One of the topics we touched on during yesterday’s Rain City Radio conversation was when and how to catch the bottom of falling house prices.
I’m not personally obsessed with catching the very bottom, but I also am not interested in buying something less than ideal that I can barely afford based solely on a false notion that prices will keep rising, only to have them drop another 10-20%. I outlined one possible strategy in this post, where one would wait for three years or 6 consecutive months of price increases, whichever comes first.
Reader Sniglet pointed out a possible flaw with this strategy in yesterday’s comments:
Personally, I would suggest waiting for more than 6 months of consecutive price increases before buying, as Tim suggested (if you are trying to time the market, and buy at the bottom). If you look at Japan’s price decline in the ’90s there were some periods where prices seemed to have stopped dropping for about a year, but yet the decline continued anyway.
One thing that is consistent at all housing downturns is that it takes years for prices to really pick up significantly. My advice would be to wait until it looks as if prices haven’t declined anymore for a couple years. There is certainly no rush to jump in once a market has hit bottom, so patience is the best policy.
There certainly exists the possibility that there will be “false bottoms” that last longer than six months. How long you set the horizon is really a matter of your personal assessment of the risk.
What it really comes down to for me is this: “can I afford a decent house that I will be happy with long-term at today’s price?” If the answer to that is yes and I am comfortable paying today’s price knowing that I could possibly get a better deal by waiting, then I’ll probably buy anyway—bottom or not. For my family, I expect that time will probably come around 2010, even if prices are still declining.
So what is your strategy? Are you waiting for a specific price point, or are you more interested the overall direction of prices? Or perhaps something else entirely? Let’s hear your suggestions.
Buceri » Jul 2, 2008 at 9:57 am
When all monthly household expenses (plus mortgage, of course) can be paid on a single income.
Ichiro Vader » Jul 2, 2008 at 10:04 am
I pretty much agree with Tim’s plan on this one. Wait a few more years, if financially it is doable, and we plan to stay long term. Then go for it. And 2010 sounds about right.
However, if they increase the quality of the free women that come with houses, I might move sooner.
Sniglet » Jul 2, 2008 at 10:14 am
I completely agree with Tim: the time to buy is when you can find a house you like that EASILY fits within your budget. In my view, this ideally means that you should never incur debt (including credit cards, car loans, mortgages, etc) greater than 3 times your annual income. If prices keep falling, so what?
My earlier comments about waiting for a couple years was specifically around the subject of timing the bottom. Personally, I don’t plan on timing the bottom. However, if that is your goal (i.e. timing the bottom), then I suggest that patience is the best policy, and you should wait to see at least a couple years of no more price declines before jumping in.
vboring » Jul 2, 2008 at 10:16 am
normal market movements don’t bother me, so i’d normally buy when my family situation made it worthwhile.
this has been an unprecedented event. once the rapid price drops have passed and my family situation justifies buying, i’ll buy even if i expect slow price drops to continue.
according to the price history charts from the past several decades, house prices more or less follow the waveform you would expect from an LRC circuit responding to an impulse. it rapidly approaches the asymptote on the way up and down. so, if you miss the rapid part on the downside all you have left is slow decay towards the asymptote. and that part doesn’t bother me.
Joel » Jul 2, 2008 at 10:17 am
I’m waiting for the monthly carrying cost of owning (PITI plus maintence) to be roughly equal to monthly rent on an equivalent place.
jon » Jul 2, 2008 at 10:28 am
The strategy of looking for a certain pattern in the price history is assuming that housing prices follow a certain cycle. That’s a reasonable assumption. In the stock market there are no cycles like that, but buying stocks is still a good investment for many people. Of course a 20% or more bear market comes with the territory from time to time. If you have the risk tolerance to invest in a home, you can use the same policies for picking companies as for picking a house or picking a time to buy. The benefit is you enjoy the comfort of owning a home sooner and perhaps a financial benefit of a good investment.
So if you don’t want to arrange your life around ups and downs of the RE market, just look for a market price that a lot of people can comfortably afford in an area that has appeal to businesses starting and growing. You might lose money on paper for a while, just as you often see a loss for a while after buying a good stock. But after a few years a wise investment makes up for that.
The Tim » Jul 2, 2008 at 10:39 am
I should point out that while the average American family allegedly moves every five years, my parents bought their first house when I was seven, and they lived there for 21 years (paid it off entirely in about 20). They would still live there today, but the county came in and bought them out. They moved a bit further out and still have no mortgage.
So I realize that I’m coming from a slightly different perspective than most people.
dk » Jul 2, 2008 at 10:47 am
Shouldn’t the decision be partially based on how interest rates are expected to change? A 1-2% increase for the interest rate can easily offset equity captured by waiting for prices to bottom out. Conversely, a period of low interest rates could be more profitable, even though prices may continue to slide downward in the future.
My point is that looking solely at price fluctuations is deceiving when you’re concerned with total out-of-pocket cost.
jesse » Jul 2, 2008 at 10:49 am
I’m with Joel but am more cutthroat about it. Wait until rents are 5% or so more expensive than owning. Landlords make money by charging a premium to rent versus own.
Soda » Jul 2, 2008 at 10:53 am
My strategy is a mixture of having enough savings and gauging the market psychology (based on my subjective opinion). The basics would be to save a downpayment of at least 20% + have an emergency fund + have funds for remodeling should that be necessary. At that point, I’ll consider buying something that’s affordable for my income.
Besides that, I’m looking for the market to go through the bubble cycle through denial, fear, desperation, panic, and capitulation. Right now, I think we’re in between denial and fear, and I’m aiming to buy around the panic cycle when people start to feel absolutely sick over real estate.
I could certainly pull the trigger early should I meet the financial goals above and feel like I found a house we can live in for a long time.
softwarengineer » Jul 2, 2008 at 10:54 am
I BOUGHT MY SECOND HOUSE IN 1999
I purchased a home for about half what I could afford, as I figured the housing bubble to pop in 2003 [I was off about 3 years] and felt buying too much house was like buying too much stock in 2001 and today. A big potential loss. to avoid. Buying a McMansion today is like holding on to Ford stock.
A plus, my present home is about as cheap as homes get in King County…..meaning, I’ve cut my base losses and I have a chance of selling it [with minimum loss] to a Middle Class household [not two or three household incomes to qualify as banks tighten up and interest rates sky-rocket].
Another plus, I paid the principle off in 9 years.
biliruben » Jul 2, 2008 at 10:57 am
My less-than-optimal strategy is to low-ball a few houses that have been on the market come fall/winter, then get serious and get the best house we can afford, based on what sort of down-payment I’m comfortable with and what interest rates are at, in the spring of 2009. I fully realize prices will almost certainly continue to decline after we buy, but that’s the situation I’m in family-wise.
My optimal strategy would be to buy as soon as SD prices see YOY increases.
The only way I could work the optimal strategy would be if the housing market got so disastrously bad in the next 6 months that it scared my wife into not only not wanting to buy, but refusing to buy.
Eric Arrrrr » Jul 2, 2008 at 10:59 am
When rent prices achieve parity with the monthly payment on an ~85% loan-to-value fixed-rate mortgage at current interest rates, it’ll be about time to buy.
I’m not dead-set on 85%. It could be 80% or it could be 90%, depending on other factors I’m still looking at.
But just for comparison, the monthly rent on the condo I now occupy is equal to the mortgage on just 68% of the price my landlord paid for the property in May 2008.
David McManus » Jul 2, 2008 at 11:01 am
“However, if they increase the quality of the free women that come with houses, I might move sooner.”
Some of those real estate “professionals” may come included with the sale of a house. There’s a few I’ve been eyeballing. ;-)
palm » Jul 2, 2008 at 11:14 am
My plan here in San Francisco is pretty simple, and that’s not to think about it until after (a) my son goes through the SFUSD school lottery and we figure out whether he’s was assigned to a school we can walk to–if so, we’ll stay in the city, and if not, we’ll have to buy a car anyway, so we might as well move to Marin where he can go to a fantastic local school sans lottery and (b) I am promoted and qualify for my employer’s 3% interest rate/90% LTV mortgage program for first-time buyers (they also offer a 100% match on downpayments). According to my department head, that will happen around 2010-2011. Our circumstances are unique, obviously. But the timing seems to coincidentally sidestepped much of the bubble froth. And even desperate real estate agents have been hard-pressed to come up with a reason that we shouldn’t wait to buy (e.g. “But prices are still going up in the city!” “Fast enough to make it worth taking a mortgage at 7% instead of 3%?” “Umm…”). When that day comes, we’ll have to see whether rents are still less than half the cost of buying, though.
DavidB » Jul 2, 2008 at 11:14 am
I plan to wait 3 to 6 months and see what’s happening with home prices. If prices look like they’re still headed lower then I’ll wait another 3 to 6 months. It’s important to follow the national as well as the local news. If the country is in a recession, inflation is still rising, consumer confidence is low, and interest rates are increasing it might be best to wait to buy a house because you know home prices will be declining. I think it’s better to pay a higher interest rate initially for a home purchase and get a lower price on the house. You can always refinance later on when interest rates drop.
I agree with you that I’m not trying to time the bottom of the market. Overall if you find a house you like and the price is right then buy it! It won’t matter in 10 years that you didn’t buy when prices were at the bottom anyway.
I’m certain that inventories will continue to build and prices will start dropping more dramatically in the next few months. Most people can’t afford to keep a house that they’re not living in for very long and rental income isn’t going to cover much of the mortgage and other carrying costs.
I expect the market correction to be similar to when the stock market bubble burst. Once prices start dropping off substantially we’ll see panicked sellers who need to sell an investment home race to get ther house on the market as soon as possible to try to minimize their loss. The notion that Seattle is immune to a home price correction will soon be far behind us!
Once sellers stop thinking they’re going to get ridiculous prices for their home and they see prices are going to drop we’ll see the market in Seattle adjust back to where it should be at. It will be 2010 or 2011 before we’ll have anywhere near a healthy real estate market again. I expect the rest of the country will start to improve before Seattle does since Seattle tends to lag behind in economic recoveries.
EconE » Jul 2, 2008 at 11:26 am
I’m waiting for an official Ray Pepper GEM!
He actually has a cool little housebarge that he’s listing…but it must not be much of a GEM as he didn’t buy it himself…not to mention it’s WAAAAAAY overpriced. The pictures that he took kind of sucked too. I would have called him to find out more about it but oh well…you know the Ray Pepper Motto…
NEVER CALL THE NAME ON THE SIGN!!!
