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Thursday, June 25, 2009
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136 comments:
Contrarian-
I am going to have to disagree that he is a celebrity more than an investor these days. I think 5 years from now people will realize the $10 Billion deals with GE and GS are an amazing. The put contracts where he makes additional billions if the market stays at current levels over the next 20 years are also going to turn out to be great deals.
Sorry ignore this comment it appears it was already talked about in length yesterday. Well good morning everyone :)
Here's a story in today's Post about the modern green house in Arlington that hasn't sold:
green house
The article portrays it as if the owner built it with the intent to live in it, but then her husband took a job requiring a move. I thought they knew about the move before building this house, and had built the house as developers.
It also says she spent "about $100K" on green materials etc. Of course this may not include all materials and doesn't include labor. But I think it confirms suspicions several of us had when this house was first listed, that there was considerable room to move downward in asking price (especially given that the land was very cheap since it was carved out of a small, oddly shaped lot to start with).
Ace, oh dear lord.
"It's hard to leave behind a project she poured so much into, Shields said. But she's not finished with green building. Since the house was completed last fall, people have come to her for advice and help in such numbers that she's launched a consulting business. And she's planning to build another house for her family -- this time with solar hot water, perhaps.
"It's so cool to create something," she said. "Being a lawyer was fun, but this is so much better."
where's my violin?
If they've had 2000 people view it since it was built why hasn't it sold? Mmmm, can we say price? She now has a vested interest in (a) keeping it on the market for advertising for her new consulting business (b) making certain it sells for absolute top dollar so she can show off how exclusive a thing this level of green-ness is. All whopping $100,000 of it.
Cara,
I'd go view it just to get some green design ideas. Zero interest in the house, but hey popping into an open house is a pretty cheap way to see the results of some pricy consulting work.
Deutsche Banks MSA predictions (pdf file) June 15th 2009.
First tidbit. To reach the "maximum affordability" the DC area has "ever" seen would only take another 2.3% decline in prices IF interest rates were to stay at 5%. But Deutsche Bank's bottom line prediction is for another -12.3% to trough from here on out.
Notably, the DC area ranks 4th in the nation for MSA's with it's share of outstanding (i.e. still existing) Alt-A and sub-prime loans with 3.4% of the nations exotic loans. (by dollar amount?). Only LA, Riverside, and NYC have more of this stuff than we do.
This is being moderated by the things already noted on this blog that our distressed inventory, unemployment, and change in unemployment are not as bad as any of the other top 10 MSA's for Alt-A/sub-prime debt. (with NYC being sort of equally "ok" amongst this pack of 10).
Seems more interested in promoting herself than selling the house. Why the heck is this real estate ad getting run in the Post?
I didn't see this article on shadow inventory discussed yesterday. Gist is that banks aren't foreclosing on all the delinquencies.
"I have even begged them for a foreclosure," delinquent mortgage-holder Charlotte Jensen said. When she realized she couldn't save her Glen Allen home last year, she filed for bankruptcy, packed up her family and moved out. Nearly a year later, Bank of America has yet to take back the home.
My question is, why did she move out? She could have been living rent free for the last year.
On page 6 however, you can see that their change in methodology from March to June resulted in a +2.6% revision of the total peak to trough losses for DC.
(read the paragraph above to understand the columns and what different changes "mean").
Cara, I definitely think it's a price-relative-to-incurable-defects-and-very-specific-taste-choices issue, and not an issue that people are unwilling to pay for green building, as the article implies.
But at least we don't make figure 4 (the ones with the greatest expected declines from here on out)
though we don't make figure 5 either, (ones with least expected declines) Notice, 5 of those are in Texas. What did I tell you? Texas, didn't have a bubble in lack of affordability.
Appendix I is worth checking out too. Not great, but not near the worst markets either.
Link
I will be posting a series of this type of story over the coming months to support my thesis that residential construction is going to be a economic growth driver for Northern Virginia going forward.
excerpt:
In further evidence that the hard-hit DC exurb of Loudoun County is seeing signs of life in its real estate market, local blog LoCo Musings reports that homebuilder Lennar is advertising the reopening of Martin’s Chase, a community of hew homes in Leesburg. Lennar had put the project on hold last year.
Matt,
17.4% excess distress inventory strikes you as not bad?
We are amongst the few pale-pink spots on the map, but that still puts us in the category of regions with significantly more distressed inventory than "historical norms". This goes along well with the feeling on the blog that current inventory levels are still elevated (in most places outside of PWC). And that this excess is the REO/distressed market.
"That efficiency...means that the estimated cost for heating and cooling the four-bedroom, 3,825-square-foot house is only $305. A year."
Factor in the upfront $100,000 (or more) and I suspect that the cost works out to a tad bit more than $305 a year.
"Indoors, wood flooring is from sustainably harvested trees, countertops glint with pieces of recycled beer bottles..."
Green is one of the biggest myths/marketing gimmicks we've seen in years. I'll bet that if a detailed study was done on recycled beer bottle countertops, for example, they'd find that they are worse for the environment than other types. And "sustainably harvested trees" makes me want to puke. I can't believe how many people are being sold a bill of goods (i.e., being charged extra for something labeled as green that is really no different than the product normally offered).
Calculated Risk coverage of the work by Atif Mian and Amir Sufi of the University of Chicago Booth School of Business as reported in the WSJ, on the Housing Bubble and Consumer Spending
very very telling.
Our study samples 70,000 consumers in 1998 who were already homeowners at the time. We then follow the borrowing decisions of these households for eleven years until the end of 2008. ...
John, your point may be correct, but it really wouldn't be appropriate to consider the $100K a premium paid for green materials. For example, if she didn't buy the "green" hardwood floors, she would have bought other hardwood floors. And, some of the choices she made (for example for the custom-designed bathtub) might be counted as "green" choices but certainly could have been done with equally "green" materials but much more cheaply while retaining the same quality. So taking this out as simply personal choice, I would estimate that the green premium of everything combined was probably less than $10K.
I think there are good reasons to do it even if you don't get all your money back. But I agree you have to be careful about purchases and not be fooled by hype.
Ace,
except for the geothermal heating and cooling that's got to be a 20k premium over a regular HVAC by itself.
interesting article, Cara.
Maybe so, Cara, I'm not an expert on geothermal, but high quality conventional HVAC systems are far more expensive than one might think. Neighbors have paid more than $10K for AC alone (including duct work) in much smaller houses, years ago. And high efficiency gas heaters to replace oil, including appropriate venting, etc., and installation, would be $6-10K today, easily.
