The media regulary turns to him for real estate quotes. He is very influential. David Lereah needs to be discredited by the mainstream media. Mr. Lereah tells half truths and manipulates facts and figures. He cannot be trusted as he is a paid shill. David Lereah is the new 'Baghdad Bob.'"With more sellers competing for the pool of buyers, the pressure on home prices has evaporated in most metro areas. After a full year of double-digit gains in the national median price, the timing is right for a cooling in the rate of growth -- we are presently experiencing a soft landing in the housing sector."
Monday, August 21, 2006
David Lereah Continues To Spout 'Soft Landing' BS
David Lereah, NAR's chief economist, said a market transition is apparent.
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David Lereah is like 'Baghdad Bob.'
ReplyDeleteHey, don't insult Baghdad Bob, he was hilarious! I want that man to sell me Pepsi. :)
What is Lereah going to say when we see our first double didget drop?
Neil
I'd still like to get all of your take on what constitute's a hard landing versus a soft landing, in broad economic terms (i.e. a 10% price decline, how many years, etc.). This soft landing seems to have a soft definition. I'll start:
ReplyDeletea soft landing would be five years of zero nominal appreciation (yet negative against inflation), give or take a percent or two either way.
David Lereah is a paid shill, nobody should expect anything from him (in his professional capacity) other than to spout the interests of his employers, folks who make comissions from the buying andselling of homes. He is no more or less unethical than somebody selling securities, cars, ligtbulbs,etc.
ReplyDeleteThe issue is that he is presented in teh MSM as something else, an expert with a neutral sounding title "NAR Chief Economist".
Perhaps we should be asking the MSM to always add the following to his title when he is introduced in articles: "....said David Lereah, NAR Chief Economist, whose association represents the interests of real estate agents."
This disclosure would probably help a lot of people understand the his bias and discount his views accordingly.
condomania,
ReplyDeleteFor the real estate market: A hard landing is my book is real dollar price declines of greater then 20% in a 3 year time period (it would most likely start from peak real dollar price) for a selected mertopolitan area.
I think many condo's have already dropped 10-20%.
ReplyDeleteva investor,
ReplyDeleteI'm pretty confident in that, especailly in those sub-prime markets in the DC area (i.e. Logan) -- we've seen that drop.
David, I wouldn't argue with that as a hard landing. I think a good criteria is also the 3-5 year range, as this is the typical minimum most consider one should hold onto real estate. Perhaps that 20% real decline could be a good barrier, as that would encompase most people's down payment cushion.
Made up numbers:
ReplyDeleteSoft landing: 0-5% price increase over 3-5 years
Crash: > 30% price decrease over 3-5 years
Various degrees of hard landings in between
What I find interesting is that in any bubble there are alwats a cadre of supposedly intelligent, well-educated, highly-paid, highly-respected people all saying there is no bubble. E.g. Mary Meeker et. al. in the dot com bubble. Or that "permanently high plateau" guy before the 1929 stock market crash.
ReplyDeleteDavid Lereah fits into the same old speculative bubble pattern precisely... up to the denial part all the way to the end.
Lereah is quite deceiftful. He's spinning the numbers and not reporting the facts. Even HE can't be blind to the inevitability of real estate declines.
ReplyDeleteBut he only does this to the tune of his own job security. Give the man some credit. If he came out and said that the housing market was doomed, how long do you think he would be employed? So, of course he's going to say that the housing market is still solid and in for a soft landing.
Those who listen to analysts and economists who work directly for the housing idustry when it comes to its own business future are a snake oil saleman's dream come true.
ReplyDeleteNo industry/company would state that the general public is not wise for doing business with them. It would be the same thing as Sears taking out an ad in the paper which states that their prices are too high and the quality of their products too low.
Lereah might be a idiot, but he's a idiot with a job. Discredit him in the media and people will stop listening. Just remember though that he and Lance will always have a positive spin on real estate even during the toughest of times. Why not? It's in their best interest.
It's just smart to know that these men aren't worried about you and I, they are worried about themselves. It's self-interest that drives them.
Did anyone see the Sydney Morning Herald piece from yesterday? A house that last sold in 2003, the peak of Australia's boom, went in a foreclosure auction on saturday for 42% less than the peak sales price.
ReplyDeleteThat is a hard landing! could never happen here. where's lance?
David Leara is not a bad person.
ReplyDeleteHe suffers from a well-known malady called “incentive induced bias”. Most people are susceptible to it. He does believe what he says and he selectively quotes the facts that support his beliefs. This is no difference then a politician representing his party-line. However, as a professional representing the RE industry he has a responsibility to represent the facts correctly and make sure that he does not mislead the public. It that respect, he fails miserably.
GK
I just read an article about Sydney Australia whose bubble burst in 2003. There was a house that went for 260k in Aussy dollars and it had sold for 450k in 2003. That is the sort of reversion to the mean that the Merril Lynch economist is talking about and I believe that will happen here and that we will see a hard landing.
ReplyDeleteGary,
ReplyDeleteI wish we had a second source for the Aussy bust...that one story is going around the bubble blogs but there is no confirmation that this is typical in Sydney.
NOVA Fence Sitter
gary anderson,
ReplyDeleteA foreclosure auction is not a valid "comp". Due to the particular risks of foreclosures, one must expect a sales price 15-20% below "market" (or more).
So, in essence, 42% equals 25% max. Unless, of course, you get some neophytes out there that don't know what they are doing. They may vastly overpay. FMV won't change, however.
So if the real number is 25% that's over $100K looped off the median house in our area. holy smokes.
ReplyDeleteanon said:
ReplyDelete"Just remember though that he and Lance will always have a positive spin on real estate even during the toughest of times. Why not? It's in their best interest."
And how is it in my best interests? Like I've said many times, I haven't bought for the short term. Over the course of 3 - 5 years max, downcycles always correct themselves. So, I like Va_Investor am not worried. The only people who should be worried about short term price fluctuations are flippers ... and those who otherwise can't afford to buy what they really want to buy ... i.e., speculators trying to time the market to their advantage at the expense of people buying for the longterm.
Lance, I thought you were a realtor? Is that not correct? If so, it's obviously in your best interest to persuade to buy. Otherwise you'd have no business.
ReplyDeleteAnd, if you're not a realtor, as I suspect you are, it's still in your best interest to persuade people to buy as the weight of the market is depressing prices and making the unrealized equity in your home disappear.
But, let's just look at your other argument about ignoring the price of a new home if you're not looking for short-term gain. What if I'm not sure how long I plan to live in the home? 1, 2, 3, or 10 years. Should I ignore that the home might not be worth what I paid for it in 10 years? What if I want a larger home in 10 years and I can't unload the home that I've owned for that long and can't rent it for my mortgage? Then what? Stretch myself again?
I'm not speculating that home prices will be flat over the next 10 years, but I surely wouldn't advocate that now is a good time to buy even if I'm making a long-term investment. But, why should I try race the negative appreciation in a home with a mortgage where I'm paying little into equity for the first few years and that has front loaded interest payments, which is what it seems like I'd be doing if I jumped into this market?
telling somebody that just leveraged 600K on a pruchase that it's not an invesment should be criminal.
ReplyDeleteBTW unless you KNOW you will be in the home 10+ years i would not recomend to anybody to buy realestate.
RE can and does stay devalued for that long or more.
BEEN THERE SEEN THAT.
EOT.
anon asked:
ReplyDelete"But, why should I try race the negative appreciation in a home with a mortgage where I'm paying little into equity for the first few years and that has front loaded interest payments, which is what it seems like I'd be doing if I jumped into this market?"
