Friday, August 04, 2006

To Buy or Not To Buy That is The Question

The housing market has changed dramatically in the bubble markets since over the last year. Back in the summer of 2005 bidding wars were common and inventory was very low in the bubble markets across the USA. Those days are long gone.

Today, a new reality faces both buyers and sellers. Its the Inventory Stupid! Inventory has increased dramatically in most bubble markets in the past 12 months. In Phoenix, inventory rose from 10,748 on 7/20/05 to 51,557 on 7/20/06 according ZipRealty and Bubble Markets Tracking Inventory.

Some real estate agents are even claiming that is now a "buyer's market" due to the increased inventory, lack of bidding wars and the small reductions in prices. John Riggins of John Riggins Real Estate in Honolulu said:
"America is officially into a buyer's market, so (there is) no reason to sit on the sidelines and wait for a price drop," Riggins said. "Just like home builders are offering incentives, more and more sellers are offering incentives such as holding the note, paying down the interest rate or assisting with closing."
So is it a good time to buy in the bubble markets?

Real prices will continue to decline in the bubble markets for many more years. The bubble markets will experience price declines of at least 20% in real dollars [inflation adjusted] over the course of 3 years [from the peak]. In many bubble markets, the peak price was reached late summer 2005. Most bubble markets will experience real price declines significantly greater then 20%. Some may experience real dollar price declines of 40% over the course of 3 years. Many markets may experience real dollar declining prices for more then 3 years.

Just as importantly, monthly rents are generally cheap compared to buying in the bubble markets. Buying in the bubble markets generally costs 1.25 to 2.5 times the cost of renting ( for a similar property; assuming 30yr fixed, solid credit, property taxes, and typical interest rate tax deduction). Each month hundreds if not thousands of dollars can be saved and invested if one chooses to rent as opposed to owning.

Buying now in a bubble market does not make financial sense. As housing inventory continues to rise and prices decline there will be lots of buying opportunities in the future. If you earn a reasonable income it is an absolute fallacy that you need to "Buy now or be priced out forever." In the Bubble Markets, renting and waiting is fiscally prudent. Don't be fooled.

302 comments:

  1. This is completely irrelevant, but how funny is it to have a quote from John Riggins (yeah, I know it's not the same one) on a DC blog?

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  2. Saying now is a buyers' marekt is like saying NASDAQ 4,999 was a buyers' market. These real estate agents want transactions and will tell you anything to get a sale. It's shameful.

    We'll have a buyers' market when the cost of buying approximates the cost of renting. We are a long way away from that now.

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  3. Lots of RE agents also are holding several properties they need to unload on the next greater fool. The desperate bitter realtors are soon to be out of work. Watch them flood this blog with the same lie they always tell, that real estate never goes down.

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  4. indeed. if a buyers market is one with more sellers than buyers, this is a buyers market. But a buyer's market is not always one in which you should buy -- sometimes prices take time to adjust to the new imbalance of buyers, sellers. Especially RE.

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  5. My back of the envelope calculations on one of the other threads estimate that there has already been a real decline of about 8% in DC area asking prices since the summer of 2005 peak. A 20% decline in real prices is a very moderate prediction, IMHO, and we may already be one-third of the way there.

    I suspect that a lot of the decline will be due to inflation, with nominal price declines being less dramatic. This is what has happened with the Dow and S&P, which have declined a great deal in real terms since their bubble tops in March 2000, but have declined little in nominal terms.

    I doubt the Fed will allow large drops in nominal housing prices, but a 10-20% drop in nominal prices in bubble markets over 3-4 years of inflation could be a large real price decline since the peak of 2005.

    A Redskins fan

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  6. anon said:
    "I suspect that a lot of the decline will be due to inflation, with nominal price declines being less dramatic."

    Your statement is right on the money! But now put 2 and 2 together and try to figure out why if you buy now pre-inflation and lock in your payments in today's dollars, you are far better off than if you buy after interest rates have taken off and you are paying the same nominal dollars for a house that has declined in real dollar terms. Hint: interest rates contain a component to make up for inflation's effects to the lender. (i.e., 2% inflation adds 2 percentage points to mortgage rate, and 10% inflation adds 10 percentage points to the mortgage rate.) Second hint, "price of house" under your scenario remains the same in nominal dollars. Third, do you rather borrow those same nominal dollars at 6% interest (2% inflation) or at 14% (10% inflation)? Fourth and final hint: Today, you can borrow those same nominal dollars at 6% ... What will you be able to borrow them at after the inflation you predict kicks in?

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  7. "What will you be able to borrow them at after the inflation you predict kicks in?"

    If really strong inflation happens then interest rates will soar and nominal dollar prices will really plummet.

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  8. Boldface type = Very Convincing!

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  9. ""What will you be able to borrow them at after the inflation you predict kicks in?"

    If really strong inflation happens then interest rates will soar. "

    Gold star for the guy answering rhetorical questions!

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  10. This news came after the closing bell yesterday: "IRVINE, Calif., Aug 03, 2006 (BUSINESS WIRE) -- Quality Systems, Inc. (QSII, Trade) 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."

    I own this stock. I also own a home.

    Perhaps those of you who rent in order to invest more $ in stocks could share your investing ideas?

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  11. Anonymous said...
    "If really strong inflation happens then interest rates will soar and nominal dollar prices will really plummet."

    Probably not. The last time this situation occured (late 70s/ early 80s), house prices "inflated" right along with the price of everything else. NOT, to the extent of the inflation rate --- so technically, in real value their worth may have been less --- been in nominal dollars, they were selling for more ... with higher mortgage interest rates. (Hence the development at that time of ARMs and other innovative financing methods such as "'owner carry' for 10 years at 12% when market rate was approaching 20%.)

    However, I will give the benefit of the doubt that nominal prices will fall the 20% average that David first asserts. But what are the odds of that happening? Even given the benefit of the doubt that "it will be different this time" and house prices won't follow inflation as they did back then, I won't give it more than a 50% probability of prices falling 20% Fair enough? If so, 50% chance of probability times 20% price decline = 10% expected price decline using a 'weighted probability' method of calculating what to expect. So, even if one is to believe that prices really might go down nominally, the very most one should count on is a 10% drop. Now, let me ask the question. If you went out there and did your homework and bargained hard, do you think you could get 10% off the price of a property today? ... and lock that discounted price in with a mortgage at 6% vs. something like maybe 12% a year down the road? Which way would you better off? Buying now, or waiting? To me this is a no brainer ...

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  12. "John Riggins Real Estate in Honolulu "

    Anyone remotely familiar with the realities of life in Hawaii, from housing to jobs to grocery shopping, knows Hawaii is not representative of life on the mainland.

    How's 'bout we get a quote from Puerto Rico next?

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  13. This is a must-read:

    Housing-Related Link

    (this isn't a trick posting like we've seen here before, it really is housing related)

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  14. Lance-

    In response to what you said,

    1) I still think there will be nominal declines; I didn't say the whole decline will be real.

    2) I believe there are far better inflation hedges right now than housing. Housing has traditionally been a good inflation hedge; I do not believe it will be this time, as house prices have already risen so much.

    3) If you have a better inflation hedge, and/or if you expect inflation to help your wages at least somewhat, then now may not be the best time to buy. You may be able to buy in the future with a much smaller loan or no loan, using less valuable future dollars, and thus better investing your dollars today and possibly paying less monthly when you do buy.

    But, I could be wrong.

    A Redskins fan

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  15. LOL at "every biased assumption." I used the CPI and the HousingTracker data. That's it.

    I am interested in any substantive criticism of my calculation. Maybe I did something wrong. Your post is just pure invective, though.

    A Redskins fan

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  16. "Anyone remotely familiar with the realities of life in Hawaii, from housing to jobs to grocery shopping, knows Hawaii is not representative of life on the mainland"

    Mr. Riggins said "America is officially into a buyer's market"

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  17. So his irrelvant statement is something for which you go out of your way to put forward?

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  18. "LOL at "every biased assumption." I used the CPI and the HousingTracker data. That's it.

    I am interested in any substantive criticism of my calculation. Maybe I did something wrong. Your post is just pure invective, though.

    A Redskins fan "

    How about your assumptions about how sale prices "must" related to housing prices? Why would you conveniently leave that out, hmmmm?

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  19. "Pure Invective"?

    Do you know the definition of the word "invective"? It means: "of, relating to, or characterized by insult or abuse."

    Lance's post was not "pure invective".

    A Slanteyes Fan (hey, I love my Honda products, what can I say?)

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  20. The falling inventory figures will be the death of the "bubble" theory.

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  21. Once again bubbleheads review the "rent vs. buy" issue by examining everything in present terms. This chronic shortsightedness is quit a handicap.

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  22. Okay, so inventory stood at 5,347 last August. It went to 12,478 on June 21st. It has now "crashed" to 11,708. And this is the strand you're hanging you're whole you=done thing on?

    You've just been owned, AnonyTroll.

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  23. "Once again bubbleheads review the "rent vs. buy" issue by examining everything in present terms. This chronic shortsightedness is quit a handicap."

    You see, nothing ever changes in bubblehead-land. The world today is the same as it will be in 20 years, and it is the same as it was 20 years ago.

    A Slanteyes Fan

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  24. "Once again bubbleheads review the "rent vs. buy" issue by examining everything in present terms. This chronic shortsightedness is quit a handicap."

    Actually, the bubbleheads show maturity and impluse control by not falling for the sales pitch and craze and ruynning out and buying NOW NOW NOW because prices only go UP UP UP! That's the key to long-term success. Picking the right time based both on your personal circumstances and preferences AND on a good finanacial analysis of housing prices. This good financial analysis shows that they are too high, so holding off is the right decision for most people. But hey, if you can live with a large drop in your housing value over the next few years and you still get a big charge out of owning, then go ahead and buy. But if you feel that way, you're not likely one of the AnonyTroll housingheads running around here. I have a feeling quite a few of the AnonyTrolls are really up against it. They bought at the peak, couldn't afford it, and now they've got problems.

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  25. In support of Redskin Fan's back of the napkin calculation:

    NAR shows price declines for 2 quarters running of ~2 to 2.5% for the Washington metropolitan region. That's about 4-5% in 6 months. 1Q06 numbers are already dead even with 2Q05 numbers and since I would expect this decline rate to continue based on reports of a weak spring selling season then you're looking at a conservative 6% decline in nominal prices over the last 9 months. Throw in inflation and RF's 8% is indeed modest.

    Source: http://www.realtor.org/Research.nsf/Pages/MetroPrice

    My $0.02

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  26. I don’t want to be condescending, but buying a home IS expensive – that’s why there are so many first-time home buying programs. For example, when I purchased my place in 2004, I used ACORN (which works with HUD). They only require 3% down, no PMI, lower closing costs, guarantee a good fixed rate even with poor credit, and you qualify if you made less than $65K (I don’t know if this has changed in 2006).

    The point of buying a home now is that even if prices are the same five years from now (which I think is a worse-case scenario if you buy closing on a place today), your payment is the same while inflation pushes up rents. Should your payments rise because of tax assessments, then you’re doing well with your home equity.

    If you’re looking to flip, well, good luck. If you’re looking for a place to live for *at least* next three years, owning a home is not a bad investment. I'm not saying it's right for everyone's situation, either. But, these emotional arguments on both sides of "yes it is!" "no it isn't!" doesn't really advance the debate.

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  27. I think my "assumption" that asking prices and sales prices are related actually works against me, not for me.

    In 2005, the market was far more competitive for buyers, so asking prices were probably equal to or less than sales prices. In 2006, I would guess that asking prices are more than sales prices. If so, the real decline may have been larger.

    The reasons I like the asking price data better:

    1) first off, I trust it more.

    2) asking prices give us a better feel for the whole market, where sales prices, especially right now when there are many more houses for sale than are selling, just gives us a small piece of the puzzle. A few high-end homes sell and sales prices may stay up, even while those houses are selling for less than comparable ones did a year ago. Asking prices may give a better feel for what people expect across the whole market.

    A Redskins fan

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  28. Let me do a buy vs. rent calculation I sometimes do.

    Renting in Silver Spring can run you say, $1200-1500 for a two bedroom apartment. That includes all utilities.

    Now let's say you buy a condo. An equivalent condo might run you $350-400,000 right now, and for the past year.

    You have to pay utilities, taxes (which are more, since a landlord pays taxes based on his income, not as if he owned many 400K condos), insurance, maintenance, and a condo fee.

