Weekly Twitter Digest (Link Roundup) for 2012-01-07

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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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

76 comments:

  1. 1
    David S says:

    Wow, add the cost of selling to the remainder of the homes not underwater and you get a lot more underwater homes. If one thinks they have positive equity on their $400,000 dollar house take $40,000 out of that and what camp does that put you in? Still positive? The asset liquidation expenses have to be reduced. I think they are only but one of the impediments to recovery, but they are a large one.

  2. 2
    Pegasus says:

    RE: David S @ 1 – Ardell did a great job with that one. Well done Ardell. It won’t sell any more homes but it needs to be out there.

  3. 3
    David Losh says:

    In SteveTytler’s prediction for real estate in 2012 he says:

    “Remember, you should buy a home because it’s a nice place to live and it fits your lifestyle. Do not buy a home as an “investment.” The easy-money days of rapid home appreciation are not coming back anytime soon.”

    The mortgage is what has killed the value of property. You not only pay the asking price, but then you pay interest payments on top of that, which in most cases ensures you pay at least your purchase price again in interest payments.

    People talk about lowering Real Estate commissions, but there is no discussion about mortgages, or the costs of mortgages.

    Property prices are so high because the banking industry wants you to finance the purchase, through the bank.

    If you own property free, and clear, it is still an investment.

  4. 4

    By David Losh @ 3:

    The mortgage is what has killed the value of property. You not only pay the asking price, but then you pay interest payments on top of that, which in most cases ensures you pay at least your purchase price again in interest payments.

    People talk about lowering Real Estate commissions, but there is no discussion about mortgages, or the costs of mortgages.

    That’s probably because interest is at record lows. At 8% on the thirty year mortgage you would pay over 2.5x the amount of the loan if you went the full 30. At 4% only about 1.75x the original amount. So the costs have been lowered, significantly.

  5. 5
    David Losh says:

    RE: Kary L. Krismer @ 4

    You need to recalculate, because the price of property is declining 5% this year according to Steve.

    So you are paying interest on lost equity.

  6. 6
    b says:

    it is the amazing the power of the real estate eco system. I work at mr softie – and it is crazy how the ‘professionals’ walk potential clients, new to the area, through what are in reality large numbers without any context.

    I had to try to help out a [originally from eastern europe] colleague – who were being over sold and over advised, in my opinion on ‘just’ a $650K house. The usual bs that you hear from professionals that only talk about the monthly payment and tax deduction, and non of the overall ramifications. Finally, i told him to create his own 30yr mortgage amortization spreadsheet (and not an online calculator) and do some analysis with the extra expenses. Wow – they convinced him/wife very quickly and realized it was better to rent for a few more years and get their downpayment up to ~30% from 18. There is absolutely no rush to buy in the next 4 years. Take your time and save up even more.

  7. 7
    MichaelB says:

    By David Losh @ 5:

    RE: Kary L. Krismer @ 4

    You need to recalculate, because the price of property is declining 5% this year according to Steve.

    So you are paying interest on lost equity.

    David, that is an excellent point. In addition, using leverage to buy an asset only makes sense when the asset is expected to increase in value. Even then, I would question why people want to borrow so much money rather than save up to buy a home with a large percentage of cash. If more people did it would drive the price of housing down. Debt is what has created this financial crisis and the housing bubble. Not to mention the situation in Europe, Japan, and China and the likelyhood of a recession.

  8. 8

    By David Losh @ 5:

    RE: Kary L. Krismer @ 4

    You need to recalculate, because the price of property is declining 5% this year according to Steve.

    So you are paying interest on lost equity.

    WTF are you talking about? I’m talking about the total interest paid on a loan over the life of the loan. Your property could double or halve in value and that wouldn’t change the amount of interest that you would pay over the life of the loan by a single penny.

  9. 9
    David Losh says:

    RE: MichaelB @ 7RE: b @ 6

    You can make up for lost equity by getting to a cash basis.

    Let’s say you can afford to buy a $400K house, but you buy a $200K house instead.

    You buy the $200K house with as little money down as possible. By throwing “extra” money at the principal balance you amortize the loan out quicker. Your stated goal is to get to “cash” as quick as possible.

    You are going to take a hit if you sell, so you rent it. You buy the next property the same way. You are maybe paying more, but getting a better house because the prices have come down. Throw money at the principal, and begin the reducing the amortization process again.

    Once you are on your way to a clear principal reduction, then you sell the first property, and convert the “cash” into a property you want. Leverage it, because when your second property gets to cash you will pay off your principle residence with the proceeds of that sale.

    Don’t like that? There are dozens of strategies to buying, holding, or converting property to cash.

  10. 10
    David Losh says:

    RE: Kary L. Krismer @ 8

    If you lose equity you are paying interest for nothing, nothing at all. It’s all real money.

  11. 11
    ray pepper says:

    My FAVORITE segment and Tim never disappoints. I’m able to skip all the TWITTER crud and just get updated here..4 comments..

    1. I still say Steve Tytler resembles a bull dog: http://www.youtube.com/watch?v=tcHPEpizLt4
    2. I still say his secretary is RED HOT! : http://www.youtube.com/watch?v=tcHPEpizLt4
    3. Can someone please find out how his “Broker Friend” in Arizona is doing who owes 500k on his property and its only worth 200k..Last time we checked “and he has no problem with paying his Mortgage every month” because its the “right thing to do.” ..Still giving this advise Steve 3 years later when that house is probably at 150k now?
    4. and the worst advice of all…So sick of people saying this…Even our very own Tim does and it grinds my gears……..”Do not buy a home as an “investment.” **************Ugghh**** Whenever ANYONE buys a propery its ALWAYS an investment. At the first sign of trouble…job, illness, family…divorce…anything, and the home owner is faced with having to SELL they will realize VERY quickly that a HOME PURCHASE IS ALWAYS AN INVESTMENT!

    Never let ANYONE tell you differently!! Nobody can tell the future 3 years, 5 years, 10 years out…So Buyer BEWARE whenEVER you choose to buy!!

  12. 12
    David S says:

    RE: David Losh @ 9 – Except for the fact you have a great deal of equity sucked out of every conversion cycle with this plan, it sounds like a winner.

  13. 13
    David Losh says:

    RE: David S @ 12

    You must mean buying, and selling cost at 10% pre transaction, and that the perception is that the Real Estate agent will benefit.

