Reader Question: Worried About Goldman’s -22% Forecast

A reader dropped me the following email and posted this question in the forum, which I thought was interesting enough to share with the whole community to get everyone’s responses.

I’m recently engaged and looking to buy a home. I’ve crunched my budget inside and out, know what I can afford that isn’t over reaching. Got my 20% down saved up in the bank. I’m in a situation with a short sale right now, waiting for the bank to approve the offer. My fiancée and I were looking for a place we could get below market value, live in for a while and have some fun putting sweat equity into. We both like doing projects around our apartment and thought that fixing up a house could be a fun hobby.

Like I said, we found a short sale house in north Seattle. It’s a nice starter home by a park, the least expensive house in an expensive area, and really fits all of our requirements. We’ve been full steam ahead on the whole thing (Read: quietly waiting for the bank to approve the offer)… and then the news from Goldman Sachs came out… 20% decrease in the next two years.

I’m at a loss. I don’t take risks. I methodically scrutinize every single detail. News of this caliber really threw me for a loop. I’m realistic, I know Seattle seems inflated, I know prices have a bit more to fall. But a blanket statement that “Seattle Prices will fall 20%” confuses me.

Here’s the part I was hoping you could clarify for me:

  • When someone says “Seattle prices will fall 20%”, do they really mean ALL Seattle homes equally? It’s my feeling that the really expensive +800K houses that are more prone to falling 20%, rather than the entry level 300K.
  • From what I could gather, when GS and Case-Shiller refer to “Seattle”, its actually all of King and Pierce County. I’m more inclined to think that prices would fall 20% in a newly developed suburban areas (Kent, Lynnwood, etc.) and that core city areas (Greenlake, Ballard, Fremont, Wallingford) would be more protected from this.

Basically I was hoping you could give me an insight about what you’ve learned with all your research. If prices indeed fall 20% in Seattle, would you expect it to affect everyone equally, or do you think that things that add desirability (location, quirks, what have you) can help some houses weather the storm better than others?

Great question. The saying that “all real estate is local” has become somewhat of a cliche code-phrase that real estate agents tend to use to mean “prices will never fall in this neighborhood!” However, there is some truth to the “local” claim. Prices have already fallen more in the outskirts than in closer-in neighborhoods, and will likely continue to do so.

Also, as I said when I posted the forecast from Goldman Sachs, a 22% decline in the next two years seems high to me. My personal analysis of the data calls for more like a 10% decline to get us back in line with the economic fundamentals.

All that being said, it is of course impossible to really know where prices will go in the next two years, one year, or even six months. There are just too many unknown factors. Maybe the government will kick off a whole new permanent homebuyer tax credit program, giving anyone who buys a house $100,000. Or maybe our economy will spend the next two decades in a deflationary spiral, knocking another 60% off home prices. Or maybe we’ll enter hyper-inflation and home prices will soar 3,000%.

Obviously you can’t make your homebuying decision based solely on what might happen in the future with home prices. If you have found a house that you love and want to live in long-term (my baseline is 10 years, minimum), you can afford the mortgage without cutting your budget to the bone (and you’ve got a decent emergency fund in case of large expenses or job loss), and you feel that you are getting a fair price, who really cares if prices continue to drop after you buy?

During the bubble it was difficult for anyone to meet all of these criteria. Most people were buying smaller homes than they really wanted, in neighborhoods they really did not want to live in, at a price they felt was too high, but they bought anyway because they were afraid of being priced out forever. Buying out of fear turned out to be a really poor decision.

In summary: What the future holds for Seattle home prices is much less certain today than it was in 2007. If you can afford to buy a house that you love, you probably shouldn’t let fear of the future be the deciding factor. Just be aware that your house is not a money-making investment. It’s a place to live.

  

About The Tim

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.

150 comments:

  1. 1
    Sniglet says:

    If a price drop of 20% from the purchase amount would cause you undue stress, and heartache, then you shouldn’t be buying a house. If nothing else, the last couple years should have taught everyone that house prices can (and do) go down as well as up.

    In my own view, I believe the odds of prices declining are FAR greater than of going up. In fact, I still hold with the prediction that average Seattle area home prices will decline at least 80% from the peak by the time we hit bottom (in the 2014 to 2016 time-frame). As I’ve went on at great length in other posts, this depression is NOT your father’s recession, and that the (totally unprecedented) debt contraction we are seeing is going to lead to a collapse in asset prices (stocks, real-estate, commodities, etc).

    This is not to say that buying a home is a bad idea. If you can afford the payments and are financially secure, then go ahead and buy. Hey, many people still buy new cars despite the fact they lose 20% of the value the minute you drive them off the lot. Just because something could lose value doesn’t mean you shouldn’t buy it.

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  2. 2
    Joel says:

    I agree with the Snig for the most part. Way more than 22% decline from here is coming.

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  3. 3
    Scotsman says:

    “All real estate is local, and your area may be different- talk to a Realtor today!”

    Count on losing 20+% and not recovering it for at least a decade, maybe never. The local real estate market operates within the constraints of the national economy. The national economy will slowly deteriorate for years- think decades. We are Japan.

    You have nothing to lose and everything to gain- by waiting.

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  4. 4
    Sniglet says:

    The national economy will slowly deteriorate for years- think decades. We are Japan.

    This is an excellent point. Just look at how real-estate prices have been falling in Japan for 20 years! I believe we are entering a similar LONG-TERM phase of deflation in the US.

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  5. 5
    anonymous says:

    Perhaps rather than thinking of what someone else might pay for the house in a year or two, you should think about whether the house is worth the purchase price to you. Are the benefits of owning that home relative to renting or owning somewhere else worth the price you are paying?

    How about if you were to never sell it, so resale value doesn’t matter. Would you get enough happiness out of owning that house for the rest of your life to justify spending the 20% plus 30 years (I’m guessing) of payments, plus labor?

    I’m assuming you can afford the cost, so the payments won’t affect your ability to eat well, have kids if you want (they can easily equal a mortgage in monthly costs), or retire when you get old.

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  6. 6
    deejayoh says:

    What the future holds for Seattle home prices is much less certain today than it was in 2007.

    I guess that’s true because in 2007 we knew that a big crash was inevitable. So buying in 2007 was pretty clearly unwise vs. debatable today.
    And people who sold their house in 2003 and missed out on the entire boom (you know who you are…) should maybe add a disclaimer on their advice

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  7. 7
    DrShort says:

    My fiancée and I … I don’t take risks.

    You’re getting married. Congratulations! I’m sure you know you could lose 50% of your assets if that goes poorly, right? That’s a risk. At some point you have to trust your own judgement, live your life, and have confidence that even if it goes horribly wrong you can handle the consequences.

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  8. 8
    wreckingbull says:

    I continue to say that back of the envelope P/E is a good predictor of fair market values. Using reasonable, safe financing, how close is your principal, interest, taxes insurance to the expected rental income of said property, even if you have no intention of ever renting it.

    No it is not perfect, but this has never let me down, both as an owner and a prospective buyer. When I sold in 2006, this calculation kept me from buying a new place. It simply did not pencil out.

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  9. 9
    Hu Flung Pu says:

    Since “we’re Japan,” I’m curious… what was the size of Japan’s asset bubble [(RE+stocks)/GDP)] in 1989 relative to the size of ours in 2007? Also, what is the proportion of Japan’s debt that was held by foreigners in 1989 relative to ours today? I know the answers, but I’m curious if you do, since you’re stating that “we’re Japan,” when in many ways we are not (although, in certain ways we definitely are – but the differences are rather important).

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  10. 10
    LA Relo says:

    If you’re not planning on turning around to sell the home then who cares what the value does? A home’s true value is in that it’s shelter. It only matters what it’s worth when you sell it.

    If it’s a good deal, you could see yourself there for 10 years or so, AND you can afford it during those 10 years you’ll be fine.

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  11. 11
    ray pepper says:

    I don’t like your answer Tim:

    “If you have found a house that you love and want to live in long-term (my baseline is 10 years, minimum), you can afford the mortgage without cutting your budget to the bone (and you’ve got a decent emergency fund in case of large expenses or job loss), and you feel that you are getting a fair price, **who really cares if prices continue to drop after you buy?”**

    Tim, this guy like so many others can lose his job, get a divorce, get ill, be forced to move for many factors and if this market continue to decline as GS says it will then he WILL really care if prices drop.

    Just like we do NOT know the future we do NOT know about what could happen to him personally. I would always be very conscious of the mkt declining as GS says it will. I do like that you are going after short sales and I would also recommend taking your time. The longer the better in my opinion. We are going no where but trend line down and joining the millions in the bagholder line must be prepared for. You don’t want to have to short sale your own short sale do you?

    So how do you know when you found a GEM? You will know!! I believe this deal you are in now is marginal at best and you should give it more thought!

    What would this home rent for? What will your payment be with taxes, insurance, mi, upkeep? What could you get as a return with that down payment somewhere else. Answering these questions initially will lead you in the right direction if you should bail on this deal.

    I also STRONGLY DISAGREE with this:

    “Just be aware that your house is not a money-making investment. It’s a place to live”

    Whenever anyone chooses to BUY and NOT rent it is an investment. Now more so then ever………………BTW I think GS is right on target with their call given the info we have now.

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  12. 12
    DrShort says:

    I wouldn’t be too much stock in the GS study. It focused on predicting short term price movements ( < 2 years). If I recall correctly the biggest component in their model was change in delinquency rate. The model was very light on fundamental indicators (P/E, ratio to income, etc.).

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  13. 13
    The Tim says:

    By ray pepper @ 11:

    Tim, this guy like so many others can lose his job, get a divorce, get ill, be forced to move for many factors and if this market continue to decline as GS says it will then he WILL really care if prices drop.

    Just like we do NOT know the future we do NOT know about what could happen to him personally.

    So, you shouldn’t buy unless you have 100% certainty about the future? So, you should never buy, or only buy with all-cash?

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  14. 14
    Scotsman says:

    RE: LA Relo @ 10

    “If you’re not planning on turning around to sell the home then who cares what the value does? ”

    Opportunity cost is the relevant calculation. If you are paying $500/month more than you need to for equivalent housing then that’s $500 you won’t be saving or spending on a car, boat, vacation, private school for the kids, orthodontia, care for your parents, charity, whatever. Can you afford to lose the money is a different question from do you want to lose the money, or would you be happier optimizing the sum of your life experiences? For those of us with a likely finite lifetime income optimization is a concern. Everything, even casualness about finances, comes with a cost.

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  15. 15
    ray pepper says:

    RE: The Tim @ 13RE: The Tim @ 13

    In his case its very simple. He is concerned with the GS call (which he should be.) He told us : “I don’t take risks. I methodically scrutinize every single detail.”

    This is good. so I ask him again:

    What would the home rent for? Whats the sales price? Whats his monthly payment? How much cash is he putting down now and after the sale so the home suits his needs? After he answers these questions he can now “methodically scrutinize” if he is making a poor, good, or excellent deal.

    As we have all been educated home prices MUST come into alignment with rents and then we will see a bottom. From what I still see we remain very overvalued. However, I do find Gems from time to time that make perfect sense.

    Also, if this short sale pans out would you be able to sell it in 6 months and hopefully break even if you had to? Don’t forget about the 10% cost to sell in this state. Asking these questions to yourself is all part of your due diligence and should address your concerns.

    But make no mistake about it…when you open your wallet to BUY its an investment and it always will be.