    I estimate all that will run 800-1000 a month. So if you owned the condo outright, you are saving at most about $700x12 months= $8400 a year.

    Let's say you buy the condo for 350K cash, then live in it for 5 years. Due to closing costs and some repairs, you add another 30K in expenses. You've paid 380K.

    Over that time, you have "saved" about $42,000 by not renting. Let's say it's more, like $50,000.

    Now, you have to be able to sell that condo for 380k-50k= 330K when you sell, or else you would have been better off renting.

    In other words, you better pray that your 350K condo doesn't lose about 10% in 5 years, after you bought at the peak. That is your margin of error, or else you would have been better off renting.

    Note that in my example, I am not even considering other issues, like interest expenses if you finance the purchase.

    Are my assumptions outrageous? My math bad? It's possible.

    A Redskins fan

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  29. Redskins said:
    "I believe there are far better inflation hedges right now than housing."

    Redskins, this is the crux of our disconnect. You are looking at your home as investment (as Realtors like to say in their ads.) I look at it as an expense. You are seeking to maximize your return on your investment over the shortterm and the longterm, with emphasis on the shortterm because longterm gains aren't possible if you have short term losses. I am seeking to minimize my expenses over the longterm without regard to what happens in the short term. We have two very different end goals which require two very different strategies. And I am asserting that by your paying your full attention to maximizing gain, you are not keeping your eye on your longterm housing expenses which if not carefully kept in check could very easily eat away at all your gains gained from what appears to be a good investment strategy. Yes, I realize that you look at the difference between what you are paying for rent now and what a mortgage would cost you now, but you are not looking beyond that to calculate what you will be paying long term in real dollars over the long haul.

    As a tangent to this ... On a previous post, which got closed before I could post a response, someone challenged my assertion that one should take care of housing needs first before worrying about investing. And said that "financial investors recommend making investments before buying a house." They misinterpreted "housing needs" to mean "buying a house." I think we would all agree that everyone has housing needs ... even those living at home with their parents. My assertion is simply that before you worry about how/where you are going to invest your money, you need to worry about how/where you are going to live. Which relates to my message to you Redskins. You have an excellent investment strategy. But are you sure you've guaranteed yourself an equally good living situation over the long haul? And I do mean "guaranteed" ... I am risk adverse and wouldn't want to leave my longterm living situation in the hands of chance.

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  30. "Due to closing costs and some repairs, you add another 30K in expenses. You've paid 380K.
    "

    Why wouldn't you add the repairs you do to the value of the property?

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  31. Lance, the present value of the rents you save in the future by buying now are too low to justify buying, especially given the present price gap between renting and buying. You could take the difference between your rent and buying costs today, and the compounded return on that money would more than cover your future rents. That's one reason housing prices are coming down.

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  32. redskins said:
    "You have to pay utilities, taxes (which are more, since a landlord pays taxes based on his income, not as if he owned many 400K condos), insurance, maintenance, and a condo fee."

    you lost me here ... in one breath you are talking about the homebuyer having to pay property taxes on the property they own ... and in the next about the landlord paying income tax on the profits he makes (as part of his larger income.) how do the two relate? ...

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  33. Everyone knows that renting to save money, and then investing the saved money, is the way to go.

    If we share our investment ideas, we may drive the value of our investments UP overall. Don't you see? So where are all of us cash-rich renters putting our money?

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  34. Anon 6:50, the maintenance expenses were added to the cost basis of the house not the value of the house. This hypothetical owner would need to make an additional 30K on the sale to cover these expenses.

    My $0.02.

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  35. Lance the RE agent is desperately trying to talk someone into buying so that he can get a commission and keep his failing business going. It is really very sad.

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  36. "I don’t want to be condescending, but buying a home IS expensive – that’s why there are so many first-time home buying programs. For example, when I purchased my place in 2004, I used ACORN (which works with HUD). They only require 3% down, no PMI, lower closing costs, guarantee a good fixed rate even with poor credit, and you qualify if you made less than $65K (I don’t know if this has changed in 2006)."

    Exhibit A for govt. policy foolishness & the law of unintended consequences. That loan may have made the condo affordable for you, at the expense of driving the market higher for everyone else.

    In response to the inevitable flame that I am a bitter renter living in an outhouse on the fringe of a trailer park, I am a happy homeowner (same house, same spouse, for the past 18 years). However, I try to separate what benefits me from what is harmful to the economy in general.

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  37. There is another possibility here too....

    If housing really really declines that much, I have a feeling there will be folks who will buy properties outright with cash (perhaps from their invested bubblehead savings). Then who cares what the going interest rate is?

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  38. Redskins Fan

    i think your analysis, although simplistic, is a fair comparison of rent v. buy.

    But why limit the analysis to 5 years? Do you think that you'll not need a place to live after 5 years?

    Not even many realtors would recommend buying a condo unless you plan to live there more than 5 years.

    I suggest you run the same numbers, but for 10 years instead. Over 10 years time, based upon historic data, it would be very unlikely for the condo to decrease in value, and it would be much more likely to increase in value, at least at the rate of inflation.

    Do the 10 year example, and I think you'll see that buying will result in a net savings.

    Instead you do a 5 year example, which has the effect of guaranteeing the conclusion you want: Justification of your decision to rent rather than buy.

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  39. Redskins Fan,

    I've asked before, and you've never responded.

    How long have you been renting in the DC area?

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  40. "Everyone knows that renting to save money, and then investing the saved money, is the way to go."


    Umm, no. I'd suspect most homeowners pay less in mortgage than you do in rent.

    I know my mortgage is about 1/2 of what rent would be for comp. property. Thus, I own, and the saving not paid in rent goes directly into my brokerage accounts.

    All bubbleheads approach this entire rent v. buy debate with blinders on. They only look at present values, ignore future values, and assume that all owners bought at peak prices.

    I bought a few years ago. And like what Lance has been trying to teach you bubbleheads, I was bale to fix a mortgage payment vs. increasing rents. This is a major benefit of buying.

    On the day I bought, renting would have been cheaper. But you have to look beyond just what is cheaper *today*. Bubbleheads seem incapable of this.

    David's examples are based upon rent vs. buying in today's cost.

    Redskins Fan's rent vs. buy analysis only looks 5 years forward, as if he will have no need for housing after 5 years.

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  41. el caballo said...
    "Lance the RE agent is desperately trying to talk someone into buying so that he can get a commission and keep his failing business going. It is really very sad."

    Thanks, el caballo! When someone like you has to try to "discredit the messenger" by falsely asserting the messenger is a RE agent, they I know that means the message is getting through ... and since IT can't be discredit, those stubornly sticking to their ill-thought out beliefs, are going to discredit the messenger.

    I'm just waiting for the day that David admits he was wrong and changes the premise of the blog. He cannot not be having doubts about his position by now if he has been reading the postings here with his eyes open.

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  42. Annon 7:08:

    I won't disagree with your assessment of government policies, but that doesn't mean one shouldn't use any advantage which is available. But for you, and I'm only guessing, that when you purchased your home 18 years ago, it was a major financial burdon upon your family. Now, I'd guess you're happy you purchased your home.

    At the same time, I fully recognize that not everyone CAN live in their home for 18 years (family, job, etc.). But outright dismisal of home buying completely, I think is somewhat narrow-minded.

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  43. "Exhibit A for govt. policy foolishness & the law of unintended consequences. That loan may have made the condo affordable for you, at the expense of driving the market higher for everyone else."

    You are correct. I am sure that more qualified buyers means higher prices. However, as one of those who benefited from a similar prgram from HUD 10 years ago (I could not have bought otherwise.) I would argue that govt/society has a responsibility to level the playing field in certain circumstances so as to make opportunities to available to everyone irrespective of whether they were born with a silver spoon in their mouth or not. Yes, we're all paying more for housing now due to govt programs that let people like me and the other anon purchase that first home, however that is a small price to pay to ensure that anyone who wants to be a homeowner CAN be a homeowner. Homeowners make better citizens all around because they have a vested interest in their homes. (They can't just walk away.) And in that way, I think we could make an argument that the extra expenses born by society in terms of higher prices for everyone, are more than paid back in terms of having a society where more people are vested in the stability of their neighbors. Stability is afterall key to safety, orderliness, and comunity caring.

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  44. I'm the guy who posted earlier (before the opening bell) about QSII stock. I've been in it for a while now, and is is up over $4 per share this morning alone.

    Now, I'm asking again: does anyone care to share investing ideas? I'm here because the theory states that renters are awash in investable cash and I'm looking for investment ideas. I just gave you all a good idea.... anyone care to reciprocate?

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  45. Anonymous said...
    "There is another possibility here too....

    If housing really really declines that much, I have a feeling there will be folks who will buy properties outright with cash (perhaps from their invested bubblehead savings). Then who cares what the going interest rate is?"

    Yes ... this is what happens in real estate market declines. Joseph Kennedy Sr made the family fortune in that way. But the point is that it is the investors who are and will be in a better position to pay cash and reap the "investment" rewards. Again, my argument is that a homeowner has to get the idea of a home being an investment out of his/her mind. Only when he/she views a home as an expense will he/she be properly focused and not spinning their wheels competing against the likes of deep-pocketed investors while their housing needs down the road get neglected.

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  46. "At the same time, I fully recognize that not everyone CAN live in their home for 18 years (family, job, etc.). But outright dismisal of home buying completely, I think is somewhat narrow-minded"

    Where did I dismiss homebuying? In general I approve of it & I have done very well by it. I do dismiss, no, I despise, half-baked taxpayer-subsidized programs that send false market signals, reduce risk premiums while increasing risk, and foster speculation and misdirection of capital. Clear enough?

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  47. I meant to say:
    "vested in the stability of their neighborhoods.

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  48. Annon 7:36,

    I apologize -- I didn't mean that directed at you, more of the general atttidue of some people on here. On your point about policy, I totally agree.

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  49. Read the newspaper. Look at the signs in the yards. Look at the interest rate. Look at the bloated housing prices. Look at you neighbor packing up and moving to Texas. Lance and his clan are out of touch!

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  50. "Look at you neighbor packing up and moving to Texas."

    I suspect that an exodus of competent professionals will have the net effect of driving wages up overall in the DC area. However, population is exected to grow, not contract, dramatically in the area over the next 20 years.

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  51. "I just gave you all a good idea.... anyone care to reciprocate?"

    Warren Buffet says dollar cost average in to a low cost index fund and you will do OK over time.

    That stock tip looks great but the P/E is at almost 45 times earnings. Think i'd rather buy a condo, thanks

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  52. Anon 7:46, I AM looking. I see very few for sale signs, I see houses selling quickly, I see people moving in daily. And I see prices continuing to go up. No, not at the pace we had a year ago, but at a pace still well above a normal real estate market. But, then again, I live in downtown DC (Dupont), and like myself and others have said, real estate markets aren't national but local since one can't exactly commute from say DC to Texas. Although, I'd bet a few people do in this jet age ... The moral of the story is, don't rely on anectdotal evidence related to your personal experience. Look at the whole picture, not just what is in front of you ... or you won't be seeing the forest for the trees. And the whole story is that the US economy is continuing to go gang busters and its population is continuing to grow (mainly through immigration), and like the saying goes 'they arne't making anymore land.' Using your common sense, in what direction do you think prices will go over the longterm which is all you should be concerned with as a potential homeowner.

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  53. SP 500 index has a 5 yr return of 2.5% (I have a lot of money in an S&P 500 Index fund)

    My point had more to do with all the money that is reportedly being invested outside of real estate by folks who rent.

    I suspect, but cannot prove, that in the aggregate renters pay only lip service to the concepts of investing their "savings" over buying. It doesn't happen in most cases, but it sure does sound like a good idea.

    In the meantime, I'll go on owning a home AND investing in equities (not condos)

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  54. I'm the anon at 7:36.

    Condomania -- I apologize for the the somewhat rude "clear enough" comment.

    Lance -- I understand the policy arguments and benefit from them personally (I love my mortgage deduction). And in fairness, ACORN-type programs are a minute part of the market. But I do think when the govt takes sides in a market, you may have less stability, not more. My concern is not driven by my situation, but the situation my kids will find as they enter adulthood. Time will tell.

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  55. lance, you have blinders on. For sale signs are popping up in masses. I thought the bethesda area was still moving, but for sale signs are popping up and sticking now.