Because in my humble opinion, waiting for the price on the house of your dreams to drop by 50% to 70% as most bubbleheads are hoping for is really unrealistic. More likely, that house may drop by 15% (or 20% if it is a condo) ... maybe more if it is in some outlying area (but I am really generally only talking about the District of Columbia.) And the drop will be temporary ... Like placing your bets on a table at Vegas, you won't really know till afterwards when the price hit bottom. That fact combined with the almost certainty of higher interest rates (because of inflation) means that you can probably do much better just by being out there now and (1) knowing the market of where and what you want to buy (2) doing old fashioned hard bargaining. Looked at another way, the "market" always reflects all known info. So, if it were a certainty that prices were going to fall by 50%, they already would have. The reason they haven't is that it is not certain. Ditto if they were going to fall by even 15%. Personally, I'd rather be in control of the situation and go out there and find/bargain for that 15% bargain rather than wait around for it to happen on its own ... Especially since by waiting I might also find that if I have to borrow to buy that house, that I will be paying higher interest rates ... that may wipe out most if not all of that already iffy 15% savings. Just my thoughts ... Lastly, and I realise that this isn't quantifiable, but if you are looking to buy a home for the longterm, what real difference does saving 10% or 15% really make? Assuming interest rates don't go up, you might be saving $50 a month. Would you worry so much if your car payment (a true depreciable assest) where $50 over or under what it "might" otherwise be if there is a bubble out there ready to bust? And no, I am not a real estate professional. I am just a homeowner. And I am personally disturbed how so many potential homeowners have gotten so wrapped up in the "your home is your best investment" that they fail to see the forest for the trees ... and are putting all their hopes in a very tenuous event that may or may not occur. And most likely won't save you more than you can save yourself by just plain hard work in your house search.
PS I am NOT a real estate professional or even vaguely connected with that industry other than that I have a personal interest in it as a homeowner who has successfully navigated its nuances over the years ... and who can't help but feel some moral outrage at those who encourgage potential homeowners to put their faith in an event that may or may not occur instead of in themselves where it belongs ... even if done with good intentions.
ReplyDeleteBut Lance, if I were to buy a home, what would I do if my washing machine broke?
ReplyDeleteP.S. People like you are the reason my Grandma Gertie still cannot retire.
who cares what lance says. prices are dropping in south florida and it is just beginning. the insurance rates this year have doubled and tripled since hurricane wilma. alot people where dropped all together. there is so much inventory and then south florida has one of the highest house start up rates in tne county. there is blood on the streets and more to come!
ReplyDelete"there is blood on the streets and more to come!"
ReplyDeleteTypical ridiculous bubblehead statement.
Lance said...
ReplyDeleteand who can't help but feel some moral outrage at those who encourgage potential homeowners to put their faith in an event that may or may not occur instead of in themselves where it belongs ... even if done with good intentions.
Yet you feel compelled to encourage homeownership in unstable market? Isn't this also morally inexcusable then?
This blog was created to spread the word about the current state of the market and not created to encourage people to sit on the sidelines. I think David is compelled by the truth and undercovering it.
Think the Halls of Justice and the Super Friends... and you're getting close to what this blog represents :).
So you're saying that you sit around in your rental group house wearing tights and capes; discussing how you are going to save the populace from the evil Housing Industrial Complex (tm)?
ReplyDeleteAug. has been the worst month yet, yeah, soft landing my butt.
ReplyDeleteA hard landing has arrived. Deal and move on.
Shut up Daveyboy.
ReplyDeleteNoone believes your BS anymore.
“The National Association of Realtors is expected to report existing-home sales Wednesday morning, and economists will be watching median prices to see if they fall from the previous year. That would be the first year-over-year decline in over a decade and would damage buyer sentiment, according to Banc of America Securities analyst Daniel Oppenheim
ReplyDeleteLance, and all the other just buy now crowd.
ReplyDeletelike i've said, I HAVE SEEN REALESTATE DO THIS BEFORE.
there is NO QUESTION whether prices will be lower next year.
unless you are willing to be upside down to the tune of 40% DO NOT BUY NOW.
if on the other hand you plan on living in the house for 20 years, you don't mind paying a 50% premium, and you don't mind if the forclosure next door sells for half off then buy.
but be warned you have no idea what kind of neighborhood you will be living in when the dust settles.
me + bought the RE bullshit last time = upside down for 9 years.
"So you're saying that you sit around in your rental group house wearing tights and capes; discussing how you are going to save the populace from the evil Housing Industrial Complex (tm)?"
ReplyDeleteMost nights. :-) LOL! Then we say quick to the blogmobile!
As a homeowner, I must admit the price of houses are at ridiculous levels.
ReplyDeleteDo not Trust or listen to Realtors.
Ask them to put it in writing when They spew at BS!
Some Lenders Cut Riskier Mortgages
ReplyDeleteMonday August 21, 3:27 pm ET
By Lingling Wei, Dow Jones Newswires
Some Lenders Cut Riskier Mortgages Due to Wall Street Pressure
NEW YORK (AP) -- Some mortgage lenders are feeling the heat from Wall Street to tighten their lending standards and cut their exposure to riskier loans.
The force at work is the increasing demand from investment banks for lenders to buy back the loans due to borrowers' failure to make their first few payments on those loans. Such "early payment defaults" so far have largely been limited to nonprime mortgages made to borrowers who pay higher rates than those qualifying for standard loans due to their weak credit or inadequate documentation.
ADVERTISEMENT
Buybacks of defaulted loans demanded by whole-loan acquirers, particularly Wall Street firms, have in recent quarters led some lenders to incur losses and set aside more money in their reserve funds for potential loan repurchases in the future. An increase in those reserves then cut into their profits. To shield themselves from future buybacks, some lenders including NetBank Inc. and Fremont General Corp. have backed away from offering loans that have seen greater delinquencies, such as those featuring higher loan amount relative to the property value and lower credit scores
"and who can't help but feel some moral outrage at those who encourgage potential homeowners to put their faith in an event that may or may not occur"
ReplyDeleteHa. What about all the people telling buyers that real estate always goes up lance? Bet you don't feel any "moral outrage" at those folks.
And why do you assume all bubbleheads want prices to drop 50-70%? That's simply not true - I'm a bubblehead, I don't want that. 20-30% would more than make me happy - I'm a buyer who can afford a regular mortgage with a downpayment (I know, it's shocking, some of us have those nowadays) but I just don't see any value in the homes currently for sale at these prices.
Explain this perma-bulls.
ReplyDeletehttp://mysite.verizon.net
/vzeqrguz/housingbubble/
"More likely, that house may drop by 15% (or 20% if it is a condo) ... maybe more if it is in some outlying area (but I am really generally only talking about the District of Columbia.)"
ReplyDeleteLance: Just keep moving those fenceposts and you'll always be right. It's simple, really.
Inventory down again to May levels:
ReplyDeletehttp://www.benengebreth.org/housingtracker/location/DC/Washington/
http://mysite.verizon.net/vzeqrguz/housingbubble/los_angeles.html
ReplyDeleteif we take that graph and use HISTORY as a guide that 550K house WILL come down to about 350K.
do you really wanna be upside down to the tune of 200K???
BTW there really is a difference this time and i think it helped this current run up go on longer than it should have and that is the internet, now the good news can spread at the speed of light and the bad news even faster.
and lets not forget that by the time the bottom hits there will be 10 million more 60 year olds with 2nd and 3rd houses that they bought for 100K years ago that THEY WILL NEED TO UNLOAD FOR RETIREMENT.
RE is gonna get ugly and i bet we will all be SHOCKED at how low it will gO, even the housing bulls are shocked at how high it's gone so........
