Friday, August 18, 2006

Discredited: National Association of Realtors' Anti Bubble Reports

Back in October of 2005 The National Association of Realtors (NAR) published anti bubble reports for 135 metro markets across the United States. The purpose of these anti bubble reports was to provide "necessary information (reports) to respond to the irresponsible bubble accusations made by your local media and local academics." Original posts on these reports:

NAR's Housing Market Reports (10/15/05, Bubble Meter)
NAR Releases Local Anti-Bubble Research (10/02/05, Bubble Meter)

For metropolitan Sacramento, CA their anti bubble report (pdf) stated that

The local housing market will experience a price decline of 5% only under extreme unlikely scenarios. For example, mortgage rates rising to 7.8% in combination with 25,000 job losses could lead to a price decline.
However, according to data from DataQuick:

The new survey shows that median sales prices for new and resale homes and condominiums in Sacramento County fell 5 percent below July 2005 levels.
According to Freddie Mac interest rates on 30yr fixed averaged 6.52 . Jobs are still plentiful in Sacramento as it "showed strong growth in online want ads." [Monster.com] The 'extremely unlikely scenario' where mortgage rates hit 7.8% in conjunction with 25,000 job losses in Sacramento area has not yet happened. Yet, median prices have already declined 5% (YoY) in Sacramento county.

The National Association of Realtors' anti bubble reports will quickly become a laughing matter just like the book Dow 36,000. The National Association of Realtors is losing its credibility.

71 comments:

  1. I do not trust anything these groups say.
    Keep up the good work.

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  2. "The local housing market will experience a price decline of 5% only under extreme unlikely scenarios. For example, mortgage rates rising to 7.8%..."

    The 35 year historical average for a 30 year fixed rate is 9.4%. If the rates go to 7.8% that's still WELL BELOW average. That's just shows how sensitive this market is.

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  3. keep it up david!
    it's nice that someone is actually attacking these scum (drdio, nar) and their UNethical 'reports' and infinite counters! everyone else just sums it up and moves on and forgets it. these fools need to be held accountable for their gross actions.

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  4. I still think that interest rates are having less and less to do with anything in the market - after all, they're "historically" low and certainly haven't been rising this past month (today, in fact, for a 30 yr they're now BELOW 6%) - yet sales are dropping, prices aren't rising (and in some places are falling) and inventory is increasing. It's becoming more apparent that real fundamentals, like income, are the issue. Real estate is tapped out on affordability, and lower interest rates aren't going to help.

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  5. Excellent work David!! I am going to forward this page to the Sacramento Bee!!

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  6. "The National Association of Realtors is losing its credibility."

    How about some past tense?

    "has lost" rather than "is losing"

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  7. Take a look at these excerpts from the NAR's FAQs on the anti-bubble reports (published in Oct. 2005):

    http://www.realtor.org/Research.nsf/Pages/Anti-BubbleQ&A?OpenDocument

    "Q: Should we be concerned that home prices are rising faster than family income?

    A: No.

    Q: What are the prospects of a housing bubble?

    A: There is virtually no risk of a national housing price bubble, based on the fundamental demand for housing and predictable economic factors.

    Even in an economic downturn, the demand remains. If conditions become unfavorable, home buying may be postponed, but a general price decline remains highly unlikely.


    Q: What is likely to happen with home prices?

    A: ...a general slowing in the rate of price growth can be expected, but in many areas inventory shortages will persist and home prices are likely to continue to rise above historic norms."

    This is either horrible ignorance or dispicable dishonesty on the NAR's part. They should be ashamed of their conduct. It won't be long till 60 Minutes does a look back piece on the NAR's gross misconduct that contributed to the housing bubble.

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  8. van housing bubble,

    " "The National Association of Realtors is losing its credibility."

    How about some past tense?

    "has lost" rather than "is losing""


    With me they have lost their credibility many months ago. I was refering to credibility with the general public and the media.

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  9. if only NAR was no longer veiwed as credible by the mainstream media like the Washington post, which seems to have Lereah on all its RE reporters speed-dials

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  10. curious to see how marrian haggerty puts lipstick on the pig (of this cratering market) during her 1 pm Post chat

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  11. Frankly, I think losing face/credibility is too mild! Intentionally lying crooks comes to mind...they should be held accountable since they profited from the manipulations and false representations...what a disgrace to the profession. I do not understand how they can even face friends, collegues and family with the blatant lies they have spewed.

