By But choosing to hold it just because you bought it at $30 is irrational.

As is selling it because you bought it at $30.

Really it is like a stock. The daily variations don’t mean much until you sell. It’s the same with houses. What your house is worth doesn’t really mean much if you don’t plan on selling any time soon.

That’s not how an asset is valued. What you paid for something only tells you what it is worth on the purchase date (maybe). If a stock drops 50% the day after you bought it, your purchase price is irrelevant. Your asset is now worth 1/2 of what it was whether you hold or sell. Take GE stock as an example. If you bought in August of last year, you might have paid as much as $30/share. Today, it is worth $12/share. Does the fact that you paid $30/share mean anything to anyone else in the world other than you? The capital tied up in holding the stock is fungible. The question is whether there is a better use of that capital elsewhere. Holding the stock at $12 is no different than making a decision to buy GE at $12 today. If buying it today is not a good decision, then holding it is no better. But choosing to hold it just because you bought it at $30 is irrational.

If we do go to a cash economy or shadow economy prices will fall. Housing is just a blip on the screen at this point. If people stop buying with credit, in the case of housing, mortgages, the price of the financing leaves the economy.

That’s not the way people buy things though, so it will not happen regardless of whether or not it is a good idea. The use of credit is ingrained in society, only a subculture will work in a cash economy.

Makes perfect sense, Kary. It’s actually a great idea.
But it’s just not the American way to prevent people from borrowing way more than they can afford to.

RE: Kary L. Krismer @ 109 – My houses I sold when the Real Estate market kept spiraling out of control in 2005, 2006, and again in 2007. It’s a no brainer appreciation was 14% and 17%. That is unsubstantiated appreciation by any standard. .

When you tack on for a few years in a row, I’d agree entirely. If you look at some of the bubble cities, such as Phoenix, their prices almost doubled in less than 3 years, and that was with a ton of construction occurring. That’s just nuts.

That’s why I’ve suggested that the limit a bank (FHA, Freddie, etc.) should loan should be not only a percentage of today’s value, but a lower percentage of maybe 2 years prior. That would limit the upward appreciation in an area by limiting the financing when prices start going out of control due to herd mentality taking over.

I sold my stocks when the monopoly action against Microsoft took shape in 1999. It’s a no brainer. You can not fight city hall.

My houses I sold when the Real Estate market kept spiraling out of control in 2005, 2006, and again in 2007. It’s a no brainer appreciation was 14% and 17%. That is unsubstantiated appreciation by any standard.

What I never saw was the banking issues and financial markets as a whole. My thinking was that on a global scale the economy could expand far beyond where we are today. The paper profit, and collapse of the credit markets never, ever, came into my thinking.

Now that I see it, and according to what I read, we are going back wards from this point forward to those times of at least 1998. I originally figured in an appreciation rate of 4% per year to date, but have since given up that thought.

Rather than us having had inflation all of these years I think that credit has actually boosted the price of goods.

If we do go to a cash economy or shadow economy prices will fall. Housing is just a blip on the screen at this point. If people stop buying with credit, in the case of housing, mortgages, the price of the financing leaves the economy.

If people are really stupid enough to give a bank or lender 20% as a down payment why not have five people combine to pay 100% cash for a house. For cash you can make better deals than going through the mortgage mill. You can buy at auction, buy distressed, buy big, and pay a return on other people’s contributions.

Using Japan as an example they have the regular economy and the shadow cash economy. People combine money all the time and invest as a group. They become the group mentality rather than follow the group.

So in terms of predictions they happen every day. There is logic and reasoning to those predictions.

Can Paul Volker stand up in Congress and say something stupid that will change the face of the economy? Sure. Can Congress file a law suit against Microsoft? Sure. The trick is knowing, waiting. watching, then guessing the out come. In my opinion that defines a prediction.

And I’m perhaps not familiar with everything Case-Shiller said about housing–in fact I’m sure I’m not. But of all the people who were negative that I did read, Eleua stands out the most as clearly connecting it as being related to banking, and how it was related to banking, not just simply price movements or price relationships. If there is something Case-Shiller put out on that topic in say 2006-2007, I’d love to see it.

