Wednesday, December 27, 2006

This Blog is Not About Me, It Is About the Housing Bubble

After yesterday's Wall Street Journal article many commentators have left nasty comments on my blog accusing me of being "a bitter renter" or other things.

Here are some choice comments left.
  1. what a loser. 27 years old and renting part of a townhouse? get a life. do you even have a girlfriend?
  2. Wow. Now it becomes clear why David has been so angry and bitter for the past 2 year
  3. I'm sorry you missed the boat on housing. I'm sorry you think that at your age you are entitled to a particular kind of house or living style. I'm sorry you have to share your home with a bunch of people in order to pay the rent. I'm sorry you've spent the past 2 years of your life fostering and nurturing bitterness and resentment.
As the article states, yes I am 26 and I do rent part of a townhouse with some friends. I am not bitter that I rent. I do not think at my age I am entitled to owning a housing units. In fact, I am really happy with my current living arrangement. I have plenty of room, cheap rent, a safe neighborhood and great townhousmates. :-)

In the article, I merely stated that a couple of years ago I started looking at buying a condo or a townhouse (where I would rent out a room). After studying the market in the Washington, DC area I came to the conclusion that there was a housing bubble. That is that real dollar prices had inflated to unsustainable levels and that real dollar prices would fall significantly in the Washington metro area.

One commentator wrote regarding my blog that "It's all about how unfair it is that some people have done very well in real estate and how come others have missed the train?" This blog is not here to complain about the fairness that some people have done extraordinary well in real estate during the boom years and others have not. The term 'fairness' appears zero times in my blog. In fact the term 'fair' ONLY appears six times in the whole blog and four of those times it used where I reference what others have said. In the two times I use the term fair it is not in anyway talking about the fairness of a housing bubble.

This blog is NOT about my personal decision to rent or buy, but rather it is a blog:
dedicated to the premise that there is a Housing Bubble in many locales in the USA. With a particular focus on the: When will it pop? Why will it pop? How will it pop? Where will it pop? Who is responsible for the bubble? Also the DC Metro Area bubble. Please join in the discussion.
That is the purpose of the this blog. The housing industry has been cheerleading the speculative bubble that is the housing market. As we know from history, speculative episodes do NOT end well. They leave many people financially devastated. If the speculative episode is large enough it will lead an economy into a recession.

75 comments:

  1. I think it would be strange for a 26 yr old to own a condo. Most 26 yr olds are no where near the 20% down payment that is required....oh, wait a minute, now days you can buy with zero down, zero closing costs, and zero common sense. Most 26 yr olds who do own condos can not afford them. David, you should be happy about the publicity, getting mentioned on the WSJ in any context means you hit the big time, and is a sure sign of a tipping point. The angry comments are only indicative of your fame. Embrace the hate.

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  2. I think you are going to find that comments on your blog become more and more hostile as people maxed out on debt and down in equity get more and more desperate. It seems obvious to anyone who has watched the absurd escalation in prices that it makes no economic sense - but those who are now hurting are hoping against hope that the "fundamentals" are there.

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  3. Anonymous said...
    I think I'll believe what the WSJ reported, because presumably that's what you told them.


    :lol:

    you MUST be one of the american sheeple!!!

    :lol:


    i think i'll believe what the D-man says

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  4. Just checking in to give my props for you going public. Gutsy move.

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  5. Good job David.. been following your blog for a while now.. You are doing a great job of telling the American mass of what is going to come...

    Kn.

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  6. "I think it would be strange for a 26 yr old to own a condo. Most 26 yr olds are no where near the 20% down payment that is required."

    Go check out www.burbed.com. There is a post quoting a 19-year-old who makes it sound like it is common practice now for teenagers to be buying houses.

    David, good job.

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  7. Keep it up David,

    I am in my early 30's and just Sold my House due to a job transfer. I am in Canada and it wasn't easy to sell my house, this is in a neighborhood where homes were being over bid and sold in a matter of days. After looking for a new house for about 4 months, I came to the conclusion that there was something wrong with Real Estate before setting my eyes on a single Blog. Houses are sitting empty, over 90's are quite common, and prices are sky high!! My Gut is telling me there is something wrong with the way things have increased the last few years. I would be stretching to own again and I have a healthy down payment. I couldn't even imagine being a first time buyer right now. This is one former home owner, that didn't miss the train, who will be renting for awhile to see where the market is going.

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  8. "honest" only appears twice in your blog. Does that mean that you are not honest? Its stupid that you would do a count of the word "fairness" to prove your point.

    Just admit it, you WERE bitter and this is was your outlet and your way of feeling better about yourself. It's ok. Now you see it as a possible meal ticket. Good for you.

    I'm bitter about selling my house in 2003 (thinking prices would drop) instead of waiting until 2005. And thats why I check out this blog, because it makes me feel better about the fact that I just lost out on a lot of money. And I'm hoping that there will be that 65% drop you predict so I can clean up.

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  9. It's mildly amusing that some of these clowns are saying you are too young to expect to be able to own a house.

    A year and a half ago, the same type of clowns were crowing about those wise 22 year olds who put $20 down on a $600,000 shack, because those kinds of youngsters were really getting in ahead of the game and would surely be able to retire at 28 and live the good life.

    Now, 26 is too young. LOL.

    Keep up the great work, David.