    The rent vs buy decision for the long term is not in debate. If someone told me they wanted to live in dc for the next 20 years I would say start looking for a deal, but be cautious. The debate is wether it is a good time to buy now. Everyone on this board believes home ownership is the way to go, most of us just believe it is not a good time to buy. The facts are there.

    1. Asking prices have dropped significantly since last year. I wouldnt call this a bubble bust though. I would call it not a good sign though.

    2. The economy is starting to show signs of a recession coming. gdp drop, less jobs created, more unemployment.

    I ask you for the sake of peoples sanity, would you at least agree that buying a house right now in dc MAY not be the smartest choice? Buying a house now compared to October would have saved me 50k or more. Do you have any idea how much 50k becomes on a 30 yr fixed? A rough rule is 3x. So that 50k savings would save someone 150k over the life of the loan, or for most people in this area 2 years of salary. We should now move our debate to how low it will go, when will be a good time to buy, and where are people seeing house drops.

    and for dctoo, warren buffet said "I got rich by selling too early"
    fyi. he is the most wealthy real estate investor in the world, ever. he sold all his interest in us property in 2004 (a little early) except for casinos and his modest 150k home. Please lance, dont pretend you know more about realestate then him.

    the real bob

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  56. "I suspect, but cannot prove, that in the aggregate renters pay only lip service to the concepts of investing their "savings" over buying."

    I will debunk for you - my apt. would cost me over 5K in costs to buy - rent is 2100. I put 4K (or more) away a month. It's not just lip service for me. I know plenty others doing the same.

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  57. "My concern is not driven by my situation, but the situation my kids will find as they enter adulthood."

    I don't have children, but it is plainly obvious that we have many things to be concerned about in addition to the price of housing.

    If you have, say, a five year old boy; do you really think when he becomes an adult that he is going to live in a house in the suburbs, climb into his SUV in the morning and drive 20 or so miles to his office? It isn't going to happen for a variety of reasons.


    (the house will be relatively affordable, however.)

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  58. Lance,

    First, I 100% agree with the statement about houses going up with inflation... but that assumes a strong job market. The reality is that families are stretched as never before to pay their mortgages. If we have high inflation, salaries for the most part will lag by two years.

    Also, don't forget we have $1.2 Trillion in debt resetting this year (about half of that is 2nd mortgages) and a similar amount next year (plus those 2nd mortgages might keep resetting).

    Since we're such a debtor nation, any inflation is going to increase the pain far faster than in the past. Why? Simply, forign investors will seek other "safe havens."

    Anon 7:46. Lance actually isn't "out of touch." He has a different viewpoint. He's actually basing that viewpoint on very rational bits of information. I happen to appreciate his counter view and facts as it help put my viewpoint into better perspective. Yes, I'm a bubblehead and an investment bear. This is the first time in my life where I believe the forward economic indicators are so negative that the don't overcome the natural growth in the economy. So I believe we will have a window of buying opportunity in homes in a year or two (or three?). But then inflation will start to make it so that one should buy.

    Now the question becomes when is optimum? I do believe because of interest rates and inflation it will be best to buy before prices bottom! Yes, shock! Lance has some good advice. I just don't believe that time is now. Now with Lance, he locked in a long term low interest rate and thus his own advice is good advice (due to his excellent market timing).

    But I also know that due to America's negative savings rate, its only going to be my fellow bubbleheads and "old school" retires that I compete against for homes. You see, if homes drop enough that rent becomes break even or profitable, I know my parents and my fiance's parents will buy up homes to rent as an inflation hedge. (My dad thinks long term hyper-inflation is coming back, so he's structured his investments accordingly.) So don't think homes can fall forever... but I strongly believe they will fall until price/rent makes sense.

    My more financially prudent coworkers and I just had a little conversation. Everyone but me is about to switch to another division and move to a non-bubble market. The home owners think this is an "idiot's test" to cash out an move to a low tax/cost area they like. The non-home owners are moving so that they can afford to buy in a decent school district. I'll hold out for two years and then decide.

    Oh, if you didn't notice, I became engaged this week!!!!!!!!!!!!!!!!!
    Neil

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  59. One personal actecdote equates to "debunking" an unprovable theory. Now I've heard it all.

    Did you see on the Colbert Report the interview with the guy in FL who blames the fact that he can't get a date with "a white woman" on the fact that lesbians exist?

    We all have our own realities....

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  60. So where are you putting your money, Mr. $50,000 in savings per year on top of his 401(K) plan soley because he rents an apartment?

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  61. I don't have children, but it is plainly obvious that we have many things to be concerned about in addition to the price of housing."

    I thought that's the point I made.

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  62. I think that buying in this market *can* make sense if (and perhaps only if) the buyer plans to remain for at least 5-10 years, uses traditional financing (30 yr fixed with reasonable down payment), and is using the home as a place to live, rather than solely an investment. It probably wouldn't hurt to add "is moving to the area or switching homes" to that formula.

    BUT ... for those buyers - especially first-time buyers like myself - who missed the rise of real estate in the past few years, buying now is *not* prudent. First of all, ARMs are clearly less appealing than they were (at face-value) a few years ago, and are an unwise choice when short-term rates continue to increase. Part of the ridiculous pricing stems from unconventional financing, and I refuse (realizing that I am but one representation of one type of first-time buyer) to participate in the frenzy that results in poor long-term financial decisions (like a toxic loan to buy a house I cannot afford).

    Secondly, though my not-insubstantial salary has nearly doubled in the past three years, I still have not been able to keep pace with saving a down payment to afford a reasonable home - and by reasonable I mean, a townhome, 3 bedroom and 1.5+ bath, in a relatively safe neighborhood (no kevlar necessary), with a reasonable (less than 90 minutes) commute to work. These are not unreasonable expectations.

    So, inventory has exploded. Many people own more than one property. Home ownership is something like 70%, a record high. It is clear than several people used the rising real estate prices as an investment opportunity, further fueling prices that outpaced wage increases.

    I won't buy because the properties that I could afford are not suitable for my family, whereas the properties I can rent are. I won't buy because I refuse to take out an ARM when I should buy using conventional financing that locks me into a safe, affordable range for the duration of my purchase (as many housing folks like to point out, rates are still at historic lows). Until those home prices begin to reflect a reasonable value for the dollar - and come into range for an affordable down payment with conventional financing - then I will happily continue to rent. Or, if a year or two passes and I still consider the housing to be unreasonable, I will move to an area with reasonable prices. It's all about quality of life...

    H

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  63. "with a reasonable (less than 90 minutes) commute to work. "

    "It's all about quality of life..."

    These two things are mutually exclusive for many, many people. 90 minute commute to work?! Three hours a day, 15 hours a week?! I'd rather chew a mouthful of thumbtacks.

    We each have our own criteria, but we're all looking for basically the same thing: A dignified, prosperous, enjoyable life. Such a commute is neither dignified nor enjoyable, but it could very well lead to prosperity for you.

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  64. lance seems to make the assumption that everyone can buy a home if they wanted to, ie. nobody is priced out of the market. but there are many people like myself who simply cannot afford to buy something bigger than a studio or small 1br condo without using unwise creative financing. so really the only option for my wife and i and soon to be kid is to rent a townhome unless we want to live like illegal aliens.

    so, yes lance we all realize longterm buying is wise but most of us arent going to want to live in a studio 10+ yrs.

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  65. "So where are you putting your money, Mr. $50,000 in savings per year on top of his 401(K) plan soley because he rents an apartment?"

    Wow, bitter much? It's in a savings acct., getting over 5%, and stocks (blue chip, old school). And whatever you might think, renting is exactly why I have the money now (and complete lack of credit card debt doesn't hurt).

    I almost bought two years ago in a very "desirable" town - place would have been 3 bed, 1.5 bath, small but nice starter, nice land, nice area of town, for 525. Bigger, nicer house next door now on the market for 539, only asking 14K more after two of the supposedly hottest years in real estate. Plus, inventory in the town is up over 100% and bidding wars ended a few months ago - people are now getting below asking. In real terms, after fees, etc., I would have lost money, at least on paper. So I'm pretty glad I didn't buy that place right about now.

    And I'm not coming down on homeownership - I'm all for it. But you have to smart about it, like anything else. I'm not angry at people who bought their places - why are so many ownership advocates so nasty to people who made a different choice?

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  66. My current commute into DC takes a little over an hour each way door-to-door (call it 70 minutes). In our calculations of make-or-break limits for buying, 90 minutes was the top commute I could agree to without pulling out the few strands of hair I have remaining. As is, 70 minutes cuts pretty heavily into the time I have with my family, but so far the job and house we live in is worth it. A little more, and it wouldn't be. People who live out past Frederick (MD) or way out in the fringe of Loudoun County (VA) and commute in, and still paid 600k (or 800k+) for a house - I just don't get it. Drive out towards the mountains and tell me there's no land left to build on? Why are home prices so expensive when the trade-off is so severe?

    As I said, quality of life.

    H

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  67. "Wow, bitter much?"

    It wasn't bitterness, it was condescension.

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  68. Anony 8:46 AM -
    Exactly what I was trying to say. Some of us - who make very reasonable salaries - simply can't afford to buy without participating in the same craziness that created the frenzy in the first place. Sorry, but I'm simply not willing to do that.

    I'm patient.

    H

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  69. "inventory in the town is up over 100% and bidding wars ended a few months ago - people are now getting below asking. In real terms, after fees, etc., I would have lost money, at least on paper. So I'm pretty glad I didn't buy that place right about now."


    And don't you think you've lost money by paying rent of $2100 a month for two years?? So what if the value of the house you almost bought decreased in "real terms" and "after fees," which I presume means that the decrease has been minimal, and probably less than the rent you've been paying in the meantime.

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  70. waiting for godotAugust 04, 2006 12:11 PM

    I'll say it again...You can't use the argument that housing is not to be viewed as and investment, then turn around and brag about the money that you made and hang your hat on your "success". If you don't want to view real estate as an investment, then future expected gains should be left out of the equation. You can't have it both ways.

    I doubt that most people view equity gains or losses as externalities since people move every seven years on average. They expect to make money or preserve the principal of their "investment". Every purchase is an investment whether appreciating or depreciating.

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  71. "And I'm not coming down on homeownership - I'm all for it. But you have to smart about it, like anything else. I'm not angry at people who bought their places - why are so many ownership advocates so nasty to people who made a different choice?"

    I think the point that homeowners are trying to make--and a point that most bubbleheads refuse to debate--is why did people not buy before 2000 or before peak prices?

    It seems that a lot of the bubbleheads here are permabears. They've been renting for years, maybe decades, waiting for prices to drop 70%.

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  72. "I think the point that homeowners are trying to make--and a point that most bubbleheads refuse to debate--is why did people not buy before 2000 or before peak prices?"

    I was still in college.

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  73. Where did you go to school? Was it outside this hyper-priced area?

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  74. "I think the point that homeowners are trying to make--and a point that most bubbleheads refuse to debate--is why did people not buy before 2000 or before peak prices?"

    We were saving for our downpayment. And then home prices doubled. So we kept saving for our downpayment. And then prices kept going up.

    Sure, it would have been ideal to buy, even perhaps on an ARM at that point in time. Some of our friends did quite well for themselves that way, and I'm glad for them.

    But around 2005 (early), it became clear to me that either prices were severely out of wack (and might adjust), or I would have to move my family to a more affordable area. We like our jobs, and we have reasons to stay in the area if we can, so we're waiting (and saving) to see if an adjustment takes place.

    Sure, it would have been great to buy in 2000. Not everyone is either that lucky, fortunate, or wise (rarely all three). Some of us who tend to be cautious with our money took a slow road, and missed the boat. Sure, I'm bummed about that, but how foolish would I be now to throw my caution to the wind?

    H

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  75. If inflation-adjusted (real) housing prices decline 20% over the next few years, one reason will obviously be inflation. Inflation (which is not the same as real wage declines) is great for heaviliy indebted homeowners that have a fixed-rate mortgage.

    Long before homeowners experienced the latest housing boom...owning your own home was a great way to hedge against inflation.

    Even if the the ATM-machine like 'benefits' of owning a home decline...the value of hedging against inflation will still place a premium on homeownership above renting.

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  76. "why did people not buy before 2000 or before peak prices?"

    Also in school. So it becomes a slightly ridiculous argument against those of us who couldn't buy for that reason. Unless you think college kids should be running out to buy places right away no matter what.

