By The Tim on March 20, 2009
Here is your open thread for the weekend beginning Friday March 20th, 2009. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.
Be sure to also check out the forums, and get your word in the user-driven discussions there!
Posted in Open Thread | Tagged open_thread
Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.
Hello,
So as we see now all the posts about this massive deflation are slowly becoming moot. So it is likely we will have inflation and pretty soon. The question becomes – are we worried about hyper inflation? Under what circumstances will we get hyper inflation?
And under what circumstrances will it make sense to move in and lock in a property so your savings are not wiped out? Debt becomes worthless with inflation.
Somebody mentioned that nobosy is going stash away cash if there are low interest rates and inflation. I think this is exactly what the Fed is hoping for. This will increase velocity of money.
Possibly this will also start a run on the dollar. I am sure the Chinese are very afraid.
So I think the discussion should slowly turn to – when does it make sense to lock in debt because it will become not burdensome in the future. It will be funny to see folks who tried to save and save to have their savings values wiped out. It will all be cool stuff going on!
RE: Robert @ 1 – Yes, that would be hilarious if people that did the right thing by saving would be wiped out. It would prove my theory that I am in the Twilight Zone!
The key will be to watch buying activity on shacks. At some point this thing will bottom out and Bernake’s flooding of market with printed money will start working. I just hope it does not work too welll – where inflation sets in at 10%.
One way or the other – there were a lot of folks on Seattle Bubble that just did not believe that inflation will set in – and that is inspite of the fact that Bernake mentioned many times that when he is in the office deflation will not set in for a long time.
Why would I lock in my money to depreciating property?
It would make more sense to buy another ( stronger ) currency wouldn’t it?
I’m not a currency trader but, if the dollar starts to depreciate against say, the kronar why would I hold dollars?
People savings need to be wiped out period. There are lots of people burdened with debt. Yes – they were reckless. But so was AIG and many others. Because reckless companies or reckless people can be a burden the economy – we need to have responsible people and companies pay the price. It is for the better good. This is not some twilight zone. It is simply a matter of calculation. Not a biggie.
RE: Gary @ 4 –
Try doing it in the US. Go to keybank and ask them to open an account in GBP. They will not let you.
In any case Britain started the printing press as well. It is a big experiment where many economies at the same time print money like crazy! So finding a stable currency at this point is also difficult.
By Gary @ 4:
During periods of inflation you want to either own hard assets or be in debt, or preferably own hard assets that were obtained through debt leverage. The depreciating asset might continue to depreciate in real terms, not not in nominal terms, and we live in a nominal world.
Boeing layoff notices going out today.
http://seattletimes.nwsource.com/html/boeingaerospace/2008892949_webboeinglayoff20.html
Robert you are smoking a huge pipe. Gary is right why would you buy a depreciating asset. And yes you can convert to other currencies. Kary you just don’t want to own any asset that is depreciating — EVER.
Geez, I just don’t get these people that think Real Estate prices are not going down — RE prices have already gone down now the only question is HOW MUCH MORE.
RE: what goes up must come down @ 9 –
Hey – I am not saying that prices will not continue to go down. What I am saying is that the flood of money that is hitting the market will eventually get rid of deflation. And soon it will be to your advantage to buy real estate. That might be somewhere in 2010 maybe. But the bottom is coming here soon – probably within a year.
So I am not buying a house now knowing that I will be able to pay 15-20% less in 1 year’s time. But this is a sign that I should be really looking at this situation carefully.
I have seen no evidence or data to support inflation in the near term.
We are at the beginning of huge deleveraging of debt that will drive most asset classes to lows unthinkable a few years ago. Gold at $200…ya betcha.
The $300 billion of QE will not make it into consumer’s hands and thus will have no inflationary impact. Think of a snake swallowing its own tail.
There is the possibility of resource specific hyperinflation in the mid-to-long term (years++) if some resources become scare (oil, food, water, etc.) due to overpopulation, but this is not an economic policy issue.
Can anyone present any data to back up the case for near term inflation?
By what goes up must come down @ 9:
I’m going to guess you’re under 45 and have never experienced serious inflation. Right?
Real estate might lag inflation when it happens, but it will follow it.
RE: Lake Hills Landlord @ 11 – I’m still on the fence between inflation and deflation. I am starting to worry more about a collapse of the worldwide economy.
Robert
20% off in a year from today where we are already 15 to 20 percent off, with the kitchen sink from the gov being thrown in?
Good luck with that, not sure it will happen. If it does more power to you but I see inflation and us spending our way out of it, and I say do whatever it takes. Not for the sake of my homes values, but for the sake of the economy.
I think it’s likely we’ll see 10% within 2-3 months. But the question is what will volume be at that point. You might be able to negotiate a better deal now than then if the volume picks up significantly.
Volume is clearly rising some, but the price of pendings is still low.
RE: Lake Hills Landlord @ 11 –
At the beginning of 2008, the amount in circulation and in bank vaults, plus reserves which commercial banks hold in their accounts with the central bank was about 759 billion and the leverage ratio was probably about 25 which makes it 19 trillion$.
The leverage ratio has fallen to probably about 14 (total of ~11 trillion). So if we locked in the banking leverage at this level and wanted to maintain a constant money supply, the Fed would have to print about 8 trillion.
It is in the process of doing this. BUT the Fed could change the reserve ratio for example and that amounts to the same thing as printing.
Here is a good source of info on fractional reserve banking: http://en.wikipedia.org/wiki/Fractional-reserve_banking
So in reality – one has to watch closely for signs of inflation. There is lots of cash lying around. And when suddenly everybody decides to spend this will be a whooper potentially.
I think this is being tried for the first time. So we do not know what psychology the people will have as well and what decisions will they make. For now real estate looks like a loosing investment but in 1 year’s time circumstances might be completely different.
Here’s something I wrote over at SREP. I thought I’d share it here (absent some embedded links):
(Jon Stewart type rant) See what you’ve done populist movement? You’ve forced me to side with the banks!
http://www.msnbc.msn.com/id/29786420/
I can understand how in September our leaders would think that TARP should be amended to be a bank ownership plan rather than purchasing mortgage backed securities plan. Why wouldn’t they think that equity was safer than buying assets? After all, it’s not like 8 Billion dollars of private equity injected into WAMU just completely evaporated in September.
The debate since September has been about doing bailouts or not doing bailouts. No one has advocated doing bailouts with government meddling in management. Government doesn’t know how to run a business. Government barely knows how to run a government! But suddenly it’s a good idea to meddle? And why? Because 80% of people think it’s a good idea. Of course, in fairness, we know that 80% of Americans know how to run large multi-national financial entities, so it’s only natural to do what they want.
But now Congress is making it even worse than a choice between bailouts and no bailouts. They’re saying: “We’ll loan you money on these terms, and also on whatever terms we think up down the road.” Congress has become the loan shark of the business world, threatening the very lives of its customers on a whim. It’s as if Nancy Pelosi knew Tony Sirico, a/k/a Paulie. And it’s worse than when it does all fall apart, government will no longer have the money to help pick up the pieces, because it gave to these entities on different terms. Which is the reason no one suggested these terms originally. No one wanted to throw money at a plan that was unlikely to work.
Looking forward, what company that hasn’t already accepted money is going to think doing so is a good idea on these new terms? Terms where you don’t even know what the terms are! A lot of other options would look better, including moving your corporate headquarters to Pyongyang.
We’re headed down the wrong road here. This is a road no one would have expressly picked in September. In fact, this was a road that was expressly considered earlier and rejected. The only thing that’s changed? Outrage over $200,000,000 by people who have no idea how insignificant that sum of money is in the scheme of things. We’re risking worldwide global economic collapse over a sum of money that is less than was spent on SFR houses in King County in January. The only people who would think that’s a good idea are people that don’t know how little money $200,000,000 is, or people who don’t know what a global economic collapse would look like. Oh, and apparently 328 politicians in DC that are up for election in 18 months.
Banks are failing. Why do you think the fed would possibly relax rules around reserve requirements? What evidence suggests this might happen? Why do you even bring it up as a possibility?
Not much of a strawman
By deejayoh @ 18:
Why not? For one thing, they’d be forced to take over fewer banks if you reduce their requirements. Risk concerns are sort of out the window at this point.
