Thursday, August 10, 2006

USATODAY: For Some Renting Makes More Sense

The USAToday is delivered to tens of thousands of hotel rooms across the country each and every day. This morning I work up and looked at the paper. One of the front page stories was 'For Some Renting Makes More Sense'.
"Real estate is probably the best investment any young person can make," says Yadiris Ferreira, 29, who bought a condo last month in Pembroke Pines, Fla.

Still, her mortgage, including homeowner association fees, totals $1,800 a month — more than half the money she takes home as a high school math teacher. "It's crazy," Ferreira concedes.

But, she explains, "If I didn't buy something soon, it was going to get to the point that I couldn't afford anything."

There are still greater fools out there. :-( The scary thing is that she is a high school math teacher. If I were a principal of that school and she told me during the interview that she just bought a condo in a bubble market last month and proclaimed "If I didn't buy something soon, it was going to get to the point that I couldn't afford anything," she would not be hired. Yikes!

68 comments:

  1. Too late Yadiris, it was already unaffordable.

    But you decided to purchase anyway.

    grim

    ReplyDelete
  2. People spending 1/2 their take-home pay on an ARM are products of the US educational system.

    ReplyDelete
  3. She's educating the next generation of greater fools!

    ReplyDelete
  4. Thinking you might be priced out of a market doesn't mean you do or don't know how to run numbers. She's teaching math, not psychology. Fear can rarely be calculated.

    H

    ReplyDelete
  5. Is there any truth to the rumor that home prices in NoVA declined dramatically in July? I'm waiting to hear it from a reputable source...

    ReplyDelete
  6. I might disagree with her decision, but I wouldn't use it as a factor in an employment decision.

    ReplyDelete
  7. Hope the featured usa today weidos lose their love shack!

    ReplyDelete
  8. Anon 11:12,

    NVAR is a good source for this info: http://www.nvar.com/market/marketstats/jul06/index.html

    I've looked at most of their SFH stats and they're all pretty flat YOY except for Falls Church which is still showing some healthy growth.

    Alternatively, condos are down precipitously in Falls Church and Fauquier County. And fairly flat otherwise.

    My $0.02.

    ReplyDelete
  9. A short economics lesson for you and your "yes men" readers....

    Land and property are not like stocks, bonds or other like investments...property has intrinsic value that is directly affected by real world marketplace conditions. It is a tangible asset that has a tangible appeal.

    The problem with this blog is that it overlooks the underlying value of land, and the fact that it is a limited resource, with inherent value.

    The United States real estate market is one of the most favorable in the world, because overall, it is a better place to live than the vast majority of other countries. (The country where the real estate is located, also gives it value).

    Flucuations in the marketplace have occurred during regular periods of time since the modern economy began...some periods reflect optimism and lack of restraint but are generally kept within greater bounds of reality than stock prices, due to the
    real world effects of price and demand, and the fact that land is
    limited and scarce in some locations.

    Get real with your bubble predictions. Many experienced people have seen the same conditions in the real estate market before, with conditions better this time around due to better job conditions, and lack of inflation in the marketplace.

    Take care.

    Real World Out.

    ReplyDelete
  10. MyTwoCents said...
    Anon 11:12,

    NVAR is a good source for this info: http://www.nvar.com/market/marketstats/jul06/index.html

    I've looked at most of their SFH stats and they're all pretty flat YOY except for Falls Church which is still showing some healthy growth.


    I see what's going on -- different sources different data. Any idea what accounts for the discrepancies?

    Significant declines shown here:

    http://www.mris.com/reports/stats/

    ReplyDelete
  11. real world out
    "The problem with this blog is that it overlooks the underlying value of land, and the fact that it is a limited resource, with inherent value."

    You are the one who is overlooking something. People's wallets or pocketbooks are also a limited resource. If they can't afford housing units they seek other alternatives(renting, roomates, moving to non-bubblicous areas). Less people in the market means less demand, less demand means price reductions.

    ReplyDelete
  12. An interesting statistic from Financial Sense Online:

    "Renters currently have a 3% savings rate, homeowners with no HELOC have a 0% savings rate, and homeowners with a HELOC have a NEGATIVE 16% savings rate."

    See Figure 11.
    http://www.financialsense.com/Market/wrapup.htm

    All of those are frighteningly low, but negative 16%? Ouch.