    A Redskins fan

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  10. David,
    I've been a real estate broker in California for over 10 years now, and I've watched (and sold) properties from the $200s (10 years ago) to the outrageous values this year. As far as valuation, you are right on the mark, no question about it. I've tried to discourage my clients on every occasion in the last 3 years, but the few that insisted on buying were qualified and disregarded my advice, thinking they were missing the boat. I've seen the down market of the early-to-mid 90s and many of them haven't, so they couldn't fathom it. Foreclosures in California are spiking as we speak and will explode next year due to all the option-arms, 0 downs, and ridiculous prices of the last three years. There is a HUGE discrepancy between a mortgage payment and a rent payment, to the extent that it doesn't make sense to buy and in many cases people are using their credit cards to make their payments. Luckily, I don't get involved in loans. I just wanted to lend my support to you from an insider in the business. Keep up the good work of informing potential buyers of the hazards of over-borrowing that may come.

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  11. i think that some people who love in other parts of the country dont understand that its very common, pretty much normal to have housemates in cities that have high cost of living/housing. if you live in small town, usa and can get a 1 br for $600 thats great, but in places like the DC metro area living alone can be VERY expensive

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  12. Do the research, and find out how these bubbles play out over time. Why do people with a vested interest in whatever, label people telling the truth with euphemisms and names like; "chicken little", or "the world is coming to an end, so this person said"? Perhaps these people are liberals, promoting their own agenda.

    In 1998 and 1999, I told my friends that the stock market was in a bubble, and the crazy valuations would cause the stock market to crash. They spewed every excuse they herd from the pendants and totally disagreed with me. I watched my best friend loose 90K when the dot-com bubble burst in the year 2000. Yet in the early stages of the bust, they still had faith in the market. In the early stages of the bust, the pendants and the cheerleaders were calling the bottom, which only inflated the dead cat bounce. The next leg down ensued, and I watched another friend loose 1/4 of a million, because he did not know how these bubbles play out, and ignored my pleas to sell early.

    I was not bitter that I did not participate in the early gains, and I was not happy that my friends lost big bucks. I was vindicated and I was proud of myself, because I possessed the knowledge of what a bubble looks like, and how they end. This mother of all housing bubbles will play out in a similar manner as all previous housing bubbles. Human nature has not changed in thousands of years. This will insure that this bubble plays out exactly as prescribed.

    Go ahead. Spew all the name calling and cheer-leading you want. You are just blowing a lot of hot air, and you will not change a thing. Human nature is in charge, and will lead the housing valuations to normal levels.

    The fun part for me is, seeing whose side people are on, and laughing at the comments. Are you on the side of the knowledgeable people who know how these bubbles play out? Or are you on the side of the cheerleaders and the pendants? I already know who wins.

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  13. David,

    I enjoy the blog. Oh, I think we have different opinions on how to express this bubble, but I enjoy the information you provide. In 2007 there should be a bench, pole, or other random DC object littered with lockboxes worthy of a post. Keep up the good work.


    Sadly, the worth of a person is often judged by your enemy(ies). We're almost ready to leave denial... soon. Slowly... but soon.

    I'm a decade older, renting, and happy. Will I buy? Certainly. When? Good question that won't be answered for at least 18 months. Too many of my friends were consumed by the greed of the last few years. It sadens me to realize quite a few shall discover what it feels like to loose a house. :( Cest la vie.

    Keep up the good work. You obviously have a fan base. ;)

    Neil

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  14. Everyone wants to shoot the messenger, and that isn't going to get any better as the housing situation get worse.

    The point has been made numerous times on this blog. This isn't about people who don't make enough money to afford a place to live. This isn't about people too lazy or undisciplined to pay a mortgage.

    This is about the fact that housing has more than doubled in the space of 6-7 years without any justifiable reason and it has to stop. This incredible inflation of housing prices has raised the bar so high that for a new owner attempting to enter the market they have nothing but bad choices.

    The house a plumber with five years of experience bought on a fixed mortgage six years ago is so far out of the reach of a young CPA it isn't even funny.(this is a real world example of people I actually know) The plumber is a good guy and does pretty well(~50k), but honestly... just becoming a CPA is a two year process, and that is after college.

    This market is seriously out of whack. It is not going to simply slow down to "normal" appreciation on these inflated prices. Prices are going to go down. They are going to go down significantly.

    They will never fall to where they were 6 years ago, but if you don't think we are in for a significant (25-35%) haircut from the peak by 18 months from now you are nuts.(we are already half way there in some areas) Once that drop has taken place the next couple years will be nothing but stagnation.

    During that time...The last of the ARMs will reset. The media will write 1000 horror stories about good hard working people losing their houses. Sometime roughly when all the damage has been done the government will finally enforce tighter lending standards, but by that point the average American will already have had it drilled into their head that toxic mortgages are a bad idea.

    There is going to be a lot of pain before this is over and generally speaking it isn't going to be the people who deserve it who feel it.

    As for the perpetual housing bulls on this blog? The last stage of a downturn is capitulation. So long as you still have people like Lance stubbornly insisting that the downturn is over and that prices are about to start rocketing up again it isn't over yet. These things don't end with a bang, they end with a whimper. One by one these people will simply give up on trying to be proven right and hopefully realize they were never the investing genius they thought they were.

    -leroy

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  15. Well, I own a house but I definitely think that prices got out of hand. It reminds me of the dot-com mania when everyone was quitting their jobs to become daytraders and there were whole channels on cable dedicated to investing. Recently there were lots of people who quit their jobs to become realtors (or flippers) and whole channels have appeared to focus on fixing/flipping houses (DIY, HGTV, Fine Living, TLC etc).

    Anyway, there will always be the people who get into a good thing and push it into a mania and then leave for the next big thing. I think people who bought several houses at unreasonable prices to speculate will be challenged, but the people who bought homes to live in at prices where they could afford the mortgage will do just fine.

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  16. What about this?

