Has the Tide Turned Against Home Ownership?

Now seems like as good a time as any to have another look at the “Cycle of Market Emotions”:

The Cycle of Market Emotions
Cycle of Market Emotions

By my reckoning, in late 2007 we were somewhere between anxiety and denial, and by mid-2010 we were treading water between fear and desperation. Today I suspect we’ve made it to capitulation, based on two major factors:

  • Many sellers have given up, not even bothering to list their homes.
  • Many would-be buyers have given up on home ownership entirely.

For evidence that sellers have given up, look no further than any of our recent posts on inventory trends, showing flat/falling inventory at a time of year that usually sees the largest increases.

For evidence that buyers are giving up on home ownership, consider mainstream articles such as this story that ran in Bloomberg Tuesday: Americans Shun Most Affordable Homes in Generation as Owning Loses Appeal

Victoria Pauli signed a one-year lease last week to stay in her rental home in Fair Oaks, California. She had considered buying in the area, where property prices have slumped 57 percent since a 2005 peak.

In the end, she decided it wasn’t worth it.

“I know people who have watched their home values get cut in half, and I know people who are losing their homes,” said Pauli, 31, who works as a property manager for a real estate company. “It’s part of the American dream to want to own your own home, and I used to feel that way, but now I tell myself: Be careful what you wish for.”

The most affordable real estate in a generation is failing to lure buyers as Americans like Pauli sour on the idea of home ownership.

Sure sounds like capitulation to me. Of course, we may be in the capitulation and despondency stage for quite some time—maybe years, even—so I think it’s a bit early yet to be looking for relief and optimism around the corner.

What about you? Where do you think we are in the cycle?

  You have already voted.

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.

148 comments:

  1. 1
    Daniel says:

    I think the whole cycle is nonsense. It is no different than the unjustified simplifications made by sales pitches during the bubble.

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  2. 2
    patient says:

    Sellers are firmly in denial. They believe if they just wait a bit prices will go back up. This denial is constantly fueled by the blitz of “recovery” lies. As the realization grows that prices will not bounce back they will enter the fear stage and on from there. The sellers not in denial are under water and don’t care anymore since they are shackled to their homes or awaiting foreclosure.

    Buyers like me are just being savvy and are awaiting a price level and price trajectory where it makes financial sense to buy again.

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  3. 3
    hoary says:

    I think we are holding strong between Fear and Desperation, sadly.

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  4. 4
    Mike Ryan says:

    Patient – I agree with your comments. Houses are only worth what people are willing to pay for them. Right now in the Seattle area, sellers think they are giving away their homes if they drop the price. Problem is they are comparing prices to the value at peak rather than what’s happenning today. Heck, it’s their right but let’s see if they can hang on. If enough become desperate, prices will continue to fall. We’ll see who blinks first. Sellers with debt or buyers with money. Statistics are a good tool to help understand the past and help in future descision making. However, statistics cannot predict the future. That is up to the buyers like you and I. If enough of us wait it out, prices will come down to where the fundamentals say they should be (my choice is price to income and rent to price). Of course, if enough buyers feel they can’t wait, prices will jump. I say prices have aprox. 20% more to go before one can say prices in Seattle are reasonable. I guess we’ll find out in 12 to 18 months time who was right.

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  5. 5
    iChris says:

    I had been planning to buy a home near the end of this year but lately I’ve been less motivated to even start looking. To me it seems like the economy is going to get worse before it gets better, and that won’t help the ailing real estate market. Using the “cycle of market emotions” I’d say we are between panic and capitulation with a cloudy future based on several factors:

    -As inflation kicks into high gear (to the point Bernanke can’t hide it anymore) and the Fed starts raising rates, the illusion of economic recovery will end.
    -Higher interest rates will drive home prices lower. Hopefully these cheap money monetary policies will end – I work hard for what I earn and it’s infuriating when the government simply prints more dollars, diluting the value of my savings.
    -The market still needs to churn through the backlog of foreclosures, which will drive home prices lower. As this occurs household wealth will continue disappearing.
    -Home owners won’t be as happy paying property taxes at rates they felt were acceptable when their homes were increasing in value. There’s also talk in government circles to get rid of the mortgage interest tax deductions.
    -Energy, food, clothing, health care, etc will all be more expensive as commodity costs are passed on to consumers – $6 dollar gas is right around the corner. It costs more to eat and buy clothes. Everything is getting more expensive.
    -Higher interest rates will drive the federal deficits even higher as it becomes more expensive for government to roll over it’s short term debt obligations.
    -Smaller % of population contributing to Social Security as higher % of population heads into retirement – Baby boomers have already started their mass exodus from the labor market – a smaller labor force supporting an increasing number of retirees is not sustainable.
    -State and local govts forced to choose between funding retirement benefits or govt services tax payers expect (since they are paying taxes FOR those services) – will lead to municipalities declaring bankruptcy, cutting labor costs, or increasing taxes (property tax hikes).

    When I look at the real estate market there are too many looming questions that could substantially effect the cost of home ownership. As dumb as it sounds, I don’t like the idea of investing my savings into a real estate market that could end up being the primary source of tax revenue expected to fill governmental budget gaps. When all factors are considered, I’d rather wait to see what real estate prices look like after interest rates go up.

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  6. 6
    hoary says:

    Listen, we are not even close to the end of this debacle. No one who has a good house who wants to relocate is even putting it on the market. The shadow inventory just keeps growing and we haven’t even peaked in foreclosures yet. In the coming years, when we’ve finally cleared out all the subprime inventory we then have all the shadow inventory to absorb.

    Prices will peak up a bit, shadow inventory will flood the market and prices will fall again. This sawtooth will go on for how many years? Furthermore, it’s not like this paper-thin recovery is even guaranteed to stick. What if we get slammed with another recession and unemployment spikes again?

    If I had to sell I’d be afraid, hence Fear-Desperation rating for me.

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  7. 7

    RE: iChris @ 5

    I Liked Your Comments

    I agree with Tim’s chart in a psychological way, but like you, I wouldn’t make it an economic model “S” back up or near to recovery [as much as we’d all want it to be that way].

    There’s a book out called “Passionate Marriage” for relationships either mending with discourse or failing with passive apathy. The key to a sucessful relationship is to spiral around in a bigger and bigger circle [discourse] until the relationship either breaks up or mends with communication rectification and spirals back into a slower smaller circle of harmony; albeit, if the spiralling out in discourse isn’t continued on a regular basis the smaller harmony circle leads to passive apathy and ends in failure too. Businesses should run their offices this way too for success [or possible risk failure] and inventiveness [spiralling out], IMO, or fail from passive apathy [the competition puts you out of business].

    America is in passive apathy right now, IMO, and we’ve got to wake up and smell the truth [coffee] and start spiralling out in contention or we’re doomed to a passive laid-back failure of the “same old same old” [more horrifying debt failure].

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  8. 8
    hoary says:

    By softwarengineer @ 7:

    America is in passive apathy right now, IMO, and we’ve got to wake up and smell the truth [coffee] and start spiralling out in contention or we’re doomed to a passive laid-back failure of the “same old same old” [more horrifying debt failure].

    Allow me to break out the Folgers for you…

    http://www.dailyjobsupdate.com/wp-content/uploads/Food-Stamps-Monthly.jpg

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  9. 9
    Econe says:

    Kubler Ross would be more appropriate.

    We’re in the “bargaining” stage.

    Loan Mods = Bargaining

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  10. 10
    Peter Witting says:

    Still in Fear

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  11. 11
    Hugh Dominic says:

    RE: iChris @ 5 – Any one of those is a cause for fear, and they are all correct. With the possible exception of the boomer retirement; I think the boomers are delaying retirement because of all the other fears. Too bad for the kids who can’t get jobs.

    In 2007 pre-crash, gas prices of $4.50 was headline news along with talk about how it would damage the economy. Now $4.99 gas can barely compete for the headlines with four other economy-crushing forces. By that measure, this recovery should scare everyone.

    Let me be the first to predict an M shaped recovery.

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  12. 12
    ; says:

    doesn’t matter what cycle we’re in.

    i want to buy. i know my price.

    i don’t need to make predictions.
    if prices get to where i want, then i pull the trigger.
    if not, i don’t.
    simple.

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  13. 13
    hoary says:

    By Hugh Dominic @ 11:

    In 2007 pre-crash, gas prices of $4.50 was headline news along with talk about how it would damage the economy. Now $4.99 gas can barely compete for the headlines with four other economy-crushing forces. By that measure, this recovery should scare everyone.

    Let me be the first to predict an M shaped recovery.

    Not trying to be jerky, but gas prices peaked at the beginning of July 2008 in the throes of the Great Recession. This was immediately followed by Lehman of course a few months later. (The recession “officially” started in Dec 2007 and ended July 2009.) They were not $4.50 pre-crash.

    I agree with you that this recovery will be bumpy.

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  14. 14
    Matthew says:

    Some people are in the denial stage but I’d say the vast majority are at fear. The public is slowing starting to wake up and realize that this won’t be cured with the wave of a magic wand. Sure the average person doesn’t have a full understanding of what is going on, but I’d say the vast majority realize that housing values aren’t going to skyrocket back to where they once were.

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  15. 15
    ray pepper says:

    we just entered the 3rd inning of a VERY long double header.

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  16. 16
    Sparky says:

    The Tim:

    You chose capitulation based upon:
    – Many sellers have given up, not even bothering to list their homes.
    – Many would-be buyers have given up on home ownership entirely.

    I look at the same two pieces of info, and think it’s much earlier in the cycle. I think sellers are somewhere around fear. They don’t want to list because they can’t afford it. I still think many sellers think it’s possible they’ll be able to recover more of their investment if they wait. I think we’re past denial, but haven’t made it yet to panic. You might even say they’re frozen with fear, and thus not doing anything, hoping it’ll all just magically get better.

    I’m not sure that it maps as well to would-be buyers. I feel like I might be in the fear category, but that’s where I was when I moved to Seattle in 2/2008 as well (and everyone I talked to was euphoric). Since I don’t have any skin in the game, I’m not sure it’s possible for me to hit the lower points on the graph; I can rent indefinitely, and am reasonably satisfied doing so.

    It seems like buyers will have to be ahead of sellers in the graph. If would-be buyers have given up entirely, maybe they’re in the despondency phase, but wouldn’t any buyer between fear and hope refuse to buy?

    Mostly, I don’t remember ever seeing capitulation. People will eventually have to move on with their lives, and they’ll sell their homes for whatever they can get for them. The government can’t keep trying to prop up housing forever, and at some point I think policy makers will have to capitulate. QE2 will end, rates will have to rise, “stimulus” is abandoned, etc. As long as homeowners refuse to list their properties, I’d argue that we’re earlier in the cycle.

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  17. 17
    Ross says:

    The market is a mix of denial, fear, and desperation. Those sellers that aren’t listing are in complete 100% denial. They’re believing the NAR reports that the bottom is only 6 months out and we’ll have a thriving market in just a little while.

    We’re nowhere close to the bottom.

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  18. 18
    Jonness says:

    I’d replace the fear label with optimism, but keep the rest of the chart the same. Thus, we’ve reached the point of the first round of optimism and should soon be cycling into desperation and panic, which will be triggered by Bernanke stopping the printing presses. At this point, we’ll be able to get back into reality about what’s really occurring to the U.S. labor market and dollar. This will most likely cause Bernanke to restart the printing presses so that we can all play make believe for a couple more years and dance with magic fairies who wear green boots and wave crystal wands.

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  19. 19
    Scotsman says:

    RE: ray pepper @ 15

    Yup. The more I look at the macro environment and the political posturing the more I think it will be a long, long time before we return to any kind of sustainable balance.

    I would say we’re stuck in denial, but that doesn’t really capture the whole of what’s going on. How can you be in denial if you aren’t even fully aware of the problems?

    We have a couple dozen regular commenters here, and many, many more readers. But the number of people touched by this blog to the point where they really understand the inter relationships between home prices, the economy, and government actions to try and rectify things is very small. Like the looming presidential election- some people can tell you the strengths and weaknesses of all the potential candidates, but the vast majority aren’t even paying attention at this point. I think the vast majority of Americans aren’t really paying attention to the economy, or government, or housing, and won’t until they are personally touched by some aspect of it. Most are passive, accepting, and willing to just whine a bit but continue muddling along.

    And for those actively involved on the selling side EconE is right- KR is more appropriate, and bargaining is as far as they’ve gotten. We have years to go- at least until 2014, perhaps (like Japan) decades. And that’s just to get to the bottom. We can’t even have a discussion about recovery because we don’t don’t know what sort of deal will be struck between our groveling politicians, an entitlement oriented populace, and the hard reality of the numbers.

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  20. 20
    David Losh says:

    RE: Scotsman @ 19

    Please, we have no entitlements in this country. Just show me one that isn’t an absolute necessity. We have homelessness, prisons, the mentally ill walking the streets, drugs, crime, black economy, starvation, no health care. We have no education, just administrative technique.