S-Crow » Jul 2, 2008 at 11:27 am
Here’s my 2 cents:
If I were buying, I would look at when price reductions are no longer running at about one for every two listings that come on the market. When price reductions started to show in very late 2006 and early 2007, that is when I suspected a top. Since then, we’ve had days where price reductions are exceeding that of new listings coming on. This is something that is rarely, if ever, discussed by the real estate pro’s. And this says nothing about the FSBO market that is not reported.
My sense is that the slowing down and eventual reversal of price reductions scenario won’t play out for quite some time.
Alan » Jul 2, 2008 at 11:29 am
I’ll buy when I can get something I will be happy living in long term that doesn’t cost more than three and a half times my annual income. If that doesn’t happen within three years then I will move to greener pastures.
Bella » Jul 2, 2008 at 11:40 am
In my price range, I am waiting for a house in that range that is LIVEABLE.
By liveable, I mean safe, not a former meth lab, not about to collapse in on itself, etc. Almost everything in my price range is only suitable for tear down.
But I refuse to over extend our budget, and anyway, I just don’t personally believe that I should pay a half a million for a house. I’d rather rent and have some flexibility until something that I could live in indefinitely becomes “affordable”.
TJ_98370 » Jul 2, 2008 at 11:43 am
I’ll start seriously looking to buy six months to a year after real estate prices bottom out / stabilize in SoCal.
Sniglet » Jul 2, 2008 at 11:48 am
One other comment I would make about buying a home is this: don’t buy if you couldn’t stomach a 50% price drop. If you feel that a 50% price drop in a home would cause undue harm to your health and wealth, then you shouldn’t buy.
I actually believe that we are in for just such a significant decline (i.e. 50% or greater) in the next 4 years. However, even at the “bottom” of a market, I think people should ask themselves this question. I think it speaks volumes if a person feels that a major price drop would be unbearable.
The point is that you should NEVER over-extend yourself to the point where a major drop in asset prices would cause ruin. Heck, if a 50% price drop on a home you buy today wouldn’t really matter all that much to you, then go right out and buy.
Ubersalad, Ph.D » Jul 2, 2008 at 12:15 pm
My strategy is simple: When the general consensus is NOT to buy a home, that is when I consider to buy.
Keith » Jul 2, 2008 at 12:16 pm
Couple of comments – other than “softwareengineer”, it looks like all the other commenters are currently out of the RE market…looking to get in. Not a very balanced sample there.
Second, all of the posted strategies are incomplete. Unless your “strategy” is to spend all your money on disposable goods, you simply have to invest it somewhere. The stock market is down 20% in recent months – MORE than the decline in (local) housing values. We all know that the dollar has declined dramatically. Where are these commenters putting their money? Oil futures? As pessimistic as people are about housing values, there is equal – if not greater – reason to be pessimistic about virtually every other asset type. Put cash under the mattress? Whoops, there’s that inflation dragon to eat that up.
Ubersalad, Ph.D » Jul 2, 2008 at 12:18 pm
Keith -
I am laundering it in Canada as we speak!
Curious George » Jul 2, 2008 at 12:19 pm
Tim, what is your dream house or house close to a dream one? There is always compromise. It doesn’t matter how much in the bottom is the real estate. I can also wait for the bottom, but if I feel financially secure I will buy what I can afford. It doesn’t have to be in Seattle or Bellevue, it doesn’t have to be McMansion.
I’ll take into consideration current market situation and decide to wait for saving more down payment or try to really see how much my “dram” house cost. Do you know how much your dream house cost today? Have you seen it? Charts are helpful but hunting for the dream house at perfect price, location and affordability-this is a different one. Again, I’m just curious for what exactly you are waiting for?
Ubersalad, Ph.D » Jul 2, 2008 at 12:21 pm
Tim is living a dream life…
-Rent free
-Work free
Ubersalad, Ph.D » Jul 2, 2008 at 12:24 pm
Oh, and more than half of income from donation…
I need donation…
Matt » Jul 2, 2008 at 12:25 pm
the growth of the view that buying and selling a house is mostly an investment, as opposed to securing a stable place to live while building a little equity, is what has caused the run up in prices. buying and selling houses in hot markets is relatively new, and the result is a volatility similar to the stock market.
Timing is for buying stocks/bonds/etc, not a house. well, that’s the way it was. not anymore.
Sorin » Jul 2, 2008 at 12:30 pm
When the price of a house I would like to live in for at least 10 years comes to within 20% of a comperable fairly priced rental (based on the monthly payment on a 30-year mortgage). I figure that owning is worth that bit of premium to me, but only for a place I really want to live in for years to come, and that doesn’t stretch my budget. Currently, I’d say we have a good 30% more to drop before I start seriously looking again.
Oh, and if that just doesn’t happen, I’ll keep renting.
Ubersalad, Ph.D » Jul 2, 2008 at 12:31 pm
Sorin,
I guess you’ll be renting forever!
softwarengineer » Jul 2, 2008 at 12:38 pm
WHERE TO PUT YOUR MONEY IN TODAY’S HORRIFYING ECONOMY
The bank, yeah that FDIC back up is like 2% of the deposits….
Stocks, they’re bearer than skinny dippers lately….
Gold, at $1000 a ounce or there-a-bouts, I see a supply and demand problem, like lack of money supply reducing demand….
Canned food and rice….yes, stock up bubble heads, you’ll get 10-20% interest on your savings….
Can of cash in case banks close doors….I’d go with two hidden safes, if a robber finds one, you still have the other….
Nick » Jul 2, 2008 at 12:40 pm
For me, it’s going to be a combination of affordability and rent/price ratios. I’ll look to buy a second house when I can comfortably afford the payments within the normal ratios (eg: less than 1/3 gross income). However, I also won’t look to buy until the rent/price ratio drops near (or preferably below) 120; I have high confidence that normal market correction will push prices to that level eventually, barring government interference.
The only variable which might alter my approach is if a large-scale bailout looks imminent (eg: if Obama gives a trillion dollars to speculators and lenders), which would permanently push up house prices at the expense of creating inflation. In that case, I might look to get in before the prop-up if possible, to save some savings from the backside inflation/taxation hit.
Oh, and I would prefer to buy with high rates and low prices, because I can always refi later. I might be willing to go slightly over 1/3 gross income if the rates are high and prices are very low (eg: rate over 10%).
Birdie Num Nums » Jul 2, 2008 at 12:46 pm
Unless I came upon a house that knocked my socks off and had everything I could ever imagine wanting — and thus be willing to pay a premium (i.e., risk losing 20% of its value in a declining market) — I would not consider buying a home until AT LEAST six consecutive months of flat or rising values, preferably one year. I don’t need to “find the bottom.”
economist » Jul 2, 2008 at 12:53 pm
Put cash under the mattress? Whoops, there’s that inflation dragon to eat that up.
If you’re saving money to buy a house, the only inflation that matters is house price inflation. So what if gas, etc. keep going up. If house prices keep falling (and that is a logical outcome of gas and consumer prices rising) you will get more house for your money.
Eric Arrrrr » Jul 2, 2008 at 12:55 pm
Keith @ 24: inflation + a bear stock market doesn’t mean that the case against real estate investment somehow becomes incomplete.
But since you mention it, the other side of my strategy is based on foreign exchange. Inflation has not been a problem for me.
Birdie Num Nums » Jul 2, 2008 at 1:00 pm
P. S., in response to Keith’s question in Post #24, here’s where I’ve had the majority of my investment income for the past 20 years, and it’s been very, very good to me for the past six years or so (26% average annual return for the past 10 years):
https://personal.vanguard.com/us/funds/snapshot?FundId=0053&FundIntExt=INT
If housing values continue to decline, and I find the place I want, I plan to pay cash and not worry about mortgage rates at the time.
softwarengineer » Jul 2, 2008 at 1:01 pm
WATCHOUT ERIC
Even Euros and Yens can plummet with dollar based oil sky rocketing in price causing a worldwide recession; since America’s interest rates are way too low to sustain a dollar value.
Toyota sales are down 20% too, nobody’s buying anything with their cash machines (home equity) butcher axed 20%.
Investing is a shell game, even the billionaire Buffet’s lost 20% since Dec 2007.
Captain Kirkland » Jul 2, 2008 at 1:02 pm
I’ll buy when inventory of homes gets down to a reasonable level in King County (ie. back to 10,000)…Supply and Demand really exists.
Until then, I’m invested in a hedge fund making 20%+….but I am admittedly fortunate to have that opportunity. Caveat Emptor: Hedge Funds are only as good as the team managing them.
Most people should consider AAA Corporate bonds. Returns are around 6-7% right now, and they are virtually risk free.
Birdie Num Nums » Jul 2, 2008 at 1:03 pm
Correct, Eric. I have a portion of my cash in euro-based CDs, and am looking at getting an Australian dollar-based CD (all available over at Everbank.com):
http://www.everbank.com/001Currency.aspx?LinkID=Column
Ira Sacharoff » Jul 2, 2008 at 1:07 pm
If you’re looking to buy a home, it’s unwise to buy it as an investment, especially if you think you might live in it for ten years. but it should be something you can easily afford.
Right now, most home prices around here are unaffordable, unless you make really good money or have a large inheritance.
So trying to time when it’s the best time to jump back in might be wise if you’re looking at it from an investment standpoint, but otherwise it might just do to wait until prices have dropped to the point where the monthly payments aren’t that much more than comparable rents.
Yaoyao » Jul 2, 2008 at 1:19 pm
We are planning to wait 1 year or 2 and see what’s going on. My wife saw statistics that Santa barbara median price fell 50+%. We are not hoping for that kind of price drop, but 30% would be nice.
Palm: What industry do you work in? Is the first time homebuyer loan benefit standard for the industry?
jon » Jul 2, 2008 at 1:19 pm
It would be great if you didn’t have to treat a house as an investment, but the act that it costs so much to live in close proximity to a major job center makes borrowing unavoidable. As such, you have to plan for it in the context of your overall financial strategy. But the nature of transportation, communication, and everything else about urban life presents an opportunity to choose your house partly according to its economic value. To ignore that aspect of it and just buy a cheap house actually puts yourself at greater financial risk. If you understand your local market, there really are sometimes good houses, just like there are good stocks and any other investment, provided they balance with the rest of your portfolio.
Slumlord » Jul 2, 2008 at 1:20 pm
I had a conversation with my parents’ neighbor on Monday about her housing situation. The neighbor is a recent widow in her early 70s. Her income declined significantly with her husband’s death. She wants to stay in the house for a couple of years — which I interpret as part of her grieving process — before downsizing to a condo. However, she does not have a huge amount of equity in the house or savings to maintain it should she live a long time (which seems likely because she is in excellent health for her age).
