  61. "If you are going to debate, at least use reasonable facts."

    Get this fact from a CA realtor agency. Though this particular one
    is for California. I doubt numbers for other bubble markets could
    be significantly less.

    http://dqnews.com/RRCAARM0306.shtm


    "The use of ARMs, which are easier to get and are considered by many to be an indication that buyers are stretching their finances, peaked in May last year at 73.7 percent. Peak usage during the prior real estate cycle was in September 1988 when ARMs accounted for 66.1 percent of all home purchase loans."


    Keep telling yourself this and maybe your dreams of a 50% crash will come true."

    The markets which gained 100% during the last five years.
    A 50% drop will just bring them back to where they started.
    No need to dream, it is inevitable.

    Sure it could be a nightmare for those who bought in the
    last five years.

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  62. my post was not clear. I meant that the vast majority have owned LONGER than 2 years and DO NOT have int. only adjustibles.

    Does anyone know what percentage of owners bought within the past two years?

    Also, still waiting to hear some bitter, desperate homeowner stories.

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  63. ihateyuppies:

    Who is committing this rape against the middle class? Sellers ask the most they can for their homes. Always have, always will. Buyers will pay as much as they can afford for their homes. The point at which they meet is where a sale transaction occurs. Yes, that point has risen greatly in the past half decade in many areas. How is that rape of any sort? Does it suck? No doubt it does. Does it cause bitterness. As this blog points out on a daily basis, of course. Is it some intentional screwing of the middle class? I don't know how it can be since where is the conspiracy to cause this economic rape? To blame it on the "real estate industry" is as childish and silly as David's obsession with the evil "housing industrial complex." It's a whole heck of a lot more complicated than that. But some bubbleheaders like to blame their bitterness on a conspiracy against them. If that's what helps them sleep at night, then fine. But just because they believe it, doesn't make it so.

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  64. dc_too:

    I believe that you are creating strawmen to be knocked down by your amazing intellectual force. First, who are the "housing heads"? Is it one person, like David's boogeyman Lereah? Or a shadowy conspiracy? Housing prices over the long run do go up. Simply look at any chart and that much becomes clear very quickly. In the short term, prices can skyrocket or plummet, depending on a variety of factors. But surely you can't be arguing that over the long term, housing prices will increase.

    Second, you aren't "now" being told that homeownership is a good or noble goal. The public has been told this since the concept of private property was developed! Further, if a person is patting themselves on the back - rightly as you assert - for staying away from real estate, then they have missed one of the largest housing booms in US history. So perhaps while they pat themselves on the back with one hand, perhaps with the other hand they are holding a beer mug into which they are crying for having missed a golden opportunity. Such poor timing can easily lead to bitterness and resentment towards those who showed better luck and timing. That sort of bitterness is evident in your supposed concern for my retirement.

    I'm sorry you feel bitter about not being able to afford a home. Many people are in the same boat as you are. But instead of being bitter and resentful at others who made out quite well during the housing prices runup, and instead of expressing hope and glee at those who made foolish financial decisions in paying way too much for a home, perhaps you would find more happiness in doing something to help your fellow renters: volunteer at local landlord-tenant mediation clinics, petition your government to assist affordable housing for essential members of society like cops, firemen, teachers and health care workers.

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  65. 10:37 anonymous:

    Be more specific re: your prediction of a 50% drop in housing prices.

    Are you saying that nationwide prices will drop 50%? If that is the case, then please have a talent like dancing or miming, since you and everyone else will be out on the streets hustling for money since the country would be in an economic depression if your prediction came true.

    Are you saying that certain markets will drop 50%? If so, then which markets?

    The best thing about being a bubblehead is that you can make wild predictions and if they never come true, then you simply ask for more time and eventually your prediction will be proved correct. Of course, if you predict a 50% drop, and instead there is a 5% drop, then you can say that your theory is indeed correct and it's only a matter of time until your prediction comes to fruition.

    But if you're going to make ridiculous predictions like that, then it's time that someone calls you on those predictions and asks you to be more specific on exactly what you mean. Because, quite frankly, it seems to me like you just pulled the 50% number out of thin air.

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  66. Fritz,

    The real estate industry will lobby HARD against more subsidized housing for public sector employees. Real estate developers take a hit even with government assistance. Upper income buyers are more profitable.

    Why don't we see more condo developments geared towards people or families that make less than $75,000 per year in Washington, DC area?

    In the end, the Washington, DC region will suffer from bubblelicious real estate prices. Why? Because people will leave the area to find affordable housing elsewhere. Federal workers will transfer to other government offices in different US cities or transition to the private sector. There will be a middle class exodus far from the DC area despite the rosy jobs situation.

    The run-up in housing prices has severe socio-economic consequences.

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  67. ihateyuppies:

    Real estate devleopers have always resisted inclusion of low-income units in new developments. Yet DC law, and many other jurisdictions', can require the construction of certain numbers of affordable housing units in order for a building permit to be issued. Or the government could offer tax benefits for the creation of mixed-income developments (one exists south of Capitol Hill near the freeway). Either way, the city and county governments can force developers to offer more affordable housing units. Whether the governments have the will to do so is another question. Which is all the more reason why instead of bitterness, bubbleheads should lobby their elected representatives to force them to have the necessary will.

