Strong Emotions on Both Sides of the Housing Bubble

Here are a pair of noteworthy comments from yesterday’s discussion about large price haircuts.

Nicole's Many Emotions by Flickr user allyaubry
photo by Flickr user allyaubry

By Guest:

1. What’s up with the sudden popularity of phrases regarding debt and suffering that include the word “haircut.”

2. A “FUN” property? What exactly is “fun” about this situation. How is an inflated “boom-era” price anything other than merely predictable – why is it “insane?” Please explain. Surely this kind of price history won’t surprise anyone who reads this blog.

Did you contact the owner(s) of this property to get their story? If you did, I missed it.

Here’s my experience with this kind of “fun.” During the process to sell our home for $95,000 less than we had paid for it about a year previously, no one in my family ever thought they were having “fun.”

No one in my family was snickering or wanting to start a contest to see who could come up with the most misery and sadness and grief. There was only a quiet sense of purpose, to pay down the mortgage before the home was sold, and a sense of sadness and loss, then a sense of moving on. No one thought it was “fun” to have their home advertised on the internet and their privacy compromised.

OK, go for it fellas. Talk about how stupid you just know people like myself are. Throw in a few statistics and charts and hyperlinks. Talk all about how people like my family have caused all kinds of problems in the housing market even if it isn’t really true.

C’mon, give it your best shot. I want to hear some really mean stuff, some wonderful, snarky, repeatable witticisms. Maybe put me in an indefensible position, then laugh at me for exposing my soft stupid underbelly.

Bonus points for finding spelling/grammatical posting errors you can pick on.

Ho-ho-ho you are so darn erudite and cool!

Response from wreckingbull:

OK, I’ll bite.

I assure you it was not “fun” for me holding back and renting through the boom years, with a kind, reasonable, wife that wanted nothing more than a 1000 square foot roof over her head, whilst I quietly endured coworkers, friends, and even family commenting about how I was ‘throwing my money away’ each month and ‘living like a college student’, pointing out how foolish I was to allow myself to be ‘priced out forever’. I only quote these phrases to point out that they were literally used in almost every conversation. But I just nodded my head in agreement, knowing that the lunacy was not sustainable.

Sorry you made some decisions that blew back at you. I hope you and your family can recover as quickly and painlessly as possible.

While I don’t know your situation, I do know that many others experienced a serious case of the stupids during the bubble years. Now, you and I are literally paying for their mistakes, in the form of trillions of added national debt and an economy in shambles. I think it is OK to blow off a little steam in regards to this disaster.

I don’t really have much to add here. I can empathize with “guest,” and I certainly did not intend for the post to be implying that foreclosure was “fun” for those involved. My post was about properties, not people. Of course, I obviously relate more personally to “wreckingbull,” since I have gone through similar experiences myself over the last five years.

The bottom line is that the housing bubble may have seemed awesome to some people at the time, but the end result turns out to be pretty lame for everyone. Hopefully this is a cycle we will not repeat for a very long time.

  

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.

46 comments:

  1. 1
    hinten says:

    Thanks for addressing this.
    I will also point out that many people did not buy into the bubble. They simply purchased a home during the bubble.
    There is a big difference there and we now have ample evidence that there was plenty of responsibility (not blame) to go around everywhere.

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  2. 2
    David S says:

    My experience with short sales indicates those who did flirt with the bubble took low down or zero down loans up to or over present valuation at the time of signing, and then went to the max on the HELOC or second loans within the next year.

    There are others who have just been caught out in the rain through no fault of their own. I would say they are not the majority but feel the sting more severely. They were blindsided by misfortune.

    The first condition, you have to think, they had to know it was coming.

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  3. 3
    Pegasus says:

    Here is a KOMO story and video on foreclosure problems mounting for homeowners, bank problems and FRAUD in KING County Records

    http://www.komonews.com/news/local/104215569.html?

    And then there was Karen Pooley, who stood outside wearing a jail jumpsuit to protest bank practices.

    She says she’s worked in the banking industry and is fighting her own foreclosure – but claims there is widespread fraud going on.

    “They have filed fraudulent documentation in the King County Recorder’s Office, and they are trying to steal my home, and they’ve slandered my title. And I have proof,” Pooley says.