One way or the other the Fed is really determined to print. Whether this is technically printing or not it does not matter. Couple of trillion needs to be replaced ASAP. And at that point there will be inflation which will give people incentive to spend.
Now this is a sick situation. You get rewarded for not spending and that creates havoc in the economy because jobs are lost etc.
For example I am rewarded for the fact that I am not buying a house in Seattle? That is sick. If there are lots of people like me then builders will go out of business. That means layoffs and suffering. This is just sick.
For now I will play the deflation game. But I will buy when I see first signs of inflation creeping in and when I see affordability back to historical norms.
RE: Kary L. Krismer @ 19 – I would disagree with risk concerns are sort of out of the window at this point. The very real risk of having runs on banks is what the government fears even more than our current state of limited credit access. Runs on banks would vault this into an whole new level of crisis. If anything, reserve requirements will be increased as opposed to decreased. I believe the FDIC has already increased the insurance rates for banks to pad their coffers.
Yeah, printing our way out of the mess is totally great. Free money for everyone! No consequences for stupid irresponsible actions! Nothing could possibly go wrong!
Oh wait…
RE: Kary L. Krismer @ 13 –
“I’m still on the fence between inflation and deflation. I am starting to worry more about a collapse of the worldwide economy. ”
Every few decades the international financial scene hits a crisis and they have to change rules. E.g. dumping gold standard, fixed exchanged rates, and so on. Its seem to me that the concept of a fixed supply of reserve is looking obsolete. The current administration and Congress do not believe in keeping score, and money is for keeping score. They believe in equality of outcome, not equality of opportunity. Money is all about preserving the value of previous savings, and that goes against the concept of “social justice.” If Obama was serious about preserving the system he would have a fully staffed Treasury and they would be conducting the oversight of spending that was required of TARP. Those oversight meetings stopped when Obama was inaugurated.
They are switching to a system where money is issued by the government to those people who it wants to issue money to. People who get money they don’t want to get hit with retroactive 90% taxes.
RE: Kary L. Krismer @ 19 –
I think you meant increase. More reserves = safer bank. not vice versa
RE: jon @ 23 – What? Are you writing solely about AIG?
OK, lets look at this inflation thing from another angle. I think we can all agree that inflation is demand driven. It’s the result of lots of people with plenty of money chasing after a limited number of goods and bidding up the price.
As of now, the government is facing a $trillion+ deficit for the coming year. That number will increase when we know what the final tax receipts total is on April 15th, and as additional stimulus and rescue plans go into effect. Bernanke has said he doesn’t expect the economy to hit bottom until maybe 2010, so it looks like these deficits can be expected to continue for several years. Also just around the corner is $50-60 trillion in committed entitlement costs for social security, Medicare, etc. No one has even begun to talk about how those might be funded, because any one with a calculator can figure out that they won’t be. The money simply isn’t there.
There is only one possible solution to this that leaves the U.S. a viable country, and that is to seriously raise all taxes and cut government spending, including entitlement programs. Both of these actions will remove tens of $trillions from consumer’s pockets, severely reducing their spending and lifestyle. That is not inflationary. That doesn’t give consumers, 70% of the U.S. economy, the purchasing power to drive up prices. Look at Japan and 20 years slow but steady contraction to see where we’re headed.
All of the money they can print, running the presses 24 hours a day, will just disappear into debt and interest to maintain the status quo in the face of rapidly escalating entitlement payments. It’s a downward spiral where the government will just keep writing debt supported checks until they bounce. Then the game comes to an end. But we’ll never see inflation.
@Robert – Inflation won’t be caused by “liquidity” or money in a bank vault. It will be caused by spending (or possibly in the future by resource scarcity). I could print $100 trillion in perfect counterfeits and bury it in my yard. Will that cause inflation?
We cannot print money (in real terms). If we do, then all private capital will flee from U.S. debt. Deficit spending (a.k.a how we pay for our current government) will cease along with many government programs (Social Security, Medicare, etc.) and severe cuts to the ones that make it (50%+ cut to military). The ensuing waves of unemployment from this fallout will probably result in the collapse of our current system of government (how do you control tens of millions of unemployed and hungry? Force. How do you implement force? Remove weapons from populous. How will armed Americans respond? Violent overthrow.). BTW – The $300 billion in QE yesterday is flirting with this very outcome. QE can cause the bond market to spiral out of control with the exact effect described above. Mark yesterday on your calendar. It may be one for the history books.
@Kary – Yes, I too am giving ever increasing odds to economic and political collapse. It will be bad here, but worse throughout the rest of the world.
RE: Scotsman @ 26 –
“Both of these actions will remove tens of $trillions from consumer’s pockets, severely reducing their spending and lifestyle. That is not inflationary.”
It is not a matter of removing tens of $trillions from the economy. It is transferring tens of $trillions from one set of pockets to another. The spending will still be there. The difference will be on the supply side. With taxes raised high to effect that transfer, the motivation for people to work hard and succeed will be gone. With fewer people working hard, there will be fewer goods and services produced. So with all the extra printed cash chasing after fewer goods and services there will be inflation, and lots of it.
“Are you writing solely about AIG? ”
The amount that the AIG execs got was a small fraction that has been given to ACORN, which were the troops that Obama used to make huge numbers of bogus voter registrations. Not that he needed it, given how enthralled people are with him.
RE: jon @ 28 –
True, it is a transfer, but a very inefficient one. The government takes its cut through administration, and produces nothing in the process. But since the producers are in many situations outside the U.S. it’s far more likely that a decrease in domestic demand will outstrip any drop in domestic production. It’s in essence the huge transfer from demand to non producing government and interest expenses that sink the ship.
Sherman is one of only 63 House Democrats that voted against the TARP bailout in October.
New release from the CBO, supports my assertion in #26
“In a new report that provides the first independent analysis of President Obama’s budget request, the nonpartisan Congressional Budget Office predicted that the administration’s agenda would generate deficits averaging nearly $1 trillion a year over the next decade — $2.3 trillion more than the president predicted when he unveiled his spending plan just one month ago.
And while Obama would come close to meeting his goal of cutting the deficit in half by the end of his first term, the CBO predicts that the nation’s annual operating deficit would never drop below 4 percent of the overall economy over the next decade, a level administration officials have said is unsustainable because the national debt would grow too rapidly.
By the CBO’s estimate, for example, the nation’s debt would grow to 82 percent of the overall economy by 2019 under Obama’s policies, compared with a pre-recession average of 40 percent…
Senate Budget Committee Chairman Kent Conrad (N-N.D.) has said the gloomier CBO forecast would require “adjustments” to Obama’s budget, though he declined to specify what changes would be necessary.”
High inflation is the ultimate failure of any FED. I doubt it will happen on Benrnake’s watch, he will raise the interest rates to 1000% if needed to avoid it. Imo he is useless and self-absorbed with a conviction that he never makes a mistake but he do know that high inflation will for sure mark him in history as a mega failure. Right now he still hopes that he can manipulate people to be seen as a saviour but if he allows high inflation he’s toast.
RE: Scotsman @ 26 –
Hey Scotsman – Regarding social security. The fix is simple but probably very unpopular. Get people to work longer. I mean why can’t a 70 year old person still work? If he is sick then ok. But as long as the person is able to work – then the person should work. Actually although I am 35 years old – I plan to work till at least when I am 80 if I can live that long. I think people have to know that being 70 now and 100 years ago is different. The lifespan is growing and so this means we need to work more and not less.
There is an alternative solution. You can retire early but your standard of living will suck. But if you worked in the IT industry and saved couple of mills – then you can afford to retire even at 40 or 50. So clearly there is a fix but it will be unpopular.
The deficit is just debt. So the question is how much of GDP will it cost to service the debt. As long as it is around 5-6% of GDP – the US will do just fine.
For now the govt needs to bail out all irresponsible companies and individuals. This also looks kind of harsh. And it needs to wipe out savings of responsible people and companies. This is kind of for the better good. It looks outrageous but what can you do? Is there an alternative?
Hi Robert- at least you’ve got the guts to put forth some unpopular solutions. That’s more than our politicians will ever do. We’ve gotta admire that.