    I disagree that there will be a federal worker exodus from the area. First, there hasn't been any evidence of one. Yes people move from DC, but for many federal workers, they simply move to the suburbs or exurbs while remaining at their downtown jobs. Second, people will always be attracted to the higher incomes they can earn in DC, even if it means they spend more of their disposable montly income on housing costs than a comparable worker in an area less expensive than DC.

    I agree that there is a socio-economic consequence to higher real estate prices. But from what I haev seen, it's lower income residents that go off in search of cheaper housing, not the middle class. I guess an argument can be made that the city encourages such an effect because with fewer lower income residents, there will be less government expenditure on social servies that serve mainly lower income residents.

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  68. Fritz, the "housing heads" are those, apparently including you, who appear to advocate the purchase of real property, under any circumstances, at any price, terms be damned.

    And who is the "bitter" poster, Fritz? I bought my "home" in 1997 and sold into a bidding war two years ago. I have not "missed" anything, except the agony of selling a house in a lousy market - and it is an agony, as many will no doubt learn.

    Did I say I could not "afford a home?" No, I didn't. For me, it's not about affordability, but value. What do I get for my money in the DC area if I buy? Scratch, that's what. I made my decision and acted upon it. And I am confident it was the right decision for me.

    Now, back to the topic at hand - the bubble. Again, prices are falling. They have risen way beyond trend and may well fall below trendline over the next several years. That, my friend VA_Investor, would be a 50% real decline.

    And do not forget, 6 years ago, that anyone on the internet or anywhere else who even SUGGESTED the possibility of a stock price "correction" of more than 15 or 20% was laughed out of the room. Well, you know how that story ended.

    So it CAN happen, gentleman, it is not the stuff of "dreams," but a real possibility that there will be a bloodbath.

    And "VA," (may I call you that?) you know damn well that a handfull of houses in a given neighborhood that MUST BE SOLD, for whatever reason, will murder comps and thus the appraised value of neighboring houses on which banks will base future lending decisions. Game over.

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  69. Wow dc relax. I still don't see how this "cycle" will be different from previous ones. That means SFH price drops of up to 25% and some condo's up to 40%.

    Interest rates will make the real cost of owning relatively flat. Meanwhile, the Post is reporting increases in rent as part of the CPI.

    The people on the sidelines seem to be the most worried and bitter. For your sake, I hope you made the right decision.

    Obviously, the market has a ways to drop before you will be ahead (considering appreciation after your sale, costs of your sale, moving costs, higher interest rates, cost to repurchase, moving costs again - not putting any value on the headaches involved).

    We will see if all that was worth it.

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  70. dc_too:

    I believe you are projecting in your anger. I have never said that anyone should buy no matter what. Indeed, my posts on this thread speak for themselves.

    And I'm sorry you sold in 1999, instead of holding on for a few more years so that you could have sold for more money. I understand the bitterness that that sort of missed opportunity can cause and I sympathize. But that sort of resentment is coloring your outlook and feeding your anger at your poor luck in selling. You just gotta get past it. I missed out on buying into Google's IPO because I thought it was overpriced. I was bitter, given the heights that Google's value has reached, but I've gotten over it. You need to get over selling your home before the peak. It's done and over. Stop letting it be a chip on your shoulder.

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  71. my government office is seeing the mass exodus of middle income. In fact, we can not even fill a grade 13 position even when it is offered at a 13/10. Only the most unqualified applicants even apply. What we are seeing is the continued retention of very old employees >65, and the incoming but soonly departing younger crop (22-25). We have virtually no middle age / middleincome employees. Maybe my office is different, but from what our HR department said this is a problem with most government agencies in the area. So, dc post is about right on.
    Bob

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  72. And yet other federal agencies report a flood of applicants any time a vacancy opens.

    Maybe you just work in a crappy government office.

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  73. Fritz, I sold in '04, not '99. And VA, there has been no material appreciation in my old neighborhood since then - affordability issue, my guess. It is the "outlying" (read: ghetto) areas that were most impacted by the speculative blow-off (panic buying) that occured in late '04 and early '05, before the music stopped. Classic financial mania price action, by the way. Usually, orderly declines begin to take place, followed ultimately by panic selling. Then despair sets in, and low prices go sideways, for several years, until the process begins anew. You can figure out for yourself where we are in that process.

    VA, you also said you don't "see" how this cycle will be different than the last one. To that I would say, look around. The upswing on this one went (notice past tense) far higher than last time. Participation was far broader, and "exotic" financing is now far more prevelent in the bubble markets than last time. Those factors will likely make the downside just as unique as the upside in this cycle.

    I do appreciate your willingness to acknowledge the cyclical nature of the housing market. It's the "new paradigm, it's different this time" crowd that really sticks in my craw, particularly now. It is over, plain and simple. How far down she goes, nobody knows, but she is going down.

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  74. dc,

    I always acknowledged the cyclical nature of the market. I haven't bought anything since 2002 when I bought my residence at foreclosure.

