Nov. 10, 2006 - Popping the Bubble |
Remember six short years back to the year 2000 and the discussion of the Y2K bug? Civilization as we know it was destined to end when the clock struck midnight, all because nothing in this big, wide world was built to handle a two-digit year beginning with a zero. There was one radio host who had devoted his show for months to this idea. And then he and the rest of us woke up on January 1, 2000 and discovered nothing had happened after all.
Fast forward six-plus years and you're seeing a similar phenomenon with discussion of the so-called real estate bubble. The concept is not original - preying upon the hidden fears of the naive has been taking place for thousands of year - and neither is the terminology, which was stolen from the "tech bubble" the stock market experienced shortly after the Y2K worries disappeared.
The short version of the story - investors who had abandoned the stock market entered the real estate market, drove prices to insane heights and now are pulling back out of those markets and leaving the local real estate markets in smoldering ruins. So all a prospective buyer needs to do is wait long enough, the 30 - 50% increases in property value will vanish and everyone can go back to buying at 2004 prices.
And don't forget to hold on to that Confederate money, Scarlett, because the South will rise again ...
The bubble is a myth. It is a myth fueled by people either with only the slightest understanding of the underpinnings of the real estate market, those who for whatever reason wanted to buy before the run-up and didn't, and kept alive by a national media reporting facts and figures without the slightest desire (or ability) to provide perspective to the statistics.
Some have discussed the progenitors of the real estate bubble has civic-minded citizens looking out for their fellow man. While noble, this broad brush ignores the truth behind the so-called bubble ...
Bubble myths are fueled by individuals' private agendas. Much like the woebegone criminals that appeared on the Electric Company in our youth (the guy smashing tomato sauce cans because his frog was canned as a child was my favorite), many who espouse the existence of a real-estate bubble harbor agendas that are relevant primarily to themselves but pass them off as a public good.
Maybe they bought in the midst of the hysteria. Maybe they wanted to buy but lost in a bidding war on a property. Or maybe they couldn't gather the courage to actually purchase, believing as always the market would come down even before it ran up, and now not even a drop in prices will allow them to enter the market. Or perhaps these folks are looking for the 15 minutes of Warholian fame to which everyone believes they are entitled. Blogging, like calling into talk radio, turns anyone with a keyboard (or phone) into an authority on the subject.
Bubble myths are fueled by are fueled by false hope. Many choose to believe the bubble hype rather than face the reality of markets where prices, even if they have declined, are not declining at a rate anywhere close to the increase. Yet some will read the blogs and listen to the news and fully believe that if only they wait a little longer, the home they want will fall 30% in value within months and land in their lap.
Of course, the major problem with such a notion and with the entire bubble concept is real estate is not the stock market. Stocks can and do drop to zero. Entire investments - every last cent - can be lost (and more, for those engaging in truly speculative plays.) Not so real estate. There is intrinsic value in land. Always has been. Always will be. To deny that fact is to base theory purely on mythology. Land may not always appreciate. Land may not always be located in areas where people want to purchase it (ask my sister in Houston, for example.) But land will always have an intrinsic value.
Bubble myths are fueled by a media machine with little idea what they report. As I've said many times, having been a reporter for a living, the vast majority of reporters are knowledgeable in many areas and expert in none. The job doesn't require expertise and, frankly, when you are on a tight deadline it's not necessary to know every nuance of the topics you are covering. You need to know enough to write a story that presumable will inform the public. You need to know enough to make sure what you're reporting is truthful. And that will suffice.
But as Jeff Brown has pointed out in the past, truth doesn't necessarily make a story accurate.
So where do we go from here? Sadly, nowhere. Another aspect of much of the bubble set is their demand for total capitulation on the part of those in the real estate profession and those who do not share their views. There is no opportunity for debate because it is not debate they seek. And if you try to discuss the topic rationally, you quickly become the victim of ad hominem attacks.
Instead, the decision is left for the public at large, particularly those who are thinking of buying a home. What the bubble folks aren't telling you is many of them already own real estate. Yet they argue that those who don't, those who want to purchase their first home, should not.
A little odd, don't you think?
(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes
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Nov. 12, 2006 - re: Popping the Bubble |
| Posted by Athol Kay |
| Great post. I agree that the bubble bloggers are "unreachable on a diplomatic level". Anything a realtor, NAR, David Learah et al say, do, think, breathe, is held of proof positive of tainted souls.
I'm not saying any of us are 100% perfect here, just we're basically demonized by the bubble blogs. Link added to my site. |
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Nov. 13, 2006 - re: Popping the Bubble |
| Posted by Pat Kitano |
| Yes, great post... Larry and I have been contrarians to the bubble myth since mid-August... when we could find no contrarians at all. We're glad there's now some counterpoint... |
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Nov. 13, 2006 - re: Popping the Bubble |
| Posted by eric |
| Good post.. I ve been involved in real estate as a succesfull investor and owner for over 20 years, and am an attorney re broker, and I think most importantly to this subject an ex institutional trader in foreign exchange, mortgage backed sec, and fixed income, so I read with interest human psychology on markets...
Right now, the stock market is at all time highs, interest rates are near historic lows ( and most importantly people are thinking mortgage rates are going up when the reality is that the 10 year yield has been dropping significantly), and unemployment is at near lows, and finally almost everyone is extremely bearish on Real estate..now look at this objectively does this sound more like a bottom or a top of a market (it has the underpinnings of a bottom)
People compare this to the internet bust, but remember before the bust everyone was quite euphoric that these internet stocks without earnings were going up forever! Thus it was a top, now people are extremely bearish in real estate, just the opposite situation, thus more likely a bottom..
The reality is that currently , overall supply is starting to decrease, and the trend of new mortgage applications is increasing, thus its not as bad as people think, ALAN greenspan himself is saying this, but more people are listening to the 30 second of fame guy who happens to be on the news saying that real estate will go down 40% nationally soon! Nonsense, most people are NOT upside down on there home/mortgage and will simply not sell at all at those levels..
Oh and by the way, you all should look closely at the headlines that re has gone down 3% or so recently!!!Its all over the place, but if one looks intelligently at the numbers this is based on, you will see that this is very misleading , the national median price is down because more homes sold in the South last year on a relative average basis then in the north east or west and this skewed the numbers becuse home median price in the South is cheaper!
Of course all real estate is local, and in areas like AZ FL and Cal, where there has been a huge run up, of course there will be some price dips at some time, especially in areas where there was over building and over specuyaltion, and some places like AZ or California, where the cost of owning is high in relation to average incomes there is bound to be some corrections in certain overpriced property, but at the same time there are areas that are doing very well right now, look at places like Aspen where people generally dont have mortgages, the market is booming there and other places like chicago where im from is pretty much like it always was, slow and steady, but many people are panicked unneccesarily...
PS people are still moving to Florida as the population gets older, just becuse the price of waterfront property is depressed now does not mean that it will stay that way in places like this.. remember when prices of new york condos went up to 500000 and then corrected, well those same condos are now 1.5 million, if they dip to 1.4 million does that mean real estate is a bad market to be in of course not...
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Nov. 13, 2006 - re: Popping the Bubble |
| Posted by John Hildahl |
| I was a computer consultant working on Year 2000 date problems for about five years prior to the actual event. I was a computer programmer for many years programming mainframe legacy systems. The Y2K date problem was real. Problems were minimized because many companies and government agencies spent vast amounts of money and time correcting these problems. Does Mr. Dalton, a real estate agent, claim to have more knowledge and insight into the Y2K problem than heads of major computing and business entities? Another blowhard revealed.
Perhaps Mr. Dalton should do what he does best: continuing to make fools of real estate people and that profession. He wll have good company, such as NRA David Lereah and the Never a Better Time to Buy or Sell a Home ad. |
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Nov. 13, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
Does Mr. Hildahl, a computer consultant, claim to have more knowledge and insight into the Phoenix Real Estate market than those who have based their careers on knowing everything about that market?