Is there any data somewhere on how many properties actually sold? Regular inventory numbers do not really tell the whole story. Invetory can drop when people just take their properties off the market or shift it over to a rental because they can't get the selling price they were looking for :).
ReplyDelete"Lance: Just keep moving those fenceposts and you'll always be right. It's simple, really."
ReplyDeleteVHB, just stay in Canada and it will be appreciated. It's simple, really.
Turn a profit on rising rents
ReplyDeleteThe gap between home and apartment-rental costs is going to narrow, which means rents will keep rising. Apartment REITs let you profit without the hassle of being a landlord.
According to a recent report published by RealFacts, a research outfit that focuses on the apartment industry, occupancy rates and rents are rising all across the United State. Nationwide, rents are up 4% over the past year and occupancy levels are running at 94%. In San Jose, Calif., where the action is the hottest, apartment rents rose 9% on average.
http://articles.moneycentral.msn.com/Investing/RealEstate/TurnAProfitOnRisingRents.aspx
9% average rental increase in San Jose. In real dollars, that is what, closer to 13%?
ReplyDeleteRents cannot increase faster than inflation because: It doesn't fit into the bubblehead religion.
ReplyDeleteI think the inventory numbers are starting to get skewed. My usual weekend bike rides take me by many for sale homes. These normally had "longandfoster", "remax", etc. Many have converted to "for sale by owner signs". I did see a few under contract signs, and a few houses that were under contract now FSBO. It really makes you wonder what is going on out there. Maybe the RE agents are telling their customers to drop their prices and the homeowners are refusing and going the FSBO route. One thing for sure, every week that goes by I see more signs and things are getting a little more confusing.
ReplyDeletequestions for lance.
If you knew that the value of your home purchase was going to drop 5% in a year would you have bought or would you have waited. Now, I realize this is hypothetical and noe one can tell the future..blah blah. Just curious about your buy at all cost mentallity.
final question. You have stated quite forcefully that you bought for a long term investment. However, you also said you took a IO loan. An IO loan is the completely wrong tool to use for a long term investment, as any financial advisor would tell you unless of course you bought well above your means and are waiting for your salary to catch up to refi. My main thought here is I dont think you really bought for a long term, which would better explain your interest in the blog. For me, if I owned a house for the long term as you state, I would not reading this blog trying to get info about re. So, which is it really, long term or quick buck?
the real bob
Actually, in all fairness to Lance, he combined an IO loan with a very large downpayment, which isn't a bad way to go.
ReplyDeleteLance will no more lose his home than us renters will be evicted.
New rule: Anybody who says "You'll be foreclosed on" or "you'll be evicted" or "you're a renter because you're poor" automatically loses.
ReplyDeleteI didnt say he would lose his home or even imply it. My point is why wouldnt you take a 30 yr fixed when:
ReplyDelete1. you are in it for the long term
2. interests rates are at historically low levels and are starting to rise.
the real bob
"Apartment REITs let you profit without the hassle of being a landlord."
ReplyDeleteHell, buy enough REITs in your area, and you can rent AND guarantee yourself the same rent forever without having to buy a house. I.e., when rent goes up, your REIT makes more money, and if rent goes down or flattens, your REIT loses money.
And right now, REITs are a far better deal than buying a house in the DC area.
http://njrereport.com/yoy-july06-2.png
ReplyDeleteSpin away starving realtors.
Commish checks crashing.
Oh well. A good atttitude adjustment is in order anyway.
BOOOOOOOOOYAAAAAAAAA
Bob
anon asked:
ReplyDelete"questions for lance.
If you knew that the value of your home purchase was going to drop 5% in a year would you have bought or would you have waited. Now, I realize this is hypothetical and noe one can tell the future..blah blah. Just curious about your buy at all cost mentallity."
anon, first off no one "knows" ... which is at the basis of my argument that you should "weigh" what may happen and not take what you read on BubbleMeter as God's truth. secondly, IF after looking after getting a feel for things I really did feel that prices would probably drop 5% and I really did feel that interest rates wouldn't rise enough to make me lose that 5% "gain", then guess what? I'd still buy IF I had found what I'd wanted at a price I could afford. When all is said and done, I'm not going to let such a small "possible" savings determine where I live since over the longrun you are talking dollars. It's like saying I think they're going to open a Trader Joes in my neighborhood so rather than overpay at Whole Foods, I'm not going to through any parties until Trader Joes opens. Sorry, I'm not putting my life on hold. I'd rather make do with a smaller house or whatever than to hold out for something that may never come. And we get back to "how do you even know for sure that prices will drop 5% next year? ... and how do you know that that house that you like now will still be on the market next year ... but for 5% less? You don't that's the problem. Now, if you really can't afford in this market, then I can understand waiting... But that is not a choice on your part.
"http://njrereport.com/yoy-july06-2.png"
ReplyDeleteHere in the Washington, DC section of the Great State of New Jersey, we tend to think of ourselves as being somewhat removed from what happens in Essex county, NJ.
bob, long term and we've been over this before ... i already came in with 25% down ... the property has appreciate to where i now have 40 - 45% equity (per recent sales of neighboring houses) ... i don't need to put more money into the house ... i rather put buy my employer's stock at a discount ... and having changed jobs recently, i am already earning the differential i will have to pay some 9 yrs from now when it starts amortizing ... yes, who knows what could happen between then and now, but in the meantime, i am safe and sound come hell or highwater ... my 5% interest rate will stay irrestpective of what happens in the marketplace ... and had i waited till next year, i would have missed out on this wonderful house .... not all of us let it all come down to a matter of dollars and cents ... like i've said, my cost objectives for a home are (1) affordable now and (2) locking in my costs so that it is predictable into the future ... i'd rather not gamble as the bubbleheads are doing ... IF they are doing so by choice ... again, if they are holding out because they truly can't afford ANYTHING now, then it isn't a choice, is it ... and why are THEY reading this blog?
ReplyDeleteBob, You are assuming that interest only loans ALL have variable rates (ARMs) ... they don't ... mine is fixed at 5% for 30 years (I negotiated that rate with the seller when going rates were closer to 6%) ... at year 10, it goes into a 20 yr amortization schedule ... at that point I decide if I want to refi or not based on going rates AND based on my objectives then ... 10 yrs is a long ways off (less than 9 yrs left now but still a long ways off).
ReplyDeleteAn IO loan is the absolute riskiest loan you can take. You didnt not lock your costs to a predictable value, if interests rates go up to 10% and you have to refi, you will at some time, your costs went up a ton.
ReplyDeleteIts funny how the defense of a housing head is people cant afford to buy, well me and my spouse make a tad over 240k a year, have about a 100k cash/cds not counting our 401k. We could buy anything we want. I think many people on this blog are probably in a similar financial situation. My thing is I would rather wait and spend 600k and get in a nice home than spend 600k on a home in the ghetto.
your whole post above doesnt really say why someone, who claims to be risk averse as you do, took an IO loan especially when they claim to have put 20% down.
the real bob
bob, your wife makes 225k/year selling that stanky hoochie coochie???
ReplyDeleteI suppose a lot on the definition of "hard landing". If there's no widespread rioting, or other signs of unrest such as overturned burning cars or the police having to shoot people to restore order, there really isn't much of a problem, just some people going bankrupt and maybe some realtors having to learn to like the flavor of pet food. No riots = soft landing. Some people are giving David Lereah a hard time, but what's he supposed to say? "Prices of homes are likely to decline, either a lot in a bad scenario, or a bit in a good scenario. It's probably a good idea to hold off buying until a clear bottom is in" Saying such things isn't in the best interest of the realtors, so he doesn't say it. What's gonna happen is gonna happen regardless of how much bubble talk or shilling for realtors goes on. Lots of people have tapped out their equity through HELOCs and when the money runs out, its gonna be kind of ugly, if its not already.