    There are thousands of options that don’t require a Real Estate agent. The entire idea is to get out of the trap of mortgage brokers, or Real Estate agents.

    One of the most popular ideas is to lease purchase the first home, with the lease payments paying for the principal reduction of the second home.

    You are not required to use a Real Estate agent. There is no law that require a person to use a Real Estate agent. That is why there have been, in the past, Principle Only transactions.

    The problem today is the numbers have gotten so high, too high, that a mortgage is kind of required. There are fewer people who can do owner financing, or who would do owner financing at $500K, even $250K. It would be better to take the cash and “invest” in other opportunities.

    I’m just saying that Real Estate can still be an investment, it just has to be managed differently than is has been in the past twelve years.

    The sooner we get back to cash as a viable way to purchase property the sooner we will have a healthy market for residential.

  14. 14
    whatsmyname says:

    Tim,
    Thank you for the link to:

    “Seattle is objectively superior to the place you grew up.”

  15. 15
    ARDELL says:

    RE: Pegasus @ 2

    Thank you, Pegasus. Many years ago I learned in a Broker Training class to say % vs $ because 2% of $400,000 always sounds like a little, and $8,000 sounds like a lot. Since that day I have been mindful to use the actual dollar cost vs the percentages. I learned the opposite of what “they” were trying to teach me. People deserve the bold in-you-face truth. I think the legal term for that is “informed consent”.

    Many people hire agents who are FUN to “look at” houses with. The better move would be to hire someone who gives you a splitting headache with all the harsh realities of what you are about to enter into.

  16. 16
    Hugh Dominic says:

    By David Losh @ 3:

    In SteveTytler’s prediction for real estate in 2012 he says:

    “Remember, you should buy a home because it’s a nice place to live and it fits your lifestyle. Do not buy a home as an “investment.” The easy-money days of rapid home appreciation are not coming back anytime soon.”

    If you own property free, and clear, it is still an investment.

    That makes no sense. Owning it free and clear does not de facto make a house an investment. And a person can absolutely make an RE investment using a mortgage.

    Steve’s point is that it is a bad time for the average person to think about a home as an investment, regardless of how it is financed. Steve is right, since this misconception became commonplace a few years ago.

    He’s saying you should buy a house to live in it. Realize that it is an asset and your mortgage is a liability, and that those two things don’t necessarily move in the same direction and leave you a winner. But most importantly, the average person should not think of it like this:

    in·vest·ment   [in-vest-muhnt]
    noun
    1. the investing  of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.

    (dictionary.com)

  17. 17
    David Losh says:

    RE: Hugh Dominic @ 16

    “profitable returns”

    Today’s market place is much different than it has been in the past twelve years. There is no appreciation. Residential Real Estate is going down in price.

    The financing may be fine if you are “buying” cheap money to be paid back with future inflated dollars, but that isn’t happening.

    The price of corn, oil, and pork can go up at the same time as the price of housing goes down.

    So that financing is itself a liability. Those interest payments are a net loss. The only way to beat the system, and the destructive cycle we are in, is to lower the debt as quickly as possible.

    You will still be paying way too much for a place to live. The old saying is that every one has to live some place so that is where the investment comes in.

    I also want to point out that your definition of investment lists interest income, rather than rental income. Both are possible with what I’ve suggested if you own the property free, and clear.

  18. 18
    Hugh Dominic says:

    By David Losh @ 17:

    I also want to point out that your definition of investment lists interest income, rather than rental income. Both are possible with what I’ve suggested if you own the property free, and clear.

    That’s dictionary.com’s definition, not mine, and I think you missed a comma between the words interest and income.

    David, the things you are writing are nonsense, and I think I know why.

    For decades, any Joe could use real estate as a path to financial success, even when lacking a basic high school education. You just had to know how to hang drywall, mount crown moulding, and so on. You didn’t need to understand finance or economics – the economics of real estate were pretty reliably “up”, as long as you didn’t do anything especially stupid.

    And so these flippers rules of thumb emerged – a sort of meathead lore about real estate investing – that kept you guys out of trouble. “Always make a big enough down payment so that the property is cash flow positive”. “Never buy the most expensive house on the block”. Or whatever they are.

    Now we are in a new time when the economics of real estate are punishing even a hard working meathead who carefully follows those old meathead rules. And you are hastily trying to redesign them into a new set of simple meathead conventions for these new times. “All investments have to be all-cash purchases”. Or whatever your latest one is.

    But you do this without any understanding of finance, or of the underlying reasons for things. You are like an ancient shaman trying to explain a solar eclipse in a framework based on animism rather than astronomy.

    Your advice and observations are often worse than useless and wrong, they are misleading. And that is why I so often feel compelled to correct them.

  19. 19
    MichaelB says:

    By Hugh Dominic @ 18:

    By David Losh @ 17:

    I also want to point out that your definition of investment lists interest income, rather than rental income. Both are possible with what I’ve suggested if you own the property free, and clear.

    That’s dictionary.com’s definition, not mine, and I think you missed a comma between the words interest and income.

    David, the things you are writing are nonsense, and I think I know why.

    For decades, any Joe could use real estate as a path to financial success, even when lacking a basic high school education. You just had to know how to hang drywall, mount crown moulding, and so on. You didn’t need to understand finance or economics – the economics of real estate were pretty reliably “up”, as long as you didn’t do anything especially stupid.

    And so these flippers rules of thumb emerged – a sort of meathead lore about real estate investing – that kept you guys out of trouble. “Always make a big enough down payment so that the property is cash flow positive”. “Never buy the most expensive house on the block”. Or whatever they are.

    Now we are in a new time when the economics of real estate are punishing even a hard working meathead who carefully follows those old meathead rules. And you are hastily trying to redesign them into a new set of simple meathead conventions for these new times. “All investments have to be all-cash purchases”. Or whatever your latest one is.

    But you do this without any understanding of finance, or of the underlying reasons for things. You are like an ancient shaman trying to explain a solar eclipse in a framework based on animism rather than astronomy.

    Your advice and observations are often worse than useless and wrong, they are misleading. And that is why I so often feel compelled to correct them.

    Actually Hugh, I think his advice is quite good. In fact, the greater the percentage of downpayment, the less leverage and therefore the lower the potential risk.

    Example:

    A. I’ve got $100k that I can put down on a house. I purchase a $500K house with 20% down from Ardell.

    B. I’ve got $100k that I can put down on a house. I purchase a $200K house with 50% down from Ray.

    Both houses drop in value by only 20% a year later due to economic collapse of Europe, Japan, and China.