    H

    ReplyDelete
  13. Right on real world. Bricks and motar have value too. Unlike some dot.coms to which the bubbleheads constantly compare real estate.

    ReplyDelete
  14. real world out
    "The problem with this blog is that it overlooks the underlying value of land, and the fact that it is a limited resource, with inherent value."


    This argument, like many arguments put forth by proponents of housing, is valid; hence, the allure.

    It is true that they aren't making any more land and that the value is therefore going up.

    The problem is one of magnitude - these factors might justify prices going up 25% in 5 years during a period of relatively stagnant wages, but not anything close to 100%.

    ReplyDelete
  15. H,

    How about net worth not counting residence? Renter's vs. Owner's?

    ReplyDelete
  16. "Bricks and motar have value too. Unlike some dot.coms to which the bubbleheads constantly compare real estate."

    Plenty of good dotcoms and telecom companies also went way up and way down during the tech bubble. It wasn't just pets.com.

    Something can be valuable and still be overvalued.

    By the the, MRIS numbers on DC proper. Average and median price down YOY.

    ReplyDelete
  17. I believe that MRIS numbers are true YoY, while NVAR fudges things by using Year to Date versus Year to Date. Also, and I don't know how much difference this makes, but NVAR appears to break up regions into smaller sections--like Fairfax City, Alexandria City, Falls Church, etc, instead of county by county like MRIS.

    At any rate, who you gonna trust--realtors or the nominally independent MRIS?

    ReplyDelete
  18. First off, even if land had some weird value that meant it never overvalued, what does that have to do with a condo? A condo isn't land. It's a piece of drywall sometimes 100 feet in the air.

    And a townhouse isn't very much land, either. Nor is a 4,000 square foot mega-trailer, err, I mean McMansion, on a 1/8 acre lot.

    But more importantly to you "land" boosters, isn't there some price at which land costs too much? Of course there is. And many of us bubbleheads argue that we have long passed that point.

    A Redskins fan

    ReplyDelete
  19. va_investor,
    Good question, although I think the numbers are likely going to be skewed, in part because there are probably a fair number of "renters" who are cashed-out former-owners. So depending on how many did cash out, renters may appear to have more liquid (since we aren't counting residence, which is - let's face it - where a lot of people, and not unreasonably, put their dough). But I don't have the numbers, so that's just speculation (see, renters speculate too...).

    I think a fair number of people are still going to make out quite well having bought back in '02 or '03 (depending on what they bought, and where). They'll just not triple their money. You know, just double it.

    If I have a break, I'll poke around on net worth. If you have #s, I'd be curious to see them.

    H

    ReplyDelete
  20. David, you would practice discrimination in the hiring process based upon the living arrangement of the interviewee?

    If you were the principal of a high school, and I were the district superintendent, I'd fire you with just cause.

    ReplyDelete
  21. Real World Out,

    So what is a "realistic bubble" prediction? Or do you advocate that there is no bubble?

    One of the most experienced posters here, VA Investor, who is very much not a bubblehead, as it is narrowly defined on this blog, predicts that condos could lose as much as 40% of their value with single family homes losing 20% - based upon historical boom/bust cycles.

    This is mostly in line with my valuations based on long term trends and inflation.

    It is also fairly well in line with Keith's assertion that price increases were sustainable through '03 but were in speculative excess in '04 and '05.

    If I may summarize your post:

    Housing is different.
    They're not making any more land.
    Everyone wants to live here.

    That's rhetoric and not very convincing to me.

    My $0.02.

    ReplyDelete
  22. Yes - in general, owners have more money than renters. But come on, what came first there, the chicken or the egg?

    Don't try to use it as an argument for being 'smarter.' You come across as a classist.

    ReplyDelete
  23. anon,

    I was responding to the comment about savings rates by "H". I think financial health is better measured by net worth factored in with age and income.

    ReplyDelete
  24. "That's rhetoric and not very convincing to me."

    .02, you come to this website to argue, no? There is no convincing you of anything other than the notion of "Homes will soon be a commodity like pork bellies", so just quit the pretense and get on with arguing.

    ReplyDelete
  25. VA Investor,

    The WSJ has an interesting article today on how resetting ARMs and IOs are draining quite a few people. Delinquencies and foreclosures are beginning to rise now that refinancing is no longer an available alternative.

    There is a quote that loan underwriters believed that up to 30% of their customers didn't understand the loan structures they were getting into when they refinanced over the past few years.