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  16. 16
    Scotsman says:

    RE: Hu Flung Pu @ 9

    We are indeed different from Japan in many ways, and the reasons for our decline are also different- but the end result will be the same. Deflation, led by bursting asset bubbles, declining productivity, outsourcing of high paying jobs, higher taxes and falling government entitlements will be around for some time.

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  17. 17
    S-Crow says:

    Dear Seattle Bubble Reader:

    I’m a long time reader and contributor of Seattle Bubble and comment when I can. Here is my 2 cents worth from someone actively in the market:

    My guess is that the market, absent some other economic shock, will not go down another 20% as the GS piece suggested. Every sale taking place, and our office including other title companies have been busy closing sales (more so than refinances ytd in our office), places a building block for price stability. We are closing million+ dollar sales to $220K new construction. Sale prices do create a leveling of housing prices in which other sellers are using as comps. This is largely absent from conversations regarding mending the housing market. Housing sales are much higher than when they came to a near halt not long ago, but are not nearly the level of the boom.

    As The Tim suggested, your horizon in homeownership is probably the single most important question to answer outside of location. If your horizon is longer term, you’ve entered the market where a huge chunk of depreciation has already occurred (subject to location). Also, do not underestimate the USA.gov in doing their part (whether you agree with their participation in manipulating the markets or not) to keep prices elevated nor the lending community coming up with products to assist in housing affordability—I’m seeing a lot of ARM’s for the purchases including 5/1, 7/1 and even 10/1 ARM’s

    Most buyers I meet today have longer term horizons and are more apt to ask the question of home values when it is time to sell several years down the line. In addition, most buyers I meet today have money, have higher credit scores and typically have reserves.

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  18. 18
    Leo says:

    Actually my worry is most about: “My fiancée and I were looking for a place we could get below market value, live in for a while and have some fun putting sweat equity into. We both like doing projects around our apartment and thought that fixing up a house could be a fun hobby.”

    This has been an epidemic of the last decade – I think mainly because people thought that spending the weekends going to Lowe’s/Home Depot and doing hard labor were returning crazy amounts of money. With that gone, and as someone who’s been there and likes (used to like?) projects, I would seriously evaluate what you are getting into. After about a few months of weekends, you may fondly look back on your renting days, your small optional projects, and think a little differently about how fun earning sweat equity is (if you even earn anything). Just a gentle warning…

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  19. 19

    By Sniglet @ 1:

    If a price drop of 20% from the purchase amount would cause you undue stress, and heartache, then you shouldn’t be buying a house. .

    I would add to the end of that: “Ever!” I don’t engage in a lot of different business type transactions because I don’t want the “stress and heartache” regarding the risk of such transactions.

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  20. 20

    RE: Hu Flung Pu @ 9

    Very True In My Opinion Too

    Japan had an industrial base [although that’s deteriorating too lately] to carry it through most of it’s zombie real estate period the last couple decades….we have debt and service jobs, one is pegged out and the other is low wages. Neither compare too well with the older Japan in the 90s….the wage thing is hitting Japan now too I hear, P/T Toyota workers at low pay….

    It’s a grim reality when oil spill jobs are our best current hope for income creation….

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  21. 21

    RE: LA Relo @ 10

    Very True Too

    If your home’s paid for, it’s just a “tradeable unit”….it can always get you another paid for “tradeable unit”….

    Whether you have a mortgage or not though, a home will never put burgers on the stove or a crown in your mouth….only cash will do that….and second mortgaging to get cash for food is like taking out a 40 yr mortgage at age 70….it makes no sense.

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  22. 22

    RE: ray pepper @ 11

    It’s the Age Factor Ray

    When you get older you know for sure debt in just about any scenario is a curse, but when you’re younger, you look at debt as the only way to having big things…..

    The millionaires in the world thought more like the older folks at a younger age, that’s why they’re millionaires…ask ‘em….

    Also, if everyone waited to pay cash for homes, the prices would be a fraction of what they are today, but alas, humans are impatient mammals…..

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  23. 23
    matsayswhat says:

    It’s already been said, but yeah, if you can’t handle the thought of a 20% drop, don’t buy. Because it could happen. I personally don’t think it will, and am a “flat caller” (I think we’ll see no huge rise/decrease in prices for a sustained period of 3-5 years), but that still doesn’t matter in regards to buying.

    Tim listed all of the great reasons of why you should buy (if you want to), but I think he made a an especially important point when he mentioned having an emergency fund. If you buy, the mortgage needs to be added in as something you’ll want to be able to cover.

    For example, I bought a year ago because my wife and I found a house we loved and that we want to live in for AT LEAST 10 years, in a Seattle neighborhood we wouldn’t mind spending the rest of our lives living in (aside from some snowbird trips to Arizona or Mexico, lol), and our emergency fund would cover us, house included, if we both lost our jobs today, for at least a year. That’s not taking unemployment benefits (which we would both be able to max), 401ks, and other assets we could get rid of into account. Further, we’re increasing that emergency fund by another month every two months and our goal is hit two years of coverage, then start hitting the principal of the house harder. You sound financially conservative and I’m relatively conservative as well so hopefully this helps.

    Whatever you decide to do, best of luck!

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  24. 24
    David Losh says:

    RE: matsayswhat @ 23

    Great advice, and prudent.

    Get out of the short sale, it’s a suckers bet. The bank can only sell to you at retail. If you love the house,and can afford to pay it off, then buy it. If you’re buying it because you think you are getting a deal, remember, it’s the banks business to know what the property is worth. They have complete departments dedicated to knowing exactly what a property is worth.

    With a short sale you are in the Loss Mitigation Department. Their job depends on getting as much as they can out of you.

    If you want to buy below market you are better off buying some one’s rental, or a Real Estate Owned Property, an estate, or making a deal for a property at the end of it’s economic life. Some rentals don’t have any more economic viability. A property that has been paid off for many years, and the people want to move on, is at the end of an economic life. People who can no longer afford the home, and will transfer for cash, can give you an advantage.

    Distressed properties are not for the faint of heart. Truly distressed properties can seriously strain a relationship.

    You are better off buying something you can afford to pay off quickly. If you need to trade up from there so be it.

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  25. 25

    By David Losh @ 24:

    Get out of the short sale, it’s a suckers bet. The bank can only sell to you at retail. If you love the house,and can afford to pay it off, then buy it. If you’re buying it because you think you are getting a deal, remember, it’s the banks business to know what the property is worth. They have complete departments dedicated to knowing exactly what a property is worth.
    . . .
    If you want to buy below market you are better off buying some one’s rental, or a Real Estate Owned Property, an estate, or making a deal for a property at the end of it’s economic life. .

    So let me get this straight. You think a bank knows exactly what a property is worth when it’s a short sale, so stay away, but once they own it as an REO, they no longer know what it’s worth, so buy it?

    I would agree REOs can be a good deal, but the contracts there place buyers at greater risk. It can work out, but there’s a much greater risk of losing your earnest money. I would also agree about the estate sale, but there it’s somewhat dependent on how many heirs are dividing the funds. If it’s only 1 or 2, then the decision maker can be very unreasonable. If it’s 10, then each $10,000 reduction in price hardly affects anyone.

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  26. 26
    Ravenna Or Bust says:

    To address some of the questions/concerns people have made:

    The price is 299K, my down is 20% at least. When its all done my PITI on a 30 year fixed will be ~$1550. The house is a 2 bedroom, 1Bath… 760SQFT Upstairs, 760SQRFT usable basement. 1520sqrft total… Has Garage… sits on a quiet winding street (not a gridded out block).

    After living in and around the U-Dist for 9 years, I can say that 1200-1500 rental seems reasonable. But given its a house, I’ve seen other similar houses in the area renting on Craigs for 1400-1800.

    Compared to the comparable sales in the area, they have been going for 330-360K. There are plenty of very expensive tudor houses in this area, this just doesn’t happen to be one of them. Now granted… no one knows with certainty what will happen tomorrow… the best we can do is draw assumptions based on data. Will the Market go bananas in a year?… not likely… will GS be right?… maybe.

    But what is certain is that today, at this particular moment in time… it seems like a “GEM” given all it has going for it. I feel like thats the best I can say for right now. Maybe you all with think differently… and if so, I’d be interested to hear your reasoning.

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  27. 27
    David Losh says:

    REO is bank owned. The bank is in control of the asset, at that point. Loss Mitigation is as the name implies.

    You can offer whatever you like on an REO, and it depends on the day if it gets through the process.

    I submitted an article to Dustin at Rain City Guide about the process, we’ll see.

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  28. 28
    Pegasus says:

    Reality check. Don’t ever buy a house. You can’t handle the stress. If you are panicked over the thought of your housing dropping in value don’t ever buy a house. You don’t have the temperament to own one. Your fear of risk and asking blog posters to hold your hand especially guys like Kary says it all. Timing is one thing but you need to live within your own mind and not some blogger’s. You have to be able to sleep at night with any decision in life you make. Obviously you can’t. Don’t ever buy a house. You will never be happy worrying about it all night. Save your money and buy some tequila. You will feel a lot better. That is what you need to seek out of life.

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  29. 29

    RE: Pegasus @ 28 – I think you’re placing far too much certainty on what the stress would actually be. Above I agreed w/ Sniglet’s statement that if it is going to be too much stress, they shouldn’t buy. If anything, what I said was stronger than what Sniglet said (or at least that was the intent). But I really don’t think you can assess the stress from what’s been written here, and really it’s something only the person themselves can determine.

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  30. 30
    Ravenna Or Bust says:

    RE: Pegasus @ 28

    Pegasus, I don’t why I’m willing to fan the flames right now, but I am. You know nothing about me and what I can handle aside from a single posting, and a comment. Furthermore, I am not asking anyone to hold my hand… what I’m asking for are opinions and advice. I have my own opinions made up, but maybe I missed something. In a sense, it’s called peer review.

    To another point. You’re only comment on this entire subject can be summed up with “buy a bottle of tequila instead”, which fails to be constructive, and also doesn’t address the bulk of my original concerns. Which, if I take a hint from the Pegasus Playbook on Posting, can be summed up by “Goldman Sachs says Seattle prices will fall 22%… is this blanket across all houses equally, or will certain areas fall more than others?”

    Don’t forget to back your answer up with reasoning. You told me buy a bottle of tequila, and you provided a reason I should do so. Please explain future posts with the appropriate reasoning.

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  31. 31
    Pegasus says:

    All the signs are there Kary. What if they buy the house and the value stays even and some guy named David moves into the house next door and starts flashing his gun at them out the window every day? There is always something to worry about if you want to. Home ownership isn’t for everyone. Here is the best clue:

    “I’m at a loss. I don’t take risks. I methodically scrutinize every single detail. News of this caliber really threw me for a loop”

    Earth to Kary. What part of “I DON’T TAKE RISKS” don’t you understand?

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  32. 32
    Ross Jordan says:

    By ray pepper @ 11:

    Whenever anyone chooses to BUY and NOT rent it is an investment.

    I bought my car, and certain don’t consider it an investment. Why should a home be different? We’re buying a depreciating asset that will fall apart and turn to dust without constant maintenance. The only underlying value is the land which is worth as much as your neighbors are willing to bid it up to.

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  33. 33
    Rojo says:

    Hey – don’t buy!! Prices are going to fall quite a bit more. What will you do then?

    Instead how about this? rent my house in capitol hill instead and help pay for my mortgage.

