Please post your local house search updates, MLS finds, on-topic ideas, and links here.
Wednesday, May 28, 2008
Subscribe to:
Post Comments (Atom)
Northern Virginia Real Estate Statistics
REAL ESTATE SEARCH
County Assessment Websites
Buy/Sell Without an Agent
Local Real Estate Agents
Housing Economics Blogs
Local Interest
Housing Bubble Links
Eastern Regional Blogs
Western Regional Blogs
- Bakersfield Bubble
- Bay Area Real Estate Blog
- BubbleInfo (N. San Diego)
- Burbed (San Francisco)
- Dr. Housing Bubble (SoCal)
- Patrick.net (San Francisco)
- Portland Housing Blog
- Professor Piggington's Econo-Almanac
- Rancid Truth (Orange County)
- Sacramento Land(ing)
- Seattle Bubble
- SoCal Real Estate Bubble Blog
- Socket Site (San Francisco)
Real Estate Blogs
REAL ESTATE AUCTIONS
100 comments:
you have nice blog
Realtors Agree to Stop Blocking Web Listings
WASHINGTON — The Justice Department and the National Association of Realtors reached a major antitrust settlement Tuesday that government officials said should spur competition among brokers and ultimately bring down hefty sales commissions.
The deal frees Internet brokers and other real-estate agents offering heavily discounted commissions to operate on a level playing field with traditional brokers by using the multiple listing services that are the lifeblood of the industry, government officials said.
The Justice Department sued the National Association of Realtors in federal court in 2005 on antitrust grounds, charging that its policies were stifling competition and hurting consumers. That case was scheduled to go to trial in Chicago in July.
http://tinyurl.com/5p7ex5
Without their control of the MLS where would the "Realtors" be?
Check out this idiot flipper...
http://www.redfin.com/VA/FAIRFAX/
4159-FAIRFAX-GREEN-DR-22030/
home/9840790
Bought it in April 2008 for 455k, now "for sale by owner" for 489k.
I hope he loses his shirt.
Actually that house closed 4/29/2008 and went back on sale 10 days ago, 5/18/2008.
Zerodown,
More on the internet policy settlement from Bloomberg.
My pet peeve is agents who don't seem to understand that consumers know how to use a computer (unless those of us here are just that unique). The real estate agents I met at two open houses this year were adamant (disagreeing with me outspokenly) that I could not possibly have access to current listings. They both brought up the perils of outdated listings at "Realtor.Com", which I gave up using in about 1999, I think.
Leroy said...
"Without their control of the MLS where would the "Realtors" be?"
And who do you think created the MLS? ... When you get down to it, the Realtors Association came to be because there was a need for the MLS ... i.e., the sharing of listings between real estate brokers.
Your comment disregards (or more probably, shows ignorance of) the history of the MLS. Ever watch that house selling show out of Canada that HDTV has on? The selling process is not nearly as sophisticated at that which we enjoy here. The listing real estate broker controls the whole thing. And houses get sold only through "open houses" where the broker makes the house available for viewing by other real estate brokers ... and their clients who are tagging along. There's no "well let's look in the MLS book and if you like something I can drive you there today and show it to you with a lock box key."
NEED SOME MORTGAGE ADVICE
I am closing on a house in hamilton and need some mortgage advice. I am buying a house for 800k with an appraisal from Wells for 837. I thought I would be able to put down 20% but now think I will be able to put down 165%. Wells is telling me the new Fannie temp loan limits require 20% down, but that is not correct (they only require 5%). Has anyone heard anything like this?
My bank is requiring 20% on 417k-729k, or 80/10/(from another bank)/10% down. No more PMI option.
http://www.usatoday.com/money/economy/housing/2008-05-16-fannie-mae_N.htm
"Fannie Mae will accept up to 97% loan-to-value ratios for conventional, conforming mortgages through its automated underwriting system, and ratios of up to 95% for other loans."
Doug,
I wonder if there's something more to it than flipping. I can't imagine it would be a motive for so little a profit, but stranger things happen.
Some others in the neighborhood with one more bed and bath:
FX6725591
FX6694000
FX6687338
"And who do you think created the MLS? ... When you get down to it, the Realtors Association came to be because there was a need for the MLS ... i.e., the sharing of listings between real estate brokers."
Where did I say anything about the creation of the MLS? Or its history?
"Your comment disregards (or more probably, shows ignorance of) the history of the MLS."
Oh really? And which comment is that? The one where I asked a single simple question?
This isn't one of your better trolls lance.
Leroy,
It's the concept of "ownership" I was referring to. Yes, where will the Realtors be without the very thing that caused them to form?
They (i.e., the real estate brokers who came together to create the MLS) did all the hard work and put up all the money necessary to create the MLS ... They "own" it. Why should they be forced to share that which they have paid for and created?
Would you be prepared to support their right to keep that which they have paid for and created? I thought your question seemed to indicate otherwise .... But perhaps I was wrong ... ? Comments Leroy?
And Leroy ... Going beyond what is "the right thing" (i.e.,protecting ownership rights), what do you think will happen to the MLS when the profit incentive to maintain it disappears?
"It's the concept of "ownership" I was referring to. Yes, where will the Realtors be without the very thing that caused them to form?
They (i.e., the real estate brokers who came together to create the MLS) did all the hard work and put up all the money necessary to create the MLS ... They "own" it. Why should they be forced to share that which they have paid for and created?
Would you be prepared to support their right to keep that which they have paid for and created? I thought your question seemed to indicate otherwise .... But perhaps I was wrong ... ? Comments Leroy?"
Wow, another very long and very defensive post...
It seems like a simple enough question to me.
I know you are quick to explain that you are no longer a realtor but you sure don't seem to have distanced yourself from their party line much have you?
"And Leroy ... Going beyond what is "the right thing" (i.e.,protecting ownership rights), what do you think will happen to the MLS when the profit incentive to maintain it disappears?"
This has nothing to do with protecting "ownership rights." (especially considering there is no question here of ownership, simply access)
I don't have time today to spend educating you on yet another area you seem to have little to no knowledge of so I will keep this short.
The legal basis for forcing the NAR to allow online brokers access to the MLS is tied to laws restricting anti-competitive behavior. From the sound of things you have a LOT of reading to do...(not that I expect you will)
"It's a win for consumers because it's going to eliminate impediments to competition caused by the policies [the Realtors group] had in place, which we were ready to prove would have locked in an outmoded way of doing business," said Deborah A. Garza, deputy assistant attorney general in the Justice Department's antitrust division.
Leroy said:
"This has nothing to do with protecting "ownership rights." (especially considering there is no question here of ownership, simply access)"
Hey Leroy. When you (finally someday) buy a house. Can we all come and stay in it whenever we want? Now, I'm not asking that you give us ownership of it ... No, "there is no question here of ownership, simply access."
Yep, apparently Leroy doesn't respect ownership rights. I mean, how can you respect ownership rights and not understand that the right to limit access to that which one owns is a fundamental right that comes with ownership?
6738 EDGARTOWN Way
The comments are clearly for a different listing, but i'm curious about the sales history.
Tax records show:
5/23/2005 - $571,300
4/3/2007 - $88,000 (foreclosure sale)
Does this mean the balance on the loan was only $88K when the bank took it? I must be missing something.
hog
Ive been wondering, unlike earlier downturns, we now have a huge percentage of homeowners who are subject to ARM's. Thus, unlike in prior downturns, these ARMs are forcing a greater % of owners to subject themselves to the current market, resulting in the fairly rapid price decline we have been seeing.
As such, it stands to reason that unlike prior downturns where sellers dictated the downturn length by how long they held on to their "wishing prices" this thing is unwinding a whole lot faster than prior occassions. If so we are much closer to finding a bottom than many here may suspect. Thoughts?
Can I get a couple of more thoughts on my earlier mortgage question vs the lance/leroy show?
I am not try to be a jerk, but this blog should just be renamed the Lance & Leroy real estate blog.
"Hey Leroy. When you (finally someday) buy a house. Can we all come and stay in it whenever we want? Now, I'm not asking that you give us ownership of it ... No, "there is no question here of ownership, simply access.""
Hey cool, a broken analogy. That is a nice little change from your usual strawman tactic.
Look up anti-trust laws lance...
"Yep, apparently Leroy doesn't respect ownership rights. I mean, how can you respect ownership rights and not understand that the right to limit access to that which one owns is a fundamental right that comes with ownership?"
lol
Again, look up anti-trust laws.
Why do you think the NAR is accepting the settlement rather than trying to continue to fight?
They recognize this is the best possible outcome they can hope for.
CRT Said...
"If so we are much closer to finding a bottom than many here may suspect."
Looks like you are not the only one thinking this:
"Edward E. Leamer, a professor of economics and statistics at the University of California, Los Angeles, said this real estate downturn was playing out differently than the one in the early 1990s, when prices fell gradually over several years in Los Angeles, New York and elsewhere. The sharper and more rapid decline now probably reflects the impact of easy lending during the recent boom. As a result, it might also augur for a somewhat faster recovery, but Mr. Leamer is not ready to predict when that will be."
http://www.nytimes.com/2008/05/28/business/28housing.html?pagewanted=2&_r=3&ref=business
Thus, unlike in prior downturns, these ARMs are forcing a greater % of owners to subject themselves to the current market, resulting in the fairly rapid price decline we have been seeing.
