Haggerty and Razzi, 1:00 PM.
Friday, October 26, 2007
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11 comments:
Heh. I asked the question about when Maryann would apologize.
But I didn't go over there because of this blog, I've been asking that question for about 6 months.
(though when she mentioned a link, this was the first place I stopped)
Anyway, I haven't gone through all Maryann's chats to determine what she did or did not say about the housing market. But I know she has predicted that housing won't fall 30% and yet in some NOVA counties that clearly isn't true.
Mercy, Justin, and she thought it was coming from me!
"Maryann Haggerty: Hey, good to have you with us. (And thanks for that blog link sending people here. Traffic is traffic!)"
This is just amazing:
"Elizabeth Razzi: Prices dropping like a rock? Maybe if you're one of those speculators who felt entitled to pocket $20K-$30k on the option to buy a condo that wasn't even built yet, yep, that party is over. And good riddance to it. That kind of speculation made it darn near impossible for people who didn't want to play with their money to get into a nice home during the height of the frenzy. But the person who bought a house five years ago, with no intention to flip? The first-time buyer who finally has a shot at a decent house? They get unnecessarily scared by you folks who make wild claims about the market."
In our neighborhood outside PW County, two "regular Joe" sellers (who purchased between 2003-2005) sold for 25% less this year than they would have gotten one-two years ago. The 2005 buyer gave up 20% or $120K when all was said and done (he had put 20% down and lost it all). He wasn't a speculator and it wasn't a REO, but he made the decision a new job in a new location was worth the loss.
I don't get Maryann and Elizabeth, but only time will tell why they get their backs up.
Harriet,
In my Arlington Sun Gazette, which is a total shill for RE agents, they actually had a story that things are not all well in Arlington. They break down the market by zip code.
http://tinyurl.com/yoozoe
Enjoy.
I was the one who responded about their claim that paying off your mortgage builds your net worth:
Razzi: You "build equity" in two ways. One is, as you note, by repaying the debt.
My response: Paying off your mortgage does not build one's equity, it merely transfers the equity you have from a liquid asset, namely cash, to a less liquid asset, namely a house. In other words, a person who has $100,000 in cash, a house worth $100,000, and a $100,000 mortgage, does not increase their net worth, or equity, by paying off the $100,000 mortgage with the $100,000 of cash. In either case, their net worth is $100,000.
I should add that you can build equity through mortgage payments, but only to the extent the interest component of your mortgage payment is less than the rent you would pay on a comparable property.
If rent would be $1000 and you have a $1,500 mortgage payment, of which $750 is interest, then you build $250 in equity each month and transfer $500 of your pre-existing equity from cash to house (liquid to illiquid).
Unfortunately, mortgage payments are so much in excess of rents these days that the more common scenario is something like:
-$1000 in rent
-$2000 in mortgage payment, of which $75 is principal.
In this case, you are transfering $75 of equity from cash to house (which will likely be lost due to depreciating prices) and shrinking your equity each month by $925 by overpaying for housing.
John,
I am shocked! (But happy.) The whole "one doesn't build wealth by paying down the mortgage" was something you learned from us anti-BHs! Prior to the debate on that a week or two ago, it was you arguing that I/O were bad because there wasn't principal being paid down. Glad to see you've opened yourself to position change!
Lord Lance says,I will teach and it will make me glad.
So sayith the chronicle of Lance in this unbubbleishous year 2007
Lance - sorry, must be a different John to which you spoke. I haven't discussed that with you.
As an aside, it sounds like you believe maintaining high debt balances is the path to riches. For obvious reasons, I couldn't disagree more.
While I understand what John is saying, but just wanted to point out that there seems to be a confused on the definition of "equity."
Equity in real estate terms is the value of a property minus the owner's outstanding mortgage balance.
So saying "Paying off your mortgage does not build one's equity, it merely transfers the equity you have from a liquid asset, namely cash, to a less liquid asset, namely a house" is not an accurate statement.
I think what he meant to say is that "Paying off your mortgage does not build one's wealth, it merely transfers the wealth you have from a liquid asset, namely cash, to a less liquid asset, namely a house, transferring wealth into equity.
In all, I do appreciate and agree with John's comments. People tend to forget that it's not the house that builds your wealth, but what you put into it by paying off your mortgage (debt/liability). I personally do not think buying a house in hopes that it will build your wealth for you is a very poor investment strategy. It's great for tax-deductions, but I am not counting it towards my retirement plans. I can say it with a straight face, because I purchased a house 3 months ago in Arlington.
I enjoy everyone's comment on this blog. Keep up the good work!
sorry meant to say...
...I personally think that buying a house in hopes that it will build your wealth for you is a very poor investment strategy....
Wow, that was perhaps the most vitriloic endeavor I've read in a while.
But I guess losing 10s of thousands of dollars does that to people.
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