Personally, I'm not a fan of the NAR ad. The timing is poor and the message doesn't make the slightest bit of sense to me. A great time to buy? I'll argue it absolutely is. A great time to sell? I'd say probably not unless you had to.
As I just sent to the DC Bubble Blog, I'll be posting the most recent stats from the Phoenix market within the next day or so. Of course, I'm certain I will see commentary that the statistics don't tell the entire story ... then again, I never seem to see contrary statistics provided to justify that contention.
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Nov. 13, 2006 - re: Popping the Bubble |
| Posted by John Hildahl |
| In reply to Mr. Dalton's remarks about my Comment: What I know about the Phoenix housing market: 1) information from housingdoom.com, 2) I read recently in the Phoenix newspaper that inventory of existing houses has risen to an unprecedented 54,000 (approximately) with approximately half vacant. Would I like to see the housing bubble pop, realizing some pain that it might inflict? Yes. Why? It is tragic when the average American family cannot realistically purchase a nice house in the city in which they choose to work and live. In my view, a house should be a dwelling in which to raise a family and be "your castle", and not primarily an investment vehicle. In many cities today, families are forced to rent from the investors and speculators. Not a good situation. Many websites, blogs, economists, magazines, etc warn us about the popping of the bubble and a recession in 2007. Conduct the research. Thanks - John Hildahl Las Vegas |
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Nov. 13, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
Hi, John ...
On one aspect we absolutely see eye to eye. I also view a house as a place to live and raise your family. I love your term of it being "your castle." I remember the feeling when I was handed the keys to my first house (well, until ownership reality hit and I joined the legions living at Home Depot to handle the honey-dos.) I remember how painful it was when I got divorced to go back to an apartment. And how great it felt to be back again in a house a year or so later.
(Incidentally, in a span of two years - from June 2000 to March 2002 - I already had been priced out of my own neighborhood, long before the so-called bubble.)
You can see the current single-family inventory in Maricopa County on one of my most recent posts - about 34,000 homes. I just ran a search for actives in ARMLS overall (any county, any dwelling type) and it's 46,000 or so. This doesn't include whatever the builders may have, but those numbers aren't generally available.
I wholeheartedly agree that in a perfect world the average American family should be able to purchase a nice house where they choose to work and live. But that really has never been the case. I love San Diego. I love making the turn on I-8 near SDSU and getting hit by the aroma of the ocean. I can't afford San Diego. Haven't been able to afford San Diego in quite some time. The run-up had nothing to do with that.
I've read most of the same websites, blogs, etc. and I take most of what I see with a grain of salt. Why? Because I'm the one taking calls from people moving to Phoenix from around the country who need a place to live. People still move here. People still need housing. Renting, except for short periods of time while people learn the area, isn't palatable to most and they'll adjust their expectations to avoid it.
Case in point ... the post on housingdoom with the graph supposedly illustrating the trend in market appreciation. Wait, so you're telling me that year-over-year appreciation is negative when positive appreciation was unprecedented the year before? The following year's appreciate may suffer in comparison to the records? To quote Colonel Jack, "You think so, Doctor?" The obvious is being stated without the slightest nod to context. It's not research. It's sensationalism.
My question is should the market start to move again, even slightly, what becomes of the people sitting on the bubble (pun intended) who might possible be able to buy now, albeit possibly not the size house they desire, but won't be able to buy if prices increase? What will these folks do? Move to Oklahoma where you can buy whatever you want for a fraction of Phoenix (or Vegas) prices? Rent forever?
Out of curiosity, John, do you own up in Vegas or did you get frozen out during the run-up? And did the decline in Vegas hurt or help after the investors left?
Thanks for the thoughtful comments ... as you can see, I have a passion for real estate and enjoy the discussions.
Edited by jdalton on November 14, 2006 at 6:39 am |
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Nov. 14, 2006 - Stocks have intrinsic value as well... |
| Posted by sifta |
I'm not sure that there is such a distinction between real estate and stock investments. Stocks have intrinsic value as well, and for public companies one can look at the balance sheet to figure out what the intrinsic value is.
The price of housing, say in Phoenix, is obviously related to supply and demand just like in the stock market. The entire idea behind saying that there is a housing bubble is that the valuation of the real estate has been inflated due to speculation and expectations, and _not_ underlying value. Is there an underlying reason that housing can't begin a slow slide down to 2000 levels + 3%/year appreciation?
It has happened slowly over a 10 year period in Japan, which is a similarly strong an economy as here in the USA. I'm not predicting this or guaranteeing it, but isn't this a plausible scenario? If so, how can you justify that it is a great time to buy?
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Chris |
| By all means keep buying real estate..... |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
Plausible, sifta, if there are other underlying economic factors ... a stagnating economy, high interest rates, etc. But the economy here in the Phoenix area remains strong and even a slight increase in interest rates still would not bring them to the historically high levels of the past.
The value of housing does depend on supply and demand similar to stocks; the biggest difference is real estate doesn't fall to zero. Barring exposed radioactive material sitting just under the for sale sign, that is. The land always retains a value.
And values generally do not decline as far or as quickly as has been witnessed in the stock market. If you don't personally own JDSU, I'm almost certain you know someone who did pre-2000 as it was one of the "must-haves" until it shed most of its market value. |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Anonymous |
| "Bubble myths are fueled by individuals' private agendas. "
This from a real estate agent? Physican heal thyself.
These kinds of speculations are called "attack the messenger" and have no place in a civil discussion. The fact that as a real estate professional you are undeniably promoting an agenda with direct and irrefutable personal gain component should at the very least immunize anyone else in the debate. So what do we have? One side with an agenda and the other that may have an agenda. I don't see how that advances your position. |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
Another term for it, Robert, is ad hominem. Which I mentioned in the post and also wrote about here once upon a time. My job's fairly cut and dried ... if someone wants to buy a home I help them do so. I don't talk them into buying as I don't believe that is to anyone's ultimate benefit.
I absolutely question the motives of many bubble bloggers, especially those who own property and are encouraging their fellow man not to do so. If you're viewing a home as "a place to raise your family" as John put it above, and you plan on being there any length of time, then it's hard to see how you benefit from renting and paying someone else's mortgage.
If you're looking to invest and you have a short timeframe, by all means stay away. |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by eric |
| JUst my two cents...I posted above my own 20 year experince in the real estate market (through recessions as well) and as an observer who spent many years as an officer in the institutional trading markets.. I have nothing to sell to anyone, just would like people to realize that one makes informed guesses to the future based on facts, not extreme bullishness/bearishness.. the combination of the fact that interest rates have fallen significantly on the 10 yr bond while many hear they are going up, unemployment is near lows, inflation indicators are falling (thus highly unlikely more fed rate hikes, the futures market predicts more likely a lowering of rates in fact), and that most are over bearish leads professionals to look at this as a bottoming not a topping of the market
Again the media laziness/ or simply trying to sell news is evidenced by the fact that everyone is shouting how real estate median prices have fallen 3% when those numbers are MISLEADING when you look at the data showing that the mix of properties sold over the last year haveshifted towars the south wher properties have a median price naturally lower then the east or west!
