Friday, July 28, 2006

US GDP Growth Slowing Significantly; Recession Coming Soon

US annual GDP growth rate for the 2Q 2006 slowed dramatically and stood at 2.5%. Bloomberg reports:

The U.S. economy grew at a 2.5 percent annual pace from April through June, less than expected, as business investment in equipment fell for the first time in three years and consumers reined in spending.

The government's first estimate of the quarter's gross domestic product, the value of all goods and services produced in the U.S., compares with a 5.6 percent gain in the first three months of the year, the Commerce Department reported today in Washington. A measure of core inflation accelerated.

Economists expected a 3 percent gain in GDP last quarter, according to the median estimate of 74 estimates in a Bloomberg News survey. Estimates ranged from 2 percent to 3.8 percent. Housing Slowdown

Consumer expenditures rose at an annual rate of 2.5 percent last quarter, as a slowdown in the housing market discouraged spending, compared with a 4.8 percent pace in the previous three months. Economists expected a 2.1 percent gain, based on the survey median. Consumer spending growth has averaged about 3.4 percent a quarter the past 30 years.
The dramatic slowdown in GDP growth is noted. The US economy will be in a recession in the coming 12 months.

107 comments:

  1. Slower then expected

    but inflation is still bubbling- Benny Boy if he stops raising rates risks that inflation goes out of control- with A pause, the dollar weakens, and commodities likely still will rise, causing inflation anyway. Not too may choices- and either way there is likely to be a recession. Pick your poison.

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  2. dollar fell about 80 cents against the euro after the gdp report.

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  3. 2-3% GDP growth is considered a "sweet spot." I.e., if inflation remains low - which it is - this is considered a sustainable level of growth. Historically speaking, 5% is not.

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  4. True. But given the huge debts that keep piling on 2 - 3% is dissapointing.

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  5. No, it isn't. The debts are disappointing.

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  6. With core PCE up to 2.9% annualized, this is a dilemma for the Fed. That is one of the most closely watched numbers. I'll be heading over to Calculated Risk later to day to see his take on it...

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  7. Oh, and let's not forget the employemtn cost index up 0.9% as well...that's the real killer. They've been able to get away with these tiny 25 bp hikes because wage inflation has been, well, non-existant. But if that starts to catch up, the tightening will have to continue. Really, the Fed is screwed no matter what it does, and going into an election year fall, the party in power will likely suffer the consequences if the economy slows more than expected.

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  8. Not a big fan of the Washington Times, but they have this article there today:
    http://tinyurl.com/elc7n

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  9. Its not the absolute number (i.e., 2-3%) its the delta - the economy dropped like a rock. What's the stimulus that will pull us back? Nothing. Tax cuts won't happen. The fed has to fight inflation - the most they can do is hold rates steady. Get ready for the pain. We've been putting it off but now its coming. We all better hope foriegn investment doesn't pull back because then we are really screwed.

    NOVA Fence Sitter

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  11. OK, let's try this again...
    ------------------------
    NOVA fencesitter,
    Did you see this post regarding foreign investment over at itulip? It's called "The coming end of the US foreign investment bubble". If not, have a look...

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  12. Nikki - Yeah.... I read I-Tulip - even browse your blog. Nice job by the way. I think I may be overloading though on gloom and doom. Maybe tonight I will take a handfull prozac and watch Larry Kudlow.

    NOVA Fence Sitter

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  13. Could we define "soon"?

    (See the title of this post if you don't know what I'm referring to)

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  14. "Its not the absolute number (i.e., 2-3%) its the delta - the economy dropped like a rock. What's the stimulus that will pull us back? Nothing. Tax cuts won't happen. The fed has to fight inflation - the most they can do is hold rates steady. Get ready for the pain. We've been putting it off but now its coming. We all better hope foriegn investment doesn't pull back because then we are really screwed.

    NOVA Fence Sitter

    "

    Idiot.

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  15. soon = 2007

    NOVA Fence Sitter

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  16. Welcome to the Bush stagflation!
    -- sglover

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  17. "The US economy will be in a recession in the coming 12 months."

    Wow I feel real bad for Exxon, they won't have record quarterly profits anymore.

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  18. it sounds like we have some real economist here today. Tell us the solution.

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  19. NOVA fencesitter said... Its not the absolute number (i.e., 2-3%) its the delta - the economy dropped like a rock.

    To be expected, I think. After all, except for the top 5% of income levels, we've had declining real wages for several years now. Only the housing ATM has been keeping this thing going.

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  20. Sarah_in_DC -- Thanks for that Washington Times piece. Interesting, especially this statement, which I'd like to have confirmed (by something other than Monster):

    Job opportunities, which stagnated in the Washington area in the past year, are declining in housing-related areas such as architectural and engineering, according to a Monster Employment Index.

    That seems to defy the conventional wisdom about DC, in which high-paying jobs are supposed to grow on trees?

    JH

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  21. I am enjoying every moment of this. Let the Feds drive down interest rate artificially. The horror thats coming was owned by the banks that loaned money to people incapable of paying it back.