    House A is now worth $400K and I have lost $100K. However, house B is now worth $160K. I have only lost $40K. Fortunately, I can rent it out to Japanese exchange students to cover my payment… although must test them for radiation. See how that works Hugh?

  20. 20
    Hugh Dominic says:

    RE: MichaelB @ 19 – Well if you concoct a scenario where you are either certain of, or primarily concerned about, a 20% drop in value then I have an even better strategy: don’t buy a house.

    Invest your $100k in something conservative and walk away with $2k in interest rather than lose anything. Or if you’re so sure of a crash, then short sovereign debt instruments and join the 1%.

    See how that works, Michael? You can justify any strategy if you can know the future.

    If you simply cannot avoid making for-profit investments in RE, maybe it is because it is the only way you know how to earn a living. In that case your name is David Losh and your advice is not relevant to most people. But in that case you might choose a conservative position, meaning you will stand to gain less, and stand to lose less, depending on how things that are beyond your control turn out. One (and not the only) method to be more conservative is to take on less leverage, and focus on whatever the low end of your RE investment market is.

    tl;dr
    – If you are most people, don’t invest in real estate. Buy a house primarily on the basis of whether you want to live in it, as long as you can manage the financial outcomes.
    – If you are a frightened RE investment meathead, get conservative and listen to David’s simple new meathead rule of only paying cash. (replaces: simple old meathead rule of borrowing as much as you can)
    – If you understand finances, you don’t need any of this advice.

  21. 21
    David Losh says:

    RE: Hugh Dominic @ 18

    Your reliance on the term “meat head,” a term I also readily use, shows your argument is more with me than the concept of Real Estate Investing.

    Today’s financial markets are a mess. Tangible investments are a much better “bet.” http://en.wikipedia.org/wiki/Tangible_investment

    Real Estate is a tangible investment, because, as I said, every one has to live somewhere. If you buy well, if the property you buy has value, and you own it free, and clear then it is an investment.

    The problem we have today is this grand scheme of financial instruments. Mortgages are one of those grand schemes. We need to move away from financing every little thing that we do. There again, that’s a discussion for another time.

  22. 22
    David Losh says:

    RE: Hugh Dominic @ 20

    This isn’t anything new, it’s a market correction.

  23. 23
    Hugh Dominic says:

    By David Losh @ 21:

    RE: Hugh Dominic @ 18

    Your reliance on the term “meat head,” a term I also readily use, shows your argument is more with me than the concept of Real Estate Investing.

    – My argument is that the average person should not think about buying houses with the intent of a real estate investor.
    – And that real estate investors, you specifically, should not dispute or confuse that point.
    – And that investing in real estate had been a meathead-friendly profession for a long time, which has left it full of meatheads, grasping for simplistic rules of thumb that are not working right now.

    Today’s financial markets are a mess. Tangible investments are a much better “bet.” http://en.wikipedia.org/wiki/Tangible_investment

    – Agree completely.

    If you buy well, if the property you buy has value, and you own it free, and clear then it is an investment.

    – Here is my main dispute with you in this thread. A property has value and that makes it an ASSET. Whether it is an investment or not depends on the intent and objective of the buyer. It doesn’t become an investment just because you paid cash. You can pay cash but have no profit motive.

    You could pay cash for a car and you would have an ASSET, but you typically have no profit motive when you buy a car, you just want to drive it. You are conflating those two concepts and confusing the issue. The average person should buy a house like they buy a car, not like they buy a mutual fund.

    An RE investor, on the other hand, has a profit motive and may conclude that it is OK to borrow for a purchase based on the relevant facts and situation. You have decided that, as an RE investor, you prefer to rule out any investments that require you to borrow. Fine. That may be your PoV as an investor, and an interesting side discussion.

    But you are using it as your basis to dispute Steve’s advice that a layperson should stop pretending to be an investor. That’s what I objected to wayyy back in post #3.

  24. 24
    MichaelB says:

    RE: Hugh Dominic @ 23

    “Whether it is an investment or not depends on the intent and objective of the buyer. It doesn’t become an investment just because you paid cash. You can pay cash but have no profit motive. ”

    What a load of BS! “Oh, my house just dropped in value by $100K! – but not to worry, it’s not an investment! Fortunately, I don’t have a profit motive and my objective is to live in it….blah, blah, blah”…Total BS.

  25. 25
    turf says:

    hugh@18. It’s not decades since the southern california real estate market went belly up. 1989 thru 1996 saw a similar collapse. it’s called a cycle.

  26. 26

    By ARDELL @ 15:

    The better move would be to hire someone who gives you a splitting headache with all the harsh realities of what you are about to enter into.

    That’s the nicest thing you’ve ever said about me! ;-)

  27. 27

    By Hugh Dominic @ 16:

    By David Losh @ 3:

    In SteveTytler’s prediction for real estate in 2012 he says:

    “Remember, you should buy a home because it’s a nice place to live and it fits your lifestyle. Do not buy a home as an “investment.” The easy-money days of rapid home appreciation are not coming back anytime soon.”

    If you own property free, and clear, it is still an investment.

    That makes no sense. Owning it free and clear does not de facto make a house an investment.

    I would come in somewhere between the two of you. Even holding cash could be seen as an investment in the right circumstances. In effect that’s what those here are doing who say they are increasing their funds for a down payment while they hope prices further decline. They are hoping that their cash increases in value relative to housing.

    Also, in the close to cash arena, last year long term treasuries performed very well.

    In addition, if it’s real property owned free and clear, it generates rental income, even if you live there.

  28. 28

    By MichaelB @ 19:

    Example:

    A. I’ve got $100k that I can put down on a house. I purchase a $500K house with 20% down from Ardell.

    B. I’ve got $100k that I can put down on a house. I purchase a $200K house with 50% down from Ray.

    Both houses drop in value by only 20% a year later due to economic collapse of Europe, Japan, and China.

    House A is now worth $400K and I have lost $100K. However, house B is now worth $160K. I have only lost $40K. Fortunately, I can rent it out to Japanese exchange students to cover my payment… although must test them for radiation. See how that works Hugh?

    You have it completely backwards. Increased leverage is less risk with a single deed of trust transaction. Buy that $400,000 house with 3.5% down and your risk is only $14,000, assuming you don’t mind the remedy of foreclosure, and the slight risk of non-judicial foreclosure. But even if you want to assume the greater risk of non-judicial foreclosure, increased risk also has increased reward. If prices go up the percentage return on your $14,000 can be incredible. That’s part of what got us into this mess.