    New home sales: Back from the dead?
    New home sales rise more than expected, and prices post gains despite continued rise in completed new homes on the market.
    By Chris Isidore, CNNMoney.com senior writer
    December 27 2006: 4:49 PM EST
    http://money.cnn.com/2006/12/27/news/economy/newhomes/index.htm?postversion=2006122716

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  17. I am 26 and am also currently renting in NOVA area. I would never buy a house at these current prices, my girlfriend doesnt like it but when a 1790's townhouse 20 miles outside of DC costs $450,000 something is wrong.

    Dont worry just keep letting everyone take MEW's out and buy their fancy SUVs. I save more by renting at these prices and have no false sense of ownership of a house the bank owns by 75%. Homeownership starts when you pay your last mortgage payment.

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  18. Dude,

    Keep in mind that the blog is the 21st century's bathroom wall. Anyone can come in here and write anything. Blogs don't exactly foster educated debated about much of anything (most of the time).

    The average yahoo thinks that mortgage payments and rents are about even because they don't understand the risk when you put 0 down and pay interest only. And for nearly ten years, you could finance all that risk away with lower rates and increasing valuation-based equity. But all that nice equity will evaporate, hurting those who bought most recently the most. If you bought ten years ago, you'll be fine. If you bought two years ago, you won't.

    It's definitely a bubble and unfortunately for many of us fence-sitters, it's going to take years for this thing to deflate. I sold my home in California this year and refuse to buy a new one until prices get back inline with rents.

    Pay attention to valid criticism and ignore the uneducated losers.

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  19. 29 and married in NOVA. All I can say is that purchasing a $450,000 townhouse is crazy. The average median income is $90,000 in the NOVA area. Housing should not cost more than 3X one's annual income as a rule of thumb. Something is very fishy here. Thanks for your blog! Prices will fall and maybe we'll finally be able to afford something post crash. For now I am enjoying renting with my fabulous view of DC and the potomac-to buy the damn condo we rent it would cost me $300,000-not worth it.

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  20. Please don't stop writing!! We need blogs like yours to help us analyse the true situation in housing. You help us so much.
    Thank you
    Ivan

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  21. I don't post often anymore for various reasons. It is futile to attempt to penetrate the preconceived notions of the "bubble" (meaning 50% price drops), the bitter mind-set, the sense of "entitlement" and the other noise that gets in the way of reasonable thought and analysis.

    The person who posted the she refuses to consider anything other than N.Arlington is a very good example. This person demands (deserves) the excellent schools and great commute. There are many areas that are perfectly acceptable to most people. But this person will fight their own price war by renting. Yes, that will show them (the REIC). Good luck.

    I've talked about sacrifice and starting out, but this falls on deaf ears on the Bubblemeter. You guys know best. No generation has ever been in your shoes.

    There will be a tremendous crash (not in 2006, I guess) and all the BH will get houses for 50-70% off. Nevermind that this will be at the financial ruin of their cohorts. They deserve their demise. You deserve these houses and the current owners do not.

    No, you don't have to settle for Loudoun or even S.Arlington. Herndon, Reston, Sterling? No, no and no. A fixer-upper? You don't have to live in a POS! Dammit, you'll rent!

    The problem is that you don't shut up about it. Whine, whine, whine. I am sick of it. Just rent and shut up please. MIT released a study recently that concluded that it costs no more, as a percent of income, to buy now than it did in the 60's, 70's, or 80's. Google it and then tell me how tough you have it. (dataminer has done this calculation, too).

    A poster above (or below) claimed he could only afford a crumby condo on 130K per year. Honestly people. You are so concerned about every sentence that comes out of the REIC, but you blithely let this type of crap slide by. It would take me an afternoon to find and buy a very acceptable townhouse in N.Reston....oh, I forgot, not a "cool" neighb.

    Enjoy the pity party. Maybe David's "crash" will come in 2007.

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  22. Keep up the good work, David.

    A bubble is a bubble is a bubble. People are (finally!) starting to wise up and realize that current prices are definitely, absolutely going to fall. The only 2 questions are:

    By how much?
    - and -
    For how long?

    The economy is being dragged by all the screwed spec-u-vestors who are still deluding themselves into thinking their properties will sell at breakeven or better. Kind of like a contest of seeing who can hang longest by their hands from a tree. It saps their strength as their upside-down investments consume all their financial savings.

    Some have fallen out of the trees already, but 2007 will be the start of the real deluge.

    I've got your back, down here in the Sunshine State (site of "ground-zero" on the east coast).

    Look out and stay informed!

    - Jerry

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  23. Congrats David, you have gotten the main stream media's attention.

    If the WSJ is making personal attacks you must have really hit a nerve there. I wonder how many of their editors/owners are losing big bucks as thier real estate investments deflate?

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  24. David, you can't take these attacks personally. They are simply panicked people who are desparate to keep their house values. Don't worry, the grind down takes patience, and it is a slow drop. Wait til spring bursts their bubble. We already had slow xmas sales and the auto market is dead.

    One more point, this dead cat bounce in housing is pretty small considering all the money NAR has been investing in advertising to get people to buy. Whatever we see in the housing market is a dead cat bounce. Spring will show where we are going.

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  25. You failed to mention in your response to those nasty commentators that this 26 year old most definitely leads a very prominent and respectable life with an amazing girlfriend to top- so take that - D.J haters!

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  26. To Va Investor: Its not always a question of renting vs. buying but also the value of buying a house. Virginia house prices are falling are they not? Why would I buy a house now, the market has not stabilized and probably won't for a least a few quarters if not longer. I would wait for a few uptick months in new and existing housing prices before even considering buying in this market.

    If I buy a house today it will be worth less in 6 months based on this past years data. That is why I choose to rent vs. buy. Why would I buy something that I think is only going to go down in value over the next few months? Am I missing all the deals? Really? Why not wait until the market starts to go back up and then buy? Will I miss the boat, like I was told in 2003 that I would be priced out forever by the NAR.