    And yes, maybe I have "lost" that rent money, but frankly, I would not have been earning any equity for the first few years anyway. I don't think rent is flushing money down the toilet anyway, like some people argue - you need a place to live, it's going to cost you something. That roof over my head is enough payment for me for now. Again, not saying home ownership is bad. But it's not the only option and sometimes not the best.

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  77. "It seems that a lot of the bubbleheads here are permabears. They've been renting for years, maybe decades, waiting for prices to drop 70%."

    Total nonsense!
    Bubbleheads just believe housing prices are due for a correction at this time. Any reasonable person does not believe prices will drop 70%. Where did you get this silly ideal? I'm a bubblehead, I have bought a house twice in my life and sold at a profit. I was bullish then. I am bearish now so I currently rent. Once the prices stabilizes and my salary increases to reach these prices I will buy. I believe that there will come a good time to buy a house (3-5 years). Sorry to bust your BUBBLE but this bubblehead is not a permabear.

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  78. "I think the point that homeowners are trying to make--and a point that most bubbleheads refuse to debate--is why did people not buy before 2000 or before peak prices?"

    also in college, and unlike some coworkers of mine who bought here after only being a yr out of college (with help from their parents who didnt want them 'throwing their money away' i am sure), i dont feel entitled to buying just because i have a job. of course i also hate my job and hadnt planned on staying here more than a yr, an error on my part.

    i think you'll find most of the bubbleheads are in their late twenties/early thirties who were trying to be responsible and save for a downpayment when younger college grads came out of nowhere and bought with nothing down and an arm and so there might be a little jealousy and hostility, but it's clear prices are out of whack now.

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  79. "when younger college grads came out of nowhere and bought with nothing down and an arm and so there might be a little jealousy and hostility, but it's clear prices are out of whack now."

    Why would us Bubbleheads be jealous if younger college grads did something foolish?

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  80. Anonymous said...
    "lance seems to make the assumption that everyone can buy a home if they wanted to, ie. nobody is priced out of the market. but there are many people like myself who simply cannot afford to buy something bigger than a studio or small 1br condo without using unwise creative financing. so really the only option for my wife and i and soon to be kid is to rent a townhome unless we want to live like illegal aliens.

    so, yes lance we all realize longterm buying is wise but most of us arent going to want to live in a studio 10+ yrs."

    Anon, not everyone should buy something, but everyone can buy something. It's just a matter of adjusting your expectations as to neighborhood/city and amenities assuming the time is right to buy in the first place. (I.e., you're planning to stay in same town/metro area longer than 5 years and things like that.) So, if you really are planning to stay here, I am sure that for what you would pay for that condo in the area you are looking in, you could find a 2 bedroom townhome (or larger) in areas you are not looking in. Trying either going further out, getting less square footage, or looking in an transitional neighborhood. We really all can't live where we want to live ... especially not when starting off.

    I want to clarify my positin as to "long term ownership" ... I never said it had to be the same house/condo you lived in forever by adopting a longterm housing expense minimization strategy. You can (and should) definitely change along the way to better suit your needs. When I talk about longterm ownership, I am talking about "being in the game". It's sortof like employment, you don't stay your whole career in one job, but the benefits gained in one job (e.g., the things you've learned) transfer to another. You don't have to have been in the same job the whole period of your career. For example, I was only able to buy my current home because of the equity I'd acquired from my two subsequent condos ... the first being bought 10 years ago with a 98% loan.

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  81. Why didn't I buy in 2000? Same as others that responded: I was still a kid, in school, thus couldn't buy.

    BTW, you housingheads think that waiting for a better time (let's say, in 2-3 years) to buy means we bubbleheads hate homeownership and adore renting. Huh? You nuts??? I for sure want to have my "own" place to live, and want to buy a HOME that **I** like (I'm an architectural snob) at a good price. In feeling that way, I think I make it obvious that when I buy, I intend to stay in my house for a LONG time.

    Given the insanity of the housing market in the past 2 years or so (when **I** started to track the housing market), I decided to wait. I was not going to pay upwards of $200k for a crap townhouse with no interesting architectural detail and in an ugly neighborhood. I would rather wait AND/OR move to an area that is more affordable and has better looking houses. There are such places, and they are not all in the middle of nowhere with no nightlife. Believe me! I know! I used to live there, and intend to move back as soon as personal conditions allow it.

    Anyway, a response to the argument that you cannot look at a RE purchase as an investment.... Sorry Lance, but it is. A house is a home AND an investment to most of us. If you use nothing but emotions to make a decision about whether to buy, you run the risk of making a TERRIBLE decicion. That's what happened to me as a grad student (NOW I know that grad school IS an investment), and now I'm paying the consequences. A house can be much more expensive than an education, thus it requires that you spend more time evaluating this decision, doing some research on it, etc. That's what I'm doing now. This time, emotions will be allow to come to the fore only when chosing between pretty house A, pretty house B, and pretty house C.

    BTW, Redskins Fan's 5 year analysis of buying vs. renting should not be dismissed. Unless you're psychic and can look to see your future 5, 10, 20 years from now, you better consider the SHORT TERM consequences to buying now. What if you lose your job in 5 years or less, and gotta sell your house to prevent defaulting? You might not have intended to sell so soon, but life has a way of surprising you (and not always for the better). So, if you have to sell your house in 5 or less years, you better know whether you will lose money, how much will you lose, and whether it's acceptable to lose that much. In my opinion, you gotta be able to answer those questions before you add your name to the homeowners club.

    Have a good day!

    --SSH Anon

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  82. SSH Anon,

    Another "well said" comment.

    My $0.02.

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  83. Bob said:
    "We should now move our debate to how low it will go, when will be a good time to buy, and where are people seeing house drops."

    I was in some agreement with you until you got to the part above. In brief, you are trying to "time the market" ... I don't believe that is appropriate when making a buy or rent decision regarding your housing expense. It is too chancey for risk-adverse me. I'd rather go out there and drive a hook on to a place to live under the known (bad) conditions than the speculative (better) conditions. And, as I've explained in a prior post, using standard business risk and probability assessment mechanisms, I'm of the belief that the chances of paying more per month in the future are greater than paying less per month in the future given all the factors involved including the coming inflation I see coming. Since neither you or I have a crystal ball, there's really no way of knowing at this point which one of us is right. All I can do is substantiate why I think I am right ... Well, actually, that is not all ... I can also point out to the bubbleheads that their simplistic "inventory is up" decision-making aids are just that ... simplistic and not necessarily something I for one would depend on to be literally betting the roof over my head on, as they are doing.

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  84. One good argument for buying.
    In 1993 I was renting a one-bedroom in Alexandria for $650/month. Now I'm renting a one-bedroom for $1180/month. If I was fortunate to be in a house from 1993 til now, I doubt I would see an increase in housing expense anywhere near this. To realize those increases I would need to add some add ons, i.e. Florida room, finished basement, attic conversion. Renting means paying more for the same place, while you are putting up with nasty stenches and loud music.

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  85. anon said:
    "If you use nothing but emotions to make a decision about whether to buy, you run the risk of making a TERRIBLE decicion."

    please don't put words in my mouth. I NEVER said buying a house should be an emotional decision. On the contrary, I've given concrete examples of the analysis I've done. What I HAVE said is that buying a home should be based on minimizing long term housing expenses and NOT on trying to make money off of the roof over your head. These are two very different actions with very different focuses and very different solutions.

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  86. " Anon 7:46, I AM looking. I see very few for sale signs, I see houses selling quickly, I see people moving in daily. And I see prices continuing to go up. "

    Liar. Even in Dupont, you can get a 1 bd cheaper than last year. Plenty sit, especially new construction.

    You are either a liar or delusional, maybe both.

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  87. Lance, to make this simple, you are saying that now is a good time to buy? With all of the economic factors indicating that prices will come down (possibly, as you state) you still advocate that now is a good time to buy? Financially you have to believe that is bad advice? Even if I knew someone who was going to be here 20 years I would tell them to weight a year or two. It is not timing the market, many of us arent looking for the bottom, we are looking for value for our money.

    You have previously stated that bubbleheads expect too much out of their first home. Most of us dont want to go live in southeast in our first home just to get in. If my stake in life was to rent in a good neighborhood rather than own a in a bad one, I would rather rent.

    the real bob

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  88. Lance,

    Your 10:24 comment is one of the few I can heartily agree with. One should not try to time the market.

    Having said that however, waiting out a frenzied market seems prudent to me. If I were to try to buy in the last 2 years, I would have had to deal with:

    1. Bidding wars
    2. Escalation clauses
    3. Limited choice
    4. Waiving inspection clauses
    5. Snap decisions on whether I liked a home/neighborhood.

    By waiting out the mania, I gain:

    1. Seller's incentives
    2. Moderated costs
    3. 2-4 fold increase in choice
    4. More time to choose
    5. Protection via inspection clauses.

    Yes I'm paying a premium to have these benefits (potentially higher interest rates, opportunity cost of lost potential equity gain) but I perceive the value of this premium to be worth less than the value of the latter 5 items I described just like some people perceive the value of painting their walls and driving in a nail now versus later to be worth more than the first 5.

    My $0.02.

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  89. We really all can't live where we want to live ... especially not when starting off. - Lance

    You might change that to "own" rather than "live." Plenty of people rent exactly where they would like to live, both in the suburbs and the city. I think most would agree that given current prices and circumstances, it is easier to rent in an area you would like to live than to buy (in the DC metro area).

    H

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  90. Nicely said $0.02. Some of the decisions people were making with big money in a matter of hours, including no inspections, struck me as particuarly dangerous. Which is why I think the critical mass of people willing to take such chances played itself out. Knowing that I can move if the house I'm in starts falling apart under my feet is way more comforting than being able to paint my walls (though my landlord is more than happy to let me paint the walls too).

    H

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  91. Realtors lie, we all know that. Lenders lie too, but here I'm going to be reminding you I am just a renter. If REAL lenders (me) are terrified of a huge price decline, they are going to be tight-fisted. When I say REAL lenders I mean people who actually have money at risk, as opposed to banks, who initiate loans and then palm them off on Fannie Mae etc, who "securitize" them and sell bonds to unsuspecting "investors".
    Bankers have become scamming middlemen just like realtors. However, in the wake of recent Fannie Mae/Freddie Mac accounting scandals, there have been promises to tighten lending standards. Believe me, REAL lenders are double-tight right now.

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  92. I heard about several builders in my area trying to unload big chunks of condos/apartements in new developments that have not sold. They are trying to sell the entire 4/5 of the development to wealthy investors/funds in one shot. Condos that sold for 220K 6 mos ago are being offered for 80K And this is not the only deal to be had.
    Looks like until the builders can offload the inventory, this is going to be ugly.

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  93. "belch head said...
    One good argument for buying.
    In 1993 I was renting a one-bedroom in Alexandria for $650/month. Now I'm renting a one-bedroom for $1180/month. If I was fortunate to be in a house from 1993 til now, I doubt I would see an increase in housing expense anywhere near this."

    Bubbleheads that were in school in 2000, and thus have a good justification for not buying before 2000, are quick to voice this excuse.

    However, I think that there are many more bubbleheads who didn't buy before 2000 simply because they mistimed or miscalculated the market. Few are courageous enough to admit this, because in hindsight it seems to have been a big mistake.

    Now of course bubbleheads will point out that many people who bought around 2000 just got lucky. This is a point well taken, and it's probably true for most buyers.

    However, one of the cardinal rules of investing is that 1/2 is just making a move. The longer you sit on the sidelines, the more opportunities are missed.

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  94. RS lover- You can't ignore the cost of money. Assuming that you have a 70k downpayment (vanishingly few first time buyers do), with a 5.75% 30 year fixed the monthly principle and interest costs are $1,575 a month.

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  95. "However, one of the cardinal rules of investing is that 1/2 is just making a move. The longer you sit on the sidelines, the more opportunities are missed."

    But again, back in 1993 and even 2000, the word "investing" when it came to buying a house, was more of a thought in the back of one's mind (as in "this is the largest investment I will make"), than the ONLY thought. When everyone and their grandma is talking about their real estate investments, it's over.

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  96. "belch head said...
    One good argument for buying.
    In 1993 I was renting a one-bedroom in Alexandria for $650/month. Now I'm renting a one-bedroom for $1180/month. If I was fortunate to be in a house from 1993 til now, I doubt I would see an increase in housing expense anywhere near this."

    Using the Fed's inflation calculator, $650.00 in 1993 is worth $910.90 in 2006, so the rent increase is not that drastic. Not to say that that you wouldn't have done far better by buying in 1993, it's just useful to consider the inflation factor in these debates.