By Kary L. Krismer @ 103:

Since you all seem to think real estate should be bought and sold like a day trader trading stock, you’ve not only lost a lot of profit, but you’re still underwater

Can you refresh my memory on when one person, let alone all of us, said that real estate should be bought and sold like real estate. Forgive me for not taking your word for it.

I was referring to this whole talk of just walking away because you happen to be underwater at the moment.

Really it is like a stock. The daily variations don’t mean much until you sell. It’s the same with houses. What your house is worth doesn’t really mean much if you don’t plan on selling any time soon.

Since you all seem to think real estate should be bought and sold like a day trader trading stock, you’ve not only lost a lot of profit, but you’re still underwater

Can you refresh my memory on when one person, let alone all of us, said that real estate should be bought and sold like real estate. Forgive me for not taking your word for it.

Uh Oh,

You seem to be greatly confused about Real Estate. Maybe it’s the sales person mentality that seems to permeate the Real Estate business these days. Those sales people have always been a minority. Today maybe that dynamic has changed.

People in the Real Estate business do study trends. I know one guy who watches Safeway building permits. He buys properties close to those sites as the permit is applied for. Some times the permit gets quashed, or there is a back lash, but most times he makes money.

Other people buy cash flow. I know a guy who buys around Universities. He has a concentric circle formula. The closer in to the campus the higher the price he will pay. he looks for the ability to add on for increased rental income.

Another guy who I mention a lot in blogs buys only around Green Lake. It’s his thing and be buys and sells well, even in today’s market.

I could go on with examples of land use changes, job center creations, development trends, and community development, but the point is always the same, Real Estate is a rational market.

I sold pre 2007. I bought 2001, 2002, 2003, 2006. My purchases were to be long term holds. The market dictated to sell. I sold, 2005, 2006, 2007. It made sense.

This is why Real Estate is a hedge against inflation. Real Estate is a stable, or was, investment tied to the CPI. The variations of market timing and buying strategies are predictions based on sound research.

But in reality, the bubble mentality goes back to at least 2002. Those people are really underwater. The median back then was under $333,000. The market went 44% higher than that. Not even close to being right. And a lot of potentially tax free profits lost.

It really isn’t that special to predict prices will drop. Again, 50/50 chance of being right.

Eleua was right, or close enough.

And we were right…..so [naughty naughty trying to avoid the word filter] you.

Let’s just say buyers in Seattle were getting irrational in the spring/summer of 2007. But for what happened earlier in CA, AZ, and FL, that irrationality probably would have continued for many months or even years.

Now they are inter-related. If we have a third financial crisis in the fall of 2009, that will undoubtedly affect the opinions of the masses and their behavior. But what’s going on right now in the Seattle real estate market won’t predict that. If I had to predict, that hypothetical third crisis would be related to something like commercial lending or some massive bank’s (banks’?) failure.

If Realtors and the NAR had followed that and clearly stated that in their opinion that real estate has gone freaking nuts and if things go back to normal, then you as a buyer are destroyed, then I would agree with you. But Realtors pretended to have ethics and be advisers to the buyers, so Realtors are more than complicit.

But I could be wrong. Maybe it is just that Realtors simply facilitated buyers in making the worst mistake of their lives. Sort of like a person wants to kill themselves and another aids them, not the assistant’s fault.

If your argument is that nobody can predict the correct price at a specified time in the future, then I agree with you. Unfortunately, I think you’re just trying to shift the argument because I’m not saying that.

If you ignore the absolute numbers, can you predict whether we will be lower or higher 6 months from now based on what you already know? I know you are capable of predicting, because you’ve played the “how many closed sales” game here. If you can make that prediction based on past history, why can’t you predict where the current trend takes us?

RE: Kary L. Krismer @ 85 – RE: Kary L. Krismer @ 81 – So yes, Real Estate is a rational market. It can be predicted. That is what an agent gets paid for. An agent gets paid to know the market place.

I’d agree we get paid to know the current market price, not the future price.

RE: Kary L. Krismer @ 85 – The stinking trend is so obviously down in Seattle, how could you not see it?

Well obviously I know what the past numbers have been, but that doesn’t mean I know what the next numbers will be.