    We pay less in taxes, but get nothing in return. Of course we are free to make as much money as possible with no restriction what so ever. We have no regulation of lending, environment, or safety. We leave that to the courts.

    We are an economy, with military backing, that’s it. There is no entitlement populace. I was swindled into paying Social Security, and Medicare, Medicaid, that hardly constitutes entitlements.

    What are you possibly talking about?

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  21. 21
    pfft says:

    I think we are near a bottom with quotes like that.

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  22. 22
    The Desponder says:

    “We have a couple dozen regular commenters here, and many, many more readers. But the number of people touched by this blog to the point where they really understand the inter relationships between home prices, the economy, and government actions to try and rectify things is very small. Like the looming presidential election- some people can tell you the strengths and weaknesses of all the potential candidates, but the vast majority aren’t even paying attention at this point. I think the vast majority of Americans aren’t really paying attention to the economy, or government, or housing, and won’t until they are personally touched by some aspect of it. Most are passive, accepting, and willing to just whine a bit but continue muddling along.”

    My ears were tingling. But really, what can be done?
    Most of the commenters here saw the bubble and acted accordingly. But what if you’ve already made the mistake, you’re underwater, and you can’t get out anytime soon? In May 2008 My wife and I took the accepted, but foolish, wisdom of the day that if a person was going to live in one city for 5+ years then it payed to buy. Our plan was to stay in Seattle, where my wife teaches HS, while I worked on a grad degree. We bought a 780 sq ft condo in the CD for $305k with about 22% down.
    In the Fall of 2010 a unit identical to ours short saled for $180k. At that time I recognized that at our original interest rate we would never dig out of the hole. So in Nov. 2010 we refinanced to a 5-year ARM (the appraisal which allowed us to refinance was a complete joke) and are making double payments every month to eat away at the principle until we can afford to sell, which will probably be at the 5 year mark. This month another unit in our building is going to auction, and another short sale. That’s 3 out of 8, so far.
    I see the correction that must occur. I see the leveraged markets and a jobless economy. Right now we’re in a race to get ahead of home value so we can restructure ourselves in cash, but until we can get out from under this thing we are stuck. I see it. But what can be done? I guess this would put me somewhere around despondency, right?

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  23. 23
    Scotsman says:

    Note the date. Revisionist history now sees this not as the serious commercial it was, but as some kind of parody. When you can’t bear the obvious pain, seek humor?

    http://www.businessinsider.com/the-infamous-suzanne-researched-this-commercial-video-2009-5

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  24. 24
    pfft says:

    By Scotsman @ 23:

    Note the date. Revisionist history now sees this not as the serious commercial it was, but as some kind of parody. When you can’t bear the obvious pain, seek humor?

    http://www.businessinsider.com/the-infamous-suzanne-researched-this-commercial-video-2009-5

    I remember that. how did realtors escape ridicule? david lereah went away and everyone forgot about him.

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  25. 25
    Pegasus says:

    We haven’t seen fear in mass yet only concern. The housing market moves too slowly for unwinding all of the excesses quickly. The fear will only come when the market has dropped enough to make every homeowner with a mortgage realize that they have lost all of their equity in home ownership plus some. Unfortunately with the ability to put the majority of the loss back to the banksters there may never be a panic. The banks won’t panic because they can put their losses back to the taxpayers. The taxpayers are too busy watching American Idol to give a crap about their future demise so they won’t panic unless there is a beer shortage.

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  26. 26
    Pegasus says:

    RE: The Desponder @ 22 – Not advice but you are so far underwater that not paying your mortgage, collecting free rent until you get the boot and sticking it to the lender who allowed a bogus refinance appraisal to get themselves off the hook seems the business thing to do. Whether you can live with it or not is up to you.

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  27. 27
    deejayoh says:

    By David Losh @ 20:

    RE: Scotsman @ 19
    What are you possibly talking about?

    Ironic?

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  28. 28
    Scotsman says:

    RE: deejayoh @ 27

    No, unfathomable.

    I can’t decide if he’s being facetious or acting out through some sort of despondent rage. Either works for me. Makes me think.

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  29. 29
    David Losh says:

    RE: deejayoh @ 27

    So you can’t name any entitlements either.

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  30. 30
    David Losh says:

    RE: Scotsman @ 28

    You have been commenting continueally about Social Security, Medicare, and Medicaid like we are a welfare state, when we are the furtherest from that on earth. We are not Europe, or China, or Communist, or Socialist. Even the hint of a Social agenda sends the fringe off the deep end.

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  31. 31
    ray pepper says:

    RE: The Desponder @ 22

    Desponder…Pegasus nailed it for the advice to you:

    Not advice but you are so far underwater that not paying your mortgage, collecting free rent until you get the boot and sticking it to the lender who allowed a bogus refinance appraisal to get themselves off the hook . Whether you can live with it or not is up to you.

    Let me also add this for the upteenth time and see if you can find the buffoon/idiot and the only one with real advice: http://www.youtube.com/watch?v=jZOg1YPZSjk&feature=related

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  32. 32
    BillE says:

    RE: Scotsman @ 23
    From the comments in that link I found this dandy.
    http://www.youtube.com/watch?v=TxylHPnoloI

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  33. 33
    alex says:

    I don’t think we’re currently in “Capitulation”.

    I think the meaning of “Capitulation” is something else. It doesn’t mean that people give up doin business. It means that sellers – specifically sellers – give up hope that the value will ever go up, and start to sell in a hurry – at any price.

    The difference between “Capitulation” and “Depression” is that during “Capitulation”, there’ll be a lot of sales volume, because many buyers will think they’re getting a great deal.

    When you reach “Depression”, even though prices continue to go drastically down, there are barely any buyers.

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  34. 34
    Blurtman says:

    RE: The Desponder @ 22 – If you can continue to pay your mortgage, can you explain the problem? Seemingly inherent in your predicament is that you cannot have what you want when you want it.

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  35. 35
    Hugh Dominic says:

    RE: Blurtman @ 34 – The problem is that he lost $125k, or $65k and his credit rating, and that’s a lot of money.

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  36. 36
    Hugh Dominic says:

    RE: Hugh Dominic @ 35 – also, the process of losing it will still take years or months. (depending on whether he pays back the money he lost, or endures the default process). And that is a long time.

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  37. 37
    David Losh says:

    RE: The Desponder @ 22

    OK, you are stuck with a $300K bad investment. Yours is the type of situation kary was discussing about a month ago. The building itself will correct in price to where it probably should have been to beging with.

    What I have been saying is that you are doing the right thing by paying down the principal balance. It’s only money. If you pay sooner you save on the interest payments. What I would suggest is that you come up with a financial plan to include paying for your mistake.

    You are doing the right thing. By saving interest payments you will end up with an asset of some value, but I would use that by working, and saving. There’s no place for you to go right now other than to make another mistake elsewhere. Deal with the devil you know.

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  38. 38

    RE: hoary @ 8

    Yes Hoary

    And Happy Earthday to you too :-)

    Let’s be pragmatic too, 57% of the illegal/legal immigrants recently coming to America end up on welfare and food stamps [is that why they want to come to America?]…..probably a lion’s share of your chart’s food stamp surging. Conversely, the problem is much less at 37%, on the old domestic citizen end.

    BTW, I’m an ole fashion Democrat Hippie who supports Earthday and overpopulation control for the environment….an old Democrat viewpoint too and they left me, I didn’t leave them [Republicans left Nixon on that one too]….LOL

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  39. 39
    Blurtman says:

    RE: Hugh Dominic @ 35 – He has not sold at today’s market price, so he has lost nothing. His investment has been the same irrespective of the current market.

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  40. 40
    Dave0 says:

    Personally I’m realizing my feelings toward buying a house are following this popular trend more and more. In 2005, I graduated from college, had absolutely no money, but had the brilliant idea that I would buy a condo and either live in it or rent it out, making money from appreciation the whole time. After doing some more research into the deal that seemed to good to be true (part of which involved finding this blog) I discovered all of the costs that go into owning a house, and the risks of overleveraging. Since then, I’ve been on the lookout for that good deal, but never quite found one.

    Now, the idea of owning real estate doesn’t sound that appealing to me, no matter what the price. I like being mobile enough to move around the metro area as needed for work, and start an adventure living in a new place every once in a while. Everyone I know that bought real estate in the past decade feels tied down by their house, wishing they could move somewhere else. I don’t want to be in that situation. The plan currently is to buy a sailboat and live on that, with the ability to move to a new marina as needed, or take off for a while and go sailing to somewhere else on the Pacific Ocean. Real estate may be cheap now, and getting cheaper, but the idea of owning real estate doesn’t seem that appealing anymore.

    As far as investments go, a large chunk of my investment portfolio now consists of REITs, which satsify my desire to own real estate investments, without the risk of overleveraging.

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  41. 41

    RE: Hugh Dominic @ 11 -Boomer Retirements? LOL

    Let’s say you’re married and want a clean/stable $60K income [no fair living on the principle either, would if you live too long? Also, you’ll need the principle for likely MASSIVE longterm healthcare costs that insurance barely touches anyway] to live on retired….assuming about $30K in Social Security income for a married couple, you’ll need $3,000,000 in the bank at an optimistic 1% interest rate [most money market and CDs interest rates start with a zero today] to get the rest….good luck saving that much and I bet almost no one will….LOL

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  42. 42
    Blurtman says:

    RE: softwarengineer @ 41 – No one can predict the future. Your projections are based upon current interest rate conditions which today do indicate that folks will have to be millionaires to retire completely. It is unfathomable that SS will be allowed to fail, for this and other reasons. How many Americans are millionaires now?

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  43. 43
    Dave0 says:

    By iChris @ 5:

    -Smaller % of population contributing to Social Security as higher % of population heads into retirement – Baby boomers have already started their mass exodus from the labor market – a smaller labor force supporting an increasing number of retirees is not sustainable.

    I have to dispute this one. First, the number of people entering the workforce is larger than the number exiting. The number of people born in the 19 years between 1981 and 2000 (a.k.a. “Generation Y”) is much larger than the “Baby Boomers” born in the 19 years between 1946 and 1965. This is because all of those baby boomers had kids. Thus, as baby boomers retire, there will be plenty of people entering the workforce to replace them, and pay for for Social Security.

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  44. 44
    The Desponder says:

    By Blurtman @ 34:

    RE: The Desponder @ 22 – If you can continue to pay your mortgage, can you explain the problem? Seemingly inherent in your predicament is that you cannot have what you want when you want it.

    Yep. We can make the payments. Because of the refinance we can make 200% payments monthly. It will still take at least 5 years (and ~$45k of principle) to dig out of the hole even though we had over 20% down. The problem isn’t whether we can afford to live here, because we can – even after the reset in a few years. This anecdote was in response to scotsman’s (accurate) assessment of a population that “muddles along” instead of making fiscally savvy, and rational, adjustments to the coming economic train wreck. It would be easier to respond and prepare appropriately if all of our resources weren’t being spent on trying to dig out from an underwater mortgage. However, if we refocus our resources on cash savings we will never be able to dig out and when housing prices go lower it would increase the likelihood of a future foreclosure or loss of career/family opportunity. There are a lot of people in this situation who recognize the economic and political distress, but have to prioritize in a way that digs out from one poor decision (purchasing a condo in 2008) without being compounded by whatever comes next.
    That’s why it is a race to get ahead of home values for those of us who found seattlebubble.com in 2010, not 2007. We will have to take our licks for this one, no getting around it. The question I am pondering is how do overly leveraged people – even if they are to blame – adjust after making a poor decision?

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  45. 45

    RE: Blurtman @ 42

    Future Interest Rates

    You’re correct assuming interest rates should go up, with a caveat though….they should have gone up 5 years ago to fight the deficit and they didn’t….also, home mortgage rates may likely go up on falling dollar risks and inflation, but bank savings rates could simultaneously stay at zero to cover bank risks on risky home loans.

    Bottom line: Lord Only Knows….

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  46. 46
    whatsmyname says:

    By ray pepper @ 31:

    RE: The Desponder @ 22

    Let me also add this for the upteenth time and see if you can find the buffoon/idiot and the only one with real advice: http://www.youtube.com/watch?v=jZOg1YPZSjk&feature=related

    I don’t know. Larry’s advice is all about non-financial values. Zillow guy’s analysis doesn’t go further than the company you keep. Number three realizes rent comparisons should be done at the net cost to you, and Number four KNOWS the future. Since nobody factored in the cost of income taxes on a $200,000 debt forgiveness, who would you say is the one with real advice?

