tag:blogger.com,1999:blog-13164186.post115094599353073531..comments2024-01-27T19:26:32.604-05:00Comments on Bubble Meter: David Lereah's Book: How the Cover ChangedDavidhttp://www.blogger.com/profile/11169148764438565562noreply@blogger.comBlogger91125tag:blogger.com,1999:blog-13164186.post-1153835619933999452006-07-25T09:53:00.000-04:002006-07-25T09:53:00.000-04:00To be fair to Lance, for most families owning a ho...To be fair to Lance, for most families owning a home over time is better than not owning a home. That said, overextending financially to buy into this bubble is insane. Chants of 'real estate never goes down', 'it's different this time', or my favorite, 'the real estate market HERE is different', offer little comfort for those trapped underwater for decades, bound to homes they no longer want by debt that exceeds what they can sell for, sometimes unable to sell even at a substantial loss.<BR/><BR/>This bubble is a replay of the late 80's. I cringed when I read of people standing in line for days and fights breaking out to buy into the latest condo developments. Deja vu all over again. <BR/><BR/>The banks will be facing strick new rules regarding IO loans by the end of the summer. That will drain what's left of the wind that has created the current bubble. The bubble gentry, the paper rich who own several rental condos purchased in the last half decade, will suddenly face strong negative cash flows when faced with 'real' mortage payments. As YoY prices turn more negative, we'll see a panic rush toward the exits which will amplify the selling, just as irresponsible lending amplified the buying.<BR/><BR/>If someone is rich enough to pay cash and absorb the loss if they have to sell in the next ten years or so (which is about how long it took for prices to recover from the 80's bubble), then cool, do it. Pay the seller a bonus for good measure. And the relator, and banker, too.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151415047343652572006-06-27T09:30:00.000-04:002006-06-27T09:30:00.000-04:00http://dcbubblemeter.blogspot.comhttp://dcbubblemeter.blogspot.comAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151182234017165732006-06-24T16:50:00.000-04:002006-06-24T16:50:00.000-04:00The juxtaposition of Lereah's book's (released one...The juxtaposition of Lereah's book's (released one year apart in February) have been noted on Wikipedia's entries for the <A HREF="http://en.wikipedia.org/wiki/United_States_housing_bubble" REL="nofollow">US housing bubble</A> and <A HREF="http://en.wikipedia.org/wiki/David_Lereah" REL="nofollow">David Lereah</A>.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151111560092688602006-06-23T21:12:00.000-04:002006-06-23T21:12:00.000-04:00I agree that the Housing Bubble blog is pretty goo...I agree that the Housing Bubble blog is pretty good. The problem, for me, is that it is mainly left-coasters and I prefer a more regional perspective.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151096903517147722006-06-23T17:08:00.000-04:002006-06-23T17:08:00.000-04:00It's David's blog, so he can do what he wants.Unfo...It's David's blog, so he can do what he wants.<BR/><BR/>Unfortantely, he has nowhere near the readership and contributions as the Housing Bubble blog - now that's a quality blog, David.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151077635820357912006-06-23T11:47:00.000-04:002006-06-23T11:47:00.000-04:00I am here because I like real estate alot. I have...I am here because I like real estate alot. I have been into it since my early 20's. Used to read everything I could get my hands on.<BR/><BR/>I had a plan in my 20's to buy enough real estate by age 30 that I could justify not working and handling the RE full time.<BR/><BR/>I planned to have a large enough stream of rental income down the road to cover most of our retirement needs. I did this using present value and assuming rents would keep pace with inflation.<BR/><BR/>The final assumption is that all the properties would be paid for by retirement (55).<BR/><BR/>I always "make money going in". That way I can get out without a loss, if need be. There has never been a "need be".<BR/><BR/>There is alot of good info here so I like to visit often. I spend little time on the properties and this provides a hobby of sorts.<BR/><BR/>In 2008 or 09, I may be busier buying places. For now, I spend about an hour a day looking for a steal - mainly vacant land, as I don't want any more rentals.<BR/><BR/>There you have it. No trolling here - although I do sometimes enjoy a good "heated" discussion. David's delete button hampers this however.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151072153396297802006-06-23T10:15:00.000-04:002006-06-23T10:15:00.000-04:00I actually said trolling, I didnt mean he was a tr...I actually said trolling, I didnt mean he was a troll. I meant why is he actually here? If he knows we are wrong about the bubble why would he even be looking at sites like these? My first thought is that he suspects something might be wrong in the realestate market.