    Its simple economics. Supply and Demand and buying at the correct price point. If that is whining to you than so be it.

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  27. The problem with real estate is that information is not easily accesible and is controlled by those with an interest in a particular outcome (i.e., realtors, industry experts, etc.). I think the blog helps counter that. Although, I've recently gotten off the fence this blog was very helpful in kept me from rushing in and buying at the peak (prices were I bought in Arlington are easily off 15% in nominal terms).

    NOVA Fence Sitter

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  28. "There will be a tremendous crash (not in 2006, I guess) and all the BH will get houses for 50-70% off. Nevermind that this will be at the financial ruin of their cohorts. They deserve their demise. You deserve these houses and the current owners do not."

    I wish I could say it is a shame you don't post here more... but it isn't.

    Your entire post is nothing but a ridiculous straw-man argument. Where on earth did you get the idea that everyone who believes there is a bubble is expecting anything like a 50% price drop?

    Newsflash... a 10% drop is a LARGE drop in the RE world. The 25-35% drop that I expect would be the worst in the area's history.

    The drops the area saw in 2006 are already severe. On what basis do you assert the crash wasn't in 2006? The crash STARTED in 2006, and it isn't done yet. It took five years of unprecedented growth to reach the peak. Did you expect that to evaporate in six months in the always extremely "sticky" housing market?

    When you can find a way to make a well reasoned argument without resorting to trying to pidgeonhole everyone on this blog as expecting a 50%+ price decline I will be interested in what you have to say.

    -Leroy

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  29. Keep up the good work.

    People like you have taken on the true role of the mainstream media. In all articles by mainstream media reference the realtors and their reasoning. Realtors have always spinned the statistics in their favor. Now that what Realtors says don't match a bit with the reality the media has started taking a note of bloggers like you.

    Anybody who is not overcome with greed and takes a objective look at the facts can't deny the economic reality of a housing bubble.

    Keep up the good work. I am sure most of the negative comments on your blog have come from realtors because you blew the whistle.

    Frankly, today's realtors starting from David Lereah makes Lawyers look like angels.

    --SanDiegan.

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  30. My son is one of the youngest MBA's in the history of Bentley College, and he believes 50 percent or more is quite possible. Hold on tight for the ride of your life. Sorry Leroy.

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  31. I sold my house in 2003 thinking things were too hot because I doubled my money from my purchase in 1997. I moved to San Diego and thought no way...this is a bubble. I am a stock trader and have seen many markets/stocks get too expensive. I bot fire burned forest property in Colorado which was cut 50% in price around the same time. I have rented a 180 degree ocean view home 200 yards from the beach in La Jolla since 2002 (moved for job) MY RENT IS LESS THAN THE ANNUAL PROPERTY TAXES IT WOULD TAKE TO OWN IN TODAYS REDICULOUS PRICES

    In the year 1998 every kid coming out of college I met wanted to be an investment banker and cash in on the dot.com boom. In 2004 they all wanted to go into realestate...

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  32. va investor said:

    "MIT released a study recently that concluded that it costs no more, as a percent of income, to buy now than it did in the 60's, 70's, or 80's. Google it and then tell me how tough you have it. (dataminer has done this calculation, too)".

    Which study? I googled and came across something that says the opposite.

    "Average US housing prices have risen 45% when adjusted for inflation over the
    last decade (Figure 1). Average (not median) income per worker has increased only 10%
    and income per capita a little over 20%. Household income (which is measured with less
    precision) has grown between these two. Thus with certainty, average housing prices are
    growing faster than the average income that Americans have to buy them."

    http://econ-www.mit.edu/centers/wel/housingcycles.pdf

    Facts...please.

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  33. Anon 11:41 - You want facts? I'll give you a fact:

    "VA_Realtor"

    Thanks, David, for your hard work in maintaining this blog.

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  34. "My son is one of the youngest MBA's in the history of Bentley College, and he believes 50 percent or more is quite possible. Hold on tight for the ride of your life. Sorry Leroy. "

    Don't take this the wrong way but...
    that isn't the point of an MBA... Most good MBA programs strongly discourage applicants without work experience from even applying.


    That said, I wouldn't be surprised if some regional markets or even specific market segments in the area hit 50% declines, but as for the DC/NOVA market overall? I am very skeptical.

    If it turns out my projections are wrong... well then I will gladly admit it.

    My main point from the post above was that there is a huge range of opinions among those who have recognized the bubble conditions and that most don't expect the 50-70% drop that va_investor claimed were a commonly held belief.

    VA_investor and Lance have continually tried to marginalize the readers of this blog by making similar ridiculous claims and then pointing out that they haven't been fullfilled.

    All during the last year both of them have claimed that "now" is a good time to buy and that if we don't we will somehow miss the boat and be "priced out."

    What is amusing about both of them is that while they claim to be knowledgeable enough about real estate investing to advise others... they clearly don't understand the basics of RE, or investing.

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  35. "My son is one of the youngest MBA's in the history of Bentley College"

    That's a bad school. So what?

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  36. I can't speak to the entire DC metro area but for the condo I recently purchased I've estimated a potential 15% downside in addition to the 15% drop that has already occurred based upon the differences in the cost of renting to buying. I don't believe that 15% drop will be felt in nominal terms but in real terms over the course of several years (i.e., prices will be flat while incomes and rents go up). A 50% drop is hard to imagine unless we have a 1920's style depression, which I believe is possible but not likely. However, I could very well be wrong.