    Again, the individual stories highlighted are anecdotal but combined with the growing rates of foreclosure in the statistics, I think it is fair to conclude that there are a significant amount of at risk loans out there.

    My $0.02.

    ReplyDelete
  26. mytwocents,

    I don't have too much sympathy for those that signed loan documents without understanding the basic terms-unless they were out and out tricked.

    Personal responsibility and "life's lessons" have to come into play at some point. Too bad that some made foolish choices.

    I have made foolish choices and paid the price. No blame game.

    ReplyDelete
  27. "Personal responsibility and "life's lessons" have to come into play at some point. Too bad that some made foolish choices."

    David the blogster has claimed several times that the issue is predatory lending practices and not free will/personal choice.

    ReplyDelete
  28. Anon 12:53,

    I could be convinced if an argument were put forward.

    The reasons I think the market is over valued:

    1. Significant appreciation in excess of long term historical norms.
    - Give me a compelling argument why prices should be higher. Tie it to an estimated appreciation %.

    2. Exotic loans have exploded as a percentage of loans originated, presumably as an affordability mechanism.
    - Give me a compelling argument on why a sophisticated financing scheme should suddenly be a tool of the masses? Education gains perhaps?

    3. Ours is a culture that spends now on material goods, using credit, and sacrificing savings rates.
    - Show me data that this trend is not true or reversing.

    4. NAR, NVAR, and MRIS numbers have quickly leveled off and are beginning to show a turn to negative.
    - Track this info and show that numbers are stabilizing or increasing. (I'm actually doing this on my own but if you want to know what will create a compelling argument, have at it.)

    I dismiss arguments that have no basis and amount to, "I'm right, you're wrong." If you're right, give me something to consider and I just may agree with you.

    My $0.02.

    ReplyDelete
  29. H,

    As far as that negative savings rate for Heloc'd homeowner's:

    does that figure reflect all withdrawls of equity as "spending"?

    in other words, if I withdraw 25K to install a new kitchen does this count as merely money out the window? Or, is there a corresponding increase in the house value?

    what if I use my equity line to buy assets (stocks, bonds,etc.), is this spending (ie negative savings)?

    I already know the answer to the "net worth" question - just not the precise numbers. Ex. Homeowner's median net worth is xtimes that of renters.

    ReplyDelete
  30. Va_investor,

    Agree that owning will over the "long-term" creates more wealth then renting. I don't think many here disagree. However, a more interesting comparison would be folks that bought within the last two years and folks who rent. I don't know what the answer will be, however I suspect over the next 2-3 years those who decided to rent will come out ahead.

    NOVA Fence Sitter

    ReplyDelete
  31. Anonymous said...
    “.02, you come to this website to argue, no? There is no convincing you of anything other than the notion of "Homes will soon be a commodity like pork bellies", so just quit the pretense and get on with arguing.”

    MyTwoCents simply summed up your post for you:

    Housing is different.
    They're not making any more land.
    Everyone wants to live here.

    Makes for an easier read. Now, if you have data to support your arguments, please supplement.

    ReplyDelete
  32. NOVA,

    You may be right; provided, the renters eventually get "off the fence"!

    ReplyDelete
  33. Real World Out said...
    A short economics lesson for you and your "yes men" readers....


    This is a very typical response of the uneducated. I'll bet you're a math teacher (or worse... another boneheaded realtor).

    You do key on one fact here... that real estate IS a market. And, while not like other markets (all markets have independent variables that make them different, eh?), all markets trend.

    The real estate market has been trending close to inflation +1% for over 100+ years. Whenever it has left the trend, the result, just like every market, is to adjust back to its trend line. The educated here at bubblemeter call that a correction (please take notes).

    The US RE market has been askew for close to 5+ years... the correction is coming, my friend, as the prices are completely unsustainable, those buying simply refuse to stretch any further to afford something that is overpriced (and as more articles about the bubble trickle into the media making more and more people aware of these facts). In addition, inflation is on the rise along with interest rates. With all the facts and evidence, what more do you need?

    It's funny, I talked to a coworker about the value of her home the other day, and she said she'd talked to her realtor and her realtor assured her that her home was safe from a decline in value. Realtors make up the majority of those in denial, IMHO. The most educated, analytical minds in the US are calling for a decline in home prices, yet my coworker would rather trust someone who has no college education. The ignorance that most housingheads display never ceases to amaze me.