What I told her is that she should sell her house now and rent for a couple of years before buying a condo. She seemed indignant to the idea of renting; to which I replied that I’m not trying to scare her, but there is a very real chance that her $450,000 house could become a $300,000 house in two years’ time. Given that she still owes around $200,000, and has a limited income and only modest savings, the decline in equity could be financially devastating at a point in life where finding a job is very unlikely.
Jon » Jul 2, 2008 at 1:57 pm
I know that everyone that isn’t in the market is worried that prices will keep falling, but the other aspect you really need to think about is interest rates. All indicators point to higher interest rates over the next year… and here is something to chew on…
For every 1% increase in your APR, it’s worth 10% of the value of your home.
In other words, if you wait till next year when prices fall 5%, and interest rates rise 50 basis points, then you are in the exact same position you are in right now.
Except, if you buy now, you can write off the cost of acquiring the property on this year’s taxes…
Either way, inventory is fantastic, interest rates aren’t going any lower, and it’s a great time to take the homeowner plunge…
Ok, bullet proof vest is on, shoot away!
softwarengineer » Jul 2, 2008 at 2:02 pm
GOOD CALL SLUM LORD
Selling quickly now for 10-15% below the 5-10% drop in prices since 2007 makes far more sense than waiting for a 25-50% butcher axe later. Waiting for the condo price collapse while renting is a good idea too, but supply and demand will keep rents as high as the market’s going to bear…..and that’s not a worry at all, the market can’t bear anymore than $1000-2000/mo for rentals of $300-600K properties in general. That’s got to be like at least 40-60% of the average household net pay for tennants anyway. It can’t exceed that, with gas, food and utilities gobbling the rest like termites on wet wood.
You international stock buyers took massive losses too in general. See the proof (G= CDs/Money Markets, F= Government Bonds, C= Domestic Stocks, I= International Stocks, S= International Stocks):
Returns & Share Prices Current Returns
G Fund F Fund C Fund S Fund I Fund
June 2008 0.32% (0.08%) (8.41%) (7.63%) (8.15%)
Year-to-date 1.79% 1.26% (11.90%) (7.68%) (10.78%)
12 Month 4.25% 7.28% (13.05%) (11.14%) (10.42%)
Numbers in parenthises are losses, remember, these figures exclude bank/broker fees….so your returns will be much lower (or losses much higher).
You see why even financial advisors suggest “cans of cash” lately.
TJ_98370 » Jul 2, 2008 at 2:02 pm
Keith said:
..Put cash under the matress? Whoops, there’s that inflation dragon to eat that up.
In October 1981 when inflation was running at 10.14%, you could buy a 3 month CD paying 16.7% interest. If inflation really takes off again, is there any reason to not expect a similar repeat?
[troll] » Jul 2, 2008 at 2:48 pm
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Keith » Jul 2, 2008 at 3:14 pm
>> I am laundering it in Canada as we speak!
Off Topic: Check out the Canadian series “Intelligence”.
>> If you’re saving money to buy a house, the only inflation that matters is house price inflation
Yeah, but if you _have_ a house (my point, actually) and are paying for it with a fixed-rate mortgage it works out a little differently. Of course, if you have to sell during a period of high inflation (and high mortgage rates) you won’t be that happy.
>> In October 1981 when inflation was running at 10.14%, you could buy a 3 month CD paying 16.7% interest. If inflation really takes off again, is there any reason to not expect a similar repeat?
I would certainly expect a similar situation, but do you remember how happy those folks were then with their 4% fixed mortgages? Actually, I have completely lost track of whether any current mortgages are “assumable”…
Still, if you truly expect inflation to take off, it’s hard to imagine a better investment than a fixed-rate mortage against a small down payment.
>> Either way, inventory is fantastic, interest rates aren’t going any lower, and it’s a great time to take the homeowner plunge…
I personally could really go either way on this, but in investment advisor terms I’d say that real estate is currently a “hold” proposition (as if you had a choice!). I’m not sure yet whether it’s a “buy” locally (I couldn’t even hazard a guess about other areas of the country), but I do agree partly with Tim’s earlier ananlysis that the risks of missing the bottom compare favorabley to the rewards from picking it correctly.
Amy M » Jul 2, 2008 at 3:14 pm
I’m not completely out of the real estate market. I bought some ocean view property in Brazil last summer. Their market is on fire and is still cheap.
My next move is here in the U.S. so I’m saving lots of cash. We sold our home last Spring before we moved here for top dollar, even though it was starting to get chilly in the market place. I’m renting now but I’m planning on buying a house sometime next Summer, probably a foreclosure. (I won’t buy unless I can hedge another 10-15% down off the already discounted price).
Next, I’ll buy a cute condo in Hawaii in another few years when the recession is at it’s worst. I’m young so I can take those kinds of calculated risks.
As for stocks, we’ve finally hit a bear market. I can’t wait to start picking up the bargains. I moved 30% of my portfolio into cash last year. It was hard to look like I was standing around with my hands in my pockets. Now I look like a genious. This is what I’ve been waiting for. Great dividend stocks at cheap prices.
Oh yeah, did I mention I locked in my rent for two years and after Sept. I’m month to month so I don’t have to worry about breaking a lease when I find what I’m looking for. And, my biggest monthly expense is inflation proof, at least for now.
When we moved here last year everyone said I had to “hurry up and buy something before I was priced out”, but I felt convicted to hold out. I’m glad I did. I can’t pretend renting is fun, but it’s paying off.
Real estate will come back someday and be the “it” investment again. Just wait another 12 years.
Also, I don’t think you can compare our real estate market to Japan’s. They have had a declining population for a number of years, so less buyers, and it’s much harder to buy real estate there than here. Don’t forget, when the YEN was so strong in the late 80’s they bought up Hawaii, Manhattan, and other places like crazy. The Brits love Florida too so don’t count it out yet. You may also see some Canadians taking advantage of their strong currency too.
vboring » Jul 2, 2008 at 3:19 pm
Nostra"golly"Us,
first of all, the statement was “knowing that I could __possibly__…”
this is completely non-committal. I know that i could possibly sprout wings tomorrow. so, if you wanna play semantics, you have no ground to stand on.
secondly, given that housing prices have a lot of momentum to them and numerous other technical arguments covered here, one can be reasonably confident in a belief that prices will continue to fall for some time.
but, that is all. markets of all varieties are only partially determined by technical factors, so one can only ever be reasonably confident of what will happen next.
Joel » Jul 2, 2008 at 3:25 pm
It it doesn’t happen I’ll move to someplace where prices dropped 75% (SoCal, Florida) and bask in the sunshine. Cue the trolls that say those places don’t have jobs…
BubbleBuyer » Jul 2, 2008 at 3:39 pm
You all should put your market timing expertise to work in the stock market. Forget about real estate, you should be able to retire on your stock market profits…you know, by buying low and selling high time after time after time!
Empirical research has proven that it is impossible to time the markets. If you think you can then you aren’t very smart or you are just gambling on sheer luck. A better approach is when the time is personally right to buy, look at the macro economic trends and make an informed decision whether to buy or defer purchase. The “don’t buy until you have 6 months of flat prices or appreciation” is just BS but it sure filled this thread!
EconE » Jul 2, 2008 at 3:40 pm
Joel…you don’t want to live in the areas in SoCal where the prices dropped 75%+
trust me.
But give it time.
Jobs? Who cares! They’ve got surf.
Joel » Jul 2, 2008 at 3:43 pm
Thus every 1% increase in APR will cause prices to come down another 10%. People are (almost) back to being constrained by what they can afford on a month to month basis using a reasonable loan. If something like interest rates causes a reduction in affordability, the number of people buying will be reduced also, putting downward pressure on prices.
Joel » Jul 2, 2008 at 3:47 pm
My grandmother used to live in Long Beach so I know what the bad areas of SoCal are like and a lot of the areas that have seen big declines in the vicinity of San Diego look nothing like that. At least according to the posts over on BMIT.
B&W Nikes » Jul 2, 2008 at 4:11 pm
My wife and I just bought, (we were going to wait a good while but a very unique situation presented itself that would sound crazy to many people) and in biting down hard we are going to be hanging in there for the ride. As total noobs to the whole thing (minus some education I get around here from y’all – thank you very much) our strategy is to steer clear of landmines and continue our education in “to the bones” remodeling while considering zillow-like wealth-o-meters only at face value for the next 5+ years.
One thing I am really curious about that appears murky in the crystal ball is whether the declining value of a dollar plays into pricing in as noticeable of a way as interest rates may. Just using grossly underestimated gov inflation stats from bls, 300,000 2003 dollars is about 353,000 2008 dollars. When combined with rising interest rates, the monthly payments may not be all that different in the next several years, even if asset values are appraised at lower figures. Being a noob home debtor, I am no authority – just highly curious. Any thoughts on that?
EconE » Jul 2, 2008 at 4:22 pm
Joel…I have my eye on Long Beach also…not very familiar with it other than the fact that the Congresswoman is a joke with all her houses in default…anything I should know about the beachfront condo scene and the surrounding areas? I’d apprecate any advice you have. PM me if you want.
I also should have been more specific with my response WRT some of the super hard hit areas….I was speaking more about Los Angeles. My Bad.
TJ_98370 » Jul 2, 2008 at 4:54 pm
B&W Nikes – I’ve long been a believer that the housing price correction will be an interplay between deflating bubble prices, inflation, and increasing interest rates. I don’t think anyone can accurately predict what the end result will be.
An interesting oversight with respect to above comments is that nobody considered the possibility that some bubbleheads may actually be able to pay cash. If you are able to pay cash, why would you care about interest rates.?
cheapseats » Jul 2, 2008 at 5:30 pm
Based on this guys analysis – http://www.bergenjerseyforeclosures.com/blog/info/entry/where_should_house_prices_really
Housing should be near 3 times median income.
Median KC income = $67K * 3 = $201K (wiki data on KC median)
KC Median house price in April = 400k ish
Even with the Seatlle area premium that is a big delta. Holler if my understanding is wrong?
obelus » Jul 2, 2008 at 5:54 pm
cheapsets,
Sorry, but I think the median KC salary is around 45K – 50 K.
Anyone know differently?
TJ_98370 » Jul 2, 2008 at 6:05 pm
cheapseats -
You got it! While some believe the multiple should be around 4X median income, this simple detail is like the elephant in the living room that has been ignored by many in the real estate industry.