As I see it we’re doomed, because the politicians will always give more to the people, and never take anything away. That is, if they want to be re-elected. Our government was designed for adults focused on the long term and willing sacrifice self interests for the good of the whole. Those days seem to be over.
I’m afraid we’re doomed. The government will keep writing checks to the electorate until the checks bounce. Then the revolution will begin, and it’s unclear who will win. Or even what they will win, when they do. Reset.
Can anyone provide an inflation supporting thesis? Can you suggest any way we will see more money available for spending and hence price inflation? I still haven’t seen a credible argument for inflation after months of searching. I am fully serious and will carefully consider any thoughtful responses. But I (along with others here) will also pick apart any weak arguments.
The argument for significant deflation is strong and has been presented many times thoroughly. Would any inflation proponents like to take a stand?
RE: Lake Hills Landlord @ 35 –
The money contraction is 8 trillion.
The govt prints 10 trillion in whatever ways it needs. Since there were so many people flaming for printing – I do not really mean printing as in HP printer printing. It could be through buying of treasuries, printing real money, changing reserve requirements etc. If the govt succeeds in pushing more money into the market than is disappearing inflation should start kicking in.
If there is just money contraction that is money disappearing from the system because of deleveraging and because of fractional reserve system – then you will keep on having deflation. The deflation argument is that the govt will not be able to keep up with the implosion. This is a decent link on the fractional reserve system: http://en.wikipedia.org/wiki/Fractional-reserve_banking
OK, lets break this down.
On the deflation side of the argument , we have…
– falling treasury yields
– falling home prices
– negative GDP growth
– rising unemployment
– falling commodity prices
– failing banks
– banks hoarding cash/not lending
– rising savings rate
– falling stock market
– falling credit values marked to market
– falling consumer prices (if you exclude gas)
On the inflation side we have
– increasing money supply (all held by banks)
– Fed is “printing money”
And then we have the mandate of the Fed:
Seems like a 1 vs. 16 opening round game to me…
Robert @ 36
What is your source for “The money contraction is 8 trillion.”? The numbers I have seen for deleveraging have been much larger. We have seen a partial destruction of sub-prime personal mortgage debt, but the upcoming Alt-A, prime, and commercial debt destruction must be factored in. Beyond that we have state debt, foreign government debt, business bond debt, and consumer credit (auto and CC) debt that will be destroyed in massive quantities. This is not conjecture but easily predicted from current trends (rising unemployment, business bankruptcies, statements by states and foreign governments, etc.)
How will the government be able to “print” money in any form (traditional or buy back) without destroying confidence and wrecking the bond market (which would precipitate global collapse)?
How would any money created with these methods get spent? Giving it out to counter debt destruction doesn’t get it spent.
RE: deejayoh @ 37 – No one is claiming that there is significant inflation today. The point is that the Fed’s actions will likely continue too long and the delayed effects will continue to come into play after the deflation has stopped. Furthermore, the Fed claims they can reverse the effects. But can they? They are going to be buying $300B of long term treasuries. To reverse that, they would have to sell them back, at the same time that Obama wants to be selling $1T per year to finance his social engineering. That will drive the price of Treasuries down, which will drive interest rates up and shut down the economy. Do Obama and Congress have the guts to let that happen?
RE: deejayoh @ 37 –
You bring up a great point, the savings rate. With the consumer representing 70% of GNP and a past saving rate of about 1%, just having the savings rate jump to 8% (last survey) means a 5% drop in consumption and the GNP it represents going forward. Even when we do the right thing, we lose. What a system!
RE: jon @ 39 – my point is that people are talking about one potential impact on money supply as if it is paramount – when there are 15 other factors pointing the other way, and oh – by the way – the institution in control of the one people are calling out has a specific responsibility to ensure that inflation is kept low.
As for Obama and social policy? Reagan managed to finance a huge military build up during the eighties and run up massive deficits, all while the fed brought the worst inflation of the last century under control. Certainly not unprecedented
More specifics from the CBO:
“If President Barack Obama’s budget proposals are adopted, the deficit would rise to $1.8 trillion, or 13.1% of GDP, this year and $1.4 trillion, or 9.6% of GDP, in 2010. Over the next 10 years, the president’s budget plans would add about $4.8 trillion to the total debt.
White House Budget Director Peter Orszag said the new forecast wouldn’t change the administration’s budget priorities or tactics. He said the Obama administration still hopes to spend money in the coming years on health care, education clean energy to boost long-term productivity.
These numbers going forward assume 4.1% annual growth. Right. Fill that bowl and smoke it!
They fully intend to drive this bus right off the cliff.
Failing banks and Corporate Credit Unions here at a Market Watch article:
http://www.marketwatch.com/news/story/Calamitous-day-sees-banks-credit/story.aspx?guid=%7B1B67729E%2DD317%2D41BD%2D9503%2D11DE3E9B48AF%7D
The Corporate Credit Unions were placed in ‘conservatorship’ to ’stabilize’ the system. They had $57 billion in assets. Here is a quote from a poster on the aritcle.
I’m an inflation believer in the way that Robert and jon describe it. I have said it in the past and I’ll say it again. The fed is flooding banks with cash and they’re sitting on it, despite the being exhorted to lend it. Investors cashed out stock and they’re sitting on cash. The savings rate is rising but it’s really the change in the rate that’s taking money out of the economy – eventually it will stabilize.
At the sign of stabilization, confidence will return. People will want loans and banks will lend. Money will pour out of mattresses and into assets. The government will not react fast enough to stop the inflation. The safety of the treasuries will no longer command a premium and they’ll be dumped on the market. The dollar will plummet.
This will begin 1-2 years from now.
RE: Scotsman @ 42 –
Ten trillion dollars? You’re kidding aren’t you? You’re concerned about a measly little ten trillion dollars?
We spend billions of dollars both privately and publicly for a health care system that works only for the very wealthy, sometimes. Our auto industry is still stumping for the gas combustion engine, In thirty years since the last energy crisis we still talk about coal as an electrical source.
Education needs a separate paragraph because we spend billions, upon billions, of both private and public funds to have some of the worst educated people in the world.
You see if we had something to sell there are six billion people in the world to buy it.
If you continue to do what you have always done you will get what you have always gotten. Ten trillion is a small price for changing our economic focus.
RE: Herman @ 44 –
Very sound reasoning, seriously.
I was an inflation believer until last year. When you see the rest of the world and what credit is doing in other countries there is limited interest in the United States. There is more money to be made in emerging markets than here. We will, in my opinion, be the safe haven. We will have a protectionist economy without really trying.
Obama has set a course for a very conservative stable growth pattern.
RE: deejayoh @ 41 –
“Reagan managed to finance a huge military build up during the eighties and run up massive deficits, all while the fed brought the worst inflation of the last century under control. Certainly not unprecedented ”
They triggered a recession that mopped up the inflation. That was before they did the military buildup. Unemployment has still not reached the level of that recession.
http://www.pbs.org/wgbh/amex/reagan/peopleevents/pande06.html
What Reagan did was to cut taxes to increase the motivation that people had to work hard. When people produce more, that increases productivity and drives down inflation. Obama is doing the opposite.
RE: Kary L. Krismer @ 15 – I should clarify my earlier post. When I say we might see 10% down within 2-3 months, I’m referring to the NWMLS median sold figures. The thing is, those figure will really reflect what is going on right now, because those figures will reflect contracts that are being written right now. So the numbers we see 2-3 months from now, although future numbers, represent the present situation.
Also, I have to say I was blown away at a new construction property I saw today in Kent. Under $330,000 for a rather nice 4 bedroom home, although on a small lot. I don’t tend to like new construction much, but this one seemed very attractively priced. It will be interesting to see how long it stays on the market.
Helicopter Ben visited San Diego?
http://www.youtube.com/watch?v=UUbDwU-LaM0
By David Losh @ 46:
David, you might be a nice guy, a great builder, and a gung-ho populist, but you’re an economic idiot. I hope for your and your family’s sake you don’t have any serious money invested based on these expectations.
RE: Scotsman @ 50 –
I used to invest in pharmaceutical companies, and the bio tech industry. It’s simple to follow drug research. The medical industry is very open about what they are doing in terms of innovation.
It’s a job just like Real Estate. Real Estate is an investment, if bought and sold well.