    This was a one-day event by the Statewide Poverty Action Network – but there will be similar events like this in the future.

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  4. 4
    Pegasus says:

    By David S @ 2:

    The first condition, you have to think, they had to know it was coming.

    Are you referring to the banks? They gave mortgages to people they knew would not be able to make their payments, created false ratings to sell to suckers…err.. investors and then bet against those mortgages. Now they have screwed up the whole foreclosure process. This is what happens when you don’t put crooks in jail. They just continue to steal.

    Waiting for the Next Financial Meltdown

    http://www.youtube.com/watch?v=gojItBEMHAs

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  5. 5

    A Very Fair and Balanced Blog Style Tim

    And although some of the boom buyers aren’t calling price degradation good, I’m sure beef farmers aren’t smiling when SWE picks up Angus ribsteaks for $4.99/lb either, etc, etc.

    It’s in the eye of the beholder. My concern is: most of the time the general media alleges real estate price increases are for the good of the economy; with no concern for the renter trying to crimp/save and qualify for a 1st time home purchase, that keeps escalating out of their reach, as fast as they can crimp/save and rent.

    There’s always two sides, but real estate price hikes generally got the “green light in error” for good all along during the bubble formation IMO [and this is what fueled the greed and mess too]….and “what comes around goes around”.

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  6. 6
    S. Marty Pantz says:

    For what it’s worth, I read somewhere, some time during the bubble, that about one-third of all real estate purchases were being made by flippers and those buying a second home (for rental?) or vacation property. Can anyone confirm this? But when things started going south, a common anecdote was that people were losing their “homes” and being forced into the streets.

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  7. 7
    Chuck Ponzi says:

    I just finished buying a house after bubble sitting for 6 1/2 years.

    It was a foreclosure.

    The previous owners lived there for 30 years. They also took over $800K of “equity” out of the property in the past 10 years with zero upgrades to the property, and lots of deferred maintenance.

    I met all of the neighbors who commented that the story was “sad”. I guess that’s an interesting way of seeing it.

    How we feel about a problem is largely an issue of perspective. Some people just have a chip on their shoulder. Maybe all of us about the right thing.

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  8. 8
    ray pepper says:

    Tim remember ” Since when is buying something cheaper a bad thing ” ..This used to be the mantra of Seattle Bubble when I first came here.

    We all can only play the hand we are dealt to the best of our ability and in the best interest of OURSELVES and our FAMILIES. Nobody will look out for you more then yourself. This was all orchestrated by Wall Street and it will take years to unwind the damage.

    Until then stop crying over losses, look forward, and move on with your life. However, do it strategically and be smart. All these homes MUST come back and WILL unless we get principle reduction on a National level. Do NOT accept a Loan Mod that delays the inevitable.

    Its up to all you Bubble Heads to educate the “unknowing” out there. The answers are readily obvious and unfortunately real estate professionals simply do NOT tell the truth.

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  9. 9
    David S says:

    RE: Pegasus @ 4 – All parties involved. Lenders, borrowers, creditors. No one is as dumb as all of them.

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  10. 10
    David S says:

    RE: Chuck Ponzi @ 7 – Bingo, and you get the trend. Wife and I have been ready to pull the trigger now for 10 months with no legal bucks in sight.

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  11. 11
    Blake says:

    Tim thanks for posting this response because it is sad that these “haircuts” hurt people/families, but they had to realize that there was risk and the flip side was the others (like me) priced out of the markets and having to pay exorbitant rents. I moved to Seattle in the Fall of 2005 and everyone – including my family – told me that I had to buy NOW. I’d sold a 2200 sqft brick ranch on 2/3rds an acre in the Midwest for $255k and could not afford to get a small house with a decent location and yard in ‘05/’06… I am glad I’ve waited over 5 years, but it was rough – – it was particularly hard protecting my nest egg the last few years! I am ready to buy, but the market is still a bit overpriced and too many owners (and banks) are still unrealistic.

    Softwarengineer: “My concern is: most of the time the general media alleges real estate price increases are for the good of the economy.”

