Thursday, August 03, 2006

Dean Baker: The Coming Housing Crash

Dean Baker is the co-director of the Center for Economic and Policy Research. He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. He just wrote an article called The Coming Housing Crash. Here are some excerpts.

This bubble sustained the economy through the 2001 recession and provided the basis for the recovery. The housing sector directly employs more than 6 million people in construction, mortgage issuance and real estate. The indirect effect of the bubble was even larger, as people took advantage of the rapidly growing value of their homes to borrow huge amounts of money. This borrowing binge supported rapid consumption growth in a period of weak wage and job growth. It also pushed the U.S. savings rate into negative territory for the first time since the beginning of the great depression.

Right on. The economic 'recovery' coming out of the 2001 recession was built on an mountain of debt. So what happens next?

But, it was inevitable that the bubble would eventually collapse. The record run-up in housing prices led to record rates of housing construction. With population growth slowing, the country was building homes far more rapidly than the market could absorb them. At some point, excess supply will put downward pressure on prices.

The weakening of the housing market was further assisted by an entirely predictable rise in mortgage interest rates. The Federal Reserve Board deliberately pursued a low interest policy to help the economy recover from the stock crash, pushing interest rates to their lowest level in 50 years. With inflation picking up steam due to the oil price spike, higher import prices, weaker productivity growth, and a stronger labor market, interest rates are rising back to more normal levels.

So what effect will the housing bubble have on the genereal economy. So is a recession is coming?

The decline in housing prices will sharply limit the extent to which people can borrow against their home to support their consumption. This will cause savings to rebound from their current negative rates to more normal levels—at 6 to 8 percent of disposable income—but will be associated with a sharp falloff in consumption.

Together these effects virtually guarantee a recession, and probably a rather severe recession. Even worse, there is no easy route to recovery from a recession that results from a collapse of a housing bubble, just as there was no easy route to recover from the stock crash induced recession of 2001. Greenspan used the housing bubble to recover from that crash, because he saw no other mechanism. Unless Bernanke can find some other bubble to inflate, the recovery may be a long slow process. It took Japan almost 15 years to recover from the crash of its stock and housing bubbles.

The crash and post-crash world will not be pretty. Millions of people will lose their jobs and their homes. Unfortunately, the economists who led us down this path are not likely to be among the ones who suffer severe consequences.


There is growing chorus of economists and armchair pundits predicting a coming recession. A significant recession is coming in the next 12 months.

151 comments:

  1. While I too think there is a recession coming or worse (a prolonged stagflation), I am disappointed in Bakers article. Instead of using economics (i.e. numbers) and a disciplined approach to discourse, he seems to be resorting to fear and the old "it's intuitively obvious" argument. I respect Baker's work and I know that he can do better.

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  2. Generally agree with 6:31 Anony.

    "Greenspan used the housing bubble to recover from that crash, because he saw no other mechanism. Unless Bernanke can find some other bubble to inflate, the recovery may be a long slow process."

    That is a lazy statement, IMO. The Fed has tremendous influence over the money supply and credit in general. What they have absolutely no control over, is where the money goes. When they "open the spigot" the water shoots out, sure, but that it went toward the house in this instance is beyond the Fed's control.

    We could just as easily had a bubble in "Proof of Purchase" seals off Fruit Loops boxes. Ben is not going to "find" something else to inflate. Only the marketplace can do that.

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  3. Dean Baker is in the business of selling his commentary. Check out his website: his words are for sale.

    When you sell words, you rely upon hyperbole to get people's attention. Here is something Baker wrote regarding the "Bird Flu Pandemic" and how economists other than himself are paying no attention to the pandemic.

    "Maybe mass deaths from a flu pandemic will help to reorient priorities in the profession.
    Posted by Dean Baker at October 16, 2005 12:11 PM "

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  4. "Bird Flu Pandemic May Not Develop
    Virus doesn't show signs of mutating easily, U.S. government researchers now say.

    MONDAY, July 31 (HealthDay News) -- A bird flu pandemic might not be imminent, as many health experts have feared, U.S. researchers now say.

    When government researchers tried to combine the deadly H5N1 strain of bird flu with a common strain of flu that infects humans, they were unable to produce a strain that could be transmitted easily."
    http://www.nlm.nih.gov/medlineplus/news/fullstory_36747.html

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  5. Marc Faber has done a lot of work in this area. CHeck out the interviews available on the web with him or legendary investor Jim Rogers for a good and realistic take on the coming recession.

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  6. Looks like a vast right-wing conspiracy involving the medical and scientific communities to discredit Dr. Dean Baker.

    They discredited him regarding his prediction of mega-deaths resulting from the bird flu.

    They'll do it to him again regarding each and every housing market throughout the United States. They'll never let someone who is RIGHT speak out against them.

    Bernake is going to come after Baker, wait and see.

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  7. During the 90s, we had the internet
    revolution and the stock market that propelled our economy. I thought we would go in to a tail spin after we won the revolution and the stock market came back to
    historical mean...I could see no
    catalyst to keep our economy running. I was wrong. We had MEW/HELOCs. Today, I have
    the same thoughts. I do not see anything on the horizon to prop up
    the economy once the housing balloon rises up in the atmosphere while all the flippers watch like a bunch of 5 year olds at a birthday party. I could be wrong again.

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  8. There's nothing original in Dean's article. It's pure, recycled boiler plate, Readers Digest-level analysis. Junk food for the doom and gloom set.

    I also love how he gives his I-so-certain analysis wiggle room: It "virtually guarantee a recession"

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  9. Kob, The only person less reliable than an economist is a meterologist

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  10. "The decline in housing prices will sharply limit the extent to which people can borrow against their home to support their consumption. This will cause savings to rebound from their current negative rates to more normal levels—at 6 to 8 percent of disposable income—but will be associated with a sharp falloff in consumption."

    I agree with everything except the part about savings going up to 6-8%. Consumption was driven by housing values going up not by disposable income from wages. Once that equity disappears, which it already has, comsumer spending will stop. However, people will still be saddled with mortgages that have stretched their budget. Saving might go up but only slightly, 1-3%.

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  11. kbr7171,

    I agree. I doubt the savings rate will hit 6 - 8% anytime soon. During the great depression there was a negative savings rate. During hard times it is even harder to save money.

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  12. Saving might go up but only slightly, 1-3%. This I agree with. I would add that due to the large and growing retirement population in the US, it would be expected for them to be extracting their savings. Thus, a lower rate than the traditional 6% to 8% would be ok (basically, expect the < 55 crowd going back to a 6% to 8% savings rate and the 55+ crowd to have a negative 2% to 3% rate).