    Next time you show up to a sword fight, please bring more than a pencil. It seems that all of the bubbles here are already educated on supply, demand, and the fact that land is a limited resource.

    ReplyDelete
  34. Hey there fellow bubbleheads! Having a good day? I am!

    Anyway, I thought some of you would be interested in reading this blog, especially its post on inflation/deflation ("Tapped Out"), which also touches on what may happen to the RE market under either scenario. Make sure you read the comments; very interesting discussion. Makes me want to take an economy 101 and a macroeconomy 101 class. :)

    Oh, and housingheads, you might also want to read this blog--the comments specially. Might help you formulate good arguments to support your choices. :)

    http://globaleconomicanalysis.blogspot.com/

    Cheers!

    --SSH Anon.

    ReplyDelete
  35. meant "economICS 101" and "macroeconomICS 101"

    ReplyDelete
  36. va_investor,

    Of course it's not money out of the window; as you very well know net worth is assets versus liabilities. Buying a plunging stock with HELOC money isn't a great idea; nor is putting in a 5th bathroom in hopes that it will raise the value of the home (in my opinion; I tend to sneer at listings with more bathrooms than bedrooms). But clearly someone may use assets to make investments (in the home or otherwise) and over time come out ahead. I'd never argue otherwise. The trouble is in the expectation that everyone will do so successfully. And the other trouble is that while some people may be putting in that new kitchen, others are buying boats, or cars, or paying down credit card debt, or maybe just picking up that nice new HDTV.

    As far as the net worth question - I'm not surprised that overall, since some 35% of home owners own their home outright, their overall net worth is higher. In addition, I suspect the average age of home owner to be higher than that of a renter, which further supports their net worth being higher.

    But I'll be curious about those numbers in about 2 years. And right now, as a matter of fact, since the demographic of renter/buyer seems to have shifted lately. A lot of folks - renters and owners - are riding on credit. I imagine many are in for a world of hurt.

    As far as "getting off the fence": I believe in home ownership. I don't believe in home debtorship. I'll happily buy when it makes sense to stop renting.

    H

    ReplyDelete
  37. "Now, if you have data to support your arguments, please supplement. "

    Data that supports my position that .02 and others come here to argue? Just read their posts. (.02 has since softened her tone a bit since I put forth the notion that she comes here to argue...)

    ReplyDelete
  38. I currently pay a little over $1200 a month in rent plus utilities for a 2BR/2B in Montgomery County. The mortgage alone on a comparable condo in Montgomery County would be WAY more than $1200 a month PLUS I would have to factor in condo fees and utilities. It doesn't make sense to buy something in this over priced market. In fact it's downright foolish!

    I will wait for the market to soften up the greedy sellers and developers before I buy.

    ReplyDelete
  39. "Next time you show up to a sword fight..."

    Any grad-level psychology students here? It seems that venomous tirades laced with condenscention and aimed at anonymous strangers in an a-personal forum is an emerging physchological symptom. Of what, I don't know. Sort of the Internet-age equivalent of road rage.

    It would make an interesting thesis.

    ReplyDelete
  40. It doesn't surprise me that this math teacher didn't understand basic logic that if she was soon going to be priced out of the market, that prices couldn't rise much higher either.

    The reason why, as I see it, is that the public educational system is largely made up of the same commie marxists that are in government anwyay. Those who can do, those who can't teach. Before you assume I'm just bashing teachers, I'm saying the system is broken. It's not the teacher's fault that she doesn't have common-sense after sitting through 4 years plus of lectures and certification to teach skills that she should have learned 4 years earlier when she was a student.

    I would never send my children to schools here in the states and especially universities.

    ReplyDelete
  41. PK, I saw bicycle cops and paramedics on the scene of a drunk and incoherent illegal at the corner of Columbia Pike and Four Mile Run. Ever notice how illegals like to hang out there, get drunk, and fall down? I guess it is the proximity to the Goodwill across the street. Nice area. But it doesn't compare with the illegal-dominated Home Depot nearby. Mi Cash!

    ReplyDelete
  42. "The reason why, as I see it, is that the public educational system is largely made up of the same commie marxists that are in government anwyay."

    Hahaha....are you serious about what you wrote?? To call Bush and Co. "commie Marxists" (a term that is redundant, BTW) is just... the funniest thing I've heard all day!! If you're kidding, cool. I get the joke. If you're serious, no offense, but you're scarying me.