The disparity between median income and median house price has been discussed many times by The Tim and others on this blog.
b » Jul 2, 2008 at 6:13 pm
BubbleBuyer -
Actually, roughly timing the real estate market is not that difficult. The stock market is about 10 orders of magnitude more volatile, so of course its more difficult to accurately time the market there. However, plenty of people are able to do it with regular enough accuracy to get 7-10% returns over time. Real estate is leveraged, so much less volatile and slower moving it is much easier to time it roughly enough to save you quite a bit of money. Sorry you bought at the wrong time, you should probably start reading the newspaper more often.
b » Jul 2, 2008 at 6:17 pm
cheapseats -
The CSI says that Seattle metro prices nearly doubled in the bubble market, so that analysis is not that far off. The only trouble is that you need a lot of back data to extrapolate the general median:home price ratio for an area. 3-4x is a good rough guess for anywhere, but according to CalculatedRisk (sorry, I am too lazy to find the link) some areas like LA have bee more like 4.5x for the 20 years or so before the bubble.
Tim – do you have the data or have you done this analysis in a previous post? Might be interesting…
obleus – Median household income is a better gauge since single people are a much smaller segment of the homebuyer market.
Nick » Jul 2, 2008 at 6:18 pm
Response to Jon (and at the risk of feeding the trolls):
A counter-point to the “good time to buy because of low rates” hypothesis is that everyone is fairly sure prices will continue to decline at least until inventory is cleared out, whereas nobody is sure where rates will go. I personally see no evidence to support the idea that the Fed will raise interest rates any time soon, and lots of evidence to suggest they will not. Given that, there’s at least a reasonable chance rates will stay low for a while, if not a chance they will be even lower in a year or two.
Aside from that, there’s also the issue of the amount financed, where the less you finance the less you care about rates. At the extreme (100% payment up front), rates are irrelevant.
Finally, there’s obviously the “you can refi rates but not principle” argument, but I think that’s already been stated several times.
Not saying you’re wrong, just wanted to offer the counter-point. :)
The Tim » Jul 2, 2008 at 6:18 pm
b, the historic relationship between incomes, interest rates, and home prices in King County was explored in this post: King County Affordability: 1950-2007
cheapseats » Jul 2, 2008 at 6:33 pm
Obelus,
I used the median household income from wiki which had it at $66K and change. The point being, even using the highest rounded up numbers don’t really pretty it up any.
david losh » Jul 2, 2008 at 6:47 pm
Tim said something in his “interview” with Dustin Luther that hit me while driving this afternoon. He said, “buyers go to the Loan Originator to find out how much home they can afford rather than seeing what homes fit thier budgets.” “It’s just wrong,” he said, and it was so correct.
Real Estate is about the numbers, and the numbers, are the numbers, they don’t change by what your payment might be. Your monthly payment may be less if you put more down. Would you pay more for a house because your down payment is giving you a lower monthly payment? Of course not. The numbers are the numbers.
I’ve been using the Case Schiller charts with my sellers and releasing those listings that are not selling or won’t lower the price. We are in a declining market. We have hit 2005 pricing while the Real Estate world slept. Now, in July, I don’t see pricing creeping up for another two years.
I would take advantage of these months during the winter to make my best deal. Next spring as the disappointment sets in it’s my opinion that the market place will shut itself down. Stagnation of pricing will be replaced with inflated dollars and the Real Estate market will be propped up accordingly.
I think the inflation factor should be a part of any discussion concerning Real Estate. The housing deal you make today will be paid with those future inflated dollars.
NotaBull » Jul 2, 2008 at 6:48 pm
“I personally see no evidence to support the idea that the Fed will raise interest rates any time soon, and lots of evidence to suggest they will not.”
Given the recent rise in inflation, and the noises from the ECB on potentially raising rates and not lowering them as the fed had hoped, the chances of the feds raising rates in the near term (Q3/Q4) has actually gone up significantly over the last month or so.
Having said that, the fed’s rates have little relation to the mortgages that people take out to buy houses. Only HELOCs are directly affected by the fed funds rates, most 30 year fixed mortgages (the current flavor of the month) are more correlated with 10 year expectations of inflation. The higher the inflation expectation, the higher the yield on mortgage backed securities, the higher the APR on the consumer’s mortage. That’s why mortgages have gone up 0.5% or so in recent weeks/months and will probably continue to go up or hover around current levels for a while.
My 2 cents…
mikal » Jul 2, 2008 at 6:49 pm
Those historical numbers don’t explain all. Two income households only really started taking off in the seventies and eighties. Now nearly every household has two incomes. There is more money chasing those houses. We also now have land use restrictions that haven’t been in effect long enough to see their historical effect. If the bubble brought a doubling of values then to get an accurate value take a normal historical gain each year when the bubble started and figure it to that. Houses are not going to drop by fifty percent in value. I have had a few beers so if this makes no sense I better have some more.
John » Jul 2, 2008 at 6:51 pm
I have gone over this in my head for a couple years. What will I do AFTER house prices hit bottom?
Since I have the money to put 20% (or more) down the thought of actually using my hard earned money to buy a house…well…is nauseating. What if inflation does come and my money is tied up in some box and I miss the opportunity to buy some long term bonds at 10% plus? What if the stock market continues this nose dive and their are some great buying opportunities? What if….
If I had no cash it would be a no-brainier and I would definitely buy since I would have nothing to lose anyway. And if I had a hundred million it wouldn’t matter either since it would be a small portion of my liquid assets. I am between that where a half-million asset is both a lot of risk and a huge purchase.
Renting is cheap and I may always be better off financially if I don’t buy even after calculating the loss of rent vs. house taxes.
Shrug, its a gamble either way and I don’t have an answer.
NotaBull » Jul 2, 2008 at 7:34 pm
“Shrug, its a gamble either way and I don’t have an answer.”
You will likely not need 20% (or more) down when you feel like you are ready to buy a house. So put 10% down, and put 10% into bonds or whatever. Basically, if you’re not sure which option to pick, do both.
jon » Jul 2, 2008 at 7:38 pm
According to http://www.city-data.com/county/King_County-WA.html, median KC household income in 2005 was $58,370. 40% of households in KC rent. For simplicity, lets say the bottom 40% in income rent. Eyeballing this graph, http://www.visualizingeconomics.com/2006/11/05/2005-us-income-distribution/
and adjusting for the ratio of KC median to US median, I’m guessing the median of the top 60% in KC is 90K. Those are the people buying houses in this simplistic model. 90K times three is 270K. With a 20% down payment you could buy 337K. With just a 15% drop in price, basically the entire housing stock could be purchased with standard financing by first time buyers. Considering half of all houses don’t even have any mortgage at all, that just doesn’t look that bad to me.
Michael » Jul 2, 2008 at 7:43 pm
I don’t think values are going to drop as far as everyone else. The Saudi’s, Chinese and maybe Europe will step in and buy a lot of US real estate. These countries have huge sovereign wealth funds and the money has to grow somehow. China may lose a lot if the US market drops but I could see them moving into a global landlord position with their reserves. They are already doing this with the banks. Our leadership will never understand that free markets involve deals that both parties understand. Bush is the least “free market” president in history. Unregulated markets are not free markets unless both parties understand the deals that they are getting into and have equal protection under the law. If you don’t have both knowledge and equal legal protection deregulation spurs fraud not opportunity. This is an issue that the Republicans seem incapable of understanding.
johnnybigspenda » Jul 2, 2008 at 7:44 pm
Cheapseats:
You should be looking at the median income of home owners… not of all King County residents. The people that own homes in King County most likely make quite a bit more than the median… ie. those at or below the median should be renters. (not that there is anything wrong with being a renter)…
What % of households own vs. rent in King County? If its less than half, that would explain why the median can not afford the median house price (ie. more than half the people don’t make enough money, so they rent…)
EconE » Jul 2, 2008 at 7:45 pm
Interesting Mikal…the Harvard Joint Center for Housing Studies said the opposite in their recent report.
“Social trends – people getting married later and divorced more often – are making single-person households the fastest growing household type, the study finds.”
b » Jul 2, 2008 at 7:48 pm
johnny -
If KC is anything like the rest of the country, then 69% of households own verses rent.
b » Jul 2, 2008 at 7:51 pm
mikal -
We have discussed this before. You are talking about long term trends which effect things over spans of decades. The bubble did not start until 2003 and really didnt take off until end of 2004. I think its very unconvincing to think that such widespread, long term social changes all of the sudden had some huge impact for the years between 2003 and 2007.
deejayoh » Jul 2, 2008 at 7:59 pm
It’s 61.9% as of 2006 ACS. That’s a pretty basic fact, and easily found if you don’t know it
david losh » Jul 2, 2008 at 8:18 pm
One of the many things I learned on this blog is that the bubble actually started in 1998. It continued to creep up and kind of took a natural exponential growth rate throughout the 2000 years. It peaked in 2007 but was clearly evident in 2005.
The idea we’ll recede below 2000 levels is valid, but impracticle.
As another comment pointed out other economies have invested here heavily. I still think housing prices in other parts of the world are completely over inflated. In time as the global bubble continues to dominoe the United States will still be attractive.
george » Jul 2, 2008 at 8:28 pm
Vboring makes a lot of sense. Based on past bubbles.
I’d bet on a quick drop for 2-3 years from the peak and then a flat to declining market for many years after that. Prices will dip below fair market value. Real estate is dead. All the smart speculative buyers are gone gone gone.
I’d guess 30 percent off the peak is a reasonable expectation but I also expect to miss out on the bottom of the bottom mostly because I’m impatient and landlords are a pain in the neck.
Jonny » Jul 2, 2008 at 8:40 pm
Isn’t it obvious that the ability for most people to buy a home at a given price is dictated by mortgage interest rates, which have been declining steadily since the early 1990’s.
As rates declined, the ability of incomes to purchase more house has gone up.
mikal » Jul 2, 2008 at 8:44 pm
According to previous graphs the bubble started in 98. The land use restrictions also have been within the last what, ten years. I agree that nothing would be affected over a short period of time, but much of the studying Tim does from the past never considers the effects of social change. Land use is definately having some effect. Some studies say it inflates a SFH by $100,000 in value. That isn’t going to change.
Rhonda Porter » Jul 2, 2008 at 9:04 pm
Question(s):
What if it’s “the house” you really like and an acceptable price? Would you gamble buying now and worry forever that you maybe could have bought it for less?
Where do you predict mortgage interest rates will be in 6 plus months (factoring inflation)?
The Tim, I thought you did great at RCG Radio. You are a pro! Jillayne cracked me up…I think she either was a show-host in a past life or really wants to be one.
TJ_98370 » Jul 2, 2008 at 9:22 pm
johnnybigspenda:
You should be looking at the median income of home owners… not of all King County residents. The people that own homes in King County most likely make quite a bit more than the median… ie. those at or below the median should be renters. (not that there is anything wrong with being a renter).
What % of households own vs. rent in King County? If its less than half, that would explain why the median can not afford the median house price (ie. more than half the people don’t make enough money, so they rent…)
.