    You still haven't addressed the points about costs of sale etc and interest rates and how these impact on the ultimate wisdom of your situation.

    I find it hard to believe that your old property saw no appreciation from 04 to 05 when the rest of the region saw 15 to 20%+ increases.

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  75. The Post just published the sales price of a townhome a few doors down from the one we sold last May. It went for $15,000 less than ours, even though it had a much bigger lot-- and ours was sold 'as is'. It came on the market a few months after ours and sat there all Fall with the price slowly dropping.

    Another one across the street has been on the market now since March. They've dropped the asking price by about $30,000 so far. By the looks of it, the only thing they've done is to add a third bedroom in the basement.(Probably a code violation-- we gave up on finishing off ours and adding a second bathroom when we found out the ceiling was too low. It turned out most of the neighbors were doing the work themselves and not bothering with inspections.)

    When we bought in 2000 our house cost less than 3 times our combined yearly income. I don't see a bottom forming before first time buyers can again buy on those terms.

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  76. VA Investor,

    You recently made the claim that locking in today's prices for housing protects you from long term housing price inflation in response to the question of whether or not people who've been in their home for 30 years could "afford" their place today.

    While this makes a lot of sense, hasn't this "inflation protection" broken down over the past 4-5 years? There are a lot of people who have been priced out of their own homes in a matter of only 1-3 years. And this is with relatively modest inflation - 2-3%.

    I think declines of 25% SFH, and 40% condos that you mention would help bring this pricing back in line.

    My $0.02.

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  77. My $0.02,

    They haven't been priced-out if they are residing there. Because of the uncertainty of interest rates and the real unknowns about where the correction will end and when, I would buy today if I could afford the house with a fixed rate loan and had no near-term (5yrs) plans to move.

    But that is just my feeling about a house. I am not claiming that this is the best use of one's money.

    Hopefully, people have other investments.

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  78. Sarah in DC, Please realize that DC is going through a new real estate paradigm where home values never drop and rents increase monstrously. Your anecdote about home prices dropping in your neighborhood -- obviously those sellers don't know about this new real estate paradigm and the fact that the federal government in spending money in DC.

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  79. Lance, you're killing me.

    And VA, I don't know where Sarah lives, but the price drops she describes exceed my cost of sale and moving two years ago. So there you have it.

    And I did not say there has been "no appreciation" in my old neighborhood, I said "no material appreciation." I am aware of comparable properties that have sold for as much as 15% more than mine, but only those with significant improvement and renovation that would have eaten most, if not all, of that appreciation. Speaking of headaches, ever do a gut renovation of your kitchen and bathrooms? Nightmare.

    Besides, as the saying goes, "pigs get slaughtered." No one knows exactly where the top is - heaven help you if you miss it with illiquid real estate.

    "Established," NW DC neighborhoods pretty much peaked in '04. It was the outlyers that spiked afterwords, in the final throws of panic buying. And we know that over half of those final buyers used I/O loans. That is without precedent, except perhaps for the bubble markets of the 1920's.

    In those days, they used "balloon mortgages." Ten years of interest-only, then the entire principle balance came due. Problem was, there was no credit available with which to refi when those notes came due. Belies the "financial innovation" of today's mortgage industry, doesn't it?

    I don't know whether to laugh or cry when I see people flip the back of their hand and say, "Oh, I'll just re-finance." If there's a banker that'll write the note, and you can pay his terms, you will, sure. Otherwise, buh-bye.

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  80. 1:17 PM Actually, I work in a top 5 government office, as voted in their recent poll. So, that justification doesnt work.... NEXT.
    Bob

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  81. That obviously wasn't Lance. Just some moron with too much time on his hands and too little brain matter.

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  82. No, that wasn't me. I think it's someone named Bill because of the things being said. Unfortunately, David doesn't know how to identify where posts are coming from on Blogger. (I guess the IP addresses don't show up.) Bill is just making a fool of himself since anyone who's been following this thread knows these posts can't be mine.

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  83. There is no housing bubble. Real estate in DC is a value play.

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  84. Very funny. Who is the "Bill" guy, anyway?

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  85. Well Bob, if you were doing work, then you wouldn't be posting on here, now would you. So maybe your office is ranked so highly because everyone sufs the web all day instead of doing any actual work.

    So stop wasting my taxpayer money and get back to work!

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  86. Ihateyuppies:

    "In the end, the Washington, DC region will suffer from bubblelicious real estate prices. Why? Because people will leave the area to find affordable housing elsewhere. Federal workers will transfer to other government offices in different US cities or transition to the private sector. There will be a middle class exodus far from the DC area despite the rosy jobs situation.

    The run-up in housing prices has severe socio-economic consequences."