    I do agree that the US education system needs a little (ok, a big) boost. Sadly, I am a product (partially) of this educational system, and compared to my European acquaintances, I am under-educated.

    But now we're going on a tangent...away from housing bubble talk...So I'll stop here.

    SSH Anon.

    ReplyDelete
  43. real world said:

    "Get real with your bubble predictions. Many experienced people have seen the same conditions in the real estate market before, with conditions better this time around due to better job conditions, and lack of inflation in the marketplace."

    Excellent post! But you can bet the bubbleheads will reject it out of hand because it doesn't fit in with their one hope of getting something for nothing ... i.e., a collapse a la dot.com bust. Interestingly enough, as you aluded to, most of these bubbleheads haven't been around long enough to have experienced the normal cyclical nature of real estate ... but were however around for the dot.com bust ... which has apparently become their one life-defining moment. That and interns giving presidents blow jobs in the Oval Office. Said to say that their lack of experiency colors their world to the point of denying themselves the opportunity of functioning in the real world vs. the dream world they have created for themselves. I just hope their world doesn't bust all at once ... but comes in for a soft landing like the real estate market is most certainly doing. I mean I'd hate to be around when their hot air let loose if their dreams of armagedon really did go bust all at once ... That's a LOT of hot air in there!

    ReplyDelete
  44. belch head said:
    "You are the one who is overlooking something. People's wallets or pocketbooks are also a limited resource. If they can't afford housing units they seek other alternatives(renting, roomates, moving to non-bubblicous areas). Less people in the market means less demand, less demand means price reductions."

    You are putting the hores before the cart. Of course people should be doing all the things you mention to deal with the current market ... but obviously not everyone has to do those things .. or the prices would never have gotten bid up to where they are. As Va_Investor has pointed out, the problem with most bubbleheads is that they assume everyone is in like circumstances of their own. The fact that people were able to afford housing at the higher prices show that that is clearly not the case.

    ReplyDelete
  45. Anon said:
    "The real estate market has been trending close to inflation +1% for over 100+ years."

    Please supply substantiantion for this claim. And I don't mean that tired worn out article from one single flawed source. You won't be able to, but there isn't any more out there ... 'cause it's just a blatant lie that helps bubbleheads validate their decisions (or better yet, indecisions).

    ReplyDelete
  46. Anon said:
    "The real estate market has been trending close to inflation +1% for over 100+ years."

    Please supply substantiantion for this claim. And I don't mean that tired worn out article from one single flawed source. You won't be able to, but there isn't any more out there ... 'cause it's just a blatant lie that helps bubbleheads validate their decisions (or better yet, indecisions).

    ReplyDelete
  47. "...[p]lease supply substantiantion for this claim. And I don't mean that tired worn out article from one single flawed source."

    What source are you talking about?

    ReplyDelete
  48. Anonymous said...
    “…….. It seems that venomous tirades laced with condenscention and aimed at anonymous strangers in an a-personal forum is an emerging physchological symptom. Of what, I don't know. Sort of the Internet-age equivalent of road rage. It would make an interesting thesis.”

    Absolutely. We’ve seen the troll count increase as the market tanks.

    ReplyDelete
  49. Lance,

    Whilst you're pounding the table asking for validating footnotes, how about supplying credible data to support your position.

    Because I'm just not interested in the opinions of someone whose entire premise rests upon that tired old chestnut 'land is scarce...'. Land is scarce in Japan (RE down 90%) and even more scarce in Hong Kong (RE down 65%).

    ReplyDelete
  50. Lance, you talk as if no one's ever gotten burned in a serious market downturn.

    A 30% loss on a $500,000 condo is $150,000. Either it's a loss if you have equity, or you have to cough up cash to get out of it when you try to sell it. Many people will be stuck with it for the duration.

    The internet is littered with people who bought one-bd condos in the late 80s and couldn't sell them until 1996-7 for the price they bought it. I knew a couple of people where I was working in 1997 who were cashflow negative on the 1 bds they bought when they got married, and were pouring $500/month into them--selling would have meant more thousands of dollars of loss.

    Who wants to be stuck in a one-bd in a declining market? Or worse, have to turn it over to the bank and take that hit to your credit?

    There are real consequences to overspending at the top of the market. "If you're in it long term. . . "

    Yeah, I want to live in a 1 bd house forever. Or better, I want to be tied to a white elephant if I need to move for some reason, or, I need the cash I put into buying the house for some unforseen circumstances (refi is not an option if the house is already worth less than you owe).