    NOVA Fence Sitter

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  37. If there were not problems with the real estate market then you would not be receiving these nasty comments. Insecurity fuels those responses; otherwise, a confident person would feel no need to comment negatively because they would feel reassured by the obvious facts (which are obviously missing in the case of the current residential real estate market). All things aside that is the bottom line.

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  38. i sense a bunch of "bitter" realtors and bagholding homeowners have joined us.

    The NAR is on the defensive.

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  39. " a confident person would feel no need to comment negatively because they would feel reassured by the obvious facts"

    I'm sorry, are you talking about the homeowners or about David?

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  40. "I'm sorry, are you talking about the homeowners or about David?"

    I'm talking about those who attack David because he sees, in my opinion correctly, a decline coming for the residential real estate market.

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  41. I'm glad to see the bubble is in the process of bursting. Woo-hoo for the many young people of DC who can't even imagine trying to buy anything with prices like they were!

    Too bad you got some mean commentors. Sometimes people are jerks.

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  42. The only people with a "sense of entitlement" are the sellers. They somehow believe that they are due some huge windfall.

    I predict that real DC-area housing prices will be much lower than their 2005 peak in 5-10 years, reflecting what I think is their true value. I have said that for a while on this blog. So far, the trend is definitely going in my direction. And I am renting while I watch. I believe that real housing prices should reflect a historic ratio with local real household incomes and rents, and that in the DC area, real housing prices are currently out-of-whack.

    Having said that, I have never said that I am entitled to any home to some price of my design. As long as prices are too high, I will happily rent. If rents increase, I will move. I don't believe that I (or anyone else) is "entitled" to much. But I do believe that, whatever anyone may want or feel they are entitled to, DC area housing prices are going down. I could be wrong, but so far, I am looking mighty right.

    Now on to the 50% thing....

    A year or so ago, I said that I thought REAL DC area housing prices should be a lot lower, and threw out some ranges that included 50%. It's important to note a couple things, using the data from Housing Tracker (tracks asking prices in many DC area neighborhoods):

    1) September 2005 was the DC area housing price peak, when the median asking price reached nearly 500K.

    2) DC area median asking housing prices are currently near $440,000, a 10% NOMINAL drop. (This is comparing two different seasonal times, which is problematic, but I want to stay focused on the 9/2005 peak). If you would rather do a 9/05 to 9/06 comparison, there has been a 6% NOMINAL drop.

    3) Thus, adding in inflation, the REAL drop is probably somewhere on the order of 10-15% already.

    If you believe that there will be another 25-35% drop from here, you are getting awfully close to my original 50% off the peak REAL price in fall 2005. Note also this is what I think the VALUE is, not what I think will happen (I don't know what will happen).

    A Redskins fan

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  43. This stat is likely out of date, but something like 90% of Americans live on 10% of the land, and I think also well over half lives within fifty miles of the coast.

    A friend of mine insisted on moving to S. California to be an hour from the beach and an hour from the mountains. I caught up with him five years after he moved. Even with the mountains and beaches being only an hour away he hadn't been there yet; his mortage was so high that he had to work sixty hours a week to stay above water. But he was planning to take his family when things slowed down. Oh, and with all the traffic on the weekends the hour drive turned out to be more like three hours of bumper to bumper, and no place to spread a towel upon arrival.

    The Millionaire Next door revealed that the majority of self-made millionaires don't live in expensive neighborhoods, or in expensive parts of the country. By avoiding that expense, they have more to put into their companies and investments and guess what, they enjoy much greater returns and accumulated wealth.

    In today's society it is easier than ever to work from home or run your own business and dictate your own terms as far as commuting is concerned. And a good salary in an expensive area isn't a good deal much of the time.

    All of this lather about crowding into the right neighborhood to be close to the Metro and the right schools and incurring a lifetime of needless debt in the effort seems rather misguided. I suppose a certain amount of this is conspicuous consumption, but that was supposed to have gone out in the 1980s. Guess not.

    Being a fully realized person isn't about a street address or a school district. Great kids come out of obscure schools every year and great schools produce legions of dunderheads at the same time.

    Someone posted that the definition of a bubble is a 50% decline. I don't know, if I was in the cement of an interest only loan up to the groin and suddenly found myself underwater with a 20% negative equity, well, I'd call that something less polite than a bubble.

    The bricks are still falling, and they will be for a while.

    The articles about the FLA market are surfacing with regularity now. Yikes. I wonder if we'll see abandoned subdivisions like we did when the 1970s bubble popped? That was grim.

    ReplyDelete
  44. anon 11:41 am

    RE: the MIT Study

    Very convenient, and deceptive, of you to leave out the second paragraph which concluded that the dollar cost of housing, while fluctuating considerably, is no higher today than it has been in the past 30 years. It goes on to state that there is NO affordability crisis.

    Read much?

    ReplyDelete
  45. David,

    I am 40 years old and have rented all my life. However, I will buy eventually. Just not in the next few years. There SHOULD be an "incentive" to buy vs. rent and in many areas it is just not there. I forsee a few "dead cat bounces" before a downturn sticks, so I expect you will get a few taunts from the "housing heads" for awhile. I noticed Va_investors latest post was more vindictive than in the past - maybe the downturn is weighing more heavily on her as of late, hmmm?

    ReplyDelete
  46. I predict that real DC-area housing prices will be much lower than their 2005 peak in 5-10 years, reflecting what I think is their true value. I have said that for a while on this blog. So far, the trend is definitely going in my direction. And I am renting while I watch. Redskins fan is a fag. I believe that real housing prices should reflect a historic ratio with local real household incomes and rents, and that in the DC area, real housing prices are currently out-of-whack.