In 1996 I spent a year traveling, then another year reading books, about one a day. I’ve been very lucky.
The conclusions I came to is that it makes very little difference what you do as long as you are passionate about it. Three companies I have are Aardvark Home Inspections, rot work, and Kill Mildew. These are money making businesses. Once people see moisture ants scurry by the thousands money is no object.
Uplifting? Not so much. Contributing to the betterment of man kind? Maybe. Does it instill passion? No.
The auto industry baffles me. I see mini vans and wonder how people can be so stupid. We buy gasoline for bigger cars when we saw in the 1970s we were running out of oil. Nothing changed, first cars got smaller before they got bigger, then we had the Hummer, and it was an oil crisis again.
My passion is really directed toward the medical industry. I made money investing in pharmaceutical companies and bio tech. It’s easy to do. Research for drug approval is written up constantly. New innovations come and go. Little drug companies get bought by bigger drug companies, it’s kind of easy to track, doctors like to publish. Uplifting? Not so much. Big money? Oh boy.
Education here in the United States is just a joke of who can sit still the longest, does daddy have money, and are you well connected, popular. Hence the saying, “it’s not what you know it’s who you know.” We go to the best schools to make the relationships that will shape our careers.
We need innovation in energy, health care, and education.
We need innovation. Paying kids to come out of university to make five million dollars a year working a hedge fund was wrong, OK, $500K a year, or $350K a year for researching bogus security funds.
I ‘d like to hear from Sniglet.
Back in November, in a case for why stimulus spending won’t hold back deflation, the argument was made that because debt is deflationary and Global Private Credit markets (40-60 trillion per year) had all but shut off, 1, 2, or even 10 trillion in stimulus won’t be enough to stem the tide.
The US seems to be trying to entice private money back in circulation by offering subsidies, but will these subsidies and massive creation of dollars out of thin air be enough to create a return to a manageable inflationary model on wall st. in a few years? Some of us are starting to think so.
It was also suggested back in Nov. that printing money to stoke inflationary fires across the globe would destroy national currencies, and that it would do so quickly in this era of swift markets.
http://surkanstance.blogspot.com/2008/11/case-for-deflation-why-stimulus.html
The tone and fair evaluation of issues on this board is highly productive to critical thinking. Compliments to all.
I have a request for feedback:
What is your opinion of this new construction in Burien\Seahurst.
http://www.windermere.com/index.cfm?fuseaction=Listing.ListingDetail&searchID=65575A5558535247515857644E42545C522044585F5C634E5E53&ListingID=35322423
475K, new on market, quality build, no landscaping.
Is this the kind of property that reflects the necessary offerring price in the new RE paradigm? Or, does it reflect the hangover of the mythology of unfair gain and input prices too high?
We are satisfied in tiny condo as savings vehicle with 150K available for down, no contingency on having to sell 180K condo first.
We have suffered by saving for ten years and want to take a step a few rungs up the quality ladder. But, not if there is clearly more than 10% risk to depreciation of RE values.
By physics @ 52:
Physics…are you referring to the article in the NYTimes?
http://www.nytimes.com/2009/03/21/business/21bank.html
Let’s break down a few things I saw.
a quote from the article…
I’m not surprised that hedge funds and PE funds refuse to pay more than 30c on the dollar. After they see 80% off homes in So. Cal, why would they want to?
They refer to the fact that the borrowers are still “current” on their loans. Someone who purchased a 600k house with $0 down and a neg-am Alt-A liars loan can still be current. That loan is probably approaching 700k, the people can realistically afford 250k and will probably be defaulting in the next couple years.
These are the most toxic loans out there that have yet to rear their ugly heads…could this be what the banks want to “unload” on the “private” investors?
Then…from the article…
The banks get to choose which “toxic” assets they want to unload yet they are not required to participate in the auction? Sounds like a great deal for them. How much do you want to bet they’ll choose the “soon to be” most worthless loans?
So…in the end. Toxic waste that isn’t worth more than the 30 cents on the dollar is being subsidized with loans and offed to hedge funds?
The hedge fund and PE investor loans are “non recourse”…they lose, they walk…no problem.
Who eats the losses then?
It doesn’t matter if the government loses money…hello taxpayers.
I guess all we can do is sit back and see how it all works.
GOD DANGGGGGGGGG HUSKIES!!!
IS THERE NOT A 3 POINT SHOOTER AT THE ENTIRE UW???
I MEAN COME ON! CLOUD THE MIDDLE PLAY AFTER PLAY AND WE HAVE NOBODY TO KICK IT OUT TO!!
DO I NEED TO BRING SOME TAPES OF EUROPEAN BBALL TO YOUR PRACTICES??
ENJOT IT PURDUE.. YOU GO DOWN TO THE REAL HUSKIES IN YOUR NEXT GAME!!
I AM PISSED!
RE: EconE @ 54 – EconE + Physics, do you know if the banks can set a minimum amount they are willing to accept for this enticing pool of loans or will they receive only the amount established by the auction?
I could imagine a case where, if there is no minimum set, then they will not wish to offer these morsels up for auction and merely take their chances with future foreclosures, loan reworking and eventually cramdowns if they come to pass. Thus the credit freeze may continue until the suspect loans naturally work their way through the system.
RE: zipzippygc @ 53 –
I like Burien, which has a walkable and kind of fun old downtown area ( SW 152nd) and I go hiking in Seahurst Park frequently, and it is a gorgeous park, with walks in the woods and on the beach, but……
That house is overpriced. Yes, it’s seemingly well constructed, and yes, Burien is actually a lot nicer than many people realize, but people buy in Burien because it’s less expensive than Seattle or the eastside. I’ve repeated that I think Burien is the next Ballard, and it would be a nice place to live, it’s not too far of a drive to downtown Seattle, and has some surprisingly good restaurants and bars, but it’s still Burien, and I think that’s an unrealistically high asking price.
I still maintain that all the stimulus the government is offering won’t prevent massive asset price depreciation (over and above what we’ve seen so far). All this government money is still a drop in the bucket when compared to the money creation that has been lost from the private credit markets. Even the recent announcement to purchase t-bills is really quite puny.
The Japanese government went berzerk on stimulating it’s economy over the last 20 years (making them one of the most indebted nations on Earth), yet that hasn’t prevented asset price declines there. It’s hard to see why things will be different in the US.
To be sure, I fully expect there to be some AMAZING rallies during this depression which will convince many that deflation has been tamed (we are in the midst of one such rally right now, which could last a good six months before we return to even greater losses).
In the LONG run I do agree that inflation may be a huge problem. However, I think we will have to see asset prices drop some 80% or more from peak before that happens.
For the uninitiated, I have outlined these arguments in my comprehensive podcast on deflation.
http://surkanstance.blogspot.com/2009/01/deflation-101-podcast.html
When a bank has to write down a loan, that reduces the amount of reserve capital it has. In order to continue to meet its reserve requirement, it needs to reduce its lending by ten times the amount that was lost. That loss of reserve shows up as a decrease in the money supply that is ten times the collateral loss. On the other hand, when the Fed buys assets like MBS, the bank gains reserves and so can lend out ten times more than the Fed purchased.
The current position of the banks is currently very murky. Some of the money the Fed distributed will just keep the banks from going under, but any in excess of that can get multiplied by 10. So theoretically the $850B of MBS purchases could produce up to $8.5T of money supply. Then when that money gets lent out and spent, some of it shows up as a deposits in other banks, which can then lend 90% of it again and so on.
It takes a couple of years after the Fed takes action for companies to go through the process of determining the viability of an investment, doing the planning and borrowing, and then doing the spending before all this money creation shows up in the marketplace. So the timing of this flood of new money will coincide with the impact of the $800B of pork with 9000 earmarks in the previous stimulus bill, which was in addition to the $750B of the TARP.
Everyone knows this tsunami of new money is coming, and Obama is planning $1T per year of deficit spending on top of that.
RE: jon @ 59 –
It surprises me that none of you follow the Fed. There is still talk on this blog like on others that we are playing by the same rules we were ten years ago. The bank’s reserves mean nothing.
When $350K homes sold all day long for $500K and they are now worth, fair market value, $250K there is very little accounting that will fix that.
Consumer credit is projected to increase this year. The profits on that are based on increased interest, penalties, and fees. When people stop paying that gift of cash into the banking system there will be an even slower velocity of money.