Now of course some areas have slowed, particularly in places like Phoenix where the price of homes went way out of whack with average incomes, thats pure economics , combined with the fact that phoenix supply is elastic ie there is plently of room to expand out there to meet up with demand, and everyone and there mom invested to make a quick buck out there too, all signs of an overvalued market,, however if you step back and see where the prices are compred to 5 years ago, even if they dip the overall trend just shows how strong hoi=using fundamentals are in the long term , and will continue to be
MOst areas never had the craziness phoenix or las vegas did and are doing fine (and AZ will do so as well over the years)
And if thats not enough to showe how overpanicked and vbearish peopl are, alan greensapn is getting less press as he is currently saying that real estate is bottoming (inventory decreasing , trend of mortgage applications up) and most of you instead listen to some unknown on cnn who says that housing is going down forty % Ill take that trade against you all , thats how profeesional traders like me made money of of retail in the trading markets, the last to know whwn a market is turning like now..
Have you looked at places where the supply and demand picture is more in whack and where incomes are not out of whack with housing they are strong still, but you dont know it from the press, for example aspen is doing great this year as ther is less elasticity in supply and less people on there last dollar speculating like in phoenix
Look at the numbers and historical relationships, the smartest people are buying well priced property now, not waitng till the market is more favorable to the sellers, note i said well priced property, not some condo building in a terrible spot that is overpriced by having 90% investor ocupancy (in places where every other person called themselves an investro simply cause prices are going up)
Sorry for the rant, just my two cents based on personal experience
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by John Hildahl |
| Mr. Dalton, to answer your question and satisfy the curiosity: we sold our wonderful horse property in January and moved to be closer to the kids. We are currently renting and loving it. I will rent until house prices fall dramatically. In my opinion, a person would have to be the proverbial Greater Fool to buy in today's still overpriced market. This opinion is not based on innate wisdom, but on reading the vast amount of information available and applying common sense. Prices have to go down because they totally violate the fundamentals (e. g. relationship to inflation, rent, income). The lady who is in charge of the LV real estate organization continually touts the fact that approximately 5,000 people move to LV each month and they need a place to live. Some also move, but that is not mentioned. With the median wage about $35 -40k and the median house price about $320k, that points out the fact that most of these people will not be home buyers. Many people that this city needs have to leave because of housing costs - fireman, police, teachers, nurses, etc. So, who do sellers sell to? Not other investors in today's market. |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Evan |
| I like how you didn't use a single statistical or economic fact to promote your idea. |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
| And neither did you, Evan. Neither did the man who, with nothing else to say, has delved into profanity to give me creative names (sparing the dog, mercifully.)
The difference is I'll be posting the recent Phoenix market stats later which I'm certain will be shredded when they appear. And lest I be accused of spinning the numbers, I'll simply post the latest data and let everyone else draw their own conclusions. |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
| John, horse property in Vegas? Not too bad at all ...
Glad to hear you were able to move closer to the kids. A lot of people have that goal in mind and aren't always able to achieve it. At the risk of getting personal, did you sell at a loss in Vegas or at a gain? My hunch is if you owned the property more than a couple of years then the latter likely was the case.
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Robert Cote |
| jdalton replies; I absolutely question the motives of many bubble bloggers, especially those who own property and are encouraging their fellow man not to do so.
Is that a fair characterization and is it necessary to not be an owner to caution about becoming a new owner? I has an obscenely low cost basis and carrying cost for my primary residence but could not come even remotely close to affording it at current prices. The property taxes alone would exceed the current mortgage and taxes combined. Seem to me that a record of successful real estate transactions would make people more qualified to comment not less. Then there's the gross oversimplification of the blanket "don't own" description.
If you're viewing a home as "a place to raise your family" as John put it above, and you plan on being there any length of time, then it's hard to see how you benefit from renting and paying someone else's mortgage.
You make an assumption here that goes to the heart of the matter. Look at current monthly ownership costs versus monthly rental costs for equivalent housing choices. Ignore for now any appreciation or depreciation components and just look at TCO v TCR. Right now for typical PHX area housing it looks like owning is at least 30-50% more expensive after taxes and all the other considerations versus renting. It wasn't like that even 3-4 years ago. Renting today at today's rent prices doesn't come close to paying someone elses' mortgage at current ownership prices.
Perhaps the best way to settle this is you use your familiarity with the market to do a side by side for two real properties as I desribe above. Osman at http://boulderrealty.blogspot.com/ has a nice spreadsheet to get you started on the math part and you can pick the rental and purchase properties. |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by mike |
Why not replace the ad hominems with facts, Mr. Dalton? Stop attacking "bubble bloggers" on a personal level (I'm sure you wouldn't appreciate that kind of personal attack) and start addressing the facts in the Phoenix area.
Prices down, appreciation negative, sales through the floor, inventory through the roof, builders desperate enough to offer $100K incentives. Open your eyes. The market is collapsing underneath you.
And despite what some realtor-employed economists think, the worst is not yet behind us.
The problem is *not* bloggers, but a very predictable (if you paid attention during any of the previous, recent RE bubbles) reversion to mean. Yes, this was a bubble. Yes, it is correcting. Anyone who knows Market History and Economics saw this coming years ago.
Shame on you for blaming the messengers. |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by John Hildahl |
| Mr Dalton - in response to question: Horse property sold in Oregon at a good price and then moved to LV. Not too many horse properties in LV, but plenty of casinos. Oh, to have a horse property close to the Strip. Goodbye horses, hello tons of money from a developer. |
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Nov. 14, 2006 - Cannot drop to zero? |
| Posted by Jeff G |
| If people put only a small percentage down on the purchase of their home, why can't it drop to zero? Sure, the house may not fall to zero, but if I put 5% down and my house drops 10%, I'm well below zero. |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
Jeff G - your equity position absolutely can drop into the red if you choose an option such as zero-down financing, or even the five-percent down assuming a larger drop. But that doesn't mean the house has dropped to zero - your financing determined your outcome. And if it never, ever appreciates in the time you're living there, yep, you'd have a problem.
John - that makes more sense. I still remember when there was almost a gap between Henderson and Las Vegas.
Mike - Show me one "personal" attack I have made. If I painted bubble blogs with a broad brush, it's no different than the bubble blogs painting every real estate agent with a similarly broad brush. Tell me the difference ... As far as I've seen, the one true personal attack came from the DC Bubble Blog who, as I mentioned, has chosen to use a profanity to describe me. Not that it bothers me much ... I didn't expect much different.
As for facts in the Phoenix area, those are coming now. |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Tucson Lender |
| Oh my gosh Jonathan have you never heard of karma? Are commissions more important to you than the welfare of your fellow man. I am a lender here in Tucson and anyone in this business with an IQ above an ant will tell you (most behind closed doors) that things are only going to get worse before they get better. You are talking about potentially wrecking people's financial futures here...show some character man. The quote below was in the letter to editor section today of the main paper in Vegas...believe me when I tell you Phoenix/Tucson are no different than this....I can tell you firsthand the loan fraud part is so true.....potential buyers, it's ok to rent for a year or two until this thing shakes out......please read this excerpt as it is the best summation I have seen yet....
‘I have read several articles recently about the current state of the Las Vegas real estate market. I now know why the public is totally confused. After 18 years selling real estate both here and in Los Angeles, I have seen all the elements that affect a market. But never have I seen the problems facing us presently all coming together at the same time. It’s like a perfect storm.’
‘We have an affordability problem in this town. They say that 5,000 to 7,000 people are moving in every month. So why do we have so many homes unsold on the market? Unfortunately, the wages being paid for the majority of jobs new and old are not high enough for the people to buy a home.’
‘Many investors who helped drive the prices up thinking they would make a killing are simply dumping their homes on the resale market to get out from under a mistake they made. They simply bought too late in the game to flip and they did not realize the $2,000 monthly payment can’t be covered by a $1,200 monthly rental income. Because of the dumping of these properties on the resale market, the present inventory is more than 20,000 resale single-family homes and condos or townhomes. Fifty percent of the homes on the resale market are non-owner occupied. Who do you think is going to lead the market in pricing?’
