Posted by: Timothy Ellis (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.

52 responses to “Reporting Roundup: Healing Perfect Storm Edition”

  1. wreckingbull

    These industry ‘experts’ have become caricatures of themselves. The way they all trip over each other to call the bottom dumbfounds me. Crellin seems to be coming around – something I never thought would happen. Someone refill his Kool Aid pitcher, stat.

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  2. Scotsman

    It’s a great time to buy. I’m going to buy a house this month just to do my part.

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  3. Kary L. Krismer

    RE: wreckingbull @ 2 -Speaking of which, this is the third anniversary of Ardell’s bottom call.

    http://raincityguide.com/2009/02/07/were-at-bottom/

    And almost the third anniversary of one of the few times you’ll see me quoted in an article.

    http://www.seattlepi.com/default/article/Agent-predicts-housing-slump-s-demise-1299714.php

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  4. Drone

    I think we’re at the bottom (on any timescale less than 7 years), but still far from time to buy.

    The continued willingness for our government to intervene and prevent the normal market-clearing processes means that this correction is going to drag on for a LONG time. I expect prices to be stagnant for years, maybe trending down ever so slightly, as inflation-adjusted values continue to decline. A quick bounce-back is not in the cards.

    Let’s look at the various players in the game and how their motivations change in this flat-price environment:
    * Under-water sellers remain underwater for ~10 years, until the principle they’ve paid off makes the loan match the nominal value of their property. At this point they sell because they’re sick of the place and never intended to stay this long anyway.
    * Sellers with equity have been waiting for prices to return to the stratosphere, slowly adjusting their price expectation downward (but adjusting it late). They’re chasing the market down, and as long a declines are steep they won’t sell. Once nominal prices stagnate their expectations will catch up with reality, but they’ll be disabused of the hope for gains in the future. If the market is flat-ish for a year or two, this group will begin to sell en mass.
    * Normal buyers (if there are any left) have been afraid to buy because of falling prices. Once prices stabilize somewhat, this group will quit waiting and jump back in, just in time to absorb the flood of properties for capitulating equity-sellers.

    I expect that the real change over the next few years will not be price, it will be volume. As the sellers finally give up and the buyers quit waiting, we’ll see many more transactions. As volume increases, the buyers’ panic of today (causing bids on nasty broken down structures) will subside, and we’ll start to see a more normal inventory mix. This means that the smart buyer waits, not for lower prices in the future, but for better selection at today’s prices.

    Also note: stupid investors are going to get CREAMED. As normal transaction volume improves, the rent demand we’re seeing today should subside. Stupid investors will buy the dip too early, get a lower-quality property, and then try to generate income off of less-desireable units in the face of stagnant or declining rents. I think this will provide an opportunity for smarter investors ~5+ years from now.

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  5. David Losh

    I don’t understand why you think distressed sales are a solution to anything.

    “The continuing stream of short sales and foreclosure sales aren’t “a drag on recovery.” They’re how we get recovery. All the bad sales from the bubble need to be cleared out before we can get back to a “normal” market. Period.”

    We’re not going back to normal.

    You are talking as if housing was a bubble, which we now know it wasn’t. The price of property was pushed up by lending standards that allowed prices to far exceed the value of the assets.

    Rents are one indication of value. Builders ignored rental units in favor of housing units so they could get cash, rather than income.

    Selling off a bunch of over priced junk isn’t going to get us to normal. To get to normal we’ll have to see a lot, I mean millions, of pre “bubble” sellers sell for value which is much less than the 30% down from peak people talk about.

    Use a little logic. We had double digit appreciation for a couple of years, which is 20%, but we had a run on Real Estate for five years before that. At 4% appreciation we’ll need to see a 40% decline from peak pricing.

    Just because people are signing up today for historically low interest rates, doesn’t mean that the assets they are leveraging are worth any more. Low payments on over priced assets, or liabilities depending on how you look at it, is just debt.

    Unless people pay off the property, it is just another debt in a long series of debts.

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  6. Gallop

    You missed the Kitsap Sun this morning.

    “Home sale prices dropped an astounding 26 percent in January, thanks to distressed properties selling low and pulling everything else with them.”