ReplyDeletebob needs to take a basic personal finance course before he even thinks about buying a home.
ReplyDeleteJeesh. Brain dead.
Lance is willing to take some interest-rate exposure in ten years to do some other things now with the money. That's not unreasonable. I think coming in with a large downpayment and going interest-only is reasonable, as long as you can live with the risk of a simultaneous higher house payment and lost equity if interest rates rise. From a lender's point of view, somebody with 25% down has put down a lot of equity, so it's not a bad risk from the lender's point of view, either.
ReplyDeleteI don't believe, however, that most I/O borrowers did what Lance did. 70% of people with option arms are paying the bare minimums, meaning they're going into negative amortization.
Bob is right about I/O loans.
ReplyDeleteMy guess? Lance re-fis before his 9 years are up. The press has just started reporting on the pain of the re-sets now. In 5 years, having an adjustable rate mortgage (ARM) one will be socially embarrasing.
And the real bob is correct about a lot of the bubbleheads on this blog - waiting to buy is a matter of choice. Many banks would love to give us a loan.
I think this "HELOC" and house "ATM" stuff is mostly "bubbletalk".
ReplyDeletePlasma TV's, escalades etc. Stupid people do stupid things; but the bubbleheads are over the top with this theme.
"I think this "HELOC" and house "ATM" stuff is mostly "bubbletalk". Plasma TV's, escalades etc. Stupid people do stupid things; but the bubbleheads are over the top with this theme."
ReplyDeleteWell, if you mean that most homeowners haven't behaved this stupidly, I agree. But it doesn't take a lot of homeowner stupidity to have big implications for housing markets.
"And the real bob is correct about a lot of the bubbleheads on this blog - waiting to buy is a matter of choice. Many banks would love to give us a loan. "
ReplyDeleteChoose poverty! Be like dc_too! Rent a house in a slum and lecture others on finances!
I'm the anonymous poster from above. I still can't get over how DC_Too beat me in the debate in front of everyone and how I melted down and turned into a stalker. I'm getting ready to lash out with insults once again because I feel so small and pathetic. Maybe I'll post in somebody else's name.
ReplyDeleteLANCE IS NOT TAKING ANY INTEREST RATE EXPOSURE. HIS RATE OF 5% IS FIXED FOR 30 YEARS!!!!!!!!!!!!
ReplyDeleteIs that clear enough.
Relax, Investor.
ReplyDeleteI have little patience for stupidity. sorry.
ReplyDelete"va_investor said...
ReplyDeletebob needs to take a basic personal finance course before he even thinks about buying a home.
Jeesh. Brain dead. "
Well, I did hold you to a higher standard but obviously you are the same as all the rest, resulting to insults. Um, there is not doubt that I know every bit as much about finance as you. If you want we can swap educational backgrounds and portfolios anytime, just not in a blog. He is not 5% fixed for 30 years, its only for 10, but you have completely missed my point, as usual. My point is he claims to be a long term investor who is risk averse. A long term investor who is risk averse would not put down 20% then take an IO. I would have understoud an IO with no money down or fixed with 20%, but as he stated he wanted to buy company stock, or some such thing. Is whole story is starting to sound very unusual unless you take in the fact that he couldnt make the payments on the home he was in without dropping 20% down and taking an IO at the time, in which, my point stands he bought well above his means in the hope his salary would catch up, which is not risk averse its very risky. And, for the vainvestor financial genius, IO loans were traditionally a tool for the super rich which was generally only used for large scale commerical property investor and was never meant as a tool for middle class to buy homes they would never pay off. how about a little civility, dont stoop down to the rest of the houseing heads rhetoric,leave the insults at home.
the real bob
Real Bob, how do you know his interest rate is fixed only for the next ten?
ReplyDeleteLance said:
"mine is fixed at 5% for 30 years (I negotiated that rate with the seller when going rates were closer to 6%) ... at year 10, it goes into a 20 yr amortization schedule .."
It sounds like he's saying he pays off only the interest for 10 years, and then the principal plus interest for the 20 years after that. And it's all at 5%.
I was just assuming, if you he got 5% fixed for 30 years that sounds like a pretty good loan. I just never heard of that type of loan. But regardless, my point was mainly that he was probably taking a loan that he couldnt afford AT THAT TIME. This was a very risky endeavor and goes to credit his take on the housing market, which is take any risk and buy. In my opinion, not always the best choice but it works out for some.
ReplyDeletethe real bob
bob,
ReplyDeleteI am well aware of the historical use of I/O loans. Wealthy, financially savy individuals have been using them for years.
Lance's loan, as I understand it, is 5% fixed for thirty years. The first ten years are interest only, then it converts to amortize over the remaining 20 years.
He has already stated that he can easily afford the amortized loan. He prefers, at present, to invest the additional money (ie principal) in other assets. This is what many financially sophisticated borrowers do.
I am not addressing your other points, just your apparent inability to understand a loan that has been explained ad nausium.
What David Lereah is doing is not getting ahead of himself like most of you people do. He's looking at the statistics he receives on a daily basis and makes an informed conclusion based on what he sees. Now how many of you are doing that?
ReplyDeleteFor some reason, most of you think you know more than the professional does. It's OK to point the finger and never at yourself. How many of you actually have spoken with a local real estate professional. Any of you have spoken with homesellers? How about with the local Board of Realtors.
Another words, your full of shit.
Sincerely,
A considered real estate agent who is tired of uneducated people making fun of the american dream.
Keith (and Va_Investor) said:
ReplyDelete"It sounds like he's saying he pays off only the interest for 10 years, and then the principal plus interest for the 20 years after that. And it's all at 5%."
yes ... yes ... yes ... and like Va_Investor added, I'm already at a point where covering the differential (i.e., when it starts to amortize at yr 10) is no problem. And what IF something happened and I could no longer afford the house? Well, that's life ... Nothing is ever 100% guaranteed ...
"How many of you actually have spoken with a local real estate professional. Any of you have spoken with homesellers? How about with the local Board of Realtors."
ReplyDeleteI DON'T CARE WHAT THESE GOOD FOR NOTHING TALKING HEADS HAVE TO SAY. THEY SAID IT WAS A GOOD TIME TO BUY LAST YEAR AND IT WAS THE PEAK NOW PRICES ARE GOING DOWN.
SO WHY DO I CARE WHAT THE CRAPPY INDUSTRY INSIDERS SAY?
THIS BLOG IS RATTLING SOME CAGES. KEEP UOP THE GOOD WORK ON THIS BLOG HOLDING THESE TALKING PUMPERS ACCOUNTABLE FOR THEIR BS PROPAGANDA.
What do the starving realtors have to say about this?
ReplyDelete“Standard & Poor’s warned last year that it was observing disturbing numbers of minimum-payment loans being extended to borrowers with sub-par credit profiles. To head off potential problems, the largest mortgage originator in the United States, Countrywide Home Loans, has begun sending out letters to thousands of borrowers who have been making only the minimum payments on the company’s popular PayOption adjustable-rate mortgages.”
“The letters explain that ‘this is an early message to alert you that, based on your current payment trends and potential future interest rate changes, the monthly payment you will be required to pay may increase significantly.’”
A tsunami Tidal wave is heading your way. Commish checks are dryuing up. Fewer transactions lower commish check or the draw check is going negative. OH well housing goes up and it goes DOWN! It's going down now accept it dreamers.