    Great comment and HUGE problem. The media with the FIRE (finance, insurance and real estate) interests… pumping up the mania and enabling bad decisions. Just think about what a misallocation of resources that was! The banks are supposed to efficiently allocate capital/credit and manage risk. Complete utter failure… what a waste… what a mess!!

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  12. 12

    RE: Chuck Ponzi @ 7 – You’re describing the rather common house as ATM syndrome. The end to that is probably putting a significant dent in GDP all by itself.

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  13. 13
    Ajax says:

    No sympathy from me. I’m sick and tired of paying for other people’s mistakes through tax credits, hand-outs, mortgage assistance programs, Fannie Mae, Freddie Mac, etc. while my wife and I continue do the “right thing” and live well within our means.

    My wife and I moved to Seattle in 2000. We waited to buy a house until our financial and job situations had stabilized. However, when we were finally ready (about 2005), we saw that we were in the middle of a housing bubble. The housing bubble wasn’t hard to spot. Prices were increasing far faster than wages year after year and credit was WAY too easy to get. Common sense told us that this situation was unsustainable and dangerous. Plus, we both lived through the tech bubble in 1999-2000 where everyday investors were telling us to disregard well-established methods of stock valuation and buy whatever the CNBC talking heads were pitching day-to-day.

    As others have said, we were chastised by friends and co-workers for renting, for missing a golden opportunity, for living below our means, etc. Nevertheless, we stayed disciplined and sat out the boom. We rented a small place and saved. We stayed debt free and did with less. To this day we don’t see prices where they “should” be. We figure the housing market needs to drop another 15%-20% and the economy needs to improve before we are ready to borrow hundreds of thousands of dollars. We don’t take such debt burdens lightly..again, its part of our upbringing and discipline to live within our means and be self-sufficient.

    So keep crying a river…I won’t. I’m already obligated through taxes to bail out banks, industries, and now millions of home-owners who have been living recklessly above their means. Shame on all of you.

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  14. 14
    joe dirt says:

    My wife bugged me all the time to buy a rental house during the bubble and said I was failing our family. I refused. I thank this website and others for giving me an alternative to the real estate industry insiders quoted in the Times and PI.

    After it collapsed, I picked up a foreclosure at auction. I don’t feel bad for those who got greedy during the bubble and lost. I got tired of hearing how high school dropouts were making more on flipping than well educated profesionals.

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  15. 15
    Scotsman says:

    RE: Kary L. Krismer @ 12

    Estimated at 1.5-2% of GDP for 2008.

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  16. 16
    Aaron Smothers says:

    I heard the following from a “buyer’s agent” last month. It’s a goldmine of specious reasoning, and ample proof that there are still some parties out there who don’t want you to tune out of the bubble-period thinking into today’s reality:

    It would be great if we all had crystal ball that could predict the future (direction of house prices) but we don’t. On the brighter side, those who did purchase
    at the right time did reap benefits of Appreciation. Most of (this agent’s) clients who
    are skeptical about the (current) market have decided a mid ground. That is, rather
    than going for the palace of their dreams even though they can afford it,
    they have decided to enter into home ownership with a more conservative
    approach. Basically instead of paying their landlord’s mortgage they have
    started to pay their own mortgage, by owning a starter home to begin with.
    Anything paid in Rent is gone anyway. It is always possible to upgrade to a
    larger home as & when you feel better about everything.”

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  17. 17
    Brian says:

    Are we supposed to feel sorry for wreckingbull for being proven right about the timing of the housing market? Give me a break. All I get out of his post is a smug sense of satisfaction that he didn’t buy into the market before the bubble burst. He and a broken clock should go bowling.

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  18. 18

    By Brian @ 17:

    He and a broken clock should go bowling.

    What was that old cartoon? Fractured Fairytales? I’m not familiar with the saying above, but it somehow reminds me of that cartoon.

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  19. 19
    D. in Ballard says:

    RE: Brian @ 17 – I agree. I’m in the same boat as wreckingbull, but feeling sorry for myself is so bourgeois. Wah, I can’t buy a house at a great price.