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  34. 34
    Pegasus says:

    Ravenna Or Bust @ 30. Read my reply to Kary. Life is a risk. Some just handle risk better than others. You made a decision to buy and now you are agonizing over your decision while trying to predict the future. Do things in life that don’t cause you to worry. You are exhibiting buyers remorse over an unknown future. You stated that you are being thrown for a loop because of one prediction. You stated you don’t take risk. You are sadly mistaken if you don’t think buying a house is taking a risk. Lots of things can and will go wrong. It’s called life. The part about the tequila was to suggest you eliminate that which is causing you to worry if you can and enjoy life. I sincerely hope you do.

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  35. 35
    Rojo says:

    By Pegasus @ 34:

    Ravenna Or Bust @ 30. Read my reply to Kary. Life is a risk. Some just handle risk better than others. You made a decision to buy and now you are agonizing over your decision while trying to predict the future. Do things in life that don’t cause you to worry. You are exhibiting buyers remorse over an unknown future. You stated that you are being thrown for a loop because of one prediction. You stated you don’t take risk. You are sadly mistaken if you don’t think buying a house is taking a risk. Lots of things can and will go wrong. It’s called life. The part about the tequila was to suggest you eliminate that which is causing you to worry if you can and enjoy life. I sincerely hope you do.

    exactly – I am opening a new business in the worst recession ever. Is it a risk – absolutely. Is there upside? Yes, absolutely. My startup/construction costs are 20% lower, I am able to find retail spaces that were never available for the past 10 years. Risk comes with every decision in life. Nothing is risk free. It is how much you are comfortable with the level of risk.
    Posting on a public forum like this is not going to make your decision any easier. Either you will take that risk or you won’t.

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  36. 36

    RE: Pegasus @ 31 – I’m rather risk adverse myself, but that’s only part of it. Perhaps they would also beat themselves up for not acting. You’re right that language does indicate extreme concern, but even so I think that’s only something they can truly assess.

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  37. 37

    By Rojo @ 35:

    Posting on a public forum like this is not going to make your decision any easier.

    And it’s probably not a good idea either! ;-)

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  38. 38
    Ross Jordan says:

    By Sniglet @ 4:

    The national economy will slowly deteriorate for years- think decades. We are Japan.

    This is an excellent point. Just look at how real-estate prices have been falling in Japan for 20 years! I believe we are entering a similar LONG-TERM phase of deflation in the US.

    Here we go again with Japan. While there’s similarities between Japan’s housing boom & bust to US housing boom & bust; there’s also lots of differences between the economies, cultures and societies. The US, for all its faults, is responding much faster than Japan did and recognizing losses faster than Japan did.

    The following article gives a good summary:
    http://www.slate.com/id/2221235

    Kiyohiko Nishimura, Yale-trained economist, former Tokyo University professor, and deputy governor of the Bank of Japan:
    “According to Nishimura’s schema, in less than two and a half years, the United States has experienced as much trauma and recovery as Japan did in about 12 years. ”

    I’m not saying that the US housing bubble is nothing like Japan’s. But I don’t think its a good predictor for suggesting the price of housing will continue to decline for 20 years.

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  39. 39

    RE: S-Crow @ 17 – if ths site had a “like” button (I spend too much time on Facebook!) I would “like” your comment, S-Crow.

    I just had a refi appraisal come back with a value higher than what the couple paid for their home in Seattle 2 years ago–not common right now but I was pleasantly surprised.

    I have a hard time giving GS much credit considering they’re being investigated for fraud.

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  40. 40
    DrShort says:

    By Ravenna Or Bust @ 30:

    what I’m asking for are opinions and advice. I have my own opinions made up, but maybe I missed something. In a sense, it’s called peer review.

    Don’t expect much in terms of a balanced viewpoint from the comments (with a few exceptions). What you’re going to get is a worst case scenario review, not a peer review.

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  41. 41
    deejayoh says:

    RE: Ross Jordan @ 38
    I did a post comparing the two bubbles. The housing bubble in japan was about 2x the US in terms of magnitude. And the impact on their economy went on for so long because every attempt by the government to reinfuse capital into the economy was just more fuel for the Yen Carry Trade, which shipped the money overseas. I don’t know that there will be a similar “dollar carry trade” in that anybody who tried it has probably been wiped out by the fall of the Euro. A carry trade requires a willingness of CB to peg currency and a disparity in interest rates. Neither of those apply to the US’ current situation

    http://seattlebubble.com/blog/2008/11/03/comparing-the-us-and-japanese-housing-bubbles/

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  42. 42
    David Losh says:

    RE: Ross Jordan @ 38

    Americans have little aversion to bankruptcy, and foreclosure.

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  43. 43
    ray pepper says:

    RE: Ravenna Or Bust @ 26

    Ravenna, I will give you the answer your looking for since everyone seems to be skirting.

    sales price 299k
    your dropping 20% down + closing costs (about 65k)
    your payment will be the same as if you are renting (give or take 100 bucks)

    Your paying 65k + upgrades/maintenance (sweat equity) throughout the years just to get a payment in-line with current rents.
    Your not going to flip it.
    You want to live in it for a long while.
    Your concerned about it dropping in value due to GS article.

    My answer based on everything you provided about yourself: Do not buy. This is NOT a Gem.

    Talk to me again when your payment is 1000 in the same scenario. Because you have scrutinized this so closely YOU have enough brains to realize this is no Gem. I think you know this already.

    Many may not tell you this but I will. Its getting uglier by the day. Be patient, you will get your Gem.

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  44. 44
    BubbleheadsDon'tKnowItAll says:

    Ravenna – Many posters on this site constantly ridicule predictions. Now suddenly GS makes a prediction and we should all expect it to come true? Just like they will ridicule mainstream media and then post articles from these same sources that support their position. (btw I am no msm fanboy but try to be consistent bubble heads) I don’t know how long you’ve been reading here, but as with anything, you need to take the responses you get here in the proper context. Many are like sniglet that think prices will drop 80% from peak. Personally I think he’s cracked, as would most people you talk to. Don’t bother bubble heads, I already know your response: average people are dumb and we know everything. Fine, can’t really move forward from this.

    Ravenna you sound like a level headed guy and have thought this through. As long as you aren’t expecting to sell in a short time frame, you will be fine. Tim’s advice was good, you can trust him. Many of the others on here are just follow-the-leader types. They like to gang up in these discussions. Watch out, they may start ripping on your fiance next. The overreactions and assumptions made by those on this site (like what you’ve experienced with Pegasus) will blow your mind, Ravenna. Take it all with a big grain of salt.

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  45. 45
    HappyRenter says:

    By Rojo @ 33:

    Instead how about this? rent my house in capitol hill instead and help pay for my mortgage.

    ok, how much?

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  46. 46
    ray pepper says:

    Ravenna if you would like to talk with someone who just closed on a Gem I will furnish you his number. He closed on it. He can sell it tomorrow for about a 40k profit or he can live in it and his payment will be 750 less then the current market.

    He waited, and waited, and waited….Then bammm. He can handle any drops in the market, sell and break even after a 20% drop, rent the home at a profit, or live in it. They are out there!

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  47. 47
    Rojo says:

    By HappyRenter @ 44:

    By Rojo @ 33:
    Instead how about this? rent my house in capitol hill instead and help pay for my mortgage.

    ok, how much?

    For you – only 2500/month.

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  48. 48
    Rojo says:

    By ray pepper @ 43:

    RE: Ravenna Or Bust @ 26

    My answer based on everything you provided about yourself: Do not buy. This is NOT a Gem.

    I am so surprised that you got an advice of not buying!!

    Who would have thought you would get that advice? Not me – anyone??

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  49. 49
    ray pepper says:

    RE: BubbleheadsDon’tKnowItAll @ 44

    Bubblehead the GS call is meaningless. The Bubblehead predictors (including me) is meaningless. But, based on the info he provided about himself, the property, his loan, and the rental rates this is NOT a buy!

    Please someone run the numbers for me and show me how it is a buy? Paying 65k down plus sweat equity to have a break even property with rental rates is NOT a good investment. I don’t care how long someone INTENDS to live in the property. All we can deal with is the here and now.

    This is NOT a good deal.

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  50. 50
    Jeremy says:

    I am still not a believer in the long run deflation thesis. I agree that in the short run we’re still facing deflation but UNLIKE Japan we don’t have enough domestic savers to finance our deficits indefinitely. At some point I expect that we WILL have inflation and at that point a house isn’t a bad hedge. It all depends on your timeframe and expectations about inflation vs borrowing costs. I think it’s insane for the banks to be offering 5% on a 30-year mortgage. If inflation goes up at all, the real borrowing costs will be fairly low in the long run.

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  51. 51
    David Losh says:

    OK, we have been working on a property by Green Lake, actually between Green Lake and Wallingford, that is about 750 sq ft, built on pier and post, with a price of about $350K. I think it’s a good deal, and worth the price.

    As an alternative to a condo, it has a great yard, good neighbors, and killer location.

    Now, I’m one of those people who thinks everything is over priced, but when I saw this place, my thinking was it has room to grow, maybe even appreciate in value.

    I would think some junior executive could buy the place, and pay it off in about 7 years. I have also seen places sell for $450K near Green Lake that were decent purchases. These kinds of places will hold value based on the buyer pool.

    A place at Ravenna may be the same. If as I suspect the property is on the part of Ravenna that is closer to the University, the value may be more dicey. If it’s in the section of town house rentals, it may just be a problem.

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  52. 52

    RE: David Losh @ 51 – Pier and post fascinates me. If I could become an expert in one thing, it would be pier and post.

    I’d love to see a study sometime of how P&P does during earthquakes. I suspect it’s fairly well.

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  53. 53
    David Losh says:

    RE: Kary L. Krismer @ 52

    I’ll suspect that’s sarcasm, but these are big timbers. Some people use those big timbers to jack a house up, add a 2X6 framed first story, then set the house back down on the framing. Once the contractor starts jacking 6″ or 9′ is very little difference.

    I’ve always wanted to do it, or add a second story, like on the house I currently have, but never got around to it. I know people who have done it on several occasions.

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  54. 54
    Ron Nelson says:

    Sounds Like Not To Bad a Deal… I’ve read and what I’ve Gathered your currently paying almost that much in rent? thats what i’ve Gathered..

    However- Taxes Insurance Maintenance and extra cost of Utilities in a House…

    20% off is going to be easy… Especially for Seattle- if we were in Phoenix- Las Vegas I Would say were At or Near a Bottom.. …

    It’s a GREAT DEAL **Anywhere that the Cost to Rent is 10% MORE EXPENSIVE Than the Cost of Renting from the Bank…

    Were just not there Yet.. and only been Prolonged.

    Personally I don’t Care if your involved in the Industry… not many people involved in the Real Estate Industry been able to call this Yet. How come so many people that are not involved in the Real Estate Industry been that much more accurate. Seems that being in the Industry probably in many cases fogs the Glasses, or maybe SEEING GHOSTS?

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  55. 55
    Ron Nelson says:

    Acually I Agree with the Above Statement that this isn’t a Good Deal… given the Opportunity costs upfront of Placing 20% down- I was overlooking this. I was thinking FHA With 3% down… to put down 20% cash and still be at a Cost of roughly 20% more than the Cost of Renting doesn’t make sense.

    Truth is that Ownership is Merely an Idea… The Only Thing that’s real is CONTROL..

    Whether you Own or Rent the Only difference is the Level Of Control~!! One major difference: With Rent you have a Timeline of Control..