‘Some owners who have had their properties for a long time had built up some nice equity. Then interest rates dipped and they refinanced, increased the amount of their loan, bought cars, paid for vacations, etc., and now are finding out that with the market in somewhat of a decline, the value of their home is less than their loans. These people are trapped. These homeowners are the foreclosures of tomorrow.’
‘Let’s talk about loan fraud, which is occurring at an alarming rate. As sellers get backed up against the wall, they will be willing to listen to the few who will try to get something for nothing. A seller has his home on the market for three months at $400,000 and has not had any offers, and along comes an offer of $460,000, but the buyer wants the seller to give him cash back of $60,000 after the close of escrow. Of course the lender won’t know about this. After the deal closes…here goes another one into foreclosure, and since this scam is a federal crime, whoever they catch is going down, including the seller and almost everyone who touched the deal.’
‘The public keeps hearing these reports from the experts that prices are not going down, as a matter of fact, they are going up. Give me a break. What they don’t say is that more and more sellers are giving incentives to buyers by paying all or part of the closing costs. So if a seller sells his home for $400,000 and gives the buyer 3 percent of the sales price for closing costs (that’s $12,000), the seller really sold his home for $388,000. This is never mentioned when the experts report the real estate activity. The appraisers are required to make an adjustment for this incentive when they compare properties.’
‘As I mentioned, all these elements are presently at work in the Las Vegas market. It’s time for the media and the experts to take a day off and join an everyday working agent to see what all the facts are and report them accurately so the public can be well-informed and make good decisions.’ |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
My position isn't based on a certainty of skyrocketing prices. It's based on the uncertainty of prices falling back to the 2003 levels many pine for. I happen to "an everyday working agent" who is well aware of the facts. As a matter of fact, you can find statistics all over this blog if you only look.
And again, Tucson Lender, should the market not collapse completely and even begins to gain traction at some point ... what will you tell everyone who sat on the sidelines as they listened to you tell them don't buy, wait for the fall?
Or you so absolutely sure in the power of your crystal ball that you have no doubts the end of the real estate world is coming ... and if so, isn't lending an odd career choice?
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
And as I thought about it over dinner, as a lender, how many clients did you advise not to refinance as their values were rising? Shouldn't you have dissuaded them from taking out what you perceive to be false equity based on inflated values?
Seems like a fair question, karma-wise. |
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Nov. 14, 2006 - re: Popping the Bubble |
| Posted by Scott |
| What I think a lot of people are ignoring is how the rapidly appreciating market was financed. The problem is not the real estate, its the debt financing. I've been a commodities trader and investment banker for 20 years and to see a market like this over such a short period of time is mind-boggling. At least the dot-com bubble was due to unrealistic expectations from new technology. This is real estate. Nothing new here. Its pretty simple and straightforward and it isn't difficult to analyze the fundamentals, unlike the dot-coms.
Absurdly low interest rates, very easy credit, a virtually unregulated mortgage banking industry, new derivative products like interest only, neg-ams, option ARMs have driven this market. Prices have totally deviated from the fundamentals and in many markets you can rent for almost half of what the net monthly cost would be to buy. I just want to know how these prices can maintain current levels, let alone appreciate, at current interest rates and without very large increases in personal income without inflation? It's impossible.
Real estate does have value. Prices aren't going to go to zero. The bubble bloggers exaggerate. But, it is practically impossible to see where the buyers are going to come from without interest rates collapsing. Well over a trillion dollars in ARMs are re-setting next year. Who wants to step in front of that freight train? Owners, who may already be underwater, will have to pay 30%, 40% or even higher on their mortgage payments and many will default. How can that possibly support the market? |
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Nov. 15, 2006 - re: Popping the Bubble |
| Posted by eric |
| Check out the latest numbers (dont see them on tv news , no surprise there)- mortgage applications for new homes up 2.7% last week and are up 10% in just the past two weeks!!! Check it out this is from the weekly (and trusted) MBA survey that covers about 1/2 of all loans generated (good statistical sample)
My point is again, that there is definately over bearishness in this market which is more likely then not the sign of a bottoming, not topping market , just the opposite of the internet bust right after overbullishness
Prople in these mindsets filter information unobjectiovely to support there view (in this case over bearishness)
Yes some homes in AZ or Nevada were over speculative and out of whack compared to incomes , this is NOT the situation in most of the country, but overemotional bearishness wont allow many to dig into the numbers and see for themselves... only a small minority of locations in the country have even dipped at all, thats just a fact, and again many places that are in california that arent selling for a million and have to sell for 900,000 instead were less then 500,000 six years ago, so is that so unusual or does it make the long term real estate market terrible in CA or elsewhere
Remembe when the stock market was around 9500 a short time ago, there was extreme bearishness there too, look at it now..
The FACT is the current situation is that nationally new mortgage applications are trending up, inventory is trending down, now if that portends doom and gloom to anyone they must look in a mirror and see if they are looking at things unemotionally or with a bias
I know, you all will say this is just a dead cat bounce, and that real estate simply cant go up again---just like at the top of the internet boom when people said these stocks cant go DOWN its just a dead cat reaction
PS I remember in the trading markets a few years ago when i was buying oil futures at 10 $ or so, everyone thought i was crazy, oil can never go up again...food for thought
THe time to sell, if you are shorter term, is already over, and there are plenty of areas where income is not out of whck with housing and have strong employment rends that are just as attractive now as ever ( there are some areas where houses average 600000 and average incomes are almost 300000 average, as opposed to AZ where i think the average income was significantly lower then 70,000 if i remember correctly)
This is more of a bottoming then a topping in the real estate market in my opinoin...
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Nov. 15, 2006 - re: Popping the Bubble |
| Posted by Scott |
| I honestly don't think you can say the correction is over until the effect from the ARM resets comes to market. Mortgage apps are up because people are refinancing to fixed, which is still a higher payment than they had with the ARM. Inventories have dipped slightly because builders are giving away huge incentives to unload inventory. We can't even track prices accurately because the incentives aren't included in the final price. If a homebuilder sells a house and a car for $400,000, the car is being recorded as part of the house price. There is no accurate way to analyze this market. Also, the amount of easy credit and mortgage derivatives that fueled this market is unprecedented and there is no historical data to guide us in predicting their effects. We really won't have a clear picture for another 6 or 7 months at least. |
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Nov. 15, 2006 - re: Popping the Bubble |
| Posted by eric |
| hi scott,
Well your posts are one of the more intelligently thought out and reasonable, I agree that arms are a problem for some, but not all of course, i think the percent of people owning arms is relatively low, but dont remember the exact number,,,
Of course not everyone who has arms is on the last dime, it is the anectdotal stories one hears, there are a number of informed and or capitilized people who use them as well, the more important telling number is actuall foreclosure rates, and they have not as yet gone up so dramatically as everyone thinks to assume is a given, so well have to wait and see, i think youd agree on that
Also, the number I quoted of mortgage apps up almost 10% over the last two weeks is for NEW purchases , not refinances, I think the refinance number was twice as high or so then the new purchase number..
And the fact that some are able to refinance from an arm to fix cause of low rates is good in any event if they need to..
Yes there are some incentives that are deiving some demand (and supply dry up) Id agree, but again Im talking about whether the market is more likely bottoming in the near future, so the fact that supply is down for whatever reason only leads me more to the probability that supply/demand is getting more balanced nationally (of course we all know the stories of the guy who cant sell his overpriced Florida condo right now , there are those who pay to much in any market, what Im talking about is overall national trends, and trying to stay away from anecdotes , as of course anecdotes can be picked and choosed, for example I have personal experience with property in Montana that is incredibly well performing, but so what)
It sounds like you are well infomed about the mortgage business and have some thoughtful comments regarding credit, Im more of a freemarket guy that believes we shouldnt cut off financing alternatives for everyone cause some uninformed or reckless people abuse it.. there are good and bad uses for all these products.. for example I know of someone who strongly considered using an option arm for one year to buy a Naples condo while they were selling there house overseas for many millions, then they would pay cash when the house closed, now you dont hear those stories in the news only the worst case scenario...