    But there shouldn’t be anything personal about cheering a decline in home prices. It’s something that has to happen, and that the market needs right now. The only way to start getting this backlog of houses shifted is price declines. I think that the problem here is that many commenters are making it personal by throwing out things like how stupid people were and how some people [read minorities] shouldn’t ever have been given a loan in the first place. People take that stuff personally. I was really humbled by Dave Losh’s post in the other thread about families not even knowing they had mortgages because they had been duped by predatory lenders who told them to sign something they didn’t understand.

    The less social commentary the better. Let’s focus on the facts. This market is not at bottom.

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  20. 20
    Blake says:

    I found this site about 3 years ago and it has been invaluable!
    Thanks go to Tim as well as the intelligent (unsentimental) commenters…

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  21. 21
    wreckingbull says:

    RE: Brian @ 17 – Broken clock? Sorry, you could not be more wrong. I sold my home in 2005, hoping to upgrade to something a little larger within the next 30 days. After I ran some simple back of the napkin cap rate calculations , I realized how bad things had become. I honestly had no intentions of renting again, but to me, it was the only financially prudent choice. I don’t think you even bothered to read the thread, including my additional response to Kary. I never did nor do I ever plan to time the market.

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  22. 22
    Jon says:

    I sympathize with that of the first commenter… there is plenty of blame to go around, but are you really going to blame that person that just thought they were doing what they should do in their American Dream? We, as a society, preached ownership… and we bought and bought and bought.

    For those of you that ‘predicted’ the collapse… we are so proud of you. We really should do everything you do, so if you could tell us what you eat, when you relieve yourself, what industry we should get into, what time we should go to bed, and of course, what shows/books to read… we would all be a much better off society. You are our hero’s and we want to emulate you.

    Now, for reality… those people that used your homes as ATM’s… good for you. You deserve everything you get.. and I do hope that the bank (if they can find your note) comes after you with everything they have.

    For those who are like our first commenter… my deepest empathy extends to you. You were caught with your pants down, much like those that innocently put money in the banks before the Savings and Loans Crisis… you didn’t deserve this… but we are a buyer beware society… and there are jerks like those commenting that would love to say, “I told you so” becuase they were the brunt of that for those inflationary years… an Eye for an Eye… so you must take up their panderings.

    As to those who purchased responsibly, keeping an eye on a long term investment vehicle that will eventually (read, 10+ years)… it’s still going to pan out over time… hold on… it’s a good vehicle for the long term. Take a look at the NY Times rent vs. buy..

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  23. 23
    BillE says:

    By D. in Ballard @ 19:

    – I think that the problem here is that many commenters are making it personal by throwing out things like how stupid people were and how some people [read minorities] shouldn’t ever have been given a loan in the first place.

    Really? So now we’re racist if we think people buying homes should be able to afford them?

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  24. 24
    wreckingbull says:

    RE: Jon @ 22 – After all we have been through, you are here telling people don’t worry, it will “pan out” over the long run? Homes are not gold nuggets. They are assets that barely beat inflation over the long run. Their primary purpose is to keep you dry and warm. I just don’t think that rhetoric does anyone any good.

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  25. 25
    Jon says:

    Absolutely, I think that it will pan out. Inflationary or not, it’s a true savings account that will continue to pay over time. You can’t tell me that I wouldn’t have done well if I bought a few properties in the 60’s, 70’s or 80’s that I wouldn’t be well off right now… I would be… And if I could get a lot of use out of it, or rent them out with 20% down and positive cash flow, that I won’t do well in the long term. Rental rates up… 20% down and a good house equates to positive cash flow right now! If I can do that now, and I get the value of appreciation over time, why wouldn’t it be a wonderful vessel to park some money in?

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  26. 26
    Pegasus says:

    RE: Jon @ 25 – And think of all that DEBT you can sign your name to because of historically low rates and a lower than normal payment except for property taxes and insurance. Say you don’t think that’s the plan do you? Keep the debt outstanding high so the banks can get it off there books, give them free money to bailout, eliminate their taxes for them, let them borrow at zero at the taxpayers expense to invest in treasuries and let them carry imploded assets on their books at fantasy values with no recourse. Just a thought…what happens when national wages fall to $2.00 per hour in order to compete with China? We already have many trying to lower the MINIMUM wage. I wonder how they will deal with the commercial real estate market down 40 percent that no speaks of? If I were in commercial real estate I would also keep mum. Now that the economy according to Pfft (and many others) is recovered why are all those buildings empty, in foreclosure and we are record vacancy rates for commercial properties? I wonder what happens with all of those loans……hmmmmmmm.