    Also, your assumptions are unrealistic. Both properties are not likely to both drop 20% just because the market does. From 2007 to 2011 the lower priced houses dropped much more on a percentage basis than houses priced $300,000 to $500,000, and in some cases much more on a nominal basis. That’s because the lower priced houses were more likely to be 1.5 baths or less, in a less desirable area, etc.

  29. 29

    By MichaelB @ 24:

    RE: Hugh Dominic @ 23

    “Whether it is an investment or not depends on the intent and objective of the buyer. It doesnâ��t become an investment just because you paid cash. You can pay cash but have no profit motive. ”

    What a load of BS! “Oh, my house just dropped in value by $100K! – but not to worry, it’s not an investment! Fortunately, I don’t have a profit motive and my objective is to live in it….blah, blah, blah”…Total BS.

    Something can lose value without it being an investment. Cars are a typically good example of that. Losing value obviously isn’t a good thing, but that doesn’t mean whatever lost value was an investment.

  30. 30
    Blurtman says:

    RE: Kary L. Krismer @ 29 – Unless you are looking at collectibles, cars rarely, if ever, appreciate in value. But old homes can.

    Is there any data comparing annual operating and maintenance costs versus the age of a home over time?

  31. 31
    David Losh says:

    RE: Hugh Dominic @ 23

    People need to start thinking like investors. The problem we have is this idea that they are buying a place to live for five to seven years. People are paying way too much for the privledge of a place to live. Those people should rent.

    In today’s market it is cheaper to buy mortgage money than to pay cash. It’s better to buy down the principal balance while making your payments.

    Every one in the Real Estate Industry wants you to keep paying these ridiculously high prices for crap, like town houses. A town house you can compare to a car purchase. You buy it, use it, and when you are done you sell for what ever you can get. The difference with a town house is you “investment” is tied, literally, to your next door neighbor.

    As far as us meat head investors, we’re out of business. We have been over run by what I call the idiot factor. People today are still buying granite, and stainless steel, and that is what Steve Tytler, and his ilk want you to buy.

    As long as prices stay this high the mortgage company will be involved, dueling Real Estate commission rebaters have talking points, and big Real Estate Brokerages are generating higher fees. For us meat heads trying to get to cash, it’s hard to combat that many idiots who keep saying the market is in a slight decline, and we may be near the bottom.

  32. 32
    David Losh says:

    RE: Blurtman @ 30

    That’s a good question. Especially now, some of the most collectable properties have gone way down in price.

  33. 33
    Hugh Dominic says:

    RE: Kary L. Krismer @ 29 – Exactly. People care about the expected resale value of a car, but it’s just one of the considerations. They don’t buy cars BECAUSE of the resale value.

    I’ll say again, people should buy a house like they buy a car, not like they buy a mutual fund.

    New cars lose 10% of their value the day you buy them, just like houses. (See Tim’s link above)

  34. 34
    ARDELL says:

    “Short version: The moment you sign the closing docs you’ve lost ~10% of your home’s value. http://t.co/FfZb5dK6

    I appreciate the link, but your “short version” is not what I was trying to say. Apologies if I was not clear enough in that regard.

    The post I wrote and in that link points out that most home buyers lose much more than 10% “the moment (they) sign the closing docs”. They lose the combination of the cost of buying AND the cost of selling. This is often more damaging at time of sale for someone who purchased using an FHA loan.

    More times than I want to count, I have been asked to help someone sell their home, only to find that the added cost to the mortgage from time of purchase is excessive, even before applying the cost of sale. Also I have yet to meet a seller who understands how much they padded the debt at time of purchase…when it comes time to sell.

    For some odd reason, lenders and agents often assume that the up front MIP of an FHA loan will be stacked on top of the mortgage, turning the 3.5% down into MORE than a 96.5% mortgage. The loan amount becomes Purchase Price less 3.5% downpayment, plus the up front MIP. Asking the borrower if they want to pay that up front, or include it in the seller paid closing costs, or paid with an agent credit, almost never happens. It almost always gets rolled into the buyer’s loan amount.

    Consequently when that person goes to sell the home, the original loan amount is more than 96.5% of the original purchase price, even though they “put 3.5% down”.

    Some real life examples I am pulling from the County Record.

    Sale Price $237,000; Loan Amount $233,850 – Loan Type FHA
    Sale Price $230,000; Loan Amount $238,870 – Loan Type FHA
    Sale Price $229,950 Loan Amount $226,892 – Loan Type FHA

    The middle one is a short sale, so maybe they stacked a negotiator fee and the MIP after applying the “3.5%” down? Hard to say…I’m just pulling the data. That one seemed worth noting, even though I can’t explain why a 3.5% down FHA loan would result in a mortgage amount over the purchase price.

    This is worth mentioning as I see many comments over on the Redfin Forums complaining that 3.5% downpayment is not enough of a buffer to compensate for future price declines. The truth is rarely does an FHA purchase result in a 96.5% loan amount at the end of the day, even though the buyer is technically required to put 3.5% down.

    My post first shows the cost of sale, which should be known and considered at time of purchase. It then goes into the cost of purchase. Point being that a buyer should consider the cost of getting in AND getting out when they buy, on a combined basis, and not just one or the other.

  35. 35
    David Losh says:

    RE: b @ 6

    “it is crazy how the ‘professionals’ walk potential clients, new to the area, through what are in reality large numbers without any context.”

    “Finally, i told him to create his own 30yr mortgage amortization spreadsheet (and not an online calculator) and do some analysis with the extra expenses.”

    This is more to my point.

    People in the Real Estate Industry want you to over pay for property. No one wants to write up a dozen low ball offers the way they would have to for a meat head investor client. Every “professional” in the Real Estate Industry wants you to get that mortgage with 20% down, and an easy, quick close, so they can all pocket fees.

    A buyer today is going to need to be smarter, tougher, and much more aggressive to get a deal.

  36. 36
    ARDELL says:

    RE: Hugh Dominic @ 33

    Actually I don’t think it makes sense to view a home purchase like one would view a car purchase, as the house is always worth more than its “scrap value”, due to the land asset that comes with.

    The majority of home buyers, and I would say the vast majority who are choosing a home to live in today, are hoping to at least break even and not to gain OR lose. That is why a “stepping stone” house, aka the low tier, is suffering the most as to loss of value. The demand for a short term home that people will “trade up” from, has gone way down.