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  22. It's really amazing that the markets are rallying with the headlines like "Economy slows, inflation heats up". Does everybody think the future of our entire economy depends on whether or not the Fed raises rates another .25 in August, because that's what the rally is based on. It's like there is no grasp of the bigger picture at all. If the Fed stops raising rates next month, that's no guarantee they're finished and actually makes it more likely for an increase later. I can remember a few months back when treasuries rallied after a huge jump in inflation readings and the quote was something like "well, if they raise again next meeting it makes it more likely they'll drop rates later." With that kind of thinking, treasuries should have fallen because with inflation numbers like these, if they do pause, it makes it more likely we'll see a hike later on. RGE Monitor has this post...

    "What does all this mean for the stock market? If the Fed pauses in August you will have a significant and temporary rally (as the instant knee jerk reaction of the stock markets to the GDP report today shows). But this will be a sucker relief rally as the short term benefits for stocks of a Fed pause will, in short time, lead to the realization that the pause signals that the Fed is panicking and realizing that an ugly recession is coming (as in 2000 but only worse). Thus, once the signals of this recession build up, the slowing demand, sales, profits, earnings will severely batter the stock market. Expect 10-15% losses on the major equity indexes between now and year end as the bearish reality of a recession sinks in delusional investors still hoping for a soft landing of the economy. There will be no soft landing; it will be hard a landing as it gets. So, as Bette Davis said in All About Eve: Fasten your seat belts...it's gonna be a bumpy ride! A very bumpy one for the economy and for all risky assets. In 2006 cash is king and all risky assets (equities, EM bonds, currencies and equities, commodities, credit risks and premia) will be battered once the markets finally comes to the realization that a U.S. recession followed by a serious global slowdown is coming."

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  23. Inflation will be the big question mark. I find it very interesting that there are so many seemingly counter intuitive moves in the market. A lot of moving parts...

    My $0.02

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  24. Got a selected transcript of the DR Horton homebuilder company's last conference call, pay special attention to the last line:

    From D.R. Horton:

    “…right now I truly believe that there are a lot of fence-sitters out there. They don't have to buy because of the fact that the appreciation is not like it has been over the last two or three years, so if they don't buy today, they're not going to miss an uptick in the house price, so there’s not really much motivation for them to buy unless they really need a home."

    Motivation to buy a home is for the upticks in price? Things are going to get very bad I think.

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  25. I think the DR Horton quote is accurate. It's basically that people now can be patient as they search for homes, since there are not the bidding wars or extreme appreciation we've seen in the past. So, there isn't a rush, but people who will buy homes are for your traditional reasons: expanding family, upgrage lifestyle, hedge against inflation, and your standard "intagible" reasons people buy. What it means is that those who felt rushed to buy else they be priced out, miss a decent place, miss appreciation, etc., do not feel the pressure to do so.

    I think the real question is how much your "traditional" home buying reasons will work in the market. I would guess that people who still buy homes for your normal reasons will continue to do so, but will it cause a "soft" landing versus a bubble? If the economy stays at a relatively stable pace, I would suspect that it will be soft (some places softer than others). If the economy really hurts, then it will be more of a bubble.

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  26. Noticed as in the Post business section that Amazon is trying new stuff because their sales are down 60%.

    I think there have been subtle indicators the last few months that the economy is slowing.

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  27. Condomania - I guess time will tell. However, psychology works too ways...those traditional buyers will be afraid to buy into a declining market thereby reinforcing the declines. People are driven by greed on the way up and fear on the way down. I do agree there are still many folks on the sidelines and the intangilbe reasons for buying are still strong. So I guess the question is rather those reasons will be enough to keep the market from reaching a tipping point. If that tipping point is reached than look out,

    NOVA Fence Sitter

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  28. Exactly, NOVA Fence Sitter. My experience of previous real estate busts is one of the main reasons I wanted to sell when we did. I didn't really think the value of our house was likely to fall below what we paid for it in 2000 -- but selling at all is the problem when the market's really bad. I didn't want to get stuck wanting or needing to retire and not being able to because the house wouldn't sell.

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  29. sarah in dc - Where was your experince with real estate busts...dc in the late 80s or elsewhere?

    NOVA Fence Sitter

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  30. Condomania, you sound like you know what you're talking about. Exactly, people always will need housing. We will go through a period of high supply the builders will slow down production supply will be absurd because people have to have homes " remember what the american dream is " demand will increase eco101
    and the cycle will start again.

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  31. Moderator - I'm sorry if this is the wrong place to put this, but...Some thoughtful feedback would be appreciated.
    I've been frequenting this site and reading the blogs since April when the reality of what was happening to RE started to rear it's ugly head (at least to someone with their head stuck in the sand like me). I was in complete denial and my husband doesn't want to face total reality...now all I want to do is try and save my family...let me explain.
    My husband is employed in the construction business in NOVA and new homes are our bread & butter. Of course we've done well over the last 6 years, unfortunately, we were too STUPID, lazy, arrogant (you name it) to do a lot of saving - honestly, we have about 2 months of bills in savings, period. I can tell you first hand that new home construction (at least for NVR) is coming to a serious halt across NOVA. Now we are at a crossroads about what to do...like I stated above, hubby is in complete denial about a coming recession - he thinks housing is just slowing down & doesn't think our lovely government will allow housing prices to tank. It's worthless for me to argue with him about recession, but thank God he at least is seeing the reality of RE when I process his invoices.