    Read more: http://www.kitsapsun.com/news/2012/feb/06/kitsap-home-prices-take-a-26-percent-nosedive/#ixzz1lkXIlGcL

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  7. whatsmyname

    Wow, this is also the anniversary of this Seattle Bubble post entitled
    “Guess What? Inventory Up, Sales Down.”

    http://seattlebubble.com/blog/2007/02/07/guess-what-inventory-up-sales-down/

    Apparently, at the time, these factors were considered more significant than a 10% YOY increase to the median sales price.

    Everything old is new again.

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  8. Kary L. Krismer

    RE: whatsmyname @ 9 – Wow, only 8 comments but they included Biliruben, Eleua and Synthetik. I wonder whatever happened to Biliruben?

    That was right before our prices really started skyrocketing. The median in January was about $430,000, and in July about $480,000!

    If the the national economic events in 2007 and 2008 had been delayed a year or two, I suspect we would have seen price appreciation like Phoenix and Las Vegas.

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  9. Kary L. Krismer

    RE: The Tim @ 6 – To be fair, part of that is mix.

    Unfortunately it’s before the NWMLS had fields for REO and short sales.

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  10. Kary L. Krismer

    As I just noted, they didn’t have breakouts for distressed properties in January 2009, but they did for subsequent Januaries (sp?). The median non-distressed residential for King County in 2010 was about $405k, 2011 $395k and $2012 $396k. The median square footage, however, increased by about 250 to get there, and the average square footage about 300. So even within those numbers a change of mix.

    Presumably the January 2009 $430,000 median was not upwardly moved by the distressed properties, so there was a real significant drop after that even when only looking at non-distressed.

    Numbers from NWMLS sources, but not compiled by or guaranteed by the NWMLS.

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  11. whatsmyname

    By Kary L. Krismer @ 10:

    RE: whatsmyname @ 9 – Wow, only 8 comments but they included Biliruben, Eleua and Synthetik.

    RE: Kary L. Krismer @ 12
    Here you are invalidating my post before I can get it up. I was about to point out that Terry at post number 8 had a great example of how extremely the median can be skewed by the mix.

    By Terry @ 8:

    I know readers of this blog are mostly interested in topics relating directly to Seattle / King County, but check out the 270% jump in median sales price of condos in Kitsap County. Wow! A jump from $159k to $435k is noteworthy, but with only 33 sales for January 2007, it wouldn’t take very many high end sales to dramatically skew the median upward.

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  12. David Losh

    RE: The Tim @ 1

    This graph should go back to before 1995 to see if this is astounding or not. It’s interesting that there was so much activity after 2001 when there was a home ownership push.

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  13. me

    I don’t know what y’all are talking about. If you simply do the math and extrapolate prices on the line form 2000 to 2007, you can see that you get to pick up properties worth trillions of dollars for just 300k these days. Never been a better time to buy. Maybe I’ll get two? ;)

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  14. Ray Pepper

    Tim, can u run a chart like that for Millionnaire Mike and his upside down 1 mill + creation that all have you were clammoring about? He documented the construction so great EXCEPT leaving out the important detail of how much he is in the crapper.. I’d like to see what a million smackers+ looks like in chart form in lets say 25k increments over the period of 2.5 years since his purchase in 2009 I believe.

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  15. Hugh Dominic

    RE: Ray Pepper @ 15 – Ray, here’s where you’re right: Mike is plenty underwater on his property. He spent a lot more on it than he could recover if he sold it today.

    But Ray, here’s where you’re wrong: it doesn’t matter. You are evaluating him with the wrong yardstick. This was not an investment that went bad. This was a project he enjoyed and a product that he wanted to spend his money on. He never came here to crow about how much his house was worth, only to talk about how he built it and what he likes about it best.

    You need to drop it, because by shouting for attention on this you just sound jealous and stupid.

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  16. Blurtman

    RE: David Losh @ 7 – In that respect, Mitt is righter than Barry-O. Let the market clear.

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  17. Kary L. Krismer

    By Ray Pepper @ 15:

    Tim, can u run a chart like that for Millionnaire Mike and his upside down 1 mill + creation that all have you were clammoring about? He documented the construction so great EXCEPT leaving out the important detail of how much he is in the crapper.. I’d like to see what a million smackers+ looks like in chart form in lets say 25k increments over the period of 2.5 years since his purchase in 2009 I believe.