    ********Please someone run the numbers for me and show me how it is a buy? Paying 65k down plus sweat equity to have a break even property with rental rates is NOT a good investment. I don’t care how long someone INTENDS to live in the property. All we can deal with is the here and now.***********

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  56. 56
    Ron Nelson says:

    David Losh
    You sound Like a Real Estate Agent always thinking outside the Box on Who the Potential Buyer might be.

    Your not thinking Positive Cash Flow, Cap Rates, Return On Capitol. Thats What Got us into this mess…. People Not Thinking Straight. Reminds me Of Petfood.Com or remember the Days of how many “Eyeballs are looking at my website.

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  57. 57
    EconE says:

    “Sweat Equity” is more “sweat” than “equity”.

    I restored a house I owned and that was my experience.

    Take the courses that Lowes and Home Depot offers…even if it’s stuff you’re not necessarily planning on doing. They’re free.

    If you know a friend that owns…help them on some projects. You’ll get some hands-on experience and down the road, when it’s your turn…you’ll probably get some help in return.

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  58. 58
    David Losh says:

    RE: Ron Nelson @ 56

    The numbers, are the numbers, and if more people paid attention to that we would be better off.

    I have however been fortunate enough to be able to do things with property. There are people who think inside the box where the numbers work. Raising the house has been used by a couple of different investors, actually more than a couple that I can think of.

    Foundation work is something we can do, but as long as the house is in the air, a few more feet isn’t really that difficult.

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  59. 59
    Markor says:

    RE: softwarengineer @ 22

    So true! I’m trying to teach my kids this.

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  60. 60
    Ron Nelson says:

    My Opinion:

    I Read this Site for Kicks.
    I think that this Site is Much to Elementary.. It doesn’t seem that the Main author is very financially educated, However given the Work involved with putting this Website my hats off to THE TIM. The site Material in many cases seems so rooted around the Same Material it doesn’t seem to go outside the Boundaries of Simply Houses IN SEATTLE.

    This Mess really isn’t about Houses… its About “Home Loans/Credit/Banking/World Banks/Government or lets say Government Intervention….
    Its about Society and the Norms… Beliefs…

    Problem is that to be Successful you Generally have to go against the Crowd to get there..
    You have to Be Willing to stand up to adversity. Make decisions based on what you think is Important. You have to Remember your the One Paying your Bills~!! your Relatives & Friends will Happily Give you Advice- However your the One that going to have to live with your Mistakes/paying the Bill.

    Afford?? now that An Important Question? What does it Mean?? What does it mean to Afford something??
    for me afford? if I cant Invest 50% of my Income I cant Afford to Buy it?? So I keep hearing afford? do most people mean that by affording something that they can make it to the Next Paycheck?? You know what afford means to me? I Find it confusing when people talk about affording something.

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  61. 61
    jj says:

    The only prediction that I really trust is that we will NOT have a return to double digit annual increases in home values in the next few years; it seems really, really, really, really unlikely that you will lose out on price appreciation or be priced out of the market if you decide to wait to buy for a year or two. Also, if you don’t buy now, you can put all the “sweat equity” into your new marriage.

    Good luck.

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  62. 62
    I-BankerMan says:

    @39 Rhonda. I have to laugh when a small mortgage broker thinks they know more than the premier investment bank in the world. I sometimes wonder if the NAR and mortgage brokers get the same chearleader books.

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  63. 63

    RE: David Losh @ 53 – Not sarcasm at all. Although I do find Pier and Post a bit scary too. If I had the guts to buy one, my first thought would probably be a foundation.

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  64. 64
    corncob says:

    Besides the house possibly dropping in value (20% might be much, but I wouldn’t count on any real growth over your purchase/selling costs either) it sounds like a great way to ruin your new marriage with sweat equity. It looks fun on HGTV because they cut out the part where anger and desperation set in. You should post back here in about four months and tell us if you are in separate beds yet or just living in half-completed squalor instead.

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  65. 65
    Ron Nelson says:

    Why is 20% to Much???

    What makes 20% sound like a Lot?

    There is no Guarantees in Rental Values or Property Values.. There is Only Wages and Wage increases to Pay Rents.

    There is Savings and the Ability to Get Loans to Control Properties For whats portrayed as Ownership.

    At the Moment both Wages Or People Unemployed or Underemployed is the Reality for about 20% of the Population, So how hard is it to believe that things are not going to get any better for the Time Being…

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  66. 66
    Ron Nelson says:

    Rojo…
    So you think you can Just place a Price on Your Place and Wave your Magic Wand and Ask whatever price you want to Rent Something For?? Your Funny… ..

    Just Like I can Sell You a Couple Of Houses for Whatever Price I want??

    I can Only Afford to Spend 7% Of My Income On housing You Have Place For Me?? Seriously 7% thats All I will Spend On Housing~!! Im not Kidding….. I Can’t Afford anymore than 7%

    How about we have a 7% agreement and Then We Sign contract then I will give you the Amount that you will get.. it will be a Surprise…

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  67. 67
    I-Banker Man says:

    By Rhonda Porter @ 39:

    RE: S-Crow @ 17 -I have a hard time giving GS much credit considering they’re being investigated for fraud.

    ….because a mortgage broker knows more than the world’s premier investment bank (rolls eyes)

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  68. 68
    The Tim says:

    By jj @ 61:

    Also, if you don’t buy now, you can put all the “sweat equity” into your new marriage.

    But it’s so much more fun to do both at the same time!

    The Money Pit

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  69. 69

    RE: Ron Nelson @ 54
    You’re right. Being in the industry does not help in being more accurate. Not every single person in the industry shares the same opinions, but there is a lot of Kool-Aid drinking.
    I stick to bourbon.

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  70. 70
    Ron Nelson says:

    I think when your Paycheck relies on something Selling.. .. or to put it another way- To Sell Something is To Believe In What your Selling.

    Do you think you would be a Convincing Successful Salesperson Selling something that was You believed was Going to Drop 25% more…. Seriously I would Feel Real Guilty Selling houses, Right Now.. I would have a Better Time just being the Mortgage Broker, let the Real Estate Agent fill the Customer with Hot-Air.

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  71. 71
    Ed B. says:

    “And people who sold their house in 2003 and missed out on the entire boom (you know who you are…) should maybe add a disclaimer on their advice”

    Many of the people who profited most between the years of 2003 and 2007 are the abusers who have destroyed the world economy. When you walk away from an upside-down mortgage now, you are placing the some of that burden on people who don’t deserve it (legal or not). Yes it was the fractional reserve banking system and derivatives gambling on a massive scale that allowed the abuse to occur, but you must always consider the willingness of the the abuser to “shoot-up” just once more, when you lay the blame.

    It was obvious in 2003 that the party could not continue forever, and yet the revellers just kept shooting-up. So listen to someone who put 25,000 into gold that year, rather than into a down payment on real estate. The party is over. If you are a large debtor, your only hope is inflation as a method for destroying your debt by devaluation. Can you get what you want without that inflation going hyper? I doubt it. They weren’t making any more real estate, but sure as hell were making more homes, weren’t they? Odds are that the dollar value of your real estate is going nowhere, probably for the rest of your life. The only way you’ll see a chance of increase is if wages are increasing simultaneously. 22 percent is wishful thinking.

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  72. 72
    Scotsman says:

    RE: I-Banker Man @ 67

    Everybody gets to “talk their book”- even investment bankers, not just realtors or mortgage reps. And I don’t think investment bankers have much credibility these days, something about MBS, intentional market manipulations, swaps without any real backing, you know, that kind of stuff.

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  73. 73
    rational says:

    Ron Nelson @60:

    “Afford?? now that An Important Question? What does it Mean?? What does it mean to Afford something??”

    Very apt question. I have always wondered about this. In this financial system “afford” means “if someone is foolish enough to give you a loan.” Sadly, many people found out the hard way that affordability is a violent dog. Even a change at the margin (lower income due to cut in salary) can impact your affordability if you are playing at the extremes.

    To me, and apparently to many on this forum, being able to afford a house means being able to buy a home with cash. Of course, if you find a better place to invest your cash and can earn more than the mortgage rate, you borrow to buy your home and invest that in your venture. In other words, borrow strategically. Perhaps you can push that idea a bit and borrow against a small portion of your future income stream.

    Thanks for reading. I know the majority of the country is strongly encouraged to live large and borrow as much as they can, so this thought on responsible borrowing is completely ignored.

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  74. 74
    drshort says:

    RE: Ron Nelson @ 65

    http://www.utexas.edu/visualguidelines/capitalization.html

    You could be Carl frggin Segan but with you grammar / capitalization I cant take a thing you write seriously.

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  75. 75
    patient says:

    I would not feel comfortable with betting against a 20% further decline and my guess is that if it came down to putting hard money on the table not many here would make such a bet just becaue it’s not at all unlikely. Times are very uncertain, be careful with your assets.

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  76. 76
    jj says:

    RE: drshort @ 73

    i CoulDn’T aGree WitH yOu moRe.

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  77. 77
    Meadows says:

    Am I the only homeowner (3 homes over 30 years) here who never gave a rat’s ass whether my home went up or down in value? I built our first home completely with sweat equity from scratch. Starter home, 10 years. Made a profit.

    Second home in a comfortable hood for nesting and breeding. 5 years, doubled our $…

    Third home in better hood last 15 years as sons almost graduate college now. Happy to retire in this one…

    We always built or bought because we liked the home and hood and were happy to live there, making money selling was just a good break, never planned.

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  78. 78

    By Ron Nelson @ 70:

    I think when your Paycheck relies on something Selling.. .. or to put it another way- To Sell Something is To Believe In What your Selling.

    Do you think you would be a Convincing Successful Salesperson Selling something that was You believed was Going to Drop 25% more…. Seriously I would Feel Real Guilty Selling houses, Right Now.. .

    I’d feel guilty pretending that I was some sort of all-knowing God and walking around thinking that I knew what was going to happen in the future and that I should be making decisions for other people.

    I’ve said this before, but what you think the price of housing will do in the next X years should not be anywhere near the top of the reasons why you’re going to buy or sell. Not only should other factors be more important, but any individual’s prediction of the future could just as easily be replaced by a dart board and be just as accurate.

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  79. 79

    By Scotsman @ 71:

    RE: I-Banker Man @ 67

    Everybody gets to “talk their book”- even investment bankers, not just realtors or mortgage reps. And I don’t think investment bankers have much credibility these days, something about MBS, intentional market manipulations, swaps without any real backing, you know, that kind of stuff.

    I remember Deutche (sp?) Bank had some sort of study out within the past year. Maybe it’s through some sort of assignments, but they seem to be on most of the trashiest REO sub-200k properties out there. Relying on them for a study of the future would be like pulling up to a car broken down on the side of the road to ask what type of car to buy. They know what’s gong to happen 3 years from now, when they didn’t know what was going to happen 3 years ago? Right.

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  80. 80
    David Losh says:

    OK, I can’t resist. We worked on a place last week where the people had lived there for twelve years. The daughter was graduating from high school and they are having a party. They both work two jobs, and the house is completely torn up, with missing mouldings, broken plaster, some sheet rock, and dust everywhere. It is a charming 1907 farm house, but what a way to live.

    Come to think of it I was single for many years, and moved every six months. I would live in the property I was working on at the time. When I did get married we divorced after I started sheet rocking the second story. Hmmm…

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  81. 81

    By Meadows @ 76:

    Am I the only homeowner (3 homes over 30 years) here who never gave a rat’s ass whether my home went up or down in value?.