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  12. "Van Housing Blogger said...

    "The National Association of Realtors is losing its credibility.""

    I never realized that American realtors were such an issue in Canada.

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

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  14. Thought for the day:

    A bubble (in any market) can only occur if there is a mad rush to sell. And a mad rush to sell can only occur if there is the greater fool theory operating in reverse (i.e., I don't want to be the last one holding a depreciating asset with no inherent value.) Just like the often mentioned greater fool theory relies on unfeathered exhuburance and a belief that one is going to be left behind, the bursting bubble greater fool theory relies on unfeathered fear and a belief that one IS being left behind ... with nothing to show for it. Since all markets are influenced to a greater or lessor degree by irrational mob behavior, and since the ideal is to have a steadily rising (i.e., not too fast and not too slow) market. Who is the more responsible party? ... The entity that helps put on the brakes to slow a fall (eg. the NAR)? Or the entity/blog that tries to speed up the fall with tales of gloom and doom of a coming recession/depression? Depressions and recessions are bad things, aren't they? Or do some people have no morals and welcome a recession and/or depression if individually they believe they will profit from the losses of others? And isn't that completely unethical?

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  15. oh Lance, you're just jealous because you aren't renting in these uncertain times. You could lose your job tomorrow, or a meteorite could fall from the heavens and obliterate most of North America.

    What will you do *THEN*, smart guy? You'll be tied down to your house, whereas renters like me will just get out of the way of danger and laugh at housingheads like you.

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  16. Get over it Lance. This blog is only reporting on events that are already in motion.

    And keep in mind that the run-up in homes prices priced hard-working individuals (who wanted to own AND retire) out of the market. It works both ways.

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  17. Lance, people like you are responsible for the fact that my Gramma Gertie cannot retire.

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  18. Lance, this time you've truly entered the land of stupid.

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  19. OT - Maryann Haggarty has completely lost it. On the Post's weekly chat she said single income households will never again be able to afford a home in Arlington County.

    I questioned the absurdity of this statement and she tried to defend her statement by saying that historically single income households haven't been able to afford homes in urban areas.

    She has completely lost it. Single income households were able to afford homes before the bubble and they will once again after this bubble bursts. Her comments were reprehensible, irresponsible, and will go down in history as being completely laughable.

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  20. "This is entirely rational, i.e. why would consumers continue to pay for a good/service for which there is an oversupply?"

    And, this explains why a 12 oz. bottle of water could command $20 for weeks in post-Katrina New Orleans. If you didn't have the $20 for the 12 oz. bottle of water, but you *did* have a loaded .357 Magnum in your hand, the water could be yours anyway.

    Now that clean water is flowing freely from taps again in New Orleans, bottle water is 1 cent per gallon, and falling.

    The relationship between supply and demand is always perfectly rational.

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  21. John F,

    I agree with you. I know individuals and couples that were able to buy homes as late as 2003 on single incomes - inside the beltway, in great neighborhoods, with realistic incomes. I simply cannot believe that fundamentals changed so drastically in 3 years that this will never be the case again.

    Over the course of a generation with inflation and large scale population growth, surem but not over the span of just 3 years with very low inflation.

    My $0.02.

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  22. "Her comments were reprehensible, irresponsible, and will go down in history as being completely laughable."

    This sounds like something the Jackie Childs character from the Sienfeld TV show would say.

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  23. Bring back fairness in life! Force Lance to sell his house for half of what he paid for it!

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  24. re maryann haggarty

    My landlord is an woman in her early-30s who own 2 one-bedroom (plus den) condos bought in the early 2000's. One in Logan Circle area; the other in Adams Morgan.

    While not Arlington, prices are comparable, at least in Logan Circle... While she might not be able to afford those today, she was able to afford them not very long ago...

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  25. Or the entity/blog that tries to speed up the fall with tales of gloom and doom of a coming recession/depression? Am I somehow responsible for the NASDAQ dropping to 1,200 from 5,000 when it was fairly valued at 2,000?

    NO!

    Lance, I like your counter viewpoint, but homes, like any asset, eventually drop (or rise) to their funamental value. While that fundamental value does rise with time, whenever home values have gone more than about 33% above fundamentals, they drifted back down to funamentals.

    In the past, the bubbles were all local.

    There is no way to blame the recession on these blogs. The attention they get is really trivial.