    David’s example of buying a $200,000 home with 50% down, so you can later buy a $400,000 home, is likely not as good as renting until you can afford a home you can see yourself living in…pretty much indefinitely. Maybe at a price somewhere in the middle of the two. Not just my opinion…as the stats prove that the market is favoring the long term hold price tier much more than the “starter home” price tier. Never having to trade up…buying something that is at least sufficient for the long haul, is generally the more valued thought process and decision process today.

    That is why a 1,060 on the main with 800 sf on the lower level, split-entry or one story with basement, is more favored than a 1,250 sf one story home, both costing the same. You might not love it, and you might want to trade up some day if you can. But you are less likely to grow out of it and HAVE to move. Thus selling it and trading up can be better timed to market conditions, or not necessary at all if market conditions never lend themselves to that being a real possibility.

    I do get on Tim’s case from time to time about hating split entries for this reason. Choosing a home style based only on “like” or “not like” can be as ill-conceived as choosing a home based on granite counters and stainless steel appliances. You may love a 1,250 sf one level much more than an 1,850 sf split entry. But you should buy the one that you will not grow out of quickly, and not choose based on aesthetic preference, if one makes better financial sense than the other.

  37. 37
    David Losh says:

    RE: ARDELL @ 36

    I never say put money down for a mortgage. I say amortize the loan quickly. Put $500 toward the principal balance, and get out of the mortgage quicker. A long term hold, if you have a mortgage, is no strategy at all, it’s pure loss with interest payments to boot.

    You also have to buy a property of value to have an asset.

    In Real Estate there are assets, and liabilities. Just owning property does not translate into an asset. Some properties are a liability to the lot price, and some lots are worthless than the asking price.

    Each buyer today should be financially analyzing each purchase they make for it’s viability.

  38. 38
    Hugh Dominic says:

    RE: MichaelB @ 24RE: David Losh @ 31

    Adrian loved to travel. He rented an apartment in South Park, and over the years spent $100,000 traveling the globe.

    Steve loved boating. He bought a boat, paid for its upkeep, and sold it after years of happy boating. He was unsurprised to find that he spent $100,000 on it, all told.

    Susan was fully aware of housing market conditions. She bought a house, did some remodeling the way she liked, and sent her kids to the school she liked. Years later she sold it, and was unsurprised that $100,000 more went into the house than came out.

    Everyone would say they were happy, got what they expected, and I suppose you’d have no criticism for Adrian and Steve since it was their money to spend on what they liked. But you insist on treating Susan like an investor. She’s not allowed to spend $100,000 on a house she likes. (You would say she “lost” $100,000)

    This is the problem. Guys like you have been programming Susan to think of her house as an investment. To EXPECT a profit. To make decisions on that basis. And that if she does not get a profit she has FAILED. She has been TRICKED. She has been ROBBED.

    If people never starting thinking that way, then they would more likely be happy and probably would not have overextended their housing purchases and other life decisions.

    Losh, just because you are an RE investor does not mean that everyone else should be. Don’t you see how you are contributing to the problem?

  39. 39
    MichaelB says:

    RE: Kary L. Krismer @ 28

    Good points Kary!

  40. 40
    ARDELL says:

    RE: b @ 6

    Not sure who you mean by “the professionals”, but you should be including the Relocation Benefits System at the company that is doing the hiring of that new “home buyer”. That Relocation System and Agreement is clearly antiquated. It is that “system” that puts those “professionals” in the room with the new hire, and offering limited time benefits IF the person being hired “BUYS a home within X months”.

    Relocation Companies, and the large employers who use them, need to get out of the business of incentivizing new hires to buy homes. Don’t fault “the professionals in the room”…fault the system that places them there in the first place.

    Why does the company who is hiring the person create perks that would push a person into buying a home “within X months of hire”? I don’t really know the answer to that…you might want to ask at your workplace. Perhaps it is to give them a firmer basis to stay at the company, as leaving might involve having to sell a home? Not sure. But I do know it is time to revamp that relocation benefit system for new hires…long overdue really.

    Seriously, those old long standing agreements between large companies and real estate brokerages need to be changed. Most forbid the “Agent for the Buyer” from disclosing the fact that monies pass from the real estate company to the employer. In this day and age that is ludicrous. Requiring an agent to withhold information from their buyer client is beyond awful, and that requirement needs to be stricken from those antiquated, but still enforced, agreements.

    Almost all large companies require that the agent pay 35% or more of the commission to the Relocation Company, and NOT tell the buyer client-new hire that this is happening.

    Thus the employer is claiming a “perk” that is provided by the agent of their choosing, and paying that 35% is a condition of being able to work with the new hires. Also the benefit to the new hire is often much less than that 35%. Let the new hire be free to choose their own agent, and also get the benefits whether or not they purchase a home. Don’t tie the benefit to buying a home, and only if they use the agents the hiring company is steering them to.

    Today (vs when those agreements were written many years ago) 35% of the new hire’s commission negotiating power is being sucked out of the equation by the hiring company, and the hiring company restricts the agent from disclosing that information to their client.

    I do think large companies would actually change that system, if they were forced to review those old and long standing agreements between the employer and the real estate brokerages involved. Spearhead that effort vs merely counseling one colleague.

    Relocation Companies, and the large employers who use them, need to get out of the business of incentivizing new hires to buy homes. Don’t fault “the professionals in the room”…fault the system that places them there in the first place.

  41. 41
    ray pepper says:

    The WORST investors I have ever witnessed are right here on this thread….

    Just so many things wrong with the logic here its disturbing I even spend time with you folks..

    I will not waste this beautiful afternoon educating but let me emphasize this about fundamental aspects of RE-investing:

    1. Use as little Capital of your own money….20% down on your kidding me?
    2. Do NOT pay off your Mortgage ( with some basic assumptions that I do not have time to expand on) and NEVER take less then a 30 year Amort. 15 year? wrong wrong wrong on so many levels.
    **3. ALWAYS ALWAYS ALWAYS Over Encumber your Title on RE Assets that have REAL EQUITY!!

    ** cannot stress this enough.

  42. 42
    MichaelB says:

    RE: Hugh Dominic @ 38

    Complete nonsense. A person who doesn’t consider the purchase of a home with 80% debt an investment is a fool. And you are foolish to promote such an idea. No wonder most Americans don’t have enough money to retire! They subscribe to your theory of investing… How many people do you know who at reaching retirement and finding not quite enough money in their 401K, are happy to take a loss on their home as they downsize? Your concept of a house not being an investment is ridiculous.