Interesting Radar Logic Report, showing DC area v. other areas.
housebuyer said...
Contrarian-
I am going to have to disagree that he is a celebrity more than an investor these days.
Wikipedia: A celebrity is a widely-recognized or notable person who commands a high degree of public and media attention.
Buffett rarely used to make media appearances. Now, Buffett is on CNBC more often than Robin Williams and George Carlin appeared on the Tonight Show with Johnny Carson.
John F.
"That efficiency...means that the estimated cost for heating and cooling the four-bedroom, 3,825-square-foot house is only $305. A year."
Factor in the upfront $100,000 (or more) and I suspect that the cost works out to a tad bit more than $305 a year"
But why would you compare the $100,000 in additional green cost with the cost $305 cost in heating and cooling, even if the $100,000 was all energy-related. The relevant comparison is with the savings, i.e., what it costs to heat and cool a conventionally built house of that size minus $305.
Any reason you're bet on the countertops other than a reflexive dislike for anything "green."
Ace, with all due respect I don't think $10k would get you anywhere close to the "platinum" LEED status. I assume the $100k the owner refers to is the premium she paid. As Cara said, the geothermal unit itself is super-pricey. And solar panels are another $30k plus addition in and of themselves. I'd imagine that high-end windows like those mentioned in the article are another $20 or $30k in premium. Add in the rain collection system, the special driveway, etc., etc., and the premium gets very costly.
This is like the Toyota Prius. Yes, it saves gas. But owners shouldn't be quoting their low gas bills without factoring in the extra two or three thousand they pay over an equivalently featured all-gas car.
While I'm on this kick, let's consider electric lawn-mowers which are all the rage in green-conscious Arlington. The owners think they are doing the environment a benefit by not buring gas, but they haven't a clue what is burned to produce the electricity they consume. C-O-A-L. But heck, as long as the pollution isn't in our yuppified back yards, we can pat ourselves on the back for being so "green."
Robert,
You do know that even Calculated Risk predicts that residential construction will bottom out sometime this year. I fail to see what's surprising about construction starting to pick back up from next to nothing. It has to at some point.
It's just like women's clothing retailers, who now have new things to sell, but a whole heck of a lot less than would normally be in the store, as opposed to February when the racks were full of discounted merchandise that needed to move. Except houses take more time to manufacture. Construction is starting again, but will continue at a reduced rate until demand picks back up. If they don't build more houses the home-builders can only hold out so long before going under. You'll note they're only building one spec house and the rest they're marketing lots where the owner would then carry the loan for the construction costs. Very savy, and very timid.
keith said: "But why would you compare the $100,000 in additional green cost with the cost $305 cost in heating and cooling, even if the $100,000 was all energy-related. The relevant comparison is with the savings, i.e., what it costs to heat and cool a conventionally built house of that size minus $305."
You have to spread the $100,000 of upfront costs over the expected life of the systems, add that annualized upfront cost to the periodic energy cost of $305, and then compare that sum to what you'd otherwise spend on energy in a less "green" house. Over the life of the systems, the cost savings - if any - are much less than what the article portrays.
"Any reason you're bet on the countertops other than a reflexive dislike for anything "green."
Think about the manufacturing process from start to finish. Where does the glass come from? How does it get to the specific plant that manufactures these counters? What energy is consumed in this process. What energy is consumed in specialized manufacturing? In shipping the counters back across the country to the customer, etc?
Yes, we're reusing glass, but we're pretending there is no environmental price to that reuse. Those counters are less "green" than they are made out to be.
Robert,
you have no numbers on that. Some banks leave them "active" some go immediately "under contract" or "contingency" which is indeed an option on our MLS. So a guesstimate of 30%-50% of our distressed inventory is actually somewhere in the process and not truly available may be about right. Since, outside of CA, this problem is true of all regions, I fail to see how this materially changes the fact that we're in the bottom half of the pack.
JF,
nah you've gotta go for the new outdoor romba thing. Solar powered and just cuts grass in place leaving it to fertilize the lawn.
-Contrarian
My comment was not that he was not a celebrity, but rather he is an investor first a celebrity second. He cares far more about his investing than he does with the media. He talks to CNBC because he is friends with them and they are always dying to hear the words from the "Oracle."
I would say someone like Donald Trump is a celebrity before an investor. He goes for fame first and for money second...
I realize this is getting way off topic, but this is the kind of thing I'm talking about...
"7. Green myth: An electric car is best for the environment. Fact: If you live in a state where most of your electricity is generated by coal, that’s not so. In those areas, electric cars can emit more carbon than high-efficient hybrids. Unless the electricity for the car is generated solely by renewable energy, electric vehicles are “far from zero emissions.”
http://tinyurl.com/p3caff
Things aren't always as green as they seem, often times much less so. Trust me, we are going to look back at a lot of this "green" push and realize after the fact that we were sold a bill of goods.
As to the 100K. My fiancee does some work with the LEED process and I am pretty sure that just the application to become platinum approved costs ~10K.
As for the counters I would probably agree that they are probably not that green, but would be green if more people bought them. For normal counters companies make tons of them so they have economies of scale and create a process that is as cheap as possible(energy is pricey). Because they are custom I am sure the glass is transported further, the process of making them is not that efficient...
Finally am I missing something or is a sustainable tree farm, any farm that uses softwoods. I am pretty sure it just means that that the trees grow back quickly. If this is the case anyone who got cheap wood floors should comment they are sustainable :)
John-
I agree I don't really care for Boon Pickens, but he is correct that the best way to go green and cut down on oil imports is Natural Gas. Although it still pollutes it is much better than oil or coal.
JF, I understand what you're saying but I think the dispute is in the comparison. If the comparison is with the cheapest alternative you can find, then yes, I can see the differential's approaching $100k. But my point is that anyone matching the quality but not necessarily insisting on the maximum "green" - and taking out the premium the owner paid for non-green style she preferred - is going to invest nearly as much as the green materials. I would be shocked if the windows in that house cost any more than the windows that most high quality builders would put in any home today, because everyone expects them to be energy efficient, with a lifetime warranty, etc. It's possible that the solar panels are what you claim, but I highly doubt they are $30k - though I have no doubt one COULD pay that much for them. My parents had them on a previous house, and the panels cost nothing close to that amount.
"JF Said...Things aren't always as green as they seem, often times much less so. Trust me, we are going to look back at a lot of this "green" push and realize after the fact that we were sold a bill of goods."