    Your continued shrillness, and that of your housing cheerleader compatriots, is only more evidence of what is happening.

    It's going to be worse than we thought. I thought we'd go down 20-30% (condos), but it could get worse than that before it gets better.

    ReplyDelete
  51. What I find most disturbing about this debate is the following:

    1) the lack of long term perspective and thinking. Making predictions that the real estate market will stay down for more than a few years is actually the foolish viewpoint.

    The blogger is acting as though government won't react to a potential housing decline, with not increasing interest rates, or putting in place tax relief...

    Even the dot com bust cleared up within a presidential term, and the people that suffered most were those that went into it without restraint or common sense. Google seems to be doing quite well now...

    2) the joy shown in trying to beat down those who took a real or paper hit during the downturn of the cycle.

    Those real estate owners will still be your "future landlords" and stronger financially than renters over the long course.
    The tax advantages and capital gains laws really help long term real estate owners.

    3) the mentality of the instant gratification bloggers, who seek to gain satisfaction at the expense of others. It is a sad reflection of the times and culture of today.

    ReplyDelete
  52. Lance posted:
    "The real estate market has been trending close to inflation +1% for over 100+ years."

    Please supply substantiantion for this claim. And I don't mean that tired worn out article from one single flawed source. You won't be able to, but there isn't any more out there ... 'cause it's just a blatant lie that helps bubbleheads validate their decisions (or better yet, indecisions)."

    Still waiting for you to state which source you are talking about.

    I really hope youi are talking about Shiller's calculations -- you want to argue Lereah's side?

    ReplyDelete
  53. Seriously Lance,

    Shiller is one of the most respected economists in the country. He's the one that provides indepth analysis of the data that shows housing prices have tracked inflation +1% for the last 100 years.

    He's also the one that acknowledged and pointed out there was a single event of a stepped up basis in this trend after WWII. A true "this time is different."

    I postulate that online banking has provided for another "this time is different" stepped up basis in housing prices following the dot.com boom. My position is that cost savings from not having bricks and mortar, coupled with easier access and marketing to customers via the web, allow banks to compete by financing what was traditionally a 20% down payment requirement. I translate this into a 20% boost in housing prices.

    For all of your chatter, I have provided a better quantified explanation for housing price gains in that 1 paragraph than in everything you have written.

    Of course, lax lending standards could be another explanation for that 20% downpayment requirement evaporating. But I'm willing to grant a little bit of a run-up in prices...

    My $0.02.

    ReplyDelete
  54. Oh, Real World Out and kin, dears, I feel for you.

    Having been an EARLY dot.com'er, I remember that party! Wow, it was fun!

    I remember too, all those little lambs, who, late in the game {1998-99} heard how great the party was {thanks to the oh-so-rear-view main-stream media!}. Then all the non-entrepreneurial, risk-averse and uprepared lambs finally left their cosy cubes to join in!

    Trouble was, just like now, savvy battle-hardenend people know that these little gold-rushes don't last forever and they get ugly at the end. We nicked, we scarred, we missing of limbs can smell that stench of coming doom better than ye little lambs, so we leave -- before you!

    It pains me and brings forth tears to hear your bleating! I know it isn't fair: You came to the party late, it's not fun anymore, the booze is all gone, all the cool people left. It stinks - - it is so hard to get the party restarted, to make it fun again! I know you feel that you too deserve to make "easy money", sitting by as your asset gyrates and wildly 'appreciates'!

    Please, talk to any old-school tech entrepreneurs/investors or real estate developers/investors and they'll share some stories with you -- stories of joy and stories of woe! Talk of cycles, of herds, of bubbles, of little lambs...

    Hmmm... looking back and reflecting, maybe we can all draw some useful observations from these two bubbles:
    - When one sees a plethora of TV progams proclaiming how easy it is to make easy money in the latest gold rush -- time to leave!
    - When your less-than-stellar acquaintances at work leave their jobs for the latest gold rush -- time to leave!
    - When your local Barnes&Noble has a table covered with books, marked with a sign "How to Get Rich in X" -- time to leave!

    Oh, dears, these are the signals to LEAVE the party! Not to come!