    This forum is made up of people that are hyper-sensitive to that issue. Although I will say I think it made a lot of owners feel good when prices were rising–not that it necessarily made their lives better or affected them in any way. But even though I don’t think too many people walked around all day every day smiling because their house was increasing in value. So today they shouldn’t be in too big of a funk about it either, unless they have plans on selling in the near future.

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  82. 82

    RE: Kary L. Krismer @ 77
    I’m disappointed, Kary. I thought you were some sort of all knowing god.

    But it is true that when your living depends on selling houses, and you’ve got money going to your broker, for Realtor membership, for car payments, etc, you’re going to be under some pressure to sell. And when you’re under some pressure to sell, you’ll do what you feel you need to do in order to sell, even becoming a self proclaimed real estate expert and prognosticator.
    I don’t think that any of the real estate industry affiliated folks who post on here regularly feel those pressures, so a Ray, or a Kary, or an Ira (me) are less inclined to spout the industry gospel of how necessary and wise is it to buy a house right now.

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  83. 83

    RE: Ira Sacharoff @ 81 – The people I deal with already made the decision to buy or sell (or both). And in the past two years I don’t think I’ve dealt with a single seller that wanted to sell because they thought prices would decline further. Just as what you think prices will do shouldn’t be a top reason to buy, it apparently isn’t a top reason to sell either.

    BTW, car payments? Do you think I got a 30 year loan on my truck? ;-)

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  84. 84
    patient says:

    By Kary L. Krismer @ 81:

    By Meadows @ 76:
    Am I the only homeowner (3 homes over 30 years) here who never gave a rat’s ass whether my home went up or down in value?.

    “This forum is made up of people that are hyper-sensitive to that issue.”

    And isn’t that strange? Fluctuating home values has destroyed our economy, many big corporations and caused job losses and financial ruin for count less of people. Yeah, those hyper sensitive bubble heads. Perhaps it isn’t such a bad thing to give a RA of where and when you borrow a big chunk of cash?

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  85. 85
    Dirty_Renter says:

    RE: Scotsman @ 16

    I remember reading, in the early 90s, that a certain city block in Tokyo, was valued more than ALL the real in the USA. Deep Thoughts.
    Dirty Renter

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  86. 86
    sallybuttons says:

    blahblahblah! $$$ (+ or -) blahblahblah.

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  87. 87

    The more I read from so called experts, the more I’m convinced that they know nothing. A few years ago, “experts” were saying that Seattle was immune from home price drops. Now these experts at Goldman Sachs are saying the Seattle area will see an additional 22% price drop in housing. This was the same company that was peddling collateralized debt obligations, stuff that was AAA rated when it clearly should not have been. They don’t have any credibility with me.

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  88. 88
    Pegasus says:

    Ira @ 87
    But Ira they made money by selling those off to suckers err investors while they shorted them. Sometimes crooks actually know what they are doing. That is why this 22 percent prediction has credibility. Now you have to figure out whether or not they are trying to manipulate the Seattle housing market down so they can steal houses here or are they really telling the public their true prediction this time. Maybe they are trying to scare Bill Gates into panic selling his? That ad that keeps running on Yahoo Finance showing Gates with his mouth wide open and asking “What is Bill Gates afraid of” is hilarious.

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  89. 89

    RE: I-BankerMan @ 62 – You’re right…I shouldn’t have an opinion and I should trust everything I hear or read from the so-called experts. (eyes rolling back at you).

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  90. 90

    RE: Rhonda Porter @ 89
    I would trust Rhonda Porter a whole lot more than I would the ” world’s premier investment bank”.
    Goldman Sachs has proven to me that they’re either incompetent or crooked, or both.
    Rhonda has a reputation for honesty. Goldman Sachs doesn’t.

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  91. 91

    RE: Ira Sacharoff @ 90 – I would trust Rhonda more simply because she doesn’t waste everyone’s time with stupid studies purporting to be able to predict the future. That type of activity is the arena of con-men.

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  92. 92
    Pegasus says:

    My my….Lovefest blossoms at the Bubble…..Your turn Rhonda.

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  93. 93
  94. 94
    JimN says:

    RE: Meadows @ 77

    Investment or Not?

    Ideally, the prudent citizen would be growing a diversified portfolio – stock/bonds/retirement/cash etc. Housing prices would be in line with fundamentals such as incomes, rents etc. We would consider buying when we had the down payment, income, emergency fund to withstand unexpected shocks – job loss, divorce, etc. (formerly capital depreciation wasn’t considered, but now we can add this possibility). We would be like Meadows. ie. if i have a reasonable investment/retirement portfolio, it really doesn’t matter what my $300 K purchase in Ravenna does over the short term.

    In our society, we’ve been extolled the benefits of ownership mostly by infrastructure that profits from the churn of resales. Amazingly a system was devised to funnel even more liquidity/credit to already over-indebted society. Not only did people borrow more, they also saved less and became less diversified, just the opposite of what we should have done. Yes, risk is a part of life. But, you can also prepare, and/or mitigate risk. We have a government policy of maintaining higher home prices right now, because the proper reset would cause too much collateral damage.

    If Ravenna or Bust is concerned about the possibility of a price drop, he is an investor/speculator. Thus I think Ray Pepper’s advice is spot on, given the numbers. But hey, just like lotto “you’ve got to be in it to win it.” Growing your current money to a more diversified portfolio and waiting until your not worried about price drops is for losers! :)

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  95. 95

    By JimN @ 94:

    In our society, we’ve been extolled the benefits of ownership mostly by infrastructure that profits from the churn of resales. Amazingly a system was devised to funnel even more liquidity/credit to already over-indebted society.

    I’m not sure what you mean by “infrastructure.” I would say that is was more government than business, although businesses did participate once government set up the programs. Our state government even created programs for second loans that paid closing costs and had deferred payments. It will be interesting to see what the effect of those is on future budget deficits.

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  96. 96
    patient says:

    There’s a string of commenters here who make their living from homes being sold in this area, escrow, lenders, agents. Sorry but I’ll put more weight on GS than any of them. When your paycheck depends on transactions it’s very hard to be objective even if you want to.

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  97. 97

    By patient @ 96:

    There’s a string of commenters here who make their living from homes being sold in this area, escrow, lenders, agents. Sorry but I’ll put more weight on GS than any of them. When your paycheck depends on transactions it’s very hard to be objective even if you want to.

    So you think that Goldman Sachs is an objective source? Goldman Sachs, who sold packaged collateralized debt obligations and is being investigated for fraud? Goldman Sachs, whose previous chairs and CEOs have landed as governors of the Federal Reserve and as Treasury Secretaries?
    I’ll grant you, you’re going to get a taint, a stink, when you ask a real estate agent for impartial advice, but to suggest that Goldman Sachs is going to more objective?
    That’s like putting real estate agents below used car salesmen, collection agents, and telemarketers on the totem pole.

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  98. 98
    patient says:

    RE: Ira Sacharoff @ 97
    “So you think that Goldman Sachs is an objective source?”
    No I don’t, but they have operations outside Seattle and are diversified in many more areas. Their incentive to rate Seattle better or worse than any other area is just not there. The incentive from local businesses who relies on homes being purchased here is obvious. So I put more weight on GS in this specific discussion. Do I like them? Heck no, they should have been left to crash and burn and their influence over the government destroyed.

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  99. 99
    Robert Douglas says:

    In regards to a 22% price drop over the next two years I think you need to look at how it breaks down. I do think that new condo and townhouse prices are going to drop even more than 22% because builders are adjusting their prices downward and there is a serious oversupply. Aditionally in the future they will be providing smaller units with fewer amenities at the lower prices. Overall we will see larger volumes at these lower price points and larger drops in the outlying areas which will drag down the averages. Secondly the high end of the market will continue to collapse even more. A lot of builders got the bright idea that they would target the high end market and they seemed to jump in en masse and put out 2 million dollar plus homes that weren’t really worth 2 million even in 2007 and are worth considerably less today. The place to find real bargins is in the million dollar plus range. The buyer pool at that end has really dried up.

    As for single family residential in the sub 500K market we are still seeing good liquidity particularly in solid neigborhoods. Marginal houses and poorly maintained rentals are suffering but solid well located and well maintained houses are still getting multiple offers. I do not see a solid well maintained house in a good neighborhood in the sub 500K price range dropping 20% or even 10%. In fact we may see a slight rise there. Sorry to those folks out there who are waiting for that cute brick tudor a block from Green Lake to drop to 150K, don’t hold your breath. I agree with many of the other comments that caution Ravenna about the illusion of “sweat equity”. Once you part with 65K of cash you are going to be hard pressed to afford much in the way of repairs. If the sweat equity you are talking about is just updating an out dated kitchen and bathrooms that’s one thing. But if it needs major repairs and remodeling then take a pass. It will strain your pocketbook as well as your marriage.

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  100. 100
    EconE says:

    RE: patient @ 96

    Don’t you miss the *old* Seattle Bubble?

    The one that wasn’t spammed by a bunch of smarmy industry charlatans?

    Where the only joker that we had to put up with was Meshugy?

    You know…back in the days *before* Tim took advertising dollars from the REIC?

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  101. 101
    Hu Flung Pu says:

    By Scotsman @ 16:

    RE: Hu Flung Pu @ 9

    We are indeed different from Japan in many ways, and the reasons for our decline are also different- but the end result will be the same. Deflation, led by bursting asset bubbles, declining productivity, outsourcing of high paying jobs, higher taxes and falling government entitlements will be around for some time.

    I don’t think the end result will be the same in magnitude. I doubt our bust will be as bad as Japan’s.

    First, the magnitude of Japan’s bubble was 2.6x ours. That is, if we scale the peak of our bubble [in terms of (RE Values + Stock Market)/GDP] at 100 in 2007, Japan’s was at 260 in 1989. The grounds of Tokyo’s Royal Palace were valued at more than all of the real estate in California in 1989. Japan’s stock market traded at almost 80x peak earnings. Think about that for a moment.

    The reason I point this out is that the relative size of Japan’s bubble trumps every other comparison between their post-bubble experience and however ours turns out. It’s comparing apples and steaks.

    In addition, over 95% of Japan’s bubble debt was held inside Japan, so Japan had to bear the brunt of almost all of the defaults on corporate debt. In contrast, 27% of the US’s debt – of all stripes – is held outside the U.S. So, losses on the U.S.’s bad debts will be far more spread out to the rest of the world than was Japan’s. (That is, we don’t have to eat all of our losses like Japan did.)

    Now, the one thing Japan had going for it that we don’t is a high savings rate. So, that’s one in Japan’s favor. But… the relative size of Japan’s bubble (and implied losses) as well as the distribution of those losses (almost all inside Japan) make an astronomical difference in how bad things are going to be for the US going forward (relative to Japan’s lost two decades).

    Now, I believe we will continue to see some deflation over the next few years here in the U.S. And we’re not going to see much growth over the next 5-10 years. It’s going to be ugly – make no mistake. But… I seriously doubt that we’ll see two decades of deflation like Japan did. Japan was just FAR worse off than we are (despite how weak our own situation is) when all of the relevant factors are weighed.

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  102. 102
    Pegasus says:

    Hu @ 101 Me thinks you underestimate the impact of debt per citizen in the US versus Japan. In Japan the citizens were awash with cash as they entered their collapse. They are now just entering the phase where foreign investment is important. We don’t have the luxury of doing stupid things like they did for twenty years as we are already leveraged to the hilt. We are entirely dependent on foreign investment to survive and our foreign buyers know this and are using it to their advantage. I am sure they won’t take advantage of us while we are struggling to survive(wink, wink). The world and our country will be far different within ten years unless we go to war. Then we have a fair chance of regaining the upper hand. How many will have to die remains to be seen. Certainly more than in Vietnam, Iraq or Afghanistan. Maybe World War II numbers?