Okay! There you have it. You must be making more than median household income to afford a median priced house in King County!
With inventory increasing like it is, maybe an adjustment is due?
..
shawn » Jul 2, 2008 at 9:57 pm
My plan is to wait about a year or less depending…I think my employer has some perks on getting good home loans, but not sure if I have to do it before the year is up. I also need some time to find the right neighborhood.
economist » Jul 2, 2008 at 10:39 pm
The neighbor is a recent widow in her early 70s… However, she does not have a huge amount of equity in the house or savings to maintain it … there is a very real chance that her $450,000 house could become a $300,000 house in two years’ time. Given that she still owes around $200,000,
Someone in their 70’s owes 200K on a house? Someone that age should have a paid for house. I had a paid for house before I was 40, and no I’m not old enough to have bought in the 50’s or 60’s.
No wonder this country is screwed.
Eleua » Jul 2, 2008 at 10:39 pm
When rent is at a premium to PITI.
When rent can make the property cash-flow.
When rent can produce a ROI that is 600+bp above 10year USTreasurys.
When the “man on the street” thinks you are nuts for buying.
When price stability shows signs of strength.
Ray Pepper » Jul 2, 2008 at 10:47 pm
As I have always said…………..It doesnt matter when you buy ..It matters:
What you Buy !!
What you pay for it !!
How you Buy to maximize your GAIN!!
Is it a GEM or not?
There will always be GEMS. ALWAYS!!!
Ray Pepper
http://www.500Realty.net
(BTW..Greetings from Foreclosure capital USA…Stockton, Sacramento, and Reno–my last tour of properties this year. Now the REAL work begins!)
Scotsman » Jul 2, 2008 at 10:52 pm
If we accept that interest rates are probably about as low as they’re likely to go, or at least that they are more likely to go up than down significantly, then housing prices, like rents, will be determined largely by changes in income.
Housing prices will continue to fall until excess inventory is absorbed. Then the price decreases will continue until real incomes begin to rise. I don’t see any forces working to increase income. Unemployment is rising, world-wide competition is holding U.S. wages down, productivity increases are few and far between, etc.
When you see real wages start to increase sharply, then housing prices will stabilize and/or begin to increase again. That’s when it will be a good time to buy.
Joel » Jul 2, 2008 at 10:53 pm
I think you misunderstood my comment. The area my grandmother lived in was pretty awful. Pretty much my only impression of Long Beach is that it’s a gang controlled hell hole. I didn’t even know they have an actual beach until I was a teenager (and I’ve never been to it).
Lionel » Jul 2, 2008 at 11:30 pm
“EconE // Jul 2, 2008 at 4:22 pm
Joel…I have my eye on Long Beach also…not very familiar with it other than the fact that the Congresswoman is a joke with all her houses in default…anything I should know about the beachfront condo scene and the surrounding areas? I’d apprecate any advice you have. PM me if you want.”
Outside of Belmont Shores, Long Beach is a pretty charmless place.
didn't just fall off the turnip truck » Jul 3, 2008 at 12:03 am
Rhonda @ 84
What if it’s “the house” you really like and an acceptable price?
BINGO!
I’d buy it in a heartbeat and never look back.
We keep looking, sometime in the next year my guess is we’ll likely find ‘it’
In the meantime we keep enjoying the free cookies. (It’s making us fatter though!)
p.s. at the risk of being flamed Rhonda please keep up the good work at BDB!
a person » Jul 3, 2008 at 12:06 am
ownership data is only useful if you’re pulling out the income ranges at the time people bought houses. those high ownership numbers always bandied about reflect ALL houses bought over 60 years or so. someone who owns a house that cost 20k in 1980 and is valued at 100k now is not the same kind of owner as someone who bought a house at 200k in 2001 and it’s now valued at 400k.
crunching the purchase history data (which, while public, would be a pain to gather) would be more revealing than the generic owner data from that link (although the breakdowns that it does provide are quite telling.)
B&W Nikes » Jul 3, 2008 at 12:27 am
For fun, according this old Times article by Elizabeth Rhodes, the KC median in 1981 was 75k and by 1990 it rose to 155k. Inflation via bls cpi would account for about 32k of that increase. I know the cpi is pretty well debunked crapola, but it’s interesting all the same.
EconE » Jul 3, 2008 at 12:47 am
Thanks Joel & Lionel. I guess I’ll have to look in other places. :o)
harbored » Jul 3, 2008 at 3:55 am
My gameplan was to use my equity to cash out a smaller new place once the last kid was off to college. Ahh the dream of mortage free living. Now that cushion is evaporating. I’m glad I didn’t stretch when it would have been easy.
We are in the early innings of a bear market, make no mistake. Market makers shift stratagies during bear markets. Look for a sharp increase in hyperbole. Prices are going to keep tumbling irregularly. Ever heard of a bear trap?
My strategy is to stay out of real estate. If you want confirmation of a bear market, look for more owner carry backs.
As silly as it sounds, if we drop to 1999 levels, I’ll be buying rural land and turning it into trailer parks. I’ll sell you a triple wide, a double wide, a single wide, or a double tall.
These are not your fathers bankrupcy laws. We are going to see credit tighten and cost more than most of us can even fathom. Today’s unpaid debt is going to haunt its holders for decades.
Tom » Jul 3, 2008 at 4:20 am
I noticed Cheapseats quoted me in here so I thought I’d come take a look.
The figure of 3.0 for the national median home price to income ratio was taken from a Harvard Study. Individual areas around the country vary. Usually around big cities it’s higher. I compared some older inflation adjusted data. Back in the mid 60’s the median income would be the equivalent of around $250k today. The median house price would be the equivalent of less than $200k in today’s CPI adjusted numbers. Scary huh?
One interesting thing I noted in another post the more money you make the less percentage of it will go towards housing. The home price to income ratio for the richest people was around 1.0. According to the chart in a HUD report, the ratio for the higher income group actually dropped while the mid and low income groups were rising steeply.
Are these people rich and buy conservatively priced homes, or are they rich because they buy conservatively priced homes? I think it’s the latter. This allows them to put their money into other investments and endeavors. Too many people during the housing bubble put all their eggs in one basket, their house. You have to diversify, nothing is a sure thing.
The lenders really screwed up though. You read foreclosure news and it’s not uncommon to hear about a guy making 35k working at McDonalds being given a 500K loan to buy a house or a 40k/yr waitress refinancing a house she bought for 260k until she owed over 400k when it was being foreclosed.
Be smart, prices are going to drop for at least 2 more years. The rose because of the access to credit, now that’s gone and banks can’t afford to make the same mistakes. If you do buy when things settle down, be conservative and don’t buy too expensive. Even if you don’t get the house of your dreams, your better off buying something smaller, fixing it up and in a few years upgrading. Most people I’ve known that live in million dollar plus homes didn’t buy it as their first home. They moved up the property ladder. But remember…. prices are going to have to correct just like they did after the tech bubble. RE isn’t going to be pretty for a while, regardless of what your realtor tells you.
Buceri » Jul 3, 2008 at 4:56 am
“ECB raises rates quarter point
Thursday July 3, 7:53 am ET
European Central Bank raises key interest rate by 1 quarter point to 4.25 pct
FRANKFURT, Germany (AP) — The European Central Bank has raised interest rates for the first time in more than a year to combat escalating inflation in the 15 countries that use the euro.
The bank said Thursday it is increasing its key rate by a quarter point to 4.25 percent.”
Well. the US peso just got cheaper!
economist » Jul 3, 2008 at 5:38 am
As I have always said…………..It doesnt matter when you buy ..It matters:
What you Buy !!
What you pay for it !!?
How you Buy to maximize your GAIN!!
Quite right, what matters is not when you buy a house but what you pay for it.
Is it a GEM or not?
There will always be GEMS. ALWAYS!!!
Wrong, sometimes there are NO properly priced houses in a market.
Were there any properly priced houses in Phoenix or San Diego two years ago? No.
If somebody else is willing to pay an unreasonable price for something you will NOT get a good price for it.
Eluea:
When rent can produce a ROI that is 600+bp above 10year USTreasurys.
That’s a great yield but I don’t think we’ve seen that since the Great Depression and I don’t think we’ll see it again. :-)
Other points are right on.
matthew » Jul 3, 2008 at 6:33 am
Buceri,
Trichet’s move was already priced into the dollar, it’s not moving at all today after the ECB rate hike. This was already expected, the question will be what Trichet’s statement says at 2:30 EST. If it looks as if the ECB is going to raise again, watch the dollar really plummet and oil to spike.
Big Mike 34 » Jul 3, 2008 at 6:41 am
Timing your buy or trying to buy at the bottom is …I Think…critical.
In a falling economy with a recession seeming likely and the bad times AHEAD or us and NOT behind us, You simply cannot afford to buy a house and be 10 or 20% under water the first year…
It is nice to think I will buy and be in the house for 10 years and the market will come back even if I am down the first year or two or three….but …..What if you lose your job…Get laid off ….or a big promotion and transfer to another part of the country. or become disabled … And you are 10% Underwater….or the market crashes and you lose you investments or any number of personal or finincial disasters happen…What then?
If you bought a $500,000 house last July and are currently 10-15% under water and it is likely you are… and have to sell….you are not just down the $75,000 that your house has gone down you are down a GREGOR SALES TAX and Real Estate fees amounting to another $30,000…Or you go into foreclosure and you credit is killed for several years. and you miss the opportunity to BUY in the soon to be a Great Buying Opportunity.
I am following Zip reality where I have a hundred houses on the east side that I am following until I sell My house Their charts show the bubble beginning in 2005 and ending in about Jan of this year. Before that time prices went up every year at a nice steady pace that no doubt exceed inflation…..
When a House I want hits at or near its 2005 price….I will be a strong buyer. (Assuming I have sold my current house by then.)
On a $500,0000 house
Big Mike 34 » Jul 3, 2008 at 6:48 am
This Housing market is a disaster for some people, specifically those who bought in the last 3 years and now have to sell….
The housing market is also a RARE OPPORTUNITY for others who can Buy the house they want at the Right price.
THERE IS ALWAYS DANGER IN TRYING TO TAKE ADVANTAGE OF AN OPPORTUNITY LIKE THIS.
Ray Pepper » Jul 3, 2008 at 7:13 am
economist I disagree. There were many GEMS in Phoenix and SD 2 years ago. There are ALWAYS distressed sellers and builders. There will ALWAYS be distressed sellers and people needing money. Now there is an abundant supply.
Always look. Do your DD. When you find one you will know it. The hardest part will always be getting the seller to sign ( and hoping they dont change their mind)
Take your time. this environment has made it alot easier for investors to find GEMS but you still must be patient and always look. TODAY, Tomorrow, Next year, always!