    I don’t even understand what you’re asking, but have you not paid your NWMLS fees, or is there some other reason you cannot access data yourself? ;-)

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  18. MacroInvestor

    RE: Hugh Dominic @ 16

    “He never came here to crow about how much his house was worth, only to talk about how he built it and what he likes about it best. ”

    Hugh, your comment is naive. Mike’s entire blog is a million-dollar vanity license plate that he uses to crow about how smart and important he is (in his own mind). People like that attract ridicule to themselves because of how silly and materialistic they are. Ray and others just teased him on an obvious point he was lying about. He showed how fragile his insecurity is by going all to pieces and losing his temper. Sad.

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  19. Kary L. Krismer

    By Hugh Dominic @ 16:

    RE: Ray Pepper @ 15 – Ray, here’s where you’re right: Mike is plenty underwater on his property. He spent a lot more on it than he could recover if he sold it today. .

    That was often true of custom high end homes even pre-2007.

    It’s sort of like the remodel of a house. You can spend $70,000 remodeling a kitchen, and only improve the value of the house $30,000. The same is true of things you put into a house when it’s new.

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  20. David Losh

    RE: Blurtman @ 17

    My point is that the market won’t clear by foreclosure, or short sale. I don’t understand the fascination with these processes.

    Properties selling for less than they did in 2006, 2007 is a continuation of the same problem. It promotes a false sense of equity. The foreclosure system is badly broken, and now we have the government trying to clear inventory by wholesaling properties to hedge funds.

    I’d like to see what this foreclosure process is doing to those Mortgage Backed Securities we no longer hear about. Are we creating new Mortgage Backed Securities to be traded?

    I’m saying I don’t see the change in the market other than reduced prices, that aren’t reflecting a true value of property.

    Have you seen Arizona, or the Las Vegas valley? Those are millions of homes in the middle of deserts. Paying 20% of the last purchase price in many cases is paying way too much.

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  21. softwarengineer

    We Need to Sugar Coat Everything Like Politicians

    Lest we tell ‘em the truth and scare everyone to death.

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  22. Kary L. Krismer

    By MacroInvestor @ 19:

    Ray and others just teased him on an obvious point he was lying about. He showed how fragile his insecurity is by going all to pieces and losing his temper. Sad.

    Huh? Apparently you haven’t looked at how unpopular Ray’s comments were in that thread. Ray is almost the only person pushing the issue, and no one went to pieces or lost their temper, except perhaps Ray with his continual harping on the issue.

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  23. Kary L. Krismer

    RE: David Losh @ 21 – Almost a million and a half people who live in Phoenix proper. Not sure how big the entire area is. It doesn’t seem like that big of a city when you’re there, because there’s no physical barriers to its growth, but it has a huge population.

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  24. Ray Pepper

    RE: Kary L. Krismer @ 23

    Just wanted to see a million dollar + drop in one of Tim’s keen graphs over the period of 2 years for titillation..The graph could start when he bought the old tear down for well over a million in 2009 I believe…and it could end the day he chimed in on the blog here….Since Mike has “NO CLUE”, even after an appraisal, what its worth Tim could help him in graph form…..Tim, likes to do his segment on biggest blunders, bone head Agents, and bad listing photos….Millionnaire Mike DESERVES a graph for his construction and we “professionals” could assist him since he has “no clue”..

    Hugh here is what U don’t get. IT ALWAYS MATTERS. It matters for many people who contemplate taking on an endeavor like this and to Millionnaire Mike if he is forced to sell for some reason…I was just here to educate potential self-builders and point out LIES where I saw them…Nothing else…but truly in the end………… http://www.youtube.com/watch?v=RFZrzg62Zj0&feature=endscreen&NR=1

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  25. Kary L. Krismer

    By Ray Pepper @ 25:

    RE: Kary L. Krismer @ 23 – Just like to see a million dollar + drop in one of Tim’s keen graphs…

    I still don’t get it. There are plenty of houses that have lost $1M of value, and you could track that like a Zestimate graph. When you start talking about graphing multiple houses, however, I don’t know how you would graph that.

