Remember last summer when real estate cheerleaders were saying "My house is going up $300 dollars a day." Now, if prices go down 10% this year on a 700K San Diego home will people be saying "My house is losing $200 dollars a day." ?
NOPE. People have a tendency to boast and spread the word about their financial gains, but stay quiet about their financial losses.
Subscribe to:
Post Comments (Atom)
Posts
I don't think we're even in that "hiding it" stage yet. We are still in denial. I saw that "zillow" site being discussed on another website (completely unconnected to real estate) and half the posters were saying "that's impossible- homes on my street are worth much more; just last year Joe sold his house for 2 zillion" yada yada.
ReplyDeleteNear as i can tell my home has lost 100-150k from the peak. there, i said it. I've moved beyond denial. I'll equally have no problem accepting the next $150k as well. From Jun '95 to Oct '05 the stupid place gained $11 per hour every hour. Since then it has been giving back $33 per hour yet somehow I don't wake up and feel $800 poorer every morning. Why? It wasn't real on the way up, why should it feel real on the way down? Personal residences are not investment vehicles. Now if you are planning on only staying a very short time, say 6-8 years then it doesn't hurt to make sure the underlying asset value isn't exposed but that just a form of prudent buying practices.
ReplyDelete" Personal residences are not investment vehicles."
ReplyDeleteYes they are, whether you like it or not.
Ed,
ReplyDeletePersonal residences are a place to live. Everyone needs one. Some begin to think that personal residences are investment vehicles when they go up in value. In some cases they are like a forced savings plan for those who can not save. However, when things begin to tank this investment mystique will wear thin.
So if you view your home only as an investment what do you do when prices plummet? Do you sell? With the way the market is changing that might not be an option.
ReplyDeleteed said...
ReplyDelete" Personal residences are not investment vehicles."
Yes they are, whether you like it or not.
It is possible to to just say no to the investment component of personal residences. Just because other people chose to use their homes as financial instruments does not mean everyone must. 40% of all gold is used in industrial applications, that doesn't stop people from speculating there either. One of the things that always amazes me is how whitewashed the TCO gets in the transaction. Somebody is all proud of getting a 50% return on sales price without admiting to taxes and the new roof and carpets, dishwasher and water heater. On the flip side, everyone has to live somewhere so you need to consider how much more you have because you weren't paying rent.
" Personal residences are not investment vehicles."
ReplyDeleteYes they are, whether you like it or not.
Then why isn't my car an investment vehicle?
If homes are investment vehicles then they are not very good ones, regardless of the market.
ReplyDeleteWhen I buy a stock, the cost to enter that investment is the cost of the shares and (maybe) a brokerage fee (and if you want to get picky, the time I spent researching the stock). When I sell, the cost is perhaps a brokerage fee. If you are using a good online brokerage service, you might even avoid these fees.
To invest in a home, I have to pay closing costs (which can be thousands) on the loan, just to enter the game. While owning the home, I have to put money into it just for it to maintain its value – such as driveway repaving, exterior paint, etc. This does not include upgrades made in the name of re-sale value. Finally, when it comes time to sell my investment, I have to sell the entire thing (I could sell half my position in a stock) AND I have to pay at least 3% to my realtor to exit.
I am not even going to get into the leverage aspect of all this (which implies if you were this leveraged in the stock market, i.e., buying on margin - you would make a heck of a lot more in stocks for the same cost).
You may choose to view your house as an investment, but the costs to enter and leave your position are huge when compared to other (real) investments.
I'm all in favor of removing the "sticky" aspect to the downward slide in house prices. It will be good to have a short (if deep) correction in prices.
ReplyDeleteThat said, I think it would be GREAT to post a monthly "loss" amount for various neighborhoods. The people that believed that they were financial wizards by riding the wave of upward prices must now realize that they are financial failures by riding the downward spiral of prices (if you never felt wealthy by your recent home appreciation, then I'm not talking to you).
Once people know how much prices are falling, they will be better able to make sound decisions, such as how quickly to sell.
I laugh at all the people who talk about the home as an "investment vehicle" and only talk about the downside (then again, this is a bubble blog, right?).
ReplyDeleteI've got a house in NW DC with over $200K in appreciation. And I'll never sell, because I can sweat it out with my savings and earnings and I see tremendous improvement in dowtown DC (condos are another thing- homes are solid as far as I see in NW DC- properly valued homes, that is).
I get great tax savings, live downtown in the smack of things and have a great quality of life. If I ever move, I'll rent it out and still make a profit (trust me- I know many transient students, and misc. workers in DC who'll be renting for ages).
Take a look at the real estate in a positive light as well, will ya?
A decent house in NW DC is very pricey and those prices have gone up a ton in the last 5 years -- rents, however, have not increased much during that time.
ReplyDeleteSo you expect current rents to cover your mortgage, insurance, taxes, and maintenance, and have margin left over? But you bought recently enough to only have $200k worth of appreciation?
Sounds fishy.
It can be useful to look at all purchases as investments. This is certainly true when renting is an option. When one buys a stock, One compares the purchase price of the stock with the time value (the value of money in the future is less because in interest and inflation) of its anticipated dividends and future sales price. At a fundamental level, unless you buy enough of the company to take control and sell off its assets, all values are based on dividends. Even the future sale price in the equation above should be based on the same calculation by THAT buyer. When purchase price becomes unlinked to current dividends we say that the price is speculative, because the high price is predicated on a speculation that dividends will be higher in the future.
ReplyDeleteBuying a house is a huge investment, but in a normal market the primary dividend that it returns is a place to live. A rational analysis can be done. If the price of the house is x, and the interest rate of the mortgage that I can get is y, and the equivalent rent is z, I will break even in so many years. Of course there are many other factors, and some people may differ on their estimate of certain values. Despite the difficulties and the emotional factor it IS useful to look at a the purchse as an investment to get the best housing for the least money when making the buy/rent decision. I beleive it's clear to most of us who habit these bubble blogs that when purchase price is out of line with rents, than the Real Estate market is speculative.
Housing can be a good investment, if it is bought at a low price.
ReplyDeleteNo price in the DC area in the last three years seems to be to have been low.