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  27. 27
    Dirty_Renter says:

    By David S @ 9:

    RE: Pegasus @ 4 – All parties involved. Lenders, borrowers, creditors. No one is as dumb as all of them.

    Let us not forget the:
    1) Ratings agencies
    2) Greedy buyers of the CDO’s yielding 2-3% more than US Bonds.

    So much blame, so little time.

    Dirty Renter

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  28. 28
    Herman says:

    There are lots of bubble buyers who argue, “Stop labeling me as greedy. I was just following the general advice out there, and providing for my family.”

    Well, that’s true. But following the herd without checking for sanity is what creates bubbles in the first place. So I will not use the greedy label (for but a few) but yet this group still has to bear more than the ordinary share of pain, and we don’t have to feel sorry for them.

    I save my sympathy for the stories like Hugh Dominic’s. He and his family were unwilling and inactive participants in the bubble. He was shut out of housing and then whipsawed out of work by the resulting crash, never having signed a single document, never having lived even for a short time in a dream house, and never seeing a dime other than the ones he paid into taxes for the bailouts.

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  29. 29
    Jonness says:

    I’ve heard over and over from RE agents that “a house is not an investment; it’s a place to live.” That’s the biggest crock of horse manure I’ve ever encountered. In fact, it’s both an investment and a place to live.

    Buying a home represents a highly leveraged investment, and I strongly implore people to think carefully before running out and making a split-second impulse purchase based on what the guy on the local news said about the housing market. People are getting beat up really, really bad right now because they failed to look at their home purchase as perhaps the single biggest investment they will ever make. Add in massive leverage to the equation, and buying a house represents extreme danger to those who don’t know what they’re doing. This is one area where it pays to do some research. Relying on your RE agent for advice will often get you the answer that most rewards the agent (buy, buy, buy). Some agents will work for you, and if you find one, then hang on to him/her. If you ever detect, even once, that your agent is not 100% working in your behalf, fire him/her and move on.

    The people who got slaughtered in the housing bubble made bad investment decisions. I have empathy for anybody who is suffering, but it’s not like I haven’t been there myself. You learn from it, and you move on and try not to make the same mistake ever again. We are all adults, and nobody needs their hands held here. If you made bad decisions, learn from it and start making good decisions. What else is there that can be done? Having other people feel sorry for you gets you nothing. Feeling sorry for yourself gets you nothing. The only thing that gets you anywhere is to get up every morning and do everything in your power to move forward with your life. If you make it out the other side with your health intact, then you should understand just how fortunate you really are. If you have your health and your family’s health, then you have most of what matters. The rest is just a freaking game.

    From the toughest situations, we learn the most powerful lessons. Life without struggle isn’t much of a life. It’s victory over the struggle that makes us appreciate what we have.

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  30. 30
    anonimaniac says:

    Buying a property is not just an immediate need nor simply an emotional decision. It is primarily an economic bet and the biggest purchase of your life.

    There was obviously a credit/house price bubble. No question. Those that did not see would not take any advice. They would throw their money away on something else. Come on, the biggest purchase of the average person’s life and they bet all their assets? A fool and their money….

    One does not need to buy a house. They could have rented and waited for prices to come down. An economy is cyclical. History proves that over and over.

    Too bad that people are losing money but they could have done research. Buy stocks with your hard earned retirement money? You do research.

    Warning: Anecdote. My guess is that not only did a lot in this area get suckered by the buy-now-or-be-priced-out mantra but almost everyone I know of that had bought earlier than the accepted bubble had cashed out, using the house as an ATM. Lots of people could be sitting pretty with houses paid for or almost paid for but will now lose them. Yes, more economic bets. They thought prices would rise forever. Never mind the fact that real wages have stagnated since the 1970s.

    Those that waited and saved are getting burned, too, by government policies that are hurting savers and only helping the big banks. But, no to mortgage bailouts. Buy later at a cheaper price. It will happen.