If Tim is listening, perhaps we should have a poll where people here predict the June 2009 median for King County SFR. $10,000 increments, starting at say $345,000 and ending at $415,000 (May was $375,000, roughly halfway in between). The number will be announced June 6. I have a pretty good idea what that number will be because of my access to the system, but let’s see how you all do given your access to the past data.

Real Estate is a rational market. Real Estate prices may go up and down according to herd mentality, but the core value is as a housing unit. Some housing units are unique by location, or archetypal detail, as examples, but the core value is the dirt and housing unit.

There is no top or bottom. You own the housing unit, the dirt, or control it.

There is the freeway off ramp factor. Knowing where the next improvement to the value of the dirt is going to be. Job Centers are a good indicator of future housing unit value. There are rules to Real Estate.

So yes, Real Estate is a rational market. It can be predicted. That is what an agent gets paid for. An agent gets paid to know the market place.

Wow You guys are completely irrational. You attack a guy that says “I don’t know”.

That’s what their psychic told them to do. ;-)

Seriously, how many of them were praising Ardell for making her bottom call? I think the real thing they’re upset with is not that I won’t make a prediction, it’s that I don’t share their opinion.

If you believe this to be true, why can’t you take this knowledge and use it to make decisions about the future? What you seem to be saying is that you can see the herd running north but dang it, they might just all stop and turn around heading south any second now. Is the bystander who sees the same herd and thinks that heck, those folks camping up ahead of them best be moving on because I bet that thar herd is about to squish ‘em is making a ridiculous prediction?

RE: EconE @ 78 – I am shocked that there has not been a real backlash against the RE folks that led so many to be swindled so badly.

– Me too. Americans like to blame others for their own mistakes. ;-)

I’ve told this before, but once I had to say that three times to someone. They were just convinced that the market would head up again and they were really looking for affirmation of their own opinion more than my opinion.

RE: Kary L. Krismer @ 74 –

“I don�t see how you can say I�m myopic when I don�t really take a position on where things are going, and I think fairly report where they are today. ”

That’s disingenuous- you do take a position, and your “position” is to disavow any knowledge or even awareness about what may happen in the future, thus removing yourself from the consequences of your actions. .

I take the position that there should be an ethical rule to prevent real estate agents from trying to predict the future. They’re not trained, and as a practical matter no one can. Also, there’s no financial liability at all for being wrong, so I purposefully don’t take a position precisely because there are no “consequences” to my actions. I think it’s ethically wrong to try to convince someone to make a financial decision based on a guess about the future.

Real estate is unfortunately affected by a herd mentality. People are irrational. They want to buy in large numbers when things are going up out of control, and avoid buying when prices are falling. Trying to predict where the herd is going to run next is pointless.

Realtors HAVE to play dumb.

If they didn’t…what would they say to their 2006 and 2007 clients?

“Ooops…my bad…I guess that option-ARM my mortgage-broker-buddy set you up with wasn’t such a good idea and perhaps it wasn’t such a “great time to buy”. Sorry. Thanks for the commission however.”

I’m still waiting for the pitchforks and torches.

“I don’t see how you can say I’m myopic when I don’t really take a position on where things are going, and I think fairly report where they are today. ”

That’s disingenuous- you do take a position, and your “position” is to disavow any knowledge or even awareness about what may happen in the future, thus removing yourself from the consequences of your actions. It’s less than honest because you spend a healthy portion of your day reading/posting on a site that has a decidedly negative outlook on the future of real estate and the economy in general. Additionally, that perspective is well presented, clearly documented, well reasoned, essentially peer reviewed, and wide open to critique. And what does it show? It shows that aside from a very weak seasonal bounce up in a what remains a clear downward trend there is NO positive news out there. There is NOTHING that is honest and verifiable to suggest that housing and the economy have significantly slowed in their decent, let alone plateaued. The concept of “:green shoots” is openly mocked on sites all across the Internet, both domestically and abroad. Yet you can somehow completely ignore this environment (that you’ve willingly put yourself in), and continually proclaim that no one can predict the future. That is the very definition of willful myopia.

Has my personal situation improved over the last few years because of my efforts? Yes, significantly. Is that in any way relevant to this discussion? Nope. Am I the exception? Nope- the vast majority of folks who read this site could come up with a pretty good prediction of what happens over the next few years. By denying the obvious one loses credibility when he could be building good will toward the future. Good luck.