I personally have used full doc/ lo doc no doc fully amorizing and interest only on personal purchases and can assure you im in no risk of default with plenty of liquidity, there are valid reasons for all these products, and Id hate to have the govt shut off financing avenues to people with spectacular credit and assets cause a couple of people who shouldnt be buying to begin with foreclose..
One last thought, as per supply the fact that people are bearish and cutting back on new home building is another reason I think the market is very potentially bottoming out, less future supply leads to future tighter market..
Thanks for a THOUGHTFUL discussion (its refreshing, rather then hearing my neighbor cant sell their house in Las Vegas or Phoenix last year that they bought cause everyone else is doing it there, so the whole real estate maket is collapsing nationwide and will continue to do so, do you see how silly that argument is)... |
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Nov. 15, 2006 - re: Popping the Bubble |
| Posted by John M. |
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Scott -
I don't know much about RE, but the debt financing (and the Congressional "implicit guarantee" that it's based on) has had me seriously freaked out for years. I find the whole US housing market MBS system astonishing (by the way, I'm Canadian).
John Hildahl -
Thanks for pointing out that Y2K was for real.
Jonathan -
Nice of you to drop by Doom! (tech note - I had problems posting this comment with Netscape browser)
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Nov. 15, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
Anytime a website sends 200+ visitors to my blog, the least I can do is stop by and say hello, John. Some of the discussion was enjoyable. Some of it was as inane as ever.
What remains amazing is the assumption that if you don't believe the housing market will collapse then you must be telling all your clients it's on the rise. It's almost as if there can be no middle ground, which is ludicrous.
I do not and can not deny the market has declined here slightly. From where I sit, I don't see it continuing downward until we're seeing 2003 or 2004 prices. Yet from some of the comments, you would think I'm telling my clients their house will double in two weeks.
It's just crazy, my friend. |
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Nov. 15, 2006 - re: Popping the Bubble |
| Posted by sdcellar |
| Jonathan-- It doesn't sound like you're telling your clients that real estate is on the rise, but you do need to be careful not too spread easily debunked myths like real estate doesn't go to zero like stocks do.
The fact of the matter is that equity positions in real estate can and have gone to zero and worse than stocks, they can go below zero. That is, of course, the downside of leveraged investments. Sure, they can be fantasic on the way up, but they can be disastrous on the way down. It's just physics and levers work both ways.
I agree that extreme points of view help no one. |
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Nov. 15, 2006 - re: Popping the Bubble |
| Posted by Anonymous |
| I think what has a lot of people frustrated is that there is little accurate information to refer to in the housing market. How much of that sales price is the car that was included with the sale? Additionally, real estate is perhaps the most unregulated financial industry in the country. Considering a house is the biggest investment in most peoples lifetimes, its astonishing that its been allowed to turn into a leveraged casino. I don't blame realtors much since its their job to sell and close. I do blame many of the mortgage lenders because a good amount of them are swindling people into loans they don't understand, and those people are going to lose their homes and ruin their credit. Its illegal for a stockbroker to sell a risky stock to a conservative investor, but it is perfectly legal for a mortgage broker to sell a leveraged mortgage derivative to a person who clearly wont be able to afford it when the rate adjusts. Its simply criminal and a lot of us can clearly see what is around the corner if rates dont fall very quickly and by a large amount. It is frustrating when so many ignore the economics of the market. |
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Nov. 15, 2006 - re: Popping the Bubble |
| Posted by john hildahl |
| My opinion regarding the Real Estate profession, and I believe it is a profession with many talented, hard-working professionals using business skills, people skills, training, education, and perseverance trying to make a living in a tough world. Advice: launch a grass-roots effort and rid yourself of NAR leadership. These so called leaders are making a mockery of the men and women who are real estate agents. Many articles call attention to this. The latest from Mish - Lies, Deceit, Greed on:
http://globaleconomicanalysis.blogspot.com/ |
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Nov. 16, 2006 - re: Popping the Bubble |
| Posted by Okanagan Realist |
| Eric,
Please tell me where the average incomes are $300K. I might even leave Canada to work in a place like that. I suspect that you are full of piss and wind.
For most bears, I think that common sense is enough to determine that things are not right and will correct. This is not negative thinking because it is surely not good for the future if an entire generation of home buyers is paying 25-50% of their income servicing their mortgages! This scheme is a way for the baby boomers to once again put one over on their children by having them go into unmanageably debt for their whole lives so they can continue living it up.
I for one do not believe we have moved to a two class system. Thos who bought before 2001, and those who didn't
And FYI Dalton, there are many who didn't have the option of buying before the market went insane; though you speak of bears like they are all cheap bastards who are waiting for RE to be virtually free. Unlike real estate agents, some of us have gone to University, racking up serious debt, and have now come out finding ourselves with large student loans and housing costs that would put us in the poorhouse our entire lives. Even with annual salary of double our local median, my wife and I couldn't even qualify for a loan large enough to buy the median house where we live. As a matter of fact, we only qualify to buy in the bottom 5th percentile.
If you think this is all healthy, then nothing will ever change your view, because you obviously can't think for yourself, and rely on whatever statistics you can twist to your benefit to prove your point of view to yourself.
Question: If 50% of economists predict a recession and housing crash, and the other 50% predict a soft landing (a large percentage of which work for the RE industry) and all common sense tell us that things are not right; and it takes a higher percentage of peoples incomes to service a home at approx 6% interest rates then it did when interest rates were nearing 20%; and prices have just shot up in many areas more than 100% over 5 years; and evidence is appearing documenting widespread loan fraud; and it is a fact that many ARM loans will reset over the next couple years, significantly increasing mortgage payments; and RE agents are all over trumpeting how healthy things are: --- WHO WOULD YOU BELIEVE???
Fundamentals are about more unemployment and a strong economy. Prices are set by the average RESIDENT. |
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Nov. 17, 2006 - re: Popping the Bubble |
| Posted by Sixpercenter |
| This is absurd. How long before you return to waiting tables? |
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Nov. 17, 2006 - re: Popping the Bubble |
| Posted by eric |
| Hi there realist,
Sorry you cant afford the home you want , also sorry you called me fullof piss and wind, I can assure you im not and am extremely experienced and succesful in these matters for the long term..
You need to read my post more carefull, I said there ARE areas where homes and income are out of whack (ie like phoenix, I never invested there myself) but that is NOT the whole picture, it may be in your area, but not in Chicago Boise Austin etc...
And please dont attack someone more experienced because of your own more limited experince here.. there are areas where incomes are not out of whack, and yes even at the other extreme areas where home owner income averages 300,000 i own ther myself (and 80% or so of the people in this area have no mortgage, but bubble bears cant understand there are plcaes like this- hint its a rocky mountain resort, and it would be embarrasing to pass on how our property is doing (and still doing there) but we didnt buy there simply to make money..
Cheers and good luck, dont let your bias and or negative experience stop you from looking at things more objectively (something I learned as an institutional trader in the past)...
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Nov. 17, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
>Unlike real estate agents, some of us went to University
Need to work on reading bios, Okanagan. Some of us actually attended university. Some even graduated. And some even were on an academic scholarship. Since I fall into the affirmative on all three, I only can sympathize with student loans from afar.