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  31. 31
    Scotsman says:

    I think the underlying issue is more than just should we buy a house, whether to “invest” or flush your rent. Most people really aren’t very good at two things- delayed gratification and basic money management. The vast majority of people in this country are pretty much always tapped out until the next paycheck hits. Close to half have less than a grand in the bank. The numbers are really startling and completely incomprehensible to most on this board who have some education and above average income and assets. The people can’t control their spending, the government can’t control its spending, nobody seems to be able to just say “no” and close the checkbook. OK, make that put away the charge card. And when it all comes tumbling down it’s somebody else’s fault- peer pressure, lack of notification, whatever. One benefit of this crunch may be that it causes people to re-evaluate the way they make decisions and set priorities, helping more see the benefits of a long term perspective over short term pleasure. But that’s probably just a dream.

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  32. 32
    David Losh says:

    RE: S. Marty Pantz @ 6

    Professor Wheaton said that. You can Google. He has some papers published, but he was wrong on many points good on others.

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  33. 33
    Tim McB says:

    RE: Scotsman @ 31

    I remember a number of years back hearing that roughly 40% of people are 2 paychecks from financial peril. It looks like the numbers upped itself to roughly half.

    http://www.marketwatch.com/story/fears-grow-more-consumers-just-a

    “A MetLife study released last week found that 50% of Americans said they have only a one-month cushion — roughly two paychecks — or less before they would be unable to fully meet their financial obligations if they were to lose their jobs. More disturbing is that 28% said they could not make ends meet for longer than two weeks without their jobs. And it’s not just low-income earners who would find themselves financially challenged. Twenty-nine percent of those making $100,000 or more a year said they would have trouble paying the bills after more than a month of unemployment.”

    Saving apparently is so last century.

    Jonness @29 “From the toughest situations, we learn the most powerful lessons. Life without struggle isn’t much of a life. It’s victory over the struggle that makes us appreciate what we have.”

    Well said.

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  34. 34
    DavidB says:

    I was fortunate enough to have sold my house in Feb 2007 near the peak of the market. I had planned to buy another house in the next year but after seeing the economic havoc hitting the national housing market I decided to wait for the tsunami to hit Seattle. Nearly everyone I talked to told me Seattle is immune to an economic downturn and home prices will never decline here. I was told many times that I should buy a house. So 3.5 years later I still haven’t bought a house.

    Now I see people listing their homes for sale sometimes at prices higher than they paid in 2007. There sellers will be disappointed when the market doesn’t snap back as they expect and they find that the market has dropped much further forcing them to decrease their list price substantially if they hope to sell.

    I don’t have any sympathy for anyone who bought a home here in 2006 or later since they could have used basic common sense to see that the bubble bursting in the rest of the nation would eventually hit here. People made the mistake of believing what they heard and read in the media without thinking for themselves. The media reports at the time said that prices wouldn’t decline here and “now is a good time to buy”.

    Too many people believe housing is a good investment and the route to wealth. Housing is a terrible investment. The holding costs and disposal costs are high and it’s not liquid. Too many people believe they get to write off dollar for dollar of the interest paid from their taxes. Home prices would drop dramatically if the government eliminated the home interest deduction.

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  35. 35
    David Losh says:

    RE: DavidB @ 34

    Baloney.

    Real Estate is an investment. The family home or shopping Mall, sky scaper, or building lot, it’s all an investment. Even in 2007 people made good, solid purchases, if they had a plan.

    Most people don’t have a plan, or clue, about what they buy, let alone when they buy. All of this internet pretty picture, let’s learn, be educated, and know the market is crap.

    Real estate is a hands on learning experience. You either have the knack, or you don’t. It’s not a commission sales position, but most Brokers treat it that way.

    I was just sayin’.

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  36. 36
    capitol hill renter says:

    As a renter, I was “forced” to move twice by the housing bubble.

    In 2006, my landlord would not renew the lease on my house, because they were working on permits to tear down the house and build townhouses on the property. So I moved (and the house is still standing, oops). I moved to a small apartment complex, and when plumbing issues emerged, the owners sold the apartments in August 2007 to a couple who were so excited about their “investment” and new “hobby” as landlords. The new owners paid 200k more than the taxable value of the property (and for 2010, 300k more than the taxable value) and still needed to preform a fair amount of maintenance. Needless to say, when my lease came up, they wanted a 20% increase in rent because the mortgage, even if they had put at 20% down, would not be covered with the current rental rates. Well, since I don’t get 20% pay increases every year, I moved again.