Just as an example, you mentioned my buying a house near the peak (which was actually after the peak, but whatever). You don’t really have a clue, and that shows. That investment is earning me over 4% per annum, tax free in rental value, which is much better than what I probably could have done elsewhere over the same period of time. And as I mentioned, it saved me possibly greater losses on the old house. And it’s a hedge against inflation, meaning I’m relatively balanced for inflation/deflation. But you see it as having been a bad move because you’re so focused on price trends. Who’s myopic?

RE: Kary L. Krismer @ 56 – Whether you acknowledge it or not, your profession is at odds with many of the current issues in the economy, and thus presents a conflict of interest. While it’s true that volume is of greater
importance than price, it’s harder to generate sales volume when prices are falling. I’m not saying that you aren’t honest, or smart. or capable. I’m saying the current reality is a bit uncomfortable, so you opt for a slightly myopic vision of the future. It’s not really a criticism, just an observation. As someone who looks at a lot of data, the first question is always “where does it come from, and what is their interest?” Getting comprehensive, accurate, timely, and unbiased data is the core of what I do. It’s business, don’t take it personally.

I’m not terribly worried about my ability to function in any market, although I’d prefer a market where I didn’t have to deal with banks at all. That’s just a result of having dealt with them so much as an attorney. Banks suck.

I don’t see how you can say I’m myopic when I don’t really take a position on where things are going, and I think fairly report where they are today.

RE: Gerald @ 52 – Kary sells real estate. Admitting to himself that there is going to be a long downward trend in real estate prices, and that he is selling his clients a declining asset and locking them into a losing position would make it hard to keep selling.

Apparently I need to respond to this clearer. I represent both buyers and sellers. When I do so, and to do so, I don’t need to represent to either that things are likely to go up or down. So I don’t really need to admit anything. And most people, actually almost all people, don’t want to buy or sell mainly because they think values will go up or down in the future. It’s only people on this board that have that fascination to such a degree.

You need to admit that you don’t know the future. While there are many reasons prices may continue to decline, things may not work out the way you think. If I’m incorrect on that, I’ll assume you have $100,000,000 in profits from trading stocks over the past 5 years.

” In the last couple of years, there hasn’t been a time when I did not express the reality to clients that prices have been dropping, that I expected prices to continue dropping, and if they wanted to buy a house they needed to know that this was a very real risk.”

Commendably, that’s what sets you apart, Ira. It’s a very different approach from feigning “no one knows what the future will bring.”

No one who reads this site and can understand even the most basic data can claim ignorance of the fact that prices are not only still headed down, but headed down at a rate commensurate with what we’ve seen for the past year. If someone just has to buy a house, fine, but don’t go crying to the government or other taxing entity in a year or so when you’re upside down with no equity. And most of all, don’t pretend no one saw it coming.

RE: Mikal @ 66 –

You should ask Tim to add an “ignore” function. Then you would never even see my posts, and we would both be happier. You’d be happy because in your world, I wouldn’t exist. And I’d be happy, because you’d be happy. It’s a beautiful day- kick back, have a beer, and enjoy! ;-)

RE: Scotsman @ 68 –

I’d like to see a thumbs up or down button next to comments as well.

You should ask Tim to add an “ignore” function. Then you would never even see my posts, and we would both be happier. You’d be happy because in your world, I wouldn’t exist. And I’d be happy, because you’d be happy. It’s a beautiful day- kick back, have a beer, and enjoy! ;-)

“First, I don’t only represent buyers. I represent both buyers and sellers.”

Like I said, you sell real estate. How does your statement above refute that?

Whether you acknowledge it or not, your profession is at odds with many of the current issues
in the economy, and thus presents a conflict of interest. While it’s true that volume is of greater
importance than price, it’s harder to generate sales volume when prices are falling. I’m not saying that you aren’t honest, or smart. or capable. I’m saying the current reality is a bit uncomfortable, so you opt for a slightly myopic vision of the future. It’s not really a criticism, just an observation. As someone who looks at a lot of data, the first question is always “where does it come from, and what is their interest?” Getting comprehensive, accurate, timely, and unbiased data is the core of what I do. It’s business, don’t take it personally.