    Unfortunately, much of this "savings rate" will be paying off debt. :(

    We're in for a bad downturn. Middle class restaurant sales are down for everyone. Clothing is starting to take a hit. When Starbucks same store sales drop, I'll know we're in for a world of hurt. :(

    Neil

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  13. August 3, 2006
    Starbucks (SBUX) shares plummeted after the coffee chain reported weak sales, stoking fears that many Americans are cutting spending sharply

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  14. beltsville renterAugust 03, 2006 11:42 AM

    I can't wait for housing to crash, then I can swoop in and buy my dream house for pennies on the dollar.

    ReplyDelete
  15. Abercrombie & Fitch Co. (ANF, Trade) said same-store sales rose 3% in July. Total sales for the four weeks ended July 29 increased 20% to $230 million from $191 million in the same period a year earlier. The average estimate of analysts polled by Thomson First Call was for a rise of 2.9% for the month. Shares of the New Albany, Ohio-based casual apparel retailer closed Wednesday at $52.61, up 43 cents.

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  16. Alltel Corp. (AT, Trade) said second-quarter earnings rose 7% as the nation's fifth-largest wireless company added more customers and took measures to keep current subscribers more loyal. Revenue rose 18% to $2.67 billion from $2.26 billion, as the carrier added 146,000 net wireless customers to bring its total base to more than 11 million.

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  17. American Eagle Outfitters (AEOS, Trade) raised its second-quarter forecast after "favorable customer response" in July. The teen-wear retailer said that sales at stores open longer than a year rose 7%. That's below the 8.6% average estimate reached by Wall Street.

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  18. Heartland Payment Systems (HPY, Trade) reported second-quarter earnings of $7.4 million, or 19 cents a share, up from a year-ago profit of $4.4 million, or 12 cents a share. Revenue rose 33% in the latest three months to $278.1 million from $209.7 million in the same period a year earlier.

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  19. Public Storage Inc. (PRU, Trade) said second-quarter net income rose to $128.9 million, or 55 cents a share, from $108.3 million, or 47 cents a share, during the same period in the prior year. Public Storage said quarterly revenue rose to $298 million from $262.8 million.

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  20. SkyWest Inc. (SKYW, Trade) reported second-quarter earnings of $39.3 million, or 62 cents a share, up from a year-ago profit of $24.8 million, or 42 cents a share. Revenue rose 105.8% in the latest three months to $790.4 million from $384 million in the same period a year earlier.

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  21. Yep, the direction of one stock price is indicative of the economy as a whole. Brilliant!

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  22. New outlets, along with same-store sales gains, helped Starbucks Corp. (SBUX, Trade) push its fiscal third-quarter profit up nearly 16%, while revenue jumped 23%.

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  23. Smith & Wollensky Restaurant Group Inc. (SWRG, Trade) said July comparable restaurant sales rose 1.5% to $7.3 million from $7.2 million during the same period in the prior year. Total monthly sales fell 0.3% to $7.8 million from last year.

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  24. Kenneth Cole shares rise after earnings release (2:26 PM ET) SAN FRANCISCO (MarketWatch) - Kenneth Cole Productions Inc.'sshares rose 7.5% to $23.87 in afternoon trading Friday. Late Thursday the company reported second-quarter net earnings of $6.49 million, or 32 cents a share, compared with $7.7 million, or 38 cents a share, in the same period last year.

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  25. I see the posts forecasting housing market to crash because the consumer is tightening his belt. But explain to me how Starbuck's sales or Gap's sales have anything to do with housing. Housing is a necessity. It is the top necessity. People will cut back on ANY and EVERYTHING before they live outside. Maybe they choose to live in a cheaper house. Maybe they foreclose and someone like me buys it. I grant you that in the short term, prices may get out of line. But long term, the housing market is going nowhere but up. How many of you on this board have ever experienced decreases in your rent?

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  26. Don't try to debate them, NB. If they're reading this from their workplaces, they're already dreading going "home" to a place that they can't really call "Home" because it belongs to someone like you.

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  27. Mortgage rates slide for second straight week
    Freddie Mac reports 30-year sinks to 6.63% on weak GDP numbers, warns that number will drift over next few months.
    August 3 2006: 11:14 AM EDT

    NEW YORK (CNNMoney.com) -- Mortgage rates declined for the second straight week on signs that the economy is growing at a slower pace than expected, Freddie Mac reported Thursday.

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  28. Growing at a slower pace than expected? But I thought we were on an inflationary express elevator? Wait wait wait... Inflation is going to kill us all... no wait... stagflation is going to be our undoing.... no no no.... a massive economic collapse will be our undoing... no wait... that is to "Doom-ish"... we're in for a massive recession... no wait, it's going to be skyrocketing inflation...

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  29. anon 8:57

    What about UPS, All Home Builders, Home Furnishers, Cisco , Intel?

    And the sharp drop in GDP growth in Q2?

    Along with stocks, also look at the
    federal flow of funds report.

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  30. no, you don't get it anon 9:17.

    A discussion here concluded that the price of SBUX was indicative of the future of the overall economy. Read it again and I'm sure you'll pick up on it.

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  31. Nathan, my rent is falling in real, inflation adjusted terms. I've also acquaintances with "investment" condos who have told me their tenants are demanding rent decreases or they will move. The "investors" are caving to those demands.

    I agree with you that people will cut back on everything before they live outside. They are also beginning to figure out, apparently, that they can rent at a steep discount to purchase cost, rather than live outside.

    That disconnect will correct itself. When it does, I will be the first to say, "it's a great time to buy."

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  32. "Read it again and I'm sure you'll pick up on it."

    Take it easy pal.

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  33. Rent is going up up up UP in the DC area right now. renters are heading for a spectacular disaster.

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  34. my rent went up 3% but they also gave me a free months rent which correlated to a real drop of 2% next year. I live 5 mins from a metro in a prime location in montgomery county. So, once again, houseing heads are wrong rents arent going up. I really think the private rental market is pushing down rents here in DC. People miss this point all of the time. The main reason too purchase a home, other then emotional reasons, is to try and limit your yearly change in housing payments. I say limit, because property taxes do go up, just not that much. So, if my yearly cost of living is decreasing shouldnt I keep renting?

    the real bob

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  35. Renters have freedom and peace of mind. Home debtors have fear, doubt, anxiety about their rapidly deflating assets. They are imprisoned by their poor decision to go into debt on their house purchase.

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  36. Rent is going up in DC, in the rental
    apartments/complexes.


    You can still get a great deal if you rent
    from one of those condo flippers.

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  37. Rent is going up up up UP in the DC area right now. renters are heading for a spectacular disaster.

    Data please

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  38. Nathan Boggs said...
    “How many of you on this board have ever experienced decreases in your rent?”

    How many of you on this board have experienced decrees on your ARM?

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  39. I dont rent from a flipper, I rent from an apartment company, a large apartment company. So the rent going up in dc theory isn't entirely accurate. However, my friend told me his rent wen up 6%. He also lives in a prime location in montgomery county. So, I think the blanket statment rents are going up in dc is not correct.
    ps. My rent was not inflation adjusted, my 2% drop was just in normal dollars. So, inflation adjusted it went down alot.
    the real bob.