    Yeah I could grumble over my taxes and bailouts. The bubble wasn’t isolated to buyers, it also inflated rents, which was really tough on people (students, minorities, people who work at non-profit jobs, artists) that don’t have the income to buy and had to constantly deal with rental increases or moving annually. So yeah, do I feel bad for those landlords that tried to squeeze every last penny out of me and other renters because of the housing bubble, hell no.

    Do I hope that some day housing values come down close enough to my income that I could afford a place (read stability) to buy. Yes.

    Also, I know people who ended up buying during the bubble because of landlords behaving badly, they just wanted the stability of ownership rather than constant rent increase battles. It was a very competitive rental market during the bubble, with so many units getting converted to condos.

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  37. 37
    Shoe Guy says:

    By Jon @ 25:

    You can’t tell me that I wouldn’t have done well if I bought a few properties in the 60’s, 70’s or 80’s that I wouldn’t be well off right now… I would be…

    90% of the appreciation on your home was a result of dropping interest rates from 12% to 5%. Without that interest rate drop, your home purchased in 1980 would have barely outrun inflation.

    This is the danger that I see in people buying over priced homes today with cheap money. What happens in the future when money becomes more expensive and interest rates rise back to 7 or 8% where they belong?

    You had better hope that if you buy a $200,000 home at 4.3% interest, that the next guy can afford your place at at least $220,000 at 7%. Good luck with that happening if wage stagnation follows the last 30 year trend….

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  38. 38
    m-s says:

    By DavidB @ 34:

    Too many people believe housing is a good investment and the route to wealth. Housing is a terrible investment. The holding costs and disposal costs are high and it’s not liquid. Too many people believe they get to write off dollar for dollar of the interest paid from their taxes. Home prices would drop dramatically if the government eliminated the home interest deduction.

    True. Not ONLY is it only a deduction vs. a credit, it only starts at deductions greater than the standard deduction, which EVERYONE gets, including renters. So if your itemized deducs are half mortgage interest and half other stuff (charitable, medical, etc), you only are really deducting about “half” of (pick your number for marginal tax rate%) times said interest. The gov’t could effectively kill the interest deduction, benefiting renters, but not charities :(, by raising the standard deduction some more. With its steady creep upwards over the years and my paying down my principal, its just about done it for me anyway.

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  39. 39

    By Shoe Guy @ 37:

    By Jon @ 25:
    You can’t tell me that I wouldn’t have done well if I bought a few properties in the 60’s, 70’s or 80’s that I wouldn’t be well off right now… I would be…

    90% of the appreciation on your home was a result of dropping interest rates from 12% to 5%. Without that interest rate drop, your home purchased in 1980 would have barely outrun inflation..

    I wouldn’t agree with either of you.

    As to Jon, past performance doesn’t guarantee future results.

    As to Shoe Guy, you’re analysis assumes a cash purchase of the property. With leverage, which is very common on real estate, even meeting inflation would be a good result.

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  40. 40
    m-s says:

    But wait, I think its even worse. In the example in #38, its half of (tax rate%) of interest that EXCEEDS the standard deduc (~$12k?), right?

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  41. 41
    Stesmo says:

    >> Did you contact the owner(s) of this property to get their story?

    So, Guest, in an effort to get more of the story…

    Did you profit from the bubble? Before buying your ‘haircut’ house, that is. Did you sell another house and make a nice chunk of change over what you had bought your first house? Did you take a HELOC on the ‘haircut’ house? Or on a previous house during the bubble? Did you have friends, family or coworkers telling you about the housing bubble before you bought your house? Did you already know it was a bubble?

    It does suck for people who bought a house, did not benefit from the bubble or know it was a dangerous time to invest in a house. Especially when they are in a situation where they are going to lose money or can’t sell their house in a timely fashion. However, most of the folks that I know that are underwater also benefited from the bubble; they sold the house they bought pre-bubble for a huge profit (and then sunk it in to a house they shouldn’t / couldn’t afford) or picked up a $100K HELOC to “pay-off” credit card and SUV loans, go on vacation or improve their homes.