That’s the good news.
The bad news is that other countries have Visa and Master Cards. Other governments have bought our debt and foriegn investors have bought stock in American corporations.
We have had at least ten to twelve years of paper profit to unwind. The process will be a brutal set of laws and regulations accompanied with a lot of righteous indignation. Profits will drop, the stock market will react, and our prosperity will evaporate.
Other countries will suffer more than we will. In a way we have pegged our future growth on our ability to influence a global market. That should be the concern.
The Bush administration was arrogant. Every time there was a public out cry some other band aid was trotted out. There was a hodge podge of economic fixes that never wove into a policy. In that wake when you talk about economic theory it has no basis in today’s reality. We just had eight years of “let’s try this and hope it works.”
Obama, for good or bad has brought policy. There is an orchestrated effort to do something. The gift of cash has come from our own government. Our tax dollars have stepped up to the plate. I view it as circular. The money we are dumping into the system is staying here.
We are still funding two wars, plus a thousand police actions in the world, but if we were to concentrate more efforts at home there would be less need to protect outside allies. Specifically we spend billions on the war on drugs and European defenses against cold war nemesis.
Our entire system is archaic. From economic theory to who our friends are should all be on the table. From what I hear and see of this administration that is exactly what is going on.
RE: zipzippygc @ 53 –
…$350 tops for that place. Kitchen looks nice, but it’s on a postage-stamp lot, only 2400 sq. ft., and 10 feet from the other new box. No way it’s worth a half a million.
My wife and I have been looking at the Three Tree Point, Seahurst, and Normandy Park area for about four years. Still renting and saving in Seatac. We could pay cash for that abode. :)
Thank you Sniglet @ 58, and yes ECONE @54, I was referring to the NY Times Article which we will be hearing more about next week (and the news likely propping up the stock market?).
These government proposed partnerships hope to boost the bank’s lending capacity by getting these “toxic assets” off the books… but if the majority of lending capacity was a result of the ability to turn around and sell loans as asset backed securities to private credit markets, then it seems there will still be a net contraction in the money supply unless this practice resumes.
Frankly, I’m good with numbers that don’t have dollar signs… I don’t know which way we are headed, but I appreciate all the perspectives here, even those losing money on the Purdue game.
RE: geon @ 61 –
That’s supposed to be about a 5200 square foot lot. Still not worth half a million, but it’s not a tiny tiny lot.
RE: Ira Sacharoff @ 63 –
I was trying to edit my comment, but I wasn’t logged in apparently. Most of the lots in my ‘hood are 15K to 20K sq. ft. (1/3 to .5 acre). However, they are being cut up rapidly nowadays. Hence, my tiny reference.
Somebody will probably pay $400-425K for that house, but I wouldn’t.
RE: zipzippygc @ 53 –
Well you may find this amazing but I used to OWN the house right next door at 14426 12th Ave Sw. The house you like was on the lot of an old piece of junk. It was demolished after I moved away and they built two homes on the lot. I paid 83k if memory serves for a 2 bed 1 bath back in 1995. I sold the house for 188k. I forgot what year. Most likely 2000.
I built that garage in the back and was there when the neighbor on the end of the street passed away. It was one of the 1st homes I ever bought. I used to walk to the Huckleberry and DQ. The house is very close to the Seahurst Apts which is a HUGE DIVE.
I also used to go to Seahurst Park nearly 5 x a week and when I was in better shape I would jog the hill coming back up. I love Seahurst and I even worked at the Seahurst Post Office. Many good memories but I would NEVER, EVER, pay more then 250k for that home. Just look at the neighbors homes up the street and that will answer your questions!
RE: DaveyDave @ 56 –
In the article it sounds like they didn’t want to “let them go” for 30 cents on the dollar. Perhaps they just don’t want to have to “mark to market”.
Would you pay 30c on the dollar for one of the early 2007 vintage 100% financed Alt-A neg-am liars loans that will be coming due in So Cal? They’ve got tons of ‘em…in all areas. How about some builders development where they went belly up in some far flung exurbs that are virtual ghost towns now? Mojave? Salton Sea perhaps?
Neither would I…especially not with borrowed money.
But I’ll bet that’s what the banks will want to “off” first, as they get to choose what they want to sell…and I’d be willing to bet that it’s the “ugly duckling” backed assets…meaning…less desirable RE be it residential or commercial.
As I said, let’s see what happens. It’ll be interesting to say the least.
Besides…if it’s such a great deal for the hedge funds to buy these “assets”, why not just give the money directly to the banks and let them keep them on their books?
On the other hand…who knows…perhaps they are offering sweetheart deals to their hedge fund friends?
As was said above…it’s pretty murky.
Makes my head hurt thinking about it.
RE: EconE @ 66 – Well, like you said, it’ll be interesting to see how this plays out and we’re reportedly going to see greater detail in the plan this week.
Essentially, these auctions are intended to efficiently establish mark-to-market values. The government doesn’t want to bid directly, I guess, for fear of incorrectly establishing the value of these gems. That would have been the so called good bank/bad bank system. So they’re leaving it to the learned professionals of hedge funds, etc. But the professionals only will do it with gov’t. guarantees that they won’t lose money. That sounds like a pretty good system for them. Why wouldn’t they bid these to very high numbers (i.e. too high) that skew the actual values? Enter government/taxpayer debt. All the risk and none of the potential reward.
So it’s really only taxpayer feedback that’s going to highlight the inefficiency of this bailout plan as it’s outlined. The banks should get greater value than actual worth. The hedge funds will have limited or no risk in bidding high. It’s only the public that gets the short end in this system. Maybe the AIG furor will spill over onto this once details are revealed…
entry error
Great discussion so far. Couple of thoughts on the deflation/inflation question.
First off, seems clear that the current environment is deflationary – very. Prices for housing, cars, durable goods etc are all dropping at record rates. So is global trade. At the same time, unemployment is rising like crazy pulling down purchasing power. So, from a RE perspective, that makes it NOT a good time to buy – and in fact as has been discussed extensively, the longer you wait to buy in an environment like this, the better off you will be as you are essentially being paid to delay buying.
Second off, there clearly is a strong attempt by the Fed and central bankers all around the world to halt deflation and stimulate economies. Now, I am not an economist and I have NO idea whether they will be successful or not. But some people ARE concerned about the longer term inflation risk of a lot of the actions being taken like stimulus packages etc. And if you watched the currency markets this week (dollar down) and the statements from the Chinese Govt (we are worried about the dollar) etc. you can see that fears of inflation are rising.
So, that leaves us with a simple question that hasn’t really been addressed yet: if we see signs of inflation should that change our minds about whether it is a good time to buy? Interested in people’s thoughts on this.
And just to preempt the deflation bugs – OK, fine, we believe that inflation is impossible and Obama is ruining America etc. Just think of it as a “hypothetical” inflation scenario and how one might be on the lookout for it and what it would mean for people looking to buy in the Seattle market.
I wonder how much of the “apparent” deflation is just the price of oil working it’s way through the system? It’s sort of the flip side of back in the 70s, when I think the government was fighting what I consider largely non-existent inflation–just the cost of one commodity working its way through the system. Not something you’d adjust monetary or fiscal policy for.
RE: Hugh Dominic @ 69 – I won’t offer an opinion about inflation/deflation because it’s well, only valuable to me. However, there are two pieces of data that I think are significant that may help other opinions form that have not been addressed at SB that I know of.
1. The impending explosion of the T-bill bubble. By all accounts, it’s just a question of time. Once demand flees, then rates will increase swiftly. The Fed Reserve can’t stop that market correction. Higher rates typically coincide, though not always with higher inflation.
2. There is a point brought up in this Market Watch article about the impact of the output gap (the difference between what we can produce and what we are producing) and how it naturally dampens price inflation.
http://www.marketwatch.com/news/story/Budget-outlook-sees-slow-growth/story.aspx?guid=%7B25E4E948%2DB882%2D4D45%2D8BAA%2DB28C56320DE8%7D
A quote from the article:
For what it’s worth…
wouldn’t inflation raise interest rates for borrowing? Would that drive prices further down on housing?
http://www.cnn.com/video/savp/evp/?loc=dom&vid=/video/politics/2009/03/22/intv.gregg.on.budget.sotu.cnn.cnn
RE: Hugh Dominic @ 69 –
Inflation would be the very best solution to all of our economic problems. The problem is the reliance we have on interest rates.