    My current though process is this...to sell our house we bought in 2000 & get what equity we can since prices are still inflated (we'll probably be able to still sell for about 125% more than what we bought for) Then move the hell away from the NOVA area and RENT for a couple years while things shake out. I want to keep part of the money as 'transition' expense, since we'll both be looking for jobs and then put the rest into something 'safe', if there is anything that will still be 'safe' in a major recession...

    There is another part of me that wants to keep our house, and our motgage isn't totally above our heads. We've made it so I can pay all the bills on my salary. Again though, I work for a non-profit (environmental) and if the US economy is getting ready to implode, will I have a job in a year?
    I am scared if we wait even 6 months longer, we won't be able to get $ out of the house if we have to. I honestly don't know what my husbands job prospects will look like either, considering he does not have a college education (although I do) and unfortunately, no other viable skills (i.e. electrical / plumbing). Moving, renting and having the $ out of our house would allow him to go back to school for some type of training. That $ would also give us a cushion to fall on if we're both working at McDonald or God forbid, completly unemployed during the recession / depression (?).
    My main questions are this:
    1. Do we sell? Should we sell and have the money to fall back on because of the upcoming economic situation?
    2. If we sell, would it be safe to put money into high interest savings? A CD? Or are we looking at a repeat of the Great Depression?
    I realize we've brought this hell on ourselves by spending too much and saving too little (the great American Dream eh?). Please don't bash me...I am doing enough of that myself...if anyone has some constructive thoughts on this brief synopsis of thoughts, I would love to hear them.

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  32. I don't see where your "hell" is, hysteria. You bought a house to live in, 6 years ago and can pay your bills with one salary (yours) which is not connected or dependent on houses.

    Take off an run away? Sounds good to me, but do it for its own sake, not because the sky is falling. And have your husband think about work alternatives now, before he is forced to and competing with everyone else in the house industry.

    I would think we are in for a rough patch, economically, but don't hold your breath for another "great depression," either.

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  33. Nice fictional post, Hysteria

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  34. You guys are a cheery bunch.

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  35. anon - I wish this was 'fiction' - this is my reality...

    dc_too - thank you. my post above did not go into everything...when I say I can pay the "bills" on my salary I did not include groceries or child care for my 18 month old. Factor that in and my hubby has to work and make enough to cover those monthly expenses. sorry...I guess I was thinking too he could become Mr. Mom and get a PT job at night to cover groceries if worse came to worse...

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  36. Exactly - if you can pay your bills on one salary, what do you care? Stay put. Wait it out while paying your mortgage. Unless your mortgage will increase so much that you can't afford it when rates reset you should be fine.

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  37. Found this link from NAHB, which details the year-to-date
    change in building permits for all MSA's.

    The Disctrict : -35%
    Greater DC : -26%

    It's an Excel File.

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  38. "Unless your mortgage will increase so much that you can't afford it when rates reset you should be fine."
    No - we've had to refi, but we're locked in at 30 yrs / 6.8%

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  39. hysteria,

    Sell the house, you can still make over 100% profit.

    Use the proceeds to go short on real estate, and others
    that will go down in the coming recession.

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  40. Hysteria - My father was laid off from a steady job as child. Our situation was very similar to the one your are in now so I have a some empathy. Your living expenses are fixed and job market in DC is good so I wouldn't sell and move. You might consider looking for a job with a consulting firm or the Feds - those may pay more than a non-profit. If you're husband stays home you can probably cut expenses and you will pay less in taxes. You might consider pre-emptive marriage counseling too because I bet this will be stressful for you both. Good luck.

    NOVA Fence Sitter

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  41. hysteria,

    I would sell your house and sink the proceeds into stocks - in particular stocks in canned goods and ammunition. Also, you should have plenty of these commidities on hand because not only are you going to need them to sustain life and fight off the inevitable gangs of marauders, but you can sell them - IF you have enough canned goods to feed yourself and your infant. This will make it so that you do not have to trade sex for food - and believe me, you do not want to be doing that in front of your hubby and toddler while you're holed up in your basement. I think it's great that you are thinking of all contingencies. 6.8% is a great rate. Good luck!

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  42. You can't short real estate, anony. And no one should gamble (or "invest") with the roof over his head. That is what a house is supposed to be in the first place.

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  43. mad max - I'm honestly lmao at your comments...maybe I'm being a *little* paranoid - OK, maybe a LOT
    and as far as ammo - hubby has a terrific gun collection - & no joke, we used to go to target practice all the time

    NOVA - I am looking into counciling - probably not a bad idea for my anxiety anyway - hubby may or may not go...he's not particularly worried. I know he can find work (at least right now). I guess my (irrational?) fear is that if we head into a recession, a lot of people are going to be out of work, from those in construction, down the line.

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  44. You should have become a lawyer. $135k to start plus a modest bonus is the going rate in DC.

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  45. "Sell the house, you can still make over 100% profit.

    Use the proceeds to go short on real estate, and others
    that will go down in the coming recession. "

    anon - I'm not looking to gamble, or be greedy - I am trying to look out for the future of my family, my children and protect what we have. We're not living in some "McMansion" - just a crappy little tract house in a non-discript neighborhood (and it is certainly NOT worth what the current market *says* it is)...but it is OUR house and I am terrified of losing what little piece of life we've carved out...
    I usually think of myself as a practical person and all I want is security. For the last six years, we should have been working towards that, but we didn't and now...well who knows, right?