A friend of mine works as an environmental consultant - there is a name for this practice - people are being "greenwashed".
I dont know about the examples you cite in general, but its true there are many things that go into the total count of carbon emissions that simply dont get counted.
His favorite example is a old-time push mower. On its face it uses zero carbon emissions. However, it does burn excess calories of the operator, who then buys marginally more food to replace those lost calories, meaning more food has to be shipped (via trucks and other carbon emitters) to the local markets.
To be sure there are some efficiencies. I believe a gas mower pollutes more than the electricity from a coal fired plant for an electric, which pollutes more than transporting extra food to the market. Still, the differences between them are not as large as they may initially seem.
ace said: "If the comparison is with the cheapest alternative you can find, then yes, I can see the differential's approaching $100k. But my point is that anyone matching the quality..."
Please take this as light-hearted ribbing, but the greenwashing appears to have gotten to you. Notice that in the sentence above, you correlate "green" with "high quality."
JF,
you want to try to sell a million dollar home with anything less than "high quality"?
Ace's comment is in the context of this particular house.
CRT-
In jest I would say that for most Americans they may eat no more food if they mow your lawn. Instead they just lose a little weight and are happy healthier people :-D
Clearly I am talking in jest and your point is still valid.
cara, i understand that. however, why should we assume the "sustainably harvested" wood floors are of high quality? Just because they are green? Just because the asking price is a mil? the wood floors may be "green" but are they clear, select, no1 common, no 2 common?
Green has been pushed so much that many people subconsciously associate green with quality. A big mistake.
Okay, catching up on various topics.
anielarke is correct that there will be litigation over that Rosslyn co-op when the lease comes up, but @J@ is right that the court is likely to rule in favor of the contract and ignore the silly "but Rosslyn was different in 1949" argument.
JF,
Green is a substitute for high quality. Some people pay extra for green, some pay extra for quality. Sometimes the "green" has meaning, other times it's just green-wash. People pay good money for diamonds too.
@J@ -- regarding the Dulles Toll Road. The first time they raised rates (in 2005), ridership went down. I don't think that's because people moved. But more people probably went to Route 7 and other alternate roads.
If that trend continues what it means is (1) not enough revenue might come from raising the rates because of decreased ridership and (2) Route 7 and other roads become even more backed up.
Supervisor Herrity also is correct that it might discourage some companies from locating in the 267 corridor. All the more reason for Virginia and Fairfax County et al to provide funds for Dulles Rail and not on taxing Dulles Toll Road riders who can avoid the tax by taking another road.
shamrock is correct that this blog has underdiscussed the foreclosure article in the Washington Post yesterday. It very much confirms the suspicions of many on this blog that there are many foreclosures yet to come.
I was an agnostic on the topic but in light of that article put myself in the "more foreclosures are coming" camp.
Ultimately prices are going down foreclosures or no foreclosures because the income growth never justified 2006 prices to begin with.
From January to May this year, the number of drivers on the Dulles Greenway decreased 8 percent compared to the same period last year. Meanwhile, 4 percent of drivers are choosing alternate routes other than the Dulles Toll Road.
DG, DTR Ridership Down
Interesting that the article notes that one person profiled has an employer who pays the tolls. I wonder how many riders of the Dulles Greenway and DTR have an arrangement like that.
2006 article (during boomtimes):
Ridership on the Greenway appears to have dropped slightly since last year. On average, 71,384 drivers traveled the Greenway each weekday last year, according to TRIP II figures, compared with 68,044 each weekday so far this year.
Dulles Greenway faces same suppy demand model every product faces, higher cost, less demand
Okay, that was not the Post's headline. ;)
TBW-
Income growth never justified 2006 prices, but it does justify current prices. Did you look at the article Cara posted from DB? They said with current interest rates DC prices are only 2.3% away from being the most affordable they have ever been. I think the 30% price correction, the 1.5% drop in rates, and a couple percent increase in wages truly has made places very affordable.
John--
I just looked at the insert in my Pepco bill the other day and it seems to me I saw that my electricity is 50% nuclear or something like that. And a bunch of Natural Gas thrown in.
But yes, some coal, and I agree with you that a LOT of coal is burned for electricity in the mid Atlantic, and I don't like it because it makes clouds over (and fog on) my favorite New England hiking mountains have the same pH level as lemonade, and the mining also ruins mountains and rivers in West Virginia.
But I would think that electric law mowers and cars are quieter, cooler and more efficient than gas powered, all of which is better for urban/suburban living.
Frankly, I'd be happy if only half or two thirds as many people owned a car AT ALL. Then we wouldn't be sending as many inflating dollars overseas to people who mostly hate us. Roads wouldn't be as much of a hassle either, or as much of a burden to maintain.
I really believe the car ethos/arrogance is truly killing this country, and the fact that it's taking 60-100 years to do so it just an opportunity to be in denial about it (like the related global climate change.)
And now we're exporting that destructive behavior to the two most populous countries in the world. If finding magic technologies--hybrids or something else in time can avoid an oncoming global disaster, I'm all for that, even if it means a bit of sacrifice on the cost-equation.
Too bad our arrogance has allowed fuel-efficient cars and renewable electricity to be foreign-led industries, though.
tbw, shamrock
The local example was from Silver Spring, MD. The rest of the data was national. (cursory review, I read it this weekend but didn't have anything to say about it). Most of this country has non-recourse loans and longer more expensive foreclosure processes than NoVa. I think Tanta's take on this article would have been that this is purely anecdotal and a cherry-picked example to demonstrate the new zietgeist, shadow inventory and home-owners just wanting to get out from under their homes while still doing right by their neighbors.
housebuyer,
*Some* places have become very affordable when you compare average cost to average income. Some of the exurbs, garden style condo communities that are 90% immigrants, etc. All areas we would consider "low end" housing.
Anything in the middle range and upper range is still more unaffordable than at any point between 1945-2002. Yes, 2009 prices in Burke are better than 2006 prices but they are not great bargains.
tbw,
In the starter home category, in price Burke is/was back to 2003 levels (no adjustments for inflation). Even assuming no wage growth thereafter, the 5% interest rates make these reasonably "affordable". But only at 5% interest rates. Which we don't have now, and even if we dip back down there, we can't have indefinitely.