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  47. 47

    RE: The Desponder @ 44

    Over Leveraged Home Owners Have These Choices:

    1. hand the keys back to the bank.
    2. short sale with income gain that’s taxable
    3. clench your teeth and keep making the payment

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  48. 48
    Chris says:

    RE: The Desponder @ 22

    It sounds like you now carry about a $1200/mo mortgage plus HOA for a home that’s minutes from downtown Seattle. While you might want to have the choice of buying the home back I don’t think things are all that bleak for someone early in their career with a post-graduate education. I know Ray is bearish and also biased since more distressed property is better for him, but I think you could equally make the argument to stay put a few more years and enjoy a home that you must have been excited enough about to purchase just 3 years ago.

    Here’s an article from the Puget Sound Bus Journal this week about an apartment development planning to break ground next month at 6th and Lenora with 700 sqft units renting for $1900/month. Those may be lofty expectations for rent but it’s a data point to consider as you evaluate your alternatives.

    http://www.bizjournals.com/seattle/blog/2011/04/seattle-apartments-pine-street.html

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  49. 49
    Blurtman says:

    RE: The Desponder @ 44 – I think you are caught in a short term outlook which has taken control of your future planning. That is, you are fixated on the current market price of your home which is dictating your behaviour. You also seem to again be speculating on your view of the future, which as evidenced is fallible.

    Might I suggest that you take a few finance courses to gain an understanding of conventional theory of options, interest rates, value and volatility? As you seem to have approached your home purchase as a sort of an option, i.e., 20% purchase with a five year duration, you might be able to at least assign probablities to future scenarios to model a return.

    Your drive to dig out from an underwater mortgage seems to be dicated by your self-imposed five year plan. No one can predict where home prices will be in five years. Nonetheless, perhaps this investment adventure has proven to be educational. In California, a RE bubble burst in the late ’80’s, and folks who purchased at the peak were above water a decade later. Those on a 20 year plan presumably had no worries.

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  50. 50
    Dave0 says:

    RE: David Losh @ 30 – David I totally agree with you. Americans today talking about how bad the entitlements are here, and hating socialism, have probably never been out of this country. A year ago I went to Norway, where my girlfriend had been teaching for a couple months, and the contrast there from here was amazing. The public schools were amazing, and the kids were all very educated. New dads were out during the day pushing strollers because both parents get months off from work when a baby is born. My girlfriend got very sick and had to go to the doctor at one point. She had a 15 minute wait, spent 45 minutes with the doctor, and was charged $8 when she left. (Keep in mind the exchange rate is pretty bad there, $8 can’t buy you a meal, it might buy you a big mac).

    They don’t have this lifestyle due to some socialist revolution years back. It was just simple financial wisdom that made sense. Throughout the 20th century, they had lots of oil wealth and were exporting it. Rather than privitizing the oil, like the USA did, Norway said the oil came from the land, and the land belongs to everyone, thus the oil belongs to everyone, i.e. the government. So as they exported oil, the government kept the money from selling their oil and built up a pension fund. This is the same concept as an individual recognizing that they need to save for retirement. Now, they have a huge pension fund which earns interest, and that interest goes towards paying for all of their societal benefits, like education, healthcare, and time off for parents.

    There is nothing wrong with state-owned corporations. The way our society is set up is that money is funnelled into corporations, and the corprations divy out that money as they feel is best. This has resulted in the largest corporations having hordes of cash as they decide what to do with it. Exxon currently has $7.8 billion in cash, Apple has $29 billion in cash and short-term investments. Imagine if a company like this were owned by the state. It would have this giant cash-flow of people giving them money, by choice, and it could in turn take that money and return it to the people in the form of healthcare, education and social security.

    Instead, we have this delusion that the best way of doing things is to privatize everything, and let everyone fend for themselves. As a result, we have the richest 1% owning 38% of the wealth of this country. There is no equal opportunity in this country; if you are born into one of the families of the richest 1%, you are nearly guaranteed to be wealthy when you become an adult, due to inheritance and gifts from your parents. If you are born into one of the families in the poorest 40% of this country, which has a zero net worth, you are nearly guaranteed to struggle financially for your entire life.

    There is a major problem in this country. That problem is not entitlements, or illegial immigration.

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  51. 51
    Hugh Dominic says:

    RE: Blurtman @ 39 – We can debate mark-to-market, but suffice to say I disagree. He has lost the paper value and the functional effect of that is that he lost the money. He can’t sell at market because he cannot cover the loss, and sham appraisals aside he can’t borrow against the value. Converting the asset to cash is immaterial in every way except the accounting and tax.

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  52. 52
    Real World Express says:

    Even in the best of times, the process is so cumbersome, so much weighted to the “system” and so much to draining the individual that no wonder people are staying away.

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  53. 53
    Isaac says:

    In the case of our friend Desponder, Here’s my opinion. I’m not a homeowner so I cannot speak to the emotional feelings tied up in this, but I do swing trade stocks so I feel emotions from losing investments frequently.
    I’m comparing a house as an investment like a stock. Bought for the same reasons, sold for the same reasons. Because of this I would establish the same rules as I do in trading. Study the market ceaselessly and use a predetermined sell point (Stop loss). If the investment slides past a predetermined level, sell. You don’t know where the market is going. You may think you do, but you don’t. You have to stop the bleeding. If not, your capital is not only depreciating, but you are missing out on using that money for other possibly more profitable ventures. Do the same for profit. If the market starts going up, set a sell point below where the value currently is. If it appreciates further in value move the profit stop up a little bit.

    That’s my perspective if the home was bought primarily for investment purposes. If it was bought mostly because you wanted more of the warmer/fuzzier side of home ownership, and you can continue to make the payments, then its current value doesn’t really matter. You’re getting exactly what you wanted when you signed the papers. It’s like buying a TV, and then seeing the same one on sale a month later for much less. It’s uncomfortable, but at the end of the day you can still enjoy your TV.

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  54. 54
    ChrisM says:

    I’m a little surprised no one mentioned the banks in this cycle. If we were really at capitulation, banks would be instituting foreclosure at 90 days (not 180, or 360, or whatever they’re doing) and they’d be dumping the properties en masse like we did with the Resolution Trust Corp.

    I think Phoenix (at around $50/sq ft) could arguably be starting the capitulation phase, but not the Pacific NW.

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  55. 55
    ChrisM says:

    RE: The Desponder @ 22 – Ugly story. I hate HOAs and condos because you never know how much and how fast dues are going to increase. I wish condos didn’t get pushed as a good option for the first time homebuyer.

    Something to consider: when the ARM comes due for refinance, what happens if the property doesn’t appraise? Do you expect to have the principal nearly halved to match the comps in the building?

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  56. 56

    By softwarengineer @ 38:

    RE: hoary @ 8

    Yes Hoary

    And Happy Earthday to you too :-)

    Let’s be pragmatic too, 57% of the illegal/legal immigrants recently coming to America end up on welfare and food stamps [is that why they want to come to America?]…..probably a lion’s share of your chart’s food stamp surging. Conversely, the problem is much less at 37%, on the old domestic citizen end.

    BTW, I’m an ole fashion Democrat Hippie who supports Earthday and overpopulation control for the environment….an old Democrat viewpoint too and they left me, I didn’t leave them [Republicans left Nixon on that one too]….LOL

    Software Engineer,
    You may be an old fashioned Democrat hippie ( and I think you really are, and I know your heart’s in the right place), but I don’t think it’s simply that ” they” changed and you didn’t.
    Do you really believe that most of the illegal immigrants in this country are on welfare?
    I don’t. I think they’re working, for very low wages, and the folks who hire them are more guilty than the immigrants themselves.
    I see the illegal immigrants as desperate and victimized. You see them as the cause of all our economic problems. Would an old fashioned hippie democrat really feel that way?

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  57. 57
    One Eyed Man says:

    Which came first, the chicken or the egg, the change in home prices or the change in emotional sentiment. In the end, the amount you think prices will fall in the future and the place the public is with regard to emotion are to a large degree proxies for each other in this discussion. If you think we have a lot farther to fall then you think we’re further to the left on the chart and that a lot more people will be put into fear, desperation and panic based upon their own deteriorating economic circumstance. If you think we’ve completed a higher percentage of the drop, you think we’re further to the right and that people saying they’ve decided not to buy, or that they’ll strategically walk or do a short sale are signs of giving up (i.e. capitulation).

    Unfortunately for The Tim, (due once again to the risk of guilt by association) I agree with him. But I would add that unless we see dramatically more dollar destruction (to the point of causing wage inflation despite continued slack in the economy) we’ll be in for a long slow process of capitulation with continued slowly deteriorating prices. The LA CS index from the early 1990’s seemed to spend about 4 years in that period and that was with a total drop of only 25% compared to the 45% in that area this time around. My guess would be the capitulation phase will last about 3 to 5 more yrs, until a fair amount of the inventory is worked off.

    But for those with the available weath to buy high risk assets, this is also where those with a long term view will have the opportunity to make substantial long tem returns. The Tim posted an article a few weekends ago saying that a San Diego group bought the residential portion of Cascadia for something like 45 million. Buying on the way down with high leverage is only for those with brass cojones. There are too many variables to call it anything other than speculation. It’s easy enough to do financial pro forma’s to model a potential purchases with a number of different assumptions. How long is your holding period. What kind of inflation rate will result in 3 or 4 years from all the current economic policies? Where will the cross over point be between catching a falling knife and locking in a low interest rate.

    If we end up with even a 4% or 5% inflation rate, some people who buy in the next few years with low interest rates will probably make a lot of money if they have a ten year holding period. But you can only take the risk to play that games if you’re young enough to go bankrupt and still have time to start over, or if your rich enough already that you can absorb the potential loss. That’s why volume is so far down. There’s too much risk in this market for people with families who can’t afford to lose to buy a starter home or to sell and move up. From a pure investment standpoint (as opposed to the family buying a permanent nesting place) this market is for cash buyers and gamblers (they can afford to be optimistic). Everybody else is on the sidelines, capitulating.

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  58. 59
    Beth says:

    This linked article talks about selling your own home. It show both sides of the coin of selling your own home. The ups and downs. Selling your own home can save money for those in a home with mortgage that is underwater, as it eliminates the agent’s fee. Still, it needs to be done right and some agents will offer to help facilitate the final sale for a flat fee.

    http://articles.philly.com/1992-11-05/news/26008117_1_fizzbo-agent-housing-market

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  59. 60
    The Desponder says:

    By ChrisM @ 55:

    RE: The Desponder @ 22 – Ugly story. I hate HOAs and condos because you never know how much and how fast dues are going to increase. I wish condos didn’t get pushed as a good option for the first time homebuyer.

    Something to consider: when the ARM comes due for refinance, what happens if the property doesn’t appraise? Do you expect to have the principal nearly halved to match the comps in the building?

    Yes. Our plan in doing the refi in the first place was because at 3.25% we could work the principal down to $170k – $180k by the 5 year mark, which would be in line with the most recent short sale. We are on pace, unless the bottom falls out of the market again.

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  60. 61
    Blake says:

    RE: Dave0 @ 50
    DaveO… At least you’re not in a position where you MUST sell. You have paper losses, but I hope that it’s a nice condo, good neighborhood, convenient. And consider your opportunity cost relative to renting etc. Your biggest “loss” at this point is lack of options…

    Re; “Norway said the oil came from the land, and the land belongs to everyone, thus the oil belongs to everyone, i.e. the government. So as they exported oil, the government kept the money from selling their oil and built up a pension fund.”

    Last year I was out at a picnic with my sister and her friends and their families. Their mother was a tea partier/Palinite from Alaska (my sister kept glaring at me hoping I wouldn’t pick on her…) At one point this woman mentioned the yearly checks Alaska residents received from the oil and how Sarah Palin had doubled the checks one year. I smiled and said “sharing the wealth is good, eh?” And she agreed, seemingly oblivious to the fact that candidate Obama had been crucified by the Right for saying “share the wealth” during the campaign!
    … Yes, “Our country” is broke… broken that is…

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  61. 62
    Blake says:

    Whoops… got DaveO and Desponder confused.

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  62. 63
    The Tim says:

    By alex @ 33:

    I think the meaning of “Capitulation” is something else. It doesn’t mean that people give up doin business. It means that sellers – specifically sellers – give up hope that the value will ever go up, and start to sell in a hurry – at any price.

    I disagree. Why would they sell if they don’t really have to? Everybody needs to live somewhere and if a potential seller realizes that there’s no way they’ll be able to get the price they wish they could get for their house, why not just keep it (assuming they can afford it)?

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  63. 64
    Anonymous Coward says:

    Ok, I’ll chime in as another bubble buyer for those of you suggesting that Desponder walk away because he’s underwater. I bought in Feb. 2005. My income’s gone up and the original purchase price is now <2.5x my income. Oh, and I'm now married, so there's even another income on top of my rising income. Like Desponder, there's no problem with the monthly nut or a multiple of the monthly nut. I didn't sell in '08 when it was "worth" way more than when I bought, so why would I send the keys back or sell in a panic just because it's now worth "less" than when I bought? Because "in theory" I could get a lot more house for the same money now?