    I don't want a recession, but we're doomed to have one. I didn't let people borrow so much &*%^ing money that there simply is no cushion.

    Right now people are earning 2% LESS than they're spending. In a recession, people have no choice but to save and pay back that "expensive debt."

    In no way do the bubbleheads want a recession. But unfortunately its required.

    Did we want an end to laying of fiber for telecommunications? No. But once 25X the demand was laid... that's it. Now only fiber in demand is laid and its going to be another trans-Atlantic or Trans-Pacific bundle is needed.

    Did I want the late 1800's to have a railroad bubble? 10% of the workforce was out laying rail at that time. Five years later, most were laid off. Why? The nation didn't need 5,000 (or was it 6,000) miles of rail/year.

    Now we've gone out and built too many homes. Worse, we've made borrowing far too easy and people have borrowed far too much.

    For the next 5 to 17 years (yes, that long), the USA is going to have to deflate the credit/housing bubble. Nothing I could say would make someone stop buying a fancy Plasma TV for the last few years. Nothing I can say is going to stop someone from "hunkering down" and paying off their debt.

    As to unethical... How the &*^! can it be unethical to warn about the truth. In 1938 would it have been unethical to warn about the impending millions who were about to die? Would it be unethical to warn your friends to pull all of their money out of real estate, stocks, and banks in 1929?

    No. It would be good advice. Does it hurt the economy? Yes.

    But don't even think for a second that the "bubbleheads" put the economy in the precarious state that its in today; that was done by people borrowing money.

    What was the #1 thing they borrowed on? Homes. Who's to blame them for that.

    Simple, anyone who drove the frenzy of "buy now or be priced out forever." I don't care if they were a realtor (tm), mortgage broker, friend, or family. Since the realtors were real public about driving the frenzy... They deserve to be front and center for the blame.

    Periodically, recessions have historically been required to get an economy back in balance. They tend to only happen after an economy gets out of balance in two major sectors. Today, its credit and because of credit housing. Like it or not, we shall return to balance. All we bubbleheads have done is point out: 1) how housing is out of balance and 2) what the historical balance points are.

    I'm sad. I have friends who will lose their house. Is there anything I can do? Nothing unless I'm willing to give up the cance of buying a house for myself and my fiance'.

    What you're doing is like blamming a short seller. But short sellers keep stocks from getting too high and *buy* when stocks have finished tanking (keeping the market alive). Since short sellers shoot money into a stock market when its most desperate for that money... I'm glad they're there.

    As to mad rush to sell...
    That's only going to happen if there is a factual reason people know that they have to sell. Lance... you pointed out how most people don't have to sell and don't want to sell. Those people won't. Its only going to be those who must move. Oh yea, that's 80% of the population every 5 years...

    I agree with Whitetower 100%. Nice post.

    Neil

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  26. Now that all the wordsmithing has been accomplished, now that all the pontificating, bashing, and general bloviating is complete:

    We simply need the recession to begin.

    Could someone please place a wake-up call for the recession?

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  27. unfeathered fear

    Unfettered?

    :)

    MjM

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  28. Nice post Neil.

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  29. Excerpt from the Baltimore Sun: Interest-only loans may start cheap, 'reset' scary.

    To head off potential problems, the largest mortgage originator in the United States, Countrywide Home Loans, quietly 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 model letter provided to me by Countrywide includes this hypothetical example of what could be ahead for a California homeowner currently making only minimum payments monthly on a $402,000 loan.

    The current full interest rate on the loan is 7.6 percent, but the borrower has been paying just $1,348.47, far less than what's needed to fully amortize the mortgage over its 30-year term.

    If the loan reset at today's rates, the letter explains, the full payment required would be $2,887.50 - more than double what the homeowner has gotten used to paying. Future reset rates could be even steeper, making the potential payment crunch much worse.


    They are warning folks now.

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  30. If you scan news across the country it's amazing how one piece of information and a few quotes spread everywhere, even if it's bogus.

    Local news just sucks in the national feeds without doing any local reporting.

    If they do some local "investigating" it's only to call some local or state RE folks.

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  31. VA Investor,

    You and a couple other posters were mentioning home valuation based on a multiple of the equivalent monthly rent of a place. What are the traditional rule of thumb numbers? Was it between 90-120 for cheap buy to expensive buy?

    Thank you,
    My $0.02.

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  32. Nice post Neil.
    Thank you. Now who do I thank? ;) (You posted anon sans signature.)


