#94 I feel your pain too I make over 6 figures and I can’t afford housing for my family as well. I am waiting til after 2009 to decide what to do. The houses here are so much smaller for your money and less land compared to the MD, VA area. My wife and I are giving it 2 years here and then I may move back to MD where all the Fed/defense contracts are and where my company seems to fly me out 1-2x a month.

About August of 2007, the data departs from the historical trends, until this year’s MOS numbers are at least double the seasonally adjusted historical trend.

Keep in mind that March has usually been the yearly minimum of MOS so we can expect MOS to hold or grow through the rest of the year.

I wanted to look at seasonally adjusted MOS because some people were touting the drop in MOS this year from Jan to March as a sign that the market has hit bottom and is recovering. Well, a drop occurs from Jan to March every year, and this year the drop is actually *lower* than usual.

If the higher powers are watching, I suggest adding the MOS chart to the monthly report, because I think that chart really tells the story.

We are entering a recession. The DOW generally drops 30% in a recession before it will start to rebound. That puts the DOW at around 9k-10k before you can hope that it will come back up, and that is assuming this is a moderate recession. Home prices also drop in a recession, but not by as much. What exactly is going to levitate home prices? Magic? Willful ignorance? It was easy to levitate them when banks were willing to lend $800k to Jack in the Box workers. The only thing left now is seller capitulation, and buyers have the ability to wait much longer than sellers do.

WAMU will be happy to stay in business; and will probably be very careful with their found money

I doubt that the new cash infusion will help WaMu all that much. WaMu’s liabilities are so huge that even $10 billion won’t save them from a deeper real-estate downturn. Just look at how other major banks are still scrounging for even more capital infusions after already getting additional billions in recent months (Citigroup for example).

Unfortunately, the value toxic assets on the books of many banks are so massive that they would require cash infusions of an order of magnitude that no one has yet contemplated to really stop the bleeding.

Please, no more straw men. The first few times, they were mildy amusing. Now they are just tired and old. Just about everyone here on this blog predicts that residential real estate will return to a level supported by fundamentals, and that we are not even close yet. That clearly does not require the Dow to drop 7500 points nor does it require WM to completely fold.

By the way, where did you pick up the term ‘doom and gloom’? It’s funny, I only see it used by those heavily vested in real estate.

explain to me again how market confidence have to do with overpriced houses.

imagine WAMU didn’t fail, and the DOW didn’t drop to 5000….

what if the FEAR has gone too far? what if the pendulum is swinging back?

no 50% discounts on houses yet? this just can’t be.

Half of this stuff is just self-fullfilling prophecy. If the market gets confident again, this whole bad news thing is over.

Monday April 7, 7:27 am ET

Washington Mutual May Soon Get $5B Infusion, According to WSJ Report

Until I bought a house I was of the same mentality as the grad school person you mention – not quite as much education as he has yet, but getting there as well.

Housing has been a relatively good investment over the last 10 years in most metropolitan areas, so it’s easy to see where his perception is based. He just hasn’t done the research on the current state of the economy/housing market.

I’m glad my house finally sold in February – back to the land of cheap rent for me for the next year or two until the market improves.

Average annual percentage change over the two years owned, taking into account tax benefits, cost of updates/repairs, sales costs, was 5.8% increase per year – which was near-as-makes-no difference equal to my 401k and other investment earnings over the same period.

Now in a flat to declining market it’s definitely the smarter investment to rent cheap and be smart with the extra money (not to mention extra time – no bathroom remodels or grass cutting anymore)

Sure, it may be a pain to move every couple years, but that just makes you more acutely aware of how much random crap has accumulated so you end up spending less money on stuff as well.

http://graphics8.nytimes.com/images/2008/04/05/business/graphic.xlarge.jpg

That example was referring to Enron, Bear Stearns, and hundreds of companies that have disappeared over time.

Exactly.

Would someone tell me where you can invest a $1,000.00 and 44 years later have it multiplied 660 times.

Sure, that same year, in 1964, you could have bought $1000 worth of Berkshire Hathaway stock and never sell a share and it would be worth $8.72 billion now. Much better than that real estate investment you mention. Does that mean I should drop $130,800 for one share of their stock now? Not necessarily. Who knows if they’re stock will continue to rise at the same rate, with Warren Buffet 77 years old and surely not going to be around much longer to run the company.