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  97. Lance said,

    "Joseph Kennedy Sr made the family fortune in that way"

    Yes, use your profits selling illegal substances to purchase real estate, just like Joe Kennedy.

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  98. Actually society doesn't really benefit all that much for supporting low cost home loans. See S&L scandal for an example case. Mortgage interest income far below cost of loans to the S&L and the bill just bigger over the years until it exploded into the mess taxpayers had the enjoyment of shelling out cash to fix.

    I find it fascinating that people think that providing a half a million dollars to someone who can't scrape together 10% of the loan amount is a good thing. If they can't scrape together 10% in good times, do you really expect them to be able to weather a downturn when it happens? Bad things happen. I have a hard time believing that a homeowner in debt up to his eyeballs adds value to his community. I don't think owning a home increases your ability to command a higher salary.

    As for home loan supports being essential for our poor brethren. My dad was an immigrant who arrived here 30 years ago with nothing. He never borrowed from the bank since he has old school belief cash is king and being in debt = stupidity. He started with minimal wage and presently makes less than 40K a year. Yet he raised 5 college educated kids during this time and owns over 2 acres of land. He is building his second home on the second plot, with saved up cash of course. Its amazing what you can do when you plot a course 10 years ahead instead of living for the moment. We kids of course paid for college with student loans.

    Investment idea: December 50 put options for JOE. Florida homebuilder that has future PE of about 50 based on their last guidance for the year. Of course they spiked 20% upward when I was expecting 20% drop on the earnings report. Ah well, from being up big I am now even. No matter, December is a long time away and in between is peak hurricane season and YOY price drop numbers.

    For the record I am a homeowner who would prefer to be renting.

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  99. However, one of the cardinal rules of investing is that 1/2 is just making a move. The longer you sit on the sidelines, the more opportunities are missed. -- 11:08

    If we are speaking of housing, not buying is making a move.

    If we are speaking of investments, many of us are making a move - simply not towards housing-as-investment.

    Certainly not buying a home by 2000 and selling by 2005 was a missed opportunity. A mistake? Anything that doesn't harm you - or your finances - is not a mistake. I have very little debt, a good job, and a roof over my head. Sure I'd prefer to own that roof, but I have patience enough for that. But was it a mistake not to buy Microsoft years ago, or Google more recently? No - not if I wasn't in the position to do so (because of age, finances, or other reasons).

    A mistake would be buying several properties using I/O loans with the intent to sell them again for profit and finding the market bottoming out. I do not wish pain on anyone, but I also have little sympathy for those who have artifically driven up prices to make a quick profit. I don't even have anything against investors, but I do have something against greed.

    H

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  100. David said...
    ""I think the point that homeowners are trying to make--and a point that most bubbleheads refuse to debate--is why did people not buy before 2000 or before peak prices?"

    I was still in college."

    David, if you are a recent a college graduate as this implies, then there are lots of reasons why you shouldn't be buying now ... none of them related to "the bubble." At your age, flexibility should be king. Also, I would venture that few of us housing heads had the means to buy housing back at your age either. Nothing really ever changes. You'll have plenty of opportunity (and need) to buy later. Enjoy your years with the roommates now.

    ReplyDelete
  101. I think the point that homeowners are trying to make--and a point that most bubbleheads refuse to debate--is why did people not buy before 2000 or before peak prices?

    Why debate nonsense? Plenty of us here did buy in 2000 or before. Some of us still own, some (like me) sold when we saw the market going nuts. In any case whether we currently own or not has nothing to do with the question of whether the market is in a bubble. And taunting people for not buying 'back when' just demonstrates a complete lack of any real argument you could add to the debate.

    ReplyDelete
  102. I'm no economist but I am a lender and I still see people buying homes in droves. The trick is that these people are buying homes without realtors. I help them since I have been screwed over by every realtor I had worked with. Business is good. Getting some great deals right now. 100-150k off sold comps in subdivisions. The NVAR figures do not include all these sales. I see very smart investors buying up homes now. Also, once again I dont know about all your economist mumbo jumbo but I see a huge number of latin immigrants buying property. They work their cans off and are a serious player in the real estate game. Population of DC is growing, government jobs, tech jobs everything. Tell me that with developments the past few years in the world that DC will rival NYC and London. Analyze this all you want but real estate is not a bad investment at this time.

    ReplyDelete
  103. "David, if you are a recent a college graduate as this implies, then there are lots of reasons why you shouldn't be buying now ... none of them related to "the bubble.""

    Lance,

    If prices were at 2000 levels + 3.5% yearly inflation in the DC area I would have bought this year.

    ReplyDelete
  104. "Using the Fed's inflation calculator, $650.00 in 1993 is worth $910.90 in 2006, so the rent increase is not that drastic. Not to say that that you wouldn't have done far better by buying in 1993, it's just useful to consider the inflation factor in these debates."

    Using the calculator on my computer: The difference in your inflation-adjusted calculation over the course of 13 years equals $40,716. (I rounded 910.90 up to 911)

    That is $40,716 *inflation adjusted dollars* lost in the form of rent. Isn't that amount higher than the average household income in the United States?

    ReplyDelete
  105. "If prices were at 2000 levels + 3.5% yearly inflation in the DC area I would have bought this year."

    So you're saying the only thing that should drive the explicit monetary value of a property is the rate of inflation?

    ReplyDelete
  106. If you drive a GM vehicle (This includes brands like Saab), a large percentage of your purchase price goes to... (drum roll please).... paying the pensions of retired GM employees.

    Not the way it "should" be, but the way it is regardless. You probably weren't alive when many of those folks were making cars.

    ReplyDelete
  107. A great read from economist.com

    http://tinyurl.com/mlft6

    -A study by the National Association of Realtors (NAR) found that 23% of all American houses bought in 2004 were for investment, not owner-occupation. Another 13% were bought as second homes. -

    -According to the NAR, 42% of all first-time buyers and 25% of all buyers made no down-payment on their home purchase last year.-

    -In California, over 60% of all new mortgages this year are interest-only or negative-amortisation, up from 8% in 2002.-

    -To bring the ratio of prices to rents back to some sort of fair value, either rents must rise sharply or prices must fall. After many previous house-price booms most of the adjustment came through inflation pushing up rents and incomes, while home prices stayed broadly flat. But today, with inflation much lower, a similar process would take years. For example, if rents rise by an annual 2.5%, house prices would need to remain flat for 12 years to bring America's ratio of house prices to rents back to its long-term norm. Elsewhere it would take even longer. It seems more likely, then, that prices will fall.

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  108. anon 11:43, thanks for another reason not to buy. I dont want to live next door to a house that has 3-5 latin families living in it. This is a real big problem of massive uncontrolled imigration. FAILURE TO ASSIMILATE. Imigrants have came our country, that is what the heart and soul of our country is built on. But, these cultures assimilate to the american way of living. get job, by home, raise kids. The american dream.

    No longer. now its.
    have kids, get job, get friends and buy house together, live in a big commune.

    If you dont think these type of commune living people bring down property value, you are sadly mistaken.
    the real bob

    ReplyDelete
  109. "DC will rival NYC and London"

    Ha. Sorry, DC is nice, but a) it's not going to rival NYC or London (if it hasn't yet I'm not sure why that would suddenly happen because some Latin American immigrants say so) and b) why would you want to? Ever lived in NYC or London? The issues that come along with being a city of that size would require David to have about 15 different blogs.

    ReplyDelete
  110. "Elsewhere it would take even longer. It seems more likely, then, that prices will fall."

    Yep, rents, wages, and inflation will all stay flat for 12 years and more as housing prices fall. Oh wait, *renters* will get raises at work, homeowners will not.

    ReplyDelete
  111. bottom line is i only make about 100K a year and that is no way near enough to be able to afford a 640K shack,

    i could only put down about 50K and i WILL NOT GET A ARM.

    $3,396.37

    Monthly Payment

    Loan Amount:
    Interest Rate:
    Term of Loan:
    $590,000
    5.625%
    30 years (fixed)

    + 600 in taxes per month

    + 1500 in child support per month

    + 200 in home isurance per month

    = about 5696 x 12 = 68352.

    that's about all i bring home??

    i would like Lance or one of the realestate experts to show me how they can work their financing to get me in RE without starving.

    and i'm sure they will say move.

    okay so i move and i only need to spend 400K but the new area only pays 70K........do you guys see what i'm getting at????

    ReplyDelete
  112. Anon 12:01,

    Housing prices have historically tracked inflation (+ 1 to 2%) for the last 100 years. It's only been since the end of the dot.com bubble that they've moved significantly ahead of inflation.

    The only other time they jumped relative to inflation was after WWII with all of the returning GIs who wanted to marry their sweethearts, buy a house, and live a happier life than what war gave them.

    So, with that said, I agree with David. If you take '98 to '01 trend lines and then add 5%/year, that is the price I would readily pay for a home. Thing is, prices have to decline north of 50% in a lot of cases to revert to this mean.

    I'm willing to grant that online ease of lending has added a fundamental boost to housing asset values. In my view, it's credible that the online competition means banks will lend the 20% downpayment - to win customers and business - rather than require it as a hedge against risk. So that money is now available to drive up asset prices by ~20%. Even with this "fundamental market change" prices would still have to drop around 40-45% to hit the trend line I describe.

    My $0.02.

    ReplyDelete
  113. I've bought RE at the peak before and i can say without a shred of doubt now IS NOT THE TIME TO BUY.

    Lance, promise all of us you will still post here 1 year from now and will still say it's never a bad time to buy.

    ReplyDelete
  114. I'm a homeowner, and as soon as I get home I plan to do the following as a result of reading this blog:

    1) douse myself in lighter fluid
    2) douse my house in lighter fluid
    3) light myself on fire
    4) run through my house, setting it on fire
    4) sceaming in agony as I'm burned alive, because...

    That is exactly what happened to me in a financial sense. My life is over, as are the lives of tens of millions of people throughout the entire country. If I can't have my house, I'm not letting any 26 year old "bubblehead" get it!

    Its all over housing heads - lets just stick a fork in ourselves; our lives are over.

    ReplyDelete
  115. Anon at 12:22, why don't you make a point instead of simply acting childish? Is it because you don't really have an argument you can back up with anything?

    ReplyDelete
  116. I thought Anon 12:22 was simply after the insurance money...?

    My $0.02.

    ReplyDelete
  117. "acting childish? Is it because you don't really have an argument you can back up with anything?"

    Who is arguing? I'm agreeing; I've finally accepted the bubblehead perspective as being the defining aspect of my life.

    I'm "F#CKED" because I own a home; as so many of you have pointed out here.

    The residential housing market in the DC metro area is overinflated. My life has no joy, no meaning, as a result. Even if I have another 50 years to live, nothing will be the same ever again.

    You've won the argument, don't you see? I'm going to jump in front of a bus now.

    ReplyDelete
  118. David said...
    "Lance,

    If prices were at 2000 levels + 3.5% yearly inflation in the DC area I would have bought this year."

    Of course you would have because given that interest rates dropped drastically and other financing mechanisms took a quantum leap forward in the interim, you would have been getting a great deal had you only had 3.5% yearly inflation to contend with! What I suspect you are not realizing, is that it is only marginally more difficult for someone to buy now when all factors are taken into account then it was then. You might want to check at your company what someone doing what you are doing today was being paid back in 1999. Then go back into the history books and look up how tax rates were higher and use those to calculate take home pay for that person in your position back then. Then pic a place you like in a neighborhood that hasn't changed since 1999. I.e., don't pick some place like Logan which back in 1999 was still a very undesireable place. Or even Silver Spring which has done a 180 in the meantime. Find a place like Aspen Hill or Burke which really has changed only minimally. Go through tax records and see what that place sold for back then. Then assuming no downpayment (for ease of calculations) figure out what your mortgage payment would have been based on a 9% loan. Once you have that, determine what percentage of salary that is for your co-worker from 1999. Then fast forward and do the same calcs for yourself using 2006 sales prices, 6% interest-only loan, and your salary today reduced by today's lower tax rates. I will be you that you don't find that much ... if any ... difference in the percentage of monthly income spent to cover the mortgage between you in 2006 and your 1999 counterpart operating under 1999 conditions.

    ReplyDelete
  119. Robert said:
    "But today, with inflation much lower, a similar process would take years. For example, if rents rise by an annual 2.5% ... "

    This is VERY wishful thinking on the part of a renter. From what I've been hearing of late, 8%+ per year is more the norm.