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  46. Hysteria-- I sympathize-- my husband's in construction too. The first thing to do is to start saving as much of your husband's salary as you possibly can -- see how close you can come to living off yours alone.

    As for selling-- I don't think you need to do that unless you want to. I second the suggestion of looking for a government job, if you think yours is unsafe-- and if you decide to keep your house you might look into getting a HELOC to have as an emergency fund. If your husband loses his job-- or worse, you both do, using a HELOC might put you into considerable debt, but you would be no worse off than most people at that point, and could probably hang on until things turned around. (I know the anonymous bashers will be out in full force at this suggestion, but using a HELOC for an emergency fund when you don't have much in savings isn't a bad idea.)

    Don't forget, a silver lining if the economy goes into a bad recession is that is that your costs-- including taxes-- will probably go down as well.

    If you do decide to sell I'd think about staying in the area unless you have connections someplace low-cost with good job prospects. When times are tough it's better to be around people and in an environment you know.

    Good luck!

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  47. Wow, Hysteria, slow down and relax. Instead of a lawyer, I think you should have been a risk assessor for an insurance company. None of the things you are worried about have happened yet. Hubby has not lost his job. Presumably he has some marketable skills, no? If you can afford all the bills on your salary, and you like your house and this area, then my advice is to stay put. Perhaps, if you are worried about losing your job, you should look into fed govt work. Once you've been employed for a year, it's almost impossible to fire you and the benefits are o.k. (you at least can choose your health insurance.) And, if god forbid, hubby did lose his job, he can always go on unemployment while he looks for another. Oh, and START SAVING NOW. That way, you can relax a bit. Therapy might not be a bad idea....

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  48. "I'm not looking to gamble, or be greedy"

    That's what has brought the housing market to where it is today.

    You can be practical, or philosophical.

    Your choice.

    I know the latter will not preserve your shelter or feed your family.

    Anyway.. You are at least able to see what is coming next.

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  49. NOVA fence sitter said... sarah in dc - Where was your experince with real estate busts...dc in the late 80s or elsewhere?

    My folks were here through the one in the 80's -- also saw a couple of them myself in California.

    Going back further we moved a lot when I was a kid for my father's job. Since they couldn't time the moves my parents were at the mercy of whatever the housing market was when they needed to sell. Mostly they broke even, but they had really bad experiences twice. Once was in the 60's in Virginia. They couldn't sell our house when we moved to Michigan and had to rent it out. They finally managed to unload it a year later. This was in the days before interstate banking, so hassle doesn't begin to cover it. The other time was in Canada. They had to carry back second mortgage for a very flakey buyer who came close to defaulting twice.

    Scarey stuff-- and those were just normal downturns in the market.

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  50. I would hesitate to suggest to anyone that they should go back and forth between plowing money from real estate into stocks or vice versa. Timing any market is a fool's game for most people. If you were to plow your money into stocks or housing because you knew your money was going to be there for 5 or 10 years, then go for it. If not, you're generally taking a poor risk.

    I'm relatively bearish on the housing market, but I also plan very conservatively. As I mentioned before, I think it's going to depend heavily on the overal economics of the area. People who jumped into real estate trying to make a quick buck are probably going to be burned (just like those who put all their money in internet start-ups), yet those who thought about their decisions and planned out different scenarios -- including the bad scenarios -- won't be in an untenable position.

    In regards to psychology, that -- like the "intangibles" of home buying -- is something you cannot predict. Though in general I think that your average home owners typically stay home owners -- i.e. if they need more space they don't sell and rent, they sell and either move up or move farther away, or remodel in some cases. I think that the general population growth and relatively stable job market means that there could be small but real drops in value around some areas (and larger in those extremely speculative condos like the Radius in Logan). However, I think the overal DC market will probably tread water over the next year or two since interest rates won't rise much.

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  51. "Hubby has not lost his job / unemployment."

    I think one major fact I should have mentioned is hubby is self-employed...no new homes, no pay check, no unemployment...

    Sarah - thanks! I thought about a HELOC while we were doing the refi...didn't do it though.
    I'm also seriously considering a career move. I'm not saying my nonprofit is in trouble, but I have a hard time imagining that IF we go into a recession there will be people looking to donate/bequest large sums of $, even if we are in the fight against Global Warming...

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  52. "None of the things you are worried about have happened yet"

    You buy insurance when you buy the house.
    Not after the fire has already started.

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  53. This comment has been removed by a blog administrator.

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  54. Bruce-- I see you read the same joke book I did-- when I was twelve...

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  55. Would you all keep your money in 401's if a recession/depression is coming?

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  56. where is lance today?

    Is anybody else missing him?

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  57. Bruce in ChantillyJuly 28, 2006 5:28 PM

    It is an amusingly astute observation. Not a joke.

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  58. Anonymous said...
    where is lance today?
    Is anybody else missing him?


    Oh, he's off on another thread, explaining that no one with less than the median income should have children.

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  59. Bruce-- you mean you didn't read the book? And you came up with that all on your own? My, how clever!

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  60. nova geek said...
    Would you all keep your money in 401's if a recession/depression is coming?