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  103. 103

    RE: EconE @ 100
    ” Smarmy Industry Charlatans” would be such a cool band name.

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  104. 104
    Pegasus says:

    EconE @ 100 WOW…You and patient are correct in a way. The only thing you forgot is that you could pay Tim to advertise here no matter what your agenda and I have never seen Tim censor discourse here other than a few board trolls that post under multiple ID’s. Knowing who advertises here or is tied to real estate does not seem to make any difference here. I can testify to the fact that for months I have attacked the real estate pros that post here like Kary, Ray and others(mainly Kary) and Tim has allowed these attacks to go on. I have waited anticipating some sort of censure but it has never come(yet haha). Tim truly runs an open and fair forum here and I respect that. In order to equalize the playing field against the paying advertisers here I suggest you equal it in donations to The Tim. That way you can feel that you are always on equal footing here when you post.

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  105. 105
    Sniglet says:

    I don’t think the end result will be the same in magnitude.

    Actually, I believe the end-result in America will be far worse than what occured in Japan over the last 20 years. The private and public debt ratios in America are far in excess of what they were in Japan at the outset of their 20 year recession. It is the massive contraction of debt which is unleashingly simply unstoppable forces of deflation.

    Just look at how the M3 money supply has been contracting lately, which is completely unprecedented. Japan never once saw their total money supply contract during the last 20 years, yet this is EXACTLY what we are seeing in America today. The irony is that the more debt the US government creates in an attempt to stave off deflation, the more they speed it up.

    Worse, if the US ever decided to monetize the debt by buying up T-bills en-masse, it would lead to deflation on a massive scale as the value of T-bills would collapse

    Robert Prechter sums it up this way.

    Even if the Fed were to monetize every dime of currently outstanding, dollar-denominated debt, it would create no net inflation. The money-plus-credit supply would be the same. And price levels – especially for investments – are based on the total of monetary assets, not just base money.

    Even so, there is no way that the Fed will buy up the entire world’s stock of lousy IOUs. It has always wanted pristine assets on its books. Remember, it didn’t buy Fannie and Freddie IOUs until it got the Treasury to guarantee them.

    Then there is the so-called moral hazard – not that the Fed cares about morality – meaning that if the Fed were to begin buying everyone’s IOUs, people would immediately issue more IOUs as fast as the could and sell them to the Fed. I coudln’t keep up with the volume.

    But these scenarios are fantasies. In reality, self-preservation will enventually motivagte the Fed just as it morivates every other institution. Buying too many worthless assets would cause the Fed’s self-destruction, and I think it will balk at going that far.

    If the government tried to [inflate by issuing massive amounts of Treasury bonds to the Fed], bond holders would get spooked, and interest rates would go up and stay ahead of the printing. At the same time, other credit prices – municipal, corporate and consumer – would implode. When the supply of credit is far bigger than the supply of money – and it is by a huge margin – the value of old credit can contract faster than new bonds can be printerd. The net result would still be deflation.

    In short, it’s absolutely true that things are different in the US from Japan, and this is precisely why deflation here will be far worse. Not that life will be a bed of roses in other nations. Credit bubbles have been blowing everywhere from Canada to China, and deflation will reign supreme almost everywhere (except in the nations where their debt was largely denominated in foreign currencies).

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  106. 106
    Pegasus says:

    Snig @ 105 Excellent! You have come a long way and I agree with most of what you say(this time). For your reward we are going to lock you in a room for the weekend with pfft who hears no evil, speaks no evil and sees no evil because Krugman the administration ho says so. Good luck. Its going to be a long weekend!

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  107. 107
    EconE says:

    RE: Pegasus @ 104

    I have donated.

    I suspect that Tim has a better understanding of my donation now.

    I’m sure all the realtors have read or watched “The Secret”.

    That s#it is childs play.

    Synanon, Bit#hes!

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  108. 108
    patient says:

    RE: EconE @ 100
    “Don’t you miss the *old* Seattle Bubble?”

    I do. Mostly because there was so much less noise in the comments and I miss prominent commenters like Eleua and unwavering attack dogs like Synthetik. On the other hand the frequency and quality of The Tim’s posts have gone up so it’s a mixed bag.

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  109. 109
    Scotsman says:

    RE: Pegasus @ 106

    Cruel and unnecessary punishment!

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  110. 110
    Scotsman says:

    RE: Hu Flung Pu @ 101

    I think we’ll end up suffering just as much as Japan because:

    1.) we don’t have the underlying internal savings to rely on, our debt must be funded from outside interests.

    2.) Our cumulative debt, not just government debt, is historically huge.

    3.) We have a growing population, not a decreasing population, so the pressure on federal government funding for entitlements will be increasing, not stabilizing or decreasing.

    4.) Our deficit funding will never be able to equal Japan’s- our government(s) will have to cut back participation in GNP by reducing entitlements and pensions which will in turn reduce consumer spending, feeding an ongoing downward cycle.

    5.) For the above reasons, our deflationary spiral once set in motion will be much harder to break. We’ve already reached the point where each new dollar of “stimulus” is actually a net drag on the economy.

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  111. 111
    mike says:

    1. all forecasts are inaccurate.
    22% drop in 2 years is a forecast. all forecasts have a margin of error. some large.

    2. ignore the forecast. or at least de-emphasize it.
    even if it was accurate(it’s not), you said you plan to stay for 10+ years.
    so you should be interested in a 10 year forecast, not a 2 year forecast.
    also 10 year forecasts are even less accurate than 2 year forecasts.
    my point? you have no idea what the future will be in 10 years.
    place less emphasis on the forecast.

    3. focus on what you know today
    a) is your mortgage/housing costs easily affordable based on your income.
    b) is your mortgage/housing costs comparable to rent payments
    c) is this a place you can live in for 10 to 20 years?

    3a) will ensure a high likelihood your mortgage payments can be paid. over time your mortgage should become easier to pay as you get raises over the next 30 years.

    3b) will help make it easier to keep paying the mortgage if your house price drops 22% (over the next 2 years) but rents remain stable. why? because your mortgage/housing costs will still be close to rent. it just means your house is undervalued (prices tend to over correct on the downside). no big deal if you plan to live there for 10 years as you have time for prices to revert to the mean.

    if you are unlucky and see a 22% drop in 2 years in your home price and a 22% drop in rent over the same time(unlikely), you could not have easily predicted this since you would have to have sided with the hyperbolic perma bears on this site.

    so to summarize. it’s foolish to make your decision on a 2 year forecast that may or may not be right. you need to know what’s happening in 10 years time. but no one knows what’s happening in 10 years (such forecasts are incredibly inaccurate). so you have to base your decision on what you know today. can you pay the mortgage? is the house priced fairly with respect to comps and rent? and do you really want to stay there for a long time? if the answer is yes to all 3, you’re in a decent position and you’ve done all that you can to protect yourself. if anything bad happens you have small consolation in knowing you controlled all the variables you can control. everything else was a matter of (bad) luck.

    the key is that your housing costs are close to rent. people get in trouble when this is not true.

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  112. 112

    By patient @ 96:

    There’s a string of commenters here who make their living from homes being sold in this area, escrow, lenders, agents. Sorry but I’ll put more weight on GS than any of them. When your paycheck depends on transactions it’s very hard to be objective even if you want to.

    I don’t recall any of us making a prediction of the future, or telling you what to do, but rather than put any weight on what we say you put weight on the questionable opinion of a questionable entity.

    I wonder how much money you spend on psychics? I can only assume that when your car breaks down, you go to a psychic. When you get sick, you go to a psychic. When you have a legal issue, you go to a psychic. Because if you went to an auto mechanic, doctor or lawyer, their paycheck would depend on their being objective, and rather than rely on what they say, you’d go to someone that obviously had no credibility at all.

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  113. 113

    By Pegasus @ 104:

    I have attacked the real estate pros that post here like Kary, Ray and others(mainly Kary) and Tim has allowed these attacks to go on. I have waited anticipating some sort of censure but it has never come(yet haha). Tim truly runs an open and fair forum here and I respect that. In order to equalize the playing field against the paying advertisers here I suggest you equal it in donations to The Tim. That way you can feel that you are always on equal footing here when you post.

    Tim is fortunate in that most of the debate here is civil, and most of the arguments are actually debates of real issues, not just personal attacks. It makes his job relatively easy (or else he’s very heavy handed in a way that is completely invisible.)

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  114. 114

    By EconE @ 107:

    I’m sure all the realtors have read or watched “The Secret”.

    Nope. And other than the fact that I know a lot of agents apparently have, I don’t know what it is about.

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  115. 115

    By mike @ 111:

    c) is this a place you can live in for 10 to 20 years?

    As I recall, the place at issue is rather small, so that might be a hard test to meet. If it was 1000 square feet, and no more than one kid, that would be possible (at least for me), but under 800 square, that would be tough.

    One option though in that area would be rental, but if that’s the plan, they should be sure they want to deal with the hassle of renting.

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  116. 116
    Hu Flung Pu says:

    By Sniglet @ 105:

    I don�t think the end result will be the same in magnitude.

    Actually, I believe the end-result in America will be far worse than what occured in Japan over the last 20 years. The private and public debt ratios in America are far in excess of what they were in Japan at the outset of their 20 year recession. It is the massive contraction of debt which is unleashingly simply unstoppable forces of deflation.

    Just look at how the M3 money supply has been contracting lately, which is completely unprecedented. Japan never once saw their total money supply contract during the last 20 years, yet this is EXACTLY what we are seeing in America today. The irony is that the more debt the US government creates in an attempt to stave off deflation, the more they speed it up.

    Worse, if the US ever decided to monetize the debt by buying up T-bills en-masse, it would lead to deflation on a massive scale as the value of T-bills would collapse.

    One way to think about the US debt problem is looking at it from a balance sheet perspective (using 4Q09 numbers):

    Liabilities = $14.6 trillion in Federal Debt*
    $ 2.3 trillion in State and Local Debt
    $18.1 trillion in Private Debt**

    Equity = $37.5 trillion (Household Net Worth)

    [2010 GDP will be roughly $14.5 trillion. Since YE09 both Equity and Liabilities have increased by $2-3 trillion. That is, the government has taken on more debt, but asset markets have also improved. I don’t expect the latter to last.]

    * Excludes Social Security and Medicare because we have total control over how they get financed. That is, we can choose to cut benefits or increase taxes if we want to.
    ** This is NET private debt, which excludes the double-counting of certain financial debt (e.g., securitizations) that we see in the oft-seen chart that puts gross US debt at 350% of GDP (actually, total debt is closer to 250% of GDP)

    So, what we have is an entity with a debt-to-equity ratio of about 1 to 1. Not ideal, mind you. But not about to keel over, either. For perspective, recall that most LBOs take on debt-to-equity ratios of 4 to 1. The average debt-to-equity ratio for companies in the US is .5 to 1; that is, there is twice as much equity as debt. So, the US is leveraged more than a truly healthy company should be, but well below the levels of a company that’s just gone through an LBO. Moreover, because of low interest rates, overall debt service in the U.S. (public and private) is not out of control from a historical perspective (although admittedly that could change!). So, if I’m a Director of US, Inc., I’m definitely concerned. But I’m not about to jump out of the window.