    ReplyDelete
  120. Lance reminds me of the Iraqi Minister of Information.

    His posts have given hours of laughter and enjoyment.

    Please keep up the great work, Lance.

    ReplyDelete
  121. "This is VERY wishful thinking on the part of a renter. From what I've been hearing of late, 8%+ per year is more the norm. "

    But the world is a static place. Populations don't grow or migrate; energy costs stay flat, professional skills in demand in 1981 are still in demand today, and natural resources are unlimited. Therefore, a nice house with a white picket fence in a nice neighborhood should cost a 26 year old about the same price as his grandpa paid for a similar place in 1969. (adjusted for inflation, of course)

    Astonishing how Housingheads fail to see the obvious.

    ReplyDelete
  122. Lance at 12:44

    The hole in the argument is considering only affordability in terms of a monthly payment; i.e. using an i/o loan.

    Of course, car leasing companies and Rent a Center love this thinking. I would not advise though, that adopting the same financial strategy as those people that rent their TVs from the latter, is a wise idea.

    ReplyDelete
  123. anon,12:17

    ditto!!!!!!!!!!!!!!!!!!!!

    ReplyDelete
  124. maybe DC housing is "different" but i know socal RE and after prices triple in 5 years and the market starts to "flatten" it's definetly not the time to buy.


    been there seen that.

    ReplyDelete
  125. "You've won the argument, don't you see? I'm going to jump in front of a bus now."

    What I see is someone of limited intelligence being obviously sarcastic.

    That said, if you want to jump in front of a bus, no one is stopping you.

    ReplyDelete
  126. anony said:
    "i could only put down about 50K and i WILL NOT GET A ARM."

    get and I/O with a reset at the 10 year mark. chances are you'll be ready to move up to a larger house by then, and you will have built up equity in the meantime. in the worst case scenario, you just end up renting again after 10 years. (this worst case scenario is also a very unlikely one.)

    And yeah, you might consider buying a cheaper house. I think I read where the median house in the DC area is something like $450K ... why must you have what is a relatively a "luxury" house? ... just 'cause you grew up in a similar house with your parents? do you really think they started off as well? an example, ... let's say they lived off of Old Georgetown Road in North Bethesda (which was then called simply "Rockville") back in the 60s/70s. Do you really think it was the same place as it is today? Not at all. The Wildwood high-scale shopping center with the starbucks and the Dean and Delucca-type eatery? Nope, they were there ... nor were any of the shops across the street. It was a basic strip mall. And your parents house? ... Do you think it even had A/C back then (other than maybe a unit sticking out of the living room window ... with drapes hanging between that room and others to keep the cool in.) You are setting your expectations too high and then being disappointed when you can immediately reach them with your starter home. From the salary you are making, you are either getting fantastic pay for someone just starting out, or you are someone like myself who has been in the workforce for a while. If it is the latter than I have to ask "why didn't you buy earlier?" I am making less than you but able to easily afford a home twice the value of the one you say you can't afford. Why? Because I realized a long time ago that you have to do baby steps. If you are just out of college and earning as much as you are, then you should be grateful and not immediately be seeking to get that much-higher-than-median house. There's a reason they're paying star performers just out of the box so much nowadays ... Salaries always inflate to meet housing (and other costs). Its simple supply and demand. Employers will pay what it takes to get the talent they need. Hence why I am opposed to the new "affordable housing" movement where developers are forced to shift costs to new buyers so that school teachers, firemen, etc. can afford to live in the same place. What would a city do if it couldn't attract the teachers and firemen it needed under existing salaries? Simple, they'd offer more in salaries so that they COULD hire who they needed in the quantities needed. Affordable housing programs effectively rob the school teachers and firemen and the like of the salary increases they would otherwise be getting. And move the decision making ability of where these people will live from them (the school teachers and firemen) to the city/county governments making the decisions as to where affordable housing should be and what it should be like!

    ReplyDelete
  127. "+ 1500 in child support per month"

    Who's problem is this? Real Estate Agents? Homeowners? Pull your head out of your a$$ and take some repsonsibility for your circumstances. CHILD SUPPORT IS HOLDING YOU DOWN?! LOL!!!

    ReplyDelete
  128. " What I see is someone of limited intelligence being obviously sarcastic."

    Whee! You caught on! Except my statements were more satirical in nature and less "sarcastic" as you say. Now, the problematic aspect of this little Pavolvian interchange in which you've voluntarily engaged is to discern what it means if homeowners concede your argument that they are "F#CKED". (I'm Dr. Pavlov in the exercise, by the way)

    "That said, if you want to jump in front of a bus, no one is stopping you."

    I play in traffic all the time. Really, I do. And that includes "jumping in front of buses". Not a problem since it is typically at a standstill. Going to devote some of your circumscribed powers of deduction to figure out what the hell I'm talking about? Yes, I predict that you are....

    ReplyDelete
  129. Anon 1:26,

    So it wasn't for the insurance money?

    hmphf...

    My $0.02.

    ReplyDelete
  130. Lance

    Please don't take this as a flame, but if I understood an earlier post correctly, you made your first purchase in 1996? I hope you understand that you bought in at the beginning of the recovery from the RE tank in that started in 1990 in the NE. From 1999 on you (and I, and every property owner) have ridden home values upwards at a rate that is unprecedented. Check Shiller's 2nd ed. of Irrational Exuberance, or the myriad of inflation adjusted charts available on the web, to verify. You may think this the natural order of things; what I see is the beginning of a correction that's going to be painful for a long time to come.

    So, for those of us who grew up and started our careers in a different era and lived through up and down periods, such as the truly tough recession that started in 1981, financial advice from someone who was in grade school during that period will be viewed skeptically, to say the least.

    However, good luck with it all. As I learned from a successful RE investor a long time ago, "the times make us smart".

    ReplyDelete
  131. "A study by the National Association of Realtors (NAR) found that 23% of all American houses bought in 2004 were for investment, not owner-occupation."

    If 30% of of households are renters, shouldn't 30% of the houses sold be non owner-occupied?

    ReplyDelete
  132. Okay, so I ran a few numbers. If you think nominal rents are going to grow at 6-8% for the next 30 years and you intend to stay here for the next 30 years, then you should probably be willing to pay twice as much as rent in your monthly payments to buy.

    If you think rents will grow at 4-5%, then buying doesn't make so much sense if it costs twice as much as your monthly payment.

    Checking numbers at BLS, rents in the Baltimore/Washington area (if you can find more granular data, then great) have grown at an annual rate of 4.4% between June 1997 and June 2006.

    (I obtain 4.4% by dividing the rental price index in June 2006 by the rental price index in June 1997 and taking the 1/9 root, since they're 9 years apart.)

    ReplyDelete
  133. Anon 1:46,

    At first glance I would say yes, but I think it depends on the turnover.

    The average homeowner moves something like every 5-7 years. How frequently does the average landlord rotate through properties?

    If it's much higher than 5-7 years than a much higher percentage of homes sold in a given year will be for owner/occupier than for rental purposes.

    Put another way, the churn is within the owners not the landlords.

    My $0.02.

    ReplyDelete
  134. "+ 1500 in child support per month"

    Who's problem is this? Real Estate Agents? Homeowners? Pull your head out of your a$$ and take some repsonsibility for your circumstances. CHILD SUPPORT IS HOLDING YOU DOWN?! LOL!!!

    =============================

    what the fug is wrong with you people???

    i only listed my MAJOR expenses i was not saying it's holding me down??

    the internet has turned everybody into real assholes and i'm sorry for the language but what drives these people to this insane level that their only reply is to insult others?

    some of you are real morons.

    ReplyDelete
  135. The average homeowner moves something like every 5-7 years. How frequently does the average landlord rotate through properties?


    ==============================

    i remember the realtor telling me that when i bought in '91.

    sadly when you are upside down in that 5-7 year time frame you are going no where.

    and Lance, that 640K house i mention in an earlier post is about 1/3 the size of the home i grew up in, it's a real dump to, i know the house. it's needs 50K worth of work easy. it's on a plot of land about 1/10 the size of the house i grew up in and it doesn't even have air conditioning.


    one would think that for over 600K you are getting a luxury house but here in socal those are teardowns,

    ReplyDelete
  136. anon said:
    "So, for those of us who grew up and started our careers in a different era and lived through up and down periods, such as the truly tough recession that started in 1981, financial advice from someone who was in grade school during that period will be viewed skeptically, to say the least."

    Ha! Thanks for the compliment ... I guess ... but no, I was in college ... and not in grade school in '81. And I owned my first home in something like '88 ... but learned the hardway that at that stage one needs to be flexible and not tied in to a house, area, wife, whatever .... And then like lots of the bubbleheads, I too thought it impossible to buy into the Washington market with such high prices (yes, even in the early '90s, the prices here were very high compared to elsewhere) ... but I made the leap and the sacrifices and it has been well worth it. Yes, I agree I timed it right (not economy-wise, but by buying tin the District when everyone else was running away from it ... My rationale was that the feds would never let the capital fall into total despair ... And I was right as evidenced by Congress' establishment of the Control Board and our subsequent recovery.) But even if the economy in general hadn't rallyied prices throughout the nation and Washington hadn't much improved, I'd have still have still been earning a lot more now than then ... and still been paying relatively less and less to live in that one-bedroom condo I bought back in '96. Could I have bought earlier? Probably not ... The job/career path was defined enough to enable me to predict I'd be staying in the area. And if you've been reading my posts ... which I don't think you have considering how young you think I am, you'd know that I don't think buying is for everyone irrespective of their life stage. For example, I suspect it is far too soon for David. But if he could have a house for a bargain, he'd buy it ... and make money when/if he had to move to persue career interests ... Which goes to the point of my thinking many bubbleheads are confusing a house for an investment and accordingly acting against their longterm interests in respect to their longterm housing expenses.

    ReplyDelete
  137. anon said:
    "So, for those of us who grew up and started our careers in a different era and lived through up and down periods, such as the truly tough recession that started in 1981, financial advice from someone who was in grade school during that period will be viewed skeptically, to say the least."

    Ha! Thanks for the compliment ... I guess ... but no, I was in college ... and not in grade school in '81. And I owned my first home in something like '88 ... but learned the hardway that at that stage one needs to be flexible and not tied in to a house, area, wife, whatever .... And then like lots of the bubbleheads, I too thought it impossible to buy into the Washington market with such high prices (yes, even in the early '90s, the prices here were very high compared to elsewhere) ... but I made the leap and the sacrifices and it has been well worth it. Yes, I agree I timed it right (not economy-wise, but by buying tin the District when everyone else was running away from it ... My rationale was that the feds would never let the capital fall into total despair ... And I was right as evidenced by Congress' establishment of the Control Board and our subsequent recovery.) But even if the economy in general hadn't rallyied prices throughout the nation and Washington hadn't much improved, I'd have still have still been earning a lot more now than then ... and still been paying relatively less and less to live in that one-bedroom condo I bought back in '96. Could I have bought earlier? Probably not ... The job/career path was defined enough to enable me to predict I'd be staying in the area. And if you've been reading my posts ... which I don't think you have considering how young you think I am, you'd know that I don't think buying is for everyone irrespective of their life stage. For example, I suspect it is far too soon for David. But if he could have a house for a bargain, he'd buy it ... and make money when/if he had to move to persue career interests ... Which goes to the point of my thinking many bubbleheads are confusing a house for an investment and accordingly acting against their longterm interests in respect to their longterm housing expenses.

    ReplyDelete
  138. Anon 1:46,
    I think you are assuming that the entire 30% are renting homes/condos (NAR stated "23% of all American houses were for investment"). I do not believe that apartments would fall under that category.

    There's also the issue of roomates (e.g., in grad school, 5 of us shared one house).

    Anon 2:07-
    There are some people who comment on this blog with the sole purpose of attacking others and confusing the issue. Don't pay them any mind.

    H

    ReplyDelete
  139. anon said:
    "one would think that for over 600K you are getting a luxury house but here in socal those are teardowns,"

    from everything I know about California and the west (including having lived there), I suspect there is a large bubble there. everybody is from somewhere else and trying to make a quick buck ... and thinking of one's home there as an investment rather than a place to call home is the norm rather than the rule. so it is not surprising that you would have a bubble there. that is not as much the case here ... though reading how the bubbleheads view their homes, it gives me concern that we are heading in the same direction. even when i was there in the mid-80s, the houses were for the most part glorified shacks with high prices ... a land of real haves and have nots ... and "as California goes ... so goes the nation!" ... I'm just glad I've got my little piece of the world to hold on to .. and it's not a shack! buy now you DC bubbleheads in your 30s and 40s or look to California and see what the future holds for you too!