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  26. David Losh

    RE: Kary L. Krismer @ 24

    Phoenix? Keep going to Tempe, or Mesa, or as far as the eye can see, it’s the same in the Las Vegas valley. Just because they were built it doesn’t mean they are worth anything. It was all to generate mortgages, for Mortgage Backed Securities. How are we doing with those? That must have resolved itself with this foreclosure, short sale healing.

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  27. Kary L. Krismer

    By David Losh @ 28:

    Phoenix? Keep going to Tempe, or Mesa, or as far as the eye can see, it’s the same in the Las Vegas valley. Just because they were built it doesn’t mean they are worth anything..

    Wrong. Phoenix actually has an economy that can support things. That was the problem I had with the price increases in Las Vegas. There was nothing driving the increases but momentum.

    The thing about Phoenix though is that growth and construction are easy there, so price increases are not sustainable. Supply will fill the gap, and given the nature of building construction, supply quickly becomes over-supply.

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  28. MacroInvestor

    By Kary L. Krismer @ 24:

    By MacroInvestor @ 19:
    Ray and others just teased him on an obvious point he was lying about. He showed how fragile his insecurity is by going all to pieces and losing his temper. Sad.

    Huh? Apparently you haven’t looked at how unpopular Ray’s comments were in that thread. Ray is almost the only person pushing the issue, and no one went to pieces or lost their temper, except perhaps Ray with his continual harping on the issue.

    There you go again, showing off your great debate skills. A week or two ago you suggested everyone is stupid (compared to your superior self!). Now apparently the number of anonymous green arrows a comment gets equates too winning or losing the argument.

    And notice I didn’t say anything about popularity. So next time you are calling someone “reading comprehension challenged” kindly include yourself.

    I don’t have all day to blog like you do. So go right ahead and get angry and call me names, per your MO when someone doesn’t agree with you. Signing off…

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  29. Kary L. Krismer

    RE: MacroInvestor @ 30 – You’re missing the point, as per usual.

    Who else was teasing him besides Ray? What lie? You and Ray are a minority of two on that issue. And that my friend is what popularity is about, it’s not just the arrows, it’s the comments too.

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  30. Kary L. Krismer

    By David Losh @ 28:

    Phoenix? Keep going to Tempe, or Mesa, or as far as the eye can see, it’s the same in the Las Vegas valley. Just because they were built it doesn’t mean they are worth anything. It was all to generate mortgages, for Mortgage Backed Securities. How are we doing with those? That must have resolved itself with this foreclosure, short sale healing.

    Mesa is part of the greater Phoenix area I was referring to.

    You’re right that just because they are built it doesn’t mean they are worth anything. That’s the over-supply I was referring to.

    I don’t know how much building of SFR was going on in Las Vegas. One house was probably too many there.

    But more to the point, you’re ignoring the psychology of the market. It wasn’t about MBSs, it was about people going into a buying frenzy. Yes the financing at the time allowed that, but what caused it was the mania.

    You seem to have a problem with causation. Mortgages are available cheaper now than then, but it’s not driving the prices up.

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  31. Ray Pepper

    RE: MacroInvestor @ 30

    Macro don’t waste your breath…Let them cheer because in the end it wasn’t them who are stuck a mill+ so great job! beautiful home! nice floors!…………rah rah!

    Am I jealous? I wouldn’t change a thing in my life except one more child but can’t do that…Am I stupid? Well, most assuredly so in some area’s….

    here s a little something for you I watched at 4am doing the futures thing I just sent to about 150 people in my network…..Sam Zell is quite eloquent at speaking the obvious and he remains just another Monday Morning Quarterback that has no answers nor what will happen if his wishes came true about “clearing the market” : http://video.cnbc.com/gallery/?video=3000071424

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  32. Kary L. Krismer

    By Ray Pepper @ 33:

    Am I jealous? I wouldn’t change a thing in my life except one more child but can’t do that…Am I stupid? Well, most assuredly so in some area’s….

    It’s not about jealously or stupidity. It was just that you hit over and over again about not believing that the owner/builder had no idea what his property is worth. Studies show most owners don’t now what their property is worth, and as a real estate agent you have undoubtedly seen countless examples of that. If anything this would be worse than average, because it’s not a typical property where he would know of other comps.