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  40. "Renters have freedom and peace of mind. Home debtors have fear, doubt, anxiety about their rapidly deflating assets. They are imprisoned by their poor decision to go into debt on their house purchase."

    This is EXACTLY right. Hundreds of millions of people throughout the world work hard to buy a home precisely because they want to live in fear. This is also the reason the US government advocates home ownership in the United States; because the fed government has a 230 year history of striking fear and despair into the populace.

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  41. Old news, really.

    Rents Rise as Apartment Market Is Squeezed

    By Kirstin Downey
    Washington Post Staff Writer
    Wednesday, July 5, 2006; Page A01

    The apartment market in the Washington area has become one of the tightest in the country, and rents are rising briskly as some affluent residents decide to rent rather than buy in what they fear is an inflated real estate market.

    The surge of well-to-do new renters is attracting developers, and at least 4,000 units that had been planned as condos will instead be leased as rentals over the next two years, according to a new analysis by Delta Associates, an Alexandria real estate information company.

    Among the renters is Randell Rogers, 40, a systems engineer who earns $127,000 a year and recently sold a house. The housing-sale slowdown and sky-high prices have made him wary of buying again, and he ... read it for yourself

    http://www.washingtonpost.com/wp-dyn/content/article/2006/07/04/AR2006070400969.html

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  42. I just saw on MSNBC the rapture is near, only a few years away. Housing prices will collapse when it happens. Might as well sell now while prices are high.

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  43. Rental inventory is decreasing while average rents are on the rise:
    Link

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  44. "This is also the reason the US government advocates home ownership in the United States; because the fed government has a 230 year history of striking fear and despair into the populace. "

    That's right, the gov't never lies. Must be a gov't worker :)

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  45. "While I too think there is a recession coming or worse (a prolonged stagflation), I am disappointed in Bakers article. Instead of using economics (i.e. numbers) and a disciplined approach to discourse, he seems to be resorting to fear and the old "it's intuitively obvious" argument. I respect Baker's work and I know that he can do better."

    Maybe his book does have detailed analysis. Afterall, David only posted a few excerpts regarding housing.

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  46. "has a 230 year history"

    is the key phrase. Superlatives like "never" (as in "never lies") weren't used.

    Nice effort to twist it around though.

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  47. Proof Positive that housing prices will fall dramatically soon:


    Link

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  48. "Renters have freedom and peace of mind. Home debtors have fear, doubt, anxiety about their rapidly deflating assets. They are imprisoned by their poor decision to go into debt on their house purchase."

    You know, I happen to think we are in the midst of a massive housing bubble that will end very badly, but when I read things like this I almost want to join the other side.

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  49. "You know, I happen to think we are in the midst of a massive housing bubble that will end very badly, but when I read things like this I almost want to join the other side."

    Bubbleheads' emotional arguments and absurd statements ruin their credibility.

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  50. good point anon 12:16pm, however, ditto for most housing heads.

    "Rent is going up up up UP in the DC area right now. renters are heading for a spectacular disaster. "

    dumbest statement ever!

    the real bo

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  51. But SBUX price is down. Surely that means an imminent collapse of the housing market. Who cares if SBUX recently reported revenue growth. The *stock price is down*. That is all the unemotional proof you need.

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  52. I am amazed at some of the naive comments on this board. On one hand, the bubbleheads say the market is going to crash. They point to how homeowners have trapped themselves. Yet, most of the bubbleheads on this board admit that they want to buy a home for themselves. Why would you want to trap yourself if ownership is so onerous?
    My next thought is that the bubbleheads must be perfect market timers. They avoided the bubble and plan to enter the market at the perfect time. Assuming this, I must assume they did the same with the stock market. Hence, these bubbleheads should be rich from getting out of the stock market before the crash and shorting the stock market on the way down.

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  53. Assuming this, I must assume they did the same with the stock market. Hence, these bubbleheads should be rich from getting out of the stock market before the crash and shorting the stock market on the way down.

    You assume too much.

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  54. The only way savings will go up is if by some perverse measure you count increased debt service as "savings."

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  55. Actually, Nathan, I sold out of the stock market in the winter of 1999. Put all my 401K money in bonds. I vividly recall the plan administrator being absolutely aghast - they said it was an enormous mistake, we were in a "new economy," stocks would go up for the forseeable future. Then, there would be a "soft landing" in which equities would appreciate only a few percentage points per year, while "earnings catch up." Sound familiar?

    No one, absolutely no one, can time the markets that efficiently.

    Do you know who John Templeton is? A very rich old man who lives (and rents, ironically) in Bermuda. He once said finance should be approached in terms of helping others, Nathan.

    When you own something that others are desparate to own, help them. Sell a little. By the same token, when others are desparate and panicky to unload something, help them, buy a little.

    It's not rocket science, Nathan. You just have to pay attention to what's going on around you.

    And BTW, my bonds did very well. I sold in December, 2003. Early, perhaps, but that's ok with me, I'm not greedy.

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  56. Do you know who John Templeton is? A very rich old man who lives (and rents, ironically) in Bermuda. He once said finance should be approached in terms of helping others, Nathan.

    Yes, I know of John Templeton. He is actually a friend of a friend of the family. Well count yourself lucky. You got out of the stock market at the right time. However, noone would suggest you do what you did if you are planning for long term retirement. And the same goes for housing. We shouldn't gamble with our retirement. Nor should we gamble and try and time our home purchases.
    My point is that a lot of people on this board and people in general make BAD decisions. This can be said for their stock portfolio as well as their living decisions. I'm willing to bet that there are some people on this board that are happy that there is a bubble because they can't afford anything. Yet, some of these people are living over their heads. So what if you can rent a condo in Dupont for less than half the cost of buying. The better question is should you even be paying that much to live in Dupont when you can buy somewhere else for roughly the same amount. I bought my first home at 21. You gotta start somewhere. And most people don't start in an ultra luxury apt or home in a tony neighborhood.

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  57. Wow, DC Too, you've convinced me. You are as close to perfection as anyone can be. Please go on about how you make all the right moves. In the meantime: Can we go out on a date sometime? My family tree desperately needs an injection of superior genetic material.

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  58. I miss ihateyuppies. Perhaps he is in Havana holding vigil for Fidel Castro's return to health? He's not praying for Castro, of course. That something a right-wing nut would do... pray.

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  59. I guess I was lucky on my 1997 purchase in Dupont, for 50 times a month's rent, too. I bailed out in Spring '04, a year early. Like I said, I'm not greedy.

    All of us make bad decisions at one time or another, Nathan. Heaven knows I have. But that is not the point, though. Nor is this a financial planning blog.