    A 401k's probably not a bad place for it-- depending on how diversified it is, of course. You want to have some liquid savings on hand, for emergencies (probably 6 months living expenses). But I think the rules allow you to tap a 401k without penalty if you lose your job, don't they? Meantime it's a good, safe, tax-free place to keep it where you won't be tempted to draw on it for non-necessities. I don't expect anything like a depression, but if one did hit you can bet the rules would be revised in a hurry to let families draw on 401ks or any other source of savings they had.

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  61. Lafawnda in DetroitJuly 28, 2006 5:42 PM

    So now Sarah in Clarksburg is being condencending? In fact, she's conducting herself in a rather insulting manner, don't you think?

    I thought you were above that, Sarah in Clarksburg? You stated as much just a short while ago.

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  62. Anonymous said...
    “hysteria,
    Sell the house, you can still make over 100% profit.
    Use the proceeds to go short on real estate, and others
    that will go down in the coming recession.”

    That’s assuming it will sell. Right now, it’s one house in a sea of thousands.

    Hysteria, buckle down. Take one weekend and re-evaluate your bills/living expenses. Trim the fat and start to save. And on top of that, your husband is a skilled tradesman. Yes, he and others may be out of work in 6-12 months, but he could fill a niche it the market. It sounds like he has his own business? A fair (in price and in ethics) “handyman” is a rare find. Tricky in an unsure economy, but making money “on the way down” can reap great rewards.

    The real scary part:
    “Now we are at a crossroads about what to do...like I stated above, hubby is in complete denial about a coming recession - he thinks housing is just slowing down & doesn't think our lovely government will allow housing prices to tank. It's worthless for me to argue with him about recession, but thank God he at least is seeing the reality of RE when I process his invoices.”

    If your husband truly is in denial, it’s gonna be rough. If you and your husband freely talk about finances, it shouldn’t be too hard to come to consensus. If he sees “the reality of RE when I process his invoices” it should be easy to show him what percent of the economy is dependent on RE and new builds.

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  63. "That’s assuming it will sell. Right now, it’s one house in a sea of thousands"

    Because it will be a lot easier to sell a year from now.
    When it will be one house in a sea of TEN's of thousands.

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  64. 401Ks should be viewed as long term - as in 20-30 years. Maybe longer. The penalties for cashing them out repeatedly will eat up your returns so don't do it. Just let it ride.

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  65. Anonymous said...
    "Because it will be a lot easier to sell a year from now.
    When it will be one house in a sea of TEN's of thousands."

    Sarcasm noted and true, she could take a double pronged approach. Hysteria, what’s the average DOM in your area for your type of home? 4-6 months? You could place your home on the market and in the mean time implement/have a backup plan. Your husband could be re-skilled, you could find a “stable” job and if you get a decent offer on your home, you could sell and rent. Or, don’t take the offer, stay with your new “stable” job, your husband could be well on his way to a new career and keep the house.

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  66. Hysteria

    You have my sympathy. I weathered the early 90's recession in DC...got laid off...and had to take a pay cut on the next job. Financial insecurity can really get those gastric juices flowing.

    But...The DC area has, historically, been a good place to weather an economic downturn.
    Recessions tend to hit a little less hard in DC than they do in other parts of the country. I'm living in Ohio right now and prior recessions have hit my friends and neighbors much much harder than they did in DC. My husband and I are being transferred back to DC this fall and I am grateful. In the event of a layoff, his chances of landing gracefully are much better in DC than here in OH.

    If we are on the brink of a recession, both you and your husband don't want to be roaming around looking for work. Employers tend to hunker down and stop hiring before the rest of us get the bad news. If you do decide to leave, seek out a state capital...like DC, they tend to weather recessions a bit better.

    Look at your skill set. How transferable are your skills? You work for a non-profit. Well, DC is the non-profit capital of the US. Even if your business lays off, your non-profit experience (fundraising?) may transfer very well in DC. If you have good office skills and association skills, you may be suprised at how employable you really are in this environment. My background is in notprofits/associations and, in the 90's recession, I found work two (nailbiting) months later for another association after my layoff.

    Don't ignore federal employment. Remember all those retiring federal baby boomers may present an opportunity for you.

    As for your husband, you both should take a good hard look at his skills. He's in construction but what part? Is he a good carpenter? plumber? etc. Does he have skills that can be applied to carpentry work, handyman work? Remember, there's a lot of money in DC and, even in a recession, people will still improve their homes. Probably more so than in other cities. Remember, if recession hits...it's going to hit the whole country.

    You've made some great strides in home ownership and ensuring long term security for your family. Hang onto it. Start saving what you can. If you have debts (beyond the mortgage) target them for payoff first. The interest rates on credit card debt can really hurt. As a financial planner, I'm not fond of using home equity for financial emergencies BUT in the absence of other sources of income, it might help. If you feel you may need to do that, open up the line of credit now while you both have provable income...do not touch this line of credit unless you are on the brink of financial disaster. If tempted, just bring your baby's face to mind.