Scott,
Maybe your anger should not be at car owners so much as the following:
(1) Overly permissive crimnal justice system in urban areas (many DC youths who are caught stealing cars are detained for less than a day)
(2) Decision in middle of 20th century to put 100% low-income housing units in middle-class neighborhoods thereby destroying said middle class neighborhoods and encouraging white and middle class black flight from DC
(3) Marion Barry
(4) Decisions to let out of zone students attend Wilson HS in upper NW DC thereby scaring away the remaining upper NW residents who did not already send their kids to private schools
It's very easy to pretend the interstate highway system created the suburbs. A realistic view of the 20th century would admit that cities made a lot of bad decisions that led to the growth of the suburbs.
Cara,
Maybe I was misinterpreting homebuyer but it felt like he/she was pushing the NAR/Robert line that these are "once in a lifetime affordability opportunities" when in reality nothing has come close to the opportunities people had 1996-98 in this region.
Again, maybe Manassas and similar places are back to that level of price bargain.
TBW-
I totally agree that if you do price/income ratios it still does not look good. You need to add interest rates to look at monthly payments. It is very affordable on this metric.
I agree with Cara that 5% rates are gone and even when they were here the value is nice, because you don't want to lose money as rates go up in the future.
These are probably why DB thinks prices will fall 13% more, but at least monthly payments are currently not that high, and much better than anytime except a couple years around 2000.
Does anyone else find this incredibly tacky??
If you have registered for china and silver at your favorite department store, now register at SunTrust for what you really want - the home of your dreams!
The SunTrust Bridal Registry Account helps you build the funds to buy a home. When you start a life together, having a home is usually part of your dream. Now SunTrust has developed an account to help you achieve that dream.
SunTrust Bank FHA Bridal Registry
What kind of couple would ask for that? That's basically just asking for money at your wedding.
Also, it's for an FHA loan. If you cannot even come up with 3.5% on your own then you cannot buy a home! Frankly, I still think we should at least require 10%, maybe 20%.
"Notably, the DC area ranks 4th in the nation for MSA's with it's share of outstanding (i.e. still existing) Alt-A and sub-prime loans with 3.4% of the nations exotic loans. (by dollar amount?). Only LA, Riverside, and NYC have more of this stuff than we do.
"
I am very concerned about this, between the empty condos still on the market and the foreclosures still to come there is still room for a 10-15% further drop.
housebuyer,
Oddly, DB specifically state that they assume the Fed will keep rates down near 4.5-5% for the foreseeable future!!
They're trying to test out the effect of "momentum", distressed inventory overhang, unemployment, and increases in unemployment.
I think however, that their basic guess of another ~12% down for the DC area will be about right, because while rates will rise, unemployment will ease soon too, and the distressed inventory is being absorbed well.
housebuyer said: "Income growth never justified 2006 prices, but it does justify current prices...with current interest rates DC prices are only 2.3% away from being the most affordable they have ever been."
The income of the owner of an asset should never "justify" the price of an asset held by that owner. The asset is worth what it can intrinsically produce. It's price is justified by its instrinsic value.
Low interest rates speak to affordability, not to the value of a house. A house price isn't "justified" by low interest rates.
This is a classic case of not seperating the consideration of value and affordability. They are two different things. It would behoove many on this blog to think about this carefully.
Cara,
It is all relative but if you look at the top 10 mortgage markets in figure 1 and then look at where they rank based on appendix I the DC area is near the bottom. Only NYC is lower yet it scored the worst (by a large margin) in the affordability index in figure 1. Appendix A should make everyone continue to worry because it suggests that there could be a undertow we can't see with the current numbers but I think that 17.4 figure, while not great, suggests the recent sales are not significantly inflated by distressed sales. The market clearly cannot rival your favorite lone star state but just based on reading this report it appears closer to those places than to most of the other major markets under pressure. I'll take that.
housebuyer,
Fair point. But really people should not think about "how affordable are my monthly payments" but what is the price. Price should be it.
There's nothing good about a mortgage. A lot of people don't realize that even if you put 20% down and have a 30 year fixed you could still be paying six digits of interest over the life of the loan.
A $400k home with a $320k mortgage (20% down) with 5% interest 30 year fixed still racks up $298,418.51 in interest. Lop off 30-40% from the mortgage interest deduction and it's still a huge amount of interest. Your $400k home is really $700k.
And that's with a 20% down payment. The interest is even more astronomical if you do 3.5% FHA (plus the FHA loan has a higher interest rate than a 30 year fixed.)
The best return on your home investment would be to put down the highest down payment you can afford and the shortest fixed term you can afford.
Matt,
That's pretty much what I meant in my first observation:
"This is being moderated by the things already noted on this blog that our distressed inventory, unemployment, and change in unemployment are not as bad as any of the other top 10 MSA's for Alt-A/sub-prime debt. (with NYC being sort of equally "ok" amongst this pack of 10)."
So I think we're basically on the same page. But to many on this blog who have argued for years that the Alt-A bomb wasn't going to hit us? and that we don't have that high of a distressed inventory? I think ranking 4th in Alt-A/subprime and having 17.4% more distressed inventory than normal is a pretty big wake-up call.
Typo. Your $400k home really is ~$600k after interest.
tbw
OMG Suntrust is evil. I already knew it was being run by HAL. We made the foolish mistake of wanting to open a new checking/savings account more convenient to us than one back in RI with only one branch in Bethesda. Foolish, because (a) we picked SunTrust, (b) it was right as the credit crisis was peaking. Then the deposit check from our old landlords was missing 2 digits from the account number and was returned as unprocessable. And they closed the account. The fact that we deposited the corrected check the next week, that we went through the bank manager to try to get the decision revoked, the fact of our two government job incomes, extremely high FICO scores, and that the check wasn't under our control? Nope, HAL said, kick them out.
When computer systems have NO method of human intervention? Be scared.
And what ever happened to just putting any gift money into your savings account anyway? We did that with all our gift money from relatives who felt our gift registry stuff was too miserly.
Regarding the strange 'green' discussion...
That push mower argument is absurd. It's not a small amount of difference between using a gallon of gas to mow your lawn and using a push mower. It's a shame that guy's an environmental consultant.
Honestly most of the comments strike me as rationalizations for non-green behavior. It's often a simple choice between a more efficient or a less efficient option. Feel free to choose the less efficient option but don't try to pretend that it's not worse for the environment.
I think it's pretty rare for something considered 'green' to be worse for the environment than its non-green equivalent. It may not make economic sense but if everything had to make economic sense every one of us would change our lives considerably.
It hardly takes a gallon of gas to mow your lawn, so the differential is not as small as you think.