"Do I think it will be worth more in 10 years than it is now? YES."
ReplyDeleteYOU ARE DREAMING IF YOU THINK YOUR HOUSE IS GOING TO BE WORTH MORE IN 10 YEARS.
Lots and lots of Bagholding fools said the same thing in 1988-1989 and you know what many lost their asses or broke even in about 10 years. this irrational housing market makes the last bubble period 1988-1994 look like a babies pimple compared to the bigf one on the @$$ of many soon to be forclosed on exotic loan buyers cuz they had to get in.
it ain;t going to be fun during your so called holding period to know you are down 20-30 or 40% if you HAD TO SELL. You will be LOCKED in. Hopefully you do not have to move for a job or something.
Many realtors are strating to starbve with lower commish checks.
jk1492 said...
ReplyDeleteI bought a house in late July (i.e., 3 weeks ago) for approx $940K. We have a 30 year fixed with 1 point (paid by Seller).
CONGRATULATIONS
YOU ARE A BAGHOLDER NOW.
HAHAHAHAHAHA
Thanks for sharing jk1492. Your point?
ReplyDelete942K x -20% DECLINE = $188,400 DROP IN EQUITY.
ReplyDeletePAINFUL DROP.
YOU WON'T BE BRAGGIN ABOUT YOUR SO CALLED GREAT MOVE AT THIS POINT.
HOW MUCH YOU PUT DOWN BAGHOLDER?
Class war! Class war!
ReplyDeleteYou don't care if it goes down for 3 years?
ReplyDeleteWhat if it goes down for 8 or 10 years?
What if your job changes and you have to sell but the market sez $700k for the house at that point.
I smell wipeout.
It's your choice but don't try to talk other fools into taking on big risk as you are.
You just will not admit that the price of houses based on any measurement you want to use afforability inflation adjusted are at historical record levels.
ReplyDeleteNO IT IS NOT A GOOD TIME TO BUY. ACTUALLY IT IS PROBABLY YHE WORSE CUZ THEY ARE FINALLY DROPPING AFTER SEVERAL YEARS OPF LUNACY.
How much you put down Bagholder?
ReplyDeleteHey, if JK makes at least 200K per year and has a stable job and he's happy, then I see no problem with his choice. He can clearly live with any downside.
ReplyDeleteI'm assuming the house is in a good neighborhood in a good part of DC or an inner suburb. Even if it takes a hit, JK will have paid down a lot of equity, and won't be underwater in 10 years. And he has a nice place in a nice neighborhood.
anon 6:06,
ReplyDeleteI doubt 200 or 300k will wipe him out. Maybe you?
If you need guarantee's, then buy treasury bonds.
jk1492, Don't let them annoy you. Honest and believable individuals don't act the way they are acting. By and large, their childish behavior is due to jealousy. Either the jealousy that comes with not being able to afford the home they think themselves due or the jealousy that comes with not having made good decisions and bought before prices went up. Either way, their motivations are far from honorable. Take the high road and let them swim alone in the gutter in which they apparently feel so comfortable. You're the smart one ... Come hell or highwater, you have that home you wanted to raise your children in. YOU don't have to worry about some landlord sending you an eviction notice for whatever willy nilly reason they feel like. You don't have to worry about explaining to your children why you are living in someone else's house who has ultimate decision making in regards to that house. Just listen to their tone. Can't you feel the jealousy and hatred coming out? I certainly don't envy someone like that! I very much respect someone who says they are waiting it out because they feel prices will fall and what they want will be more affordable. I can't respect someone whose only care is lashing "back" to ease their inconcealable jealousy.
ReplyDeleteAnd Lance resorts to the ad hominem while denouncing the ad hominem. Why don't we all just admit that Lance and the trolls who were insulting Jk are both cut from the same cloth and leave it at that?
ReplyDeleteHey Big guy,
ReplyDeleteva_investor said...
anon 6:06
I am a homeowner who owns 2 houses free and clear. Purchased several in last bubble busting period Big Guy. Took a few Fools to the cleaners back then near the bottom.
DO NOT LSITEN TO A REALTOR OR BUY A HOUSE NOW. IT IS THE MOST EXPENSIVE HOUSING MARKET I HAVE EVER SEEN....EVER!
REMEMBER ALL THE CSCO INVESTORS NUDGING ME WHY DON'T YOU OWN IT?
OF COURSE THESE BLOATED HEADED FOOLS SAID THEY WERE LONG-TERM INVERSTORS ALSO ANSD WERE GOING TO HOLD FOR 20 YEARS. WELL THEY AIN'T HOLDING ANYMORE.
When a sector has been so exploited by flippers speculators and buyers then the party is up. The hangover is here.
Even if I kind of agree with you, typing in all caps is annoying. And insulting from guy because he bought a house doesn't seem necessary.
ReplyDeleteThe point is pimp....that not all homeowners buy into the real estate industries "It's always a great time to buy" This is self-serving BS!
ReplyDeleteI have made a bundle buying houses back in last bubble busting period. so I am not jealous of this FOOL paying $942k for his overpriced McMansion.
BOOOOOOOOOOYAAAAAAAAA
Bob
anon,
ReplyDeleteWho is "Big Guy"? I don't understand your reference.
va_investor said...
ReplyDelete"'there is blood on the streets and more to come!'
Typical ridiculous bubblehead statement."
Unfortunately, I have to agree. When some bubbleheads chose to exaggerate, they make all bubbleheads look ridiculous. When some housingheads chose to exaggerate, they make all housingheads look ridiculous.
" I am not jealous of this FOOL paying $942k for his overpriced McMansion."
ReplyDeleteIf you're not jealous, why are you calling it a McMansion? For all you know, it's a hundred year old stone colonial in close-in Glen Echo.
The tenant underclass is in rare form tonight. Your landlord key in and catch you whacking it again?
ReplyDeleteanonymous said...
ReplyDelete"9% average rental increase in San Jose. In real dollars, that is what, closer to 13%?"
You got your math wrong. To go from nominal to real, you need to subtract the inflation rate. 9% - 4% = 5%. It's still high, though.
When apartments get converted to condos, it pushes up rents because it reduces supply. When people who would have bought choose to rent instead, it pushes up rents because it increases demand.
When rents go up, it increases inflation because rents and "owner-equivalent rents" make up about 1/3 of the CPI. It also reduces price-to-rent ratios (increases cap rates), which is one of several indicators of whether housing is overpriced. Rising rental inflation may make it difficult for the Fed to lower interest rates (or force the Fed to raise them more).
It will be interesting to see if the recent extra-large jump in rents is a onetime occurrance due to the recent condo conversion boom, or whether it continues due to young people being afraid to buy homes in a declining housing market.
I notice alot of crankiness on this blog.
ReplyDeleteMust be a few realtors or FB homeowners about to go under. Is it the Option ARM readjusting next month?
Trying to sell and no bites?
Get used to it fools "bagholders" it ain't going to get any better losers. Come out to playaaaa.
The commish checks are getting smaller starving realtors.
ReplyDeleteA good attitude adjustment is in order. It will be fun to watch it all unfold.
Keep up the chatter FOOLS.
Realtors will be sucking wind holding a tin can looking for spare change in the next few months when the entire housing markets just drops and transaction just plunge.
ReplyDeleteNo transactions = No Commish checks
Booooooooyaaaaaaaaaaa!
Class war, class war! I'm betting on the side with all the money; they can afford bigger guns and more bullets.
ReplyDeleteI wonder how long it would take an F-22 Raptor to destroy an 11 story apartment building?
U talking about all those converted condos no look thru buildings?