    Finally, chill...stop guilting yourself over what you should have done. You didn't but did you learn from it? The best way to get over the "sins" of the past is to put a new foot forward and mean it. You've got some great building blocks in place. Appreciate them, maximize your skills...and yeah, think about counseling. If he does lose work and becomes Mr. Mom, it's a heckuva transition and you and he will need all the support you can get. Chill...Good luck

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  67. hysteria said... I'm also seriously considering a career move. I'm not saying my nonprofit is in trouble, but I have a hard time imagining that IF we go into a recession there will be people looking to donate/bequest large sums of $

    A career move might be smart-- non-profits don't typically pay that well. And picking up extra skills is always a good idea. But as for the number of people looking to donate/bequest large sums, that probably won't change much. The upper 5% has been doing very well under the current administration-- and the upper 1% extraordinarily well. So your current job might be pretty safe, actually.

    Robert's approach sounds sensible if you want to leave your options open-- put the house on the market and see how it does, while meanwhile building your savings up as quickly as you can. But if you do decide to put the house on the market don't let it make you anxious. Remember that you're in a much better position than most people and chances are you'll be fine whether you sell or stay.

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  68. It is too early to say recession is coming soon. Just look at the growth from 2003 thru 2005, the booming years. 2.5 growth in one quarter is pretty normal.

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  69. Sarah,

    Back from my little adventure. Anyone who can't get their house paid off by age 60 is doing something wrong.

    Your "fear" of being unable to retire because your house won't sell is "scary" only in the sense that one would find themselves in that position.

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  70. Ah, va_investor! Yes, I can see you are back. (Although you must have had a slight delay, since you were posting here a day after you said you couldn't respond to us since had to run to check on those properties...)

    As for not having the house paid off-- well, I'm sorry we weren't able to come up to your superior standards, but 5 years wasn't quite enough time for us. Actually, I sort of thought my husband was doing pretty well, since he's only been in the US 7 years...

    I'll tell him of your concern, though. He will no doubt be as devastated as I am to have your poor opinion.

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  71. sarah,

    Left Wed. at 6AM. Thanks for the concern. I seem to recall you mentioning a birthdate of 1948. Hence, my concern for your financial well-being. Not to mention your own statement about retirement anxiety vis-a-vis having a house to sell.

    Perhaps, however, I am one of the many that have problems with reading comprehension(?).

    btw - you are not alone in using Europe as an excuse.

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  72. Well, va_investor, I wasn't aware that I needed an 'excuse'.

    And yes, it seems you are having a little bit of a memory problem. I'm a bit later vintage of baby-boomer.

    The retirement I was concerned about was my husband's-- partly because he's older, and partly since he's in construction. We'll probably go back to his home country in a few years so, no, I didn't want to have to worry about selling then. We already own the property we'll probably retire to back there, by the way, but don't let that stop you. It's very enlightening to see how American values have 'evolved' in the time I lived abroad.

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  73. Thank you anony! I enjoy watching you guys, too-- just so long as David keeps deleting the psychos with the sexual comments involving children. Part of my 'train wreck' psychological problems, I guess, but that does bother me.

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  74. Sarah,

    How long have you been renting in anticipation of the great decline?

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  75. Sold last spring, va. Prices in our old neighborhood have gone nowhere since.

    We didn't sell in anticipation of a 'great decline,' though. As I think I've said, what's typical of housing busts is not that there's a huge decline in (nominal) prices-- but that you simply can't sell. Demand disappears as everyone waits in anticipation of prices being lower in the future-- just as they bought on the way up expecting that prices would continue ever upward.

    Of course I've never seen a housing boom that shot up so quickly or where lending standards were so lax before, so it's possible it will be 'different this time'.

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  76. Tony in BrooklynJuly 29, 2006 6:06 PM

    Sarah in Culpepper, you'll find that your problems follow you, wherever you go. They are internal to YOU, and they are not tied to the real estate market in Alexandria or the cultural atmosphere of the United States.

    Perhaps there is enough time left for you to discover that for yourself.

    Is it $1 longneck night in your nieghborhood?

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  77. Are you physically healthy, Sarah? Is the diet OK? Is there any excess weight in the picture when you look in the mirror?

    Not trying to be rude; but the fact is that many if not most people don't realize that their problems are inextricably intertwined with their physical beings. Don't beleive me? Drink two cups of bleach now and then tell me what your immediate priorties are.

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  78. sarah,

    what is with all the alias's. Are you a fake?

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  79. Brycette in BrooklandJuly 29, 2006 6:17 PM

    Tony's right, Sarah in Culpepper. Him and me, we go back a long way. He can tell you all about those problems that keep on following you -- and longnecks. You tell 'er, Tony!

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  80. Interesting how the personal attacks always increase whenever one of us so-called 'bubble-heads' refuses to provide straw for one of the strawmen the RE boosters love to construct-- or when we give a particularly compelling argument.

    Let's see if we can't provoke some more howls here--

    Anybody seen this link? It's from an IMF report on previous assett bubbles:

    http://www.imf.org/external/pubs/ft/weo/2003/01/pdf/chapter2.pdf

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  81. Here's the tinyurl for it:

    http://tinyurl.com/8yydd

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  82. what i learned from this blog:

    worried about your job?? get one from the government and in a year they can't fire you.

    just get "retrained" (of course, nobody says in what) and all will be well again.

    worried about your finances?? get a HELOC, that way you can pay your bills (never mind that it's borrowed money).


    when we retire we're gonna go "back to his HOME country" so we'll leave this dump and save ourselves.

    a house is a home not an investment (never mind that so many have leveraged 100's of 1000's of $$$ for that "home" and many with no money down and IO ARM.....but that's not an investment)

    there are 1000's of "fence sitters" that will save the day in a few years so that housing (never mind that it's not an investment) will continue it's marh higher and at the worse "level off" (i always love that one).

    and yes the RE bulls seem to be the most angry of the bunch and it's only obvious to everybody (except them) that housing is toast and relestate is THE LARGEST INVESMENT THE AVERAGE AMERICAN WILL EVER MAKE.

    to bad the lance-mister wasn't here to provide even more fodder for my learning experience.!!