    Also, you were hitting on a topic not at all relevant to the custom high end market. If he built that property for resale as a contractor, then what you were focusing on would be relevant. But where the next sale of the property might not be for 10-15 years, the current value is probably of little concern to the current owner.

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  33. Pegasus

    RE: Ray Pepper @ 33 – Ray thanks for posting the Sam Zell video. I always enjoy listening to him. Smart guy and humble.

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  34. No Name Guy

    Ray

    Give it a rest. Some people buy or do stuff regardless of the price / cost to them or perceived value to others.

    For example, to me, it’s an idiotic waste of money to buy a bottle of wine over $50 for a super special occasion, or $15 for typical dinner wine, yet some folks out there go ahead and drop 300-500 a bottle. Do I lock onto their @$$es like a pit bull and endlessly rip on them for wasting their money when they could have got a higher ranked or “better” wine for less? No. It’s WHAT THEY WANT TO DO WITH THEIR MONEY, period. The same applies to fancy mid life crisis cars, silly modern art, Gulfstream G550 biz jets, boats…..you name it.

    This guy likes his house. Meh…..good for him. Would I have done the same having the same resources at my disposal? No way in heck. I value other things more highly.

    Value is in the eye of the beholder. To each his own. The guy expressed his values in his home.

    Get over it.

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  35. Kary L. Krismer

    RE: No Name Guy @ 36 – It goes beyond that though.

    Not everyone buys property for the same purpose. As mentioned in the open thread today, some people buy never intending to resell (live there until you die).

    It’s rather strange for a real estate agent to think everyone buys for the same reason, or is concerned about the same things.

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  36. tomtom

    By Kary L. Krismer @ 37:

    RE: No Name Guy @ 36 – It goes beyond that though.

    It’s rather strange for a real estate agent to think everyone buys for the same reason, or is concerned about the same things.

    As noted in the comments section before, the only appropriate metric for home selection is distance from known pedophiles.

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  37. tomtom

    By The Tim @ 6:

    By Kary L. Krismer @ 4:
    RE: wreckingbull @ 2 -Speaking of which, this is the third anniversary of Ardell’s bottom call.

    http://raincityguide.com/2009/02/07/were-at-bottom/

    Heh.

    Since Realtors make money on volume as well as price, the 62% increase in number of sales more than makes up for the 16% drop in price.

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  38. Kary L. Krismer

    RE: tomtom @ 39 – You forgot to mention fewer agents!

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  39. One Eyed Man

    RE: Pegasus @ 35

    Out of curiosity Pegasus, do you agree with Zell’s statement at just after the 5 minute mark implying that the bank bailout was absolutely necessary and entirely different from a housing bailout?

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  40. David Losh

    RE: Kary L. Krismer @ 32

    Once again you are focusing on a small example of a greater problem. Generating mortgages created financial instruments. The houses, buyers, and sellers are a by product of the Mortgage Backed Securities market.

    In Barcelona Spain there are square miles of foreclosed properties from people who could afford to pay, since they lost millions of jobs there over night. Athens Greece? In Trujillo Peru they are still building, and people are buying, just like in Oaxaca Mexico. In China they can’t stop building because it would put millions of people out of work. those construction loans are used to secure other financial instruments.

    What about all those housing units? Do you, or any one, think we can foreclose those millions of housing units into some sort of stable housing market? and if we do what does that do to the value of the securities they originally secured?

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  41. David Losh

    RE: Ray Pepper @ 33

    Funny guy who has absolutely no clue about the residential market place. He changed his story twice, and came down to the same conclusion, that there are millions of homes in the foreclosure process.

    His big thing was that banks should have foreclosed right off the bat, and that would have fixed everything. Well, banks did foreclose until they couldn’t take on any more properties. These bail outs, which Sam Zell reminds us, were for the benefit of the banks, not the consumers.

    Sam needs the banks, it’s his life blood, it’s how he, and his group, make money. So now he is kind of like a guy on welfare.

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  42. MacroInvestor

    RE: No Name Guy @ 36

    You are being disingenuous. You use words like “silly” and “idiotic”, yet you conclude “to each his own”. All you are really saying is you are afraid to express your honest opinion because someone’s timid little feelings might be hurt. (Which you are assuming, because you don’t know.) That just sets up dysfunctional relationships… ie the emperor with no clothes and nobody “notices”.