ReplyDeleteAll owned by a bunch of FOOLs looking to be the next RE tycoon....only at the wrong time...OH SORRY it's always a great time to buy real estate as long as you don't have to sell in 25 years or can afford the 50% increase in your Option ARM payment next year.
Booooooooooyaaaaaaaaaa!
Someone is drinking alone tonight and seeking company on this thread.... (boyaaa guy, to be specific)
ReplyDeleteLance said...
ReplyDeleteI very much respect someone who says they are waiting it out because they feel prices will fall and what they want will be more affordable.
Exactly! The prices are so absurd these days which has been propped up by the realtors and investors ( even the real estate agent that we went around with boasted she had 3 to 4 properties...and this from the run of the mill realtor!). The investors including the realtors will soon accelerate offloading...bringing down prices hopefully to more affordable levels!
It is over. The boom has ended, now we softly and sweetly drift downward. Obviously some angry NAR types or maybe a distressed realtor, maybe a grumpy builder are coming on here whining about how there is no bubble: guess what friends:
ReplyDeleteThe economy is contracting in August. Let me repeat that again, the economy is contracting in August. Matter of fact, this Quarterly economic growth may be "whispers" negative growth, mainly due to housing becoming a negative growth maker. Who would have thunk it? Mercy mercy and more mercy. Does it hurt that bad to admit the truth? The end of the Housing bubble reminds me of the guitar solo from Skynard's freebird:
la da la da da da da...la da la da da da da da laaaa da.......
Ughhh1!!!!!!
"LANCE IS NOT TAKING ANY INTEREST RATE EXPOSURE. HIS RATE OF 5% IS FIXED FOR 30 YEARS!!!!!!!!!!!!"
ReplyDeleteVA investor, Lance could lose the 25 percent down payment in just a couple of years. Then if it is 10 years before he starts paying off the principle he will be so far upside down that it won't be worth it to have the house. If he loses his job and has to move, he is a cooked chicken. If he loses in the stock market that has tanked because of the housing bubble then it could be even worse. And if the house next door is worth less than what he owes on his mortgage in 10 years Lance will be sick to his stomach. His neighbor will be laughing. Maybe it will be one of us!!!
Those who doubt the pain coming in Australia and Britain need only to look at the following website http://www.economist.com/finance/displayStory.cfm?story_id=4079027
ReplyDeleteThis will open the eyes of even the most wild eyed housing bull.
A link from Bill fleckenstein has a small quote following. Keep in mind that this article was written in Feb 2006:
ReplyDelete"The reason for the group's sweeping proposals [to slash government spending] is the state's deteriorating budget, which is forecast to plunge $500 million into deficit next financial year.
An important cause of these budget woes is the rise and fall of Sydney property. During the boom, rivers of stamp duty gold flooded the state coffers. This allowed NSW to significantly reduce state debt without eye-watering budget cuts. It also meant the rising costs of delivering such basic services as health, education and police could be covered without too much political pain"
We can see that this price decline is happening in Sydney, and if it can happen in one of the most expensive cities in the world, it can happen in SF, LA, Boston, Las Vegas, Reno, Atlanta, etc. I mean, it will happen in those as well. The housing bubble will have your speculation on a platter. It will be worse here because of much higher inventory than in other countries thanks to supply side economics!!!
The anons said: "The gap between home and apartment-rental costs is going to narrow, which means rents will keep rising." and "Rents cannot increase faster than inflation because: It doesn't fit into the bubblehead religion."
ReplyDeleteRents and CPI are related, you sillies. The expense of rent is approximately 23% of the Consumer Price Index. http://www.bls.gov/cpi/cpifact6.htm (The metric used in CPI is "owners' equivalent of rent of primary residence") See also: http://www.federalreserve.gov/boardDocs/speeches/2004/20040604/default.htm In fact, rent is the single largest expenditure subcategory in the index. http://www.bls.gov/cpi/cpiri_2005.pdf (warning PDF file!!) The fact that landlords have been unable to command higher rents during the past few years has (arguably) allowed the Fed to keep interest rates unusually low and contributed to increasing useage of ARM products. Simply recall the new heights of ARMs and IO loans originated only 10 months ago: http://www.mortgagebankers.org/NewsandMedia/PressCenter/32862.htm
Rents will keep on rising, but its cost is inflation. I'm not sure that anyone reading this blog really wants a lot of inflation. To be sure, the gap between home and rental costs will narrow in the long run. The real question is just how the gap between these two factors will actually be drawn back into alignment, and who will bear the brunt of the realignment. The 'bubblehead' hopes this will alignment be accomplished through declines in home prices. The 'housinghead' hopes the realignment will occur through rent increases. In all likelihood, the gap will be narrowed at both ends both by a combination of increasing rents and decreasing home price growth. At lease one Fed researcher has written: "The evidence ... suggests that when house prices are high relative to rents, subsequent changes in real rents are larger than usual and subsequent changes in real house prices are smaller than usual." http://www.federalreserve.gov/Pubs/FEDS/2004/200450/200450pap.pdf (warning PDF file!!)
Ironically, it is the bubbleheads --and not the housingheads-- who should cheer rental increases (even at their own expense). Rapidly increasing rents would continue to add significant pressure to CPI and improve the odds that the Fed will resume short-term interest rate hikes to combat inflationary pressures after its recent rate-hike pause. This would pop any speculator and ARM-driven housing 'bubble' and prove the existence of the housing bubble to the housingheads who will rue the day their defaulted properties are purchased at a deep auction discount by bubbleheads. On the other hand, housingheads and landlords should hope and ask for moderate rent increases (even at the expense of the landlords' pocketbooks) to restrain CPI growth. Tame CPI data would allow the Fed to continue with its recent pause in rates hikes, thereby allowing housing to remain 'affordable' at current interest rates and allow wages to 'catch up' gradually without forcing the Fed to resume interest rate hikes which should preserve current home prices. The absence of a housing price collapse would demonstrate convincingly that a housing bubble never existed while exposing for fools all of those bitter renters/bubbleheads who voluntarily paid their landlords' mortgages and never captured thousands of dollars in home equity.
anon said:
ReplyDelete"On the other hand, housingheads and landlords should hope and ask for moderate rent increases (even at the expense of the landlords' pocketbooks) to restrain CPI growth. Tame CPI data would allow the Fed to continue with its recent pause in rates hikes, thereby allowing housing to remain 'affordable' at current interest rates and allow wages to 'catch up' gradually without forcing the Fed to resume interest rate hikes which should preserve current home prices."
I guess you don't grasp the concept that we haven't bought to resell and we will be at a great advantage once interest rates ... and inflation ... start to rise. We are locked in to our future payments. And as inflation makes it easier and easier to get more and more nominal dollars, we'll find it easier and easier to pay off our mortgages ... making our "real" mortgage less in "real" dollars through no action of our own. Concurrently, those of us with renters on any of our properties, will find it easier and easier to collect higher and higher rents from you. It's really the perfect combination of factors isn't it?
What makes the U.S. so special that the same thing could not happen here that happened in Japan? Even extremely low interest rates did not stop the erosion of real estate prices for over a decade after their housing boom. I am not saying our fall is going to be as bad, but what makes us different?
ReplyDeleteas much as I hate to agree with probably the most brainwashed person on this blog, lance is right. Houseing heads should favor inflation. As inflation screams up, salaries eventually have to follow. Anybody who hows money wants inflation. When 1 mill is equivalent in 5 years to 500k now the housing heads would be way ahead on those mortgage payments. This is why, generally, housing is a good inflation hedge.