    You're forgetting one thing ... There is a need for these "middle class" workers ... And as long as there is a need for them, there will be pay for them. The middle class in DC makes a lot more than the middle class in Kansas City because it costs more the live here. Someone earlier in the thread mentioned that he was making $75,000 a year but didn't feel that was enough to buy anything other than in an area he didn't want to live in. On that kind of salary he should have absolutely no problem living in any middleclass neighborhood in this metro area ... absolutely no problem. Either his expectations are really out of line with what is middle class housing in this area, or more likely, he has very much underestatimated what that will buy him. I wasn't making all that much more than him when I purchased my current house last year. Granted I started off small 10 years ago with a tiny condo which I traded in for a two bedroom condo in the same building 6 years ago before buying the house in Dupont last year ... But in those 10 years this guy has been socking away all the money he is saving by renting vs. paying a mortgage ... So, I'm assuming he has a large downpayment to put down 25% like I did. After all, renting is so much smarter for accumulating wealth.

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  87. DC_Too said...
    Very funny. Who is the "Bill" guy, anyway?



    Look at this post from "Bill" ... I think it's pretty obvious who has been posting in my name.


    "Bill said...
    Don't worry about those USA Today numbers. What those media bubbleheads don't understand is the land supply is limited. Plus, there's a new housing paradigm in DC, when values never go down. Why? Because the federal government is spending a lot of money here.

    All's well here in DC. Values will just decline every else. Don't let facts and analysis get in your way of buying today!

    June 13, 2006 8:45 AM "

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  88. Maybe you're just doing it to gain some attention... Anyway i see no difference between what he says supposedly in your name and what you usually say on this blog. Ignore it and make your arguments. Remember - don't feed the trolls.

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  89. "Be more specific re: your prediction of a 50% drop in housing prices."

    fritz,
    Did you read this link I posted for you a couple weeks ago?

    http://larouchein2004.net/pdfs/economics/020621ref.pdf

    I guess not. You may or may not agree with it, it's upto you.

    Yes, I do firmly believe the US is headed into a Depression,
    and will draw down the rest of world along with it.
    ( I also know David does not agree on this one.)

    I think the average US home will fall 50%. Much worse
    for the bubble markets.

    Anyway, to see what happens after a real estate bust.
    You only have to study what happenned in Texas
    after the Oil Bust.

    Houston & Dallas Medians are in the 115K range, and that
    of San Francisco is 720K.
    There is absolutely no rational explanation for this.

    And if you do read the above document, I will provide you
    the analysis and basis for a 50% decline.

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  90. " Bryce said...

    Maybe you're just doing it to gain some attention... Anyway i see no difference between what he says supposedly in your name and what you usually say on this blog. Ignore it and make your arguments. Remember - don't feed the trolls. "

    I didn't write this. FYI.

    bryce

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  91. Yeah Bryce,

    I realised it wasn't you. It had to be Bill. I think David's found a way of ferreting him out ... so hopefully we'll be rid of him soon.

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  92. Good MarketWatch story about appraisal scams. Buyer beware.

    http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BEB7E1C20%2D54FE%2D451D%2D8B4C%2D80C3FBD3D215%7D&siteid=mktw

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  93. Anonymous 7:50 PM:

    You're citing Lyndon LaRouche as your evidence for a 50% drop in real estate prices?

    Sorry, but that's just not a credible source. And by using that as the sole support for your argument pretty much shoots down your argument and your credibility.

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  94. Lance Said...

    You couldn't be more wrong about middle-class affordability in the Washington, DC area. Why do you find many middle class single-income earners and families moving to housing developments way out in Frederick County, Calvert County, St. Mary's County or even Pennsylvania? It's not because most of them love the exburban or country life. It's because they can't afford anything in Montgomery County, Washington, DC, or the Northern Virginia counties.

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  95. fritz:

    You're citing Lyndon LaRouche as your evidence for a 50% drop in real estate prices?

    OK, So you are not gonna read it.

    I never said that document was basis
    for a 50% drop. It is just the place
    to start.

    All the data he uses is from The Fed
    Flow of Funds.
    It is very credible.

    Anyway.

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  96. Attack the messenger, not the message. Nice tactic - but it fails to address the argument in play. Address the argument please, Fritz. Then back it up with data as solid as the Fed's.

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  97. Reporting in from north of Tampa. 3 builders now have gone bankrupt. It was 1 about 2 months ago. Snowball rolling and picking up momentum. Fun to watch.

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  98. proposition joe said...
    Only about 20% of so called "homeowners" actually own their home. The other 80% are bitter desperate home-debtors. Home-debtors are slaves to their houses. If they stop making their payments the sheriff will arrive and remove them. If they stop paying their taxes the same thing will happen. Desperate embittered home-debtors live a life of regret and servitude to their mortgage holders. Renters don't have regrets, only freedom.

    How is that humanoid in the apartment next to you doing? Smelling it up? How about the fat pigs you see when you walk out your door, standing and staring at you like a zombie. Thanks, pass. I'll stick with my $500 mtg payment on a 4800 sq. ft. house on 2.5 acres away from the LOW IQ masses. I can still take a 5 minute drive to visit the zoo (your apartment complex) if I really wanted to.

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  99. ihateyuppies: "You couldn't be more wrong about middle-class affordability in the Washington, DC area. Why do you find many middle class single-income earners and families moving to housing developments way out in Frederick County, Calvert County, St. Mary's County or even Pennsylvania? It's not because most of them love the exburban or country life. It's because they can't afford anything in Montgomery County, Washington, DC, or the Northern Virginia counties."