And, as always, if anyone can quote me as saying the market is healthy and prices have not declined, I'd truly like to see it. But, as usual, there's no sense letting the facts of what I say get in the way of a misguided rant. |
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Nov. 17, 2006 - re: Popping the Bubble |
| Posted by Okanagan Realist |
| Dalton,
Whether of not you attended university is not the issue. The point is that not all of us have been sitting on the sidelines for 10 years waiting for RE to be free. Some of us were doing something productive (at least in my mind I consider education productive) and now come into a market where making 2X median wage barely qualifies for a falling down shack in the HOOD. Your blogs existance, and your arguments tend lead readers to believe you think this is both OK, and sustainable. I disagree and take offence with anyone who wants to tell us that the "AMERICAN DREAM" is now unattainable, and this is OK.
Eric,To Quote you
"there are some areas where houses average 600000 and average incomes are almost 300000 average, as opposed to AZ where i think the average income was significantly lower then 70,000 if i remember correctly)"
So indeed you did state that somewhere the average salary is almost 300000. Where is that? Possibly its in some rich neighbourhood somewhere, but then the statement is totally useless |
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Nov. 17, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
Okanagan - I never said it was okay. Being a real estate agent doesn't make me immune to what's happening. I couldn't afford to purchase the house I am in if I had to do today. I was fortunate to purchase three years ago, however.
What I do say is that it is what it is. I don't believe hoping/praying/rooting for a collapse that will impact thousands of people and leave them in a position where they may lose the house, just so others can go in and purchase said house, is a good thing in any way, shape or form. And this comes from someone who makes many on the sales and the purchases.
There are homes available in a variety of price ranges, well below the median mark. The question is whether people are willing to accept a somewhat smaller home in communities such as Surprise, El Mirage, Avondale, Goodyear, etc. or whether they will continue waiting for a correction that may or may not continue.
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Nov. 17, 2006 - re: Popping the Bubble |
| Posted by sdcellar |
Interesting that you think that people who haven't bought homes yet don't deserve to get something more for their money, but those who did buy just a few years ago deserve the money they "earned" on theirs.
While I don't root for a collapse by any means, I think it's a shame that good people with good jobs can't afford nicer homes simply due to "timing". You bought your home a few years ago and if it was within your means, it will stay within your means regardless of what happens to the price.
Sure, some might have to stay in a house they can't afford to sell if it loses value, but that situation is no more or less fair than someone who can't buy and wants to based on value.
It would seem the majority of folks who might "lose" their house are investors/speculators and I can't say I'd feel bad for a lot of those folks. The others would be normal people who bought more home than they could afford and that would be unfortunate, but isn't that the risk you take when you do that? and weren't they also betting on continued appreciation to some extent and gambling with their financial future?
Buy a home that's wiithin your means and you should be okay, so no, I don't feel tremendously sorry for people who lose paper gains and I don't feel particularly sorry for gamblers. |
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Nov. 18, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
>Interesting that you think that people who haven't bought homes yet don't deserve to get >something more for their money, but those who did buy just a few years ago deserve the >money they "earned" on theirs.
Where did I say that? Is it possible whatsoever to defend a position without having to twist someone's words, whatever they may be?
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by Okanagan Realist |
| It is what it is!!! What a great phrase!
What else could it be? You are correct, it is what it is. The only problem is is that it shouldn't be. A severe correction (read crash) is needed or an entire generation will be in debt up to their eyeballs.
I believe that anyone who can't see that this major correction is needed is a homeowner looking through rose coloured glasses. Not once have I seen any evidence on why prices are justified. Low unemployment and interest rates just don't cut it, as both can only go up.
Stupidity is the only plausible reason.
And in your response above where you claim that you didn't say that people dont deserve to get something more for their money.
Stating that this is how things are and to live with it, buck up and take out an insane mortgage is just that. You are indeed saying that buyers today shouldn't expect to get a reasonable house for their money. So you are either implying that prices are UNREASONABLE, or that buyers don't deserve any more because this is the way it is. You choose! |
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
An entire generation already is in debt up to their eyeballs and it's not isolated to real estate. Should the price of gas be what it is? Of automobiles? Of egg nog (just trying to get into the holiday spirit.) You can argue the price of many things isn't where it ought to be but that doesn't change where they are.
Okay, so let's assume the real estate market crashes ... in all likelihood, such a fall would take a substantial portion of the economy down with it. Unemployment will rise as building supplies are no longer needed (something we're already seeing in some areas, incidentally) ... how would such a scenario help anyone? It's like you're hoping for the economy to crash for everyone but you. Odds are, not going to happen.
And I'm still trying to find where I said people don't deserve to get something more for their money. That's twice I've had that attributed it to me and I'm not seeing that statement anywhere.
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by Anonymous |
| You're right, I'm sorry. I did infer some things from various posts and comments you've made, but you never drew the line as I laid it out.
That said, I feel you've mischaracterized a large portion of housing market bears in saying that just because we expect a reasonable return to normalcy in home prices mean that we hope/pray/root for a collapse and don't care about the hardship this will create for some people.
So, I'll ask you. What's wrong with prices coming back to reasonable/affordable levels and would such a thing really cause large numbers of people to lose their homes? |
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
Conceivably, yes, and mostly caused by financing. You can argue such are the risks of taking on adjustable-rate mortgages, interest-only loans or even a simple HELOC (none of which are evil in and of themselves - it's leveraging yourself to the hilt in the use of them that causes issues.)
I don't disagree with the statement above that there could be issues when the ARMs reset and homeowners find themselves paying substantially more for the same house. Now through in a significant decline in home values and these same folks are paying more for a house they are under water on. They can't refinance the ARM because the property won't appraise. And so foreclosure becomes the result.
Overly simplified, possibly over dramatic, but a legitimate risk.
If there's only a slight decrease then the impact likely will be less. But in most cases, when I read the phrase "reasonable/affordable levels" it refers to a decline to pre-2004 levels. Maybe not in your case, I realize, but generally speaking. |
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by sdcellar |
That last post was from me and I hadn't read the two by Okanagan Realist and yourself. Again, you are correct (of course) that you never said that people don't deserve more for their money, but I think Okanagan Realist states it fairly that when you come back with people will just have to buy here, here, and here instead, and comments along those lines, you seem less sensitive.
Yes, a housing downturn will hurt other parts of the economy, but downturns have that effect regardless and it seems that many have done a much worse job preparing for the inevitable than we have in the past. The housing boom has caused untold numbers to extract more equity out of their homes than ever before. This is sad.
As far as your comment about prices being they are what they are, then I *guess* you're okay with them going down whatever amount the market dictates? Frankly, it's supply and demand and it doesn't matter what you, I, the dreaded bubble bloggers, or the NAR have to say, the market will dictate prices. |
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by sdcellar |
Ah, make that three posts I missed now...
I do feel for ARM folks, but ARMs have been available for years, along with neg-am loans and most of the other stuff. I can't tell you why so many have chosen to become so leveraged in the last 5 years, and again, it's very sad (in many ways).
That's why it saddens me so much when today, right now, I read various people suggesting that people continue to try to leverage real estate. A good many of these folks come from the real estate industry themselves, but thankfully I have not seen any such suggestions from you. Further leverage at this point simply cannot be a good idea if for no other reason than the current uncertainty of the market. |
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
Oh my lord, we agree ... :-)
The market will dictate what happens, absolutely. There have been declines in portions of the Phoenix market - all depends where you are, what price range you are, etc.
I've been accused of being insensitive (primarily by my former and current wives) ... the term I prefer is realistic. I'd love to live in Top of the Ranch, a portion of Arrowhead Ranch in Glendale tucked against the mountains. But I can't afford it. Probably never will. (Brace yourself, Okanagan) ... it is what it is.
Here's the best way I can word it ... options exist in this real estate market and in any real estate market. If you examine the options and determine none of them work for you, then fine. You need to make your decision based on your circumstances.