Maybe the problem is bigger than resets . . .
Despite an absolute dearth of ARM resets, the number of severely delinquent Alt-A borrower continues to grow, according to a report released late last week by Clayton Holdings, Inc. (CLAY: 5.90, +0.17%). The number of troubled Alt-A borrowers in the 2007 vintage rose an eye-popping 26.5 percent from March to April alone, nearly reaching 17 percent of loan volume.
The 2007 vintage isn’t the only Alt-A vintage facing problems, of course: 19.3 percent of borrowers with loans originated in 2006 were more than 60 days delinquent at the end of April, a jump of nearly 10 percent from March. Cumulative losses percentages for 2006 vintage Alt-A first liens continued what Clayton analysts called a “concerning upward trend,” with losses for 2006 issues running at more than three times the pace set by the 2004 and 2005 issues.
The troubles in Alt-A are appearing despite the fact that very few borrowers in any vintage are yet to face a strong wave of rate-reset activity. The graph below shows that, if anything, lenders and policymakers should be concerned about a wave of pending Alt-A resets that are looming in the back half of 2009.
http://tinyurl.com/4ozfl6
FWIW - in the same Times article, there is a link re: a story of a NYC economy writer - a comitted renter who now bought in the DC area.
AS HOME PRICES DROP LOW ENOUGH, A COMITTED RENTER DECIDES TO BUY
"For the last few years, I have been an evangelist for renting...All this time, I have been a renter myself, first in the New York suburbs and then in Manhattan. But my wife and I will be moving to Washington this summer. And the housing market has, obviously, changed quite a bit since our last move, in 2005...Home prices almost certainly still have a way to fall, but they’re now well below their peak.
So my wife and I began our search with open minds, willing to consider renting or buying. We ended our search by signing a contract to buy a house...This is the story of my conversion"
http://www.nytimes.com/2008/05/28/business/28leonhardt.html?ref=business
I would be curious to know where he bought since it obviously makes a huge difference in say Arlington vs PWC prices.
The shorter cycle was something I predicted at least 2 years ago. My reasoning though wasn't because of the ARMs or "easier lender standards" (though those reasonings make sense too), it was that communications are at a faster speed today. For example, these very blogs helped bring about a quicker (and sharper) downturn than otherwise would have occured. (People tend to do the "mob mentality"/"follow the leader" thing.) Similarly, communication will help it end quicker. (I.e., self fulfilling prophesies on both sides of the equation ... constrained over the long term by reality.)
The great unkowns now though are inflation and the costs of borrowing (both as affected by inflation and by other factors.)
Soooo ... If we've hit bottom and are turning around ... What does that mean in terms of a "bubble" if only some areas (and not all places) experienced the significant price drops which a deflating "bubble" is defined as? (Remember, many places and many market segments experienced NO price drops and some even experienced price rises.) Did we really have a bubble? I say not ...
"The shorter cycle was something I predicted at least 2 years ago."
lol
"It's just a regular business cycle. And we've indisputably aready bottomed out. Where does that leave you with your far fetched theory?"-Lance March 22 2007
"The window of opportunity for those who have been sitting on the sidelines waiting to purchase is quickly slipping away, however I suspect most bubbleheads will miss it. I just hope they are on here a year from now explaining why they are still "waiting it out." The justifications will be interesting to hear."- lance Sept 25 2006
Yeah lance, in retrospect your predictions were dead on target weren't they?
"As such, it stands to reason that unlike prior downturns where sellers dictated the downturn length by how long they held on to their "wishing prices" this thing is unwinding a whole lot faster than prior occassions. If so we are much closer to finding a bottom than many here may suspect. Thoughts?"
Without a doubt the biggest single difference between this and a "normal cycle" was the availability of the various "exotic" loans.
These loans drove the market into an unprecedented bubble. We have already seen large price declines but we have a long way to go. I think adjusting ARMs and foreclosures are speeding the correction but it is important to remember just how much bigger the bubble was than it has been in the past.
This can't be good news for sellers
Origination volume for new mortgage may take awhile to rebound, if the nation’s renters have any say in the matter. The vast majority of renters say they will not make the move to buy their own home in the next year, as consumer confidence in the state of the U.S. housing market has hit historical low point, a new study found Wednesday.
Sixty-seven percent of current renters plan to continue renting for at least the next 12 months, a survey commissioned by the National Apartment Association found, while 80 percent of U.S. adults believe that the national housing picture won’t improve for at least six months.
“The country is deep into the discussion of the economic fallout of sub-prime mortgage lending. However, little attention has been paid to how the crisis is impacting people’s choices to stay in rental homes and wait out the storm,” said National Apartment Association president Douglas Culkin.
“Renters are not eager to take a chance on homeownership this year. If the economy improves, that trend may abate, but, for now, people are generally staying put.”
Not surprisingly given the housing fallout, occupancy rates in rental housing have seen the largest annual increase in history — 1.5 million units — based on available Commerce Dept. data, which goes back to 1965. This increase has produced an all-time record high of the number of rental housing units in the country, now totaling 34.7 million units or about 83 million persons.
“Just last week, the Commerce Department cited that the main reason for an upswing in U.S. homebuilding is the construction of rental properties — not single-family homes — further supporting our findings of what the average U.S. adult is experiencing,” Culkin said.
On a long-term view, renters apparently aren’t any more eager to take a chance on home ownership anytime soon: 69 percent of renters said they plan to stay renters for up to five more years, according to the NAA study.
The NAA study was conducted by Harris Interactive, and surveyed more than 2,000 adults nationwide.
http://tinyurl.com/5sr9h2
crt: >>...it stands to reason that unlike prior downturns where sellers dictated the downturn length by how long they held on to their "wishing prices" this thing is unwinding a whole lot faster than prior occassions...>>
Isn't it clear to everyone now that what happened this time was not just a downturn, but a big bubble induced by easy credit? Why is it surprising, then, that a bursting bubble is faster than normal cyclical downturns?
However, I would disagree on a few things.
Loose credit and insolvency in general are the main issues--not just ARM resets. Moreover, even for ARM resets, many resets are after 5--7 years. So heavy resets will continue into 2010--2012.
And there are other reasons why the bottom is not anywhere close.
While the bubble component may burst quickly, there is also a component that is part of a cyclical downturn. That will continue to take time. I don't think market psychology changes fast--a large number of sellers are still holding onto wishing prices; foreclosure sales take a long time before it starts to affect the comparables. But no matter how many lances try to promote buying a home as always good, buyers have become wiser after after seeing 60--80% drops in certain areas. The fear of losing one's hard earned savings by buying a home is a powerful force.
A lot of renters are feeling very smart right now, and for good reason, but I don't believe people are really planning 5 years ahead of time.
(They may say they won't buy for at least 5 years, but I think the truth is that they will reevaluate that decision several times within the next five years.)
"We have already seen large price declines but we have a long way to go. I think adjusting ARMs and foreclosures are speeding the correction but it is important to remember just how much bigger the bubble was than it has been in the past."
But where exactly was it so much bigger? Do you remember when reports first came out about the bubble? The places I heard most about circa 2005 were Boston, San Diego, "DC", Denver, Phoenix, Las Vegas, and the whole damn states of CA & FL.
As it turns out, some of those bubble calls were more warranted than others. You hardly hear anything about Boston & Denver anymore, even DC is not mentioned as much as it used to be. Now it is just the constant drumbeat of the 4 biggest losers in the Bubble game - CA, FL, AZ (Phoenix/Tuscon) & NV (Las Vegas).
Secondly, all those early reports just mentioned "DC" or perhaps "Northern Virginia". Back then no one really differentiated much by county, and no one back then was predicting a major discrepancy in price drops based upon whether it was a close in versus an exurban locale. Its fair to question at this point that all those early reports of "DC" or "northern virginia" were exactly were they really referring to?
Finally, do we really have that much more to go? Per MRIS, Loudon & PWC median prices are where they were in mid 2003 - does anyone really truly expect them to get down to 2002 or before?
Im not saying I have all (or really any) of the answers, however I think it is a good idea to take a step back and reconsider where we are now in relation to what we knew in mid 05.
Ted K said...
"However, I would disagree on a few things. Loose credit and insolvency in general are the main issues--not just ARM resets. Moreover, even for ARM resets, many resets are after 5--7 years. So heavy resets will continue into 2010--2012.
And there are other reasons why the bottom is not anywhere close."
Ted K - my gut feeling is that resets past say 2009 will not be an issue (that is IF and ONLY IF, inflation does not lead to huge jumps in interest rates - jury is still out on that one - humor me for a minute).