    Because way too many folks have bought on to the "idealized" American dream that the bigger the house and yard you have the more important you'll seem to your friends and families and the happy you'll be. A lot of them also believe that for the sake of the children, one shouldn't raise a family in the city. I say to each his own, but personally I can't see how spending an hour or more commuting each way is "good for the family". The size of typical new houses/apartments has grown by something like 500% in the last 50 years or so ... similarly, where it was once okay to have a house that basically filled up your lot, now everyone wants a big lawn to mow over the weekend. These folks aren't moving so far away because they have to, but because they are chasing their dreams. And that is their right to do so. Personally, I prefer to have the smaller space and be in the city ... and I also don't buy on to this "it's not safe in those neighborhoods" thing. I live in Dupont Circle which most suburbanites think of as a safe neighborhood compared to say Anacostia. Yet, Dupont is part of the 3rd District MPD (Police Dist.) ... and the crime stats for this district are FAR higher than those for Anacostia. These folks who work in Washington really don't need to be moving to Fredericksburg ... They could be settling here ... or in closer areas in MD or VA ... Personally, I think they'd be happier ... but that is a personal choice.

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  100. Lance...

    What world do you live in? A world where everyone wears blinders?

    The average cost of a home inside the Beltway is SUBSTANTIALLY higher than the cost of a house way out in the exurbs. Most people buying property inside the Beltway are single or married couples with NO CHILDREN. These people make a much higher income because they tend to be attorneys, physicians, business executives, IT consultants etc.

    Why do you think the District is closing down schools? It's because the child population of DC is declining rapidly. I will admit that some people prefer the exurbs because of the quality of schools, lower crime, lower taxes, and more privacy.

    Nonetheless, raising children is expensive. It's tough for a family of four with a moderate income to buy property in Washington, DC because the real estate costs coupled with the property tax rates are prohibitive.

    THIS WAS NOT THE CASE 10 YEARS AGO! Moving into places like the District, Arlington, and even in some parts of Montgomery County were very affordable options for middle class families back then...not anymore.

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  101. Lance, "Yuppies," stop your bickering. Here is a link to a nice little POS rowhouse on Capitol Hill. Two beds, one bath, no basement. Oh, and it is 1.5 blocks up the street from one of the nastiest public housing projects in DC. Great place to raise a familly - for $475K everyone will have to take turns sleeping, too - builds character, don't you know?

    http://www.ziprealty.com/buy_a_home/logged_in/search/home_detail.jsp?listing_num=DC6083384&page=2&property_type=CONDO&mls=mls_baltimore&cKey=m203zb7q&source=MRIS

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  102. To follow up on "ihateyuppies" comments, here's an article from December last year showing a drop in DC's population:

    http://www.washingtonpost.com/wp-dyn/content/article/2005/12/21/AR2005122102035.html

    How does this drop explain rising home owning prices (and rising rents), especially in light of all the new construction in DC as of the last few years? Who is living in these places? Isn't one of the arguments for recent price rises in DC a scarcity of land - presumably driven by a population increase?

    Or maybe it simply comes down to rampant speculation that has now led to an unsustainable housing bubble.

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  103. To follow up on "ihateyuppies" comments, here's an article from December last year showing a drop in DC's population:

    http://www.washingtonpost.com/wp-dyn/content/article/2005/12/21/AR2005122102035.html

    How does this drop explain rising home owning prices (and rising rents), especially in light of all the new construction in DC as of the last few years? Who is living in these places? Isn't one of the arguments for recent price rises in DC a scarcity of land - presumably driven by a population increase?

    Or maybe it simply comes down to rampant speculation that has now led to an unsustainable housing bubble.

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  104. Bill said:

    "How does this drop explain rising home owning prices (and rising rents), especially in light of all the new construction in DC as of the last few years? Who is living in these places? Isn't one of the arguments for recent price rises in DC a scarcity of land - presumably driven by a population increase?"

    There are many factors out there causing an increase in prices in the District of Columbia. yes, yes, yes ... ONE of these factors has been the "bidding up" of prices by the flippers ... but that is only one of the factors AND they have been out of the market now for the last year ... so, I wouldn't expect any further drops here due to the "bubble" they caused ... that bubble has already burst. The other factors involved here include what you have been referring to as the changing "paradigum" in the District. Put another way, the District today isn't the same place it was 15 years ago. Back then, the people with money didn't want to live here ... They wanted to live in Arlington, Montgomery and the other close-in suburbs. NOW, these same people want to live here ... partially because SINCE LAND IS LIMITED there isn't any more room for them to move into Montgomery and Arlington (as reflected by the rising prices there) and partially because since the time of the Control Board the city has cleaned up its act. These people moving in are able to buy more than the people moving out were able to rent. I.e., you have a lot of 2 person households moving into houses that once might have had a single mother and her 5 children. The 2 person household can't afford Arlington anymore, actually likes living in a cleaned-up DC better anyways, and has the money to come in an buy the property that once couldn't be sold to even the lowest bidder and has as such been rented out for years at rents so low that a welfare mother and her 5 children could afford it. So, as the limited land in the metro area gets filled up, the previously-cheap land in the District gets bid up in value and in the gentrification process, the indigent with the large family gets moved out to a property somewhere that is relatively less value. It is capitalism in action. The 2 person household with the bucks doesn't have to move to Frederick and commute back in to DC 2 hrs each day each way, the welfare mother and her 5 children who doesn't have to commute anywhere in the morning gets more breathing room to raise her brood in, the population of the District drops ... but its land values go up ... and everyone is happy. Except for those of course who feel that anyone should be able to live whereever they want to live. If land everywhere were unlimited, I guess that could happen ... But it's not ... and we have a capitalist system here which means dollars are used to allocate who gets to live where.