    Also, as you point out, US, Inc. can print money if it wants to (at a cost, of course!). And, in fact, we’ve already dipped our feet into the debt monetization waters. And communicated to the markets that there might be more coming, and what’s happened… rates have stayed low. Why? Because we’re the best house on a very bad block where monetary policy is concerned. Sad, but true. Also very relevant.

    So, despite our economic shortcomings – and the pain we have ahead of us – I’d MUCH rather be in the US’s shoes right now than in Japan’s in 1989. Recall – just to put it into a different perspective – that US assets were overvalued (relative to long-term fair value) by about 65% in aggregate at the 2007 peak. That’s a big overvaluation and caused a major misallocation of capital and is going to lead to serious problems, but… Japan’s assets were overvalued by over 400%, with all that implies. The two bubbles are simply not comparable. Not even close. As tough as things are going to be over the next decade, I’m glad we’re not Japan in 1989.

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  117. 117
    Hu Flung Pu says:

    By Scotsman @ 110:

    RE: Hu Flung Pu @ 101

    I think we’ll end up suffering just as much as Japan because:

    1.) we don’t have the underlying internal savings to rely on, our debt must be funded from outside interests.

    2.) Our cumulative debt, not just government debt, is historically huge.

    3.) We have a growing population, not a decreasing population, so the pressure on federal government funding for entitlements will be increasing, not stabilizing or decreasing.

    4.) Our deficit funding will never be able to equal Japan’s- our government(s) will have to cut back participation in GNP by reducing entitlements and pensions which will in turn reduce consumer spending, feeding an ongoing downward cycle.

    5.) For the above reasons, our deflationary spiral once set in motion will be much harder to break. We’ve already reached the point where each new dollar of “stimulus” is actually a net drag on the economy.

    See post immediately above. I agree with points 1-4. But they don’t necessarily lead to the conclusion in Point 5, at least when we’re having a discussion about how we will fare RELATIVE to Japan. No one wants to acknowledge that the relative size of our asset bubbles is of immense importance. Overvaluation of 65% is NOTHING compared to overvaluation of 400%+. Just think about the relative return to long-term trends from those two different levels… they’re not comparable. It’s like comparing climbing Mount Adams (a very high peak, at 12,000 feet, which would be a tough climb) with climbing Mount Everest at 29,000 feet. They’re both VERY high… but not comparable in terms of how you’d approach climbing them.

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  118. 118
    David Losh says:

    RE: Hu Flung Pu @ 116

    Well, yes, that is a lot of pu slinging.

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  119. 119
    k2000k says:

    RE: Scotsman @ 110

    I don’t see how number 3 can be negative. I would say a decreasing population would put far more strain on society as there is an increase in geriatrics withdrawing money from social security and Medicaid but fewer workers putting money into it. Not only that, but with a decreasing population you will eventually not have the tax base needed to support existing infrastructure. That is a major obstacle many parts of Europe, Japan, and China will be facing in the coming decades.

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  120. 120
    Hu Flung Pu says:

    By David Losh @ 118:

    RE: Hu Flung Pu @ 116

    Well, yes, that is a lot of pu slinging.

    Indeed, I realize it’s a lot more fun (and convenient for debate) when we can ignore the tedium of “numbers” and “math.”

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  121. 121
    David Losh says:

    RE: Kary L. Krismer @ 112RE: EconE @ 107RE: EconE @ 100RE: EconE @ 57

    I’m never opposed to making predictions about Real Estate. Real Estate is the safest, most secure, investment you can make. Just because a bunch of people entered Real Estate sales in the past fifteen years, doesn’t change the fundamentals.

    More wealth is made, today, by owning Real Estate than anything else. Disprove that. While all the day traders are hopping around about the paper secured by Real Estates, those people who own, control, and utilize the dirt are the only true players in the market place today.

    Real Estate, based a bubble, put the majority of dirt into the hands of banks. People willingly signed over a vast amount of dirt, globally, and are paying banks for that privilege.

    A Real Estate doesn’t change. The Real Estate market doesn’t change. While other things may fluctuate, the core value of a Real Estate is it’s return on the investment.

    The only way you buy, is to pay it off, because that’s the only way to build equity. That never changes.

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  122. 122
    patient says:

    RE: Kary L. Krismer @ 112 – Psychics, really? You can do a bit better than 5 year old level of comments. I would have expected at least 10 year old level.

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  123. 123
    David Losh says:

    RE: Hu Flung Pu @ 120

    Ah, the math, yes by all means let’s focus on the number magic.

    As I just put over on the open thread Japan is a post war reconstruction that we blew the heck out of with atomic bombs. Run those numbers for me.

    The premise of the Case Schiller Index, that is widely regarded here on the Seattle Bubble, is market psychology.

    Rather than bore you with any form of reality, let’s just say that Japan is a rock, surrounded by water, that we buy stuff from. They can go back to being a protectionist country, close borders, and be a direct conduit to God at any time, and I’m not sure any one would notice.

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  124. 124

    By patient @ 122:

    RE: Psychics, really? You can do a bit better than 5 year old level of comments. I would have expected at least 10 year old level.

    And I would expect you to realize that everyone you deal with in business transactions is motivated by their own self-interest, and not think that’s somehow special to those in the real estate business.

    But I used psychics for a reason. The stuff that spews out of a psychic’s mouth has no more credibility than ANY study of what the world is going to be like in two years on ANY topic. The gullibility of people to read this type of BS and believe it never ceases to amaze me.

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  125. 125
    Hu Flung Pu says:

    By David Losh @ 123:

    RE: Hu Flung Pu @ 120

    Ah, the math, yes by all means let’s focus on the number magic.

    As I just put over on the open thread Japan is a post war reconstruction that we blew the heck out of with atomic bombs. Run those numbers for me.

    The premise of the Case Schiller Index, that is widely regarded here on the Seattle Bubble, is market psychology.

    Rather than bore you with any form of reality, let’s just say that Japan is a rock, surrounded by water, that we buy stuff from. They can go back to being a protectionist country, close borders, and be a direct conduit to God at any time, and I’m not sure any one would notice.

    OK, gotcha… still no numbers from you and you’re not going to actually refute the numbers I’ve provided. “Rather than bore you with any form of reality”… Pot, meet Kettle.

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  126. 126
    David Losh says:

    RE: Hu Flung Pu @ 125

    He Hu Flung Pu, no numbers are required. The United States, for a vast number of reasons, has a foot print all over the world. That’s what makes it a problem.

    Japan can close borders, we can’t. We depend on the world, as much as the world depends on us. Our problem is compounded.

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  127. 127
    patient says:

    RE: Kary L. Krismer @ 124

    “And I would expect you to realize that everyone you deal with in business transactions is motivated by their own self-interest, and not think that’s somehow special to those in the real estate business.”

    And that’s exactly what I refered to. The self-interrest for local real-estate businesses is strong and obvious where as GS self-interrest to specifically lie about Seattles depreciation in a nation wide analyzes is just not there. Thereby I put a lot more weight on GS analyzes than of any local escrow, lender or agents opinion on Seattles future depreciation. You being a local agent understandably have an issue with that so have a go at it but to compare GS data based analyzes with a phsychic makes your case infinitely weaker.

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  128. 128

    RE: patient @ 127 – But that’s where you’re wrong. If you were going to follow your logic, you would accept the advice of the psychic over your doctor because the doctor has a self-interest in what he tells you.

    Also, you’re assuming that the GS study has any validity at all, and that therefore it is somehow of more validity than other sources. If you understand that all of these predictions are just BS you wouldn’t put them ahead or below anything else. You would totally ignore them.

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  129. 129
    Hu Flung Pu says:

    By David Losh @ 126:

    RE: Hu Flung Pu @ 125

    He Hu Flung Pu, no numbers are required. The United States, for a vast number of reasons, has a foot print all over the world. That’s what makes it a problem.

    Japan can close borders, we can’t. We depend on the world, as much as the world depends on us. Our problem is compounded.

    Ah, “no numbers are required.” How convenient. Look, to be clear (again), I’m not saying that the US doesn’t face major problems. MAJOR problems. And, in several ways, we are worse off than Japan coming out of our respective bubbles. No debate there. Our economic future is pretty sketchy. But, the “numbers” are important because the RELATIVE size and impact of these differences is critical. My point is that despite the problems we face… the fact that Japan’s bubble was several magnitudes worse than ours is by far the most important distinction where future deflation and other related economic issues are concerned. You’re arguing that because we’ve got a broken arm, a broken knee and very high blood pressure that we’re going to go down the same road as Japan. I’m saying that Japan had the equivalent of a major heart attack requiring quadruple bypass surgery. They’re not directly comparable, although both are very unhealthy situations. I’d much rather be us… although I’m very concerned about the situation in which we find ourselves.

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  130. 130
    patient says:

    RE: Kary L. Krismer @ 128 – Weak Kary and wrong. Your not making sense, at all.

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  131. 131
    David Losh says:

    RE: Hu Flung Pu @ 129

    He Hu Flung Pu should consider change of name.

    http://jutiagroup.com/2010/06/08/will-japan-be-the-next-debt-crisis/

    It’s really simple. At the end of two decades Japan has yet to recover. They can default, no one would care, they would be bailed out. The United States does not have that luxury.

    We will have to address our debt issues, both public, and private. Given your numbers, and I’m not disputing those, we have the ability to resolve our debt. In our case we have to.

    Let’s pretend that the United States throws up it’s hands, says they just can’t, or won’t, pay down the deficit. What happens?

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  132. 132

    RE: patient @ 130 – How can you know that I am wrong if you don’t understand what I’m saying?

    I posted a link to two studies above that thought Seattle would go up slightly over the time frame. I think all three studies are BS. Which of the three are you going to believe, and why?

    BTW, FYI I was calling out NAR on their predictions even prior to our peak.

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  133. 133
    Hu Flung Pu says:

    By David Losh @ 131:

    RE: Hu Flung Pu @ 129

    He Hu Flung Pu should consider change of name.

    http://jutiagroup.com/2010/06/08/will-japan-be-the-next-debt-crisis/

    It’s really simple. At the end of two decades Japan has yet to recover. They can default, no one would care, they would be bailed out. The United States does not have that luxury.

    We will have to address our debt issues, both public, and private. Given your numbers, and I’m not disputing those, we have the ability to resolve our debt. In our case we have to.

    Let’s pretend that the United States throws up it’s hands, says they just can’t, or won’t, pay down the deficit. What happens?

    No disagreement on any of this. As to your last question, paying down the deficit… it’s not going to happen anytime soon. Clearly, a lot of our debt will be monetized. That’s just the way it’s going to go down. (The vast majority of it we’re capable of paying down if we so choose, but with a lot of pain.) And the foreign holders of our debt will moan and groan… but they’ll take it (well, within reason) because they have no other choice. (Who would have thought that rates would be so low and that our currency would be as strong as it is given the sh*t we’ve thrown at the rest of the world? Personally, I’m surprised.) It’s kind of like that old joke about the two guys in the woods who come across a bear and one says to the other, “Stay perfectly still,” and the other guy turns around and runs. The first guys also turns around and runs and yells, “The bear is faster than us. Why are you running?” And the second guy says, “I don’t have to outrun the bear; I only have to outrun you.” The US – despite all its problems – remains one of the least bad places for investment. We suck. But almost everyone else sucks worse. So, we’ll experience pain. No doubt. But nothing like Japan has experienced. (Our finances are pretty bad; but they’re not *that* bad.) In the land of the blind, the one-eyed man is king.