    ReplyDelete
  140. To Anony 2:15, I don't know Cali very well and have never been to Cleveland, Ohio, but I do know that Shaker Heights is a relatively well-to-do suburb, with a median familly income of $85K according to the 2000 census. The most expensive house for sale on Craigslist in Shaker Heights, Ohio, is a beauty. The ask is 359K.

    Here's the link: http://cleveland.craigslist.org/rfs/188949962.html

    Why are people "tearing down" $600,000 houses out your way? My God.

    ReplyDelete
  141. " And I owned my first home in something like '88 ... but learned the hardway that at that stage one needs to be flexible and not tied in to a house, area, wife, whatever ...."

    "...and still been paying relatively less and less to live in that one-bedroom condo I bought back in '96. Could I have bought earlier? Probably not ..."

    "For example, I was only able to buy my current home because of the equity I'd acquired from my two subsequent condos ... the first being bought 10 years ago with a 98% loan."

    Pick a version, please.

    ReplyDelete
  142. I really feel like the market is starting to gather momentum, downwards. Once people get scared (the average Joe, I mean), all bets are off and it's going to get bad. You'd have to be stupid to buy now..

    BubbleTrack.blogspot.com

    ReplyDelete
  143. "+ 1500 in child support per month"

    What is your current monthy housing payment?

    ReplyDelete
  144. For god's sake, if you don't want people to comment on your personal life, don't post details about your personal life on the internet.

    ReplyDelete
  145. "the internet has turned everybody into real assholes "

    Yep, ever since Al Gore invented the internet, we've had a bunch of bad behavior on the part of otherwise civilized people.

    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
  146. "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.."

    Ha! That was a good one, anonymous! Very funny.

    ReplyDelete
  147. Hey David,

    Here's a housing story you missed:
    http://money.cnn.com/2006/08/04/news/companies/hovnanian.reut/index.htm

    ReplyDelete
  148. David,

    There is no Bubble. What we do have is a balance between buyers and sellers.

    Sincerely,

    Richard M. Johnston
    RE/MAX OTB ESTATES
    800-820-8924 Toll-Free
    818-730-4128 Direct
    818-325-3319 Office
    818-235-0193 Fax
    Richard@estates.la
    http://www.estates.la

    ReplyDelete
  149. "Richard@estates.la
    http://www.estates.la"


    Why does Richard M. Johnston have a top-level domain from the Lao People's Democratic Republic?

    ReplyDelete
  150. Anonymous said...
    "" And I owned my first home in something like '88 ... but learned the hardway that at that stage one needs to be flexible and not tied in to a house, area, wife, whatever ...."

    "...and still been paying relatively less and less to live in that one-bedroom condo I bought back in '96. Could I have bought earlier? Probably not ..."

    "For example, I was only able to buy my current home because of the equity I'd acquired from my two subsequent condos ... the first being bought 10 years ago with a 98% loan."

    Pick a version, please."

    please don't tell me you can't put it together yourself .... is it really that difficult to use your deductive reasoning?

    1. 1st townhouse 1988 (maybe 1989?)... lived there for 2 -3? months before having to move to out of the area for work. i then rented it out for something like 5 years and basically made money on it not via the appreciation but via the depreciation deductions i took while it was a rental. (Yes, the market was stagnant then in that area.) It obviously didn't do its job as a home. It was too soon for me to have bought career-wise.

    2. bought 1st condo in DC (a 1 bedroom) in '96 ... I'd been in DC a while, but because of career demands (including a 1 yr transfer in '91 to out west) I wasn't yet ready to buy to buy yet. and YES 2006 - 1996 = 10 years.

    3. sold first condo in DC and bought 2nd condo (2 bedroom) in '99. rolled equity appreciation from 1st condo into 2nd condo

    4. sold 2nd condo and bought house in DC in 2005. rolled over substantial equity from condo into house in DC

    now, why couldn't you put that together yourself from the facts given you earlier? i've noticed a common thread among bubbleheads ... the inability to put A and B together and come up with C ... All they see is A in isolation and B in isolation ... and then claim that X must be the result because that is what they were trying to prove to begin with ....

    ReplyDelete
  151. "There is no Bubble. What we do have is a balance between buyers and sellers."

    The stock market had a balance between buyers and sellers in late 1999, but it was still a bubble.

    However, the rising housing inventories indicate that there is NOT a balance between buyers and sellers. Instead, the equilibrium home prices are falling, but real estate market prices are sticky on the downside.

    So, Mr. Richard M. Johnston from Laos is wrong on both counts.

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  152. Lance is getting desperate.

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  153. And someone thinks the use of the word "Pavlovian" makes them smart.

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  154. http://tinyurl.com/f8uqe

    -When all else seems to be failing, some weary home sellers look for heavenly intervention.
    In the last six months, 273 people have purchased statues of St. Joseph, the patron saint of family and home, from three stores run by the Northern Virginia Association of Realtors. That's up from 92 sold during the same months last year.-

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  155. robert said...
    "http://tinyurl.com/f8uqe

    -When all else seems to be failing, some weary home sellers look for heavenly intervention.
    In the last six months, 273 people have purchased statues of St. Joseph, the patron saint of family and home, from three stores run by the Northern Virginia Association of Realtors. That's up from 92 sold during the same months last year.- "


    hmmm ... so you don't believe in God? you heathon you! ;)

    you're not Mel Gibson, are you? ;)

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  156. Bitter Lance resorts to anti-semitism.

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  157. lance said,

    "I'm just glad I've got my little piece of the world to hold on to."

    No, lance, you don't -- not until your bank note is paid in another 30 years.

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  158. Barging Into the Bloggers' Circle
    Web Logs Are Fertile New Territory for Introducing Products, Welcome or Not


    By Kim Hart
    Washington Post Staff Writer
    Saturday, August 5, 2006; Page D01

    When Nokia Corp. released its camera smartphone last fall, the marketing campaign cut back on news releases and flashy ads. Instead, the company sent sample products to 50 tech-savvy amateur bloggers with a passion for mobile phones.

    The tactic paid off, as word spread online about the N-series phone, driving up sales and contributing to a 43 percent profit boost for Nokia last quarter.


    www.washingtonpost.com/wp-dyn/content/article/2006/08/04/AR2006080401441.html

    Maybe a builder will give David a new house if he changes the premise to his blog ...

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  159. anon said:
    "Anonymous said...
    Bitter Lance resorts to anti-semitism."

    as usual, bubblehead comes to 180 degree wrong conclusion from facts and statements made. some of you guys really are thinking-handicapped, aren't you?

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  160. WhiteTower said...
    "lance said,

    "I'm just glad I've got my little piece of the world to hold on to."

    No, lance, you don't -- not until your bank note is paid in another 30 years."

    WhiteTower, You are showing your ignorance of real estate law.

    The "bank" doesn't own the property anymore than MasterCard owns the shirt you are wearing that you paid for with your credit card. Actually, if you knew anything about real estate law, you'd know that MasterCard would have a far easier time claim that shirt if you didn't pay then a bank does for non-payment of a scheduled loan payment. You'd also know that the bank can't up payments or interest (unless agreed to when loan papers signed), extend them past their loan term, or really have ANY decision making ability over your property. You could let it deteriorate and fall to the ground, and it is your business and your business alone. Counter that with when you rent from me. I can tell you to leave whenever I want for any reason in the world including that I think you're a loser and don't want a loser on MY property. Get your facts straight about real estate ownership before showing your stupidity to the world.

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  161. and oh, btw ... did you know that 40% of us homeowners own our homes free and clear? ... and that the majority of the remaining 60% have equity stakes in their properties far exceeding the per-the-bubblehead-creed "safe" 20% threshold.

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  162. Lance, maybe the sponsors that are paying you to write your barrage of garbage might pay you more for better material. Was that an indirect offer to David to change his blog for a free house?

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  163. "did you know that 40% of us homeowners own our homes free and clear?"

    Does that you mean you own your home free and clear? No, didn't think so.

    Hey, nobody here has a beef with homeowners per se. If somebody bought in a financially responsible way (i.e. they had built enough savings to weather any unexpected downturns or they had a decent downpayment) in 1997 to 2001, then yay for them, especially if they recognize their good fortune as such and don't claim to be financial wizards. They'll be fine even if house prices drop a lot.

    But those people who used interest-only loans as an affordability mechanism to buy in 2005? Yeah, they deserve the bad things they got coming. And yes, the vast majority of those DC-area buyers who used interest-only financing in 2005 were not rolling big equity or anything like that. They were using risky financing to buy a house they couldn't afford.

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  164. "Maybe a builder will give David a new house if he changes the premise to his blog ..."

    The builders might be getting that desperate.

    "Luxury homebuilder Hovnanian Enterprises Inc. again cut its quarterly and full-year profit outlook Friday, citing a slowdown in sales, high contract cancellation rates, and the cost of incentives to lure buyers.

    The Red Bank, N.J., company's shares fell 5 percent in premarket trading. Hovnanian (Charts) said it expected earnings of $1.10 to $1.20 per diluted share for the third quarter ended July 31, down from its prior forecast of $1.40 to $1.50.
    hovnanian.03.jpg
    Latest home prices

    Analysts, on average, had forecast $1.41 per share, according to Reuters Estimates.

    Most major U.S. homebuilders have issued similar warnings in recent weeks.

    Pulte Homes Inc. (Charts), the No. 2 U.S. homebuilder has cut its forecast twice since June, pointing to steadily increasing supply and limited affordability of homes.

    Other companies that have reported lower earnings and falling orders, and cut their estimates, include market leader D.R. Horton Inc. (Charts), Centex Corp. (Charts), Ryland Group Inc. (Charts), and Toll Brothers Inc. (Charts), a rival to Hovnanian in the market for high-end homes."

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  165. "and oh, btw ... did you know that 40% of us homeowners own our homes free and clear? ... "

    Lance, I am in awe and truly humbled to be sharing this message board with you.

    ReplyDelete
  166. Cool. No more new home construction after the units currently in production are completed. Let the supply dry up, the builders shut down, and a 10 year period of inflation (or recession) begin now.

    I own a home.

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

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  168. "I have an interest only loan and I rolled hundreds of thousands into the house (put 25% down)and I have a very affordable payment which even when it resets at year 10 will still be afordable."

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


    "And the vast majority of people who bought homes in 2005 did so with tons of equity from their previous homes such as myself."

    Your source on this? Don't use anecdotes, find a source that demonstrates that the vast majority of interest-only buyers in DC in 2005 used rolled equity.

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  169. Keith said:
    "But those people who used interest-only loans as an affordability mechanism to buy in 2005? Yeah, they deserve the bad things they got coming. And yes, the vast majority of those DC-area buyers who used interest-only financing in 2005 were not rolling big equity or anything like that. They were using risky financing to buy a house they couldn't afford."

    Nothing could be further from the truth. I have an interest only loan and I rolled hundreds of thousands into the house (put 25% down)and I have a very affordable payment which even when it resets at year 10 will still be afordable. Interest only is a smart way to go if you are looking to responsibly manage your finances and deductions. The entire payment is tax deductible and that which would otherwise go toward principal can instead be invested elsewhere (i.e., diversification.) The additional equity I would get during the first 20 years from paying toward prinicipal is minimal compared to the normal equity growth that comes with time. I'm already at between 40% and 45% equity based on recent sales of comparables homes on my block ... and that is without putting a penny toward principal. I am also able to take the extra $400/month I am saving to buy my employers stock at a discount because I am not putting additional equity into the house where it is not needed. Most people own their homes only 7 years. So, chances are I'll never even see the reset at the 10 year mark. But if I do, I always have the option of refinancing to another interest only loan, a full PITI 30 year loan, or whatever is appropriate at that point. Your assumption that people use these financing methods simply to buy something they can't afford is based on your assumption that all people who buy are in your circumstances. Most are not. Again, 40% of all homes are owned free and clear. 80% of all second homes and rental properties are similarly owned free and clear. And the vast majority of people who bought homes in 2005 did so with tons of equity from their previous homes such as myself.