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  83. hysteria is a fake! If he or she is real, don’t give advice on how to get them out of their bind. Did anyone give us advice when we couldn’t afford a rundown breadbox too live in? No! All were laughing about how good they had it; saying look at the poor souls that can’t buy, poor suckers. Well it’s changed!

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  84. Sarah in DC said...
    “Interesting how the personal attacks always increase…….”

    Yep, more troll droppings as housing declines. I for one, hope David does NOT delete these types of post.

    They could remain in place to show why he had to close some “discussions”, and to document some of the housingheads long thought out arguments:


    “using Europe as an excuse”, “emotional and psychological "issues””, “$1 longneck night in your nieghborhood?” “Are you physically healthy, Sarah? Is the diet OK?”

    Man, those are some points to ponder. I guess someone has benchmarked the price of beer with RE growth. I’d like to see that spreadsheet.

    Please stick around Sarah, it only gets better.

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  85. it sounds like we have some real economist here today. Tell us the solution

    There is no solution. That's the whole point. 18 years of idiocy by Greenspan and 6 years by Bushco have come to their inevitable conclusion. It's going to take a long time to climb out of this hole.

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  86. Ben in San JoseJuly 30, 2006 7:34 AM

    "benchmarked the price of beer with RE growth. "

    You don't read enough. It was Sarah in Beltsville who said $1 beer night at a bar near her apartment was one of the reasons she rents.

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  87. You generally can't spend future earnings forever. Eventually the future arrives.

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  88. Jim a,

    Are you implying that all/most homeowners are spending future earnings?

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  89. va_investor said...
    "Jim a,

    Are you implying that all/most homeowners are spending future earnings?"

    Nah, he must be talking about renters ... That is afterall what one does when they rent. They eat their cake now ... getting a little nicer place than they could otherwise afford to get ... and in exchange don't get locked into a set payment for the future. It's the old "live now and to h@ll with what comes!"

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  90. First off, Nikki is the only one that actually makes sense as she gives ideas of what to do with your assets. While I believe CASH IS KING may not be correct and the dollar still has room to weaken, its at least an idea.

    WHAT WOULD YOU GUYS DO WITH YOUR MONEY MOVING FORWARD?

    Gold? CD's? What?

    And you CAN short the housing market by selling calls or buying put options contract on the CME new's housing index of 10 markets!!

    Rather than criticise everyone's comment, why dont we try to provide our own thoughts on how best to invest in coming years. Personally, Im happy as hell I sold my condo and closed a month ago. Now what do I do with the cash?

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  91. urbandigs asked:
    "Now what do I do with the cash?"

    Buy yourself another home to live in with that money and stop looking at your housing as a "get rich quick" scheme. Housing is an expense ... Period. You want to minimize that before even considering investing or speculating. And the clearest and easiest way to minimize that expense is to lock it in to be paid back tomorrow (and many tomorrows afterwards) in today's dollars. There will be plenty of time to invest and/or speculate once you have a defined and secure housing expense. By selling your home to take out its profit without reinvesting it in another home, you've confused investing with housing expense. Each has its own set of strategies and end goals. Housing expense largest end goal is to minimize and definitize what that expense will be in to the longterm. Investment's largest end goal is to draw out the largest profit over time. Speculating's end goal is like Investment's except that there one tries to draw out the largest profit over a short time. Hi gains possible here, but at correspondingly high risks. It is the 3rd stratgy, speculating, that you have effectively pursued by pulling your cash out of your housing in anticipation of being able to "time the market" and make a shortterm gain. However, concurrent with that, you have lost sight of the major end goal for housing which, again, is to minimize and definitize longterm housing expenses for the longterm. Rating each of these independently, you have done a poor job ensuring that your housing costs remain affordable and predictable into the future. You will most likely do an equally poor job in your speculating as it is highly unlikely that prices will ever drop at the same rate that they increased over the last 5 years. And you will not be able to know the bottom until it is long past and we are probably back at the level where we were when you sold your condo. Rating your actions overall, I would have to say nothing less than a disaster waiting to happen. You have exposed your housing needs by litterally gambling with your housing equity. You've been taking the Realtors literally when they say in their ads "Buying a home is the best investment!" ... Well, it's not ... It's an expense and not an investment ... and shouldn't be treated as one. I predict there will be widespread doom and gloom for the many bubbleheads who have taken their housing money out of their houses ... and are now holding it out to literally gamble with. I predict we will see this doom and gloom for bubbleheads in the next 12 to 18 months as rents and interest rates skyrocket and housing prices recover to where they were in mid-2005.

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  92. OK. If interest rates skyrocket and housing prices recover to where they wre in mid-2005, then who is going to buy? It's not as if wages are rising accordingly.