    View your noble home as a nest, a place to rest your weary fleece -- not an investment! Be prudent: save and diversify well where you invest your money. And -- god willing one should be so fortunate! -- were you to have some very unique business idea and specific SKILLS with which you could capitalize upon it, then by all means become an entrepreneur ...but be careful and be watchful of wolves, for they usually dine well at every party.

    yours truly,
    "nicked, scarred, missing of limbs, but alive"

    ReplyDelete
  55. It is Freddie Mac and Fannie Mae that caused this bubble, lenders lowered their standards because they don't keep the loans on their books they sell these risky mortgage loans. I am a loan officer and our credit union was going to use the new Freddie Mac underwriting system and was told during training to work the loan until it got an approval code so it could be sold, if you cant get a code it cant be sold. I was also told that this automatic underwriting system was smarter than I am and go ahead and close a loan when the debt to income ratio is 90%!! To do whatever you need to do to and who cares if the loan fails because it wont be my problem anyway. We decided not to use this system and only do loans up to 80% of the appraised value and the ratios dont exceed 28%-36% and we only offer fixed rates. We haven't had any problems at all!!!!

    Well all those people that got those exoctic loans are now coming to me for help and there is nothing that can be done they have signed up for these crazy loans where they actually owe more than they borrowed after making 3 years of payments at 2500 a month. Their rates are based on the libor index plus 11, 12, 13% or more. They are in shock when their "change date" finally arrives and their payments skyrocket and they can't refi or do anything about it.

    I blame Freddie Mac, the lenders, mortgage brokers for this nightmare!! And anyone who does not think that this is a bubble is crazy...

    ReplyDelete
  56. my mom lives in a house in Ct. for 45 years . taxes and oil heat are 800$ a month. add that to what someone is going to purchase for and it just doesnt pencil out.

    ReplyDelete
  57. and after oct 17 of last year the banko gates slammed shut. whats a guy to do?

    ReplyDelete
  58. Those who can, do. Those who can't, teach.

    An old cliche that fits the woman in the article all too well.

    We live in a capitalistic society. Almost everything we do or don't do is affected by economics, micro, macro, personal and system wide. We spend almost no energy educating kids about economics. Educators seem to highly prize class time spent learning other languages that are never really learned and are quickly forgotten.

    But even if class time was given to econ, money, and investing, past history suggests that the material would not be taught effectively. Those who can't. . .

    I am shocked when I think back to how many people in my circle bought stocks for the first time Q4 1999. They missed the bull run from 1982-1999 waiting until it was 'safe'. Gads. Now some of them are doing it again with real estate, using interest only loans to 'extend their investing power' or some such hogwash.

    I hope the teacher in the article doesn't have to move in the next five years unless she plans to live in her car.

    ReplyDelete
  59. And thank God you are not teaching our children.

    ReplyDelete
  60. lance,

    Now I see why you have so many friends.

    You are right, we should leave education to uninformed blind idealists like the poor girl in the article. Makes it easier for the rest of us to achieve.

    You shouldn't thank God just yet. After my early retirement I went into teaching. I see it as a way to give back to the community. Spent the morning getting ready for class.

    So I guess you should curse God for letting me teach, eh?

    ReplyDelete
  61. fogcutter,

    please don't teach the children that a teacher who is responsibly living frugally now so that she be assured a roof over her head at a reasonable cost over the long term is not a smart person ... or as you put it "someone who can't" ... i'm sure you would have a lot of friends among your fellow teachers if they knew how you felt about them as a class of people.

    ReplyDelete
  62. "please don't teach the children that a teacher who is responsibly living frugally now so that she be assured a roof over her head at a reasonable cost over the long term is not a smart person"

    Run on sentence. Answered with a sentence fragment.

    Lance, the teacher in question impaled herself on a really poor investment, a lesson that she will learn again and again over the next decade. Living frugally in this case is investing stupidly.

    Smart is as smart does.

    And my friends know, and most agree. The majority went into teaching because it was the easy path to a fairly stable life with three months off a year, and they are good with that, and so am I. Not a choice I would make for myself except as I am doing it. And they are great folks, but I don't look to them for investment advice (except in a contrarian way, and that isn't limited to teachers) and I wouldn't want them performing surgery on my heart.

    I urge my students to embrace the gestalt, look beyond their peers, see the big picture. I also teach that it OK to learn from the mistakes of others, we don't need to make every mistake personally. Like borrowing money to buy into the last stages of a housing bubble. The last housing bubble taught many lessons to those who were thoughtful enough to explore recent history.