As to the resets, I can say from experience that the banks are starting to wake up and reealize this is not a temporary problem which cannot be ignored. In our office we have seen a huge increase from our banking clients asking us to restructure loans & credit facilities to prevent foreclosures en masse. We used to do say, 3-5 of these per year. As of right now we have probably close to 1,000 in the pipeline.
Also, as to the "bottom" I am talkin about, no one should misinterpret what I am saying. For me the "bottom" will be a period of 3-5 years where prices essentially stagnate - that is to say no significant or sustained increases or decreases. If you assume this is correct definition of a bottom, why is it not correct to say the bottom starts in say 2009, continues until 2011, and then the increases start some time after that.
"As it turns out, some of those bubble calls were more warranted than others. You hardly hear anything about Boston & Denver anymore, even DC is not mentioned as much as it used to be."
I don't know what else to say here besides that I disagree. I don't think we have seen any drop off in reporting on the bubble in DC.(Several recent reports come to mind.) I can't claim to have watched Boston or Denver closely but I haven't noticed any drop in coverage there either.
The bubble wasn't evenly distributed, but DC is way over on the high end of the distribution.
"Secondly, all those early reports just mentioned "DC" or perhaps "Northern Virginia". Back then no one really differentiated much by county, and no one back then was predicting a major discrepancy in price drops based upon whether it was a close in versus an exurban locale."
Why should they have differentiated? The bubble's effects were seen throughout the region. Prices rose the most at the lower end of the market but that is expected. Pricing at all levels rose to an unprecedented extent.
Remember, we have not seen the end of the price declines by a long shot. In the long run all parts of the city will return to fundamentals.
"Finally, do we really have that much more to go? Per MRIS, Loudon & PWC median prices are where they were in mid 2003 - does anyone really truly expect them to get down to 2002 or before?"
Right now all the forward looking indicators remain negative for PWC etc. We are seeing some signs that we are nearing a point where things will stabilize but for the time being things are clearly still heading down. There has been a great deal of overbuilding in many of those areas and I don't know where prices will flatten out.
"Im not saying I have all (or really any) of the answers, however I think it is a good idea to take a step back and reconsider where we are now in relation to what we knew in mid 05."
I agree, we should always be reexamining our positions as new data becomes available.
With the exception of a couple housing pumpers I think everyone here is just trying to get a better idea what is taking place in the market.
There have been massive changes in the market since 2005. At the time there was still some actual debate about whether or not there WAS a bubble. At this point nobody with a reputation at stake is willing to argue otherwise.
Now the question is just how far and how fast things will fall. I do think we are a long way from the end of this mess. We know that huge numbers of loans have yet to adjust and foreclosure rates continue to climb.
Meanwhile, lending is returning to traditional standards and the public's perception of real estate continues to become more realistic and fewer and fewer people are willing to overpay for housing.
CRT,
That's an interesting point you make. I would offer the following thoughts as potential holes to consider.
1. I have heard that the types of loose lending (Alt-A, sub-prime, ARMs) existed in prior RE run-ups. We would need to show that the peak use of these in this most recent bubble are significantly different than prior bubbles.
2. Prior downturns have been described as being lead first by a pullback in the economy, which then impacted housing (lost jobs lead to defaulting mortgages). This downturn is being lead by housing. So, potentially, there could be an echo effect such as housing downturn leads to economic downturn, leads to secondary housing downturn.
Just a couple of quick thoughts.
My $0.02
tedk said:
"But no matter how many lances try to promote buying a home as always good"
I have never promoted buying a home as always good. I have repeatedly said it is not for everyone all the time. (For example you have to be sure you are ready and able to stay in the property for 5 years minimum.) I have also repeatedly said that you need to do your homework and buy smart. That includes WHERE you buy ... e.g., inside the beltway vs. outside the beltway, house vs. condo, established area vs. new development, etc vs etc.
But you still don't get it do you? To you people either think it is good to buy or it is bad to buy. You simplify it to the point where it makes no sense.
No, the message I have been trying to get across is that under ANY economic circumstances one can indeed buy smartly if they are willing to do their homework. Waiting for the economy to hand you something is foolish at best ... and best left to loosers who can't hope to do better for themselves. I would hope/expect that anyone posting on here has the capability to do better for themselves than just sitting around waiting for something to fall in their laps.
And before someone again says "But I'm not in a position to buy" ... read my first words again that this message about being a smart buyer is only directed at those willing and able to be buyers!
"I have also repeatedly said that you need to do your homework and buy smart. That includes WHERE you buy ... e.g., inside the beltway vs. outside the beltway, house vs. condo, established area vs. new development, etc vs etc."
New theory!
Everyone that bought outside the beltway just wasn't "smart."
...and what of the people who bought single family homes, inside the beltway, that have still seen their values drop?
Leroy said:
"...and what of the people who bought single family homes, inside the beltway, that have still seen their values drop?"
Leroy you are the perfect example of someone trying to simplify matters to the point where the answer is wrong. You have to look at the whole picture when analysing a purchase ... and balance the parts. The examples I gave were just parts. In general, outside the beltway is more likely to hold value, in general established areas are more likely to hold value, in general condos fluctuate more in value during the up and down phases of the real estate cycle, in general etc. vs. etc. I don't think you'll get it. But that's okay, 'cause others will/have.
And yes, you can always find an example that proves the exception. And if that is how you validate your dearly held beliefs, then good luck to you.
Something I read today. It made sense, so I am passing it on in the hopes it will be helpful to some:
5 new rules for home buyers
By Amanda Gengler, Money Magazine
May 27th, 2008
ARTICLE TOOLS: Email article Printable view IM article Save to del.icio.us Bookmark
(Money Magazine) -- There's no telling how long the housing crisis will drag on. Here's what you need to know before you start shopping in a rocky market.
Rule 1: You can't time the bottom
Face it: The house you buy today will more than likely be worth less next year. That could get you thinking about trying to time the bottom. Resist. It's harder to do than you think, and this is the best buyers have had it in two decades, with inventories up and mortgage rates low.
Pace yourself, find the perfect place and drive a hard bargain: Ignore the seller's asking price and bid 10% below what comparable homes are selling for. If the seller balks, move on. Remember that if you're trading up, your home could sit. So sell before you buy.
Real Estate Survival Guide
Rule 2: One reason to buy now - mortgage rates
Homes are plentiful and will remain so, but financing will be getting more expensive. True, the Federal Reserve has slashed interest rates, but fixed mortgages don't directly follow the Fed. They reflect the bond market's expectations about inflation, which remains a concern. The 30-year, now at 6.1%, will likely reach mid-6% by December and 7% in 2009, says Celia Chen of Moody's Economy.com.
That means there could be a penalty for waiting to buy even if prices fall more. Today a $250,000 loan would set you back $1,500 a month. At 7%, a $1,500 payment gets you only a $225,000 mortgage. As for variable-rate loans, the spread between conforming ARMs and fixed loans is too narrow to do you much good.
Rule 3: Another reason to buy - rates on big mortgages
Mortgages in amounts greater than $417,000 - the limit for buying by federally sponsored mortgage agencies - usually run a fifth of a percentage point above conventional products. But investors are shunning jumbos, which now average 7.2% and are unlikely to drop much this year, according to HSH Associates.
Certain jumbo borrowers could get relief, however. A new law allows Freddie Mac and Fannie Mae to buy loans as large as $729,750 in 71 high-priced areas. So far "jumbo conforming" loans average 6.6%. The program has gotten off to a slow start; you'll need to shop around. And unless Congress acts, this bargain will disappear at year-end.
Rule 4: Don't buy cheap; buy good schools
By now you've heard from somebody who knows somebody who got a great deal on a foreclosed property. But when you buy a house, you're also buying into a neighborhood. And foreclosures tend to be bunched in areas where residents and speculators alike took out exotic mortgages to get into homes they subsequently found they couldn't afford. That's not a recipe for stability. Prices and quality of life could both decline further.
Similarly, avoid developments that popped up in the past few years. They too likely have a lot of owners with risky loans and little equity, says Mike Larson of Weiss Research. Instead, go for areas with highly rated schools. They generally fare better during downturns, and that pattern is holding today, according to a recent study by real estate site Trulia.com.
Rule 5: Make sure your agent has your interest at heart
The real estate game has a built-in conflict of interest, since the listing agent and your agent both get paid by the seller. And these days more sellers are offering extra cash to buyer's agents.
So make sure you're not being steered to a house that's better for your agent than for you. Agree up front on his commission (typically 3%) and that any extra payments will go to you, says Jon Boyd, past president of a buyer's agent trade group.
http://promo.realestate.yahoo.com/5-new-rules-for-home-buyers.html
"The examples I gave were just parts. In general, outside the beltway is more likely to hold value, in general established areas are more likely to hold value, in general condos fluctuate more in value during the up and down phases of the real estate cycle, in general etc. vs. etc. I don't think you'll get it. But that's okay, 'cause others will/have."
Ah, I get it... so it would be like saying "in general your predictions have proven to be laughable."
The large majority of the area is currently down from the peak with more declines to come. Your attempts to make it sound like all those people just weren't "smart" enough says a lot about you.