ReplyDeletethe real bob
What, if any, parallels are there between the U.S. economy and that of Australia? As I stated before, a foreclosure is not a comp. Just look at how the property assessor's offices treat these "distress" sales vis-a-vis their impact on surrounding property values.
ReplyDeleteI'm glad it seems that everyone finally understands Lance's mortgage. And Bob too.
Gary,
Lance could get hit by a bus, too. Should he never buy?
va investor, a foreclosure is not a comp, but they do create SIGNIFICANT downward pressure on a market, and they really bring down an areas home values. So, when the above poster was acting like it was a comp, he was not that far off as you may want people to believe.
ReplyDeletelance, is your loan really a 5% IO which converts to a 5% fixed 20 year loan after that?
the real bob
The real bob,
ReplyDeleteMy house is a foreclosure as are several of my rentals. None of these affected market values in the neighborhood.
My neighbors were "shocked" that there could possibly be a foreclosure on this street. How uninformed people are. There are multi-million dollar foreclosures.
thanks for proving my points.
ReplyDelete"My neighbors were "shocked" that there could possibly be a foreclosure on this street."
A foreclosure is viewed as a very bad thing. Someone like you comes in, buys the place usually for rental or quick resale. Generally, as has been pointed out, communities like buyers (especially sfh areas) becasuse then they have a vested interest in the area.
the real bob
Bob, yes.
ReplyDeleteThe starving realtors and RE tycoon want a bees got a spin for everything. Housing is tanking....anyone buying now is a bagholding fool.
ReplyDeleteForeclsoures will decimate house prices in coming years.
ReplyDeleteComps will mean cr@p when buyers sentiment is negative and prices are grinding lower.
Anyone looking to buy as an investor is attempting to catch a falling sword. it is way to early to be bottom fishing. Peaked last summer now just patiently watch as the bleeding continues. A mania does not bottom in short time if it has been going on for years.
ReplyDeleteanon 5:34,
ReplyDeleteWhen do you predict the "bottom" will occur?
MSN article provides a taste of things to come in the DC market
ReplyDelete"When homeowners are desperate to sell"
http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/WhenHomeownersAreDesperateToSell.aspx
Forecasting when a bottom is worthless. Watch the market. When you see sellers really panicking instead of just sitting there in denial we have a ways to go. Last bubble period depending on the market, took about 3-4 years to bottom but this monster is much more distorted due to the exotic no money down abuse.
ReplyDeleteI wouldn't be in any rush as an investor. Just go back look at a chart of CSCO. usually there are about 3 waves down until the last fool throws in the towel.
"Forecasting when a bottom is worthless"
ReplyDeleteExactly. Same as forecasting a peak. Only hindsight is reliable.
Bubbleheads have been on the sidelines for years in anticipation of the peak - what makes you think they will be willing to enter the market at any price?
There is a risk/reward ratio. Of the 30% who rent; my guess is 10% can afford to buy, but never will due to risk-aversion.
Seeing Housing prices go into a "freefall" will only confirm their fears and make them life-time renters.
"The loan officer told me that option ARMs are the best loans, because they don't require you to pay principal. These days, when houses appreciate so fast, you earn your equity through appreciation, not by paying down principal.
ReplyDeleteAnd when the ARM resets? Get another ARM. By the time you do, your LTV is lower and you'll qualify for a lower rate. Just be sure to not spend your home equity. She said you should not borrow against your house, unless you are doing a home improvement, and even then you should be very frugal so as not to spend more than you'll get back when you sell.
Can you believe this? Paying off your home is old fashioned?"
From the FBer blog
No this is the type of BS rhetoric that all parasites will say to protect their turf when things begin to slow from peak levels.
Va Investor
ReplyDeleteDO NOT TWIST WHAT i SAID.
EXACTNESS IS IMPOSSIBLE TO ACHIEVE BUT RELATIVE VALUE IS MOST DOABLE.
RIGHT NOW ANY MEASURE YOU WANT TO LOOK AT HOUSE PRICES ARE AT HISTORIC OVERVALUED TERRITORY.ANYONE BUYING NOW IS A BAGHOLDER WHO WILL SEE THEIR EQUITY JUST GO POOOOOFFFFFF IN THE NEXT 4-10 YEARS OR 15 YEARS.WHO KNOWS BUT THIS ONE IS GOING TO BE A BAD ONE.
NOONE CAN PREDICT WHEN THE LAST REMAINING BREATHING FOOL BUYS. (THERE ARE VERY FEW LEFT NOW)
RE: 11:41
ReplyDeleteIn weighing the validity of the arguments made, the readers here would do well to actually read the full sources.
With reference to Gallin's work, if you are not up on yur regression analysis, you may wish to focus on the article's conclusion, which the quoted statement does not accurately reflect. It should also be noted that Gallin's later research, which is easily located on the web, is far less sanguine about housing price prospects than the poster would have you believe.
And really, "sillies" and "bitter renters"? Embarrassing.
Yes You can protect your assets by not buying when THERE is irrational buying like we have seen the last 3-4 years.
ReplyDeleteWhen a market is irrational you walk away and let the fools play. They have finished playing and the music has stopped. Oh no. Now they are starting to realize the predicament they are in.
THIS IS THE MOST OVERVALUED HOUSING MARKET I HAVE EVER SEEN...EVER...EVER..EVER...BEEN BUYING SINCE EARLY 1980'S.
anon 6:21,
ReplyDeletePlease use a name of some sort. Too many anon's here to follow their thoughts and arguments.
I've been buying since the early 80's as well. Try comparing the negatives from then to today's (as a percentage, of course - not real dollars).
I've been buying since the early 80's as well.
ReplyDeleteThen you should have the experience to know that this market is irrational.
anon said:
ReplyDelete"Can you believe this? Paying off your home is old fashioned?"
that's absolutely correct. it boils down to leverage if you are "in it for the money" as bubbleheads are. that is why put in $200,000 (and pay cash for a $200,000 house to "earn" $50,000 (or 25% "profit") when you sell your house for $250,000, when you could instead just put in $10,000 and have made a 400% profit on your $10,000 and invested the other $190,000 somewhere else. From a homeowner point of view looking for a home to live in, it makes sense to minimize your long term costs. And if you believe there will be inflation in the future (which there always is), then long term it is better to put less down and let inflation lower the real dollars you are paying. This has ALWAYS been the way to do it by the financially savy. This is especially so since the larger the mortgage interest payment, the more you benefit from the tax laws. Now, there can be times however when you are better off paying the whole in cash ... Such as if you are retired and have no real need for more tax savings. The bottom line is that there are no "one size fits all solution". What is right for one person is wrong for another. For example, despite all the bashing about neg amort loans, these are obviously the right loan for some people, or they wouldn't exist. And assuming that they were used by everyone out there just to afford that which they couldnt otherwise afford is called "projection." Projection is when a bubblehead can't afford a property they want without doing a neg amortization loan and assumes everyone who did a neg amortization loan ALSO couldn't otherwise afford a property.
My experience has shown that "most" people are better off paying off their loan. Why?
ReplyDeleteCuz they lose the money speculating somewhere else....especially when there is leverage involved.
There seems to be a few cranky RE tycoons on this board. Ya know the ones that bought at the top and are getting worried, but are now trying to rationalize it.
Ya don't make big wealth buying when every other fool is buying. Common sense.
Real estate has been exploited by every breathing fool the last several years. It's time to back away and watch the fallout.
Of the 30% who rent; my guess is 10% can afford to buy, but never will due to risk-aversion. Seeing Housing prices go into a "freefall" will only confirm their fears and make them life-time renters.