    So the plan should be:
    1. send the keys back to the bank (or short sell).
    2. Rent for 7+ years until my credit's restored*
    3. Buy again at a reasonable price.

    For the sake of being underwater a few 10's of thousands of dollars I should gamble that when I buy again after all those years that total purchase price (interest, principal, closing costs, etc) and transactional costs (rent, attorney's fees, moving fees) would be worth it financially and emotionally? What if inflation really does take off? My "make-me-move-in-a-panic" price is a lot closer to Sniglet's predictions 80% off peak rather than the current 30-40% off peak.

    *Yeah, I know, not having the house I'd be free to take any job that comes along anywhere in the US. Any except those that would require a credit check or security clearance. I can always bring cash to closing. Oh, and in my profession, any new job in a different location would come with a negotiable relocation package. At which point the selling price of my current home becomes a simple financial consideration.

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  64. 65
    whatsmyname says:

    RE: JVP @ 58
    Very well said.
    You can put me down as hopeful, for two reasons.
    1. I think that the general market is currently between despondency and depression, (the period of maximum opportunity), as evidenced by the listings/inventory situation.
    2. Scotsman recently posted that he finally convinced his mom to sell her house. Add 134 days marketing time, and I think you’ve got the bottom.

    I know. I’m sorry. I couldn’t resist.

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  65. 66
    iChris says:

    RE: David Losh @ 30

    I’m not sure where you are coming from with your comments, or what point you are trying to get across. You appear to contradict yourself when you say we don’t have any entitlements in this country… except the absolutely necessary ones. You mention Social Security, Medicare, and Medicaid, but those don’t count as entitlements? Why not? What about the millions of Americans on food stamps? Under what criteria are you suggesting that we are the furthest from a welfare state on earth? What about a corporate welfare state? The American economy is no longer based on free markets, but on crony capitalism. Winners and losers are determined more than ever based on political relationships and clout in congress. I am also confused by the comment that we are an economy backed by the military – what do you mean?

    The politicians in the federal governments have made promises that can’t be delivered without massive redistributive efforts, whether it’s by hiding the taxation through quantitative easing or visibly raising tax rates. Even if both occur it will not bring in enough revenue to cover the federal government’s unfunded liabilities. Recently Bill Gross, who runs Pimco’s bond funds, has dumped all holdings of US treasuries. He cites the federal government’s $75 trillion debt burden (most in the form of unfunded liabilities). http://www.pimco.com/EN/insights/pages/skunked.aspx

    Politicians at the state and local levels haven’t been any better at managing the finances of government. The majority of all retirement funds in the country are underwater and the states are liable for the difference. Unions and government employees with pensions are relying on underfunded retirement accounts to take care of them. Where will the states get the money?

    RE: Dave0 @ 43

    Unless you can cite where you are finding those numbers I don’t think that is correct. I based my statement on the research by Harry Dent who uses demographics to help determine business cycles and economic activity. Just look at the labor force participation rate during the baby boomer generation’s peak earning years, from about 1990 up to about 2008. http://research.stlouisfed.org/fred2/data/EMRATIO_Max_630_378.png

    My generation (born in 1983) is just entering the labor force, but we are not near the age where we will be at our top earning power, which is between the ages of about 45-60. You have the baby boomers retiring after their peak earning power. Generation Y is still inexperienced and can’t demand higher incomes based on experience. So a highly skilled and well paid labor force heading into retirement is being replaced with an inexperienced labor force with lower income. If you are curious to learn more about Harry Dent’s projections I highly suggest reading his book, “The Great Depression Ahead: How To prosper in the Debt Crisis of 2010-2012.”

    The money to pay for all the deficits, debt, and government programs must come from somewhere. If you think we’ll be able to tax the rich to pay for all this nice stuff you are going to be disappointed. The middle class will end up with the bulk of the burden.

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  66. 67
    Scotsman says:

    RE: Dave0 @ 50

    ” If you are born into one of the families in the poorest 40% of this country, which has a zero net worth, you are nearly guaranteed to struggle financially for your entire life.”

    Nicely written, but wrong. There is a great deal of income mobility inthe U.S., much more so than most people expect to find:

    “1.There was considerable income mobility of individuals in the U.S. economy over the 1996-2005 period. More than half of taxpayers (57.5 percent by one measure and 55 percent by another measure) moved to a different income quintile over this period. About half (56 percent by one measure and 42 percent by another) of those in the bottom income quintile in 1996 moved to a higher income group by 2005.”

    “3.The composition of the very top income groups changed dramatically over time. Less than half (39 percent or 42 percent depending on the measure) of those in the top 1 percent in 1996 were still in the top 1 percent in 2005. Less than one-fourth of the individuals in the top 1/100th percent in 1996 remained in that group in 2005.”

    http://hotair.com/greenroom/archives/2009/12/30/more-on-income-and-wealth/

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  67. 68
    The Desponder says:

    By Blake @ 61:

    RE: Dave0 @ 50
    DaveO… At least you’re not in a position where you MUST sell. You have paper losses, but I hope that it’s a nice condo, good neighborhood, convenient. And consider your opportunity cost relative to renting etc. Your biggest “loss” at this point is lack of options…

    Please don’t read my posts as complaining. We “bought less house than we could afford” against the advice of many RE professionals and because of that we have hope that we can dig out. Others are stuck or sinking. I am interested in strategic moves that make the best of where underwater homeowners are with the best insight into what’s to come (it looks to me like the writing is on the wall – interest rates must rise, debt will be cleared). After making their initial mistake overly-leveraged homeowners are part of macro statistics, but they are also individuals looking to do their part, and do what’s best for their families. These homeowners are in different places in the cycle of market emotions. I think I am despondent, because there is not much I can do but grit it out and continue to make 200% payments. Strategically, those extra payments are part of a plan to increase our flexibility to have the option to move in five years, but it comes at the cost of other forms of hard savings which might have greater return. Homeowners who are not yet despondent, but are in denial, are probably thinking that the “right buyer will come along” and buy their home at 2006 prices. Their strategy is to wait.
    No one can predict the future, but those of us who are already leveraged, IMO, must work toward most likely scenarios if we are to adjust to new market realities (hope).

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  68. 69
    Marc says:

    RE: The Desponder @ 68 – I follow your point and my question is whether paying down your mortgage is really your best option. If you had instead invested that extra cash in a decent index fund you’d have a better ROI to date and, I suspect, for the foreseeable future.

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  69. 70
    Dave0 says:

    RE: Isaac @ 53 – You can’t apply the same investment rules as stock trading to real estate. First, the transaction costs in real estate are huge, compared to stocks where they are minimal. Second, stocks can be easily bought in small amounts, whereas real estate must be bought in giant chunks. Thus, in stocks it is easy to diversify and make many small investments into a large portfolio, hoping that a few will appreciate in large amounts, which you can’t do with real estate. Also, in stocks its easy to sell a loser and buy a new potential winner, so apply stop loss rules makes sense. In real estate, since transaction costs are so high, it doesn’t make sense to apply those stop loss rules.

    In real estate, the only rational way to invest is a very long-term buy and hold strategy. Do tons of research, and then buy and hold for the very long-term. The real estate market moves so slowly that you won’t miss anything by spending extra time researching. In my mind, a month of movement in the real estate market is the equivilent to a day of movement in the stock market. So it’s easy to keep up with, and research, movements in the real estate market, whereas you just have to guess what’s going on in the stock market.

    If you already have a property and later realize its a losing investment, you are stuck between a rock and a hard place. My advice for “The Desponder” is to continue to hold. He does not need to sell, and so there is no reason for him to take a loss at this time. Eventually, the principal balance will either be gone or very small, and he will likely be able to live mortgage-free, or could move and rent the place out for a good profit.

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  70. 71
    deejayoh says:

    By David Losh @ 29:

    RE: deejayoh @ 27

    So you can’t name any entitlements either.

    Yeah, um – you miss the point again. But not surprising. Perhaps this definition of “entitlement” from the glossary of the US Senate website might help you, citing specific examples of programs considered entitlements. But your post is basically babble.

    entitlement – A Federal program or provision of law that requires payments to any person or unit of government that meets the eligibility criteria established by law. Entitlements constitute a binding obligation on the part of the Federal Government, and eligible recipients have legal recourse if the obligation is not fulfilled. Social Security and veterans’ compensation and pensions are examples of entitlement programs.

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  71. 72
    Scotsman says:

    RE: whatsmyname @ 65

    OK, +1.

    As an indicator, there are flaws. I’ve been trying to get her to sell since 2006 with little luck. Her willingness to sell now is more a result of her health issues than my credibility. And I might add it is not going well, even with price reductions. Still plenty of room for the market to fall.

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  72. 73
    LA Relo says:

    denial is becoming fear. Prices are starting to reflect some desperation, but not much.

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  73. 74
    Dave0 says:

    RE: iChris @ 66 – Here is some data to back up my claim: http://www.census.gov/compendia/statab/cats/population.html see “7 – Resident Population by Age and violent love

    According to the excel file there, The total population between 10 and 30 years old in 2008, so born between 1978 and 1998, total 84,496. The total population between 45 and 65 years old in 2008, so born between 1943 and 1963, total 77,857.

    So, the population between 13 and 33 today are 8.5% larger than the population between 48 and 68 today. You are right that the young people can’t demand as high a wage as those retiring now, so we will enter a lull while Generation X is at their peak earning power. But that is only temporary, once Generation Y begins to earn their peak earnings there will be plenty of money to pay for the Baby Boomer’s retirement.

    The money to pay for all the deficits, debt, and government programs must come from somewhere. If you think we’ll be able to tax the rich to pay for all this nice stuff you are going to be disappointed. The middle class will end up with the bulk of the burden.

    Yes the money must come from somewhere, but there is no reason taxing the rich can’t “pay for all this nice stuff.” If the Bush tax cuts were repealed at the start of the 2011 fiscal year like they were originally intented to, we would have seen $4 trillion in more tax revenue, and would not have the current deficit problem we are trying to fix. The federal government’s deficit problem is due to 1) The bush tax cuts, and 2) Invading Iraq and Afganistan. If those two did not happen, we would have had a budget surplus for the last decade. Don’t forget that we had a budget surplus left over from the Clinton administration when Bush Jr. took office.

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  74. 75
    Hugh Dominic says:

    RE: Blurtman @ 49 – Now you’ve crossed the line and are providing bad advice. Your premise is (1) that Desponder will not lose any money and is unaffected unless he sells, that (2) given a longer time horizon, his home value will probably correct itself, so he should not take action in the present.

    Ok, first of all he is affected by the current state of his condo value. That cannot be ignored.

    Second, I have no reason to believe that real estate is a good asset to hold right now for a long term gain. That advice is unfounded, and is the misconception that is driving so many owners right now to hang on and hope their values will recover.

    Third, the present is the only time where action can be taken, by definition. His actions should be guided by his present situation and his best guess at how present action could affect his future. Advice to ignore his present condition prima facie is unfounded and foolish.

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  75. 76
    david losh says:

    RE: deejayoh @ 71

    You once again miss the point. That doesn’t constitute an entitlement populace. We are far from the European system of entitlement.

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  76. 77
    Scotsman says:

    RE: Dave0 @ 74

    “Yes the money must come from somewhere, but there is no reason taxing the rich can’t “pay for all this nice stuff.”

    Idiot. Yes, there is a reason- there isn’t enough income in all those “rich” folks to make it happen. Read this carefully: if we take 100% of the personal income over $100,000/year- yes, all of it- it still doesn’t even cover the current year’s deficit in the federal budget. The approximately $1.5 trillion in personal income earned by those making $100,000 a year or more is still less than the projected $1.65 trillion federal budget deficit for 2011.

    Taxing the rich isn’t a viable solution to the current/looming crisis.

    “The bush tax cuts, and 2) Invading Iraq and Afganistan. If those two did not happen, we would have had a budget surplus for the last decade.”

    Wrong again. If we had not entered either war and had let the Bush tax cuts LAPSE then we still wouldn’t have paid for even the last two years of deficits. The Bush tax “cuts” dropped revenue by only a couple hundred billion a year, and the total cost of the wars since they started is under $1.2T.

    http://www.fas.org/sgp/crs/natsec/RL33110.pdf

    There’s personal speculation, and then there’s facts. Let’s stick to facts.

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  77. 78
    Dave0 says:

    RE: Scotsman @ 67 – I’m looking at those same tables from that study (here: http://findarticles.com/p/articles/mi_hb3356/is_2_62/ai_n35528194/pg_23/?tag=content;col1) and here is what I see:

    1) 72.5% of those that had the lowest 20% of incomes in 1996, still had lower incomes in 2005 than 60% of the population.

    2) 73.3% of those that had the highest 1% of incomes in 1996, still had the highest 5% of incomes in 2005.

    3) Of those that started in the lowest 40% of incomes in 1996, only 4.4% had made it to the top 10% by 2005.