Leroy said...
"I don't know what else to say here besides that I disagree. I don't think we have seen any drop off in reporting on the bubble in DC.(Several recent reports come to mind.) I can't claim to have watched Boston or Denver closely but I haven't noticed any drop in coverage there either."
This is likely something we do disagree on. Time was, DC was mentioned in the pantheon of biggest bubble markets in the US. Now I see more stuff like I saw today in the New York Times...
"Prices rose more in Washington over the last decade than in either New York or Boston. But rents also rose significantly in Washington, suggesting some price increases are likely to be based on economic fundamentals, rather than speculation."
Lets remember the National picture on my favorite metric - months of inventory. Right now the US national picture is at 11+ months of inventory. That means that even our worst market, PWC (9.3 months of inventory) is right now beating the national average in this one of the most important forward looking indicators.
Again - this isnt to say there wasnt a bubble - there clearly was. However, did DC ever deserve to be put in the same breadth as such fliptacular places as Phoenix and Las Vegas? I dont think so.
"Why should they have differentiated? The bubble's effects were seen throughout the region. Prices rose the most at the lower end of the market but that is expected. Pricing at all levels rose to an unprecedented extent."
I think they should have differentiated based on locale - if LV and PHX are any indication, one of the #1 criterion of a serious bubble market is speculation. If that is the case, we should have been looking primarily at PWC, Loudon & (probably) PG County (lets not forget 1/2 of what we call 'DC' is on the other side of the potomac - and the effects are playing out vastly different there than they were here in NOVA).
Your 5 rules, and how they apply to me.
1) I don't have to time the bottom. I have to time when I can afford a house. That time is not yet. Assuming I could, which at some point I will, I still don't have to time the bottom. The bottom will time itself. If I wait for the quarter that we've all predicted when housing prices 'rebound' to buy, then I should be OK. Or will prices instantaneously rise back to previous levels as soon as we reach the bottom? That seems unlikely. *Note* This only applies if I'm buying a house as an investment, which is about third from the bottom of my list of things to do. I'll be buying a place to live, so we're back to my intial point. Is it affordable?
2)&3) This is cheating. You can't use the interest rate twice! I'll only answer it once. If my $1500 gets me a $250,000 house today but only a $225,000 house tommorrow (acknowledged); it does the same for all my buying competition. We only have so much disposable income for housing. Back to my first point (again). Affordability. If no one else in my price range can afford the house, the price will have to fall in order to sell it. I can best express this in terms of something people understand better, then. Investments. The interest rate is 'baked into' the price. (The selling price, not the asking price). If rates go up, prices have to come down. I'm cheering for higher rates.
4) Buy good schools? Not necessary. Wherever I go my children will have the best school available. My wife and myself. Homeschooling. Even if you are one of those who insist on sending your children to prison for 9 months of the year, the education they get at home means more than anything they get at school. Whether they want to or not smart kids come from smart parents and kids with good work ethic come from parents with good work ethic. Better schools may help a little; but you'll notice that the best schools are all congregated where the wealthy (a.k.a. the smart and high work ethic folk) live. Money is not the answer. Genetics is closer.
5) Real Estate Agent with my best interests at heart? Never happens. Every person looks out for number one first. My agent is going to want her commission more than she's going to want what's best for me. That's true even when we used a family friend as a real estate agent.
6) These aren't rules. They're basically idiocy, but even then they're not in rule format. Rules are instructions with penalties if they're broken.
What is my penalty for ignoring advice "buy now -- mortgage rates are low"?
I'll be priced out forever?
The rate resets are meaningless right now. A vast majority of the Alt-a products now just had there 2/28 or 3/27 reset. Now you will see the final round of the sub-prime drop out. However, sub-prime really isn;t the problem anymore for the next two years. Its people that are in 5/25 or 7/23 that had huge heloc's ang are going to try and refi before a reset.
I may not be as smart as Leroy or Lance, but I do get paid to know this stuff.
$0.02 - I can always count on you to respond and appreciate your efforts to humor my ramblings. As to the 2 things you said.
"1. I have heard that the types of loose lending (Alt-A, sub-prime, ARMs) existed in prior RE run-ups. We would need to show that the peak use of these in this most recent bubble are significantly different than prior bubbles."
This one I pretty much disagree with. There was some of this around for (literally) hundreds of years, but make no mistake the explosion of the number and breadth of these loans in recent years is truly unprecedented.
Remember, much of this recent explosion was based on some algorithms developed by the rating agencies (AMBAC - S&P, etc) when they would determine the risk profile of the CDO's being purchased on wall street. As it turns out, to everyone's horror, those algorithms were wrong - the defaults were much more common than expected.
In years past, banks wouldnt make many of these garbage loans because they kept them in house and had to assume the full risk of default. Once CDO's became common and the risk could be spread to wall street, who would buy these things like they were risk free, they made literally thousands more than ever before.
"2. Prior downturns have been described as being lead first by a pullback in the economy, which then impacted housing (lost jobs lead to defaulting mortgages). This downturn is being lead by housing. So, potentially, there could be an echo effect such as housing downturn leads to economic downturn, leads to secondary housing downturn."
Now you are talking! You are 100% right on this and you have hit on what is in my opinion the #1 threat facing the DC economy. Want to see inner DC prices fall fast? If our local economy starts to deflate interior prices will fall and fall fast, and lead to another price declines thru the region.
So far, our local downturn has led to a lessening in the job growth, but not a full blown reversal as in places like LA (which also explains, I think, the reason their vaunted Palos Verdes neighborhood is now starting to fall). At the same time however, our economy appears to be steady so I dont think this housing downturn is going to affect it much more than it currently is. I will admit however, this is one aspect I have not been paying as much attention to as I should have.
"Again - this isnt to say there wasnt a bubble - there clearly was. However, did DC ever deserve to be put in the same breadth as such fliptacular places as Phoenix and Las Vegas? I dont think so."
There is no way we are even near Phoenix of Vegas, at least from what I have read.
For that matter I don't think we are in the California, Florida game either... those markets are just the worst.
DC is among the leaders of the worst of the rest pack.
So it may be we don't disagree as much as you thought. I am certainly not trying to say DC is on par with places like Vegas, or Naples or whatever. It is still in some pretty bad shape.
DC showed some of the highest levels of exotic lending outside of the super bubble markets and some of largest deviations from historical income/price, price/rent ratios, again, outside of the super bubble markets.
You know if you have been around mortgages for awhile, then you know that the exotic mortgage types exploded in 2002. Prior to then its not that they were unheard of, but they were less then 2% of the total origination pool. No doc went from 1.5 % to more then 30% of mortgages in less then 3 years.
So REMEMBER when we used to actually talk about good deals and what people were experiencing when buying homes? How about tomorrow we all try to do just that.
"I think they should have differentiated based on locale - if LV and PHX are any indication, one of the #1 criterion of a serious bubble market is speculation. If that is the case, we should have been looking primarily at PWC, Loudon & (probably) PG County (lets not forget 1/2 of what we call 'DC' is on the other side of the potomac - and the effects are playing out vastly different there than they were here in NOVA)."
I think you are underestimating the amount of speculation that took place "in close."
I don't have number unfortunately(does anyone here?) but there were numerous reports of speculators buying up everything from new build condos to rowhouses in "gentrifying" neighborhoods.
There was clearly significant speculation taking place, but what we really need are numbers that would somehow allow us to compare the amount of speculation in PWC to Arlington or Alexandria.
What do you all think about the properties listed in the 22204 zip code? Especially the two condo communities of George Mason Village and Fredrick Courts. I've seen lots of listings in those two divisions for well under $200k. Some REO/bank owned, and some are not, but they state "subject to third party approval". Any insight?
"2)&3) This is cheating. You can't use the interest rate twice! I'll only answer it once. If my $1500 gets me a $250,000 house today but only a $225,000 house tommorrow (acknowledged); it does the same for all my buying competition.
...
If rates go up, prices have to come down. I'm cheering for higher rates."
I agree... that article seemed to boil down to little more than a scare story.
"Ooh, you better watch out! Interest rates will rise and you will lose your chance!"
Higher interest rates will drive prices down. The core problem is affordability.
The same is true of the likely exit of Fannie and Freddie from the jumbo market at the end of this year.(Though it will be defined slightly higher.)
It will affect all potential buyers, which will obviously affect prices.
As someone that will have a relatively large down payment, higher interest rates and tighter lending standards will likely benefit me.
subject to third party means short sale, run away. Short sales just don't close. Banks in many situations can actually come after you for the spread on a foreclosed home, but not on a short sale since they have to agree to it.
I would say do not but a home that you are going to live in. Rental purchase in DC could have a real argument made for purchase on a 7-10 year hold, but fundamentally there are areas in PWC that have completely collapsed and may not actually ever come back.