ReplyDeleteVa_Investor, August 22, 2006 6:12 AM
Alas, VA_Investor, and then there is the portion of the population - people say in their late twenties or early thirties - who believe in fundamentals, and so while everyone else ran around buying everything on several different lines of credit, others slogged through trying to save up a down payment. And the boom happened.
I think you'd be surprised that there are several of us out there. We'd like to own a home, but when the math ain't there, it ain't there. DC is an ok place to live, but it's not *that* nice (especially when I can rent a nice SFH for a fraction of the cost of owning). As I've said before, risk has a wide margin. Buying right now is on the far side of that margin. I'd say that those who avoided risk at the early stages of the market run-up certainly would do themselves ill service to allow any sense of regret to push them into far riskier territory.
What I want to know is: when the market boomed and buyers flocked to each house, resulting in sky-rocketing, abnormal (historically speaking) prices, no one blinked an eye. Of course, buyers competing equals rising prices. So why, when *sellers* are competing, are people so adverse to believing that an *equally substantial* shift in prices can occur in the other direction?
And, by way of general comment, this bravado on either side of the housing/bubble fence is really getting tiresome. Let's be clear: no one can simply evict a renter for any reason (Lance, I believe that one was yours); and just because someone used an unconvetional loan doesn't mean they will be foreclosed upon. As for the name-calling and doomsaying (for either side), honestly.
H (who will soon choose a blogger identity, so as to un-hypocritically add to the call that only registered users be allowed to post).
H,
ReplyDeleteI enjoy reading your posts. Well reasoned and level headed.
Thanks.
My $0.02.
"Just go back look at a chart of CSCO."
ReplyDeleteYou must be a newcomer to this blog. Equities markets do not behave in the same fashion as housing markets. They are not the same animal.
And to the BOOYAAAA guy using all caps: You come across as being hysterical.
another anon., but you can call me "joe" if it helps you.
"have to rent out properties in leau of selling them for those vanishing paper profits."
ReplyDeleteYes to everything you said. I would just add: if the owner can swing it financially, this often turns out to be a very profitable arrangement over the long term.
I love the talk about IO loans and risk. Although IO loans are bad for people with tendencies for poor CC debt management...they are not riskier loans. I also have a 30yr fixed rate IO loan..not an ARM. So, I know exactly how much my payment will go up after 10 years. If I want to pay principal each month because my expected returns on the stock market (for example) decline....I can do so without penalty. The IO portion is only a minimum payment.
ReplyDeleteThe IO is great for a more risk averse or risk-neutral person like myself because if I or my wife loose our job or have unexpected healthcare expenses...the minimum payment on our mortgage is significantly lower than it would be in a traditional loan.
In other words, Lance has it right.
ReplyDeleteKeep up the chatter Joe.
ReplyDeleteYou will put a foot in your mouth.
Alot more cockiness on this blog than others. I expect to hang around this one for a while then pummel you when you are proven wrong.
Boooooooyaaaaaaaaa
Remember the concept of of buy term insurance and invest the rest. I say, rent and invest the rest in something other than Real Estate. I would not even get into the market for at least 10 years, unless I could find a rock bottom foreclosure. Simply unwise as an investment. If bubbleheads don't get in, housingheads investments will be toast. Sorry.
ReplyDelete"Alot more cockiness on this blog than others. I expect to hang around this one for a while then pummel you when you are proven wrong.
ReplyDeleteBoooooooyaaaaaaaaa"
I detect emotional instability here.
My $0.02,
ReplyDeleteThanks. I think that there's enough variance in the marketplace - and in individuals - that everyone is probably a little right. VA_Investor is right that she made a good investment and will do well by it. Lance, as a home owner with equity in his house, will do just fine most likely (but he's building up on equity from the late 80s/early 90s - easy for him to say "hey, things are affordable"). Even the guy above who bought recently with a 30 yr fixed on a good interest rate will probably come out fine, since he appears to be buying for a place to live for at least 5-10 years.
But I think there's a lot of truth in the fact that inventory is high, that people took out risky loans and got caught up in the mania, that lots of homes thought to be valued at 600k were bought with no inspection (god forbid the home have any number of problems - termites, e.g.) and needs a lot of work. That work, sorry, does mean 10k to repair = 10k in equity. That's just not how it works.
And I remember the days when one had to live in a house *at least* 3 years in order to *just break even*. There are enough troublesome signs to suggest that at least some type of correction is in order. Good luck on it being wages - I don't see employers (and their stock holders) eager to pour profits into employee wages, especially since benefits like health care are getting increasingly expensive.
But we'll see. Everyone has somewhat unique circumstances, and yet we can still find trends in the aggregate. Overall, I imagine that folks on either side - housingheads and bubbleheads alike - will get burned by what I see not just as a housing bubble, but a credit problem.
H
"Even the guy above who bought recently with a 30 yr fixed on a good interest rate will probably come out fine, since he appears to be buying for a place to live for at least 5-10 years"
ReplyDeleteStop being a kiss @$$ spinset.
This guy is a bagholder now.
Since this insane housing bubble was built on exotic no money down loans the reaction down is going to be that more uglier.
Some on here keep saying things will be fine just go ahead and buy.
NO It's not going to be fine for these people. They are going to regret they pruchased at such ridiculously high valuations.
Anony (9:46am),
ReplyDeleteIf he's left holding the bag for 10 years, but his/his spouse's salary supports it, and he's happy, what do you care?
I don't mind responsible buyers, and if they want to buy in what I consider an overpriced market, what does it matter to me?
I care about careless credit because that directly influences me. If someone is richer than I, so what? If someone borrows irresponsibly, then that is *everyone's* problem. These are different issues.
Renting isn't a viable option for some people, and if they are willing to pay (what I consider) a premium for owning in this market, and they can afford it, bully for them. I don't understand your problem.
H
"I don't understand your problem."
ReplyDeleteHis problem is long lonely nights with a bottle in an apartment he'd rather not be in.
People saying that housing doesnt react quickly is not really true, it used to be. When people put 20% down on a home, the mentality was a lot different then people who finance the whole thing. 100% financing as dramatically changed how the sector operates. I am completely shocked at how fast the housing market is deteriorating. I really thought it would be something like the 90s where home prices stayed flat for 10 years. We had a peak in October and things basically just jumped off a cliff.
ReplyDeleteLance, you even have to admit you are shocked about how fast things have turned in the housing market!
so back to the real question. I say a hard land is probaly a 20% drop in a year. A soft landing would be anything less then that on the same time frame. 20% over two years would be soft, somewhat.
the real bob
in communities like detroit. the suburban area are seeing drops of 30% from last year. these are not bubble areas, these are tough economic times areas. with ford and other auto related companies tanking: plus military cuts, sunbelt areas are not going to get the baby boomers and their money like they thought. my parents have a 5 acre spot in kentucky for 140,000 last year. 3 hours from saint louis, nashville and louisville. the money they have saved is incredible. they can travel whenever they want to and when they die, they are breaking up the lot to 5 pieces and selling the land for their children.
ReplyDeleteDetroit is where my brother is trying to sell his house for a year. He has successfully chased the market down, and the housing market is so much worse now.
ReplyDeleteI am not going to nag him, but he exhibits the same psychology that hhs say will protect the market "it's a great house", "I don't want to sell for less than I paid", etc.
I told him that what he wanted and what the market dictates are two different things.
I'm sad for him, but he is smart enough to see what I see, I hope for the sake of himself and his family that they cut and run, if they wait too much longer, I think they'll be writing a check rather than just losing part of their downpayment.
It is a sad state of affairs, but it is up to the individual to mitigate his losses. Those who don't suffer greater ones.
Losing a few dollars is not the end of the world.
ReplyDelete