    Looking at that, I don’t think there is nearly as much income mobility in this country as many people believe. Currently, the USA has a more unequal income distribution than Egypt, Iraq, Libya and Saudi Arabia. Take a look at http://en.wikipedia.org/wiki/List_of_countries_by_income_equality and see for yourself.

    Anyways, in my quote that you grabbed, I was talking about wealth distribution, which is different (but related to) income distribution. See http://www.faculty.fairfield.edu/faculty/hodgson/courses/so11/stratification/income&wealth.htm but I admit, that is more a problem of living beyond our means in our society, where the people with the lowest 20% of net worth have a negative net worth, cause our culture doesn’t prioritize saving money.

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  78. 79
    deejayoh says:

    By david losh @ 76:

    RE: deejayoh @ 71 -You once again miss the point. That doesn’t constitute an entitlement populace. We are far from the European system of entitlement.

    Allow me to quote your post:

    Please, we have no entitlements in this country

    That’s a pretty black and white declaration. Hard to miss the nuance. But then I admit to rarely bothering to read past the second sentence of any of your posts before flipping the babble switch.

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  79. 80
    iChris says:

    RE: Dave0 @ 74

    This seems to be turning into a political discussion unrelated to housing markets, let’s try to avoid going there too deep. If you really think the budget gaps will be filled by taxing the rich and not the middle class, then we’ll all live happily ever after on their dime.

    Unfortunately I’m not as optimistic about the revenue source as you. I don’t think we’ll be able to rely on taxing the rich to cover the budget gaps. Rich people generally have their wealth tied up in liquid assets along with real estate and other illiquid assets. It’s going to be hard for the government to tax the liquid assets because it can be moved somewhere else that is harder to tax. Avoiding tax penalties is not a problem for them. That leaves the illiquid assets to tax, like homes, boats, etc. If you are like me, you’ll assume state and local governments will want to get the revenue through property taxes. In my opinion, inevitably the bulk of the burden will fall on the shoulders of the middle class. If you think otherwise, then plan your strategy however you wish.

    To me it sounds like you are comfortable assuming one of the variables I listed in post #5 is not worth considering. That’s fine. But there’s still several other factors that I’d urge you to consider before taking the plunge and buying real estate.

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  80. 81
    Scotsman says:

    RE: Dave0 @ 78

    Fair enough- but your statement was:

    ” you are nearly guaranteed to struggle financially for your entire life.”

    That’s a bit of a reach, to say the least. People do have choices. They may make bad ones, they may not even try to change, but they are certainly not “guaranteed” struggle and ongoing failure.

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  81. 82
    whatsmyname says:

    RE: Scotsman @ 77

    “Taxing the rich isn’t a viable solution to the current/looming crisis.”

    No, but it’s a good start.

    (Also, best of luck to your mom)

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  82. 83
    Kary L. Krismer says:

    RE: Scotsman @ 77 – Not to mention that those numbers on the impact of the so-called tax cuts don’t reflect any change in behavior. If you took an extreme example, the tax increases being proposed on those working for bailed out entities proposed by some members of the house, the net tax revenue would have probably gone down even though the tax rate was close to 100%, because those targeted could simply quit working, or if they did continue working it would likely be for another entity at a lower salary with lower taxes.

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  83. 84
    Kary L. Krismer says:

    By whatsmyname @ 82:

    RE: Scotsman @ 77 -“Taxing the rich isnâ��t a viable solution to the current/looming crisis.”No, but it’s a good start.

    Isn’t that the punch line to the joke about a boat full of lawyers sinking?

    I still prefer something I haven’t seen proposed, which is a lower tax rate for those who have a business that employs people. So let the Bush tax cuts expire for those earning wages/salary, but for those with Schedule C income, it would be taxed at a lower rate. That way it wouldn’t affect their offering employment to other people.

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  84. 85
    pfft says:

    By softwarengineer @ 41:

    RE: Hugh Dominic @ 11 -Boomer Retirements? LOL

    Let’s say you’re married and want a clean/stable $60K income [no fair living on the principle either, would if you live too long? Also, you’ll need the principle for likely MASSIVE longterm healthcare costs that insurance barely touches anyway] to live on retired….assuming about $30K in Social Security income for a married couple, you’ll need $3,000,000 in the bank at an optimistic 1% interest rate [most money market and CDs interest rates start with a zero today] to get the rest….good luck saving that much and I bet almost no one will….LOL

    yeah because rates will always be 1%.

    LOL.

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  85. 86
    Scotsman says:

    RE: Scotsman @ 77

    My apologies for the “idiot” comment. That’s too harsh- you’re obviously a bright guy.

    I get frustrated beyond belief when in the face of a very real financial crisis people just keep spouting partisan rhetoric and endlessly repeat fantasies as though they are truth. We all need to stick to the facts and find a new balance that works. Like a bubble buyer with a maxed out HELOC and no easy choices, we no longer have the luxury just letting momentum carry us forward. We’ve got to, as Obama says, “grab the wheel” and steer toward a mutually agreed on destination. The old notions are out the window, and new facts need to rule the day.

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  86. 87
    pfft says:

    By Scotsman @ 77:

    RE: Dave0 @ 74
    Idiot. Yes, there is a reason- there isn’t enough income in all those “rich” folks to make it happen. Read this carefully: if we take 100% of the personal income over $100,000/year- yes, all of it- it still doesn’t even cover the current year’s deficit in the federal budget. The approximately $1.5 trillion in personal income earned by those making $100,000 a year or more is still less than the projected $1.65 trillion federal budget deficit for 2011.

    Taxing the rich isn’t a viable solution to the current/looming crisis.

    coupled with an expanding economy yes it will. the obama plan balances the budget by 2020. ryan’s plan does it by 2040!

    2/3 of the deficit is bush. obama’s stimulus plan contributes negligibly to the deficit.

    Whose Deficit Is It, Anyway?
    http://www.offthechartsblog.org/whose-deficit-is-it-anyway/

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  87. 88
    pfft says:

    Also remember that Bush inherited a surplus and ended with a deficit of over a trillion dollars.

    he had two unpaid for tax cuts. one new unpaid for prescription drug plan and two unpaid for wars. he also had an unpaid for stimulus plan(remember those rebate checks?) and an unpaid for TARP plan.

    the accounting is the same so borrowing from the SS fund is not a valid point.

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  88. 89
    Greg says:

    RE: One Eyed Man @ 57 – OK, that was my favorite comment yet. You are entirely correct. I say this as an investor that can absorbe a miscalculation. I’m optimistic and I do believe that owning a house is becoming affordable for many right now. I know lots of people looking for homes to live in. But if I was in a first time home buyers shoes right now i’d be scared as hell. I’ve always liked realestate as an investment more than stocks because you can sweat out your loss if you are carefull enough. You can’t do that with stocks. Nothing is risk free. Even moving to a more exciting job for more pay can be risky. Investing vast sums of money to become a doctor or lawyer can be risky and leave people locked into a choice for a very long time to get them out or their bad investment. Investment is risky no matter what. Choose your cup of water and make sure you have multiple skills to adjust to changing conditions. Hopefully you win in the end and are happy where you live, love your wife and like what you do. (the latter two being the most important.)

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  89. 90
    Kary L. Krismer says:

    By pfft @ 88:

    Also remember that Bush inherited a surplus and ended with a deficit of over a trillion dollars.

    Not really. Bush inherited a recession, just like Obama, but not as severe. So it’s possible that there was a surplus during the last months of Clinton, but we were clearly headed towards a deficit.

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  90. 91
    Dave0 says:

    RE: Scotsman @ 77 – Yes, one solution doesn’t solve the deficit, but taxing the rich would sure help a lot more than removing funding for planned parenthood, or similar proposals that have been debated for the last few months.

    The new york times has a fun page where you can try stuff out for your self: http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html

    According to that site, allowing the expiration of the bush tax cuts for income above $250,000 a year would produce savings of $115 billion in the deficit between now and 2030. In comparison, cutting foreign aid in half, eliminating earmarks, eliminating farm subsidies, cutting pay of civilian federal workers by 5 percent, reducing the federal workforce by 10 percent, and cutting 250,000 government contractors would produce savings of $94 billion combined. We could prevent all of those cuts if those that make over $250,000 a year would just be willing to pay the same tax rates as they did in 2000.

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  91. 92
    Dave0 says:

    RE: Scotsman @ 86 – I couldn’t agree more. We all need to re-evaluate our idealogies towards solutions that actually work. That is why I love pages like the one at nytimes.com that I posted, none of the partisan b.s., just the facts.

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  92. 93
    D. in Ballard says:

    By Scotsman @ 86:

    RE: Scotsman @ 77

    I get frustrated beyond belief when in the face of a very real financial crisis people just keep spouting partisan rhetoric and endlessly repeat fantasies as though they are truth.

    Wow. Do you ever read your own posts?

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  93. 94
    iChris says:

    RE: Dave0 @ 91 -I’m starting to think you really don’t get it. We have over $100 Trillion in debt obligations when we include unfunded liabilities in the equation. No matter how high taxes are on rich people, it won’t cover what we owe.

    “total assets in the United States equal just $72.3 trillion. Subtracting that figure from $126 trillion — unfunded liabilities plus national debt — leaves the country about $54 trillion in debt, or $173,865 per American and, worse, $488,304 per taxpayer.”
    source: http://www.thenewamerican.com/index.php/usnews/politics/5762-newsflash-on-national-debt-were-doomed

    Talking about tax hikes that will bring in a few hundred billion in revenue is fairly pointless in the grand scheme of things. We owe more than we are capable of paying.

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  94. 95
    Blake says:

    The question isn’t whether tax increases alone will solve our fiscal problems… but whether we raise ANY taxes at all!Incredibly, the bi-partisan “Gang of Six” appears to be ruling out any tax increases!
    http://news.firedoglake.com/2011/04/21/gang-of-six-wont-include-significant-tax-hikes/
    … which is insane because budget cuts cannot solve our fiscal problems AND drastic cuts right now are the worst thing we could do for the economy!
    …and this is insane because recent polls show overwhelming support (70%+) for raising taxes on those making $250k+ (the top 1%).Why is our political system so broken? It’s not complicated…
    http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105
    -snip- The personal and the political are today in perfect alignment. Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent. When pharmaceutical companies receive a trillion-dollar gift—through legislation prohibiting the government, the largest buyer of drugs, from bargaining over price—it should not come as cause for wonder. It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work.

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  95. 96
    whatsmyname says:

    By iChris @ 94:

    RE: Dave0 @ 91

    I’m starting to think you really don’t get it. We have over $100 Trillion in debt obligations when we include unfunded liabilities in the equation. No matter how high taxes are on rich people, it won’t cover what we owe.

    “total assets in the United States equal just $72.3 trillion. Subtracting that figure from $126 trillion â�� unfunded liabilities plus national debt â�� leaves the country about $54 trillion in debt, or $173,865 per American and, worse, $488,304 per taxpayer.”
    source: http://www.thenewamerican.com/index.php/usnews/politics/5762-newsflash-on-national-debt-were-doomed

    It’s clear that you don’t get it. What is your debt if you include all unfunded liabilities – which is to say all the rent and food, utilities, healthcare, etc. that you will expect to consume in your lifetime? Do your assets cover that? Perhaps, like the government, you may fund many of these future liabilities with revenues from future productivity. This is not a universe of trust fund babies.

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  96. 97
    Blake says:

    RE: iChris @ 94
    Re: “Talking about tax hikes that will bring in a few hundred billion in revenue is fairly pointless in the grand scheme of things. We owe more than we are capable of paying.””Only” a few hundred billion/year in revenue… then I guess it’s really important to shut the government down arguing over $12 billion/year in cuts!?
    In December, they decided to extend the tax cuts costing $900 billion over 2 years… tax cuts that were supposed to be tempoarary! Now we “must” slash $10-20 billion out of essential government programs for the poor and elderly… insane. We have no leadership – – at least none with any moral standing.
    And as far as the bipartisan-“centrist” BS… Obama’s former budget Director Peter Orszag undermined efforts to end the Bush tax cuts last Fall, then bails from his White House job and lands on Wall Street as Citigroup co-Chair. Yet he and like-minded corporate Democrats as lauded in the media as “centrists” and “serious” about fiscal discipline!? It is these bi-partisan “centrists” who vote with Republicans who created this fiscal mess with their support for the Bush tax cuts in 2002, the Iraq invasion, Medicaid Part D ($500 billion there!)… and especially the deregulation craze of the late 1990s and 2000s!

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  97. 98
    iChris says:

    RE: whatsmyname @ 96

    Clearly I don’t get it then, I don’t see how our revenue will cover our debt obligations without the middle class paying the bulk of it. Show me how it can be done mathematically and maybe I will get it. You are placing a lot of trust in politicians to do the right thing at the right time. The bankrupt countries in Europe (PIIGS) were all funding future liabilities with revenues from future productivity, how is that working out for them? I wish I had the optimistic outlook that you do. Taxes will be going up for everyone, not just the rich. Plan accordingly.