    I could swear you and I went round and round about this a few weeks ago ... with even Va_Investor jumping into the discussion about most buyers buying with lots of equity to put down. Why do you still revert to the same disproved assertion. Do you really feel your only hope for homeownership is bad luck falling upon "those homeowners who bought in 2005"? It really sounds to me like you are jealous of those that were able to buy in 2005 because you perceive yourself as not having been able to. And the sad part is that you too could have bought then ... or now ... if you only learned to quit being jealous of others and instead concentrated on helping yourself. Those financing mechanisms such as interest only or 100% loans that you mock could be your ticket to getting you were you want to go if you have the personal self restraint to make it work. Those of us with lots of equity to roll over didn't always have that equity. Most of us were once in your position. But we didn't waste our time being jealous of those who had succeeded ... instead we learned to copy them and their successful methods.

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  170. "with even Va_Investor jumping into the discussion about most buyers buying with lots of equity to put down."

    And where was the evidence? The cite? I'm only asking for your evidence that most buyers who used interest-only financing in 2005 rolled lots of equity.

    "I did" is not evidence, because you do not constitute most buyers.
    Where is your evidence that most buyers who used interest-only financing in 2005 DC area rolled lots of equity? Your cite?

    Really, save the accusations and the attacks, and answer my question.

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  171. "I could swear you and I went round and round about this a few weeks ago ... with even Va_Investor jumping into the discussion about most buyers buying with lots of equity to put down. Why do you still revert to the same disproved assertion."

    Where did you disprove this assertion? It seems like all you do is make a claim, fail to back it with evidence, then attack people who ask for the evidence.

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  172. Lance,

    keith was arguing in the immediately preceeding thread about how the personal anecdotes of a few renters are concrete, quantifed evidence that he is correct.

    Yet here, he is arguing with you that personal anecdotes are irrelevant.

    Oh, and he has a fee-OONN-say!

    ReplyDelete
  173. "james said...
    "Richard@estates.la
    http://www.estates.la"

    Why does Richard M. Johnston have a top-level domain from the Lao People's Democratic Republic?"

    "So, Mr. Richard M. Johnston from Laos is wrong on both counts."

    .....
    Hmmm... 818 area code + .la domain = Laotian! Wow. So people with a .tv domain actually are in Tuvalu, not, say, in the broadcasting industry. The things you learn from bloggers.

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  174. "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.

    Now, Lance, answer the question. Got your source that most of the 2005 DC interest-only buyers ponied up big equity gains?

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  175. lance said,

    "The "bank" doesn't own the property anymore than MasterCard owns the shirt you are wearing that you paid for with your credit card."

    Speaking of stupidity, lance, credit card debt is unsecured debt as opposed to a mortgage debt which is secured, meaning: the bank issuing your credit card cannot respossess your shirt paid for by the credit card because it has no security interest in the shirt. It can only take civil action against you for the monetary value of the shirt.

    However, the bank that issed your mortgage has a lien on your title until you pay the mortgage in full. You simply do not own your home until that debt is paid. You can't even sell it without the acquiesence of the bank.

    And, ultimately, should you not pay your mortgage debt, the bank can repossess the house.

    You didn't understand this when you obtained a mortgage??

    ReplyDelete
  176. Lance said... get and I/O with a reset at the 10 year mark. chances are you'll be ready to move up to a larger house by then, and you will have built up equity in the meantime.

    You don't build any equity with an interest only. This is dangerous advice. Even more so, if Lance is assuming this equity will come from appreciation. Homes typically appreciate just ahead of inflation. There is a good chance now they will not appreciate at all - and could even lose value. He started buying at the beginning of the boom and has never seen a decline. The interest only route is premised on a large amount of risk. Be careful.

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  177. ok..I am tapped out and i can't sell fro enough to keep me solvent,but I do have nice insurance policy..If I burn my condo down will my insurance policy pay off the bank..???

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  178. The Washington Times. “Strong demand for rental housing in the Washington area is making developers who switched their apartment buildings to condominiums during the red-hot real estate market rethink their business strategies.”

    “About 25 percent to 40 percent of the housing units being built as condominiums instead will be sold as apartments in the next 18 months, according to Marcus & Millichap. In addition, some apartments that were converted to condos are likely to be switched back to rentals.”

    “The cooling market is creating concerns among Washington-area real estate developers who were betting their investments on condos. ‘We have clearly entered a period in which the supply of condominium housing exceeds demand, particularly in certain submarkets where significant development has occurred over the last two to three years,’ said David DeSantis, for developer PN Hoffman. ‘It is not clear at this point how long the oversupply condition will last.’”

    “Other developers do not want to wait for their condominium markets to improve, preferring instead to auction their projects to the highest bidder. ‘We’ve noticed a definite surge in calls from developers in the D.C.-Baltimore area who are looking for a way to sell units they thought would be long gone by now,’ said Carl Carter, of J.P. King Auction Co. ‘Some tell us they’re being hurt by ongoing costs like interest, taxes, maintenance and marketing costs they didn’t plan for.’”

    “Some of them built condos thinking they would sell promptly but did not plan for a slumping market. ‘Now they want to stop the bleeding, recover their investment and move on to the next opportunity, and an auction lets them do that,’ Mr. Carter said.”


    Hmmm - if 25% to 40% of condos now become apartments, looks like supply will be less of an issue. Rising rents? I'll take my chances. (BTW - just found out my rent will go up 3% - the property manager called it inflationary.)

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  179. anybody know what happened to "The Prime" condos by Monument Realty?

    These were condo conversions in the Courthouse section of Arlington. The website is gone, and it's not listed as a present or past project on Monument's site.

    I know they pulled one conversion previously, but have they pulled the plug on The Prime too?

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  180. Looks like it


    The 574-unit Park Center in Alexandria began a conversion in October but pulled back during the second quarter of this year. The developer, Monument Realty of Washington, also halted a conversion this month at the 256-unit The Prime in Arlington County after receiving 52 contracts.


    http://www.baltimoresun.com/business/bal-te.bz.condos03aug03,0,2999784.story?coll=bal-home-headlines

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  181. "ok..I am tapped out and i can't sell fro enough to keep me solvent,but I do have nice insurance policy..If I burn my condo down will my insurance policy pay off the bank..???"

    No. Insurance polices usually pay the replacement cost of a structure - no more. So, If you paid $600,000 for, say, a rowhouse in a 1,500 square foot lot, and the house can be rebuilt for $200,000, that is what you will get, no more.

    You still have to pay back the bank on the land, which in our example you bought for $12 million per acre.

    The bubble is popping. Long live the bubble.

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  182. Thierri, Bubble Head #8952August 05, 2006 5:11 PM

    However, the bank that issed your mortgage has a lien on your title until you pay the mortgage in full. You simply do not own your home until that debt is paid. You can't even sell it without the acquiesence of the bank.

    But you do own it when it comes to property taxes and condo fees. I hope the home debtors enjoy the benefits of home debtorship each month when they pay property taxes and condo fees on top of their I/O ARM payments.

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  183. "I am also able to take the extra $400/month I am saving to buy my employers stock at a discount because I am not putting additional equity into the house where it is not needed."

    If your employer is selling its stock to employees at a true discount, I wouldn't turn down free money. But, beware of the Enron effect. A lot of Enron employees lost their retirement savings because they were drinking a bit too much of the company Kool-Aid.

    I had a friend who worked at a very small tech company in the late 1990s. The company was selling its stock to employees at a very big discount, and my friend was buying. They company eventually went bankrupt.

    I work for a Fortune 500 company. This summer, the company is giving stock to its employees as part of an incentive program. Most employees just sell the stock right away so they can have cash to spend. I'll be keeping the stock, but it's a very small part of my overall portfolio.

    Free money is nice, but as the saying goes, "Don't put all your eggs in the same basket."

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  184. "Hmmm... 818 area code + .la domain = Laotian! Wow. So people with a .tv domain actually are in Tuvalu, not, say, in the broadcasting industry. The things you learn from bloggers."

    It was supposed to be a joke, but jokes don't always come across well in text.

    The guy is obviously rerouting the Los Angeles phone number, and outsourcing the customer service work to Laos.

    :-)

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  185. james said:
    "Free money is nice, but as the saying goes, "Don't put all your eggs in the same basket."

    Correct, I am not putting all my eggs in one basket, hence why I am buying my company's discounted stock, putting money into a 401K (held by outside party), and redid the studio apartment over my carriage house so that I can rent it out when I don't have visitors staying in it. Good caution about Enron, but my company is about as sound as they come. It's one of those fortune 500 companies that's been around over 100 years, and is a stock financial advisors invest in when they want something as sure as they get for equities. If my company went belly up, the bubbleheads would definitely be getting the armagedon they are waiting for! And, of course, only their jobs would be spared so that they could be sure of paying their 100% financed mortgages on their 70% discounted properties before the banks could foreclose!

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  186. and from the sounds of it thierri bubblehead probably doesn't own "a pot to piss in" as my dad would have said... hence the seething jealousness that comes spewing out her/his mouth like sewage from a broken sewer line.

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  187. Lance, I gotta tell ya, the anger, the seething, on this blog is coming from the "Housing Head Creed," as Fritz would say, not from those who question the sanity of housing prices.

    There's really no reason at all for anyone who's not leveraged to the asset du jour to be upset.

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  188. "I hope the home debtors enjoy the benefits of home debtorship"

    Buying a home is generally a better financial decision than renting, because you own an appreciating asset. Getting a mortgage is generally a better financial decision than owning the house free and clear, because the leverage increases your return on equity.

    However, just because home-ownership (or home-debtorship as you called it) is generally a wise financial choice, does not mean that it is always a wise financial choice. Home prices have appreciated so wildly over the past few years, that they are unlikely to appreciate over the coming decade or more. I believe that they will likely fall a bit in the short run, and then stagnate for a very long time. (However, unlike David and many others here, I don't claim to be able to predict the future.)

    A 70% decline, as some visitors to this blog have predicted, is completely unrealistic -- even for true bubble markets like Washington, DC.

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  189. Thierri, Bubble Head #8952August 05, 2006 5:59 PM

    Lance, I have a sizable down payment saved, great credit, and a good stable job. However I choose to rent instead of buy at the top of a speculative real estate bubble( or near the top since prices are now falling).

    You cannot respond to my earlier point so you attack me personally. Bitter desperate Lance is coming unhinged.

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  190. James - no one can predict the future. We have only the past to help us evaluate present circumstances. I agree, that predictions of a 70% drop are absurd.

    However, some anony came in here the other day, and said, accurately, I believe, that as shocked as we all are at how high prices went, we will be just as shocked at how low they eventually go.

    There is plenty of historical precedent for "shock" at both extremes.

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  191. dc_too said,
    "Lance, I gotta tell ya, the anger, the seething, on this blog is coming from the "Housing Head Creed," as Fritz would say, not from those who question the sanity of housing prices."

    Usually on this blog, most of the mean-spiritedness comes from housingheads -- especially those who go by the name "anonymous". However, in this particular thread most of the mean-spiritedness has been coming from bubbleheads and has been directed at Lance.

    Just because someone disagrees with you, it doesn't mean you should hate them.

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  192. Well put, James. A return to civility and mutual respect would certainly get my vote.

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  193. There can be no return to civility. These pathetic bubble heads are ruining my business.

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  194. you think its funny?

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  195. Candor, yes. I might like to buy Lance a beer one of these days.

    Bugger off, troll.

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  196. thanx for the update on The Prime.

    I'm kinda surprised that conversion wasn't successful, considering the location.

    I wonder how The Chase conversion is going in Bethesda?

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  197. james said... Usually on this blog, most of the mean-spiritedness comes from housingheads -- especially those who go by the name "anonymous". However, in this particular thread most of the mean-spiritedness has been coming from bubbleheads and has been directed at Lance.

    I wouldn't be at all surprised if it was the same one or two people, baiting whomever they think they can get a rise out of. Certainly the anonymous trolls seem to use the same tactics, whatever their purported opinions-- name-calling and contradiction with no attempt to make a logical argument or support their statements.

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  198. lance said... and oh, btw ... did you know that 40% of us homeowners own our homes free and clear? ...

    Well, you never did provide any support for this, Lance, so I went and did a few searches. According to census data, in 2000 30% of owners owned their homes 'free and clear'. Still a larger percentage than I would have guessed, but it hasn't been 40% since 1970 (actually 39%). The percentage has been coming down steadily since 1960, and at the rate it has been declining I'd guess it stands at no more than 25% currently. Here's the link:
    http://www.census.gov/prod/2003pubs/c2kbr-27.pdf

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