    For the vast majority of the population housing is seen as an investment and to portray it otherwise is a perversion of reality. Anyone who borrows $200k-400K to buy a house without considering it an investment is an idiot (greater fool) deserves to take losses.

    The assumption is that in the long run prices will increase at the rate of inflation. Still, it is ALWAYS and investment. Because some idiots may not recognize it as such does not make it untrue.

    By the way, saw an interesting article regarding Japan’s economy in the NYT today. It appears the popping of their real estate bubble has actually not been as bad as everyone thought.

    http://www.nytimes.com/2012/01/08/opinion/sunday/the-true-story-of-japans-economic-success.html?_r=1

  43. 43
    MichaelB says:

    By ray pepper @ 41:

    The WORST investors I have ever witnessed are right here on this thread….

    Just so many things wrong with the logic here its disturbing I even spend time with you folks..

    I will not waste this beautiful afternoon educating but let me emphasize this about fundamental aspects of RE-investing:

    1. Use as little Capital of your own money….20% down on your kidding me?
    2. Do NOT pay off your Mortgage ( with some basic assumptions that I do not have time to expand on) and NEVER take less then a 30 year Amort. 15 year? wrong wrong wrong on so many levels.
    **3. ALWAYS ALWAYS ALWAYS Encumber your Title on RE Assets that have REAL EQUITY!!

    ** cannot stress this enough.

    “I’ve seen more people fail because of liquor and leverage – leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.”
    – Warren Buffett

  44. 44
    David Losh says:

    RE: Hugh Dominic @ 38

    I take tons of losses in Real Estate. I buy what I like, and do the work that I like. You can not put a value on a job well done.

    The problem we have today is the high prices that prevent people from being able to afford to buy a place, fix it, and live a comfortable life.

    I don’t boat, so I don’t get it the allure of sailing the globe. I do travel, but know enough that it takes money to do that.

    All of this feel good stuff that you have a nice place to live, and you’ll raise your kids, and you don’t need to look at the purchase as an investment, of profit, and loss, is sales talk.

    Investing is profit, and loss. I willingly take losses on a lot of things, that’s a part of investing. The differences is that I make that calculation going in.

  45. 45
    David Losh says:

    RE: ray pepper @ 41

    Thanks for cruising buy to make a sales pitch, but it would be helpful to have some further rational for your assertions.

    Those ideas you threw out there are a very, very, old way of thinking, and a recipe for sending the property back to the bank. My opinion is that we are past that.

  46. 46
    ARDELL says:

    RE: MichaelB @ 42

    “Your concept of a house not being an investment is ridiculous.”

    Michael,

    It is an “asset” and not an “investment”. A minor distinction, but a valid distinction nonetheless.

    Asset Value at Time of Purchase: $300,000
    Liability at Time of Purchase: $240,000
    Equity on day one: $60,000 less cost to sell.

    Monthly Payment: $1,128.57 + $200 RE Taxes + $40 Insurance
    After Tax net monthly cost: $1,125
    Cost of renting similar house: $1,300 a month
    Annualized benefit of acquiring asset vs renting: $2,100
    Annual cost of upkeep and repair/replacement of components: $2,100 to $4,800

    Sold Price after 10 year hold: $388,000
    Payoff Existing Mortgage and cost of sale: $228,000
    Net Proceeds of Sale $160,000

    To buy a larger home after 10 years for $550,000, the net proceeds should provide you with 20% down or more for your move up home purchase.

    In theory that is how it works as an “asset” vs an “investment” and the means by which you put 20% down and pay the closing costs on your next home purchase, without making additional payments or using additional savings during that 20 year period.

    If you bought your home on 7/30/2007…your asset will not perform as expected. But that does not mean the entire bases for home ownership, for everyone and always, is no longer in play.

  47. 47
    Blurtman says:

    RE: MichaelB @ 43

    Liquor and leverage almost wrecked my life
    Liquor and leverage almost wrecked my life
    Were’nt for liquor and leverage, I’d have money today

    Nightlife, nightlife, nightlife
    Ain’t no good, ain’t no good for me
    I had a good start, but liquor and leverage tore it down

    Liquor and leverage ain’t no good for me
    Liquor and leverage ain’t no good, ain’t no good for me
    I had a lot of money and big fine car, but I lost everything I had
    Aww I did

    Liquor and leverage almost wrecked my life
    Liquor and leverage almost wrecked my life
    Were’nt for liquor and leverage, I’d have money today

  48. 48
    MichaelB says:

    RE: ARDELL @ 46

    Great post Ardell! …and valid point with useful analysis. An “investment” mindset taken regarding an asset.

  49. 49
    Hugh Dominic says:

    Losh Zombie Homeowner: “Hi, I’d like to buy a granite countertop.”
    Salesman: “Great. We have many designs to choose from. What would you like?”
    Losh Zombie: “Which one do you think will appeal the most to the next owner?”
    Salesman: “Well.. This sandstone texture is our best selling.”
    Losh Zombie: “Ok, great. That will go well with my beige walls and tan carpeting. How much does it cost?”
    Salesman: “$2,000”
    Losh Zombie: “And how much will it increase the value of my home? $3,000? $5,000?”
    Salesman: “I doubt it. Look, if you don’t like the granite, a lot of people really enjoy the look and feel of this other…”
    Losh Zombie: “Thief! Swindler! How dare you sell a product for more than its resale value!”

  50. 50
    David Losh says:

    RE: ARDELL @ 46

    You are assuming all property is an asset, it’s not. There a plenty of dog properties that are a liability to who ever owns them. A meth house is an example. The purchase price can far exceed the value of the lot.

    Many, many, properties far exceed the value of the lot, or any economic viability.

    A person needs to buy extremely well in today’s market place for them to have asset, let alone an investment.

  51. 51
    David Losh says:

    RE: Hugh Dominic @ 49

    I know a guy who will sell you granite, but I wouldn’t see the point of buying it. It’s just one of my flaws.

    I like big timbers, thick concrete pours, laser straight walls, and value. Electrical that is far in excess of code, and plumbing that is in top condition are good things to have.

    Structure, and lot value are things that catch my attention.