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  98. 99
    One Eyed Man says:

    RE: Blake @ 95

    Take heart my friend. A politicians words must be viewed in context rather than taken literally. Wasn’t the extension of the current rates for another 2 years? It may be that saying taxes won’t be increased in a deficit reduction bill is just a way of saying the deficit reduction bill won’t touch the status quo on taxes. If taxes aren’t touched, the Bush cuts (is that a landing strip joke or what?) expire in 2012.

    Ironically, both parties would likely go along with the deficit reduction bill not touching the tax cuts. It just become a huge campaign issue for Republicans to rally around in front of the electorate in 2012. And in the mean time the cuts are a form of stimulus that helps keep the economy from collapsing. A clear necessity for Obama if he wants any chance to win a second term.

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  99. 100
    Scotsman says:

    Do the work and crunch the numbers people. The Ryan budget is a joke when you look at the details, and it will never happen. Obama’s plan is even worse, if you can even find any specifics with numbers attached to them.

    Here’s the reality no one is willing to accept- there is no way out without a major reset. We can’t grow our way out, even at 6-7% annual GDP increases for decades, and that’s an unrealistic expectation. We can’t cut without crashing the economy. We can’t tax at well above historical norms (already 25% of GDP verses a historical norm of 20%) without crashing the economy. We can’t inflate without destroying the currency and hence the standard of living.

    The only politically feasible solution I can see is to debate and agree upon what percentage of GDP will be dedicated to government at the federal level- say 20%. Once that is determined, then fight to allocate the available money to the priorities Americans can either vote for or agree upon. But the cap has to be inflexible.

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  100. 101
    whatsmyname says:

    By iChris @ 98:

    RE: whatsmyname @ 96 -Clearly I don’t get it then, I don’t see how our revenue will cover our debt obligations without the middle class paying the bulk of it. Show me how it can be done mathematically and maybe I will get it. You are placing a lot of trust in politicians to do the right thing at the right time. The bankrupt countries in Europe (PIIGS) were all funding future liabilities with revenues from future productivity, how is that working out for them? I wish I had the optimistic outlook that you do. Taxes will be going up for everyone, not just the rich. Plan accordingly.

    First, you need to differentiate between assets (or investable assets, or even net assets) and cash flow. Do you pay your bills by selling your assets or by using your earnings/cash flow? For nearly all people and governments it is the latter, PIIGS and nonPIIGS alike. The meme starts with this basic asset/cash flow non-sequitor, then compounds it with the unfunded liability nonsense. A liability is simply a recognition of an obligation. I know that I will have to eat food next year – and the year after. It makes sense to recognize that fact. But should I be upset if my checking account only has enough for food this year? Assuming I expect continuing revenues, the answer is no. There is a lot to be argued about our current deficits and spending, but this is simple misdirection.

    You are right about the middle class paying the bulk of it, though. Such is life.

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  101. 102
    iChris says:

    RE: whatsmyname @ 101

    You failed to explain anything new that would ease my concerns. I will continue watching the real estate market from the perspective that I explained in post #5.

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  102. 103
    David Losh says:

    RE: deejayoh @ 79

    From your own definition: Social Security and veterans’ compensation and pensions are examples of entitlement programs.

    We pay into Social Security, so you can take that argument down what ever road you’d like.

    Veteran’s compensation is one of my favorite examples of our lack of entitlements. We can’t even figure out the military, and we are in the process of privatizing that.

    You have no point here. You have nothing to say, and I get that. No you don’t listen to me, be happy.

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  103. 104
    ray pepper says:

    You just cant help people that are unwiling to help themselves.

    Let me just state:

    1. When you choose to BUY and not rent its ALWAYS an investment.
    2. Its taking a minimum of 24 months to foreclose on a property now in King County. Much much longer if the buyer simply attempts Loan Mod.
    3. Please factor in the cost of savings a homeowner can tuck away. It appears here he could save as minimum of 50-60k from not making payments.
    4. I’m here to tell you that Despondent can easily buy a home the day after this one goes back as long as he SAVED THE CASH. Apparently for 180k if not less. But, you MUST save the cash you would have otherwise flushed down the toilet.

    Despondent you will look back to April 2011 and wish you initiated this now instead of continuing to pay. Each and every person I know that has walked said it was the best financial move they ever made.

    Don’t feel you are making a morally correct decision. To even contemplate doing what you are suggesting, with the recent comps that sold next to yours, is sheer lunacy and you deserve to continue to struggle with your financial incompetence.

    I know we spoke on the phone about this and I apologize for being so blunt. But, get your 60k back and don’t be braindead anymore.

    For those who insinuate that I profit from people walking I must contend that is even more insane then Despondent continuing to make payments.

    Good Luck!

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  104. 105
    Dweezil says:

    My own cycle of emotions is an inverse of most people. I had reached despondency at the height of the bubble as people were pricing me out of ever being able to afford a home in Seattle.
    Once prices started to correct, I began to experience hope and optimism.

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  105. 106
    Blake says:

    RE: One Eyed Man @ 99 -I agree, the December capitulation on tax cuts/$900 billion stimulus probably ensured Obama’s re-election and kept our anemic recovery limping along. (But it cost me 5-7% in that week alone in my bond funds!) But I really doubt that in 2012 they will let cuts expire… the 1% rules.Scotsman: “The only politically feasible solution I can see is to debate and agree upon what percentage of GDP will be dedicated to government at the federal level- say 20%.”That’s a prescription for a depression… and “politically” whose ox do you think would be gored? The weak and powerless… Besides, it’ll never happen.When the second economic crisis hits 3-5 years from now, what we’ll need is a true political revolution where the left and right unite and throw the rascals out and let Wall Street and the crony capitalists crash and burn. It’ll be very painful, but necessary. Only then can we move forward.

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  106. 107
    whatsmyname says:

    By iChris @ 102:

    RE: whatsmyname @ 101

    You failed to explain anything new that would ease my concerns. I will continue watching the real estate market from the perspective that I explained in post #5.

    I am not looking to ease your general concerns, or encourage you to buy real estate. I am merely trying to free you from one fallacious argument. I will try to put it in a simplified example for you.

    John graduated from college 6 months ago. He has a $50,000 student loan.
    He got a job right away for $4,000/month. Tax withholding and his part of the benefits package take $1000/mo, leaving him with check for $3000/mo. He has $350/mo student loan payments. He signed a two year lease for a $950/mo apartment. He budgeted $250/mo for the utilities – which has been right on. He walks to work, but he has an old car worth $4,000. He budgets $1,050 for gas, food, entertainment, and has successfully saved $400/month.

    John has 6X400 or $2400 in the bank plus his $4,000 car. His contractual liabilities are approximately $50,000 for the student loan, $17,100 for the remaining 18 months of his lease, $4500 for utilities for the remaining 18 months of his lease.

    $6,400 in assets; $71,600 in liabilities. There is no way his assets can cover his liabilities. Is he doomed?

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  107. 108
    iChris says:

    RE: whatsmyname @ 107

    No, but if he lives in America he’s very fortunate to have a job, if it lasts. His future also looks bleak due to circumstances beyond his control. While he’s saving money every month he can’t escape what is happening to the value of the dollar. Quantitative easing and zero interest rate policies enable wall street to go nuts speculating in the markets. It’s eroding the value of his savings and driving prices up. In 6 months, after higher commodity prices have trickled down to the consumer, he may be constantly over budget for utilities, energy, food, and entertainment. It will all cost more. I hope John doesn’t mind paying more for taxes either, those are coming.

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  108. 109
    Scotsman says:

    RE: whatsmyname @ 107

    Let me step in- we’ll continue with your example. John has $72,000 in debt and $36,000 in net annual income, as stated above. That’s debt to income ratio of 2:1. Yep, he can handle that as many do.

    Now lets look at the national situation. We have $100T in the NPV of unfunded entitlements above and beyond the ongoing conventional expenses of the federal government- you know, things like military, EPA, education, homeland security, etc. The $100T is the equivalent number for John’s debt. He will end up paying more than $50K for his debts because of interest, etc. but the $50K is the NPV- net present value.

    Now let’s look at national income. This year we have actual income of $2T and borrowed “income” of $1.7T for a total federal budget of $3.7T. We can’t keep borrowing for ever, so let’s use the real income- $2.0T. I’ll even give you the benefit of the doubt- let’s assume huge tax increases- 50%- so that now income is $3.0 trillion.

    OK, how does $3.0 trillion in NPV income stack up against $100 trillion in NPV commitments? It’s not even enough to cover the interest at traditional market rates, let alone actually pay some of the capital costs. The debt to income ratio is 33:1 verses the 2:1 in your example with John. Can you see now that this isn’t going to work? People truly fail to grasp the enormity of the problem- as you have so aptly indicated.

    We are insolvent as a country. We will at some point be bankrupt, if not in the traditional sense then through the mechanisms of currency destruction or default. One year, three years, ten years, it will happen. Plan for it.

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  109. 110
    whatsmyname says:

    By iChris @ 108:

    RE: whatsmyname @ 107

    No, but if he lives in America he’s very fortunate to have a job, if it lasts. His future also looks bleak due to circumstances beyond his control. While he’s saving money every month he can’t escape what is happening to the value of the dollar. Quantitative easing and zero interest rate policies enable wall street to go nuts speculating in the markets. It’s eroding the value of his savings and driving prices up. In 6 months, after higher commodity prices have trickled down to the consumer, he may be constantly over budget for utilities, energy, food, and entertainment. It will all cost more. I hope John doesn’t mind paying more for taxes either, those are coming.

    Thank you, the answer was in your first word.

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  110. 111
    whatsmyname says:

    By Scotsman @ 109:

    RE: whatsmyname @ 107

    Let me step in- we’ll continue with your example. John has $72,000 in debt and $36,000 in net annual income, as stated above. That’s debt to income ratio of 2:1. Yep, he can handle that as many do.

    Now lets look at the national situation. We have $100T in the NPV of unfunded entitlements above and beyond the ongoing conventional expenses of the federal government- you know, things like military, EPA, education, homeland security, etc. The $100T is the equivalent number for John’s debt. He will end up paying more than $50K for his debts because of interest, etc. but the $50K is the NPV- net present value.

    Now let’s look at national income. This year we have actual income of $2T and borrowed “income” of $1.7T for a total federal budget of $3.7T. We can’t keep borrowing for ever, so let’s use the real income- $2.0T. I’ll even give you the benefit of the doubt- let’s assume huge tax increases- 50%- so that now income is $3.0 trillion.

    OK, how does $3.0 trillion in NPV income stack up against $100 trillion in NPV commitments? It’s not even enough to cover the interest at traditional market rates, let alone actually pay some of the capital costs. The debt to income ratio is 33:1 verses the 2:1 in your example with John. Can you see now that this isn’t going to work? People truly fail to grasp the enormity of the problem- as you have so aptly indicated.

    We are insolvent as a country. We will at some point be bankrupt, if not in the traditional sense then through the mechanisms of currency destruction or default. One year, three years, ten years, it will happen. Plan for it.

    Ah, Scotty,

    Like me, you sometimes jump too quickly. In my example, we would conventionally consider John’s income to be $48,000, and his debt to be $50,000. No matter, let’s get to the meat of your complaint.

    The $100T (really $113T) of “unfunded entitlements” is really a construct for total spending by SSI, medicare, and GWB’s prescription care. I don’t see anything in the US Debt Clock about NPV’s; and there is certainly nothing in its format to suggest anything but nominal dollars are being used. Of course, I couldn’t find how may years out they are projecting either, so maybe you can help me out there. Whatever the methodology, it really isn’t reasonable to present the estimated costs without any reference to the estimated revenues, as if you are honest, only the difference could really be called “unfunded”. It’s big scary numbers without context, and that’s great for motivating the sheep because they don’t know better. But I do.

    Again, we have real problems here. But we can’t see them better by using a funhouse mirror.

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  111. 112

    110 comments? Wow I missed a good one yesterday. IMHO different people are in different phases from denial all the way through hope.

    One of my students summed it up well: “Nobody’s happy right now. Seller’s aren’t happy with the prices and buyers are full of anxiety regarding home values dropping further combined with anxiety surrounding their job and the overall economy.”

    Anxiety…..plus, there is still a lot of denial going on with home sellers “hoping” that we’ve reached the bottom and in denial about values falling further.

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  112. 113
    David Losh says:

    RE: ray pepper @ 104

    Number one Ray is that you are in the business of real estate. It’s easier for you to see ways this could work out. Second is that Desponder has already taken a course of action that financially makes sense.

    He’s saying that in five years he will have taken $300K down to $180K. He has already started the amortization process. It won’t stop. He can at that point stop with the double payments and still be amortizing the loan.