It’s easy to go back and see what a good investment would have been 44 years ago, but what was a good investment 44 years ago may not continue to be a good investment for the next 44 years. That’s why you should have a diversified portfolio, rather than put all of your eggs in one basket (and borrow other’s eggs at that) betting that a house will be a great investment

Since you had this great knowledge and bought real estate 44 years ago you must have stopped having to work a long time ago and are sitting pretty for retirement with millions in the bank, right? Or did years and years of property taxes, homeowners insurance, mortgage, maintenance, and other expenses that come along with your real estate investment slowly eat away at all those earnings?

Real estate is not an investment, unless you are buying rental properties. When you buy an expensive home to live in, it is the opposite of an investment, it is increased consumption. You are trading off increased living expenses for an increased quality of life, nothing more.

Stocks up 10% annually, and real estate 3%? Not in my lifetime, and I’m not young.

The point on Warren Buffet is that all assets in a declining market are not overpriced. That’s how he made so much money. Are you suggesting that you could have helped him get better results through timing? Why didn’t you?

One more note about risk; with real estate you have location and market risks, but you do not have to worry about a well schooled cadre of professional managers siphoning off millions as they utterly destroy the value of your asset.

That example is only true if you invest in some mutual fund with huge expense ratios. Anyone who knows what they’re doing would avoid that. I find it annoying when people compare stocks and real estate but only really know how one of them works.

With real estate however, you have monthly payments you have to make, that essentially “siphons” off your asset as you describe. You have taxes, insurance, maintenance, repairs, and the stress that your huge leverage will backfire in the form of negative equity.

Assume Couple B’s diversified stock portfolio drops 100 percent instead of 30 percent. Poor couple B loses every penny of their savings (100K). They are still better off than Couple A!

Couple A’s out $150 K, meaning their life savings are now negative $50K. If they are forced to move for whatever reason that’s bad news. All because they took on a lot more risk than couple B.

Of course, the right assumption for this example is a 30 percent drop in each case since as you say we can’t predict the future. If we were to try to predict it, in the past the stock market has on average gone up around 10 percent a year whereas real estate has gone up more like 3 percent. Is even 3 percent a year likely moving forward short term? Time will tell…

About Warren Buffet, yes it’s also true for stocks. If a stock sector is expensive now and the stocks in that sector are dropping, then it’s better to wait to buy when there’s a bottom.

DJO – upon rereading, I see what you are saying. The term “…median year-to-date price of a house…” is vague enough so that it could be interpreted as meaning asking price, assessed value, or sales price. The newspaper version of the article had a table right above the quoted statement indicating March sales prices for various locations in Kitsap. That lead me to believe they were referring to sales prices. I think it a bit misleading……

Really? Does that also hold true for stocks? If so, someone should smarten up that Warren Buffet guy.

Also, couple A and B represent a false dichotomy. To do a reasonable analysis, you would need to assign probabilities to those outcomes (and to the alternate outcomes as well). I am sure we would handicap this very differently, but a world where Greenlake homes are dropping 30% is either experiencing a Seattle specific disaster, or a financial markets problem of much larger scope.

One more note about risk; with real estate you have location and market risks, but you do not have to worry about a well schooled cadre of professional managers siphoning off millions as they utterly destroy the value of your asset.

In a declining housing market all housing is overpriced, by definition. If there are relative “bargains” today, there will be bigger and better bargains in the future. Right?

And again the main point stands: the bigger risk to your savings right now is buying a house, not buying stocks if you assume both could decline this year. Couple A or Couple B, who do you want to be?

Couple B) Rents and waits. 100K stock portfolio drops 30K. Too bad! Couple B still has 70K in the bank ready to invest in either stocks, bonds, or cheaper housing.

WTF?