Where I'm concerned are the people who are counting on a housing crash to buy (which reminds me of the old Wall Street adage: "Never Catch a Falling Knife.) If it does happen, you just caught the knife. If the crash doesn't happen, you still end up empty-handed. |
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by Okanagan Realist |
So; those of us who don't own are selfish for hoping that affordable prices return. How dare we wish misfortune on those poor unfortunate owners who took out so much equity from their homes to do the world a favour and keep GM in business buying themselves Hummers. As harsh as it is, anyone who refinaced and took too much cash to increase their lifestyle deserves to be wiped out and whats even more sad is those who believed your HYPE, those FTB who actually believe that you can price 95% of the population out of the market may not deserve to but surely MUST lose their shirts. <br>
These same poor owners who treat renters like leppers. Do I feel sorry for them; no! Just like they don't feel sorry for me, they just tell me it is my own fault for not taking out 100% loan on a house that I wouldn't even have come close to affording 5 years ago.<br>
One of your arguments seems to be that because so many have so much invested, the market can't crash just because of the damage it would do to the economy. Do you not believe that if some bull are correct and price appreciation returns to historic lvels without a crash we are in for serious trouble 10 years from now? Possibly do you live in a bubble where the future doesn't exist, and apparently from the lessons you haven't learned the past doesn't either. I am freaked out by the possibility that housing doesn't crash and the generation of presently in their mid twentys and under spends the next 35 years paying 40+ % of their income to housing. Yikes!!!! Just a short list of industries that may be adversely affected by this scenario: Retail, travel, luxury goods, auto manufacturers, restaurants, well lets cut it off and just say pretty much everyone that isn't involved in banking, lending and real estate. <br>
To quote Kofi Annan in that TV commercial "What a wonderful world it would be" <br>
BTW, the reason I found your little "is what it is" comment a little humerous was due to an event here in Canada. A Professional Hockey player had sucker punched another and given him fairly major injuries. After more than a year of hounding and demonizing from such hockey experts as Wolf Blitzer, and the chicks from "The View", finally he could take it no longer. He refused to talk about the incident anymore and instead just kept telling the media "it is what it is" |
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by sdcellar |
Oh my gosh, we do!
Yes, I agree totally. It will always make sense for some number of people to buy in any market. My main hope is that people just start to do it rationally (or at least as rationally as possible since buying a home tends to be such an emotionally driven personal thing) and buy homes that they can afford with loans they can afford, regardless of what happens in the next couple of years.
I am, of course, biased because that's what I've always done. I just won't get into situations where something has to happen in a fixed timeframe (get a raise, appreciation) or I'm in dire straights.
You can still buy a home without risking your future. |
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
I agree with you, SD.
You shouldn't have to risk your future. Again, though, I don't think any one type of financing is evil unless someone gets into it without knowing fully what they are up against. Like you said, many options have been available for some time and many of these options work well for many, many folks. At the same time, your traditional 30-year fixed isn't the best option for a lot of people either depending on their circumstances.
I found it interesting to have a lender earlier telling me to show some character and tell people not to buy ... I have a hard time believing this lender wasn't happily helping people take equity out of their homes and/or refinance and/or use a somewhat more exotic financing option (hopefully only to the buyers' benefit.)
Okanagan ... please, please, please try and read the posts at some stage. I never said the market can't crash. I said it would be devastating if it did, both for the people who own and for those who think it then would be an excellent time to buy as if there would no economic ramifications in their lives.
And wait ... you're not comparing me to Todd Bertuzzi or Donald Brashear, are you? Let me attach my fighters' strap and get the gloves off ... :-) |
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by Okanagan Realist |
Indeed it is Todd Bertuzzi, and he was ridiculed for months for the exact phrase and its doublespeak feel. Though aside from the phrase I am not comparing you to him.
Bears believe a crash is inevitable due to the runup in prices caused by easy money, psychology, speculation and whatever other weird stuff has been going on. As wages haven't been increasing quickly, and neither has the population, there really isn't any reason for believing that the intrinsic value of housing has increased 40-100%. If at some point in time someone can come up with any quantitative or qualitative evidence that indeed there has been a value change then maybe I an others might believe it. Until then, arguments such as; it is what it is, it's different this time, the last 5 years extrapolated says this, housing never goes down, housing is always a good investment and many other unqualified statements just don't wash.
For this reason, an argument against the existance of a bubble, is an argument against a crash to us bears.
OT, why suddenly on my last post did carriage returns suddenly start working? |
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
Ummmmmm ... I have no idea why they started working.
On Bertuzzi: after a while, there was no answer left to give to the same question. Would he do it over again? No. Did he regret it? Yes. (I think most likely is closer.) Does he find it fair he's able to play when Steve Moore isn't? Probably. After the 3,247th time someone asks you the same question it's not worth answering any more. And this is coming from a long-time, part-time sportswriter whose career depends on such mindless drivel.
Of all your arguments at the end, I've not personally used any of them (except for "it is what it is.") Others have, I know, but I'll only defend me now. Let them defend themselves.
Ultimately, sd has it correct ... the market will determine the value. Not appraisers (though they seem to think they do) not real-estate agents (who often wish they could). But the buyers and sellers agreeing on a price. Whether it's today's price, higher or lower ... who knows.
The one downfall of analyzing trends is in many, many cases it's impossible to see the full trend until it ends. |
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by Okanagan Realist |
I can agree with you on that. Trends don't really mean all that much, and even when they do show something, it is not always true. Case in point, I have a buddy who is in financial advising. I would never take his advice because he knows next to nothing about the world, or how it works. He keeps telling me that variable rate mortgages outperform fixed. The trends show this, but there are many times over the last 70 years when this was not true, most notably at the bottom of rate troughs.
I really felt Bertuzzi got a bum wrap in the media. Judging the outcome and not the crime doesn't make much sense. Is drinking and driving less wrong if you manage to get home accident free? I guess society decides! Anyway, some talk of Bert retiring anyway because of his chronic back problems. Too bad because I liked him. |
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Nov. 20, 2006 - re: Popping the Bubble |
| Posted by Jonathan Dalton |
Are you up in Vancouver, Okanagan? The thing with Bertuzzi is he was built in the Gordie Howe mode ... clearly not the talent, but the soft hands around the net combined with the ability to clean up a mess when needed. That was what differentiated him from someone like Breshear (ironic that he took the shot versus giving it) or even a McSorley, who served little purpose other than to serve as personal protection on the ice. He was a complete player who made one very, very stupid mistake which was compounded by the way Moore hit the ice.
Trends have meaning in context but in little else. Trends tend to lead people to try and time a market, whatever the market maybe. In the stock market, study after study has shown it doesn't work.
Real estate is different primarily because we're discussing something more personal - the place where someone will live, their castle, as John phrased it at the top of the discussion. In a perfect world, I'd love to see everyone be able to afford living where they want to live. But it's never been this way. When I was dating someone attending UC Irvine, I couldn't afford California - this was 15 years ago. Without rent control, not many people can afford NYC real estate. Right or wrong, it's the market.
If you're looking to buy, I hope the market allows you to do so and to feel confident in the decision. For such a large investment, it would be a shame to spend every waking moment worrying about making it all work. |
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Nov. 28, 2006 - re: Popping the Bubble |
| Posted by Anonymous |
Myth #3:
The real estate market bubble
is about to burst.
In order for the bubble to burst, there has to be a bubble in the first place. Let's look at what a bubble really is: it's round, see-through, and infinitely expandable. I've never seen a house like that. (But if I did, I'd buy it.) |
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Dec. 16, 2006 - re: Popping the Bubble |
| Posted by Trim |
Hey, reasonable people can disagree about whether a house in the middle of the desert is worth 3 times what it was 5 years ago, but I think we can all agree that you are one fat mother John. Hit the treadmill, man.