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  105. DC_Too

    We can't bring up the link ... It's inside a site that requires registration of some sort. Sooo ... I have no idea what the house looks like ... but from the description ... and the price ... it sounds like we are talking about a starter home for an individual or a young couple with maybe one child. Given the average salaries being earned around here, I don't see how it wouldn't be affordable to a young couple as their starter home. Let's say they are both just a couple years into their careers and earning $60K each (which would be on the way low side for this metro area where a secretary usually gets hired on for about that.) With a combined income if $120,000 even if they had to finance that place to the tune of the whole $475,000 it would be an easy purchase. Using an interest only loan at 6.5%, that would mean a payment of about $2,575 ... or a yearly payment of $30,875 ... of that 35% would be written off in taxes (-$10,806) ... that leaves about $20,000 going toward the mortgage ... leaving them $100,000 to live on ... to pay $2,500 a year on property taxes on ... to pay $1,000 insurance ... AND, if they wish to pay whatever they like toward paying off the principal of the loan so that it can be paid off in 30 yrs, 20 yrs, or whenever ... That $475,000 house is not nearly as expensive as it first sounded ... I suspect we have a lot of renters out there who are only still renters 'cause they've never sat down and actually did the numbers ... All they saw was the sales price ... and it scared them. (I've rechecked the numbers, but if I've made a mistake, pls let me know.)

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  106. Prices here in Florida have tripled in the past 3 years. Name something else that has tripled in the past 3 years: cars, milk, electronics, food…? Ok, so what makes you think these housing prices will remain this high?

    I rent a condo for $750 per month; 3 years ago I was renting a similar size place for $692 per month. So rent has gone up roughly 9% and property prices have gone up nearly 300% in the same area, over the past 3 years. If I wanted to buy my current condo, the cost would be about $160,000 plus all the HOA fees, taxes, and insurance. Nearly $2,100 a month at 100% financing...OR I could RENT for $750 a month. It’s really a no-brainer. These greedy sellers here are in for a shock when the bottom falls out on them over the next few years.

    To sum up, a unit that's currently $160,000 was a mere $62,000 in 2003. I'm not sure if "bubble" is the word, how about "blimp"? I predict we’ll see a 40% drop in property value over the next few years to balance out this situation down here.


    -Dragasoni-

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  107. dragasoni:

    "To sum up, a unit that's currently $160,000 was a mere $62,000 in 2003. I'm not sure if "bubble" is the word, how about "blimp"? I predict we’ll see a 40% drop in property value over the next few years to balance out this situation down here."

    That might very well be the case where you are living. Florida since its inception has afterall been known for "land swindles" and the like. I don't know what other factors that are specific to your area might be playing out in the prices. One thing to keep in mind though, is that part of that increase could be due to additional buyers coming in with lots of cash who are driving your prices up ... Buyers who either sold houses up here for a bunch and now want to move to low cost Florida to live off the equity ... or buyers from up here who may have realized they could never have what they wanted here, but could afford it in Florida. Either way, additional buyers mean higher prices unless you can build new homes for all of them right away ... which isn't likely. The thing is that house prices, like the price of everything else are determined by lots and lots of factors ... It's easy to blame just one thing, but it isn't accurate. On a lighter note, you're going to have a lot of folks chuckling up here that you could actually pay just $60K for a condo as recently as a couple years ago. Up here the last time you saw that, bell bottoms were still in (the first time) and TV consisted of 3 channels ... 4, if you were lucky!

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  108. lance

    Please help me: I'm renting an 2bd/2bt condo in one of the best neighborhood in DC metro for $1450/mo including all utiliteis, while the unit sold to my LL for $385K this Feb with $425/mo condo fee. Can you explain to me why I should double my payment to $3000/mo to buy this condo instead of renting?

    A Curious Renter

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  109. Lance - Again, my eyes blurred up and I lost focus at the sight of all the text you just posted... Did you make a convincing argument somewhere? I couldn't find one.

    I did see something you wrote about $60K starting for a secretary. (I guess you're adding his or her first 2 years of salary together, b/c I don't know of any secretaries starting at that amount - definitely not on the GS pay scale.)