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  93. Some people will always buy. If prices are too low, only those forced to sell will sell. I was in the market to buy when rates were 18% (anyone remember wrap-around loans?).

    Oh the jealousy! Our parents are only paying 6%! How unfair. Well, life isn't fair. If you truly want a home - you would have one. Quit whining people.

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  94. There are some of us in DC who aren't lawyers and simply can't afford. I would love to buy, but unforunately don't have JD. It's not always about what one wants. There are people who have been priced out. I'm not whining..I don't have the income..end of story.

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  95. My opinion:

    Hysteria should sell her house if profit is > 200K, invest the proceeds, and look for a long-term rental lease (3-5 years). Later, make a low-ball offer on a nice house that is further out. The good deals will show up on the outlying areas first.

    Now is the time to get out of the DC market. Local spending is being cut, and this will start to show up next year.

    Plus, having 200K or more to stash for retirement/child savings is a no-brainer. Just make sure you max out your 401K each year.

    Taking care of your obligations from back-to-front (ie, retirement first) makes for a nice stress-free life.

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  96. anon,

    Kinda hard to retire if your house is not paid for. What with life expectancies these days, it is a no-brainer to OWN your home.

    You'll blow through that retirement dough on rent faster than you might imagine.

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  97. non-JD anon,

    You probably can afford to buy - just not your dream home or dream location.

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  98. I'm young and practical, not looking to buy a dream home at this age..just a home. I'm also not looking at Dupont or Adams Morgan..or places like that. But it is true that even in areas that were once less desirable it has become very expensive. Homes in my price range are fixer uppers that are not livable until you bring in the construction crew. Just a result of being young and not having accumulated the income level of some of the more seasoned people on this blog.

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  99. anon,

    I've lived in several "fixer-upper" properties. There are different definitions of "livable".

    Water and electric are all you truly need. Construction crew and fixer-upper don't belong in the same sentence.

    You can wait for the granite and stainless OR you can get your mop and broom and paintbrush and get to it.

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  100. VA Investor...I wasn't being clear enough. I respect your opinion. The places need new pips..new wiring..not jusre paint and cleaning. I could honestly care less about granite and stainless steel..and I think some of the builders may be missing a niche market by not just building some places with regular countertops and appliances

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  101. Pipes and wiring can wait until you can afford it. Tons of old houses don't meet current code. I've lived in a few.

    I bet the water pressure is bad because the old pipes are rusted and corroded. Big deal. Not enough electric outlets and a fuse box? Completely livable.

    I've made more fixing-up houses than you could guess. During our younger days we lived there and worked on the house nights and weekends. It is called sacrifice.

    And neither of us is a "tradesman". I had countertops from the 60's. Avacodo and coppertone appliances, no AC, etc. etc.

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  102. ok..I respect your opinion and thank you for your candidness. You're living proof it can be done.

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  103. Hey Sarah in DC,

    Wondering about all the hostility?

    http://tinyurl.com/zpbqt (thanks to patch for the kink)


    Yep, buyers are going to need riot gear.

    http://tinyurl.com/llast

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  104. Lance,

    Interesting thoughts. Thanks. Although I plan on buying a home again, I think I'll wait on the sidelines for 1-2 years and look for value. Its not that I'll never buy a home again, as I fully intend to, but I would like some alternative investment ideas (not speculative or high risk) for my money in the meantime.

    Getting a secure 5.7% 1YR CD is absolutely fine by me as I wouldnt expect the housing market to appreciate 5.7% in 2006 and again in 2007. Rather, a depreciation of 5% per year looks much more likely as we all know these economic times are very uncertain. If a recession is looming and the fed cuts, the housing market wont boom immediately as who will be buying at top dollar during a recession?

    So, assuming a plan to buy again in 2 years (I understand your point in your last post), what alternative conservative investment options are there? Again, Im happy with CD rates but like to hear other opinions as well.

    Housing is NOT going anywhere and I'll be ready to put the money to work when a rosier picture emerges or the fed is close to ending a rate easing cycle.

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  105. urbandigs asked:
    "what alternative conservative investment options are there?"

    honestly, I don't know. That is probably a better question for Va_Investor. As I've said from the start, my focus on this blog is that as a homeowner and what it takes to get a roof over one's head which I view as a priority BEFORE "putting money away". I DO put money away myself in a number of ways, but I'm not here to give advice to you or anyone else as to how to put away your/their money. Va_Investor is on here as an investor, and a number of bubbleheads are apparently here both in the role of wannabe homeowner AND investor (like I said earlier, they have fallen for the realtor trap that "a home is your best investment" and apparently unable to distinguish between getting a roof over your head at an affordable and predictable cost, and making a killing in the market.)

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  106. I just wanted to thank NOVA, dc_too, Sarah, robert and homesick for their kind words and advise.
    I am getting my resume ready and going after a Fed job. Someone asked what I do for a living - I do in-house payroll - the skills I've acquired over the last 4 years are certainly transferable. We did not get very far discussing our situation this weekend, other than the fact that we both agree we need to save as much money as we can before this winter.
    Thanks again!

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  107. Christophe in ParisJuly 31, 2006 4:48 PM

    Wow, heeding anonymous career and financial advice from this (or any) blog is an indicator of serious trouble.

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