    I reread your comment, pretty funny, but we deduct for granite, it’s obsolete. We also deduct for refinished “gleaming” floors, which are my pet peave.

  52. 52
    Ron says:

    We not past this…

    I know couple of people that have recently Gave back to the bank couple of
    houses.

    Problem is that both these people Striped away the Equity, then moved the Equity
    to another house, one guy I know moved out the Equity on 2 rental homes and paid off 2 other houses free and Clear – then gave back the 2 houses (that he stripped the equity from.) back to the Bank (SHORT SOLD THEM)

    Seriously if I was lending someone money and they were simply moving the money out of 1 account into another account “then telling me they couldn’t afford to pay me back what they Borrowed, I WOULD HAVE A SERIOUS PROBLEM WITH IT…. isn’t there any checks and balances on this?? You would think they would have something in place to prevent people from doing this, I would think that there would be some way of possibly placing liens against other holdings/properties???

    What kind of world do we live in? Where is the road taking us? where people don’t seem to have any conscious, Granted its the bank- however someone has to be paying for all the Wrongs thats been committed..

  53. 53
    Ron says:

    A family member Recently…

    Purchased a home back in early 2000s purchased/borrowed for a house the Value went
    up and he/she kept borrowing money all the way to the Mid 500,000. dollar range..

    The original purchase price of just over 200,000. altogether they borrowed additional 350,000.-375,000. above the Original price… they used part of this money to recently purchase vacation home in Phoenix Arizona…

    They just recently gave the house back to Fannie Mae….. and the Kicker Fannie wrote them another Check for over $5,000. for moving out, so they got paid again for borrowing money that they shouldn’t of been borrowing to begin with.

    Who is Going To Really Be Paying For All This??

  54. 54
    Blurtman says:

    RE: Ron @ 52 – Fascinating anecdotal story, but amateur stuff by comparison. Kill the bankers!

    7 of the Nastiest Scams, Rip-Offs and Tricks From Wall Street Crooks
    How many high-level Wall Street players have been put in jail for the crimes that led to the financial crisis? Not. Even. One.

    http://www.alternet.org/story/153530/7_of_the_nastiest_scams%2C_rip-offs_and_tricks_from_wall_street_crooks/?page=1

    “For just one example of what has been going on with the Fed, one company, named Waterfall TALF Opportunity, received nine loans totaling around $220 million. Among its chief investors: Christy Mack and Susan Karches. Tiabbi explains why you care, writing,

    Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley’s investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.”

  55. 55
    Jonness says:

    I’m curious about how much a senior commercial RE broker at a top firm earns on $100 million in sales in a year?

    Thanks :)

  56. 56
    Scotsman says:

    What a strange thread. Losh is off his drugs and wandering around looking for the new reality of what was known as the real estate industry. Raymond, when he isn’t complaining about not being allowed to watch enough Tube8, is encouraging everybody to take as much as they can from the system. Ardell’s still trying to put enough lipstick on the housing pig to make it look good. Blurtman sees the big picture and has almost reached the point where he sees liberals and conservatives as different sides of the same devil- but can’t really admit it to himself or his friends. Obama has to be better- doesn’t he? What a world.

    Here’s the truth. Housing isn’t an asset, it isn’t an investment, it’s nothing more than an expense. In the Housing Lotto of Life you may get something back after 20 years, but don’t count on it. Down payments and closing costs are an amortized expense, payments and taxes are an expense, repairs are an expense. That’s all. How much do you want to pay? When all is said and done after 30 years the expense drops by the amount of P+I, but that’s it. You still have to pay taxes (vastly increased), insurance, repairs, etc. How much do you want to spend every month?

  57. 57
    Dirty Renter says:

    RE: Hugh Dominic @ 18
    I oft think of myself as an investment ‘meathead’, having studied finance & investments over 3 decades ago. We were all pretty much taught to invest in what we know(Lynch), with a margin of safety(Graham and then, Klarman) and always focus on cash flow. One professor even warned us not to play the commodities markets, unless you grow, produce, or use commodities in manufacturing. We broke down the calculations for determining ‘beta’ and all the assorted stock valuation methods. It’s now all garbage. Now it’s all about options, daytrading, HFT, trading forex & commodities. WTF?
    Still, I love the game.

  58. 58
    Scotsman says:

    RE: Dirty Renter @ 57

    It isn’t even that. It’s a rigged game, and you don’t even know the real rules, let alone make them. Others make the rules and change them at their whim to suit their needs. All in a desperate and soon to be seen as failing bid to keep the game alive. They too will lose in the end when the system that they manipulate and see as protecting their interests breaks down.

    Value incesting? Fundamental analysis? Give me a break.

  59. 59
    David Losh says:

    RE: Scotsman @ 56

    You live some place. You have a life style.

    You don’t want to buy, and I don’t blame you.

    This is for the people who are thinking of taking on $250K, or $500K worth of debt, for as you say, a net loss, an expense.

    Getting rid of the mortgage has you paying less, and maybe breaking even on you housing expense. Those are real dollars.

  60. 60
    MichaelB says:

    RE: Scotsman @ 58

    What is “value incesting”? Freudian slip?

  61. 61
    MichaelB says:

    RE: David Losh @ 59

    Exactly! People becoming debt slaves and for what? To take a loss after 30 years? Real Estate money is dead money and borrowed money for real estate is the path to hell.

    Until the median home price is 3X the median income, or less – it is not the time to buy real estate. But after prices drop another 20% to 30% we may be near the bottom. Then people can get back to investing in technology, business, infrastructure, etc… Real estate bubble investment adds nothing to our country’s competitive advantage – it just sucks revenue away from productive investments.

    Hopefully Obama will get re-elected so he can finish cleaning up the mess left by “W” and his buddies. What happened to that guy anyway? Did he ever get inducted into the presidential Hall of Shame?

  62. 62
    Scotsman says:

    RE: MichaelB @ 60

    Heh, heh. Probably. Or, I used to know how to type- now for some reason I have to wear my glasses. Or the silly keyboard keeps sliding around on my desk. Yeah, that’s it . . . ;-)

  63. 63
    Scotsman says:

    RE: MichaelB @ 61

    “Hopefully Obama will get re-elected so he can finish cleaning up the mess left by “W” and his buddies”

    What? O and his buddies are just as bad- or worse. Seems the bankers got all the benefits of the “recovery” and we got the bill. O’s deficits for just the first four years have averaged about $1.5T a year. Bush- with all the wars, tax cuts, medicaid, etc. averaged about $.6T or less than half of O’s annual rate. I don’t think we need more O- we need something completely different.