Ray Pepper
http://www.500Realty.net
what goes up comes down » Jul 3, 2008 at 7:31 am
Okay, I have to say this — what housing bust are we talking about. Seattle is immune to the so called “Housing Bust” especially if you live close to downtown where all the jobs are and the stores you can walk to are located and you never have to drive your car — in fact you actually don’t need a car. Man the trolls around here are slipping.
softwarengineer » Jul 3, 2008 at 7:40 am
INVESTING IN AMERICA
Why would any foreigner in their right mind invest in American real estate, with our wages going down and another 66,000 jobs butcher axed in June. I’m still rolling on the ground laughing about that “5.5%” unemployment figure holding stable. There must have been like 70,000 people whose unemployment benefits ran out, so they went off the statistics.
Didn’t you bubble brains read about the big sky scraper the Arabs were building in Seattle that got terminated as fast as the Sonics split for OKC?
I remember during the 1990 Bubble the realitors were trying to pitch foreign investments picking up the slack, not only did it turn into a huge loss for the foreign dupes they fooled (Japanese, i.e.), it was a complete joke. Can you imagine owning a rental in Ballard that cost $600K and its rented out for like $2000/mo with $500-750/mo property tax, insurance and maintenance costs, and you’re the landlord sitting in Tokyo hoping the crack dealer tennant doesn’t tear the place apart? LOL
Civil Servant » Jul 3, 2008 at 7:43 am
Re price/income ratios, above in comments — this post at CR references a previous one that links to national data for this ratio, back to 1980. Interesting stuff, and support for the theory that our local bubble first began to simmer around 1998.
http://calculatedrisk.blogspot.com/2008/06/update-ratio-median-house-price-to.html
softwarengineer » Jul 3, 2008 at 8:26 am
GOOD TAKE ECON E
Yes, household incomes are the vital sign for real estate. They disappear or reduce, real estate tanks.
You’re right, most women are single [that means men too]. That’s why I use avg household income, which includes a big share of single income married households too [like about half]. Having been single since 1994 myself, its cheaper for me too, unless you marry a frugal wife [i.e., assumes the husband's frugral too, that's a big "if" too]….I wasn’t so lucky. LOL
Have you noticed the married couples that are apparently staying married for financial reasons, but apparently not in love anymore, talk constantly about their big double incomes, large McMansion, big SUVs and opulent life styles? I’ve noticed this type rarely talk about how much they enjoy their partner and the wonderful experiences they share [a red flag to me the love's probably gone].
I hear summer jobs for the kids are drying up this year due to the slumping economy, retirees taking them to supplement their retirements and undocumented immigration competition….this was on this week’s News Week.
Here’s some job figures from Dr. Roubini’s blog, hot off the press yesterday:
“…What are the chances of truly good news on jobs tomorrow?
Consider this: Here are SOME headlines during June from a search of news articles on layoffs, laid off, and job cuts.
Washington Mutual cuts 1200 jobs amid mortgage crisis
Siemens to cut 17000 jobs worldwide
Geisinger to lay off 400 in Wilkes-Barre
Russell layoffs leave 450 jobless
Johnson Health Group Cuts 5.8% Of Workforce
Mattson cuts 5% of workforce to save $1.9M
GM workers wonder about pace of job cuts
IBM layoffs leave work force at lowest level in 20 years
State, city layoffs: 45000 and counting
Lawrence Livermore Laboratory layoffs affecting quality of science
Quicken lays off 250 in Mich., Ariz., Ohio
61 School Workers Laid Off in Greenfield
Regions cuts 234 jobs at Memphis operations center
Job search begins for laid-off East Tennessee Sea Ray workers
Administration cuts 150 state jobs
Phila. School District lays off 200
Connecticut’s Foxwoods Resort Casino cuts staff
Baltimore Sun to institute new round of job cuts, buyouts
Idling of workers at Toledo Jeep to ripple to thousands of others
Lego workers opt for pragmatism as they brace for more lay-offs
Tennessee job outlook unclear amid recent layoffs, economic trouble
Nuclear research lab layoffs raise security concerns
IBM Rochester employees laid off
Woodbridge lays off 60 workers
Palm Beach County will lay off at least 100 more as budget woes …
Santa Ana school aide on hunger strike to protest layoffs
Webster Financial To Cut 240 Jobs
Phoenix Confirms Job Cuts In Hartford, Greenfield, Mass.
Pequots cut 200 jobs at casino
Firefighters React To Layoffs
KGET cuts jobs: ‘You’re gonna see a drastic difference,’ warns …
Voluisa lays off 220 teachers
More job cuts at Goldman Sachs and Citigroup
N&O lays off publishers at community papers
Layoffs announced at Elizabethtown plant
Layoffs at Borders Group Inc. include 156 jobs at Ann Arbor …
More newsroom jobs slashed at the Courant, Sun
Nissan supplier job cuts logged
GE cuts jobs in health care unit
State lays off about 80 probation officers
Shasta Regional cuts 46 jobs
Florist cuts staff as business slows
Museum of Science trims 10% of its 400 staffers
Layoffs in Diocese of Scranton
Economy hits home as Osceola County lays off dozens
Pink Slips Abound In June
Unemployment leaps as state sheds jobs
More Goodyear Layoffs
And here are the headlines that appear to relate to new jobs resulting from a search on jobs created, hiring, new jobs, and jobs added,
Outpacing for-profit firms in hiring, construction
HRMC focuses on adding nurses
Government Job Growth
There were probably more, but I got tired of looking and finding so few.
I assume news jobs get less news coverage than layoffs, but this anecdotal evidence seem rather compelling to me.
IMO, the only way the jobs reports tomorrow can be positive is if they lie. The market reaction, however, is another matter…
Written by KJ Foehr on 2008-07-02 12:45:55…”
The URL:
http://www.rgemonitor.com/roubini-monitor/252909/some_recent_media_appearances_bloomberg_cnbc_cnn#readcomments
BubbleBuyer » Jul 3, 2008 at 9:10 am
b said:
“Actually, roughly timing the real estate market is not that difficult. The stock market is about 10 orders of magnitude more volatile, so of course its more difficult to accurately time the market there. However, plenty of people are able to do it with regular enough accuracy to get 7-10% returns over time. …”
b, thank you for proving my point. The compound average annual nominal rate of return (including inflation) for common stocks was 10.7 percent over the period 1926-2001.” – (returns for S&P 500 Index in nominal terms). This average return is commonly cited by academic researchers. So if by timing the market your friends are making 7-10% returns they are doing worse than the market. Hence, market timing clearly doesn’t work.
david losh » Jul 3, 2008 at 9:23 am
Job loss is the number one reason to own a business.
As a part of an over all business plan I advocate owning and controlling Real Estate as a fixed business expense.
deejayoh » Jul 3, 2008 at 9:27 am
Those returns are made even more amazing when you consider that the S&P 500 Index was introduced in 1957!
deejayoh » Jul 3, 2008 at 9:36 am
and by the way, if you take the results of the S&P 500 that have been extrapolated back to the 20’s (before it existed) the returns are ~5.5% through the end of 2007. Not 10.7%.
Year S&P 500 Cum Returns through 2007
1927 17.66 5.6%
1928 24.35 5.3%
1929 21.45 5.5%
1930 15.34 6.0%
People post so much crap here.
Sniglet » Jul 3, 2008 at 9:43 am
Believe it or not, but US real-estate a much better value than that of most other nations. Yes, the US experienced a housing bubble, but for most of the world the bubble is even worse.
In Europe, for example, the UK, Ireland, Holland, Spain, Portugal, Italy, and Germany have issued more mortgage backed securities as a percentage of GDP than the US (by vast amounts in most cases). Per capita mortgage debt is also WAY greater in most of Europe than in the US. Switzerland, Denmark, Holland, Ireland and the UK are head and shoulders above the US with per-capita mortgage debt. Even Germany, Spain and France have more per-capital mortgage debt than the US. And most European nations have seen per-capita mortgage debt rise at faster rates in the last 10 years than America (it’s risen 1019% in Poland).
Even when you look at mortgage debt to GDP European nations are right up there with the US. Switzerland, Denmark, Holland and the UK all have greater mortgage debt to GDP ratios than America, with many other European nations just a tad below the US.
If you look at housing completions per-capita it becomes starkly apparent that Europe has seen a building boom that dwarfs anything in the US. Ireland, Spain and Switzerland have had significantly higher housing starts per capita than the US for quite a while.
All of these statistics only deal with Europe. I have heard frightening things about real-estate in Asia as well (plenty of horror storries of flippers stuck with Chinese condos they can’t unload, and developers going bust).
To be clear, I am not suggesting that people rush to buy US property right now (far from it). Rather, it is important to realize that the credit bubble has wrecked havoc all over the globe, and set many countries up for even deeper crashes than what is in store for the US.
Sorin » Jul 3, 2008 at 9:48 am
On the topic of foreign investment, there is an apartment complex currntly under rennovation a few blocks from me. I took a look at the developers site. Their plan is to sell the units to european investors and then act as the property manager offering the units as rentals. It looks like they don’t have any takers so far. Not surprising since they are asking 230k euros for a one-bedroom (That’s over $360k USD). Their estimated returns (assuming 7% annual rent increases) also just don’t match with reality. I can understand foreign investment in Manhatten, but not a neighborhood like Magnolia.
http://wildradish.net/
softwarengineer » Jul 3, 2008 at 9:50 am
I AGREE SNIGET
America is the engine to the car and the rest of the world is the wheels and frame. When we stop buying stuff the engine’s dead and so is the rest of the world.
b » Jul 3, 2008 at 9:53 am
BubbleBuyer -
And if you bought in 1999 and sold in 2001, you lost probably 30-50% of your money. If you bought a house from 2004-2007 and have to sell in the next 5 years, you are probably going to lose money. Especially if the spread is narrow. I am pretty sure you could buy a house in 1926 and sell it today for quite a bit of profit, it makes no difference. Citing average returns over an 80 year period to say that “market timing” does not work is not a valid argument. Most people do not buy stocks and then sell them 80 years later and most companies are not even around that long. If you could pull out 10% returns during the good times and the bad times and can cash out whenever you want to with those profits, you are beating the market. If your strategy is to just continually buy stock at any price and “cost average”, then you should hope and pray that when the time comes to sell the market is doing great. Bear markets and sector slumps occur all of the time.