"Going Green" is largely marketing - rather than buying a Prius at a premium it's far greener to buy and maintain an older existing car. But not as much fun or as ostentatiously 'environmentally friendly' - Prius's are shipped in from Japan and China after all.
Obviously it's better to think of the environment when you make decisions, but you actually have to think it through.
contrarian,
Well the counter-argument to my observation is that while these were the 10 largest MSA's, they are not all the same size. So, it's possible that our rank as 4th would drop if we normalized for the size of the mortgage market. Or it could go up. The old NY Fed numbers we were working from CRT had normalized in some way to see what percent of homes were likely to fall into distress.
Still, since it's only becoming more true that normal sellers don't want to sell now, we are at the stage where to an extent, only those who are in distress matter. They are the market. (or 1/3rd of it nationally anyway).
Re: defaults where banks haven't started the foreclosure process yet.
I've started wondering about this since that article came out by the NYTimes writer in Silver Spring (can't recall his name, but I'm sure you know who I'm talking about). He hadn't made a payment in 8 months and hadn't even gotten an NOD from the bank.
This was about a month ago. Anyone hear anything since then? Do you think there are a lot of others out there like him?
"Obviously it's better to think of the environment when you make decisions, but you actually have to think it through."
That's more or less my approach. It only takes 3 steps into a Whole Foods to witness some pretty absurd environmental claims. But to claim that 'green' is a myth is also pretty absurd, imo.
I'd much rather have people wanting to be green, even if they get ripped off occasionally, than to have them ignore environmental factors altogether.
Numerous studies have found that if you allowed workers to telecommute one day per week that most of the area roads would be clear and not congested. Of course, that requires not every company to have Monday or Friday be the telecommute day.
That would save a lot of gas and need to build more roads, lanes, etc.
Also, if private employers were more willing to allow people to have more definite work schedules more people could carpool. But in our workaholic area it's hard to say "I have to leave at x pm" without seeming like you are shirking duties (and then not get promoted or even fired.)
tbw,
yeah I love the Friday morning commute. So empty.
;)
Since Robert filters the news, here is something he'll never highlight from you (in today's NYT):
That may turn out to be the case at Dulles International Airport outside Washington, where a $2 billion terminal replacement program was halted, as was a new $400 million car rental center.
Think about all the lost construction jobs!
Article on stalled airport projects
Here is another article that Robert will never show you.
Employers with jobs will not just take anyone
Although this focuses on technical jobs, given how picky the KSAs are with many federal vacancies, one wonders if some end up unfilled.
Robert -- your brother-in-law is not going to be able to take a federal agency job if he cannot convince the agency that he has the KSAs they desire.
tbw,
That sucks. We needed that new design, have I ever mentioned how much I hate Dulles, and those stupid shuttle-bus thingies?
On the other hand, this will reignite more engineering jobs when they decide to totally revamp all the work that was already done on planning the darn thing. Engineers/architects/civil engineers/environmental impact folks are paid more, thus have more impact on the housing market.
;)
tbw said: "people should not think about "how affordable are my monthly payments" but what is the price. Price should be it."
It's refreshing to hear someone else share this view that should be common sense, but that very few people seem to think about or understand.
jeffb said: "Regarding the strange 'green' discussion...That push mower argument is absurd."
Please enlighten us on the energy consumed to mow say, a 1/5 acre yard, using a conventional gas mower vs. an electric mower. When measuring energy consumed by the electric mower, please remember to measure the coal/gas burned to generate the electricity. I'll be interested to see the results and learn from your knowledge on the matter. (fun fact: generally, more than 50% of US electricity is generated by coal. another 20% is from burning natural gas.)
"Honestly most of the comments strike me as rationalizations for non-green behavior. It's often a simple choice between a more efficient or a less efficient option. Feel free to choose the less efficient option but don't try to pretend that it's not worse for the environment."
I'm all for doing less harm to the environment, but we should be honest with ourselves about how "green" some of the green options really are. Electric lawn mowers are a perfect example of people thinking they are being "green" while not realizing that they are in essence using coal-powered lawn mowers.
The Prius is another good example. A link I provided above shows that a Prius takes the equivalent amount of energy as 1,000 gallons of gas to produce.
As little johny jewel said, truly "green" consumers would buy a used car with decent gas mileage instead.
And while some things are more environmentally friendly than others, a lot of "green" touted products are regular products with a green marketing push. A perfect example: wood floors from "sustainably harvested trees." If you owned a timber company, wouldn't you want to sustain your forests so you could have a continuing stream of income? Well guess what, all of major timber companies do too. That's why they maintain forests certified as meeting the SFI standard. Check out Weyerhauser and International Paper (two of the largest companies in the forest industry) as examples of this.
The wood you buy from them meets the SFI, it's just a matter of whether you pay extra when a dealer slaps on a label that says "green" or "from sustainably harvested trees." IT IS MARKETING.
Green has as much to do with marketing as it does with saving the planet.
JF,
You have a financial background, don't you? If so, what specifically?
JF,
"It's refreshing to hear someone else share this view that should be common sense, but that very few people seem to think about or understand."
On this blog? Or amongst the general populace? On this blog I think you're in the vast majority. In the general populace I think we're overwhelmingly outnumbered.
I'm still holding out hope that prices will come down far enough that buying will be cheaper than renting even on a 15 year amoritization schedule. I could chose to buy a condo now such that that would be true, but I'd rather not.
John--
The primary intrinsic value of small plots of land near a city is access (or economic rents due) to higher paying jobs in the city. So average incomes of the city do matter, but the resident's income doesn't impact the value of the land. The house sitting on the land doesn't really change in value much from year to year.
JF,
Then what is your opinion of what the Fed did today?
Specifically, extending emergency funding for commercial paper:
The Fed's Board of Governors approved extension of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF) and the Term Securities Lending Facility (TSLF).
The Fed also extended the temporary reciprocal currency arrangements, known as swap lines, between the Federal Reserve and other central banks to Feb. 1.
But did not extend for Money Market Funds for individual accounts:
The Money Market Investor Funding Facility (MMIFF) for money market funds will not be extended beyond October, due to better market conditions and the continued availability of other programs.
As a contrarian, I see this as an ominous sign. To not back individual money market accounts in non-FDIC insured accounts is not good. Last time they acted this way was shortly before Lehman collapsed.
And then I also thought it is the "commercial" (institutional) purchases of GSE's that are involved in the individual MMF accounts.