  64. 64

    RE: Scotsman @ 63
    Scotsman said” I don’t think we need more O- we need something completely different”
    While Bush and Obama were very different, they both appeared to be representing Goldman Sachs. And Mitt Romney is different? How? He’s a Mormon? He’s been married to the same nine women for 42 years?

  65. 65
    mukoh says:

    RE: Hugh Dominic @ 38 – Excellent point.

  66. 66
    The Tim says:

    RE: Ira Sacharoff @ 64 – I missed it… when did Scotsman endorse Romney?

  67. 67

    By The Tim @ 66:

    RE: Ira Sacharoff @ 64 – I missed it… when did Scotsman endorse Romney?

    Scotsman didn’t endorse Romney and likely wouldn’t. He and I aren’t all that different politically, even though he arrives at it from a right wing perspective and I from the left. I was merely suggesting that the likely Republican nominee( I’d put money on it)Romney would not be the “completely different” guy Scotsman says we need and that the Goldman Sachs influence over the White House would continue if he got elected. I was not suggesting in the least that Scotsman is a Romney fan. I do recall him being a Sarah Palin fan.

  68. 68
    David Losh says:

    RE: mukoh @ 65

    “If people never starting thinking that way, then they would more likely be happy and probably would not have overextended their housing purchases and other life decisions.”

    Of course I think my thinking is more excellent:

    “The problem we have today is the high prices that prevent people from being able to afford to buy a place, fix it, and live a comfortable life.”

    What you point?

  69. 69
    MichaelB says:

    RE: Scotsman @ 63

    Most of that spending came from his first 6 months in office in response to the mess left by W.

  70. 70
    Scotsman says:

    RE: MichaelB @ 69

    Incorrect. He has run deficits of $1.0+T every year since he took office. The Feds are projected to run deficits at least that high for every year of the next decade. That is not Bush’s fault. That is a structural problem Obama and the rest of the gocernment have refused to address, and it will evenually bring this country down.

    The system is broken, won’t be able to fix itself, and has run out of easy options. There simply isn’t enough money to pay for all that has been promised.

  71. 71
    MichaelB says:

    RE: Scotsman @ 70

    Debt is actually a long term problem, but increasing the number of jobs and growing the economy in the short run is really critical to paying down the debt. I would like to see more debt and investment in education at all levels, technology, healthcare and infrastructure to put people back to work so that we are adding 300k to 400k jobs per month. Once the economy is humming along again – then it is time to pay down the debt. I believe the Republicans are more focused on implementing austerity. That doesn’t seem like a good solution. However, austerity would make housing a lot cheaper!

  72. 72
    MichaelB says:

    RE: Scotsman @ 70

    From NPR / The Weekly Standard:

    http://www.npr.org/2011/01/25/133211508/the-weekly-standard-obama-vs-bush-on-debt

    “…To put that into perspective, when President George W. Bush took office, our national debt was $5.768 trillion. By the time Bush left office, it had nearly doubled, to $10.626 trillion.”

    Bush and his cronies ran up a huge amount of debt, financing wars without increasing taxes and giving tax breaks to the top 1%, in addition he caused the crisis which almost became the Great Depression II. Thankfully Obama did what it took to keep the economy from truly crashing as the Finance sector is a huge and critical component of the US economy whether we like it or not.

    I don’t know of any president that could have done a better job than Obama. Plus he killed Osama Bin Laden and got us out of Iraq, fixing one of the costliest military mistakes in American history. In addition, he implemented Romney’s healthcare plan nationally – How good is that! Now he is pivoting to Asia – a very smart man who knows where the future is.

    I like what El Arian of PIMCO says “We are the cleanest dirty shirt” America is already making a comeback. Once China crashes who will be left standing but the USA?

  73. 73
    Jonness says:

    “Remember, you should buy a home because it’s a nice place to live and it fits your lifestyle. Do not buy a home as an “investment.” The easy-money days of rapid home appreciation are not coming back anytime soon.”

    Clever sales pitch. Then again, you have a one-track mind, so I expect no less from you.

    The fact is, a home is a highly leveraged investment. Just because it’s currently a terrible investment doesn’t mean one should simply stick his head in the sand and buy anyways.

    A few smart investors can make money in this market, but most people buying a place to live will lose their rear ends.

    Homeowners are losers!

  74. 74
    Jonness says:

    By Ira Sacharoff @ 64:

    He’s a Mormon? He’s been married to the same nine women for 42 years?

    Ira, I’ve always appreciated your sense of humor.

  75. 75
    Jonness says:

    By MichaelB @ 71:

    Once the economy is humming along again – then it is time to pay down the debt.

    Unfortunately, that plan will never work. We’ve already proved when times are good, we borrow even more. At some point, America has to admit endlessly borrow record amounts of money has drastic consequences, and there is no easy way out.

    Unfortunately, America will never admit this. So the most likely outcome is we kick the can down the road by robbing growth from the future for as far as the eye can see.

    Once the syringe is truly empty, we suffer beyond what average Americans can currently imagine.

  76. 76
    MichaelB says:

    RE: Jonness @ 75

    I would argue that debt as a percentage of GDP is the key and with growth and increased taxes at the right time, it can be paid down again.

    Social programs enacted during the Great Depression and the buildup and involvement in World War II during the F.D. Roosevelt and Truman presidencies in the 1930s and 1940s caused the largest increase in debt – a sixteenfold increase in the gross public debt from $16 billion in 1930 to $260 billion in 1950. When Roosevelt took office in 1933, the national debt was almost $20 billion; a sum equal to 20 percent of the U.S. gross domestic product (GDP). During its first term, the Roosevelt administration ran large annual deficits between 2 and 5 percent of GDP. By 1936, the national debt had increased to $33.7 billion or approximately 40 percent of GDP.[1] Gross debt relative to GDP rose to over 100% of GDP to pay for the mobilization before and during World War II.
    The debt burden fell rapidly after the end of World War II, as the US and the rest of the world experienced a post-war economic expansion. …Debt relative to GDP rose rapidly during the 1980s under president Ronald Reagan, whose economic policies increased military spending and lowered tax rates. Gross debt in nominal dollars quadrupled during the Reagan and Bush presidencies from 1980 to 1992.

    So, it is possible….However, increasing military spending and lowering taxes at the same time, somehow increases debt – imagine that!?

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