BubbleBuyer » Jul 3, 2008 at 9:54 am
deejayoh, perhaps you should stop posting crap. I don’t want to insult you by questioning your qualifications regarding finance or economics but I assume you have none. Here is a link showing historical returns on all US equities. Perhaps you could review it and post your rebuttal of 10.7% annual appreciation. If you don’t like this paper there are plenty others that commonly cite a 9 – 10.7% historical average annual return.
http://icf.som.yale.edu/pdf/Supply(v5).pdf
jon » Jul 3, 2008 at 9:57 am
Deejayoh’s figure is correct, but incomplete. The raw SP 500 does not include dividends. With dividends included over that period the total return is 10.2%
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html
Sniglet » Jul 3, 2008 at 10:08 am
I don’t think I would go that far. I don’t think it is so much that the US is the “engine” of the global economy, but rather that globalization has locked us all in the same economic cycle. The credit bubble made money easy almost everywhere. Likewise, the bursting of this bubble will lead to fall-out almost everywhere.
BubbleBuyer » Jul 3, 2008 at 10:11 am
b said:
“If your strategy is to just continually buy stock at any price and “cost average”, then you should hope and pray that when the time comes to sell the market is doing great. Bear markets and sector slumps occur all of the time…”
I am not advocating buying and holding over 80 years. By the way, the returns are a random walk and the analysis determines average annual returns so even though the sample interval is around 80 years, the average annual return should apply over a statistically relevant time interval shorter than 80 years. Of course this assumes no significant change in the underlying data point statistics.
I am stating that market timing has been shown not to work. There is considerable empirical evidence for this. If you buy individual stocks, I am advocating buying based on economic fundamentals and financial fundamentals of the company whose stock you are buying and evaluating whether to continue to hold or to sell based on changes in those fundamentals. I would argue that this is not market timing although some would say identifying these changes is difficult and my approach is akin to market timing.
It is interesting to note that the vast majority of investment professionals fail to beat the market on anything approaching a consistent basis and so buying a market index or index fund is the best way to achieve good returns. I don’t consider myself to be smarter or better informed than the professionals and my track record is mixed. Sometimes I beat the market and sometimes I don’t. On average, I would guess my returns match the market over a period of time.
palm » Jul 3, 2008 at 10:18 am
Yaoyao@42
Palm: What industry do you work in? Is the first time homebuyer loan benefit standard for the industry?
I am on the faculty of an academic medical center. Many colleges and universities offer some kind of homebuyer benefit to faculty, although it’s often reserved for the tenured and for high demand programs where faculty could make more money in the private sector (like medicine, accounting, and business, not English or anthropology). E.g. a colleague at Stanford bought a house on campus for something like 25% of the usual Palo Alto price; because only faculty can buy houses on campus that constrains the market (Stanford also offers a reduced interest rate). But no one gets an MD or PhD or both, then suffers through the academic job market, just to make it easier to buy a house. The housing benefit is a side effect of the fact that academics operate on a national market; if a surgical attending can’t buy a house in SF, she’ll move to Boston or Chicago or wherever. Salaries are somewhat constrained (the reasons for this are complex), and as a result universities in high cost-of-living areas keep pumping up their subsidies until faculty attrition stops. The homebuyer benefit is just one of them.
b » Jul 3, 2008 at 10:26 am
This is market timing, what are you arguing here? That buying when fundamentals suggest it makes sense and selling when fundamentals say it makes sense is not market timing? What is that strategy other than timing the market? I am now confused.
How does this same strategy not apply to the housing bubble? The fundementals since around 2003 have not made any sense for housing prices. The fundementals say that prices will likely drop 30%+ to get back in line with what does make sense. How is holding off buying until prices correct to fundemental levels not market timing and not the best strategy?
softwarengineer » Jul 3, 2008 at 10:27 am
HAPPY 4TH OF JULY SEATTLE BUBBLE BLOGGERS!!!
Remember this on the 4th of July:
“We must be the greatest nation on earth, or why else would people risk death trying to sneak in on our American deserts, hoping to claim even a small portion of the American pie?”
Captain Kirkland » Jul 3, 2008 at 10:42 am
I love the realtors that get on these boards and brag of a ‘fantastic amount of homes to choose room’. They should just say: You’ll find a nice house, and then lose your A S S when the prices plummet. The more houses on the market = the faller prices fall. Its not that complicated.
Again, I wouldn’t consider buying again until inventory is deminished. Until then, you’re catching a falling knife. You’d be better off buying stock in Solar companies. (ie. ELSR, SOLF, TSL…are all fairly cheap right now as the general market has buoyed them down ignoring fantastic growth and recent revenue).
Ira Sacharoff » Jul 3, 2008 at 10:43 am
“This is market timing, what are you arguing here? That buying when fundamentals suggest it makes sense and selling when fundamentals say it makes sense is not market timing? What is that strategy other than timing the market? I am now confused.”
Not exactly. There are generally two schools of analyzing stocks…fundamental analysis and technical analysis…Technical analysis pays less attention to sales and earnings and more attention to the pattern of the stock price..I’ve never studied technical analysis in depth but people have made money using it. I’m more of a fundamentals kinda guy. Technical folk chase stocks on their way up, where I look for stocks with consistent and growing earnings that are near 52 week lows.
johnnybigspenda » Jul 3, 2008 at 11:47 am
TJ and others re median income ect:
Now we need to take a look at demographics. I would hazard to say that a high percentage of home owners are retired people (who make little to no income)… so even though they don’t make the median income they also most likely own a home that is well over the median home price. (this will severely skew the numbers).
Then we have to look at people who have owned a home for more than 7 years. Likely that represents a large % of the market… these people most likely CAN afford their homes at median income.
What do we have left over, maybe 25% of the market? Lets say that most of the houses that are above being ‘affordable to median incomes’ fall into retired people / people who have owned a home for longer than 7 years… this means the 25% left over will for the most part fall into the bottom quartile (or the most affordable homes).
So now there are 61% of homes that own a house. The lower quartile (or 25% of 61% would make approximately 15% of Seattle residents that are in the zone of having a home that is in the lowest quartile of home values.) Can the median income afford a home in the lowest quartile?
A lot of people on the bubble are looking at homes in Queen Anne and saying “i make $150K and I can’t afford that… so no one else must be able to either”… yet they forget that most people started somewhere in the bottom quartile for their first home purchase.
This isn’t an argument against why home prices will fall. I’m just saying that the upper 50% of homes (or even 75% of homes) don’t have to be affordable to first time home buyers for the market to stabilize.
Garth » Jul 3, 2008 at 11:51 am
The 67 thousand median is a projection from the state for 2007 for king county.
http://www.ofm.wa.gov/economy/hhinc/medinc.xls
That site has some interesting state data including cross county commutes and a profile of home purchasers.
EconE » Jul 3, 2008 at 12:45 pm
Why do so many people….even the bubbleheads talk about foreigners propping up the U.S. housing market because of the cheap $?
Many of those wealthy foreigners already bought in the past few years. Now if they tried to sell, a 10% decline in our housing is more like a 40% decline to that foreigner when you factor in the dollar weakening over the last few years.
Foreigners owners of U.S. property are getting burned worse in our housing meltdown than Americans. Why would they want to “double down”?
deejayoh » Jul 3, 2008 at 2:13 pm
I stand by my figure. According to Jon’s link, the ~10% is correct if you include dividend reinvestment, which is not what you said, bubblebuyer. Your statement that
is incorrect. Again using Jon’s link, the index at the end of the beginning of the period referenced was 12.65. At the end of the period it was 1144.93.
Return on S&P 500 Index = 1144.93/12.65^(1/76 years) = 6.2%. (Slightly higher than what I said before because it ends in 2001, not 2007)
A return on an index is just that, the return on the index. If you meant, “the return on S&P with all dividends reinvested” you should have said that. Or perhaps you might have included a link. But it appears you used a number that you thought proved your point and called it something it wasn’t.
deejayoh » Jul 3, 2008 at 2:16 pm
oh, and as to my finance skills – I actually did the math to arrive at my numbers. Spreadsheet going back to 1927 is available here.
jon » Jul 3, 2008 at 2:31 pm
Personal anecdote: I learned that tidbit about dividends not being in the SP 500 back in 1978 when I was doing an assignment for a class on time series analysis (the one that taught me you can’t do regression on auto-correlated data). For my assignment I choose to look at SP 500 and the results didn’t look right. That’s when I found out about the dividends. At that time there wasn’t an easy way to get dividend stats. I asked around for where to get that, as was told, “Go ask Professor Black.” So I asked him, and he said use the Vanguard 500 index instead, because it includes dividends. Only later did I learn that Prof. Black was the Black of the Black-Scholes option pricing equation. I didn’t know enough to be too terrified to ask the question!
deejayoh » Jul 3, 2008 at 3:12 pm
Interesting what the paper bubblebuyer (unsuccessfully) linked has to say about the dividend portion of the yield:
So the dividend yield was basically front loaded in that it was much greater as a % of the total investment in the earlier years than in later years. Without that early bump, the overall return would have been much lower. Assuming that trend continues, it is highly unlikely the spread between index and index + dividend reinvestment will be as great for the next 75 years as it was for the last 75 years. TVOM is a "female dog".
but I digress.
deejayoh » Jul 3, 2008 at 3:16 pm
well, it looks like I can’t manage to create links either. pot meet kettle. I think it is time to call it and start the 3-day weekend!
The Tim » Jul 3, 2008 at 3:39 pm
[busted link in deejayoh's comment fixed]
BubbleBuyer » Jul 3, 2008 at 4:06 pm
deejayoh // Jul 3, 2008 at 2:13 pm
“I stand by my figure. According to Jon’s link, the ~10% is correct if you include dividend reinvestment, which is not what you said, bubblebuyer. Your statement that ”
deejayoh, you must be the only investor in the world that does not include dividends when determining stock market returns. Hey, why not just forward dividends your investments pay out to me since you don’t value them. Give me a break.
MacAttack » Jul 3, 2008 at 4:15 pm
My housing bust strategy? Well, since we bought a piece of land eight years ago with a tin can on it, and replaced that with a three-piece house that came on wheels, I’d have to say it’s buy and hold. We’re more focused on paying off the mortgage and saving for retirement than anything else. Some day – 30 years hence? – we’ll sell it and move back to town, most likely downtown Portland, if it’s still as nice as it is today.
deejayoh » Jul 3, 2008 at 4:16 pm
I didn’t say I didn’t include them. I just said the number you posted wasn’t what you said it was. 10.7% Didn’t ring true to me as the index return, and so I checked it, and it wasn’t .
BubbleBuyer » Jul 3, 2008 at 4:42 pm
deejayoh, next time I would suggest you look up the definition of the financial metric you are disagreeing with especially before making personally insulting comments.