Do you think MMF's are safe or risky now?
Cara,
Yes, it seems we are thinking along the same lines. The 3.4% outstanding Alt-A number is more concerning for me though there could be some less ominous explanations as you indicated. The market certainly isn't healthy but I wouldn't say it is in critical condition like some other areas. Now if I read this report and owned something included in the NYC area I'd be petrified.
John-
Low interests do matter, because it is an asset that most people use leverage to buy. So as a landlord you do not care about ROA you care about ROE. The cashflow a landlord gets is the rent minus the cost of the mortgage minus operating costs. If you divide this by the amount of money they invested into the house you are left with their return.
So with that being the case I don't know how you can say that interests rates don't impact the value if they impact both the cashflow on the asset and the affordability.
contrarian, i don't have much of an opinion about those actions. a little extra oil on a locked-up engine isn't a bad thing, i guess.
TBW-
You should only put down the most you can and use the shortest loan possible if you can't find any better places to put your money. If I can get a 5% loan and a couple of years from now treasuries are at 6% I would be best suited by paying at little into my house as possible, because I am getting a higher rate outside of this.
Heaven forbid if you can give your money to someone like James Simon who has made ~70% a year for two decades. If this is the case you are significantly better doing an fha loan and letting more of your money compound at these rates.
JF,
I realize that electricity doesn't just appear in an electric lawnmower and I think people that use them are most likely aware of that as well. Your opinion is that using gas to power a mower is an equivalent energy usage to using electricity from the grid?
'Green' doesn't mean something uses zero natural resources. It means something has less of an impact on the environment.
I missed the link about the Prius though, was it in that CSM article?
I think some of you pushing the interest rate issue are forgetting that it's relatively easy to refinance your mortgage.
Historical Mortgage Rates
Looking at this 40 year history, there were only four years (1977-1980) where interest rates continually went up. For the rest of the time period (1972-1976, 1981-2009) it goes up and down or flat and you have plenty of opportunities to refinance if you bought at a bad time.
Given that pattern, even if rates at 7-8% in 2011-12, you might see 5-6% in 2013-14 providing you with an opportunity to refinance. And if prices go down between 2009-12 because of increasing interest rates then that makes you better off.
JF-
Out of curiosity can you explain so me how you would value something.
I would value based on the cashflows I receive from it over its life discounted backwards to current value. The discount rate should have a premium over the risk free rate I can get over the same time period.
I would be delighted to see you value a house without using risk free rates or borrowing costs.
AKA if I buy a house now and interest rates go up I don't sell it when I move instead I rent it out because although it would not be positive cash flow at going interest rates it would be cash flow positive at my interest rate.
housebuyer said: "Low interests do matter, because it is an asset that most people use leverage to buy."
Some would wisely argue that a house you live in is not an asset in that it takes money out of your pocket rather than putting money in your pocket.
"So as a landlord you do not care about ROA you care about ROE."
Actually, an investor should care about both ROA (aka, ROIC) and ROE. One should generally not seek to purchase assets with suitable ROE but unsuitable ROA, because this implies that the asset itself isn't of high quality as compared to alternatives (i.e., you are only making money because of leverage, and this is a fools game).
"The cashflow a landlord gets is the rent minus the cost of the mortgage minus operating costs. If you divide this by the amount of money they invested into the house you are left with their return."
And often just as important is the ultimate gain on sale. And this is why price vs. value matters as much as affordability.
"So with that being the case I don't know how you can say that interests rates don't impact the value if they impact both the cashflow on the asset and the affordability."
To be clear, interest rates impact leveraged yield but they don't impact intrinsic value. And I'm not saying affordability (for a non-investment property) isn't important, I'm just saying that too much emphasis is placed on affordability (right now due to abnormally low rates) at the expense of an examination of value. An owner-occupied property should only be purchased if it is both a good value (compared to price) and affordable to the purchaser.
Maybe I'm reading things incorrectly, but I get the feeling that some are suggesting that because low interest rates are making houses affordable, houses are a good deal. This is not necessarily correct, especially considering what can happen to prices if and when rates are no longer abnormally low.
TBW-
I agree that if you get in at a bad interest rate you intrinsically have an option value attached to it that rates will go down. On the other hand if you got in the last couple of months you will likely never see rates that low in the rest of your life. So it does add extra value. In addition refinancing can cost over 1% of the house price so if you have to do it multiple times due to having a bad rates it does add several percent to your effective price.
housebuyer,
Horrible argument. That assumes the ability to time the market.
Over this decade very few people averaged 5% annual earnings on their portfolio because of the two bear markets and long periods of low interest rates.
housebuyer,
I agree that this spring may have been the best mortgage rates we'll see in a long time, maybe ever. But the people who were able to take advantage of that were people who bought pre-2002 or so (or those in non-bubble markets this decade). Those who paid bubble prices are still screwed and those of us not yet in the housing market were screwed because we could not take advantage of those low rates because homes are still decreasing in price.
JF-
I agree that prices will fall if mortgage rates go up, but if as a landlord you held the house 30 years than affordability is what actually mattered over this time. Second if you buy when rates are low and they go up it helps you as a long term investor. The rates going up almost surely mean inflation, which helps you because your cash flow increase more than the rate of inflation.
I do agree that ROIC is what matters, but it is more similar to ROE than ROA.
Finally I don't see the advantage of paying more for high quality assets. Generally I worry about these about competition comming ot these industries. This is a large reason why low p/e stocks have historically outperformed high ones. (Yes I am making the assumption that low ROA businesses tend to be more boring and have lower p/e)
"Jeff B said...That push mower argument is absurd. It's not a small amount of difference between using a gallon of gas to mow your lawn and using a push mower. It's a shame that guy's an environmental consultant."
Actually, no. Its a good thing he is thinking that way, the point is he is realizing there is unintended consequences that need to be accounted for.
This is a far cry from earlier generations who were driven primarily by ideals. Take the push to install scrubbers & the likes on factories in the 70s & 80s. A sizeable minority of the environmental communtiy now thinks this was a big mistake as it helped push production overseas where you could pollute all you want - meaning the planet is that much worse off.
Same thing with their earlier blind opposition to nukes. Many did not think that the demand for energy would not stop and (unfortunately) the next best alternative was to merely increase the use of super polluting fossil fuels.
Same thing with the more recent ethanol push. The fear now is the energy used to grow and harvest the corn is so pollutive that it offsets the benefit of burning it for energy. Moreover, it creates incentives for other countries to possibly speed up the deforestation process and put that land into productive use.