    Neil

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  33. Isn't it kind of funny how Lance has gone from his usual "mine's bigger than yours" sneering, to whining about this and other blogs causing a recession?

    BTW - Bonus points to anyone who found the irony in Sneery Lance complaining about other's "tone".

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  34. "curious to see how marrian haggerty puts lipstick on the pig (of this cratering market) during her 1 pm Post chat" --Anony 9:56 AM

    Easy, she just ignored it. A little testy today though (more so than usual I mean).

    And Lance, I welcome your opposing viewpoint, but were you equally concerned when rapid appreciation of home prices left many unable to purchase without endangering their financies? Or does your moral compass only point in one direction?

    H

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  35. Ring. Ring. Ring.

    I'm calling the recession, but it hasn't picked up yet.

    Ring. Ring. Ring.

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  36. My $0.02,

    I don't know what, if any, price to rent metric VA investor has discussed, but 100 to 150 times monthly rent is the long term historic average for properties in the DC area. The multiple varies depending on the location and quality/amenities of the subject property.

    Pick almost any property in the area and go back 7 or more years you'll find this price to rent ratio.

    Current ratios average 250 to 400 (that can't end well).

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  37. I've read M. Hagerty's real estate chat. Once again, she posted a few questions posed by the bubbleheads. These questions are easy to spot, they're all rude, obnoxious, and condenscending. The same bubbleheads, ironically, accuse housingheads of being bitter and angry. Double standards.

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  38. Why do people assume they know more than the NAR? Every market is different. For example, Los Angeles, The San Fernando Valley, The Santa Clarita Valley are all different markets. Yes, the area resides in LA County, but the location, expectation, cost of living, etc... is not the same.

    It's funny how the general public thinks they know more about their local market then Realtors do. If you are serious to learn whats going on in your specific market, as a local real estate agent. Contact the local Board of Realtors. STOP reading all the BS!

    Sincerely,

    Richard Johnston, REMAX
    http://www.properties.la

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  39. In other words:

    Stop reading for yourself, listen to a realtor instead. After all, they will give you an objective view of your local market. They have nothing to gain by...oh, wait.

    Nevermind.

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  40. Neil said, “What was the #1 thing they borrowed on? Homes. Who's to blame them for that.”

    Actually the problem is the Federal Reserve. It might be time to find a way to implement a free banking system with a currency based on something of real value, transparency and strong rules on fractional practice. With a base on precious metals it would balance out naturally instead of letting a central bank print paper and manipulate via interest rates. I think I would rather deal with deflation and being allowed to save for rainy days instead of the debtor society we force people to use in order to live.

    In the end game though the blame all lies with the Federal Reserve. They created and enforce the debtor society and so we reap what they sow.

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  41. "Why do people assume they know more than the NAR?"

    LOL!!!!!!!!!

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  42. Anon 1:05- great response.

    unfortunately, Maryann hasn't let Kristin Downey or any of the other bubble-aware writers (Tse comes to mind) take the reins online for about two months.

    i've tried to find Maryann's name on sales records in the area but to no avail. so if she's not an FB, what gives? she must be married to a NVAR guy.

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  43. Anonymous said... I've read M. Hagerty's real estate chat. Once again, she posted a few questions posed by the bubbleheads. These questions are easy to spot, they're all rude, obnoxious, and condenscending. The same bubbleheads, ironically, accuse housingheads of being bitter and angry. Double standards.--12:57 PM

    And yet, isn't it odd that the only "bubblehead"-like questions posed are either very fair and politely-worded questions that are snidely dismissed (e.g., "I'm a bit unclear what you mean by "the current situation." The ceasefire in Lebanon?") or aggressive tirades by folks who disagree with her?

    Either way, it allows her to effectively sidestep actually discussing the situation (and in case you say "What current situation? Lebanon?" - I mean the fact that YOY national home prices dropped 1%, which has, to my knowledge, never happened on a national scale; and the fact that YOY, many prices in the DC area dropped). Now, I do agree that some folks on either side should tone down their discourse. Haranguing someone is never a good way to get a point across to them or anyone else.

    Personally, I'm not a fan; one of her colleagues - Kristin Downey maybe? - did the chat a few months or so ago and seemed polite, balanced, and well-informed. I wish she did them more often.

    H

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  44. Quote: Why do people assume they know more than the NAR?