I always include all cash flows when computing the ROI of an investment as does pretty much the entire financial community. I think this sentence in my original post is extremely clear….”The compound average annual nominal rate of return (including inflation) for common stocks was 10.7 percent over the period 1926-2001.” the fact I include SP500 index in parenthesis was to indicate the family of stocks the number was based on.
Now I am off to enjoy my long weekend.
mikal » Jul 3, 2008 at 5:16 pm
Deejayoh is the sharpest commenter here. He makes more sense than the vast majority of you combined.
Ray Pepper » Jul 3, 2008 at 6:01 pm
Are you saying I don’t make sense. ??????????????????????????????. How is this for simplification:
When you decide to buy anything real estate related. Find out if it is listed on the MLS. If it is…*******************************PAYDAY ALERT************************ PAYDAY ALERT ****************************$$$$$$$$$$$$$$$$
Find an Agent who will give YOU the MOST money to write it up and OPEN THE DOORS FOR YOU………………… Its just that easy. If that Agent will NOT give you at least 1/2 the commission Move Along my friend. MOVE ALONG!
Now go find your GEMS in the coming YEARS!
Ray Pepper
http://www.500Realty.net
economist » Jul 3, 2008 at 8:23 pm
There were many GEMS in Phoenix and SD 2 years ago.
Nonsense. There is not one property in Phoenix and SD that can be sold today for more than what it would have sold for 2 years ago.
Captain Kirkland » Jul 3, 2008 at 8:52 pm
Ray Pepper- I’ve got a GEM for you! Its water front in Arkansas. The guy from ‘Chips’ told me about it on an infocommercial. Get it before its gone.
what goes up comes down » Jul 4, 2008 at 4:25 am
mikal, can I ask you why you check out this site? As someone who seems confident that the market will not decrease much and that RE is a good investment I am curious why you read or post here. I mean I think most people here will eventually buy but they want to educate themselves and do some dd first. I don’t understand why an owner would come to this site UNLESS they are trying to get a feel if they should sell now and buy back later. Samething question goes for Nostradumbass and RAL — who of course said he was done with this site and then came back — addicting isn’t it — watching the slow motion train wreck.
mikal » Jul 4, 2008 at 5:50 am
I have always said that to buy right now is foolish. Some of what is commented on is interesting and I have learned some things. There are other comments about other investments and I have actually learned more about real estate. However, some you are completely out of your minds. Don’t you find it odd how unglued it makes some of you to have someone disagree with you. Agree to disagree instead of the attack. I’m not planning on selling. I don’t work in real estate. I do like to learn things.
local Realitor » Jul 4, 2008 at 6:13 am
Gosh Ray Pepper….its getting REALLY OLD. Tired of reading your self advertising. I can go on and on and on about the value of using a Realtor and I do not mind giving up SOME of my commission but heavens would you go into a doctors or attorneys office and expect them to give you 75% of their fee for professional services? I am sure you do a good job for your customer but you and other discount brokers are no match for a professional firm…..case closed. I have been a licensed Realtor for 25 plus years in Bellevue and have seen it with my own eyes and told by many customers over the past five years especially. There is a place for your discount business but in most affluent areas you are laughed at. Case closed….happy 4th of July and I dont need one of your t-shirts.
Captain Kirkland » Jul 4, 2008 at 8:20 am
Just got a chuckle out of the Local ‘Realitor’ saying how Realtors should get paid appropriately for ‘Professional Services’. I agree to a certain extent, but I would expect my Doctor or Lawyer to be able to spell Doctor or Lawyer correctly.
That said, look for reform in your industry. Your job really isn’t that difficult. Its time consuming, but not difficult, yet you guys make an insane amount of money for what you do. Luckily, you have lobbyists who have created a monopoly with the MLS system.
david losh » Jul 4, 2008 at 9:13 am
Thank you once again for your comment sniglet.
My family and I are going to Peru in August. After seeing the high run up in housing prices in Spain a few months ago I’m curious to see what’s happened in Sout America.
A commentor here made a reference about buying Beach front property in Brazil as a smart investment, it’s not. Many beaches are owned and controlled by drug and gun runners in Brazil. If you don’t have permission from the local cartel to be there then you have nothing.
In my opinion the United States has started the fall of Real Estate prices. In Europe a mortgage is for forty years. South America just started with mortgages a few years ago as did Mexico.
Housing prices in Spain were staggering, ridiculous, and over inflated. That cheap payment forty year mortgage money surely is the culprit. The investor I talked with in Spain was liquidating and looking for other, safer, investments.
By comparison the United States seems much more settled.
Ira Sacharoff » Jul 4, 2008 at 9:26 am
Actually the comparison between doctors, lawyers, and real estate agents isn’t that far off.
Not because they’re both professionals-taking a class for a few months and passing a test is not the same as going to medical or law school, but in the untrustworthiness that many of these folks have. There are some great doctors and lawyers and there are some great real estate agents, but there are also doctors that recommend surgery because they have a yacht payment to make, lawyers who want to proceed to trial rather than settle because they too have a yacht payment to make, and there are real estate agents who will try to convince their clients to buy even though their clients don’t want to and it’s not in their best interests,
Ray Pepper » Jul 4, 2008 at 9:41 am
local realtor I disagree 100%. Laughing at a model of Real Estate? We are driven by advertisers and not motivated by commissions. We are just a different model. The fact is this..You can laugh and laugh but if YOU were buying a home you would seek a model out like us or Red Fin as well.
The dirty secret of Real Estate is being exposed day in and day out. Your statement says it all. ” I don’t mind giving up some of my commissions”. Real professionals such as Doctors would NOT give up their pay. Why would you?
This system of Real Estate, as it currently stands, will be transformed in the next decade. The consumers will WIN BIG. Consolidation in the industry and the end of the MLS will result. Never forget the Big Gorilla is in the room and they have made it perfectly clear nearly 7 years ago as to their intentions for the transformation of home buying in America.
Just keep laughing. We are just a micrscopic “blip” in the slow change of a multi-billion dollar industry. Embrace change. It will be great for us all. The gorilla described the model will resemble this:
Nationwide G database—-buyer/seller facilitator——-attorney/escrow——–close
Notice who’s missing in this?
Ray Pepper
Broker
http://www.500Realty.net
[troll] » Jul 4, 2008 at 10:08 am
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local Realitor » Jul 4, 2008 at 11:08 am
Hi Captain Kirkland…..”Realitor” was mis-spelled on purpose. I agree with your view on reform and it has already started with the new disclosure laws concerning short sales and foreclosures. When I started in the business, there were maybe 1/4 or 1/3 of the present Realtor population in King County and education and training was paramount. Nowadays, any old pepper or joe schmoe can get a license. Not trying to toot my own horn however experience and integrity do account for something. Especially in dealing with the geographical areas I work in primarily (West Bellevue) where buyers and sellers expect excellent (and beyond excellent) services.
mikal » Jul 4, 2008 at 4:40 pm
RAL, I agree that you get what you pay for. However, the commisions are about to get smaller as the industry is about to have a makeover. Redfin and other type services are about to take off. I don’t know about Ray, but if were buying or selling I would be willing to pay a little extra to make sure I am getting the best deal.
Ira Sacharoff » Jul 4, 2008 at 8:20 pm
Experience and integrity do count for something, but I’ve known some very experienced, successful realtors with about as much integrity as Richard Nixon. So you can’t just assume that a discount realtor is going to be inexperienced or dishonest.
Lake Hills Renter » Jul 5, 2008 at 10:09 am
mikal: “Agree to disagree instead of the attack.”
I completely agree, but that’s pretty funny coming from you, particularly since you said this 12 minutes later in another thread:
“What a bunch of whiners.”
I have no problems with differening opinions unless it is presented with insults and namecalling. Unfortunately that seems to be the norm these days. I consider it a waste of my time, but some respond in kind. If you are unhappy with the response your opinions receive, perhaps you should adjust your tack.
EconE » Jul 5, 2008 at 12:46 pm
“agree to disagree” = “I’m right you’re wrong but I’ll pretend to be polite about it”
PNW passive aggressiveness.
That "chocolate" runs rampant up here.
deejayoh » Jul 5, 2008 at 5:56 pm
Bubble buyer, I’m sorry if you took anything I said as personally insulting. I try to steer very wide of that line. I said the comment was crap. not the commenter.
mikal » Jul 5, 2008 at 7:34 pm
I sometimes the name Seattle Bubble has nothing to do about real estate and more to do with not having to listen to anybody elses opinion that is different.
mikal » Jul 5, 2008 at 7:37 pm
“think”
Captain Kirkland » Jul 5, 2008 at 7:54 pm
You guys should all hold hands and hug this one out… Good lord lets grow some spines around here. There is nothing wrong with being confident in your opinions. Call a spade a spade…if someone writes something ignorant, they deserve to be called out. (ie. Ray Pepper and his Phoenix “Gems”).
I’ve been all around the country, and Seattle’s PC/ passive aggressiveness is so obnoxious. It’s worse than the confrontations said PC/ PA behaviors seek to avoid.
Anyone notice more foreclosures/ pre-foreclosures in the area?? My neighborhood has them popping up with much more frequency.
jon » Jul 6, 2008 at 3:06 pm
This report claims that there is a 1.7% probability that the OFHEO index for Seattle is lower in 2 years than it was in Q1 of 2008.
http://www.pmi-us.com/media/pdf/products_services/eret/pmi_eret08v3s.pdf
(From http://blog.seattlepi.nwsource.com/realestatenews/archives/142623.asp#extended)
Captain Kirkland » Jul 6, 2008 at 4:40 pm
Jon- that is a laugher. If anyone would like to lose their money, I’ll be first in line to bet against the PMI analysis.
Ira Sacharoff » Jul 6, 2008 at 6:15 pm
Captain K,
I’m noticing a lot more pre-foreclosure short sales all over the Seattle area. Maybe it’s because they are now required to be more explicit about it, where in the past it was merely a line in the remarks to agents ” subject to lienholder approval.”
Jillayne Schlicke » Jul 6, 2008 at 6:29 pm
Hi Ira,
Any way you could do a keyword search on the MLS and tell us what the percentage is of short sales v. non-short sales in the city of Seattle?
I taught a class two weeks ago in Puyallup and the agents told me that 50% of the listings in their area are tagged as short sales.
I’ve been telling my students for over a year now that it’s going to get worse and they just stare at me like I’m some sort of freak for saying that.
Jonny » Jul 7, 2008 at 7:41 am
I did a search on the MLS and found 44 listings in King County Priced between $500k and $1,000K with the key word “short.” Of those 44, six were mentioning “subject to short plat recording.”
Not very many short sales listed in comparison as to how everyone is talking on this site.
Can another agent verify my findings?