So therein lies the point of that mental exercise - the unintended consequences of every decision they make can have long term costs for the overall health of the planet.
Earlier generations did no think this way, and are now paying for those mistakes. The ones who do this work today think in terms of externalities, transaction costs, unintended consequences, incentives etc, and the planet will likely be better off for it.
TBW-
Over this decade, but if you look at over the last 100 years many people have averaged over 5%. The last decades returns were bad because values grew faster than trend. Now they are closer to trend assuming 5% a year is not that absurd.
I imagine most of you have seen this before:
The Way to Grow Poor vs The Way to Grow Rich
Maybe some of you have done quite well with your investments and beat the market. But I think we all know most people do not do that.
The vast majority of wealthy people in this country have high paying jobs or had rich parents or a combination of both. Very few people become rich from day trading, real estate flipping, etc. Most people fail miserably when they try that.
Unfortunately, I have had little to do at work because of the recession (hence so many comments lately.) I'm trying to change jobs to a company that is doing better since I view having a good job and working hard there to key to lifelong prosperity.
So with all due respect to housebuyer, for the vast majority of people, it would be a horrible, horrible, horrible idea to follow your advice of trying to use the stock market or other investments to try to beat the return on investment you get by paying off your mortgage early.
housebuyer,
10 years = 1/3 the time of a 30 year fixed loan
I agree that probably for most of our lifetimes the stock market will be 5% or higher returns. But there are "lost decades" like the 00s or 70s.
Anyways, it's not an either-or thing. I'm not saying don't put money into your 401(k) or even buy a few mutual funds over the year and put all discretionary income toward your mortgage. I'm just saying getting a 15 year fixed or having 20% or more down payment or paying a 13th monthly payment each year can be a great way to save money and increase your net worth.
"John Fountain said...A perfect example: wood floors from "sustainably harvested trees."
Yes - Thats where the true "greenwashing" comes in. A product may proudly claim it was made "free of XYZs" knowing people will think thats a good thing and will pay more for it.
At the same time, they are often relying on consumers ignorance of the fact that either (a) XYZ's were never part of the manufacturing process to begin with or (b) they now use substitute ABC's which are as bad or worse as the XYZ's they didnt use.
Incidentally, thats why I like listening to the consultant friend so much. He helps cut through all the BS so people can make informed choices as to what truly is helpful, and what is a bit more dubious.
TBW-
I agree with you on all of those cases I am just being a little stubborn today. I have been pretty cranky recently.
I guess I am also preaching my book somewhat. I work at a hedge fund, which has consistently beaten the market and would consider 5% returns very poor.
housebuyer said: "Finally I don't see the advantage of paying more for high quality assets."
Neither do I. I want the best of both worlds; high quality assets at low prices. ;)
"Heaven forbid if you can give your money to someone like James Simon who has made ~70% a year for two decades."
Wow. 70% a year with James Simons of Renaissance? Hmmm, if he put a million of his own money in his fund two decades ago and earned 70% CAGR he would today have......$40.6 billion. This would make him the richest man on the planet, ahead of Gates, Buffett, and Slim.
jeffb said: "I missed the link about the Prius though, was it in that CSM article?"
Sorry, I hadn't linked it after all. Here it is...
http://tinyurl.com/3lavm2
"TBW said...
So with all due respect to housebuyer, for the vast majority of people, it would be a horrible, horrible, horrible idea to follow your advice of trying to use the stock market or other investments to try to beat the return on investment you get by paying off your mortgage early."
TBW - I think his larger point was about arbitrage which is a very legitimate way to use your money.
I have a student loan for 30K. Instead of paying it off all at once, I am paying it off over 30 years at 2% interest.
I now have 30K cash and could easily pay it all off. But in lieu of that, I have it put in a series of laddered CDs all of which make more than 2% per year. Thanks to arbitrage, I now not only have that cash cushion, I am making money off the spread. Honestly, I wish I could make it a 50 or 60 year repayment term so I could continue this practice in perpetuity.
The same principle can be applied to mortgage payments. If you have a 30 year fixed at 5% but thanks to high inflation, ultra safe investments like CDs start yeilding greater than 5% it would behoove you to have as long a repayment term on your debt as possible.
I agree with you that you should not try to time the market, but thats not the same thing as taking advantage of opportunities as they are presented. It was a real eye opener to me to realize that nearly all my wealthy clients have large cash or cash equivalents in reserve and tremendous amounts of long term debt. My first thought was, why not pay it off, why have all that debt hanging over you? It wasnt til I saw firsthand the value of arbitrage that I understood why they do what they do.
CRT,
I know what arbitrage is and that investment philosophy.
I don't know how you got 2% on your student loans but I had about ~4%. I was able to pay them off well ahead of time a few years ago. At the time I could've earned more with CDs etc but since the Fed cut rates substantially starting in the fall of 2007 the rate I would have earned less on those investments than the interest rate.
Also, be sure to keep in mind that you eventually pay the ordinary income tax rate or capital tax rate on investments. So even if you get 2% on your CD interest now you will end up worse off because that interest is taxed.
So it's not the no brainer people think it was. Maybe for people like you who somehow got 2% on your federal(?) student loans. But most people end up having 4-9% on their student loans and it's not easy to guarantee better returns than that post-tax.
CRT-
Thanks for explaining arbitrage you did a better job of it than I did :)
-JF
Simons did not have a million back when he started because they don't pay professors enough this is why he is worth a measly $5.5 Billion. I think he is also running into the problem that he can only make 70% on a couple billion(the stock market just isn't big enough for him) so he is only making 30% on the rest of his money.
CRT,
Also relevant to this discussion are that banks are getting tighter with mortgage lending. Many are applying the old rules of no more than 28% mortgage debt and no more than 36% total debt.
So even if you have a low interest rate on some of that debt, holding onto it might upset a bank imposing the 36% rule.
TBW-
You pay income taxes on the money from the bank, but the student loans are tax deductible so the tax burden is offset.
housebuyer,
He didn't explain arbitrage better than you did. I knew of the concept before you two even brought it up. He just used a pretty rare example -- having 2% interest on a loan. That's pretty rare. He must've consolidated his federal student loans the one year that was possible (was that ever possible?)
Even the 5% mortgage interest you used as an example is extremely rare. As I think we agree, these current interest rates may be a once (or twice) in a lifetime thing. Most people are going to have mortgage interest rates that are hard to beat with safe investments or normal stock market returns.
housebuyer,
Student loan interest is only deductible if your AGI is less than $70k.