    His rent right now would be about $1200 per month, and he would need to live some place.

    Do the math on that.

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  113. 114
    alex says:

    RE: The Tim @ 63

    It is correct that people don’t sell if they don’t have to. However, I don’t think that act is called “capitulation”.

    Capitulation is bearish.
    Holding on to the property is a bullish sentiment.

    ===============
    ca·pit·u·late
       [kuh-pich-uh-leyt] Show IPA

    –verb (used without object), -lat·ed, -lat·ing.
    1. to surrender unconditionally or on stipulated terms.

    2. to give up resistance: “He finally capitulated and agreed to do the job my way.”

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  114. 115
    Scotsman says:

    RE: whatsmyname @ 111

    ” it really isn’t reasonable to present the estimated costs without any reference to the estimated revenues”

    I didn’t. You need to read up on NPV and how it’s calculated, what it means. In short, yes- it is as bad as my post makes it seem. The income stream is accounted for. And there is no way in hell we’ll ever be able to pay it. That’s what people have been yapping about for a decade or more. But only now, with $trillion deficts as far as the eye can see does it hit home. Boom!

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  115. 116
    whatsmyname says:

    By Scotsman @ 115:

    RE: whatsmyname @ 111 -” it really isnâ��t reasonable to present the estimated costs without any reference to the estimated revenues”I didn’t. You need to read up on NPV and how it’s calculated, what it means. In short, yes- it is as bad as my post makes it seem. The income stream is accounted for. And there is no way in hell we’ll ever be able to pay it. That’s what people have been yapping about for a decade or more. But only now, with $trillion deficts as far as the eye can see does it hit home. Boom!

    I’ve been making a living on NPV’s for 25 years so I’ll skip the lesson. If you can point me to a place on their site that indicates this is net and discounted, I will be happy to put in further energy at testing their methodology. If you are right, I will be happy to join you in the panic room.

    edit: I see that they claim this does take taxes into account. Projection methodology does seem to be a black hole. I’ll keep looking.

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  116. 117
    Blurtman says:

    RE: Hugh Dominic @ 75

    “Now you’ve crossed the line and are providing bad advice.”

    Well, I think the advice I provided was to take a few finance classes. Maybe that is bad advice.

    “(1) that Desponder will not lose any money and is unaffected unless he sells”

    – No one knows if he will inevitably lose money or not if he sells in the future. If he sells today, it seems certain he will lose money. Not sure what “unaffected” means.

    (2) given a longer time horizon, his home value will probably correct itself, so he should not take action in the present

    – No one knows if his house will or will not correct itself over a longer time horizon.

    “Ok, first of all he is affected by the current state of his condo value. That cannot be ignored.”

    – Can’t argue with that since I don’t know what “affected” means.

    “Second, I have no reason to believe that real estate is a good asset to hold right now for a long term gain. That advice is unfounded, and is the misconception that is driving so many owners right now to hang on and hope their values will recover.”

    – OK. Who really knows, though, what will happen in the future? Spot prices are no indication of future prices. I will go out on a limb and say that spot prices are not even an indication of value. They are only a reflection of what you can buy or sell something for today.

    “Third, the present is the only time where action can be taken, by definition. His actions should be guided by his present situation and his best guess at how present action could affect his future. Advice to ignore his present condition prima facie is unfounded and foolish.”

    – You can take action in the present, you can take action in the future. You can’t go back in time, as far as I know, and take action in the past. His actions are guided by his future situation, too, i.e, the five year plan. Who advised him to ingore his present situation?

    – You can’t always get what you want, but if you try some time, you just might find, you get what you need.

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  117. 118
    David Losh says:

    RE: whatsmyname @ 111

    Exactly right, the big scary numbers actually come in increments of five year blocks: http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf

    It’s bad.

    http://capitalismtoday.blog.wku.edu/tag/unfunded-liability/

    What this doesn’t tell you is that it’s not that far off from what is managable.

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  118. 119
    Hugh Dominic says:

    RE: Blurtman @ 117 – “affected” in this case means that his options are limited due to the present market value of his home. He cannot afford a conventional sale because he cannot repay the mortgage in that case. He must stay and pay, or default. Your advice is to stay and pay because he can. And because after a while his condo will rise in value, if he just holds it long enough.

    “- You can take action in the present, you can take action in the future.”

    No, you can only take action in the present, by definition. You can plan for the future, and anticipate taking action, but there is no guarantee that this will work. In this case he plans to drive his mortgage down far enough that he could sell without default in 5 years. That may or may not work out. He could lose his job or values could drop even more.

    In the present, he could choose to default. He could plan to live rent-free for a year. He could plan to take those double payments and put them in the bank. He would probably achieve his freedom in one year instead of five, and have tens of thousands of dollars in the bank too. His credit would suffer, he’d have some risk of the bank going after him. (unless he declares bankruptcy and the debt is legally discharged)

    Or better yet he could buy his neighbors identical condo for $180k and the default on the one that he owes $250k on.

    These are all really good options for Desponder, that could get him to his goal more quickly. I do not agree with your arguments for why stay and pay are better. I will say, however, that the advantage of default shrinks with each payment that he makes.

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  119. 120
    Jonness says:

    It’s quite obvious the desponder bulls have failed to factor in several $trillion in fiscal and monetary stimulus, the GSE takeover, massive shadow inventory, mark-to-market, traditional banking profits in the toilet, and an increasing number of large cap jobs being sent overseas. These folks actually believe the house of cards is real and are banking on a quick return to normalcy. Although I’m not surprised the attitude exists (its the U.S. mainstream consensus), I am surprised by some of the people who have decided to go along for the ride.

    Thinking inside the box leads to a warm fuzzy feeling but seldom represents an accurate viewpoint of reality. Quick, someone call up the NAR and let’s arrange a social.

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  120. 121
    Jonness says:

    By David Losh @ 113:

    He’s saying that in five years he will have taken $300K down to $180K. He has already started the amortization process. It won’t stop. He can at that point stop with the double payments and still be amortizing the loan.

    5 more years of double payments just to break even? That doesn’t sound like a very good deal to me.

    His rent right now would be about $1200 per month, and he would need to live some place.

    He could put all of those double payments into his savings while he lives for 3 years rent free in foreclosure limbo. When the free rent gig is up, he’ll have a nice savings built up.

    Which outcome feels better to him personally is what’s most important here. I know what I would do, but what’s right for me might not be what’s right for him.

    By the way, the above post is unrelated to this one. By “the desponder bulls,” I’m referring to those who believe we have reached the despondency stage of the cycle of emotions.

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  121. 122
    Blake says:

    RE: Scotsman @ 109
    oh gawd… This “$100 trillion in unfunded liabilities” meme is so much BS. I was wondering where it came from and – more importantly – what timeline it is derived from.

    It appears to have originated from a speech by Dick Fischer of the Dallas Fed in May ’08 (and amplified by Bill Walker on LewRockwell.com)
    http://www.lewrockwell.com/walker/walker34.html
    Fischer’s remarks: “Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent.”

    Yeah… “over the infinite horizon.” That’s rich…
    A little more investigation seems to show that the numbers were actually derived from projecting over 75 years. Ok, forget for a minute about trying to project 15-25 years into the future, much less 75 years (!)… and forget that they are projecting Medicare to lose $500 billion/year for 75 years (!)… Our economy is $14 trillion now. If it grows at about 2% for the next 75 years it will generate over $2.5 quadtrillion dollars. This $100 trillion in debt would represent about 4% of that economic activity over 75 years.
    Shocking… “There is nothing we can do!! We’re doomed!!”

    This $100 trillion “estimated” is so much BS and not even worth discussing. It is thrown out there by ideologues who have an agenda they want to push using bogus numbers to frighten people.

    ugh… Pete DuPont’s NCPA wrote in Oct’08:
    “To pay promised elderly entitlement benefits to our old folks into the future, we must have $101 trillion in the bank today gathering interest.”
    http://www.ncpa.org/sub/dpd/index.php?Article_ID=17104
    … what idiocy: “we must have $101 trillion in the bank today…”

    About the NCPA, Newt Gingerich says: ““The NCPA generates more analysis per dollar than any think tank in the country. It does an amazingly good job of going out and finding the right things and talking about them in intelligent ways.”
    :-))

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  122. 123
    David Losh says:

    RE: Jonness @ 121

    Look at it from an amortization stand point. If they paid the thirty years on a mortgage it doubles the price. If they pay it off within 10 years it greatly reduces the interest payments.

    He said eight units close in. It depends on the condition of the building, but my opinion is that some close in locations are worth keeping. Just because other people decide to walk away doesn’t make the place a bad investment. Especially in condos many people over stretched.

    Last is that most people do walk away because when you stop paying the collection process starts. It’s the cards, letters, phone calls, people coming to your door to “inspect.” Then you never know what will happen in the foreclosure process. You need an attorney, and should consider bankruptcy. Are you up for all of that?

    I’m just saying that his plan has less flaws than many alternatives, but it does depend on the building.

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  123. 124
    One Eyed Man says:

    RE: Scotsman @ 109RE: Blake @ 122

    Just to relate back to the thread, I still think we’re in the range of “capitulation.” As to the macro factors and how they will affect the cycles of emotion for home ownership, I still think that despite a long history of cronyism and corruption, american capitalism and democracy will benefit from resiliance and Darwinian adaptability to patch up its economic problems.

    Its my recollection that the figure of approx 100T in unfunded entitlement liability came out of the Trustee’s Report for Medicare for 2008 (probably as part of the election debate). I took a look at that report a couple of days ago when the NPV issue was first raised. My cursory review of the report didn’t yield a definitive answer to the NPV issue. It is my understanding that the actuarial reports don’t do NPV, but I think they do consider other factors including projected interest expense, projected revenue growth, etc. The Trustee’s reports are at the following cites.

    http://www.cms.gov/ReportsTrustFunds/

    Here’s an interesting executive summary for the Trustees that seems to say they could increase payroll taxes by about 1% and solve all the problems. I know Scotsman will fume just looking at the names of the Trustee’s. Have at it Highlander.;-)

    http://www.ssa.gov/OACT/TRSUM/index.html

    Caveat: As I’ve said before, I’m personally in favor of doing away with the Bush Cuts for those with incomes over 250K and decreasing (limiting and means testing) certain medicare benefits. As I’ve also said before, my father has probably received over 250K in medicare and tri-care covered health care in the last 5 years. I am one of 3 kids and thanks to the american taxpayer, I’ll receive an additional 80K in inheritance someday without contributing anything toward the wellbeing of myself or society at large. Thank You! And thanks for the 3DTV tax cut dollars too. We got Tron in 3D this week and I’ll probably watch it tonight. You’re Bush Tax Cuts at work!

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  124. 125
    Blurtman says:

    RE: Hugh Dominic @ 119 – You are attributing advice to me that I did not make. Please re-read my original post. I observed that Desponder was reacting to a present time situation, and to self-imposed constraints. If there is any advice in my post beyond taking finance classes, it is to consider multiple future scenarios which the farther out, the more uncertain they become. I also observed that as Desponder has shown to be fallible in prediciting future RE prices in the past, he may be fallible again. The action he has taken now may prove to be wrong, right, or neutral, based upon his criteria. One can certainly take action in the future. In 5 minutes I wll have another cup of coffee.

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  125. 126
    Scotsman says:

    RE: Blake @ 122

    You clearly don’t understand NPV either. The total paid out over the years will be $100s of trillions, not just $100 trillion. The last quote about needing $100 trillion in the bank now is the indication that this number is a net present value calculation. $100 trillion now, in the bank, is in essence the annuity calculation- the amount need now to insure that both interest and capital paid out together over time will be adequate to cover the expected costs. And we don’t have anything close to $100 trillion laying around- it’s close to the total wealth of the world.

    If you don’t like the 75 year calculation, take comfort in the fact that the 30 year number is closer to only $60 trillion. A funny thing about NPV calculations is that those years after 20 have a very small impact on the current value, and years after 40 are almost insignificant, so the 75 year horizon means very little more than the 30 year horizon.

    For those that don’t know, NPV is essentially a reverse savings and interest problem. But instead of asking if I have $10k in the bank now earning 6% interest, how much money will I have in 20 years, it asks the reverse: If I have a bill for $40k coming due in 20 years, how much do I need in the bank now, earning what interest rate, to make sure I have the cash to pay it when it comes due? It is the current value of money in the future, assuming an interest rate or more properly discount rate.

    But let’s say the calculation, done by licensed actuaries, is way off. Let’s assume the NPV is only $30 trillion. Can you pay off a $30 trillion (current value) debt with only $ 2 trillion dollars (current federal revenue actually collected) in income? No, you can’t- you can’t even pay the interest at traditional market rates. Same question, but with realistic numbers- $60T and $2T- off course is even worse.