    ReplyDelete
  47. okay VA investor, i have had enough. it is not "DAVID'S CRASH". the situation is simply the beginning after effects of a collapsing bubble. you have such a smug sense of entiltlement when perhaps you were on the other side of the equation enjoying multiple offers over asking price..ACCEPT that is the historical aftermath of every bubble in history..or maybe you never took that class in school.

    ReplyDelete
  48. okay creative, I have had enough. I've been an owner for 26 years, since age 22. I've scraped paint, ripped out rotted carpet and lived with no AC or dishwasher. If you don't want to sacrifice, then don't. Just quit B@@@@@G about it.

    Read the MIT Study and shut up. I know, in your sophmoric mind, that I have no idea how bad you all have it. When the big bad bubble hits, my cash (millions) made through real estate and other investments will see me through.

    It is interesting that only one person addressed the issues I raised above. Just too hard to look in the mirror, I suppose.

    I earned any "smug sense of entitlement" and, therein lies the difference.

    ReplyDelete
  49. creativemind, perhaps you have to start being a little less creative with that mind of yours and start using it instead AND just ACCEPTING that there is NO crash, there has been NO crash, and there won't be NO crash. Put into the simplest of terms possible, the places where people live (and related expenses) have little in common with the security instruments people use to invest their wealth. Houses are not security instruments but expenses. You can't have a crash with expenses. Have you ever heard of your gas bill "crashing"? Oh, by next Spring gas prices will have crashed to 50% of today because they've become out of reach for average people. Do you see how nonsensical the whole idea of an expense crashing is? Well, ditto your housing expense aka "what it costs you to buy your house on a monthly basis over the long run." And I think it is you being smug in your ignorance.

    ReplyDelete
  50. These have got to be a couple of the most hilarious back to back posts I have seen on here in a while:

    "When the big bad bubble hits, my cash (millions) made through real estate and other investments will see me through." -VA_Investor (not being smug)

    "Houses are not security instruments but expenses. You can't have a crash with expenses." -Lance

    At least we know for sure they aren't the same person now.


    As for VA_Investor... assuming you aren't just lying... you are a perfect example of the fact that aggressive savings for long periods of time will pay off. People do the same thing with mutual funds and IRAs all the time. My grandmother put money into savings bonds for decades and predictably enough… they made a lot of money. Of course most of these people don't suddenly consider themselves experts on the stock market or bonds because they own some... but whatever.

    You may have made some significant money in RE, just don't pretend that makes you an expert on the subject until you can at least grasp basic economic principals.

    As for Lance...

    Your argument about housing being an "expense" not an investment is incorrect in multiple respects.

    First and most obviously: Housing is treated as an investment by many people, including some on this blog. Nobody cares what your personal philosophy about housing is.

    Second: Just because it is an "expense" doesn't mean you should over pay for it. If you saw a flier advertising 10% off a high end TV over the weekend would you rush out and buy it before the advertised price came into effect? TVs are obviously expenses...If anyone listened to you a year ago and was convinced that "now is always a good time to buy" then they likely over paid by tens of thousands of dollars.

    Third: Many many many people are forced to sell for one reason or another. Death, divorce, job transfers, layoffs, you name it. These situations are not always predictable. Even if they bought the house on a conventional mortgage intending to stay there for the long term that doesn't mean those situations won't arise. Being underwater on a home is NEVER a good position to be in. You treat that as a minor problem that you just have to wait out for a few years. To the person caught in that position in can be devastating financially.

    The market is heading down. It will continue to head down for the foreseeable future. Just like the race up, which took years, the trip down will take years.

    -Leroy

    ReplyDelete
  51. va investor said:

    "Very convenient, and deceptive, of you to leave out the second paragraph which concluded that the dollar cost of housing, while fluctuating considerably, is no higher today than it has been in the past 30 years. It goes on to state that there is NO affordability crisis."

    I apologize, va_investor, since I didn't read the whole study I quoted.

    But the second paragraphy concludes as follows: "Thus there is not an “affordability crisis” – unless mortgage rates revert back to their historic average," which I take to mean that they expect the mortgage rates to return there.

    And read the the last paragraph of the study, which says
    "History Will Most Likely Repeat Itself

    On the surface, the growth of the US economy has been impressive since 2002.
    Under the surface, however, there is a huge trade deficit, a Federal budget deficit, the
    absence of savings, and the possibility of growing inflation. Taken together, these could
    lead to the Federal Reserve Bank raising interest rates more strongly than anticipated,
    generating a classic economic slowdown as has happened so often in the past. As in the
    past, the housing market would undoubtedly “correct” as well. This time, however, there are two wild cards in the deck. Any economic slowdown could generate a much larger increase in foreclosures than in the past, and quite possibly a liquidity crisis that would generate an investor bailout from housing. With these two added factors a “correction”
    could turn into a deep slump."

    What do you conclude, va investor? Perhaps you refer to another MIT study. If so, please post a link.

    Happy Holidays!

    ReplyDelete
  52. va, maybe you should have gone to school instead of "scraping paint". you might have learned something about history. but then again "your millions" will see you though. typical bull*&^& from a major bull^%$%er!

    ReplyDelete
  53. Leroy,

    VA_Investor is being a little disingenuous with her comments. She has proudly proclaimed that while she has wanted to buy over the past 3 years, she has not found any reasonable deals. But then, she's a savy real estate investor who knows her way around distressed property sales, foreclosures, investment properties, and positive cash flow.

    However, if someone who has never purchased a home before concludes that what they want to purchase is too expensive (the same conclusion mind you), then they're just not settling enough. They're too filled with a sense of entitlement and don't want to scrape paint and go without AC because they're primadonnas.

    It's a clear double standard VA_Investor...

    My $0.02.

    PS - David, congrats on the WSJ interview. It's also refreshing to see a bit of new blood/debate come about!