    Did you also say something about limited land supply? Another real estate agent scare tactic to get people into paying too much for a home. Better, address why population is dropping in DC and how that, along with your scarce land argument, is causing prices to run up in DC. Shouldn't prices be dropping, since there are fewer people competing for fewer homes and more land available (b/c in real terms there are less people occupying and competing for it)?

    As for tax write-offs - who ever heard of going into massive debt with a home loan to write off some interest payments? Is that write off worth the 50% one would save in renting over buying right now?

    No one here argues against buying long-term. We just argue against buying RIGHT NOW in this SPECULATIVE, bubbled-up housing market. (I know how you like things in CAPS.) It is UNSUSTAINABLE - especially when it is 50% CHEAPER to rent in DC right now.

    Once rents and home owning prices come together at the same level, many of us will think about buying again - and rents won't be going sky high. Sure, they'll come up, but home prices will drop. Perhaps in 3-4 years, the time will be ideal to buy.

    Unfortunately, Lance - your long-winded cheerleading cannot wish away the fundamentals against buying right now.

    Please try again.

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  110. Wow, Lance's financial example is scary, only because it shows how wrapped up in the bubble mentality some people are. Whay does it say about someone that they're outlasting David Lerah in bubblemania? At least Lerah gets paid to lie. Some people lie for free, to themselves most of all.

    "where a secretary usually gets hired on for about that"

    Maybe an executive secretary with many years of experience. Many graphic designers I know in their late 20s, even early 30s get paid in the 50s. This couple you mention is still well above median for the DC area.

    "Using an interest only loan at 6.5%, that would mean a payment of about $2,575"

    Only a financial quack would push this couple into an IO loan. An IO loan means they're paying none of the house off with their mortgage payment. They're basically renting while buying a huge futures contract on housing prices. How many IO borrowers even know what a futures contract is? And they're underwater if the house goes down in value. An IO loan is like renting plus buying a massive risky real estate-based derivative. This advice is financial malpractice.

    That IO financing trap is what made the runup turn into a bubble. People bought because they thought prices would go up, and used financing that relies COMPLETELY on the supposition that prices would go up. That's the definition of a bubble, and those poor people will lose big.

    "or a yearly payment of $30,875 ... of that 35% would be written off in taxes (-$10,806) "

    The marginal tax rate for this couple is 35%? Don't think so. Even if you think ALL of that $120K is taxable income, that gets you to a marginal rate of 28%.

    So we'll say $8600 in deductions. As opposed to the $2800 they were saving before based on the standard deduction. That's an extra $500 ish a month.

    So I'll say they're paying a net $2000 a month, plus taxes and insurance. They build no equity other than appreciation, and depreciation curses them with negative equity.

    Meanwhile, I rent something of equivalent (slightly greater, actually) sale "value" for $1700 a month, save $300 a month, and if I really want to invest in housing, I can buy financial insruments to do so. Unlike these people, I can make real estate a reasonable percentage of my portfolio, rather than my entire portfolio.

    I am so glad that I'm too smart to take Lance's advice.

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  111. Anonymous,

    Lance'll help you lose money. He's good for that.

    ReplyDelete
  112. I mean, why do you think banks make IO loans? Because IO loans take all of the real estate risk from the bank and give it to the borrower.

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  113. "especially when it is 50% CHEAPER to rent in DC right now.

    Renting is 50% cheaper because, at the end of your life, you have nothing. No estate to transfer to your heirs.

    Owning is more expensive because, at the end of your life (or the term of your loan), you own real property (look up the legal definition of that term. "Real Property". In caps.)

    While you are in the process of paying your mortgage down, you own a stake in real property (look it up). The law, and the societies which the laws make possible, ALWAYS holds the owner of real property in higher regard.

    Renter = Sharecropper of the 21st century. Sure, you can grow some peas on my land to feed your family. Just make sure you give me the majority of your crop. When you die, I'm kicking your family out.

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  114. Why are the renters ultimately whining here? Yes, they make some good, if not obvious, points about the benefits of renting. But why are they REALLY complaining?

    Because renting sucks. If it didn't, they wouldn't complain so much and so loudly about the cost of NOT renting.

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  115. Keith,

    You're incorrect in soooo many "facts" that I'll just point out one as an example:

    "The marginal tax rate for this couple is 35%? Don't think so. Even if you think ALL of that $120K is taxable income, that gets you to a marginal rate of 28%.
    "

    The 35% marginal tax rate is a CONSERVERTIVE estimate of COMBINED Federal and District tax. I guess you don't pay state/district income tax?

    Another is that you didn't follow the example were for ease of calculation I used Interest Only for the payment amount (so that we could figure tax write off) AND THEN said that out of the couple's remaining $100,000 they could easilyu set up whatever payment schedule to pay off the principle (i.e., loan amount) in 10, 20, or 30 years. I.e., I was saying that even a fully amortized loan was more than possible.

    You've proven my point that people think prices today are unaffordable because they don't understand the numbers.

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  116. Keith said...
    I mean, why do you think banks make IO loans? Because IO loans take all of the real estate risk from the bank and give it to the borrower.