Real Estate is really a no brainer. Anybody can come out ahead in Real Estate. You don’t need as much analysis to see a good property, buy for a good price, and sell it for a profit.
For all the market timing in the world, or guys selling market watch daily, there is a higher risk in stocks than buying a high quality property in a good location for a good price, or better, cheap price.
Another thought that’s been in the back of my mind is about the supply and demand argument of Real Estate. Every property is for sale at a price. Real Estate agents go out every day looking for properties to list for sale; why don’t you?
I’ll bet in two weeks you could find a home for a price you would think was a bargain. Just because the NWMLS has a list of houses with pricing attached doesn’t represent the true market place because any one will sell, or wants to sell, or needs to sell for the right price,
If you really want to put $100K down on an over priced piece of property that’s your business. I don’t buy over priced properties. I buy for cheap. If it’s not cheap, I don’t buy it. If I can’t sell the day I close, for a profit, I don’t buy it.

Magnolia: In both scenario A and B it’s the exact same doom and gloom scenario with the 30 percent drop. The only question is where is there more risk?

Of course, the actual doom and gloom people are experiencing these days is not after putting 20 percent down like my example. More like 5 percent down for a loss of $150K on that $25K investment.

Interest rates? Might go up or down. See Japan. If you bought in King County last summer based on the assumption that they were headed up…oops!

If we’re talking long term, stocks are a better investment and that is just a fact, although I agree that owning your own home is a good idea and a good thing.

……The median year-to-date price of a house in Kitsap County in March was $350,000, a mere $100 higher than in March 2007. But the median condo price tumbled 23 percent to $335,900, according to the service…..

If you look at the NWMLS stats for March in Kitsap, the above quoted numbers are not even close to what is listed at the NWMLS website. How do they get away with printing such blatantly false information? Unless I am missing something, apparently the Kitsap Sun and people of the Real Estate profession believe that they can claim any crap they want, irregardless of what the truth may be. They also appear to be unconcerned as being perceived as liars at worst or incompetents at best. Or maybe they just believe the public to be too stupid or apathetic to check the details for themselves. It is articles like this that exemplify the reason why printed media is dying.

Kitsap Home Prices Stay Steady as Inventory Mushrooms

NORTHWEST MULTIPLE LISTING SERVICE: (CONSOLIDATED) STATISTICAL RECAP: Month of March 2008
..

More control in real estate than stocks? Only if taking on a lot more risk is a definition of more control.

Couple A) puts 100K down to buy that lovely 500K house in Greenlake. Market drops 30 percent. Translation: a loss of $150K on their $100K investment. Next stop: public housing?

Couple B) Rents and waits. 100K stock portfolio drops 30K. Too bad! Couple B still has 70K in the bank ready to invest in either stocks, bonds, or cheaper housing.

Real estate is a terrible investment compared to the stock market with the exception of a few anomalous years and places. This isn’t news. In 2008 it’s just a crazy bet even if you plan to live there for 30 years.

Both Seattle newspapers come out swinging today for the real estate industry. Quotes from tongue-waggers with clear conflicts of interest when it come to telling the truth. With recession looming and inventory skyrocketing, we’re hearing optimism? All the spin just delays the inevitable.

George what about the scenario of couple A makes “x” and locks in a fixed rate payment. Couple A is under 30 and X in a few years becomes x * 1.5, but they still have a fixed payment. Couple A rides out the market and has no worries because their payment is locked and they can ride out the storm. In 5 years couple A sees the market come back but interest rates increase. Couple A kicks up their feet and keeps on the sub 6% mortgage payment in that same house and lives happily ever after. Where do those scenarios play in?? All doom and gloom huh?? lol have fun

Nobody would ever say stocks are “risk free” but a LOT of people believe real estate is relatively risk free. You hear it all the time. Couple A in my example above probably believed it.

Yes, couple A’s home value won’t go to zero, and at least they have a roof over they head. A roof that they will have to pay to fix when it leaks.

Except they can’t get a home equity loan to do it because they just lost 150K on the 100K they put into their house. Call it an investment, call it anything you want. The result is the same.

The stock market and real estate from The Tim’s data appear about the same. A Recession destroys both at about the same rate.

What to invest in now? Hades if I know, I’d say Money Market or CDs, but the interest rate after taxes is so low with bailouts to the subprimes, a mattress is a better bet? Gold?

http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vrYRnlw1Rv.Y.asfd

In fact he is predicting that the US will lose it’s place as the world’s financial leader.