    ReplyDelete
  54. "gone to school instead of scraping paint"

    Creative - I don't know whether to laugh out loud or contact my Ivy League Alma mater for a refund on that econ degree. btw - while scraping paint, I was working full-time while attending Law School at night. I graduated with Honors and 4 houses.

    mytwocents - I bought a property in 2004, two in 2005, and two in 2006. If I wanted more I would buy now. As I've mentioned, I am looking for a substantial commercial property in S. Florida. I don't wait for opportunity to fall in my lap.

    As far as the local residential market, there are some tremendous bargains available to those willing to put some effort into it. Most here, seem more than happy to simply await a crash,

    ReplyDelete
  55. "gone to school instead of scraping paint"

    Creative - I don't know whether to laugh out loud or contact my Ivy League Alma mater for a refund on that econ degree. btw - while scraping paint, I was working full-time while attending Law School at night. I graduated with Honors and 4 houses.

    mytwocents - I bought a property in 2004, two in 2005, and two in 2006. If I wanted more I would buy now. As I've mentioned, I am looking for a substantial commercial property in S. Florida. I don't wait for opportunity to fall in my lap.

    As far as the local residential market, there are some tremendous bargains available to those willing to put some effort into it. Most here, seem more than happy to simply await a crash,

    ReplyDelete
  56. Cheers for the WSJ mention.

    Jeers for using the word "choice" as a description of the comments. Come on. You're better than that.

    ReplyDelete
  57. I think it is fair to say that both Lance and VA Investor have or will purchase based on what they believe is a good financial situation for them..or (in Lance's case) what meets his needs in terms of a "home". But it's it also fair for individuals who believe that prices are a high to continue to wait until they are ready as well. There can never be a concensus when we're debating subjective ideals such as investment strategies..and what a home/house really is (a place to live an expense an investment etc.). I don't think someone is "uppity" simply because they don't want to live without a dishwasher or ac..nor does it mean that if they want a home in decent shape without necessary rennovations that they possess a sense of entitlement. It's like saying someone who is looking for a car should begin with a Pinto simply because it will help them build character. Again, it's a lot easier to simply compare some of the financial or ecomonic information out there that would continue this debate. As I read comments from BH's like Neil and others from outside the DC area it didn't sound like they are waiting for opportunity to fall in their lap. Like me, they seem to be watching the market for properties that they can afford. What works for some may not work for each individual.

    Sidebar that a few months ago I mentioned lower priced housing in southeast and southwest DC and it was Lance who promptly proclaimed that it was in a transitional part of the city that he would not live...but that for bubbleheads it was a chance to own. So I say who has a sense of entitlement. You can't tell those of us who do not own that we are being snotty waiting on granite countertops when you won't even live in the same property or neighborhood. It just has a bit of a hypocritcal tone to it.

    ReplyDelete
  58. to VA_Investor. I am not really sure what has you so riled up. So, you made some good choices and sacrifices that have helped you prosper. However, if there are many on this blog like me, we are not exactly overly-entitled, pampered princesses ourselves.

    My husband and I have always lived below our means... choosing a Hazelcrest, IL fixer-upper over the more affluent Homewood across the street, so that either of us could afford the house if one of us lost a job. Choosing Oakland over any other Bay Area community - again for affordability.

    But, here's where you and I diverge and I join the crowd on this blog... right about this time last year, we sold the Oakland condo and began to rent. Everything around us told us there was a slowdown - prices dropping, houses on the market much longer, pickier buyers. We were concerned the neighborhood might actually become dangerous if too many people defaulted and the homes stood empty.

    So now we've pocketed $200K profit, we still make a combined $170K, and we rent. I am 38, I love the rental neighborhood, we are socking away a lot more than the tax advantage of a mortgage would have saved us, and we will buy when something becomes attractive to us. Seems logical to me, and not coming from an "entitled" or "spoiled" viewpoint, but from a reasonable one. I don't need millions of dollars. I live nicely on what we currently have and look forward to reasonable gains as the years go by.

    Why does that kind of thing trouble you so much?

    ReplyDelete
  59. "I bought a property in 2004, two in 2005, and two in 2006. If I wanted more I would buy now. As I've mentioned, I am looking for a substantial commercial property in S. Florida."

    Wow... Buying rental properties in 2005 and 2006? in this area? Looking to buy a "substantial commercial property" in S. Florida? Now I know why you are on this blog like ants on a picnic... you really are clueless.

    Why don't you enlighten us how many years of rent at the present rate it will take to equal the price you paid for those 2005 and 2006 properties?

    "I don't wait for opportunity to fall in my lap."

    Understatement of the year.

    ReplyDelete
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    ReplyDelete
  61. VA, you are right. i apologize. thank you for informing us of your "millions" your "houses" your "honors" your brilliant intellect, your business ability, your ability to peel paint. thank you, everyone else on this board is just a non performing peon that knows nothing. you great guru know all. we bow to you..facts be damned.

    ReplyDelete
  62. David, you go Man! Your blog is a big help to get the truth about the housing market out there. And no way it's a place for bitter 20-something renters to rant. One thing that you don't hear about is that most of the twenty-something home or condos owners we know were subsidized by their parents when making that purchase, but no one will admit that.

    ReplyDelete
  63. "Don't take this the wrong way but...
    that isn't the point of an MBA... Most good MBA programs strongly discourage applicants without work experience from even applying."

    He has three programmers working for him at 130k salary per year. He understood multiplication in the first grade and is the smartest guy I know. He will handle getting an MBA at 22, because he is years ahead of his actual age.