    This isn't a matter of opinion. David showed that the NAR's previous Anti Bubble analysis turned out to be wrong. He is pointing out their there vehement reassurances of the future were proven wrong by factual data that exists now. That there anaylis is flawed is now an objective fact.

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  45. Please bring back Kristin Downey for the chats or, better yet, let me be a guest co-host with Maryann to help bring some good old fashioned common sense to the discussion.

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  46. It's funny how the general public thinks they know more about their local market then Realtors do. If you are serious to learn whats going on in your specific market, as a local real estate agent. Contact the local Board of Realtors.

    First: Thank you for putting your name and a web link. Very respectable.

    But still:

    ROTFL

    Thank you. I haven't read anything that funny in a while. Why don't I ask a salesperson if I should buy their product. Oh, that was too funny! Come on! That's like asking a used car salesman if the car is rthe one I should buy. I've seen what realtors did for a living the last few years... its nothing like what the profession sells themselves to be. Let's be honest, they are nothing but "transaction agents."

    My grandfather's advice: There are four people in a home purchase: The buyer and his realtor, the seller and his realtor. Always remember its three people against the buyer." I consider it good advice.

    What realtors (tm) will say to a client is much different than what they say to their friends...

    And fundamental based economics BS? Yea... Do you have a degree in economics? My fiance' does. My degrees? I specialize in analyzing experimental data to find trends... Anyone who's half awake knows the market is "slowing."

    When homes are affordable again... then I'll buy.

    Oh, I won't be using a normal realtor (tm) either. I'm looking at one of those online with a rebate. Why not. I know the neighborhood, I know the homes I'll bid on. I'm not paying 3% for bidding assistance. :)

    I have to agree... most of the rudeness is from those who argue against the bubble.

    And let's say I'm wrong. So what! I'm going to buy in 2 or 3 years anyway. If I'm right and home prices are tanking... I might wait another 2 years. If I'm totally wrong... I'll be in the market in 24 months.

    Trust me, the number of people listening to bubble heads is trivial.

    But we're listening as friends cry into their beers as they *know* they're going to lose their homes.

    We listen as coworkers get angry as they cannot meet their debt obligations.

    Besides, the real fun isn't until 2Q2007

    I agree the fed deserves blame. But to feed the fire for profits... gets the guilt too.

    Neil

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  47. Well, John, with respect, I would suggest that if that was your question in the chat, its rather aggressive tone makes a general reader (not me) doubt the motives of the questioner (you) - not the answerer (Maryann). This is precisely why balanced, informed points, rather than forceful emotion, should set the tone for questions.

    Or, short form: if you come off as angry and indignant, it is easy to ignore or be distracted from some very valid points (in this case, that there were plenty of single-income households that bought homes in the post-War era).

    Just offering a humble opinion on rhetorical technique.

    H

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  48. the issue insn't wether or not NAR knows more about the real estate market that bloggers.The issue si that NAR is not some dissinterested observer--it represents the interests of a gruop of professionals who make their living selling homes. Therefore the NAR is simply incapable of telling the truth about what it knows about the RE market---if what it knows is that prices are declining and it is a bad time to buy. It is just a basic conflict of interest question.

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  49. Regarding the Post's RE chats, I like how when someone questions her RE credibility "she's a journalist not an expert."

    Question her journalistic integrity, and I'm sure she's a columnist.

    Question her opinion and I'm sure she's only basing it on RE facts and experience.

    And we come full circle...

    The chats are pretty bland in my opinion.

    My $0.02.

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  50. dc_too said:
    "The economic truth is that the average job, whether performed by a man or a woman, used to support a familly, including the purchase of a house."

    yes, and families were also content to live in 1000 sq ft or small homes with children doubled (or tripled) up in one or two rooms and everyone gathering in the living room (where the sole A/C unit was) to watch the sole black and white TV (while mom was washing the dishes) until dad drove home from work in the one (manual transmission, unairconditioned) car (with an AM radio and 1 speaker) the family owned that took them to their vacation (renting a showerless cabin with bunk beds)within driving distance from home or out to the local "5 and 10" or the supermarket which had a range of items stocked not much exceeding today's 7-11. Ah ... those were the days ... Nope, nothing has been gained by switching to the two-earner income model for families ... nothing at all ...

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  51. Lance, the house I live in now was built in 1954, has 4 bedrooms and 2.5 baths, and cost in 1997 far less than a *townhouse* (an old townhouse on the inexpensive side) costs today.