    Residential real estate in our area, indeed, in many areas, has been bid up in a frenzy of easy money and expectations of ever-increasing value. Did you hear, Nathan, last year, about the poll they did in California, on housing prices? The overwhelming majority of respondents "agreed" that prices would rise 20%, per year, for at least another 10 years.

    BWAHAHAHAHAHAHA!!!!!

    Perhaps if children were taught arithmetic in school we could avoid this sort of thing. Oh, well.

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  60. timing perfectly is only a blind matter of luck. Has anyone been tracking foreclosures based on houseprice category? and specficfically when do people think high end will drop? What is the consensus for % price drop of $1M+ listings in DC?

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  61. Thank you for helping out those of us who are less astute than you, DC Too! In the spirt of John Templeton himself, no less! Thank you! Can I shine your shoes?

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  62. Here is another article on Salon.com that also forecast a recession coming. Their main points also have been repeated:
    "Three factors: 1) A Federal Reserve that finds itself with less inflation-fighting credibility than it thought it had; 2) upward pressure on inflation from rising energy and, perhaps, import prices; and 3) millions of middle-class homeowners who for too long have treated their houses as gigantic ATMs, using home equity loans and refinancing to generate extra spending money."

    The link is http://www.salon.com/opinion/feature/2006/08/03/recession/

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  63. What you can do, Anonytroll, is take the time to learn. All of this stuff has been laid out for all, by people like Sir John, who have shared their observations and experience. Warren Buffet likes to say we should be "fearful when others are greedy." Pretty good advice.

    And for all you bitter realtors, anger at the messenger will do you no good. Get out there and try to find the next "big thing," early. Just know that it will end, too. But that's OK, you'll know ahead of time to get out when the crowd floods in.

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  64. Oh, thank you, thank DC Too! You are sooo wise. Please post some more so that I may pleasure myself as I read your sage words. Now how about that date?

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  65. Who bought this stock before the announcement? I did! I did! Whee!

    Quality Systems Reports First Quarter Results Business Wire
    Quality Systems, Inc. (NASDAQ:QSII) today announced the results of operations for its fiscal 2007 first quarter ended June 30, 2006. The Company posted net revenues of $36.1 million in the first quarter, an increase of 32% from the $27.4 million generated during the same quarter last year. The Co ...

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  66. I'm willing to bet that there are some people on this board that are happy that there is a bubble because they can't afford anything. Yet, some of these people are living over their heads. So what if you can rent a condo in Dupont for less than half the cost of buying.

    More assumptions... The ignorant assume...

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  67. " Comment by DC_Too
    2006-04-22 07:17:56

    I’m a city kid by birth and would rather choke than live in the ‘burbs, but that’s my personal choice. I’ve got newbie neighbors that show symptoms of shock and awe when there’s an incident in the street involving guns and lots of cops. Hey, at least the cops respond nowadays. That’s progress!

    The only unknowable IMHO, is energy prices. It is conceivable that $11 gasoline will renew interest in urban living. There is also a long, very long, shot that is unique to DC - Congress is kicking around the idea of a flat income tax for DC residents. If that were to happen, every rich bastard in America will buy 300 square feet of property here and declare “primary residence.” Like I said, it’s a long shot, but if it were to happen, I will pay cash for a garden tool shed in DC’s worst ghetto, just in case…"

    ROTFLMAO! Mr. "help people out a little" talking about being an unabashed opportunistic prick himself.... LOL!

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  68. "millions of middle-class homeowners who for too long have treated their houses as gigantic ATMs, using home equity loans and refinancing to generate extra spending money."
    I think that's one big problem people don't realize that a lof of loans are not just for people who were buying houses but also for people who use their home equity. I know several people (including my sister) who use their home equity loans to buy stuff. A couple who bought a house in Gainesville that they could barely afford (both had two jobs) and in a year they took a home equity loan to buy a luxury SUV and got cosmetic surgery. Now it caught up to them - they broke up and the house is foreclosed. They are both college educated and intelligent people but succumbed to the "easy money". My brother-in-law lost his job now they're in financial hardships. Luckily they bought the house way before the boom. The next two years will be interesting to see how things shake out.

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  69. DC Too, if you're so rich, why do you rent in such a bad neighborhood? Is it so that you can cash in on those falling rents? Please explain.

    Also, please explain the point of being so rich if you are going to be a renter in a bad neighborhood. Thanks in advance.

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  70. Nathan Boggs said:
    "So what if you can rent a condo in Dupont for less than half the cost of buying. The better question is should you even be paying that much to live in Dupont when you can buy somewhere else for roughly the same amount."

    EXACTLY! That is what I have been trying to get across! Longterm renters are living the high life now at the expense of their futures. One reaps what they sow ... And "enforced savings" via a mortgage committment is not easily matched by voluntary bank and equity savings.

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  71. Oh, the angrier they get the closer comes the end....

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  72. Are you going to answer?

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  73. "The next two years will be interesting to see how things shake out."

    + Oil prices through the roof by 2009 (Two wars in the middle east right now, Bush talking about pulling out of Iraq by the end of 2006 {to try to save the Republican Congress} will lead to greater chaos).

    + Traffic congestion through the roof, even for folks commuting from places like Leesburg into places like Reston.

    + Cost of heating and cooling a larger suburban home, coupled with maintenance costs (how much will it cost to mow two acres of grass at $10 per gallon?)

    + Collapsing retail (read: suburban strip malls dying in the financial malaise equals loss of non-professional service jobs which dominate 'bedroom communities')

    = Buh-bye exurb, hello close-in living!

    Oh wait, all the property "close in" is already owned by somone....

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  74. And who said I was "rich?" I certainly didn't.

    You are all so very lucky to have witnessed, in one lifetime, not one, but two, gigantic and widespread financial manias. Didn't you learn ANYTHING the last time? It's only been five years, for Goodness' sake. Good grief.

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  75. So, you decline to answer on the grounds that it may expose you as a fraud?

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  76. "DC Too, if you're so rich, why do you rent in such a bad neighborhood? Is it so that you can cash in on those falling rents? Please explain.

    Also, please explain the point of being so rich if you are going to be a renter in a bad neighborhood. Thanks in advance. "

    Why would somebody with as much luck, savvy, and foresight as you rent a house in a slum neighborhood?

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  77. the housing bulls better hope rents don't up cause rent makes up 40% of the CPI and if rents rise a lot then the CPI will go up a lot which means....drum roll please.


    HIGHER INTEREST RATES,

    which is exaclty what housing can't handle.

    ReplyDelete
  78. "the housing bulls better hope rents don't up cause rent makes up 40% of the CPI and if rents rise a lot then the CPI will go up a lot which means....drum roll please.


    HIGHER INTEREST RATES,

    which is exaclty what housing can't handle. "

    Actually, I'll just be glad you're unhappy.

    ReplyDelete
  79. Because it's pleasant, convenient and VERY cheap, that's why. And "slum" is a little strong there, anony.