<BR/>bobAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151068741569142282006-06-23T09:19:00.000-04:002006-06-23T09:19:00.000-04:00VA Investor is not a troll. From his posts he appe...VA Investor is not a troll. From his posts he appears to be a successful long term real estate investor and landlord.<BR/><BR/>Kudos to that. It's a great position to be in.<BR/><BR/>He's generally bullish because he's smart enough to run his business to withstand RE cycles.<BR/><BR/>My $0.02.MyTwoCentshttps://www.blogger.com/profile/10642606797401998999noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151033445541896132006-06-22T23:30:00.000-04:002006-06-22T23:30:00.000-04:00anon (4:56)I've only taken a quick look at it (I p...anon (4:56)<BR/><BR/>I've only taken a quick look at it (I plan to look more closely later), but where do you account for the value of the land? For example, a minimal value for a minimum sized lot in gentrified areas of DC would be something like $500,000 ... Your model isn't capturing that fixed cost ... or did I miss something?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151020571113049632006-06-22T19:56:00.000-04:002006-06-22T19:56:00.000-04:00-here's a spreadsheet tool to help you find an ent...-<BR/><BR/>here's a spreadsheet tool to help you find an entry point in a falling market -<BR/><BR/>http://www.files.bz/files/11251/RealEstateValuationMethods.xls<BR/><BR/>what do you think?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151019410380770362006-06-22T19:36:00.000-04:002006-06-22T19:36:00.000-04:00"The real question is why is Va_investor trolling ...<I>"The real question is why is Va_investor trolling the site?"</I><BR/><BR/>va_investor is not a troll. He is one of the people presenting the most well-thought-out arguments from the other side. The trolls here generally go by the name "anonymous."<BR/><BR/>Although I also wonder why serious housing bulls are interested in this site, a person's motive does not invalidate the logic of their arguments. Attacking someone's motive instead of disputing the logic of their arguments is a well-known logical fallacy.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151014227795201262006-06-22T18:10:00.000-04:002006-06-22T18:10:00.000-04:00"And your son's relatively high salary given his y..."And your son's relatively high salary given his young age and relative inexperience is a large part of the reason why house prices have ballooned in this country and this town in particular." <BR/><BR/>Warren Buffett lives in Omaha. Housing prices must be really high there!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151013806684184842006-06-22T18:03:00.000-04:002006-06-22T18:03:00.000-04:00Here are dc's tax rates:http://otr.cfo.dc.gov/otr/...Here are dc's tax rates:<BR/><BR/>http://otr.cfo.dc.gov/otr/cwp/view,a,1330,q,594394.asp<BR/><BR/>$0.92 per $100 for residential property<BR/><BR/>So, taking the sample property listed above:<BR/><BR/>Assessed 2007 value: $499,000<BR/>Taxable 2007 value: 215,000<BR/>less $60,000 deduction: 155,000 <BR/>/100 : 1,550<BR/>* .92 : 1,426<BR/><BR/>Yep, that's just about what the bill they sent in the mail says!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151013415577614902006-06-22T17:56:00.000-04:002006-06-22T17:56:00.000-04:00") or about $12000/year in taxes."Oh, no. Taxes i...") or about $12000/year in taxes."<BR/><BR/>Oh, no. Taxes in DC are nowhere near this. The city provides a $60,000 deduction from the assessed value of the property. This is called the "Homestead Credit". It also caps tax increases year over year at 10%. So even if assessed values climb quickly, the tax rate cannot jump more than 10%.<BR/><BR/>Granted, that 10% is still pricing a lot of people out of homes they've been in for a long time.<BR/><BR/>Here is a sample YoY tax assessment, taken directly from the searchable property database at DC.gov: (figures are rounded)<BR/><BR/>2006 Assessed value: $291,00<BR/>2006 Taxable assessment: $195,000<BR/>2007 Assessed value: $499,000<BR/>2007 Taxable assessment: $215,000Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151013217669641892006-06-22T17:53:00.000-04:002006-06-22T17:53:00.000-04:00As for Lerah, who cares? He was a spokesperson for...As for Lerah, who cares? He was a spokesperson for a sales organization. I really don't blame Lerah and realtors for any of the bubble. Realtors have always tried to sell houses by any means necessary, even during non-bubble periods.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151013052997740812006-06-22T17:50:00.000-04:002006-06-22T17:50:00.000-04:00Lance - "I have NEVER said people should be irresp...Lance - "I have NEVER said people should be irresponsible buyers."<BR/><BR/>Yes, but Lance has claimed that the price apreciation driven by all that irresponsible buying in late 2004-2005 won't go away. <BR/><BR/>"don't expect prices in general to fall by 50% as most doom and gloom bubbleheads are claiming will occur"<BR/><BR/>And in other contexts, Lance has also said he doesn't expect a 30% decrease, either. How much of a decrease does he expect? Would he care to commit? And are we talking real or nominal dollars?