    We're not talking 1954. We're talking 1997.

    H

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  52. lance wrote:
    "A bubble (in any market) can only occur if there is a mad rush to sell."

    I'm surprised nobody caught this. Lance obviously doesn't know what a bubble is. He is confused between the bursting of a bubble and the bubble itself.

    Here's the definition from investopedia.com:
    Speculative Bubble A temporary market condition created through excessive buying, and an unfounded run-up in prices occurs.

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  53. Neil said:
    "I'm sad. I have friends who will lose their house. Is there anything I can do? Nothing unless I'm willing to give up the chance of buying a house for myself and my fiance'."
    (my emphasis)

    You post is very well thought out, and logical in most respects. The one flaw in your logic though that I can detect is that your view of the situation is very much colored by a "it's us or them" perspective. It's hard to explain ... But it wasn't until I came to the realization that it's not a zero sum game out there that I started to get where I wanted to get financially and emotionally. Basically, through the example of friends, I learned that when you help yourself you are helping others ... AND vice versa. I'm not implying you can "change the realities of the market" ... just that your view of these realities might be colored by this "it's us or them" attitude ... and that may be leading you to misjudge the realities. Just IMHO ...

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  54. H said:
    "And Lance, I welcome your opposing viewpoint, but were you equally concerned when rapid appreciation of home prices left many unable to purchase without endangering their financies? Or does your moral compass only point in one direction?"

    Have you forgotten that I am a 2005 buyer? Sorry, I don't buy into the "left many unable to purchase without endangering their finances". We all have a choice about what we buy and where we buy and how we buy. Would I have like to have stayed in my very fine neighborhood where my condo was and where I'd been actively involved in the community? Of course, but instead I moved to a much more transitional area. And would I have like a big house with at least 3 bedrooms? Sure, but I settled for a small one with 2 bedrooms and a basement rental that helps me meet the mortgage payment. We all have choices to make. Very very few people are really truly "priced out" of a house. They may be priced out of the level of luxury they'd like to have, but they are not priced out of a place to live. And I don't feel sorry for those who think themselves too good to come to terms with what is affordable for them. Especially when they'd rather see other people thrown into foreclosure then their having to "settle" for something they think is below them. Sorry, I don't go for that kind of stuff ...

    And I can imagine the selfrighteous flames I am going to receive for this post from people explaining why they MUST have that which they can't afford and how some place or other that they can afford is just not safe enough, beautiful enough, or convenient enough for their champagne tastes ... and beer budget.

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  55. lance wrote:
    "A bubble (in any market) can only occur if there is a mad rush to sell. And a mad rush to sell can only occur if there is the greater fool theory operating in reverse (i.e., I don't want to be the last one holding a depreciating asset with no inherent value.) Just like the often mentioned greater fool theory relies on unfeathered exhuburance and a belief that one is going to be left behind, the bursting bubble greater fool theory relies on unfeathered fear and a belief that one IS being left behind ... with nothing to show for it. Since all markets are influenced to a greater or lessor degree by irrational mob behavior, and since the ideal is to have a steadily rising (i.e., not too fast and not too slow) market. Who is the more responsible party? ... The entity that helps put on the brakes to slow a fall (eg. the NAR)? Or the entity/blog that tries to speed up the fall with tales of gloom and doom of a coming recession/depression? Depressions and recessions are bad things, aren't they? Or do some people have no morals and welcome a recession and/or depression if individually they believe they will profit from the losses of others? And isn't that completely unethical?"

    Needless to say, Lance's premise is wrong, so all conclusions derived from that premise are bound to be wrong as well. Somebody needs to teach this boy quantitative analysis.

    And no, recessions are not bad things. Lance is lucky that this week The Economist just happens to have an article about the benefits of recessions. They write:

    IN 1871 America added about 6,000 miles of track to its railways, an endeavour that occupied a tenth of its industrial labour force. But by 1875 track-building had fallen by more than two-thirds, and employed less than 3% of America's workers.

    According to Brad DeLong, an economic historian at the University of California, Berkeley, the violent ups and downs of the railway industry help to explain the popularity, before the Great Depression and John Maynard Keynes, of a fatalistic view of the business cycle. Recessions, however unpleasant, were cathartic, and therefore necessary. They released capital and labour from profitless activities (such as laying the year's 6,000th mile of track) as an essential prelude to redeploying them elsewhere. “Depressions are not simply evils, which we might attempt to suppress,” wrote Joseph Schumpeter. They represent “something which has to be done”.