    Our teacher in question would have been way ahead to rent two years and buy at a discount. The illusion of 'reasonable cost over the long term' will prove very expensive, doubly so on a teacher's wages. And what if the poor thing has to move in a year or two? It will take a decade of her disposable income for her to break even. She could wind up making payments on a condo she isn't living in because she can't afford to sell it. I know people who were doing that exact thing through much of the 1990's.

    Sorry Lance, I don't say it meanly, but the best and the brightest don't go into teaching. Or child care, or staff group homes. It would be a terrible waste if they did. It is up to the parents to shoot the gaps, but precious few realize it.

    No, the teacher is not living responsibly. Not even close. She wants to, but she failed in her responsibility to understand what she was getting into, she failed to look beyond the monthly payments, and she will suffer for it.

    Caveat Emptor.

    Classes are READY! Time to get outside for a while. This job really brought home how much work teaching is, the work tends to grow to fill all available time. And I refuse to give one word answer or multiple guess tests. Short essays, and drawings. The students grumble, but they really know their stuff by the end of the term. That makes it worth it. I am doing shorter tests this year. Made the mistake of long tests last year, but I am willing to learn.

    Have a great day Lance.

    So together we stumble blindly forward. . .

    ReplyDelete
  63. "The reason why, as I see it, is that the public educational system is largely made up of the same commie marxists that are in government anwyay."

    Hahaha....are you serious about what you wrote?? To call Bush and Co. "commie Marxists" (a term that is redundant, BTW) is just... the funniest thing I've heard all day!! If you're kidding, cool. I get the joke. If you're serious, no offense, but you're scarying me.


    I think it's clear I wasn't referring to "Bush and co" as "commie marxists". I will say that Bush and Co. _are_ political _moderates_ who have supported more educational funding and also been moderate on issues such as affirmative action and illegal immigration.

    I do agree that the US education system needs a little (ok, a big) boost. Sadly, I am a product (partially) of this educational system, and compared to my European acquaintances, I am under-educated.

    Our educational system has been boosted as high as it can go. Plenty of money has gone into it.

    But now we're going on a tangent...away from housing bubble talk...So I'll stop here.

    Agreed.

    ReplyDelete
  64. please don't teach the children that a teacher who is responsibly living frugally now so that she be assured a roof over her head at a reasonable cost

    Yikes! How do I begin?

    For one thing, she isn't assured a roof over her head. She still has to make mortgage payments and if she's living frugally now, that would imply that she's at more risk than if she just rented.

    If I might be a bit sexist, one of the best things she (or any woman) could have done to assure a roof over her head would be to get married. A majority of households in poverty are headed by unwed mothers.

    ReplyDelete
  65. Polishknight,

    I don't think that's sexist so much as unrealistic. How can one have "as a plan" to get married? One has to find a compatible mate first.

    Seems like a rather poor basis for a financial plan.

    My $0.02.

    ReplyDelete
  66. To polishknight, who would never send his/her kids to school here in the states, especially universities: I want to share an anecdote about a Cambridge University grad who was being recruited at Caltech. He told me his advisor at Camb said, "Of the 100 best universities in the world, most are in the United States. Of the 100 worst universities in the world, all are in the United States." My guess would be that the math teacher in question did not go to one of the best universities in the USA.

    ReplyDelete
  67. Lance,
    In all fairness to teachers, I have a dear friend who ruined herself first on the tech bubble, now on the housing bubble. Perfect score on the ACT, National Merit Scholar, two advanced degrees, bankrupt twice.

    Smart is as smart does.

    Going into debt to buy into a bubble isn't a smart thing to do for anyone in any profession.

    Oh, the condo I looked at about 2 years ago in south FLA for $2.3M USD was recently listed at $1.75M is now back off the market. No bids it seems.

    The buying public is wising up a bit it seems.

    Different this time I think not.

    ReplyDelete
  68. In all fairness to American schools, when our test scores are compared to those of other countries please remember that in the US every student takes the tests. Overseas only the best students are tested and reported.

    That said, our current system stifles competition and rewards, well, I don't know what it rewards. Not being able to fire sub-par teachers is crippling. Not being able to segregate underperforming and disruptive students is insanity. The silver lining is that if a student wants to and can figure out how to achieve in our educational system, real life will be easy.

    The surest way to greatly improve the educational system is to get all of the educators out of it. Work a profit incentive for performance into the mix and look out.

    ReplyDelete