Maybe some one here can explain it to me, how does a lower interest rate mean a property is worth more money? In today’s paper a first time home buyer paid $327K for a house worth maybe $250K. The article talks about interest rates and tax credit. What would you rent this house for in today’s rental market? To complete the thought, even if your rent payment covers the mortgage based on the low, low interest rate does that reflect the actual value of the property?
Ray made an excellent point about the house question in Seahearst. That question reminded me of a video here about million dollar homes in Butte Montana, nice house wrong location.
I’m skipping my examples of our changing economic landscape in the interest of not rambling, but…
The only question is about credit. Interest rates on credit have become a focal point of our economy. If we have inflation the interest rate bench mark, our god of economy, will go up. If short term interest rates go up our economy collapses. Worse, our economy may be OK, but the global economy collapses. No consumer, no GDP, no China exports, it’s a pickle.
RE: anon @ 72 – Tend to drive prices down, but that didn’t happen locally during the early 80s. And eventually if money is cheaper, real estate prices will follow going up.
RE: Kary L. Krismer @ 70 –
Kary, interesting point. Note, oil prices started back up this week as the dollar weakened. And the dollar fell on fears of an inflated dollar….
RE: DaveyDave @ 71 –
DaveyDave two good points – do they cancel each other out?
On treasuries, I would like to know if higher interest rates for T-bills neccasarily mean higher inflation? I am not sure. There certainly is a risk that they will stop being snapped up at such low rates…
As to unused capacity, that would lead us to think that inflation wouldnt come back – but we had stagflation in the 70’s where growth was slow and inflation high…not sure it is a hedge once expectations of inflation start.
RE: David Losh @ 74 –
I am in awe.
Advice Please!
I am a long time resident of Seattle and a renter. I am currently spending $700 / month to live on a tiny boat – I have to move out on June 1. I am 40 years old, I made the mistake of NOT buying in Seattle 15 years ago and now I feel that the bursting bubble has given me another opportunity to buy a home in this city. (where there are still homes and not condos that is)
My questions are: Should I buy? When should I buy?
Here is some more information:
I can afford to pay $2k / month – but I would prefer to pay less.
I can put 20% down on a $300K home (let’s say this is my max price)
I can qualify for a 30 yr fixed rate mortgage.
This would be my first home.
I would intend to hold the property for at least 5 – 10 yrs and rent it out it if I am not living in it.
I am in no rush to buy – I do need to live somewhere but I work from “home” and I can find temporary living quarters / sublet / leave town for some time etc…
I prefer a dumpy cottage (1 – 3 bedrooms) – single family detached house on a nice quiet lot – than a town house or condo. Fancy appliances don’t mean anything to me – I prefer a yard / view / quiet…. I’d like to have the little dumpy house in the nice neighborhood…
I would NOT fix up a house to add value – I’d prefer to live in a dump and have the next buyer tear it down and build condos…. OR to live somewhere and maintain it but not improve it so it at least keeps its value…
So, Do I buy? When do I buy? How will I know when the time is right?
Another question – I saw a beautiful cottage in a fantastic neighborhood that I would love to live in – it was priced at $280K – price lowered 10K from 6 weeks ago when it was first listed. The same property sold for $255K in 2005 and for only $150K in 2000. How can one determine the “real” value of the property? (I would love to own it for $200K…. )
Any advice would be much appreciated.
RE: Hugh Dominic @ 77 – I’m sure there are those that know much more about this than I do on this blog, but I’ll continue to flog away on this until they want to chime in.
The bursting of the T-Bill bubble will yield higher rates. Quickly. The Fed will vainly try to stop this as it will have the unwanted effect of slowing an already contracting economy. We will have for a while, slow/negative growth, a level of depreciation and high interest rates.
I do not believe the price of oil will be an appreciable cause of inflation (unlike the 70’s) in the near future as supply so far outstrips demand right now. That may change after the world demand picks up to a significant level. That should be none too soon. Until then, prices will fluctuate within a stable range. If it does pick up, it will only be due to a devalued dollar. And this will be a result of Fed policies.
Eventually, the consumer is going to crack and begin buying low priced merchandise. We can’t help it. We’re addicts. Gotta get me some stuff. This will bring back consumer demand and a degree of CPI. GDP will pick up due to this.
The effect on Real Estate: I do not know if real estate will come back anytime soon. Big ticket items like that on limited credit yields lower prices. Or longer term mortgages which I can’t see us falling for. Putting down a significant down payment will continue to be tough for most of us. Current low mortgage/borrowing rates are temporary and will increase due to the T-bill bubble bursting. Also, people cannot qualify for a mortgage if unemployed. Thus demand for RE will continue to be low providing downward pricing.
Who on earth are all these people coming in as of late panting….
“Should I buy!!!?”
“Is this a good deal!!!?”
“Lookie…they knocked off x%”
???
Back to inflation…
Houses are already over-inflated.
If you fear inflation…put your money into something that has already deflated.
Yawn.
I’ll hold my tongue except to say that there is great danger in oversimplifying the relationship between interest rates and any other given outcome, especially when discussing home prices or the price trends of treasuries. The same is true of inflation and it’s impact on pricing.
I’ve spent time working on econometric models and can confirm that it is extremely difficult to capture any kind of predictive market mechanism because of the dynamic nature of markets. While all of the two variable cause/effect examples we discuss here can be true, for example a simple relationship between home prices and interest rates, when the rest of a dynamic market is factored in the initial relationship often fails to hold true. What we assume are cause and effect relationships break down in the face of additional factors.
It’s great to use simplified relationships as a teaching tool, or when seeking to understand a part of how pricing mechanisms work. But it’s foolish to assume that any one factor dominates a model. In short, although they make for great blog posts, there aren’t any easy answers that are likely to be accurate.
One way to improve the accuracy of predictions is to focus on changes over time instead of only for a given point in time. This forces one to ask questions about the deltas in employment, supply, regulations, and future expectations, all factors that tend to get overlooked in short time analysis.
A great example of this is the inflation verses deflation argument. By looking at future changes one can see the possibility of a downward spiral in the economy, one that is extremely difficult to stop once it gets a foothold. Inflationists, on the other hand, only see more dollars going into circulation and assume they must eventually lead to inflation. It’s a one factor analysis- dollars in circulation, verses a look at the entire system and a series of constantly changing relationships and outcomes.
RE: Novice @ 79 –
EconE nails it. Do not buy a house at this time. Please.
RE: DaveyDave @ 80 –
Current t-bill prices and hence interest rates are seriously distorted by political considerations and manipulation, and most certainly do not reflect normal market pricing mechanisms. I expect that in the near future, within a year, the market influences will break through the political considerations and the market will dislocate. Interest rates for t-bills will go up. Since t-bills are part of the pricing mechanism for other interest rates, those interest rates will also likely go up. Higher rates will depress an already hurting market as a whole.
None of this will have anything to do with inflation. In fact, while higher rates are typically considered inflationary since they increase borrowing and production costs, in this case they will lead to further deflation as demand is driven down. Producers can’t raise prices in the face of decreasing demand. See, it isn’t simple, and it certainly isn’t always what we think it should be. ;-)
I’m sorry it’s so simple.
When you look at the Fed Rate and yields on T-Bills, or all debt instruments in this country you can see our federal government fighting a phantom.
Both Greespan and Bernanke have blamed China’s growth for our policy decisions. In turn, just this past week China’s concern for it’s investment in America became fodder for speculation about our economy.
What is so hard to believe? We are only five years away from a viable market place. 2003 we were a nation chugging along. Greenspan was slashing the Fed Rate, liquidity entered the market place, Bernanke in 2005 was ready to fight inflation. So what happened?
March 22nd 2006
http://www.bloomberg.com/apps/news?pid=10000103&sid=ahRmwL8hrX7c&refer=us
You can see the market rationalization in the article. All the economic formulas at play; he says it’s all very complex, but the reality is he blinked. he stopped fighting the inflationary market place and collapsed the system with bad policy.