As an example as an accepted rule of thumb it took the avg. NJ house until 2002 to recover to its 1988 peak levels.
crt,
>>If you assume this is correct definition of a bottom, why is it not correct to say the bottom starts in say 2009, continues until 2011, and then the increases start some time after that.>>
I agree with your definition of the bottom. In your original post you spoke of a bottom during previous downturns. Within the context of my explanation--the bubble component and the cyclical downturn component (in which I include the second point 0.02$ made above), your view would assume the second component would cause only stagnant prices. I see both components contributing to the race toward bottom, the former a bit quickly and the latter much more slowly.
I can't assert that your view is "incorrect" -- the truth is there are so many variables that no one can exude certainty in our predictions. But the balance of probabilities is such that the bottom in the way you define is unlikely to come to the DC area as a whole earlier than 2010. PWC and Loudoun may see the bottom in 2009 (By the way, I see no reason why prices in these two counties can't go back to 2002 levels), but not the whole DC area.
Instead of worrying about the bottom endlessly, let us wait till October/November (At least we all can be certain that the bottom will not come within the next 6 months) and look at the data then.
Leroy said...
"So it may be we don't disagree as much as you thought. I am certainly not trying to say DC is on par with places like Vegas, or Naples or whatever. It is still in some pretty bad shape. "
Actually you are right, I think we agree - DC (or at least parts of it) are the worst of the rest outise of the fliptacular markets.
"I think you are underestimating the amount of speculation that took place "in close."
I don't have number unfortunately(does anyone here?) but there were numerous reports of speculators buying up everything from new build condos to rowhouses in "gentrifying" neighborhoods.
There was clearly significant speculation taking place, but what we really need are numbers that would somehow allow us to compare the amount of speculation in PWC to Arlington or Alexandria."
I dont know if you remember the discussion between Novawatcher (I think) and myself the other day. We looked at sales for each county for years 2000-2007. Even when you account for the increase in population, Loudon had something like an extra 15% of unexplained "sales" that Alexandria did not.
I compared Alex & Lou to make sure no one would accuse me of cherry picking the best (ARL) & worst (PWC). However, once I did, turns out the place with the least increase in sales (read flippers) was Arlington, then Alexandria, with Loudon far behind, and PWC spectacularly behind. I will try to find the thread, but I think its pretty clear, most of the speculation was concentrated in fairfax & beyond.
xpovos said:
"1) I don't have to time the bottom. I have to time when I can afford a house."
But you can always afford to buy ... The question is are your expectations in line with what you are able to pay? It's easy to want more than you can afford and then deem the market "unaffordable". It's harder to admit to oneself that you may not be able to afford that which you really want ... At least not until you've saved up more or had a few more raises/job changes.
The last 20 years have been so prosperous for so many that "we want it all" and "we want it now" have become very ingrained in many individuals. That's not usually how things work. We're returning to a more normal economy where this just won't happen to the degree it did for a while there.
lance: >>Waiting for the economy to hand you something is foolish at best ... and best left to loosers who can't hope to do better for themselves.>>
We know your theory well--"If people can afford to overpay for something now, they should. Why wait?"
Sorry, I don't have time to waste.
This, my friends, is how one sells a well-maintained, great neighborhood, Inside the Beltway SFH Foreclosure:
http://franklymls.com/FX6770519
According to an agent, the seller (bank) already received six offers driving the price (as of this a.m.) up $30K to $369K. ...all of this with only DOM=3.
P.S. Regarding the sales history:
2005 $ 560,000
2004 $ 435,000
1997 $ 176,211
1988 $ 173,000
That's ten years between 1988 and 1997 in which the house appreciated less than 2%. Perhaps a cautionary tale with relevance for our near future?
Leroy - re: your earlier question about speculation being concentrated in the outer counties - take a look at the bits bucket 5/17-18 where Novawatcher and I discuss the excess sales due to speculation.
I theoriezed this is why all the foreclosures were concentrated in the outer counties. However, as you, Novawatcher and TedK pointed out, that could just as much be a byproduct of newer housing stock (i.e. everyone is underwater.)
That said, if you read that thread it looks that while all areas had flippers, the outer areas had even heaver concentrations. For example Loudon had an extra 23% of sales above and beyond the sales increases in Alexandria. Even worse, PWC, which had only 1/2 the population increase of Loudon still had a 140% increase in sales 2000-2005.
Again, its clear from the sales records that even when you factor in populaion increases, all areas clearly experienced speculaton. However what seems equally clear from the sales records is that (a) PWC had the most speculation (b) Loudon had the 2nd most speculation (c) Alexandria had the 4th most (behind no suprise Fairfax) and (d) Arlington had the least amount of speculation of the 5 counties we look at here.
As such, it stands to reason that unlike prior downturns where sellers dictated the downturn length by how long they held on to their "wishing prices" this thing is unwinding a whole lot faster than prior occassions. If so we are much closer to finding a bottom than many here may suspect. Thoughts?
It is unwinding faster. But that doesn't mean it will unwind for a shorter time. For after the ARMs reset and the investors flee, we're left with the normal holdouts.
The number of people I know who speculated in their home is amazing. Too many cannot ride it out to the bottom.
The equations that were used to justify home buying in the past... now point to... waiting. When I plug in my rent and the equivalent cost of buying into the New York Time's buy/rent calculator... it shows that I'll never come out ahead buying at today's prices.
Trying to think "its different here" isn't going to work. Just think... normally when a recession is declared... its when government rationalizes spending with revenue. (Not a balanced budget, but a sustainable bleed.)
Got Popcorn?
Neil
I actually think some parts of 22204 could be a good deal. The area in general has been hit very hard by the foreclosure trend (by far the worst in Arlington, foreclosures are not really a factor elsewhere) and the demographics of the area are as a result changing in a way that many buyers may perceive as attractive.
xpovos,
Homeschooling = freedom. You are so right.
Looks like Carl Case is also coming around to the idea that the bottom will come faster than in prior declines:
“Foreclosure auctions are removing inventory and may lead to a faster housing market recovery as prices drop, Karl Case, co- founder of the S&P/Case-Shiller home-price index, said today.”
“‘Banks don’t wait around,’ Case said. ‘They put it on the market and get rid of it. That means prices adjust more rapidly.’”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aKzbMH2M1azY&refer=home
Just WOW! Re: Bankruptcy Court holding -- stated income loans are essentially nonrecourse debt.
Based on the foregoing, the Court concludes that either the Bank did not rely on the Debtors representations concerning their income or that its reliance was not reasonable based on an objective standard. In fact, the minimal verification required by an “income stated” loan, as established by the Guidelines, suggests that this type of loan is essentially an “asset based” loan. In other words, the Court surmises that the Bank made the loan principally in reliance on the value of the collateral: i.e., the House. If so, the Bank obtained the appraisal upon which it principally relied in making the loan. Subsequent events strongly suggest that the appraisal was inflated. However, under these circumstances, the Debtors cannot be blamed for the Bank’s loss, and the Bank’s claim should be discharged.
http://tinyurl.com/58jznr
CRT,
For the record, I agree that there was an explosion of alternative loans this last go around. I was merely pointing out that to truly use it as a basis for a faster resolution to a downturn, we would need to show it was drastically different. Perhaps as a percentage of all sales over a 2 year period or something?
The other thing to consider is the CDO phenomenom. This is something that is arguably "different" than prior cycles. My understanding is that the creation of CDOs got loans off of the bank's books hence multiplying the amount of money they could loan. Meanwhile, the institutions that purchased/held CDOs were not under the same regulation as banks when it comes to making loans. Hence, way more money than in any previous housing cycle was made available in the form of loans. I hope I have the gist of that correct.
Anyhow, my question now is, how do you unwind this? If in the past, banks held more of the mortgages that went bad, they could reasonably be expected to work to foreclose. What happens in the case of CDOs? Obviously there is still someone administering the loans but what is their duty to the loan holder (CDO purchaser)? And, given the slicing and dicing and multiple layers of ownership, can that impede the eventual mortgage lender from getting at the lendee? If so, this could potentially slow the downturn. This is just thinking out loud...
Thanks,
My $0.02
This site doesn't update the days fast enough.
Here's a thursday story:
why we won't reach recovery anytime soon:
http://www.msnbc.msn.com/id/24797169/
Warning: very off-topic post to follow.
RE: Homeschooling and "socialization"
"Socialization" is precisely why we homeschool. Rising out of the industrialized school setting and bringing our children into the "real" world offers a superior opportunity for "socialization."
Rather than being artificially restrained into a room full of smae-age peers led by an unquestionable, random authority figure, our kids are FREE to engage people of all ages and backgrounds, in all settings.
Rather than being subjected to the group-thinking, mass-marketing, materialistic, peer-pressured, pop-culture grind, our kids are FREE to grow as independent thinkers unencumbered by the pressure to be mainstreamed.
Rather than being exposed to negative stereotypes because their skin is brown, their minds are sharp, and their parents are from different ethnic backgrounds, our kids are FREE to be accepted as themselves by loving, caring role models we select for them.