    Why don’t you grow a pair and stop being so hyper politically correct?

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  43. MacroInvestor

    By Kary L. Krismer @ 37:

    RE: No Name Guy @ 36 – It goes beyond that though.

    Not everyone buys property for the same purpose. As mentioned in the open thread today, some people buy never intending to resell (live there until you die).

    It’s rather strange for a real estate agent to think everyone buys for the same reason, or is concerned about the same things.

    You really are obtuse to an extreme. Nobody ever said they thought everyone bought real estate for the same reasons. NOBODY. What cognitively normal people are saying is some reasons are less rational. In Mike’s case we see a fine example of that.

    It occurred to me yesterday that one of the best investments in real estate may be buying someone else’s remodel. Most improvements return less than their cost. So it’s like buying at a 2/3 off sale.

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  44. No Name Guy

    RE: MacroInvestor @ 44

    Kiss off Macro, you ignorant D Bag. There, enough for you? See, I can rip those who are deserving of it.

    The difference between Ray and myself is if I happen to see someone at the next table drinking $500 wine, I don’t get up, go over and berate them while foaming at the mouth, like Ray has metaphorically done here.

    The simple fact is Ray is busting the guys ba**s because RAY thought it’s a bad move. Well, Ray just doesn’t get the fact that peoples motivations to buy / build a home or do anything in life may vary from his own. Based on Ray’s statements on the house and owner in question, the ONLY reason to procure a home is to make money and ignoring this aspect of home ownership is foolhardy. Perhaps it is, perhaps not. Well, Ray doesn’t have the full picture. Neither do you or I on why the guy choose to do this with his life and money. And you know what? It’s the guys money to do with as he sees fit. His business – not yours, not foaming at the mouth Ray’s. Cut the guy some slack you jerk.

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  45. Kary L. Krismer

    By MacroInvestor @ 45:

    By Kary L. Krismer @ 37:
    RE: No Name Guy @ 36 – It goes beyond that though.

    Not everyone buys property for the same purpose. As mentioned in the open thread today, some people buy never intending to resell (live there until you die).

    It’s rather strange for a real estate agent to think everyone buys for the same reason, or is concerned about the same things.

    You really are obtuse to an extreme. Nobody ever said they thought everyone bought real estate for the same reasons. NOBODY. .

    Maybe not explicitly, but with Ray trying to hit over and over and over again on something that is totally irrelevant for that homeowner, you’re being obtuse not to see that.

    Or is it you’re just being argumentative? It’s hard to believe anyone has so many bad ideas and irrational thoughts. I’m beginning to think you just like to disagree with me. He’s a test:

    The sky is blue!

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  46. Kary L. Krismer

    By MacroInvestor @ 45:

    It occurred to me yesterday that one of the best investments in real estate may be buying someone else’s remodel. Most improvements return less than their cost. So it’s like buying at a 2/3 off sale.

    And here you go with a good thought. It’s part of the reason why I object to those saying they don’t want to spend X dollars on a 50 year old house. Many have been remodeled, and of those, a few have been remodeled very well. You can have a structure which would kick butt on anything built today, on a nice lot, and modern electrical, plumbing and other systems.

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  47. Kary L. Krismer

    By No Name Guy @ 46:

    Well, Ray just doesn’t get the fact that peoples motivations to buy / build a home or do anything in life may vary from his own.

    Quit being obtuse! ;-) :-D

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  48. ChrisM

    RE: Kary L. Krismer @ 47 – “The sky is blue!”

    Are you nuts? Clearly it is grey!

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  49. Kary L. Krismer

    RE: ChrisM @ 50 – I used that question thinking of this book from the 80s:

    http://www.amazon.com/Official-Lawyers-Handbook-Daniel-White/dp/1897597002/ref=sr_1_1?s=books&ie=UTF8&qid=1328814507&sr=1-1

    Great book if you know anyone who is a lawyer, going to law school or thinking about going to law school.

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  50. leanne

    Just a note since it was not clear from the post–Bill McBride of Calculated Risk–an excellent blogger, by the way–said that he was calling 2012 as the bottom for housing construction. He said there would be two “bottoms” one for new construction, and a second later one for prices. He was calling a bottom on the first, but does not expect prices to bottom for some time yet.

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