    Sorry Keith ... but that has to be the stupidest thing I've read on this blog since I've been reading it. What on Earth does IO have to do with transfering risk? You think the 1/2 of 1% of the balance you pay off during the typical 7 years that someone owns a home shifts risk "back" to the back? I am starting to really understand the Darwinian aspect to the buyer/renter divide ... Survival of the fitest!

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  117. Survival of the fittest is right, Lance. Enjoy your lunch with the dodo and the passenger pigeon. Actually, all three of you will be my lunch.

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  118. Anonymous, and why do the housingheads come on to a blog to whine or desperately try to reassure themselves that they're right, even when Lerah, their cheerleader-in-chief is seeing the light? Looks like desperate self-justification.

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  119. Lance, your example showed exactly the opposite of what you wanted, and you're still so lathered up in wishful thinking to see it.

    Lance, I feel sorry for the poor saps who take your awful advice, if there are any. Your advice is free here on the web, and it's still overpriced.

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  120. "Owning is more expensive because, at the end of your life (or the term of your loan), you own real property (look up the legal definition of that term. "Real Property". "

    But anonymous, Lance says people only pay off .5% to 1% of their homes during the 7 years they typically own it, so now you housingheads aren't even getting your stories straight.:)

    "Just make sure you give me the majority of your crop. "

    But since renting costs less than even a no-equity-building interest-only mortgage, it's the "homeowners" who are the sharecroppers to the bank.

    You can either pay a bank or a landlord for your housing. Neither choice is morally superior to the other. It comes down to who's giving you the better deal.

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  121. No one listens to Lance - not on this blog at least.

    We're renters with low self-esteem, after all. We wouldn't have the courage or smarts to listen to the enlightened ones like Mr. Lance.

    Poor fellow. It's like he's preaching in Latin to a bunch of savage Apache heathens gathered in an Army camp outside of El Paso who can't read or write.

    Ooga booga, Lance.

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  122. Yeah, Bill, one wonders why Lance bothers. I mean, someone with his wealth and power must have better things to do than desperately defend his life choices on a blog that advocates a different choice.

    I mean, do I go to some real estate booster site and argue with them and then claim some Darwinian superiority?

    It almost sounds as if Lance is trying to convince himself more than anybody...

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  123. Welcome! An idiot posting in David's name. (Try posting in Lance's name next time - he gets really spun up about it.)

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  124. Why do renters care about an overpriced housing market? Because they'd rather buy than rent.

    Otherwise, they'd pay no attention to the RE market.

    If renting were all about "freedom" and copious "excess cash" to spend or invest; you'd think it would be a no-brainer. But it isn't a no-brainer, as all the complaining and emotional insults coming from renters continually demonstrate.

    It isn't a no-brainer, because renting sucks, renters know it sucks, they want to buy, they can't afford it, and they complain loudly and attack people who own homes.

    Calm down and think about it. It is true.

    Renting sucks.

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  125. Rent a skin flick - and find a new word to describe how horrible it is to rent.

    How about slavery, indentured servitude, unending agony, 13th layer of hell?

    Really, my poor self-esteem, as a renter, couldn't handle such verbal whippings!

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  126. Fritz,


    i must say that after reading some of your posts you seem terribly worried that housing is on the edge of a cliff and prices will be crashing.

    home prices SHOULD be a reflection of incomes and NOT CREATIVE WAYS TO FINANCE IT.

    which is what the laast 5 years have been.

    this market WILL crash i've seen it happen before first hand and that is not debatable I LIVED THRU IT.

    my home devalued from a high of about 200K to a low of about 135K this is WHAT HAPPENED LAST TIME.

    this time very may well be worse.

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  127. Anonymous:

    Take your meds. If you read my posts and come to the conclusion that I think we're on the verge of a price apocalypse, then you need to sue whomever it was that taught you reading comprehension.

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  128. Because I enjoy reading some of the ridiculously inane stuff on here and I also enjoy the intellectual sparring with some of the more thoughtful posters.

    For example, yelling "massive self ownage!!!" makes me laugh because: a) it makes no sense; b) it creates a new word; and c) it is a childish and bizarre presumption.

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  129. And thank you, Fritz, for being one of the regular contributors to the "ridiculously inane stuff" on this blog.

    Without you and Lance (aka Bryce) around, many of us would feel less intelligent.

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  130. Just because I'm gay doesn't mean I'm wrong.

    Listen up you porch monkeys. I know it all.

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  131. Even though cycles repeat, each one is unique. The last big real estate downdraft was worsened by the S&L collapse and arguably some tax law changes. This one is built on the back of creative lending and a basically pretty good economy. It sounds reasonable to say that we won't have to ride through a 40% decline like last time except in some hot spots like CA, NOVA, and SW FLA. If the economy continues upward, even those places might be spared the worst of it.

    The only victims will be those poor saps who are forced to sell, either because of job transfers or suddenly negative cash flows on rental condos who can't defy gravity forever.

    The worst thing that could happen for them is for the stock market to recover, luring investment dollars out of real estate. Not many regular people play comnodities which have been hot of late, but stocks are easy to buy and very liquid, and many people already own stocks. When the momentum shifts, well, the only thing to do is to get out of the way.

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