    Please, no more ad hominem attacks. They are against blog rules. Let's get back to the question at hand.

    Is there a financial bubble in residential real estate, in our area? Yes, or no? State your case.

    ReplyDelete
  80. Don't change the subject, dc too. I'm just pointing out that one of two things is true. Either you're not nearly as financially savvy as you claim to be or your version of financial savvy is so extreme that it forces you to live like a pauper. Either way, your point of view is not particularly relevant.

    ReplyDelete
  81. Don't change the subject? Your the one doing that, anonytroll. Why are you so threatened by this discussion? Can you contribute is some, postive way?

    For instance, you could tell us how many condos you own. What are the carrying costs? What do you yield in rents?

    ReplyDelete
  82. In other words you have no answer. You just like to come on this blog and brag about your great financial decisionmaking, but have no answer at all for why somebody as great as you would rent a house in a slum.

    I'm going to go ahead and post this sort of commentary every time you post anything on this board, you smug loser.

    ReplyDelete
  83. DC Too is likely in Shaw, LeDroit Park, Bloomingdale, or Eckington.

    ReplyDelete
  84. Prevailing rents in those areas are around $2K

    ReplyDelete
  85. DC Too said:

    "

    That is quite the topic, Robert. I live in just such a neighborhood. It’s come a long way, but just isn’t “there” yet. Sales prices have gone through the roof, but my rent is still cheap, and what retail exists remains accesible only through the tiny slot below the bullet-proof glass cacoon. The quart of milk is still spun through a miniature, two-inch thick glass revolving door….

    I’ve stated my humble opinion over and over, that when this thing ends, rational buyers will return to “established” neighborhoods and leave the “pioneers” twisting in the wind, at the mercy of the crack heads…."

    He goes on to say that all of DC outside Georgetown is a "dump".

    Yet he chooses to live there. Hypocritical jackass.

    ReplyDelete
  86. Gee, I sure wish I had the financial smarts to live in one of those places. Boy what a pleasure life would be.

    ReplyDelete
  87. I can't get over what a loser this guy is. Lecturing everybody on finances, but he lives in the freaking hood. Boy, can I be like you?!?!!?

    ReplyDelete
  88. dc_too = PWN3D

    ReplyDelete
  89. Uh... I don't get it. Maybe I'm a little slow, but DC Too made sound arguments and simply used his own life as an indicator that he makes sound decisions from time to time. I didn't read anything about him stating that he was more intelligent about finance or richer than others on the blog.

    What I did read, were smug responses to him in an obvious mockery of what he was stating.

    Look, this blog was founded to debate. Can we all just debate the facts here?

    I hate to say this, but the bubbleheads are far ahead of the curve on stating real evidence for a bubble existing, while the housing heads simply cry 'idiots' and begin to bash the bubbles.

    No one PWN3D DC Too. Just if you want to argue in the future... please show a sound an convincing argument instead of 'ewwww... aren't you SO smart!' You just look stupid to the rest of us who are here to find an intelligent debate.

    ReplyDelete
  90. Gee, I never knew so many people aparently have the ability to devine the motives, intentions, and financial history of another person through the internet, not to mention the ability to see the future, change the past, or determine someone else's living accomodations with a precision the exceeds Zillow's. I expect George Soros, Napoleon, & J---s to post next.

    BTW, invective is does not equal evidence.

    ReplyDelete
  91. Old news, really.

    Rents Rise as Apartment Market Is Squeezed

    By Kirstin Downey
    Washington Post Staff Writer
    Wednesday, July 5, 2006; Page A01

    The apartment market in the Washington area has become one of the tightest in the country, and rents are rising briskly as some affluent residents decide to rent rather than buy in what they fear is an inflated real estate market.

    The surge of well-to-do new renters is attracting developers, and at least 4,000 units that had been planned as condos will instead be leased as rentals over the next two years, according to a new analysis by Delta Associates, an Alexandria real estate information company.

    Among the renters is Randell Rogers, 40, a systems engineer who earns $127,000 a year and recently sold a house. The housing-sale slowdown and sky-high prices have made him wary of buying again, and he ... read it for yourself

    http://www.washingtonpost.com/wp-dyn/content/article/2006/0

    ReplyDelete
  92. On another blog, DC2 stated that the equities markets and housing markets are not comparable.

    Here, he stated that they are.

    ReplyDelete
  93. On this blog, DC2 stated that people should learn from him. On this blog, DC2 stated that his motivations were somewhat altruistic. On another blog, he came right out and said he'd do something totally out of self-interest if the opportunity were to present itself.

    What you read and comprehend here (potentially two different things) and what you *don't* read elsewhere paint a different picture.

    ReplyDelete
  94. That Post story shows that the smart money is renting. Sounds right to me.


    Here's an article from today's Post on the declining mortgage market:

    "In a new sign of the continued deterioration in the housing market, applications for home loans plunged to a four-year low last week.

    Mortgage loan applications dropped to their lowest level since May 2002, according to a weekly survey of lenders conducted by the Mortgage Bankers Association, a trade group."

    "It's pretty bad," said Christopher Cruise, who trains mortgage brokers and is based in Rockville. "The problem is that the high was so high and the low is so low. Now it's not just the end of the refinancing boom, but people aren't buying either. There's been a real drop off in purchases."

    http://www.washingtonpost.com/wp-dyn/content/article/2006/08/02/AR2006080201884.html

    ReplyDelete
  95. Anonymous said...
    "the housing bulls better hope rents don't up cause rent makes up 40% of the CPI and if rents rise a lot then the CPI will go up a lot which means....drum roll please.


    HIGHER INTEREST RATES,

    which is exaclty what housing can't handle."

    Most of us don't have adjustable rates, and those few of us who do, have capped adjustable rates. So, when inflation is at 15% like it was in late 70s/ early 80s, even the ARM folks at their capped 10 - 12% will be making out just fine ... paying back less than they borrowed. Meanwhile, rents will skyrocket!

    ReplyDelete
  96. DC too seems to have hit a raw nerve among many posters. what are they so afraid of?

    ReplyDelete
  97. What will all the anony realtors do when they can't sell houses any more. I expect they will go back to selling shoes or waiting tables.

    ReplyDelete
  98. Diego Ramirez said...
    "What will all the anony realtors do when they can't sell houses any more. I expect they will go back to selling shoes or waiting tables."

    When one seeks to discredit the messenger, it shows that the message itself can't be discredited.

    Could the bubbleheads finally be coming to the realization that they've been deluding themselves with dreams of profiteering from an Armagedon that will affect all homeowners but mirculously leave all renters unscathed!

    ReplyDelete
  99. Most of us don't have adjustable rates, and those few of us who do, have capped adjustable rates. So, when inflation is at 15% like it was in late 70s/ early 80s, even the ARM folks at their capped 10 - 12% will be making out just fine

    Ummmm....

    http://mortgages.interest.com/content/calculators/aprCalcARM.asp

    1% increase on a %400K loan changes payments from $2200 to $3300. Not everyone can absorb an extra $1100 a month, every month - which adds an extra $13K+ a year in payments. If rates go up 3% mortgage payments almost double.