He was on track, doing the right thing, but the economy was about to tank and he wanted to fix it. Bush wanted him to fix it. He was more concerned about the Libor and bad loan products than our economy.
I personally think they were hoping for another Republican President. I do think it is that simple.
Novice,
I think if you bought a house now you’d probably be alright if you held it for ten years, but prices probably haven’t hit bottom, and likely won’t for at least another 9 months and maybe longer. and even after prices do hit bottom, they may wallow there for a couple of years.
And those neighborhoods in Seattle which are considered the most desirable haven’t seen drops as large as the Seattle area in general…But, if you want to buy a house, you might want to look at areas you hadn’t considered.
For example, there’s a house a couple of blocks away from where I live, a small little dump in a quiet area , 20 minutes from downtown Seattle, for 137,000 dollars…So there are a few bargains out there. If you’re going to buy a house, make sure you get it for far less than current market value
EconE @ 81
why on earth would you make light of someone who comes here to ask a question about realestate?
this is a first and foremost a realestate site. Its creator started it while deciding whether or not to buy a house… right?
I for one think it it gives the blog a little more purpose than the same posters over and over displaying their magnificent plumage…congratulating themselves on their incredible powers of seeing this all coming a mile away, and showing their keen understanding of money. ( Im exagerating… but just barely. )
There are some here who are fairly qualified to answer Novices question ( not me ), or at least give him some advice.
this site ranks highly on google under lots of keywords doing RE related searches( granted its not the topic… ). I think it has been determined that alot of current economic problems were caused by a largely uneducated public. I hope someone can help him.
Good luck novice!
RE: voight-kampff @ 87 –
Because…
1. Starting off with…Advice Please! Ohhh…the urgency of it all. Why not two exclamation points?
2. Cutting and pasting the same thing word for word in the forums while making sure that they bold things such as Should I buy, when do I buy? and doing so not once, but Twice just to evoke a little extra emotion…or dare I say…urgency?
3. The options listed for “shelter” after having lived on a boat…
Temporary living quarters? (What exactly are those? Everything is temporary…even the person who buys and sells a house) Sublet? (why not get your own lease? plenty of places…plenty leave town?!?! Why on earth would that have to be an option?
Why not just…RENT?
Why no comment about leasing a place?
The options posed sound kind of dire IMHO.
4. Novice extolls the virtues of a dump. Although Novice prefers said “dump” to be in a “good” neighborhood. Ok…no big…but so…who cares? Are we supposed to start finding Novice a house? What’s the definition of a “good neighborhood”? Why doesn’t Novice even mention what neighborhoods that he/she is looking at? We don’t even know what city or county. I’m gonna assume Seattle.
5. No…WAIT…Novice has already found a house…a beautiful cottage in a fantastic neighborhood. We’ve also been given the vitals.
So…what are we supposed to say other than “do your own due diligence”. There is so much information on the site already that Tim has put together with regards to “home valuation” etc…and when it comes to advice…there has always pretty much been a common theme not to give opinions. It’s even harder when you don’t know the house.
But if you want a serious well thought out and researched answer for Novice…here it is…
1. Most RE professionals I have ever known advise against buying a house at the dead end of a cul-de-sac. Maybe it’s headlights, maybe it’s a new age feng-shui type of thing. To each their own.
2. Check the price of earthquake insurance on brick homes.
WRT price…that’s up for Novice to decide now isn’t it? Who are we to spend his/her money?
Oh….and the price was knocked down from $295k to $285k…not to $280k. Once again…why ask for advice…and not give all the details?
http://www.redfin.com/WA/Seattle/2600-NW-97th-St-98117/home/289914
Novice if you don’t care about area (e.g. outside Seattle proper is okay), there are some places under $200k that would fit your bill.
As to whether to buy, no one can tell you that. It will depend in large part on whether there’s inflation or deflation.
RE: EconE @ 88 –
Wow. You have some issues my friend and certainly read a lot into my question. That said, I will answer some of them since tone is often difficult to get in writing. First of all – regarding the sense of urgency, I met with a mortgage banker about a loan last week and spent all day Saturday looking at houses with a real estate agent. I wanted some other points of view after that outing. Having already taken some steps towards buying, there was some urgency to get other opinions before possibly making a big mistake – especially having seen affordable property I really liked. I am glad I asked – I have taken a big step back already.
Also re your poo pooing my post – having read through these interesting macro-economic discussions, you’d think someone could answer a very simple and down to earth honest question – distill all of this heady information into some simple advice. When would be the right time to purchase a house in this area (N Seattle) and how one would know it is the right time?
To understand my mind set – the mind set of someone obviously not in the know…. I have been reading about foreclosures and the housing bubble bursting and empty condos…. There seems to be a combination of low interest rates, lower prices and first time home buyer tax credits. There are also people losing their jobs who have to sell their homes. For someone not-in-the-know it sounds like this is the right time to buy. It also sounds like the government is working hard to reverse this trend and so it would seem to make sense to get in there before these efforts take effect.
In the meantime I am trying to educate myself on home ownership and the state of the market – I found this forum and actually learned a great deal by reading the posts – but there are some things that I find confusing if not contradictory (although I may have figured a big one of them out – not sure). There is no “real” urgency but there was a sense of urgency because I began taking steps towards purchasing – I had been out looking at properties – I got excited by a couple of them that I could afford to buy – I will have to move in a couple of months anyway… I really wanted some more information from people who are impartial.
As for posting word for word in 2 places – I asked the question here, and just after posting it I got “accepted” to the site and was able to post on the main forum where perhaps it was more appropriate to ask this question – I am guilty of using “bold” to separate my main question from what may have been a lot of rambling… Sorry about that. I probably misspelled things and didn’t dot some “i’s” too. By the way, no one answered the questions in bold – two people answered “don’t buy” neither said when would be a good time to buy (and why). Maybe I should try bold, all caps and a larger font in blue?
Regarding renting and my current situation – I am renting – what I have not done is signed a lease and what I would like to do is avoid signing a lease when I have to move out of my current place IF the advice I am going to get is that we will hit the so-called bottom in a matter of months and IF that will be the right time to buy. I was explaining that I could sublet or do whatever for a few months if this was the issue… This is one of the questions I am trying to get answered – WHEN to buy. in a few months or in a year, in a couple of years, never?
I also apologize, but for someone just thinking about this for the first time, there are a lot of confusing issues and some that seem contradictory. This is why I asked my question here.
Here is what i find confusing:
I am hearing that we are near the “bottom” – and my assumption is that this would be the best time to buy. Yes or No? Why?
I am hearing (on this site and elsewhere) that the bottom may hit within months or a year or this may be the bottom right now. Ideas on this? When?
We have very low interest rates. It seems to me that a combination of low(er) prices and low interest rates is the right time to buy. Yes? No? Why? Why not?
I have the idea (not sure if it is correct) that when the stimulus packages hit, housing prices may stop falling and thus it would seem to make sense to buy before then?
When i look at rents in Seattle (North End / Capitol Hill) – and I compare what I would be paying on a mortgage on a $250K property – they are comparable. In fact it seems to me that rents are higher than mortgage payments for what you can get right now. This is what makes it seem like a good time to buy. (again, I am asking – I do not know – I am currently paying more rent for less quality than I ever have…)
What I may have just figured out is that even though the payment is low, if the property will still lose value, and stay at low value – then the monthly payment is not the issue because the loan could be worth more than the house. Is this true? Is this the main reason not to buy? BUT when the “bottom” hits – this won’t be an issue by definition right?
If I JUST look at monthly payments of rent VS mortgage it seems to me that I can get more for the money by buying now (or this year). If they were equal, it seems to me that as long as a property didn’t depreciate more (meaning we were not at the bottom when I bought) it would still be beneficial to own for the tax advantages and by building equity – even if the property value did not increase significantly?
Thanks to those of you who might understand why someone who does not spend all of their time thinking about this may be a bit confused. If we are near the bottom price wise and if interest rates are also low and rents are high, and if you have to live somewhere anyway, and there’s a first time home buyers incentive and other tax incentives… maybe you can see why I might think this is the right time to buy? It certainly sounds logical – so obviously I am missing something and I really hope someone can enlighten me.
I will ask again, if not now, when? What combination of factors would indicate that the time is right to buy (in Seattle) ? Do you think this will happen in a matter of months or years?