Rather than having to conform to an arbitrary learning schedule, with materials and subjects selected en masse and a great deal of time spent on No Child Left Behind SOL/standardized tests, our kids are FREE to learn at their own pace, and become completely absorbed in those areas for which they have the most passion.
Rather than thinking of education as something that happens in a particular building on a 9-month, 8-hour, 5-day-a-week schedule, our kids are FREE to learn anything, anytime, and see every waking, breathing moment as a chance to learn something new.
We see the school industry as presenting many more opportunities for NEGATIVE, rather than positive, socialization. Of course, with dedicated parents, and a lot of effort and time and luck, it is possible to have a positive experience in an institutional school. But with seven little ones, why bother, when we can offer a superior experience at home, with the added benefit of FREEDOM to come and go and do what we want to without having to answer to a bureaucracy?
$0.02 said...
"For the record, I agree that there was an explosion of alternative loans this last go around. I was merely pointing out that to truly use it as a basis for a faster resolution to a downturn, we would need to show it was drastically different. Perhaps as a percentage of all sales over a 2 year period or something?"
$0.02 - normally I would look more into it before coming out with a definitive statement like this, but I fell very safe in saying it was "drastically different".
"The other thing to consider is the CDO phenomenom. This is something that is arguably "different" than prior cycles...Anyhow, my question now is, how do you unwind this? If in the past, banks held more of the mortgages that went bad, they could reasonably be expected to work to foreclose. What happens in the case of CDOs? Obviously there is still someone administering the loans but what is their duty to the loan holder (CDO purchaser)? And, given the slicing and dicing and multiple layers of ownership, can that impede the eventual mortgage lender from getting at the lendee? If so, this could potentially slow the downturn. This is just thinking out loud..."
$0.02 this is a very good question and something I am admittely not sure about myself. You are certainly right though - the lack of lender/borrower interaction is a good argument for why this would play out over a longer period than before. I do think this is why so few short sales were ever consummated.
Either way, good point.
Narl said...
"demographics of the area (22204) are as a result changing in a way that many buyers may perceive as attractive."
What are you implying? Please explain.
Bill, just check out the recent home sales in Penrose, Barcroft, Alcova Heights, Arlington Heights, etc. I'm not saying it is a good thing, just that it is a fact.
Actually, there was an outstanding joint NPR / "This American Life" study of the mortgage and CDO debacle. The extent to which "no doc" loans were used to purchase property is frightening. I'm not a huge fan of "TAL", but this episode should be required listening for anyone interested in the bubble. I believe it aired on 12MAY2008.
Anyone else notice how much mortgage rates have been sky rocketing lately? 30 year fixed rates went up 18 basis points last week because of lenders fear over increased gas and food prices. I was personally pre-approved 4 weeks ago at 5.58%, today I put a contract on a house at 6.13%. I would like to hear what you guys think but I cant imagine this is going to help out with the recovery of the housing market if mortgage rates continue to trend upward like this. What do you guys think?
divot asked:
"I would like to hear what you guys think but I cant imagine this is going to help out with the recovery of the housing market if mortgage rates continue to trend upward like this. What do you guys think?"
Just read up a dozen or so entries from this post and you'll see they think it's simply a matter of prices going down if interest rates go up. i.e., everything comes out in the wash ... and the mortgage payment remains the same. They conveniently don't take into account the fact that not everyone (be they an investor or just omeone looking to buy a home) will need/want to finance their purchase. And that this upping of interest rates may not result in lower prices but rather just in putting people who must finance at a disadvantage over those who have other options. They also conveniently forget that the same inflation which will cause the interest rates to rise will deter people from making all sorts of investments including in providing employment (and the salaries they'll need to pay for that mortgage) and new construction (without which there is less housing to go around ... putting them at an even greater disadvantage over those who don't need to borrow.)
Stagflation ... A '70s repeat.
http://en.wikipedia.org/wiki/Stagflation
when interest rates go up -> More money for the bank, less for the seller.
too bad sellers are already upside down. buahahahaha
The only way to cure stagflation is massive interest rate hikes.
I hope somebody has the balls to do it. Id love to be making 6% on my 6 month CDs again!
tabitha,
(continue off-topic)
I recently just had my 1st son . . .my wife and I are interested in home-schooling even if it is a little ways off . . . If you have any good sites/advice please advise. Thanks.
Doug said...
The only way to cure stagflation is massive interest rate hikes.
I hope somebody has the balls to do it. Id love to be making 6% on my 6 month CDs again!
That would take Volker coming out of retirement. One could only hope...
As Bas noted, if interest rates go up, its just less money for the seller. Not to mention that if long term rates shoot up, my wife wouldn't be eager to put savings into a home... its a double hit. Debt to income (DTI) is maxed out. Heck, it probably needs to drop 20%.
Some of my coworkers are starting to catch on that the media/NAR is always reporting the turn around will be in 3 months. When the sheeple stop believing the upturn is only 3 months away... We hit the next emotional state. I predict the next real estate 'emotion transition' will happen in the fall. :) Real Estate has always had it cycles. Just because the 2001 downturn was short circuited doesn't mean they've gone away...
Got Popcorn?
Neil
Normally, I agree that rising interest rates don't translate into lower home prices. Seller mentality being what it is, they hang onto their home for another year or two to get the price they want - allows wage inflation to let the buyers catch up.
However, I think given the severity of the overspending on housing, the rapid decline in prices, and buyer psychology, that there is a better chance this go around that higher interest rates do lead to lower prices. If only because we're entering a period in time where each successive buyer is going to look to get something for a little lower than the last buyer got something for. Decreased buying power then will add a little momentum to this trend.
Again, just an observation...
My $0.02
lance,
I know you probably believe what you said, "But you can always afford to buy ... " but that's not true.
If you want, I'll ship you over my financial data. You can pour over it with a fine tooth comb, check in with your mortgage buddies, and then go check the listings.
If you can find a single location that is up for sale, and I'll add just a single caveat here in my favor, that is not in such terrible shape that it ought to be condemned, such as that awful place in Manassas last month that we saw, anywhere within 30 miles of Washington D.C. I will buy you a dinner out.
Why am I so confident? Debt. My wife is and was piled with it. Until that's gone, ownership is -not- possible.
And if it's not possible for me, it's likely not possible for a good chunk of those who make less than I do.
$0.02,
Not everyone can 'hang on' to a property for an extra year or two to get the price they want. And even those that can, a number of them will have carrying costs, e.g. negative cash flow rental.
Prices are set at the margin by those who have to sell. And the guy who has to sell will naturally have to reduce his price if the prevailing interest rate means that the prevailing income can't afford the price he's asking.
More homeschooling talk:
gte,
Congratulations on your new baby! It's never too early to start learning about learning...
Normally, I'd go to my "homeschooling resources" bookshelf and give you lots of specific titles, but since we're moving in two weeks, the books are mostly packed up...let's see what I can remember...
Send away for a few free catalogs: Sonlight (Christian), Timberdoodle (Christian), Montessori Services (secular), Emmanuel Books (Catholic) are my faves...just skip the religious items if that is not your thing. Sonlight, in particular, is a fantastic resource, and while Christian, it is incredibly broad-minded, a great thing to pore over for ideas, and they disclose which items have religious content.
Books...The Teenage Liberation Handbook (very secular), the Charlotte Mason Handbook (gentle and sweet), The Well-Trained Mind (intimidating)...there are so many. Depends on your life philosophy...do you want to go classical, whole books, unschooling? Don't try to be someone you're not. Go to the library and sample all kinds of educational approaches, and stick with ones that appeal to your family personality. If you are laid-back, you're not going to fit with a workbook-heavy, rows-of-gold-stars type-A educational plan, and your kids will hate you for trying ;)
Northern VA is a great place to homeschool...so many opportunities, so many homeschool groups. You can Google VA homeschool organizations and see what's around you.
Homeschooling is just being able to be yourself all the time, to know yourself and your children. My husband and I are Ivy-educated, and we feel we have learned more while teaching our children than we ever learned before.
If you start stocking up on great books and educational games and toys now, and steer doting relatives to such items for gifts, you'll be decked out in no time. But if you're on a tight budget, don't worry--the library, museums, some art supplies, and the Internet will give your son a fabulous education on the cheap.
Feel free to email with any specific issues/questions!
Since we're now talking home-schooling, I was wondering if those doing it/ thinking of doing it see any downside to it from the children's perspective. I mean, I can't help but wonder if the children wouldn't be put at a disadvantage socially from not being exposed to other children to the same extent that children educated in a school setting are exposed. Or whether the children might miss out on learning about other cultures/races/religions' perspectives on life ... ? I was raised going to Catholic schools and now later in life I realize how much I missed out on compared to others raised in more mixed settings ... At how it put me at a disadvantaged until I realized that the world doesn't operate using only "Catholic" rules and priorities. I can't imagine having only had my parents as examples of how to lead my life. There is so much to learn out there ... It just seems that the more exposure to other children (and adults) you can give your kids, the better. Knowledge is a good thing ... and the more possible sources you open for it, the more likely you are to get it IMHO.