    Not everyone will be devastated, sure. But to act like this won't even be an issue, come on. If you had an extra $20K per year going to your house payment, what would you cut out?????

    ReplyDelete
  100. Sigh.... That Post article was presented in response to bubbleheadss who were claiming that rents are dropping in the DC area. The Post article clearly states that rental inventory is tight and getting tighter, forcing rents up across the board. Again, reading comprehension seems a bit on the light side here.

    Yes, "smart money" is everywhere if you know where to look. For every rental household with a $150K+ income, there are probably 10 homeowner households with $150K+ income.

    ReplyDelete
  101. DC2 was posting gobs and gobs of claims about himself, and then when the discussion turned to details about himself (which was a result of him posting so much about himself), he wimped out and dropped off. If he doesn't want to talk about himself.. then he shouldn't talk about himself. Pretty basic.

    Believe it or not, when you make regular written statements about yourself, you DO reveal aspects of your personality that CAN be interpreted by sharp people; including strangers on the internet. Keep on posting DC2, getting a glimpse into your mind is something I'm finding amusing for the time being.

    ReplyDelete
  102. This comment has been removed by a blog administrator.

    ReplyDelete
  103. anon said:
    "1% increase on a %400K loan changes payments from $2200 to $3300. Not everyone can absorb an extra $1100 a month, every month - which adds an extra $13K+ a year in payments. If rates go up 3% mortgage payments almost double."

    Anon, you forgot to calculate income tax benefits. Assuming an interest only loan (for simplicity's sake) and property taxes of $3,000 per year (or $250 per month.) The $2,200 mortgage is really only $1,384 after income tax benefits. (That's $2,200 less a 25% fed income tax deduction and less an 8% state income tax deduction --- or sales tax credit for certain states --- and less the tax benefit of deducting property taxes ... which is $82.50 on annual $3,000 tax bill.) Similarly, the increased interest payment after ARM rate increase gets reduced by tax benefits.

    ReplyDelete
  104. Please read your links before posting Ummm 8:14.

    Your link says a 400K loan payment will go from $2271 to $2497 with a 1% increase from 5.5% to 6.5%. $3307 is the payment for 10% or a 4.5% jump.

    ReplyDelete
  105. Lance said...
    “Anon, you forgot to calculate income tax benefits”

    “Similarly, the increased interest payment after ARM rate increase gets reduced by tax benefits.”

    Oh, now I see. As ARM’s adjust upward, monthly payments go down?!?!?!?

    ReplyDelete
  106. Wow, this is really like Captain Ahab obsessive. DC_Too was so owning the trolls that they turned into stalkers. That's hilarious. Check this out to see a real wingnut:

    "DC2 was posting gobs and gobs of claims about himself, and then when the discussion turned to details about himself (which was a result of him posting so much about himself), he wimped out and dropped off. If he doesn't want to talk about himself.. then he shouldn't talk about himself. Pretty basic.

    Believe it or not, when you make regular written statements about yourself, you DO reveal aspects of your personality that CAN be interpreted by sharp people; including strangers on the internet. Keep on posting DC2, getting a glimpse into your mind is something I'm finding amusing for the time being."

    ReplyDelete
  107. "Sigh.... That Post article was presented in response to bubbleheadss who were claiming that rents are dropping in the DC area. The Post article clearly states that rental inventory is tight and getting tighter, forcing rents up across the board. Again, reading comprehension seems a bit on the light side here."

    Yes, everybody knew why you posted it. It's just that if you actually read the article, it also showed all the demand that had gone away for housing at current prices, as wealthy intelligent people have started renting. You're the one with the poor reading comprhension, since you apparently don't even understand the articles you post.

    Reading comprehension is light here, but the problems are mostly on the housinghead side of things, as you illustrate so nicely. Thank you for serving so well as an example of poor housinghead reading comprehension. have a nice day.

    ReplyDelete
  108. Lance said:

    "When one seeks to discredit the messenger, it shows that the message itself can't be discredited."

    I guess that shows why the trolls went after DC_Too, eh?

    ReplyDelete
  109. "it also showed all the demand that had gone away for housing at current prices"

    This is incorrect. Read it again. Also read the part where it says renters "believe" renting is a better value that owning. It talks about renter's *opinions*, but it states *facts* about rising rents. See? :^)

    ReplyDelete
  110. From the article:

    "Among the renters is Randell Rogers, 40, a systems engineer who earns $127,000 a year and recently sold a house. The housing-sale slowdown and sky-high prices have made him wary of buying again, and he is renting a two-bedroom townhouse in Herndon for $1,400 a month, about half of what he thinks he would pay each month if he bought a similar townhouse for about $450,000.

    "It makes more sense to rent this year while values keep going down," Rogers said. "Even with the tax break, it doesn't make sense for me. It's just not reasonable to buy."

    Other affluent families are doing the same. Laura Holliday, 33, and her husband, Jason, 34, both analysts for the federal government, tired of the chores associated with homeownership, the heavy mortgage payments and the hassle of commuting each day to the District from the Mount Vernon area of Alexandria. They sold their house in July 2005 and moved to a townhouse in the Clarendon area of Arlington, where they can commute to work by Metro and have more time to spend with their two young children.

    "We probably won't rent forever," Holliday said, "but for now, we are definitely enjoying renting."

    "Every large developer I know is working on a project that was expected to be condo -- and that they are now taking back to apartments," said Mark Coletta, regional partner of Fairfield Residential LLC, which is building about a dozen projects in the Washington area. "That's what everyone is doing."

    Stephen Muller, president of Union Realty Partners Inc., which is building the 183-unit project, said he began considering the shift after a well-heeled family rented a single-family house he owns, saying they did not think it was a wise time to buy."

    Yep, rents rise and housing prices fall as more and more people make the obviously smart choice and choose renting over buying. That process will continue until prices and rents are back in equilibrium. That's what your article shows. And that's consistent with a housing bubble.

    ReplyDelete
  111. Sweetheart, they are opinions of people interviewed. Just like the people here have opinions.

    Now, the article does also show quantified metrics of reduced rental inventory, and states that the rental inventory is tighter than it has been for some time.

    All this, and I don't even need to go back to the article, as you do. Keep plugging away at it, sweetie; you're like the Litte Engine That Could! {smiles} :)

    ReplyDelete
  112. Beats being the Little Engine that Couldn't.;)

    Glad I could help you comprehend the piece, by the way.

    ReplyDelete
  113. Opinions and metrics are two different things. Look into it.

    ReplyDelete
  114. "Beats being the Little Engine that Couldn't.;)"

    Is that what your mother is? Because I wasn't aware of such a thing until now.