    Here's the full article. They end with a discussion of the housing market. http://www.economist.com/finance/displaystory.cfm?story_id=7796825

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  56. Have you forgotten that I am a 2005 buyer? -- Lance

    You are a 2005 upgrader Lance. You've said many times you started buying in either the late eighties or early-nineties.

    Apples, meet oranges.

    We all have a choice about what we buy and where we buy and how we buy. -- Lance

    That's partially right. I choose not to buy currently, now, when I can, because prices are ridiculous. I couldn't have bought in 1997, or 99, or even 01, which you suggested in a previous thread some (so-called) bubbleheads should have done.

    Very very few people are really truly "priced out" of a house. They may be priced out of the level of luxury they'd like to have, but they are not priced out of a place to live. And I don't feel sorry for those who think themselves too good to come to terms with what is affordable for them. Sorry, I don't go for that kind of stuff ... -- Lance

    You're right. I'm not priced out of a place to live. I rent something that is good for my family in a decent but by no means lavish neighborhood, so that they can be housed, warm, and safe. I have come to terms with what is affordable for me, which means I recognize that I am priced out of a place to own. You would have me think that buying with an interest-only loan is a good way to find something "affordable." That's just ridiculous double-talk.

    And this claim that those not buying are doing so b/c of their need for "luxury" is just silliness. Pure doublespeak. The people who want what they can't have are the ones who bought "luxury" condos, townhomes, and McMansions with interest-only loans. They stretched into homes they couldn't afford and, in doing so, helped drive prices up more. They are some of the ones who are currently tanking now that market is diving.

    So, do you not feel sorry for them now? Based on your words above, you wouldn't.

    As I say Lance, I value opposing viewpoints, but claiming that folks expecting a correction in an overpriced market are just not willing to work within their "beer budget" is just ridiculous, not to mention insulting. Especially when so much of the problem currently stems from people not keeping to a budget, and therefore buying with toxic mortgages (some 50% of buyers in the past 2 years in DC Metro area), with no equity in the form of down payments, and savings rates in this country absolutely through the floor.

    Try again.

    H

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  57. From Lance:
    he one flaw in your logic though that I can detect is that your view of the situation is very much colored by a "it's us or them" perspective. It's hard to explain ...

    First, I really respect your viewpoints and the higher ground you so usually take. Thank you.

    Now, I didn't mean to imply "us vs. them." The reality is, the only way I can help my friends from getting forclosed is to take the money I've saved and give it to them. :( At this point, I need to look out for more than myself and use those funds to eventually buy into the market (24+ months as noted in my earlier post).

    I would *much* rather buy out the neighbor of my friend and BBQ with them... but at these prices... No interest. And I've seen the statistics on how many people are in financial trouble versus how many credit worthy buyers are on the sidelines.

    Lance, I do respect your money is where your mouth is. That spells out a consistent honesty. Please continue to share your viewpoints. We might not agree on the state of housing or the economy, but one time when I'm in DC we should enjoy a good dinner. :) Alas, that probably won't be until 2008 (due to business travel, my upcoming wedding, honeymoon, etc.)

    Neil

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  58. According to some advice I received back in 1997, the real estate bubble was about to burst then, so I sold my condo. Had I held on to it today, I would have reaped a $150 thousand bucks!!!!
    Stupid me I sold for a 10 thousand profit.
    In real estate, the spoils go for the patient ones, and the ones who refuse to sell. Imagine the fools who sold their real estate for peanuts back in the 70's when we had double digit inflation? I bet they are eating their hearts out, at the loss of $1 million plus profit. I am eating mine out over $150 thousand lost in profit. That was enough to pay off after I sell it my mortgage on my second home.
    Fortunately I live and learn, my best advice? Unless you live in the hood, where fear monger rats run wild, absent of good schools and filled with crack smoking mayoral candidates, I say keep it. Don't sell if it has location, location and location. The fear mongers will lose and continue to lose. But not to fret losers, I will throw in a pitty dollar from my profits your way, just so that I let you keep believing I care for your loser fear monger and goten nothing in return ass. Laughing all the way to the bank after a hard few months work, feels very very good, especially when you deposit two years worth of a doctor's paycheck. What can I say? I learned my lesson.