I really would value any advice you might have.
If there are several months in a row where inventory is shrinking and sales for the same month compared to the same month last year are rising, and prices are not rising but the rate of falling has slowed, it could be a sign that the bottom is near.
Don’t forget to add tax and insurance to your monthly mortgage costs, and some extra reserves for maintenance and repairs.
RE: Novice @ 90 – The best time to buy will be when the most people say it is a terrible time to buy. After that, the selection goes down and interest rates go up. It just depends on what type of risk you want: missing the best price going down or the best price going up.
My 2 cents, Novice. (I am also a real estate novice.. so discount this appropriately). I do not feel RE price declines are going to be stopping anytime soon. Look at the charts. It’s a nose dive at this point. Certainly no sooner than 2010. The federal programs may slow the process down, but do little to help alleviate the affordability issue. There is also a large volume of potential foreclosures thought to be on the horizon. This spring season will show us a lot with increased supply coming on board.
Interest rates are the bigger curve ball/unknown in my opinion. And as you know, they affect monthly payments… Heh. And I think those are going to begin going up. How soon? I don’t know. How much? I don’t know. But up.
There have been many, many postings about the relative affordability of rent vs. mortgage. You may want to look at previous threads on that as there’s a lot of good information to consume. My own research has shown that renting is still more affordable than paying mortgage/insurance/maint., etc. Rents are projected to continue to decline.
I do echo Voight-Kampff in wishing you well with your search. It sounds like things are lining up for you. And also, for a place as squishy sounding as Seattle Bubble in the Blogoshpere, some sharp elbows get thrown now and then. Ain’t no big thing I’ve found.
RE: Novice @ 90 – I would say that this is a better time to buy than two years ago, but not as good as two years from now. Tim used six methods to call the bottom and the earliest was mid 2010.
Novice- half way down the linked page is the series Herman references. Good reading- enjoy!
http://seattlebubble.com/blog/?s=calling+the+bottom
Novice…
Didn’t mean to come down so hard…as I stated, it’s not a cut and dry subject. Not only is would it be hard for people to give their opinion based on your original question as the specifics weren’t there, but who are we to say…YES!!…or NO!! You’ll get many differing opinions here and all of them are fairly well thought out. You almost don’t even need to ask…just read the threads.
Over and over people have asked the same questions as you and have brought up the same arguments such as low interest rates, tax deduction, government credits, rising rents (they’ve actually fallen), etc etc etc
That horse has been beaten to death.
I’ve been around here for a while and I’m a bit of a curmudgeon ;^) .
Is now a great time to buy?
In my opinion…it depends.
As most will say…what’s the rush? I watched people rush down in L.A. on the way down…they can afford the payments but they are financially “locked” into their house. That would suck.
If you were buying down in So Cal (in certain areas) currently and using Leo Nordine as your “go to guy” then I’d say “maybe”…depends on what he has. Are you able to “stomach” the loss of your down payment here in the PNW?
Is it time to stop laughing at the asking prices in the NWMLS?
Hardly.
Only you can answer what is right for you….but who knows…maybe an even nicer cottage will come on the market at your price point.
Any Realtor worth their salt (that’s been around a while) will tell you to NEVER fall in love with a house.
EconE@88
I have been lambasted on a blog for asking a question that was apparently answered several days back.
some people dont have 3 servers and dual monitors and twitter about all the latest RE blogs and spend 6 hours a day reading them. ( I am not saying that about you, Im just saying some people spend only a few minutes here)
so saying ” go read more of seattlebubble” just seems silly when someone could give a short answer.
and if out of all the 10’s of thousands of posts and all the pissing contests of money knowledge, that the answer to a simple question would be: um… I dont know… go do more research.
then what exactly is being accomplished here?
I am not trying to be a wiseguy… I am seriously asking.
RE: voight-kampff @ 97 –
“When should I buy” is not a simple question and there is no simple answer.
Novice should take the time to at least navigate the blog, see that there is a link to “important posts” under “noteworthy links” over on the right hand side. There is a wealth of information in the posts.
You don’t need to have 3 servers and twitter about it either. If one is making the largest purchase of their life, they should do their own due diligence.
And if they’re gonna bother asking for advice about a property, don’t dance around the subject and give people half the info if they want an opinion. Throw it all out there for people to scrutinize if feedback is desired. I had to post the freaking redfin listing. Novice didn’t even say which neighborhood it was in.
RE: DaveyDave @ 80 –
Thanks DaveyDave.
RE: Novice @ 90 –
For what it is worth, I am in a similar boat – and I am waiting….the temptaiton to rush in at the first signs of affordability is strong – but I think better value is coming down the road. My 2 cents.
My advice has always been consistent for the last 5 years: if you can be comfortable with the value of the placy you buy dropping some 50% in value (i.e. without causing emotional or financial hardship), then go ahead and purchase a home. However, if you do think that a significant drop in value over the next 4 years would be intolerable, then you should NOT be buying a home right now.
There is a far greater chance that real-estate prices are going to drop substantially from where they are now than increase. My reasons for this are because 1) I believe we are headed into a long-term period of asset price declines like Japan experienced and 2) home values still haven’t come down to historic measures. Rent to ownership ration are still WAY out of whack, and prices are still way out of proportion to average incomes.
When we do hit bottom, it will be with a thud, and prices will drag along the bottom for years. The LAST thing anyone needs to be worry about is “missing” the bottom. Even if we are at the bottom today (which I sincerely doubt), you can’t go wrong (from a financial perspective) renting for a couple years to make sure that we aren’t going to see any more price declines.
Finally, the employment situation in our region is going to get MUCH worse, which will only lead to further real-estate price declines. I myself am witnessing (and experiencing) the cut-backs and down-sizing going on at one of the area’s major employers, and I have friends at several other big firms who are telling the same kinds of stories. Things are MUCH worse than the announced declines in sales and lay-offs we read about in the headlines. Our regional employers are seeing their businesses take dramatic hits in lost sales, and are massively ramping up their staff firings (and shedding of contractors), which doesn’t make the 6:00pm news.
We can expect that virtually every major regional employer will go through additional rounds of official lay-offs (on a bigger scale than thus far seen) before this depression has run it’s course.
To give a context of what I see coming ahead, I have long been predicting an 80% decline from peak asset price values when we hit bottom. The Dow should be less than 2000, and local real-estate prices will likewise have fallen an average of 80% from peak 2007 prices.
If you want to see my entire case for deflation, check out my podcast on the subject:
http://surkanstance.blogspot.com/2009/01/deflation-101-podcast.html
OK, Novice… one last thing from me. If you’re looking at saving money in the process, another option is not to use a traditional RE broker, but someone like Ray at 500 Realty or Redfin or Findwell or some other non-traditional means of purchase. If you are truly just looking for a dump in a good neighborhood, then this is an option to save $$. I don’t know why you’d want to live in a dump, but there’s no one right answer, clearly. Best of luck.
Novice, I would love to tell you this is a great time to buy, but I don’t do that. I also won’t tell you it’s a horrible time to buy. Some agents would always do the former, some posters here always do the latter. But in actual fact, no one knows. Take the existing sales stat that just came out. It was predicted to go down, but when up by a relatively huge amount. They didn’t even get the direction right, even though we’re talking about a past month, and even though the data was probably available.
There are reasons why it’s a good time to buy and reasons why it’s a bad time to buy. There are things that could happen in the future that would make it a good time to buy, and things that could happen that will make it a bad time to buy. Keep in mind that we probably will see news of declining local prices at least through the first week in May, but that data will indicate the market we are in right now. The market you would be participating in if you entered the market. What it will do after that, know one knows.
Most people enter the market now not because they think the market is at a bottom, but because they want to buy or sell for other reasons. New children, marriage, divorce, job change or simply just wanting to own property. IMHO, those other reasons should be what guide you, not someone’s prediction on the future that may or may not come true.
RE: DaveyDave @ 102 – I referred someone to Ray over at Trulia, but I’d say someone looking to buy a dump is probably more in need of a traditional agent, not less. Some guidance in getting a property that’s not likely to be a money pit would be very valuable. And on a dump, the money you get back would obviously be less, because it’s a percentage of the sale price.