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 dramatic slowdown in GDP growth is noted. The US economy will be in a recession in the coming 12 months.
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.
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:
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Slower then expected
ReplyDeletebut 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.
dollar fell about 80 cents against the euro after the gdp report.
ReplyDelete2-3% 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.
ReplyDeleteTrue. But given the huge debts that keep piling on 2 - 3% is dissapointing.
ReplyDeleteNo, it isn't. The debts are disappointing.
ReplyDeleteWith 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...
ReplyDeleteOh, 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.
ReplyDeleteIts 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.
ReplyDeleteNOVA Fence Sitter
This comment has been removed by a blog administrator.
ReplyDeleteOK, let's try this again...
ReplyDelete------------------------
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...
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.
ReplyDeleteNOVA Fence Sitter
Could we define "soon"?
ReplyDelete(See the title of this post if you don't know what I'm referring to)
"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.
ReplyDeleteNOVA Fence Sitter
"
Idiot.
soon = 2007
ReplyDeleteNOVA Fence Sitter
Welcome to the Bush stagflation!
ReplyDelete-- sglover
"The US economy will be in a recession in the coming 12 months."
ReplyDeleteWow I feel real bad for Exxon, they won't have record quarterly profits anymore.
it sounds like we have some real economist here today. Tell us the solution.
ReplyDeleteSarah_in_DC -- Thanks for that Washington Times piece. Interesting, especially this statement, which I'd like to have confirmed (by something other than Monster):
ReplyDeleteJob 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
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...
ReplyDelete"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."
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...
ReplyDeleteMy $0.02
Got a selected transcript of the DR Horton homebuilder company's last conference call, pay special attention to the last line:
ReplyDeleteFrom 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.
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.
ReplyDeleteI 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.
Noticed as in the Post business section that Amazon is trying new stuff because their sales are down 60%.
ReplyDeleteI think there have been subtle indicators the last few months that the economy is slowing.
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,
ReplyDeleteNOVA Fence Sitter
sarah in dc - Where was your experince with real estate busts...dc in the late 80s or elsewhere?
ReplyDeleteNOVA Fence Sitter
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
ReplyDeleteand the cycle will start again.
Nice fictional post, Hysteria
ReplyDeleteYou guys are a cheery bunch.
ReplyDeleteExactly - 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.
ReplyDeleteFound this link from NAHB, which details the year-to-date
ReplyDeletechange in building permits for all MSA's.
The Disctrict : -35%
Greater DC : -26%
It's an Excel File.
hysteria,
ReplyDeleteSell 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.
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.
ReplyDeleteNOVA Fence Sitter
hysteria,
ReplyDeleteI 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!
You should have become a lawyer. $135k to start plus a modest bonus is the going rate in DC.
ReplyDeleteWow, 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....
ReplyDelete"I'm not looking to gamble, or be greedy"
ReplyDeleteThat'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.
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.
ReplyDeleteI'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.
"None of the things you are worried about have happened yet"
ReplyDeleteYou buy insurance when you buy the house.
Not after the fire has already started.
Would you all keep your money in 401's if a recession/depression is coming?
ReplyDeletewhere is lance today?
ReplyDeleteIs anybody else missing him?
It is an amusingly astute observation. Not a joke.
ReplyDeleteSo now Sarah in Clarksburg is being condencending? In fact, she's conducting herself in a rather insulting manner, don't you think?
ReplyDeleteI thought you were above that, Sarah in Clarksburg? You stated as much just a short while ago.
Anonymous said...
ReplyDelete“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.
"That’s assuming it will sell. Right now, it’s one house in a sea of thousands"
ReplyDeleteBecause 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.
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.
ReplyDeleteAnonymous said...
ReplyDelete"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.
Hysteria
ReplyDeleteYou 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
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.
ReplyDeleteSarah,
ReplyDeleteBack 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.
sarah,
ReplyDeleteLeft 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.
Sarah,
ReplyDeleteHow long have you been renting in anticipation of the great decline?
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.
ReplyDeletePerhaps there is enough time left for you to discover that for yourself.
Is it $1 longneck night in your nieghborhood?
Are you physically healthy, Sarah? Is the diet OK? Is there any excess weight in the picture when you look in the mirror?
ReplyDeleteNot 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.
sarah,
ReplyDeletewhat is with all the alias's. Are you a fake?
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!
ReplyDeletewhat i learned from this blog:
ReplyDeleteworried 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.!!
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!
ReplyDeleteSarah in DC said...
ReplyDelete“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.
it sounds like we have some real economist here today. Tell us the solution
ReplyDeleteThere 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.
"benchmarked the price of beer with RE growth. "
ReplyDeleteYou 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.
Jim a,
ReplyDeleteAre you implying that all/most homeowners are spending future earnings?
va_investor said...
ReplyDelete"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!"
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.
ReplyDeleteWHAT 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?
urbandigs asked:
ReplyDelete"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.
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.
ReplyDeleteSome 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?).
ReplyDeleteOh 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.
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.
ReplyDeleteMy opinion:
ReplyDeleteHysteria 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.
anon,
ReplyDeleteKinda 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.
non-JD anon,
ReplyDeleteYou probably can afford to buy - just not your dream home or dream location.
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.
ReplyDeleteanon,
ReplyDeleteI'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.
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
ReplyDeletePipes and wiring can wait until you can afford it. Tons of old houses don't meet current code. I've lived in a few.
ReplyDeleteI 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.
ok..I respect your opinion and thank you for your candidness. You're living proof it can be done.
ReplyDeleteHey Sarah in DC,
ReplyDeleteWondering 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
Lance,
ReplyDeleteInteresting 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.
urbandigs asked:
ReplyDelete"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.)
Wow, heeding anonymous career and financial advice from this (or any) blog is an indicator of serious trouble.
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