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  134. 134
    David Losh says:

    If by monetization you mean inflation, that’s exactly the point where sniglet made a believer out of me. Our chance to inflate was at the end of the Bush II era. It didn’t happen, didn’t take hold, because all paper instruments are over priced, and under securitized.

    We, globally, haven’t started to unwind the economic mess. We are stuck with years, amybe decades, of paying down over priced Notes.

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  135. 135
    Dirty_Renter says:

    Q: Do you know what you get when you fix up an old house?
    A: An old house that’s fixed up.

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  136. 136
    Brian Porter says:

    As Tim says in his article, prices could go up or down depending on what happens to the economy. I think prices will go down a little maybe 5% over the next 12 months, but I believe that we will be entering an inflationary period similar to the 1970’s in 2011. I don’t think that we can print money like crazy and maintain budget deficits of close to 2 trillion dollars without inflation or the dreaded “stagflation”.

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  137. 137

    RE: Pegasus @ 92 – LOL thanks Ira and Kary — you’ve made my morning :)

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  138. 138
    Ravenna Or Bust says:

    RE: Robert Douglas @ 99
    Thank you Robert for touching on the bulk of what I was asking about in the beginning. I was hoping to get some dialogue going about how Seattle home prices might be affected… on the neighborhood scale. Few people offered to weigh in on this directly, but thank you for those who did.

    By mike @ 111:

    3. focus on what you know today
    a) is your mortgage/housing costs easily affordable based on your income.
    b) is your mortgage/housing costs comparable to rent payments
    c) is this a place you can live in for 10 to 20 years?

    This is some sound advice. GS can try to predict what will happen, any one of us can take our shot at prediciting what will happen… but in the end, even the best study is still a prediction. All we know about ourselves is what we know today.

    Granted someone will call me out on the first part of this post applauding a form of prediction, and the latter part invalidating predictions as a whole.

    … meh :)

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  139. 139
    Sniglet says:

    b) is your mortgage/housing costs comparable to rent payments

    This seems to be a pretty vague concept. Your mortgage costs can ALWAYS be brought down to comparable rents if you have a sufficiently large down-payment.

    How large of a down payment ought one to use when calculating costs for doing a proper rent vs buy comparison?

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  140. 140
    Hu Flung Pu says:

    By Sniglet @ 139:

    b) is your mortgage/housing costs comparable to rent payments

    This seems to be a pretty vague concept. Your mortgage costs can ALWAYS be brought down to comparable rents if you have a sufficiently large down-payment.

    How large of a down payment ought one to use when calculating costs for doing a proper rent vs buy comparison?

    Personally, I would use zero down payment along with whatever rate you’d qualify for on a 30-year mortgage (to finance the whole purchase) and then adjust for the tax deductibility of interest and property taxes. That way, you’re getting very close to apples-to-apples. You’re not putting any money down but you’re taking into account the tax benefit. (And if you’re REALLY confident that you’ll be able to get out of the house at a price at least as high as your purchase price, you could even subtract the principal portion of your mortgage payment because that will turn out to be a forced savings account – albeit a highly inefficient one.)

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  141. 141
    LA Relo says:

    RE: Scotsman @ 14

    You have to assume that any lifestyle costs are already factored into the determination that the home in question is affordable.

    I think what you are saying is if you want until the prices drop more you could afford a better lifestyle. That’s true, but if you can already afford that lifestyle and find a home you like that you plan to stay in for a worthwhile period of time, then it doesn’t matter if the home loses value.

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  142. 142
    MacroInvestor says:

    RE: Ravenna Or Bust @ 26

    Now that we’ve seen the details, I think you definitely should pass on this deal. Seriously, $299k for a 760 square foot house with 2 bedrooms and 1 bath? (Basement is for storage, unless the ceilings are high and it is finished as nicely as the house — meaning you can’t see the furnace, water heater and ducts). You are going to outgrow this tiny little place in no time. And, it needs work? There is a good chance you will not be happy for 10 years.

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  143. 143
    MacroInvestor says:

    RE: Ravenna Or Bust @ 30

    “RE: Pegasus @ 28 –

    Pegasus, I don’t why I’m willing to fan the flames right now, but I am.”

    Ravenna — true, the folks here don’t know you. Pegasus used insulting language. He or she may be a jerk. But you came here asking strangers for advice. The fact is, you are agonizing over your decision. You are not comfortable or confident. I think you know deep down the deal is not such a great one.

    There is a very good chance prices will go down 20% more. A large number of arm loans reset in the next 2 years. That means lots more distressed properties hitting the market at all levels and all neighborhoods.

    Personally, I am waiting. I think Ray Pepper has the best advice, though he sounds way too self assured about future predictions. I am waiting for prices to start steadily rising again before I jump in. I don’t want to be trapped like your short seller is. I’d rather pay a little more in a healthy market, knowing I have a better chance of getting out whole if my circumstances change.

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  144. 144
    MacroInvestor says:

    RE: drshort @ 74

    “RE: Ron Nelson @ 65 –

    http://www.utexas.edu/visualguidelines/capitalization.html

    You could be Carl frggin Segan but with you grammar / capitalization I cant take a thing you write seriously.”

    It’s Carl Sagan. Guess we shouldn’t take YOU seriously.

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  145. 145
    MacroInvestor says:

    RE: Sniglet @ 105

    Sniglet, you have a good command of the facts, but where do you come up with 80%? That seems rather extreme. Do you just throw out large numbers like that for shock value? I’d like to see your logic there. Somewhere around 20% down, depending on the neghborhood, is going to get us back on parity with rents/income. That is my guess for where the bottom sits.

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  146. 146
    Ross Jordan says:

    By Sniglet @ 105:

    I don�t think the end result will be the same in magnitude.

    […]deflation will reign supreme almost everywhere (except in the nations where their debt was largely denominated in foreign currencies).

    Deflation won’t “reign supreme” in any country that can control their money supply; most notably the US. Just ask heli Ben:

    “The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.”

    “people know that inflation erodes the real value of the government’s debt and, therefore, that it is in the interest of the government to create some inflation.”

    Control of the means of production for money implies that the government can always avoid deflation by simply issuing more money.

    As much as central bankers always dismiss the possibility of printing; I think when push comes to shove, if we actually see deflation; there will be little hesitation to print… especially given that so much of our debt is foreign held (and USD denominated).

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  147. 147
    Sniglet says:

    Deflation won’t “reign supreme” in any country that can control their money supply; most notably the US. Just ask heli Ben

    I think that Messr Bernanke is greatly mistaken if he feels the Fed has the ability to stop deflation. As I outlined earlier in this thread, the options available to policy makers are severely limited. In fact, monetization and the creation of even more debt will only accelerate the deflationary forces that have been unleashed.

    Sure, in THEORY policy makers can create hyperinflation, but any leader who attempts to cross that Rubicon, to out and out printing of currency on a MASSIVE scale will be crucified. The grass-roots political will to support currency destruction doesn’t yet exist (it may after a decade of massive deflation, but we aren’t there yet).

    Just look at how reluctant leaders have been to inflate so far. All the monetization and stimulus efforts have only been deflationary in nature. As much as policy makers may talk about helicopter drops, they have thus far been completely unwilling to actually embark on massive money creation.

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  148. 148
    David Losh says:

    RE: Ross Jordan @ 146

    I’m not the sharpest tool in the shed, but it makes sense to me that the price of assets, globally, are over priced. If we adjust our currency by printing money every one would have to do the same. Our debt is no different than Europe’s debt, or Asia’s debt, or South American debt, and by all means let’s not forget Africa, along with the Middle East.

    It would be a currency war. That would be the best case scenario.

    If you wanted worst case it would be the price of oil going up, it would be the price of commodities going up, our debts would be paid with dollars that are worth less. Wealth shifts, once again, to those that hold debt, and punishes those that are frugal.

    It’s much better to pay down debt, for every one. It would be prudent to have a sound fiscal policy, at the government, that addresses the public debt, and let the private sector fend for itself. I know that sounds cruel, but at least that’s a chance.

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  149. 149
    Ross Jordan says:

    By Sniglet @ 147:

    Deflation won�t �reign supreme� in any country that can control their money supply; most notably the US. Just ask heli Ben

    I think that Messr Bernanke is greatly mistaken if he feels the Fed has the ability to stop deflation. As I outlined earlier in this thread, the options available to policy makers are severely limited. In fact, monetization and the creation of even more debt will only accelerate the deflationary forces that have been unleashed.

    Sure, in THEORY policy makers can create hyperinflation, but any leader who attempts to cross that Rubicon, to out and out printing of currency on a MASSIVE scale will be crucified. The grass-roots political will to support currency destruction doesn’t yet exist (it may after a decade of massive deflation, but we aren’t there yet).

    It’s not a choice between hyperinflation and a deflationary spiral, everything in between in an option (hyperdeflation; high deflation; moderate deflation; low defation; flat; stagflation; low inflation; moderate inflation; high inflation; hyperinflation). Inflation is directly proportional to net change in money supply (after lending multipliers and various other things that affect the equation of money supply). Anyways, the point is, Ben Bernanke, being able to decide how much new cash is added (or subtracted) from the economy — as well as setting policy that affects reserve requirements, lending requirements, interests rates etc can control the amount of inflation that occurs.

    Causing inflation is not without side effects, of course — and you can’t devalue yourself to riches. All I’m saying is that its a very simple matter for Bernanke to avoid deflation if he wants to; and given the degree of contracts (both at government, business and individual level) that implicitly count on inflation happening (and which blow-up if significant deflation happens) — there’s a lot of interests that will push for at least a low level of inflation (1-5%). I think that’s also the most likely range we’ll see for the next while. Even in the worst of the current recession, we still had positive inflation in all but a few months (and net across the year was positive). So, though housing may be in a deflationary environment, general economy (counting housing too) is still inflationary.

    Just look at how reluctant leaders have been to inflate so far. All the monetization and stimulus efforts have only been deflationary in nature. As much as policy makers may talk about helicopter drops, they have thus far been completely unwilling to actually embark on massive money creation.

    Who said massive? There’s really no need for massive inflation … and I think even the crazy-don’t-get-economics politicians want to avoid massive inflation. But, Bernanke has added a ton of new money to the economy, and the overall economy has stayed net inflationary after a significant deleveraging of the banking system (read deflationary). So if Bernanke’s been able to offset the deflationary effects of the banking crisis with the inflationary new money that he’s added to the system, then he has, in fact, caused inflation.

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  150. 150
    Ross Jordan says:

    By David Losh @ 148:

    RE: Ross Jordan @ 146

    I’m not the sharpest tool in the shed, but it makes sense to me that the price of assets, globally, are over priced. If we adjust our currency by printing money every one would have to do the same. Our debt is no different than Europe’s debt, or Asia’s debt, or South American debt, and by all means let’s not forget Africa, along with the Middle East.

    It would be a currency war. That would be the best case scenario.

    If you wanted worst case it would be the price of oil going up, it would be the price of commodities going up, our debts would be paid with dollars that are worth less. Wealth shifts, once again, to those that hold debt, and punishes those that are frugal.

    It’s much better to pay down debt, for every one. It would be prudent to have a sound fiscal policy, at the government, that addresses the public debt, and let the private sector fend for itself. I know that sounds cruel, but at least that’s a chance.

    I’d certainly not argue that it would be much better for every one to pay off their debt. And don’t get me wrong, I’m not suggesting the US is going to go Zimbabwean and print and endless supply of new cash. All I’m saying is that Bernanke is likely to do everything to avoid a long term deflationary environment; and that includes printing new money.

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