<BR/><BR/>"If you pay cash for a $100K house and it doubles in 10 years time, you have made 100% on it over the 10 year period. If you instead put $10K down, and it doubles in 10 years, you have made somewhat more than "$190K less financing expenses" ... i.e., your return is approaching 1,800% for your $10K investment ... over a 10 year period"<BR/><BR/>Lance conveniently ignores the downside of leverage. If you put 10K down, and the value of your house drops 10K, you've lost 100% of your investment. If you'd put 100K down, you would have lost 10% of your investment. Leverage raises the variance of your returns. <BR/><BR/>And when that variance bumps up against solvency constraints, which happens when the high-leverage approach is used as an affordability mechanism..so people start having to sell...and demand for housing is inelastic...so then increases in inventory (especially beyond 6 months) generate large price decreases to clear the market.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151012593833576872006-06-22T17:43:00.000-04:002006-06-22T17:43:00.000-04:00anon 2:29,You're telling me that property tax on a...anon 2:29,<BR/><BR/>You're telling me that property tax on a $500K house in DC is $2K??<BR/>That would make a millage of 0.4. Vienna was 0.4, Fairfax Cty 1.00 and VA 1.03 (last years data) total $2.43/$100 assessed value (usually 10-20% lower than sale price) or about $12000/year in taxes.<BR/><BR/>I don't believe you tax figure is right but I bet that we are doing an apples-to-oranges comparison. :)<BR/><BR/>BTW, millage in Fort Worth 3.07 for comparison, but the house costs a lot less so I actually pay less tax, especially with the homestead deduction.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151012056755508252006-06-22T17:34:00.000-04:002006-06-22T17:34:00.000-04:00"pride of ownership and the socio-economic positio..."pride of ownership and the socio-economic position that comes from owning one's own home are intangibles that all the money in the world cannot be substituted for"<BR/><BR/>Aside from the terrible sentence structure, is Lance really claiming that these things have infinite value, or at least greater value than everything else on the planet?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151011918478131662006-06-22T17:31:00.000-04:002006-06-22T17:31:00.000-04:00Once again, Lance shows that it's Groundhog Day fo...Once again, Lance shows that it's Groundhog Day for him, latching onto one of the worst and oft-exploded explanations for the DC bubble.<BR/><BR/>If DC incomes and those big government budget explained the rise in housing prices, then they would also drive rents. The fact that housing prices have risen IN RELATION to rents is what demonstrates the bubble and the fallacy of Lance's awful argument. <BR/><BR/>This has been pointed out to Lance, he has no reply, and he keeps repeating the same obviosuly wrong argument over and over. Lance is not thinking. He's parroting a comforting mantra precisely to avoid thinking.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151011755419890752006-06-22T17:29:00.000-04:002006-06-22T17:29:00.000-04:00All your points are well taken, but this is really...All your points are well taken, but this is really no longer true: "Taxes are crushing (and higher in DC than NoVA),"<BR/><BR/>Real property taxes in DC are falling, (deliberately, by design of the DC government) and there is no personal property tax. Sales tax is high, but if you own a house in Vienna proper, you're paying state AND local taxes which combined are higher than taxes on a place of comparable value in DC. Figure less than $2K on a home with an assessed value of around $500K.<BR/><BR/>Not that any of this matters to you now. :-)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151011096124250822006-06-22T17:18:00.000-04:002006-06-22T17:18:00.000-04:00Sorry about the rant. Yes Vienna is not DC, its ju...Sorry about the rant. Yes Vienna is not DC, its just apart of the entire area - and a very desirable place to raise kids. I have 3. I have lots of friends who retired (83-85 Reagan buildup officer cohorts) who found 'good' jobs in DC, bought to settle down and found they can't live there. Taxes are crushing (and higher in DC than NoVA), commutes are longer, and just plain old day-to-day living much harder than when I was assigned here in '97-00. Cost of living is unbelievable even doing major shopping at the BX. Living in DC itself was never an option becuase the schools are atrocious and not getting better - and I could not afford the $30K+ for private (3 kids). Worse I could not find a doctor to take Tricare (military insurance in the area), had to go to Bethesda even for the most minor stuff and that killed a day for my wife and had to count on friends to watch the kids coming home from school since you could never count on gettinig back in time and I couldn't cover.