What are the advantages to home-schooling that outweigh these clear disadvantages?
I guess I did start it. Sorry to those who are now having their housing blog tainted with homeschooling rants.
I'm going to ignore your talk of disadvantages, because you really didn't invite debate on that subject. But I'll simply touch on it to say; you're wrong. There is no such disadvantage as you've described.
As to the advantages:
1) A -much- higher quality of education. The teacher has only a few students, rather than 30 or more.
2) A much broader scope of education. My kids will be able to go on five field trips a week, or study any subject that they want to.
3) Avoiding teaching to the test. While there are still tests to be taught to, there's substantially less emphesis on getting the kids to be able to regurgitate small bits of information. Once again, a more critically informed mind is created.
4) Family bonding. The time lost between parents and children in modern society is a huge detriment to proper development. This one alone outweighs all your social worries.
5) Safety. No gun weilding maniacs shooting up his classmates at homeschool.
6) Freedom. In the early years school is a daycare that also educates, to a limited extent. At that age, most children are still teaching themselves anyway. In the later years school is a prison where we send kids so that we can get on with our lives.
7) Joy. Having children is a blessing and a responsibility. Seeing them become well-formed critically thinking adults is a great pleasure. Being able to take full credit for it is even better.
Lance,
Home-schooled kids rarely stay "home" most of the week with only parents for friends. They have a smorgasbord of after-school activities. Many times it's a community youth sports situation, or perhaps just neighborhood playing when they're little.
I can't imagine that during school hours much socialization occurs with other kids. I suspect that your Catholic school teachers used their classroom time for teaching and not for facilitating student interaction. (Obviously there's recess and lunch . . .)
A number of parents are now taking the opportunity to form weekly group-learning situations, too. But the home-schooling parent still takes charge of their child's education and is generally on-site for the group things. It makes the parents happy to have fun learning together, too. And since the kids each have a parent (or grandparent) there, they don't have any embarrassment in hugging their Mom or Dad in front of the other kids if they feel like it.
I just want to add that homeschooling and housing bubble blogs do have something in common, perhaps -- homeschooling parents may very well be at a "disadvantage" financially, and be very interested in the topic of economics and saving money.
To make homeschooling work, one parent stays home and probably doesn't work out of choice rather than lack of ability. Of of all the home-schooling parents I know, the mothers have college degrees or otherwise are smart and could make money outside the home. (An ERIC study backs that up -- homeschooling parents have more education than nonhomeschoolers). Generally the other parent (usually the father) has a good job, but they're still limited somewhat by the one income.
harriet,
Good point. I philosophically believe that a large part of the enormous increase in wealth in this country over the past 15 years came at a great sacrifice, and that in reality most of the increase was just an illusion. Given the massive amount of currency devaluation (I'm not talking about just recently, I'm talking about since 1973), deficit spending, wars, etc. in order to maintain the standard of living for a middle class family many families felt compelled to have both spouses work. Once dual-incomes became the norm, it has become almost self-sustaining.
40 years ago, a father could very easily support his wife and 4 kids on a decent income. Today, his son needs the daughter-in-law to work in order to obtain the equivalent standard of living. It is really quite sad.
B/c of our crazy monetary system, a person must "invest" in the stock market, or real estate, etc, if he ever wants a chance at seeing his wealth preserved over the long run, so we end up getting a nation of gamblers, instead of a nation of builders.
30 years and we've gone from $200/month payments to $2000/month payments. 30 years and a 1000% increase! So in another 30 years it could be 20k/month payment!, how can anyone plan for the long-term?
A stable currency/economy is the backbone of a nation . . . we lost it in 1973 . . . now it's just a matter of time to see how long it takes to unravel.
gte811i said:
"in reality most of the increase was just an illusion."
I dunno ... I mean the size of houses is on average much larger now ... with the average family member having something like 3 times as much per square footage now then back then. For example, it was the rare case back then when siblings didn't share rooms. Many families only had one bathroom per house, etc. Also, television consisted of 3 channels (and maybe PBS) ... and there were no Ipods, few dryers (anyone remember clothes lines?) ... etc., etc. No, there's no denying we are enjoying a much higher standard of living ... The question is though, have we sacrificed personal time to get it?
lance
"No, there's no denying we are enjoying a much higher standard of living ... The question is though, have we sacrificed personal time to get it?"
hey we might be having some sort of a civil discourse . . .for once :-).
It's not just personal time, but debt (which is just a claim on future income/work).
From the Fed:
"http://www.federalreserve.gov/
releases/housedebt/"
Debt Service Ratio (DSR)
1980 DSR = 11.13
2007 DSR = 14.33
%change= 28%
I would wager that if you go back further it's an even bigger increase.
I have read some articles with charts(I can't remember where), showing % debt levels higher than just before the Great Depression.
A lot of our "increase" in the standard of living was/is fueled by debt. So have we really become wealthier if we are more enslaved to debt than our ancestors? At what point do we say enough of debt? All we really do with debt is time shift money . . . increase our current monetary holdings at a decrease of future monetary holdings. Hmmm, that sounds like a real winner. The only way debt can be in any way good is if the debt is used to build/produce something not consume something. Debt used to build a company can be very useful, the company can later add more wealth. Debt to buy a car . . . well pretty much dumb, the car depreciates and can not be used to build wealth. One use of debt builds wealth, the other use consumes it. We've been on the consuming side so long, I fear my kids will not have as high of standard of living as me.
gte: 30 years and we've gone from $200/month payments to $2000/month payments. 30 years and a 1000% increase! So in another 30 years it could be 20k/month payment!, how can anyone plan for the long-term?
You've made the case for Lance.
As for planning, one tactic is to own a place close in. Since you have to live somewhere and pay something for a roof, allocate whatever you'd pay for rent towards a mortgage.
But then, Lance has been saying that for years.
"But then, Lance has been saying that for years."
...and if you took that advice any time in the last few years you would have lost out big...
For the thousandth time... nobody here is "against" owning a home. What people here have a problem with is overpaying.
I understand why amateur speculators like you want to pump the market, but the way you try to hide your motives for posting here is extremely dishonest.
gte811i said:
"Debt used to build a company can be very useful, the company can later add more wealth. Debt to buy a car . . . well pretty much dumb, the car depreciates and can not be used to build wealth. One use of debt builds wealth, the other use consumes it."
What you're describing is a basic bit of business sense taught in finance courses. Note however though that when you're talking about a home purchase, it doesn't fit in neatly in either of the two buckets. Yeah, you'd think it should be just like the car debt ... but it's not. The reason it's not like car debt, is that the land under a house doesn't depreciate (except under extraordinary circumstances .... e.g. "Love Canal"). On the contrary, it usually appreciates as demand for land increases due to population increases. (Think of the teardowns and infills in places like Arlington and Bethesda).
There really is a lot of truth to the axiom "they ain't making any more land". Yes, you can stretch your available land ... think making land out of thin air by building a highrise condo where a lowrise condo or house once stood. Or they can stretch out the footprint of a city ... think including WV as part of the Washington commuting area, but these are really just the stretching out of available land ... and they come at a cost. (i.e., congestion in one case and long commutes/few social amenities in the other.)
So, when you borrow to buy a house, while the part that goes towards paying for the building part is paying for a consumable (like a car), the part that goes for paying for the land is going toward paying for a non-consumable asset whose value is much more pre-disposed to going up in value (due to population pressures on the supply of available land) than it to going down (due to extraordinary circumstances such as Love Canal or some other reason that would cause an area to be abandoned or depleted of population ... e.g., some rust-belt cities where the factories have shut down.)
Another consideration/ basic financing principle is that there's a difference between debt that is "secured" by the purchase itself and debt that isn't. In short, if debt is secured, then under worst case scenario you can always sell the thing being secured to pay back the debt. Yes, I know ... "but if the value has fallen and you are under water, then you can't". But going back to the discussion about the land component of a home purchase ... In the long run you can be almost 100% certain that the land component alone will be worth enough to cover your debt if you had to sell ... even if the house sitting on the land were worth nothing (which would be unusual.) Now this is were the devaluation of money is your friend.
The value of that land under the house goes up "naturally" due to population pressures ...and it goes up "unnaturally" due to the devaluation of the currency. I.e., if we had a hard currency as you advocate, then a piece of land you bought for $100,000 might be worth $200,000 in 20 years due population pressure alone. BUT, if in the meantime inflation (or other reasons) have caused your currency to devalue by half, then that piece of land will be worth $400,000 in 20 years. (Because it now takes $2 to buy what $1 bought before.) HOWEVER, that $100,000 loan you took out to buy the land in the first place ... is still only $100,000 ... or less if you've made payments toward prinical. But even if it was an interest only loan, you now owe only $100,000 on a piece of land worth $400,000.
So, if you're really looking to buy a home to live in (and not to flip in a year or two), chances are greatly in your favor that you'll be okay and not "underwater" as I keep hearing BHs expressing.
Leroy,
I know ... If you don't understand something ... then you should fear it.