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  59. And to clarify my earlier remarks, when I say:

    "I choose not to buy currently, now, when I can, because prices are ridiculous." -- 2:42 PM

    I mean, I could buy a 2 bedroom condo in a suburb on a toxic mortgage, as Lance has seemingly suggested to me in the past. I'd much rather rent my 4 bedroom 1950s rancher (apparently, I'm greedy for luxury).

    H

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  60. "I don't know what, if any, price to rent metric VA investor has discussed, but 100 to 150 times monthly rent is the long term historic average for properties in the DC area. The multiple varies depending on the location and quality/amenities of the subject property....Current ratios average 250 to 400 (that can't end well)."

    100 times monthly rent would give you a cap rate of roughly 6.6%. Here are the cap rate calculations:

    rent x 12 x .55 / 100 = 6.6%
    rent x 12 x .55 / 150 = 4.4%
    rent x 12 x .55 / 250 = 2.64%
    rent x 12 x .55 / 400 = 1.65%

    On investment property, your cap rate needs to be slightly greater than your mortgage interest rate if you want to have positive free cash flow with a small down payment. It's only worth buying property with negative free cash flow if the property will appreciate enough in the future to make up for your cash flow losses.

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  61. "According to some advice I received back in 1997, the real estate bubble was about to burst then, so I sold my condo. Had I held on to it today, I would have reaped a $150 thousand bucks!!!!"

    There was no bubble in 1997, so selling was not a smart decision.

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  62. "500,000 for that crap?" One man's crap is another's golden opportunity. You make the call, I will make mine, all I know is that they aren't making land at Ford, even at your Lexus dealership.
    The moment they do make land in the dc area? That's when I will get out of real estate all together. Please keep on renting guys, we need lots of folks like you all to keep paying our high mortgages. Thank you for your ignorance, for it still puts cash in my pocket and many of my coleagues. As long as you guys continue to buy toys and instead invest in your future as in buying a $500,000 well located piece of crap that you can no doubt fix arround, but instead chose to rent? I will not hesitate buying that "piece of crap" that will continue to generate a line of renters(paying property managers) at my open house, until someone intelligent begs me to buy it for another 50 thousand more.

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  63. anonymous wrote:
    I will not hesitate buying that "piece of crap" that will continue to generate a line of renters(paying property managers) at my open house, until someone intelligent begs me to buy it for another 50 thousand more.

    Sorry, but the rents won't cover the mortgage payments in the metro areas with overpriced housing. Go ahead and buy the $500,000 piece of crap. I hear some alligators that need some feeding.

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  64. dc_too said:
    "As usual, you have missed the point entirely. We are the first generation of Americans who will not have the material standard of living that our parents had."

    No, you CAN have the same standard of living. When they bought in that same neighborhood you are now in (or one like it), it was far away from everything and required their giving up the comforts they had known growing up in more established areas. They weren't getting what their parents had either. But that was because they, like their parents before them, were just starting out. Apples to apples and oranges to oranges. I understand what you are saying because I felt the same way some 15 years ago. But then I came to realize that I just didn't understand that having it hard when you start out is a fact of life for most of us. And for most people that translates into taking action ... and not "inaction" as seems to be the mantra on this blog.

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  65. James - i just clicked on your name and realized you're the proud owner of those housing price graphs. I can't tell you how many times I've encouraged people to look at those graphs. They are great. Thanks for doing those.

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  66. John Fontain wrote:
    James - i just clicked on your name and realized you're the proud owner of those housing price graphs. I can't tell you how many times I've encouraged people to look at those graphs. They are great. Thanks for doing those.

    Thank you very much for the compliment, John. Also, thank you for referring people to my site. Are you the guy who wrote about them on early-retirement.com, by chance? When I first created them, I couldn't figure out how to get anyone to visit them. Now they seem to get 30-50 unique visitors per day. Those aren't Bubblemeter numbers, but I'm pleased.

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  67. the market is crashing before their very eyes and these dopes are still dropping the "bitter renter" crap.

    hilarious. these people were chased off ben's blog 6 months ago.

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  68. Neil said:
    "First, I really respect your viewpoints and the higher ground you so usually take. Thank you."

    Thanks guy! I appreciate the kind words!

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  69. James - Craigslist's HoFo. Graphic presentation of data helps the sinking-in process for those with thicker-heads.

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  70. I don't see any decline in the New Jersey market. A few small prices reductions on over priced homes is hardly worth mentioning. This state is very over priced and has stayed this way for awhile.

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