    Maybe you’re one of those people, Guest, that did not benefit from the bubble at all. Maybe you gained $10K and lost $95K. Maybe you were a renter before and this was your first house. Maybe you didn’t have people warning you about the bubble. In that case, it does suck for you and yours and I can sympathize.

    If you made some serious cash off of selling your other house(s) or took out some huge HELOCs to improve your standard of living, I find it a bit harder to feel sympathetic….

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  42. 42
    Shoe Guy says:

    By Kary L. Krismer @ 39:

    By Shoe Guy @ 37:
    By Jon @ 25:
    You can’t tell me that I wouldn’t have done well if I bought a few properties in the 60’s, 70’s or 80’s that I wouldn’t be well off right now… I would be…

    90% of the appreciation on your home was a result of dropping interest rates from 12% to 5%. Without that interest rate drop, your home purchased in 1980 would have barely outrun inflation..

    I wouldn’t agree with either of you.

    As to Jon, past performance doesn’t guarantee future results.

    As to Shoe Guy, you’re analysis assumes a cash purchase of the property. With leverage, which is very common on real estate, even meeting inflation would be a good result.

    Sure, but you’re assuming a steady increase in value on a property, which is why I included the second part of my post. Real Estate values are dropping in spite of record low interest rates. These interest rates CAN NOT remain this low forever. For the last 50 years, historic rates have floated around 9%.

    As interest rates start to rise, and they will, this will apply further downward pressure on prices. This is my point. The rising of interest rates will destroy any gains realized by inflation, leverage or not. Add in real estate fees and closing costs, and the fact that real estate is still over valued, and you’ll have a whole new round of first time buyers trapped in their homes years from now when they want to upgrade.

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  43. 43

    RE: Shoe Guy @ 42 – I’m not assuming anything, but people buying do make certain assumptions. People buying multi-family real estate in 2007 were assuming continued inflation of prices (or else maybe condo conversion), because that was the only possible way their investment penciled out. The earnings from operation just wasn’t there.

    Rising interest rates don’t necessarily mean lower prices, especially where the rising interest rates are the result of inflation, and as I’ve mentioned before, where the seller has an assumable loan. They would put downward pressure on the market, however, there’s no denying that.

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  44. 44
    sallybuttons says:

    RE: Kary L. Krismer @ 43 – Kary, ’07 multi-unit shopping was an abysmal time for sensible pencilling…and it still is. Eager realtors inventing numbers for cap rate enlightenment and brainy deferred maintenance equations … totally self-serving + fraudulent, intentionally seeking the greater-fool buyer. Numbers make not a dang lick of sense and an honest lender was candid with us regarding thoroughly casual relationship with truth that had become industry standard…a house of lousy cards requiring seller tax returns and lots of walking away from dangerous smarm-goo.
    Once 1031 is assured, different sort of “pro” (a realtor who doesn’t advertise, can do math and is only brought in once 1031 lights turn green) enters and helps deflect smarm-goo.
    This was my experience.

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  45. 45

    1031 is another issue from back then. It was probably about in 2007 that a representative of a 1031 exchange facilitator said most of their clients at the time were relatively small time entities or individuals, where previously they had been larger entities. The reason for that, IMHO, is that the tax rates at the time were rather attractive.

    I wonder how those that did a 1031 back then feel about it now with tax cuts about to expire, the possibility of a state income tax, etc.? Not to mention that their new investment probably isn’t performing too well, and if they lose it they could end up with a tax hit that is larger than their proceeds!

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  46. 46
    sallybuttons says:

    aww Kary. ..so SB but how do y’all pay the bills?
    The point of comment perhaps written poorly…previous revenue disclosures had not been as patently false as in ’07 or yet today. Seller tax returns were not an absolute requirement for a true profit/loss statement. Less than educated realtors were not inventing new cap rate definitions and same goes for inventive terminology for no upkeep and consequential required expense: deferred maintenance formula a la Windermere.
    Hadn’t experienced this in 80’s or 90’s. Serious stench in 2000’s and change is now difficult. Truth pills are one answer to an industry fueled by greed crap.

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