KH and I come here with years of combined knowledge and experience ... but because you don't understand it, you fear it. Exibit a little less hubris and hear the evidence around you. Just cause you just learned something in school a few years ago, doesn't make you an expert in it. Actually, your lack of experience is handicapping you and you are doing nothing to try to over come it. You don't like what you're hearing, so you are trying to dismiss it by dismissing the messengers. Grow up.
Harriet said...
'Lance,
Home-schooled kids rarely stay "home" most of the week with only parents for friends. They have a smorgasbord of after-school activities."
Okay, I had visions of children "chained" to their dining room table from 8 to 5 while their parent sat there exercising their parental authority over them! ... with maybe bright lights shining in their eyes ... and no sleep until "they broke"! Thanks for dispelling those horrible visions!
"Yeah, you'd think it should be just like the car debt ... but it's not. The reason it's not like car debt, is that the land under a house doesn't depreciate (except under extraordinary circumstances .... e.g. "Love Canal"). On the contrary, it usually appreciates as demand for land increases due to population increases."
lol...
It is always a treat to watch you try to talk about finance or economics... (anyone want some subprime "lemonaid?")
A house is not a productive asset, nor is the land beneath it.(unless you rent it out)
That is why housing prices track INFLATION. They do not "naturally" appreciate over time faster than inflation.
Obviously some houses will beat inflation, while others will not, but as a general rule housing stays even with inflation. (Look at some of the formerly nice neighborhoods in DC that are currently slums... look at some of the currently nice neighborhoods in DC that were formerly slums...)
What you are describing says a LOT about why you continually misunderstand the housing market.
You are working the math in your head as a speculator. Sure, you go on and on about long term perspectives and all that... but at the end of the day you believe that land prices will just "naturally" outpace inflation.
That is speculation. You are counting on a non-productive asset increasing its value over time...
There really is a lot of truth to the axiom "they ain't making any more land . . . The value of that land under the house goes up "naturally" due to population pressures
Interview with Rober Shiller (Case/Shiller)
L.G.: Why do you think people just have trouble listening to these things?
R.S.: Well, I can talk as a sociologist—which I'm not trained to do—but there's a social construction of reality that happens. This is a basic principle of sociology. We have a "collective consciousness," to quote sociologist Maurice Halbwachs. As far as I know, he coined the term. And the point is, we talk so much. The human species is incessantly talking, and this incessant talk reinforces certain memories and facts. And other facts are not reinforced because no one's talking about them. So they elude our consciousness, and then we can't remember them. We can't act on them anymore, and so a certain sort of reality-construct forms. It's also informed by some kind of intuitive thinking. In the case of real estate, people think that the growing population is inevitable, and that means home-price increases are inevitable. And these are not economists thinking clearly about what that means. An economist who thinks about that would say, "Yes, but that doesn't make them a good investment." If everything is priced at the present value of the cash flow with the same interest rate, then it doesn't matter whether the cash flow is growing or not, and then everything is equally good as an investment. That's not something that the general public understands.
http://tinyurl.com/4vkz5m
"I know ... If you don't understand something ... then you should fear it."
lol... right right. Lets just say that your "understanding" has been pretty fearful so far.
"KH and I come here with years of combined knowledge and experience ... but because you don't understand it, you fear it."
Years of experience? What? Owning a house?
Wow, it sure is great that we have the benefit of the "experience" of a real live homeowner with a 5th grade understanding of economics and an amateur speculator who spent months lying continually about her motivations for posting here...
You two should offer seminars. In the morning you could explain how new computer models have eliminated risk allowing lenders to turn subprime lemons into subprime lemonaid...
...KH could go on stage in the afternoon to show her sophisticated "draw a straight line to the top of the bubble" analysis that proves housing appreciates at exactly the right rate to reach the top of the bubble...
On day two you could explain how you called the bottom in 2006, and 2007 and KH could lie about being a speculator...
"Exibit a little less hubris and hear the evidence around you. Just cause you just learned something in school a few years ago, doesn't make you an expert in it."
Lance, you don't even know what some of the words you use MEAN. (such as your "time value of money" comment above...)
You continually misstate, or misunderstand freshmen level economics material.
The sad thing in your case is that you really don't seem to realize just how ridiculous you look trying to lecture people when you don't even understand the basics.
"Actually, your lack of experience is handicapping you and you are doing nothing to try to over come it. You don't like what you're hearing, so you are trying to dismiss it by dismissing the messengers."
Dismissing the messengers?
Lance, your track record speaks for itself. You have been wrong every step of the way. Virtually every single prediction you have made thus far has proven to be laughable.
When confronted with your various lies or errors you refuse to acknowledge or correct them.
(Such as you calling the bottom last year... or "explaining" how the subprime loans weren't going to be an issue... or saying that "90%" of the area is stagnant or climbing... etc etc. At this point there are too many to list.)
"Grow up."
lol, sorry lance... you aren't fooling anyone at this point.
You can't just sprinkle some words you heard on an investment TV show into your posts and expect people to think you know what you are talking about.
lance . . .
oh brother . . . trying to have a rational economic discussion with you is extremely taxing.
1) There is soooo much usable land in this country not being used it is ridiculous.
2) "Running out of land" doesn't mean you can't have booms and busts in real estate. Look at Japan, you still wouldn't have recovered your money in real terms if you bought at the peak! That's almost 20 years!
3) Planning anything concrete more than 10-15 years out is pretty ludicrous in today's society. Yes some people stay in their homes for 30+ years, on average people move every 5-7 years. People move more often, change jobs more often, things change more rapidly now. It's great to have a long term plan, as long as its extremely flexible.
4) Just b/c your 100k loan is now worth 1/4 in real terms doesn't really help you out. Inflation encourages debt. So while your 100k loan is worth less, you figure "what the heck" I'll take out more loans and debt b/c in 20 years it will be worth less. So now you take out a 400k loan, b/c in 20 years it will be worth the same as you 100k loan is worth now. It is a self-repeating feedback loop of perpetual debt. Do you ever wonder why we have more debt today vs. 20 years ago . . . a fiat currency is the main culprit. A currency which maintains itself on debt will collapse . . . it is inevitable.
5) I don't disagree that owning a house is a good thing. I don't disagree that as population increase housing is worth slightly more. I disagree with the rate and timing. Housing adjusted for inflation over the past 100+ years increases at ~1% yoy . . . . hmmm pop. growth in the US over the 20th century 1.3% . . . funny how that works out. So sure over the long-run housing goes up . . . over the long-run we are all dead too. Timing . . . just b/c over 100 years its a ~1% YOY, doesn't mean it can't have booms/busts, 90/01, and now. There will always be great times to buy (coming soon) and horrible ones (2004-05).
6) I advocate that everyone look at their individual income, look at their debt ratios, look at rents, run some numbers, see what they could afford at a 20% fixed 30 year loan, run good estimates (which include upkeep, taxes, etc, which so many forget). Look at what they could realistically buy and then make a decision if they want to buy that property or not.
7) I've run the #s, considering I'm more educated, and better paid than the majority of people who live in this area, I expect to be able to afford a decent place. I can't find a place so I rent. I build up my wealth to buy a place in the future. (notice my difference in approach, instead of taking on debt -future claim on my work- I save my current work to buy in the future).
8) Trying to explain economics to you is like trying to teach an old-dog new tricks . . . you just won't learn.
GTE811i,
I nicely explain things to you ... and this is how you respond?
Yesterday a friend asked why I am wasting my time on the likes of someone like you ... I guess he was right. When someone resorts to childish personal attacks when they hear something they don't want to hear ... it's indicative that a nerve's been hit. It's indicative that they know they are wrong ... but afraid to accept the truth. It's indicative of childish and immature people.
"I nicely explain things to you ... and this is how you respond?
Yesterday a friend asked why I am wasting my time on the likes of someone like you ... I guess he was right. When someone resorts to childish personal attacks when they hear something they don't want to hear ... it's indicative that a nerve's been hit. It's indicative that they know they are wrong ... but afraid to accept the truth. It's indicative of childish and immature people."
Lance, people are tired of explaining things to you.
You don't have a clue and aren't interested in learning.
At this point I can only conclude that you really are so far lost that you don't even know what a fool you look like.
That or you like looking like a fool...
In either case you aren't "explaining" anything to anyone.
lance . . .
I made two comments directly to you. . .
1) a rational economic discussion with you is extremely difficult.
2) explaining ecomonics to you is like trying to teach an old dog new tricks.
1a) when you make comments like "time-value of money" but don't even have the correct definition it makes #1 true.
2a) Instead of acknowledging good/bad times to buy you claim anyone can get a good deal at anytime as long as they do their hw.
2b) I freely admit owning a house is a good thing, it is one thing that most people should strive for
2c) You won't freely admit there are good and bad times to buy as a society . . . i.e. you deny bubbles.
2d) You won't admit that by any standards which apply to housing the DC area was/still is waaaay overvalued.
Therefore b/c of 2a,2b,2c,2d . . .#2 is true.
Now where did I personally attack you in this whole discussion?
Post a Comment