    ReplyDelete
  115. Actually, opinions are important because they reveal where the demand is. I'm glad I can help you out with this.

    ReplyDelete
  116. And I guess it isn't a fact that developers are building apartments for these wealthy intelligent renters who are too smart to buy overpriced housing?

    ReplyDelete
  117. Oh Sweetie, keep trying, you're getting there! Opinion polls indicate that the nation of Portugal is somewhere in Africa, but that doesn't mean that Portugal is actually in Africa.

    I'm so proud of the progress you are making! :^)

    ReplyDelete
  118. Wow, you're so cute, that you don't even understand marketing. Ever hear of focus groups? They get opinions that help them learn about demand.

    Really, you are adorable.

    ReplyDelete
  119. And let's not forget that other article I provided in the first place that shows a lot less mortgage business.

    That's again consistent with people choosing renting over buying, generating rising rents and falling prices.

    See, the opinions of potential buyers about buying tell you about demand, which is sort of important to prices. That's why firms care about the opinions of potential customers and do things to find out about them.

    ReplyDelete
  120. But really, it's been fun teaching you some things. Keep replying if you want to learn more. In addition, ask your school librarian.

    ReplyDelete
  121. Is that all you have to say, my little buddy?

    Do you want Spaghetti-O's or Lunch-Able's for lunch? You're almost a big boy now, so would you like to try a turkey sandwich with mustard? (not the bright yellow kind that little boys like, but the grown-up kind)

    ReplyDelete
  122. Yep, now you're flailing. This was fun, but now you gotta stop while you're behind. I'm really trying to help you out, now.

    ReplyDelete
  123. You're just being mocked now "keith", I mean "DC Too", I mean Keith. No fun when you can easily be mocked, now is it?

    Next you're going to revert to telling us about what a tough life-long urbanite you are..... Let's hear it....

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  124. Keith said...
    "Lance said:

    "When one seeks to discredit the messenger, it shows that the message itself can't be discredited."

    I guess that shows why the trolls went after DC_Too, eh?"

    Keith, there's a difference between wanting to ensure the credibility of one's source and trying to discredit the messenger. I've freely answered questions posed about my experiences relevent to what I am discussing. DC_2 has not. I was also being labled a Realtor based on someone else's assertion ... without my being asked if I was a realtor as a means of making my motives suspicious. THAT is discrediting the messenger when you can't discredit the message. That is NOT qualifying the messenger's experience and capability of giving good advice as anon is trying to do with DC_2.

    ReplyDelete
  125. Keith said...
    "Actually, opinions are important because they reveal where the demand is. I'm glad I can help you out with this."

    Opinions come cheap and are a dime a dozen as we are witnessing on this blog! Let's see where people put their money ...

    ReplyDelete
  126. For 6 years, people were frantic to put their money into housing.

    Now, according to the article, they're putting their money into rent.

    My $0.02.

    ReplyDelete
  127. A renter said:
    " So, once again, houseing heads are wrong rents arent going up

    Someone else said that was unture.

    One of the renters said:

    "Data please "

    And then the Post article appeared for the first time.

    The data are in the Wash Post article. Along with some opinions of people who would rather rent than buy. Those opinions are worth... about as much as I pay read this blog.

    It's all right there...just scroll up and read and it may register with you.

    A Slanteyes Fan

    ReplyDelete
  128. "Let's see where people put their money ... "

    According to the article, they put their money into rent, because buying right now is dumb.

    ReplyDelete
  129. "According to the article, they put their money into rent, because buying right now is dumb."

    So don't buy now, just enjoy the fact that you bought years ago and get on with your life.

    ReplyDelete
  130. Please Ben, don't raise interest rates, I want to see the value of the dollar collapse.

    ReplyDelete
  131. "That is NOT qualifying the messenger's experience and capability of giving good advice as anon is trying to do with DC_2."

    Nope, the anon was stalking DC-2 because DC was totally owning them. The best part is the nutcase who said I'm DC2. Talk about paranoid!

    Lance, you'll just have to face that there's plenty of bad behavior on both sides on these message boards. But you've so totally drunk the kool-aid that you can't acknowledge any obnoxious behavior on the part of the housinghead anonytrolls on these boards. That's yet another reason you have no credibility.

    ReplyDelete
  132. I kicked DC2's ass because it was easy to do, keith.

    I'm also the guy who said you need to announce your pending nuptials to an audience of anonymous housing blog readers because either:

    1) You're practicing for the pointless and fruitless arguments that will define your marrried years. or

    2) Your latent homosexual tendencies compel you to prove to a bunch of strangers on a housing blog that you're not gay.

    (Really, keith, no one was questioning your sexual orientation until you brought it up.)

    Do you walk around the workplace now and say "my fi-AN-ce'" and I this" and "my fi-AN-ce' and I that" blah blah blah blah? Whoa everyboday, look at keith, he has a FEE-ONN-SAYYY" LOL!

    Please, do reveal more about your personal life...

    ReplyDelete
  133. Hey keith, 5 in 10 marriages end in divorce.

    Remember that stat on your third anniversary.

    ReplyDelete
  134. DC2, meet you on the SE corner of n.cap and N sometime soon?

    ReplyDelete
  135. You are unintentionally hilarious. You lost the debate twice in a row, so now you're down to 12-year-old stuff. You've been owned twice in front of everybody, and all you've done in response is make lamer and lamer insults. You're still mad that I totally nailed you with that crack that David deleted, and you're too inadequate to give up. Keep dancing, monkey.

    ReplyDelete
  136. We're in a debate? About what? You jumped in when DC2 couldn't take it any more and dropped out.

    Then you showed up.

    So is it option 1, or 2? Or some hybrid of both?

    Oh, and if you read DC2's comments, you'd see that he perpetually talks (talked? Is past tense more appropriate here?) about what a bad-ass urbanite he has always been. I doubt he'd show up on the corner that I mentioned. It's merely a question of putting up or shutting up. That's what did (he shut up) Your turn. :)

    ReplyDelete
  137. Yeah, the "N" word showed up and remained all day, but my comment abour your FEE ON SAYY was deleted within moments. What's that about?

    ReplyDelete
  138. So DC2 left because he had too much dignity and class to deal with you, and you call that victory? The only thing I feel guilty about is wasting my time on this with some anonymous poster who clearly has emotional issues.

    I'm really done with you, now. If you want to declare victory to make up for your deep-seated insecurities and inadequacies, then go ahead. I invite you to, because you are clearly very lonely and sad and need even an illusory victory to make up for your own feelings of failure.

    DC2 owned you, and then he had the good sense to leave when you demonstrated your deep-seated psychological problems. And now I'm following that wise example. Have a good one, and, really, seek help. You still have a hope at a happy life if you get some help and work out your issues with a trained, professional therapist. Good luck.

    ReplyDelete
  139. keith said in another thread:

    "Lance, are you most homebuyers? As the statisticians say: "An anecdote is a sample of one."