<BR/><BR/>Lance- what I was trying to convey, obviously poorly, that you cannot live on a median income (roughly $55K)an buy into the place. Heck its tough to even survive renting. I could not hire one person from outside the area - I had to recruit from other companies, PhDs who didn't make tenure, and from recent layoffs elsewhere. People outside DC just laughed at me - even when I offered 10-20% pay increases. They got on realtor dot.com, check commute times and laughed. If you got in in 99-00 (or before) your golden. But if not your screwed. The collapse will come and DC and area will take a big hit.<BR/><BR/>As for the living, I live within walking distance of TCU, shops and eateries. I have a 15 minute commute and its 15 minutes to downtown. 2 of my kids can walk to school, with bike trails and parks all around. I see my kids during the workweek, help them with homework, and we eat dinner together (instead of showing up burnt out at 7pm and putting the youngest to bed). I agree with you about all the intangibles, but they ALL improved when I left DC, including my bottom line.<BR/><BR/>Are you married with kids? That makes the DC life look far different. (yea - If I was 25 & single I would be having a grand time in a small rental chasing all the skirts, but that time is long over).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151009942851929582006-06-22T16:59:00.000-04:002006-06-22T16:59:00.000-04:00mytwocents,It gets complicated. All I am, basical...mytwocents,<BR/><BR/>It gets complicated. All I am, basically, is that the 3.4% assumes a vacant house (no rent or rent savings) and cannot be fairly compared to stock returns. Rent or imputed rent is like getting a dividend on top of your 3.4%<BR/><BR/>Financial planners can't or won't understand this.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151009377254197822006-06-22T16:49:00.000-04:002006-06-22T16:49:00.000-04:00VA Investor,I think I get what your saying. The cr...VA Investor,<BR/><BR/>I think I get what your saying. The crucial part right now is the "break even" cash flow portion. Let's grant 3.4% asset appreciation.<BR/><BR/>Right now, with home pricing so high, it's hard to buy and have a mortgage price approximately equal to the rental price.<BR/><BR/>At one point I considered buying and renting with a negative cashflow because that 3.4% acts as a sort of buffer. Though the key is cash flow, that appreciation doesn't generate real cash unless you refinance all of the time and that increases the cost of capital.<BR/><BR/>As for leverage, the downpayment needs to get exceedingly larger to have the rent carry your mortgage payment when rent is much less than equivalent cost to own. Therefore, there's a larger opportunity cost on the downpayment cash and leverage is similarly reduced.<BR/><BR/>This all assumes you're buying a property to rent it out.<BR/><BR/>My $0.02.MyTwoCentshttps://www.blogger.com/profile/10642606797401998999noreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151008597395717312006-06-22T16:36:00.000-04:002006-06-22T16:36:00.000-04:00Any "rent premium" would be time limited due to in...Any "rent premium" would be time limited due to inflation and would not offset the 3.4% but may slightly decrease the additional 7 or 8%. Less, of course, a factor that accounts for the tax-preferred treatment of mortgage interest and real estate taxes.<BR/><BR/> i.e. mort. of 2100 equals 1500 after taxes.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-13164186.post-1151008480780004222006-06-22T16:34:00.000-04:002006-06-22T16:34:00.000-04:00Buffpilot,The people who bought your old home were...Buffpilot,<BR/><BR/>The people who bought your old home were not responsible buyers. If they had to do a 80-10-10 and live at least a year so far with temp window treatments, then they bought more of a house then they could afford. I have NEVER said people should be irresponsible buyers. I have simply said three things in respect to the subject of this blog (1) don't expect prices in general to fall by 50% as most doom and gloom bubbleheads are claiming will occur,(2) "returns" on a home are not simply monetary ... pride of ownership and the socio-economic position that comes from owning one's own home are intangibles that all the money in the world cannot be substituted for, and (3) if you are buying a home to be used as a home (i.e., not an investment) then whether the value goes up 10-15% or down 10-15% or up 100% and then down again 50% in the next 2 -3 years shouldn't matter one iota 'cause what matters is that you can afford to stay AS LONG AS YOU WANT in your home. No landlord can kick you out because he/she wants to sell, move in themselves or whatever. (Again, I am assuming you were responsible and only bought what you could afford.) That is ALL I've been saying.<BR/><BR/>I am glad that you are happier in Texas with the larger home. We each have different wants in life. Personnally, as much as I love Texas and the Texans whenever I visit there, I couldn't live there. I have lived in similar areas, and for my personal needs I'd rather have the much smaller house but the ability to walk out my door and choose between a hundred and one sidewalk cafes within a 15 minute stroll. To each his own ... And that is the beauty of our free market system. Prices allocate what is available.Anonymousnoreply@blogger.com