Edited by jdalton on December 16, 2006 at 7:38 am |
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Dec. 16, 2006 - re: Popping the Bubble |
| Posted by kacei |
From what Ihave read John:
1. Always likes to tell everyone how "experienced" he is. For me people will repeat what they do year after year. Right or Wrong. I have 40 years of common sense experience.
2. Uses a lot of sarcasum to despell what other people view as common sense.
3. Likes to take the minor non-issue things and make them the issue to try to belittle or degrade other posters.
4. Agrees a little but spouts his same arguement reguardless of the obvious.
5. Bypasses the "tough question" or "resonable" posts choosing not to comment.
I have read books on selling and this guy has it down cold.
I thought to myself while reading his posts where have I seen this type of behaviour before. Then it hit me. I know where I have seen it before.
I was buying a used car. John is a "used car salesman" so to speak. Want to meet John go down to you local used car lot and bring numbers and stats from used cars sales and try to get a good deal. Then come back and compare what John says here to what he said at the used car lot.
Well to cut thru all the long blog and all the rest, you must just ask yourself the question.
Do you really want to gamble with 250K-400K?
Neither side can predict the future. Their is a possiblilty the sun wont come up tommorrow. But based on the billion other times it has, its safe to assume so. GE could start a campaign to sell the "super light bulb" betting the sun wont come up tommorrow. That all good unless the bulb cost $300,000.
The bloggers on both sides can hit or miss. You as a purchaser cant miss once. |
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Dec. 22, 2006 - re: Popping the Bubble |
| Posted by Checkpoint |
Houses are getting too big and expensive.
60 minutes ran a story, claiming that today's houses are three times the size of those built just ten years ago. They said it is a matter of "Keeping up with the Joneses", But I blame the internet.
The internet has several sites which feature home plans for sale. There are thousands of plans to choose from. They are in plan magazines, too.
All of these home plans are trying to get your attention. So to stand out from the crowd, the architects are designing them bigger, just so you'll notice them, and maybe you will buy their home plan.
The answer is to offer more sensible plans for more affordable homes.
How can you do this? How can you offer a plan that is sensible, and still be noticed by the general public?
The answer is to put the plans in stores. Actual plans, and not books with order forms. That is too generic.
Plans should be selected to match an area's demographics. For example, retirement communities down in Florida would have a larger demand for Ranch style homes with handicap access. Cape Cod style homes would be more popular in the New England States. Or a retailer could decide what plans would best suit the needs of his community.
A retailer would, of course, be a lumber and building supply company. They are in touch with builders and home buyers every day. They get the most feedback from today's consumer.
If home plans are at your fingertips, there's no need to order plans. There's no need to look through thousands of designs when you're in the market for a specific type of house plan. It's as easy as selecting wallpaper.
A lumber and building supply company may specialize in one style, while a competitor in another town would offer another. Compare this concept to car dealerships. Some dealers sell only trucks, while others sell sports cars, etc. The customer has an easier choice, and a more focused selection.
The retailer can benefit by including a customized list of materials, which includes the brand named items that he is selling. Instead of simply relying on customer loyalty for the purchase of materials, A customized materials list offers more incentive to continue shopping in just one location.
Architects can benefit by increasing the chances of getting noticed. They could even become the featured designer for a specific store or area. This gives some lesser-known architects the same opportunities as the giants.
If you are worried about copying, building multiple structures, or re-sale, then consider the copyright protection system offered by The Checkpoint Home Plan Distribution System. There's no way to stop people from making copies of your plans, this is true. Print shops have machines designed specifically for that purpose. But Checkpoint's patented system can prevent these illegal copies from gaining a building permit.
So if a builder only buys one set of plans, he will only be permitted to build one house. On the other hand, if he wants to simply study a plan, or have an architect modify it, then he doesn't have to spend a thousand dollars for plans marked "Not For Construction." He could purchase a single copy of the plans for a fraction of the cost.
To learn more, go to www.checkpointhomes.com, or send an e-mail to residentialdsn@earthlink.net.
This may seem like a shameless advertisement, but I do feel it could be the answer to the building bubble's pop.
Roy |
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Feb. 16, 2007 - re: Popping the Bubble |
| Posted by Max |
Ignorance is Bliss:
Anyone who believes that a real estate market with average sales prices well above the housing affordability index, typically being 36/28 percent front end/back end ratios, is either ignorant or delusional. Historically in any sales situation, the buyer must be able to afford the payments of his or her purchase. This has also been typically true in the housing market until the past ten years. It seems that the American consumer has treated its housing market more like Wall Street futures. With so many mortgage programs geared to expected capital gains such as; zero down, no closing cost, interest only payments, negative amortization and so on, there seems to be no risk involved because everything is based on future returns. If only life could be so simple, there is even more pressure on the potential bubble burst placed on the markets from the lending institutions, where they lead consumers to believe that there home is a bank deposit that unless leveraged up too a minimum of 90 percent if not fully capitalizing on the 120-135% leverages that might be available in sub prime markets, you are not reaping what is fully within your right to have. Take that extra vacation, payoff all those credit cards, purchase that new car. All you need to do is set up a cash out refinance. It’s just that simple.
Well for the rest of America, there is a burst taking place right now. It’s in the motor city, that’s right Detroit. Detroit is experiencing hundreds of thousands of job losses from overseas manufacturing competition. As a result, the housing market has gone from boom in the late nineties to current bust. I mean that other then the State of Louisiana who was devastated by Hurricane Katrina, Michigan has more foreclosures and bank owned real estate then any other state in the union. Our real estate market in Detroit is so bad that 30% of current homes sold in the tri county area are banked owned. Many prices of current home sales reflect the prices that they sold back in 1996. The problem with so many bank owned listings is also affecting the traditional home owner that cannot not slash his/her asking price to compete with the bank REO. This downward spiral seems to have no end in sight, with the continued downsizing of the big three automotive companies and all of the skilled labor left to rot like Katrina victims.
It seems to me as I traveled the country side the past few years and listen to the media reports as well as to the political addresses, that no one outside the Midwest knows the pain we our feeling. We are left alone to wade in our misery. We will need to figure out how to pull ourselves out from the flood unforeseen dept. The rest of the United States is doing well, so I read. Watch out America, for what is happening here is only a small caption of what will happen to the rest of you. The question is not when, but how much more effect will it have on a market that showed increases of tens if not hundreds of times greater. Listen and learn.
Max |
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Feb. 16, 2007 - re: Popping the Bubble |
| Posted by Anonymous |
| j d Nice Dog! |
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Feb. 17, 2007 - re: Popping the Bubble |
| Posted by Anonymous |
| Hi I am a real person a real estate broker from MIchigan with friends and family in Arizona. I love your bubble article. Found it off a link on my real estate pages here. I am forwarding your pages to my daughter who is looking to move. You sound like you have your stuff together. Thanks for a good article including a laugh or twoalong the way |
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Feb. 17, 2007 - re: Popping the Bubble |
| Posted by jae |
Hi I'm also a re person. I've moved from Ca & AZ.. Cannot afford to retire there, both places. Took up RE sales here in MO. I loved the East Valley. Lived out west for almost 20 years. We made a killing on RE sell of house in East Valley. Took the money and ran. My children still live there and have low to medium paying jobs.But ,they'll never be able to afford to buy their own home now, due to prices have skyrocketed there. The jobs pay so horrible even with education degrees. Saddened to say they'll be renters for a long time. 2 bedroom apt cost 1150.00 plus pay most utilities. They said some of their friends bought houses with no down and 3-1 loans etc.They have very far commutes and hate the drive. I tell my kids to hang in there ,cuz there will be a lot of empty homes soon. Just like the housing market in the 80's. Remember Moreno Valley,CA. in the 80's?
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Jun. 15, 2007 - Realestate |
| Posted by johnsons |
good gracious! thanks for this informative information.keep it up,goahead.
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