    With this statement, keith confirms that personal anecdotes do not constitute reality.

    Yet in this thread (see above), keith argues that a handful of anecdotes constitute the "fact" that "smart money is going into rent", all the while ignoring the very basis of this discussion: That rental inventory is tight.

    That's it. That's all there is to it. One poster said that rents will go up. Another said that in his personal experience rents are going down, another asked for data, I posted the Post article that quantifies the fact that rental inventory is dropping. Done.

    Yet the thread lives on because the Post presented a couple of personal anecdotes (which we've already concluded are not valid within the context of the larger discussion) about renting. Wheee! Personal anecdotes.

    keith, see your previous statement about how personal anecdotes are irrelevant. Then throw everything you said about the Post article out the window. Why? because you are arguing that personal anecdotes are important.

    Renters are looking for signs that validate their circumstances. Buyers are looking for signs that validate their circumstances.

    ReplyDelete
  140. LOL!

    "Dignity and Class"?!?! On the internet?!, on a blog?!, using the name "DC_Too"!?

    Hilarious!

    See what I wrote about pining for the good old days...

    "I long for the good old days of say, 1944, when people were wholesome and never had a bad word to say about anyone else, much less a bad deed to commit against their fellow man.."

    ReplyDelete
  141. "keith, see your previous statement about how personal anecdotes are irrelevant. Then throw everything you said about the Post article out the window. Why? because you are arguing that personal anecdotes are important."

    A single anecdote is a sample of one. Multiple anecdotes are a larger sample. I will admit, however, that the Post article, in and of itself, would not constitute complete evidence of demand moving to the sidelines. Combine it, however, with the latest falling mortgage origination numbers and 100% higher YOY inventories and lower YOY asking prices and it does add up to smart money staying on the sidelines and renting.

    Like I've said before, I do expect falling house prices and rising rents.

    ReplyDelete
  142. "I kicked DC2's ass because it was easy to do, keith."

    Oh really? Show yourself, realtor boy. I will hang you upside down and burn you, as befits all trolls.

    ReplyDelete
  143. Lance, the benefits of mortgage tax deduction applies to the portion of interest which exceeds standard deduction (~10K for married 5K for individual). Recalculate. And add 20% bracket as well.

    ReplyDelete
  144. 'I will hang you upside down and burn you, as befits all trolls.'

    LOL!

    ReplyDelete
  145. anonymous said:
    "Anonymous said...
    Lance, the benefits of mortgage tax deduction applies to the portion of interest which exceeds standard deduction (~10K for married 5K for individual). Recalculate. And add 20% bracket as well."

    No, they don't. We've been through this many time before on this blog. In brief, when you itemize you get a government estimate at what the average person would be deducting if they were itemizing for all deductible elements except housing related deductible expenses (eg mortgage interest and property taxes) and other deductible expense categories such as charitable contribution and medical deduction. When you itemize, you get the list ALL deductible expenses including the ones that the government otherwise "gives" you as part of the standard deduction PLUS those not included in that standard deduction such as home mortgage interest and property taxes. Your mistake is a common one. Most people who haven't studied tax make the same mistake because of the way the tax form is worded leaving the impression that it is an "either or situation" ... it is for which method you use, but NOT for the total deductions to which you are entitled.

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  146. keith, you asked earlier that I substantiate the fact the the number of people who bought with interest only loans AND financed 100% is not significant. sorry, it you that made the assertion that everyone who bought with an interest only loan in 2005 bought with nothing down. i presented you my case which showed what you were saying was not true ... definitely not everybody since I don't fit your "rule" ... Additionally, it is YOU that made this claim ... So, it is up to you to back it up with hard proof ... And not up to me to prove that it isn't ...

    ReplyDelete
  147. By the way. I talked to a mortgage broker friend of mine and asked him if borrowers had mainly used interest-only loans to supplement their equity from previous sales or if they used it as an affordability mechanism.

    He said they used it as an affordability mechanism, and he's expecting a lot of foreclosures.

    Lance, you got nothing. You were talking out your a**, as usual. And you could've actually been a man and just admitted it, but instead you avoided the question and insulted me. And I've totally nailed you in your usual lies and bluster. You deserve every bit of abuse and scorn you get, you blowhard. You've thoroughly earned every insult, every cheap shot, and every mean spirited bit of nastiness thrown your way.

    ReplyDelete
  148. keith,

    Take a deep breath man. Why get so worked-up over this stuff. It's only money.

    ReplyDelete
  149. This is really pathetic - all the name-calling. The bottom line:

    1. Median home prices ARE unaffordable for the median wage earner in many locations, including CA, FL, DC, NY, Boston, Philly.

    2. In these locations, the real estate market HAS peaked. Inventories are way up, and those with the income to buy are not exactly thrilled with the idea of "catching a falling knife".

    3. Many, many apartments went condo over the past 4 years. Too many, as they are now going back to apartments (I have one just up the street who was late to the game and has returned to it's original mission).

    4. As a result of 1+2+3, rentals are UP, with a current supply shortage of moderately priced apartments. Upper priced rental homes are plentiful.

    5. Lance needs to stop posting under other names (including anonymous, and va_investor). You bought a house recently, and you're a very angry individual. Let it go, man. Let it go.

    ReplyDelete
  150. voice of reason,

    I had a good post all set, but you said it rightly, stole much of my thunder.

    Interesting observation on Lance, certainly fits. If posting makes him feel better about a horrible situation, well, no harm in him going to it I guess.

    The only thing to really discuss is when the bottom will happen and how low prices will go.

    Classically the bottom is nigh when the last thing anyone wants to do is buy a condo. Then it's time to load up. A buddy of mine made a killing on homes basically abandoned when the oil patch folded around Houston. Bought several $150K homes for about $50K each, found renters to keep the lights on, and sold them at a nice profit. That real estate wasn't supposed to ever go down, either. Several of his houses had never been lived in when he bought them. People just walked away from the deals and their deposits.

    I hope whomever granted all of those interest only loans get what they deserve. Many heads rolled at the end of the last big housing bubble with the S&L crisis. This time the bottom feeders might just swim away, leaving the poor 'homeowners' with ruined credit and a mountain of debt thanks to the new bankruptcy laws, all for the sake of a few dollars in commissions. Hurting people isn't necessarily illegal.

    So when will the market recover? Three to five years from the peak is my bet. Shorter for houses, more for condos.

    Oh, a condo I was looking at in south FL for $2.3M USD a while back was just listed for $1.75M USD. So glad I didn't bite. That kind of loss pays for many, many nights in a hotel.

    Just for the record I own my home, don't have a mortage, and have several friends who I feel have hung themselves with condo speculation and interest only loans. They are just now beginning to realize it.

    And I've made plenty of money in real estate, but by selling into bubbles, not buying into them.

    ReplyDelete