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  126. 127
  127. 128
    David Losh says:

    RE: Scotsman @ 125

    You and deejayoo shamed me into reading the total CBO projection, it just isn’t that bad: http://www.cbo.gov/ftpdocs/108xx/doc10871/01-26-Outlook.pdf

    Just to be a little more clear, if I am paying my bills from the interest form the principal I have in the bank, is my cash flow considered extra income?

    Actually isn’t NPV more of a loan modification tool?

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  128. 129
    Scotsman says:

    RE: David Losh @ 127

    For starters, that particular CBO projection has been pretty heavily discredited. Do you think we’ll see 8% unemployment by the end of this year with it continuing to fall to 5%? Not many do. The recovery they were banking on when those projections were made hasn’t happened.

    What ends up in a NPV calculation depends on the objective. It is a tool that allows you to compute the values through time of projected income streams and expenses, then bring them both down to a number as of today and see how they compare. Will the income stream be enough to cover the expenses? What happens if we change expectations about inflation, interest rates, etc? All of those variable can be incorporated into the calculation. But the bottom line is you end up with two numbers- one for income, one for expenses, and get to see if they come close to matching up. In the case of projected federal tax revenues and expenses, they don’t even come close to matching up- the expenses dominate by some factor greater than 20 in every analysis I’ve seen. What that says is you can’t pay today’s $20 invoice with the $1 you have on hand. That people are so unwilling to believe it’s that bad when the Fed governors, past comptroller of the treasury, and others who have the training and access to know say it is astounds me. We have been lied to for years by pandering politicians and now the tab is coming due.

    Sadly, I don’t have to prove my case or anyone else’s to the readers on this board. It will unfold before our very eyes over the next decade, if things don’t collapse before then. It’s as simple as figuring out how long you think the world will let us finance $trillion+ annual deficits before they up and walk away with their money, because we are out of our own, except for that which we are willing to print up.

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  129. 130
    David Losh says:

    RE: Scotsman @ 129

    This is why I spend more time with the debate about currencies. The dollar is falling the Euro is rising, and the Yen is dead. What do you think all that means in the real world?

    The bill is already due. You don’t need to project another decade ahead. We owe $14Trillion, we take in $2 trillion, and operations are $2.4 to $2.7 trillion.

    We could have the debt servicing debate again, but that is money we pay to ourselves, that we charge ourselves. In other words I’m really not looking at a cash flow debate.

    My point was about our lack of entitlements: http://www.politicususa.com/en/debt-social-programs

    We pay about the same as Australia, and France for social programs but our deficits far exceed theirs.

    The point that you are also missing is that we pay tax dollars to benefit a wide variety of private enterprise, oil, just to name one. Banking would be another pet peeve of mine. You mentioned the EPA which has probably created, generated more profits for major corporations, then turns around, and hands out tax credits.

    I don’t want to fill this thread with economic mumbo jumbo about nothing. It’s just important to keep a perspective that if the United States ever wanted to cure the deficit they would have to include the major corporations. Talking individual entitlements is a non starter.

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  130. 131
    whatsmyname says:

    RE: Scotsman @ 129
    I got to comment on two things you said:

    “What ends up in a NPV calculation depends on the objective.”

    You said it brother. And that’s why if you don’t know the assumptions behind an NPV number, then you don’t know whether or not it is garbage. I asked debtclock.org to provide the assumptions behind their numbers. I haven’t heard back yet, but it’s Easter weekend.

    The CBO report, for all its weaknesses, projects social insurance tax receipts of $11.8T over 2011-2020 (page 8), and SSI, Medicare, Medicaid expenditures of $20.4T (page 48) over the same period for an $8.6T shortfall over the 10 years. That’s gross cumulative, not discounted. That’s bad news, but I’d sure like to know how we get from there to $113T on an NPV basis.

    Notwithstanding, there are big problems need to be solved, and hopefully soon. People who make this an issue should also be focusing on the healthcare aspect of this. Should your numbers hold up to analysis, the healthcare entitlements are 90% of the problem.

    “In the case of projected federal tax revenues and expenses, they don’t even come close to matching up- the expenses dominate by some factor greater than 20 in every analysis I’ve seen. What that says is you can’t pay today’s $20 invoice with the $1 you have on hand.”

    The practical NPV of my mortgage is easy to figure out because the all the key elements are contractual. (Yes, I know true NPV would be affected by potential rate arbitrage, but that is not significant for this exercise) My NPV is the current balance of my mortgage. However, doing the NPV work does not make it today’s invoice, and I don’t need to pay it with my $1 in hand. Nor do I need to have an equivalent financial asset in hand today since I am going to pay out of income from work rather than income from portfolio. This is simply not a valid argument. I will grant you this doesn’t work so well if you run current spending deficits every year. One more reason the W tax cuts need to expire.

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  131. 132
    Macro Investor says:

    By The Tim @ 63:

    By alex @ 33:
    I think the meaning of “Capitulation” is something else. It doesn’t mean that people give up doin business. It means that sellers – specifically sellers – give up hope that the value will ever go up, and start to sell in a hurry – at any price.

    I disagree. Why would they sell if they don’t really have to? Everybody needs to live somewhere and if a potential seller realizes that there’s no way they’ll be able to get the price they wish they could get for their house, why not just keep it (assuming they can afford it)?

    Alex is correct. You may “disagree” all you like, but you are forgetting this is a social science model which someone researched. You don’t get to change the published definitions of the terms. They are easy to look up:

    “The Downturn

    • Anxiety—The market begins to dip, generating feelings of anxiety (Point 5).

    • Denial—The market continues to fall, and the investor goes through denial with such thoughts as “It’s ok, I’m in it for the long run,” and “This is just a temporary setback,” (Point 6).

    • Desperation and Panic—As the market cycles lower still, feelings of desperation and panic ensue (Points 7 and 8, respectively).

    • Surrender [capitulation] —Panic eventually gives way to surrender, when the investor thinks “How could I have been so wrong? I just can’t handle being in the market any longer. I can’t take any more losses,” (Point 9).”

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  132. 133
    Macro Investor says:

    By Jillayne Schlicke @ 112:

    110 comments? Wow I missed a good one yesterday. IMHO different people are in different phases from denial all the way through hope.

    One of my students summed it up well: “Nobody’s happy right now. Seller’s aren’t happy with the prices and buyers are full of anxiety regarding home values dropping further combined with anxiety surrounding their job and the overall economy.”

    Anxiety…..plus, there is still a lot of denial going on with home sellers “hoping” that we’ve reached the bottom and in denial about values falling further.

    Sorry, Jillayne. Like Tim you are forgetting this is not just some pretty picture that we get to attach our own comments to. It is someone’s research, and he defined the terms in his paper. If you look again, “hope” is after the price curve has started going up. That is what that line represents.

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  133. 134
    One Eyed Man says:

    RE: whatsmyname @ 131

    From page 198 of the 2008 Annual Report of the trustees, this is the NPV of the 75 year deficit for Social Security and Medicare:

    “From the 75-year budget perspective, the present value of the additional resources that would be needed to meet projected expenditures, at current-law levels for the three programs combined, is $42.9 trillion.69 To put this very large figure in perspective, it would represent 5.4 percent of the present value of projected GDP over the same period ($797 trillion).”

    http://www.cms.gov/ReportsTrustFunds/downloads/tr2008.pdf

    The reference to 3 programs is that SSI is one program, medicare hospital insurance called HI is a 2nd program, and medicare parts B and D is a 3rd program.

    The above NPV uses a middle range of assumptions and is also considered to be low because it has some reimbursement caps on doctors fees that were not expectedf to survive. Scotsman’s numbers probably come from sources that use the infinite (not 75 yr projection) and probably use more negative financial assumptions.

    Note that the numbers drop for the NPV in the 2010 Trustee’s Report because of the Healthcare Act.

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  134. 135
    Scotsman says:

    RE: whatsmyname @ 131

    Tax receipts are completely dependent on employment numbers. If the unemployment assumptions are obviously going to be a miss after just one year, why continue on with the analysis? How valid can the other numbers be?

    In all honesty I don’t think we’ll get to the point where projected expenses 10 years out are an issue. With current deficits running 40+% of expenses and no reductions in sight this game will end long before your or even my Medicare/etc. expenses get to be an issue.

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  135. 136
    David Losh says:

    RE: Scotsman @ 135

    You can’t get away from paying Social Security, or Medicare. As stated in the other thread corporate profits are up 29%. The unemployment figures can’t last forever, we have a cap here that some other countries do not. So people need to eat, we have no social safety net so that leaves private enterprise. In business you have to pay Social Security, and Medicare no matter what.

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  136. 137
    JVP says:

    I’d like to read the source material for this chart of market emotions. Does anyone know the original author/researcher? Google didn’t get me anywhere useful.

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  137. 138
    Choc Donut says:

    With the vast majority of boomers still to unload their properties to retire, and the fact that they own much of the best properties, other than that already inherited by genxers etc, we’ve only just begun to die. Plus throw in US middle class and manufacturing decline, a nutcase republican party that won’t face the reality of higher taxes, and the fact that foreign buyers like CHina, and Bric commodity economies are in a bubble, and the effect of all this has on a younger generation who don’t want to commute, and want to stay mobile, and see housing as a liability (which it has also become with rampant regulations and zoning and taxes and building costs), housing will NEVER recover, and if it does, give it at least ten years. Fact is, we’re still headed for such a bloodbath, including inter-generational conflict over jobs and money, who knows what comes out the other side.

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  138. 139
    PensivePete says:

    tim, we (the PS real estate market) is moving towards capitulation.

    by and large, the majority of buyers, sellers & financiers don’t agree on where the equilibrium should be.

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  139. 140
    Blurtman says:

    RE: Choc Donut @ 138 – There will always be a housing market. Change is a constant.

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  140. 141
    David Losh says:

    RE: Blurtman @ 140RE: Choc Donut @ 138

    Here in the Pacific Northwest we must know that some industries change forever. Fishing, and timber are industries we relied on for generations that are now changed.

    Housing is one of those industries that has changed from an economic leader to a constant.

    What was interesting is about the baby boomers who will be selling for retirement. That’s really true, that’s another shoe to drop.

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  141. 142
    Blurtman says:

    RE: David Losh @ 141 – Supply and demand. New equlibria until they change again.

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  142. 143
    David Losh says:

    RE: Blurtman @ 142

    I don’t think so any more. The housing market is way over built, globally. We also have the ability to prefab housing and deliver it anywhere, anywhere. We can stack, squeeze, densify, or sprawl it makes no difference any more. We are an era of planned communities.

    The next generation however isn’t going to care. We called the Depression Era family a mobile society with the automobile, but the internet makes us that much more mobile. We can go anywhere, we can build anywhere, we can have business globally.

    So I don’t think the supply, and demand issue is relevant any more.

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  143. 144
    Blurtman says:

    RE: David Losh @ 143 – Folks still prefer housing to car camping wherever they live, except for the true nomads. And somebody/something owns the homes. The bubble likely contributed to overbuilding, the crash perhaps to underbuilding. Meanwhile, the human race continues to reproduce. New equilibria are continually established. Right now, in the USA, it appears that prices continue to head down. Since I don’t think prices can go negative, a new bottom, a new static equilibrium, will eventually be reached. And prices might be flat for decades thereafter. Or they might not.

    Everyone can speculate to their heart’s content, No one really knows.

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  144. 145
    Kary L. Krismer says:

    RE: Blurtman @ 144 – I wonder how much the tax credit resulting in a second period of overbuilding?

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  145. 146
    David Losh says:

    RE: Blurtman @ 144

    Yes we do. We’ve seen it before. This is a dead issue. The price may stay as a constant, but our willingness for debt is greatly diminished.

    We use less lumber, we eat less fish.

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  146. 147
    whatsmyname says:

    By Scotsman @ 135:

    RE: whatsmyname @ 131

    Tax receipts are completely dependent on employment numbers. If the unemployment assumptions are obviously going to be a miss after just one year, why continue on with the analysis? How valid can the other numbers be?.

    This is why I say if you don’t know the assumptions, you don’t know if your number is garbage. At least we can test those numbers. We still have no idea what’s behind the $113T number. What makes that credible? OEM posted a 2008 trust fund report at #134 with a $42.9T NPV.

    “In all honesty I don’t think we’ll get to the point where projected expenses 10 years out are an issue. With current deficits running 40+% of expenses and no reductions in sight this game will end long before your or even my Medicare/etc. expenses get to be an issue. ”

    Partially agree. This won’t go to the distant end point. Changes have to happen, and they will. (What would happen to these numbers if our medical costs were cut to those found in most of western society?) Not sure why the rush to “end it, not mend it”. I also have trouble with the undifferentiated lumping of SSI and the medicare/medicaid programs. How many people know that SSI is 10% of the problem and the medical is 90%? A lot more heat than light here.

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  147. 148

    […] 147 comments, 04/21: Has the Tide Turned Against Home Ownership? […]

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