I’ve continually predicted the home values would drop by an average of 10-20% by the end of this year from the peak home values.

In some neighborhoods, home values have ALREADY dropped 10%

At my mortgage company, we often have to tell people that their home is worth less than they think it is.

That’s because we deal in real world real estate, not statistics (no offense, Tim).

The reality is that home values are down significantly in many areas of the Puget Sound region, notably the Puyallp area and Thruston county.

The one part of that article that is correct is that homeowners hang onto the peak value of their homes as its “true” value.

My prediction is that most neighborhoods will retreat to their 2005 values and remain flat (little to no appreciation or depreciation) for the next few years.

I understand why the real estate industry likes to push the fallacy that home prices are still holding, and in some cases even rising, based on the mystical “median home price” — but try telling that to somebody who can’t refinance their home because they now owe more than its worth because home values are down 8% in their neighborhood since last summer.

We see that every day.

This is nothing new, we are just on the downhill side of the normal real estate cycle. Most of the “correction” will be over by the end of this year, although I think we could see further value drops next year if home sellers try to hang on hoping for a return to the “good old days” … because by next year even the most diehard holdouts will have to admit that home values have dropped.

More control in real estate than stocks? Only if taking on a lot more risk is a definition of more control.

Couple A) puts 100K down to buy that lovely 500K house in Greenlake. Market drops 30 percent. Translation: a loss of $150K on their $100K investment. Next stop: public housing?

Couple B) Rents and waits. 100K stock portfolio drops 30K. Too bad! Couple B still has 70K in the bank ready to invest in either stocks, bonds, or cheaper housing.

Real estate is a terrible investment compared to the stock market with the exception of a few anomalous years and places. This isn’t news. In 2008 it’s just a crazy bet even if you plan to live there for 30 years.

Both Seattle newspapers come out swinging today for the real estate industry. Quotes from tongue-waggers with clear conflicts of interest when it come to telling the truth. With recession looming and inventory skyrocketing, we’re hearing optimism? All the spin just delays the inevitable.

I think that Seattle is now an official member of the bursting bubble party. Congrats Seattle!

I believe the demand for housing in this area (and around the world) has been artificial. The real estate crash is front page news in Spain, Australia, England, France, and Denmark. The run-up everywhere was greatly exaggerated. It seems to me that the demand was just ordinary people buying homes much more often than they normally would. There will always be hot areas, but that will only equate to certain areas holding their current value. It may turn out to be tough to predict which areas are a good bet long term.

I take it you are being sarcastic and implying that houses are as affordable as when 100% financing was available and borrowers didn’t have to prove their income? And also that home prices are plummeting even though interest rates are very low right now? So now is a terrible time to buy because market conditions are being driven by a force other than affordability relative to the peak. I fully agree, and I’m holding off purchasing a home until the Seattle market corrects.

Interestingly, I work as a computer programmer for Washington State Employment Security. A few weeks ago, I was in a meeting with a lady in upper management who has worked there for over 40 years. I mentioned that it appeared our country was entering a recession and it seems strange that jobs were so strong in Washington state in light of what was happening across the country. She replied, “Washington has a history of lagging the rest of the country in recessions.” I don’t know if that is true or not, but the other old timers at the meeting agreed with her. It would be interesting to see the numbers and determine if this perceived lag is a real phenomenon. And if so, how meaningful it is in today’s market in light of the fact that the Washington economy is more diversified than in the past.

I am in an interesting situation that I have not seen discussed elsewhere in relation to the currently imploding real estate bubble. I own a piece of undeveloped land that I am thinking of building on. Can you guys see a downside to building a house on the land right away? It seems to me that interest rates are low, materials probably aren’t going to get cheaper, and labor is going to cost the same as if I wait.

I can perceive that it might be better to wait and see if the market over-corrects because that’s a good time to pick up cheap deals in the existing house market (buy instead of build). But as far as building a house, if interest rate go up, it could be significantly more expensive to build in the future. This seems strange to me, because as existing homes plummet in price, the actual cost of building the same home is going up. I guess that this means land prices are plummeting and actual home prices are holding steady? I don’t know, what do you guys make of all this?

Thanks!