    ReplyDelete
  64. OriginalDCer, re: your sidebar. I think you misunderstood some things I may have said in jest. I have more than once said that I think one of the areas that a BH should consider is the Anacostia area and other areas east of the river because on the long term horizon, it's geographical closeness to downtown will make it another Silver Spring or Arlington. I think my "in jest" comments were in reaction to someone saying how dangerous my 20009 zip code was. I was simply pointing out that there are areas far more "transitional" than Dupont Circle. Yes, if was short on cash, twenty years younger, and willing/able to put up with some years of ungentrified living, I would by all means be looking to buy east of the river.

    ReplyDelete
  65. Va_investor, have you thought about suing your alma matter? Seems that they gave you two degrees without any understanding.

    ReplyDelete
  66. Way to expose this nonsense, David! Been saying for a long time that money in this economy is just too easy to come by. Most Americans have been living beyond their means for too long, and the bills are about to come due... maybe this year. I'm anxiously waiting the coming market liquidation. Keep up the good work. Don't let the haters get you down, or spin your message: those are the people who are afraid to look in the mirror and evaluate their overblown, overextended lifestyles. Cheers!

    ReplyDelete
  67. while scraping paint, I was working full-time while attending Law School at night

    So you worked your way through school. How novel! None of us lazy renters ever worked while we were in school....

    You original post was very misleading. You implied that you started with a full time hard labor job and worked your way up. Now we know that's not true. Instead, you did exactly what most of us did when we were in school. Meanwhile you assumed that we were lazy and expected everything to be handed to us.

    For the record, I worked my way through school doing maintenance work at a state park - painting trash cans, cleaning bathrooms, carrying a weedeater, pouring concrete, cutting down trees, cleaning sewer lines.... We've all been there done that. You're not so special.

    ReplyDelete
  68. anon 9:47

    While I admire your work ethic, my "painting" was accomplished on weekends. The full-time job to which I refer was working for a hard-ass Antitrust Partner at a well-known downtown firm. I'd have given my right arm to be painting garbage cans 9-5.

    I only mentioned my education because of "creative's" crack about going to school instead of scraping paint; and told about my recent acquisitions because of the "disingenuous" remark by mytwocents.

    My stupidity for even responding to that crap. But, I digress. Facts are facts. The MIT study is fact. The FDIC study is fact. Why not address real issues/arguments?

    ReplyDelete
  69. Vera said...
    “I think you are going to find that comments on your blog become more and more hostile as people maxed out on debt and down in equity get more and more desperate.”

    Agreed. The troll to post ratio will continue to grow.

    Foreclosures continue to rise (including the 2.2 million sub primes facing foreclosures)- “No worries”

    Inventory remains high-“No worries”

    Year over Year sales down-“No worries”

    Year over Year prices down-“No worries”

    An additional 1 trillion in ARM’s to reset in 07’-“No worries”

    Consumer debt continues to rise-“No worries”

    Consumer savings remain negative-“No worries”

    David is a twenty something paying less than $700 rent and gets mentioned in the WSJ-

    “Ah HA! This is what we can sink our teeth into! This is why there is/was no bubble! Real estate never goes down! Buy now or forever be priced out!”

    ReplyDelete
  70. Like another poster above, I'm about 10 years older than you...and a fellow renter, for many of the same reasons. I know what house I want, and how much I'm willing to pay for that house. All of my neighbors are yapping to themselves about their increasing property values, blah blah blah...and I just wait. Patiently. Because I'm betting than half of them took out interest-only loans to pay for their homes.

    Good for you -- keep writing, and stay true to your ideals. To those who are spewing sour grapes at you -- well, perhaps they're a few steps away from a fridge carton on the corner. That would make anyone angry.

    Happy New Year!

    ReplyDelete
  71. VA_INVESTOR: "I don't post often anymore for various reasons."

    Wow, you don't leave much to imagination regarding these mysterious "reasons".

    Why are you still reading this sentence I am typing right now? Why do you care so much about vehemently "proving your point" on, of all places, a housing bubble blog?

    Ok, I think we can all take a *wild* guess why. That was easy.

    Here's my suggestion: post in economics blogs regarding the housing bubble. perhaps at nouriel or at econbrowser. your astounding intellect shouldn't waste time with 'mere ordinary' folk here who don't have IVY league degrees and made millions. you're wasting your time and energy arguing here.

    Go where the econ professors blog and you'll be rewarded with exceptionally well analyzed arguments for both hard and soft landing scenarios. And say Hi to Shiller or Roubini if you ever do get a response from them online.

    So... Mr. "I don't post often anymore for various reasons," why perpetuate? be a mna, tame your burning desire to help these poor minions, and resist the urge to reply just.... one........ more.................... time. Don't do it.

    ----------------------
    If it walks like a bubble, talks like a bubble, and looks like a bubble... it isn't? No way! Of course not!!! This time, IT'S DIFFERENT!!!!! no, no, I promise, unlike that "new economy" nonsense the last time, this one is for real. Forget about what happened in Japan! That was fake. What happened there could never ever happen here. No way. We're different. NOT!

    ReplyDelete
  72. Read my blog on why it is better to rent!

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    Check out my blog and comment at Blog.FranklyRealty.com

    ReplyDelete
  73. I find this housing bubble very amusing. I was one of the few people who jumped ship just prior to the tech crash and was told by everybody what a fool I was. Then when I said I was going to use the obscene proceeds to pay off my house, I was labeled a fool again. Then I said I was going to use what was left over to buy Gold. Yep you guessed it, Still the fool.

    Now my wife is a stay at home housewife (ex RN) and we have more disposable income than we did when we were buried in debt and both working.

    In retrospect, by doing just the opposite of what the experts advised, I am financially secure.

    -Mike in Az.

    ReplyDelete
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