Also, we are talking about the median home buyer. Not what "housebuyer" - a hedge fund employee -- can do or thinks he can do with the money. The housing market is based on the median homeowner.
There's plenty of research of the poor investment decisions made by average Americans with their 401(k) and other investments. That's why they advise the average American to just buy an index fund. For most Americans when they try to beat the market they do worse than the market.
You do know that even Calculated Risk predicts that residential construction will bottom out sometime this year. I fail to see what's surprising about construction starting to pick back up from next to nothing. It has to at some point.
We will have to disagree about the impact of new home construction on the local economy.
TBW,
Not sure where you are going with all of this Dulles Greenway stuff? The Silver Line will get funded.
Cara said,
I think however, that their basic guess of another ~12% down for the DC area will be about right, because while rates will rise, unemployment will ease soon too, and the distressed inventory is being absorbed well.
Did you notice that the market is on fire? Down another 12%. Possible for $1M+, but sub-$500k, no way.
TBW-
I agree low cost index funds are probably the best idea. I do think though that over the life of your house a low cost index will return over 5% a year. Although you are right if you have a 7% or 8% mortgage you should pay it off. Even if the market can slightly beat it there is risk to the market and paying off your loan is a risk free investor. I didn't realize that their was an income limit on student loans.
"TBW said...At the time I could've earned more with CDs etc but since the Fed cut rates substantially starting in the fall of 2007 the rate I would have earned less on those investments than the interest rate."
Yeah, now that yeilds are so low, I am now making extra payments toward my higher interest rate debts. However, if yeilds improve, I will discontinue that practice and go back to my earlier arbitrage method.
"Also, be sure to keep in mind that you eventually pay the ordinary income tax rate or capital tax rate on investments. So even if you get 2% on your CD interest now you will end up worse off because that interest is taxed.
So it's not the no brainer people think it was."
Ive factored taxes in. At the end of the day, it looks like I will make about 3,500 over the last 8 years by not paying off my debts as quickly as possible. Not much but its 3,500 I didnt have before.
And therein lies the point. Yes you have to factor in taxes and the like. The point is once all those things are factored in it can be a very effective largely risk free method of building your wealth.
Note, for some people, they just cant do it. For some, the mental anguish of having any long term debt hanging over them is not worth the money they would have by paying off those debts as quickly as possible. Thats fine. Just understand that given the right set of circumstances, long term debt is a wonderful tool which can be used to your advantage.
So I think we're basically on the same page. But to many on this blog who have argued for years that the Alt-A bomb wasn't going to hit us? and that we don't have that high of a distressed inventory? I think ranking 4th in Alt-A/subprime and having 17.4% more distressed inventory than normal is a pretty big wake-up call.
This rings of the same garbage kevin was spewing about the foreclosure tsunami. He said with total certainty back in Jan/Feb, now says, "hasn't happened yet, but still might"
Our market is hungry for distressed inventory. Bring it on.
CRT & housebuyer,
I think we are on the same page. I guess I just feel it's pretty rare to see 2% student loans and 5% mortgages such that it's rare for this arbitrage opportunity to occur. So it's not really something that should affect how the average homebuyer should view mortgage debt.
Since Robert filters the news, here is something he'll never highlight from you (in today's NYT):
That may turn out to be the case at Dulles International Airport outside Washington, where a $2 billion terminal replacement program was halted, as was a new $400 million car rental center.
Think about all the lost construction jobs!
Look for this to resume sometime next year.
Robert -- your brother-in-law is not going to be able to take a federal agency job if he cannot convince the agency that he has the KSAs they desire.
Most unfortunately, my brother-in-law did get a job here. I just found out yesterday. He is coming here this weekend to start on Monday, but it is a contractor position. Apparently, my wife gave him the green light to stay in our house until he finds a place. I'm very unhappy right now.
Robert,
Yesterday's post @J@ said he doubted another 50 cents for the Dulles Toll Road would discourage anyone from taking it. I was pointing out that when they increased tolls in 2005 there were fewer riders. Also there have been fewer riders of the Dulles Greenway as they raised tolls. And fewer because of the recession.
I'm not saying the Silver Line will not be funded. I do think there's a strong possibility that an emergency meeting will have to be arranged to pay for the Silver Line if Dulles Toll Road toll revenues do not meet the optimistic expectations set forth in the planning documents. Who knows what the remedy will be. Probably taxing Dulles corridor businesses even more. Or maybe something atrocious like 5.5% sales tax in Northern Virginia to pay for it.
Cara said...I'm still holding out hope that prices will come down far enough that buying will be cheaper than renting even on a 15 year amoritization schedule. I could chose to buy a condo now such that that would be true, but I'd rather not.
There are thousands like you, kevin, and TBW out there that are putting a floor under our market.
Robert,
I'd have to see the breakdown of Dulles Airport use by business and pleasure travel. Pleasure travel is way down and will remain way down now that Americans are living within their means.
I'd guess 20-50% of pleasure travel over the past six years was funded by HELOCs and credit card debt.
My guess is it's going to be a while before Dulles Airport sees an economic case for that construction.
[Last before I head off]
Robert said:
Did you notice that the market is on fire? Down another 12%. Possible for $1M+, but sub-$500k, no way.
So wrong that I have trouble taking you seriously anymore. Maybe the sub-$100k or sub-$150k market is hot.
Everyone else is selling lower than 2008 price levels.
So wrong that I have trouble taking you seriously anymore. Maybe the sub-$100k or sub-$150k market is hot.
Everyone else is selling lower than 2008 price levels.
At your peril will you take me seriously. $500k seems to be the fire line right now. The V bottom seems to be finding a lot of resistance at $500k.
TBW - yes. The examples I am using are exceedingly rare. Even more so in that (if I understand you correctly) you cant consolidated student loans anymore. Does you happen to know when they changed that?
The only thing I am thinking of now is if we end up in an inflationary environment. I just found this chart on 3 month CD rates. Look at the yeilds you could get in the late 70s & early 80s
http://www.mortgage-x.com/general/indexes/codi_history.asp
If we get something like that again, you would be quite pleased if you had a low rate long term debt and could play the spread.
Now, do I think this will happen? Nope. But the risk of it happening has a value that should be accounted for. Morover, if it doesnt happen, take that money and then use it to pay down your long term debts.
BTW - is anyone else astounded by the rates available back then? I figured it might go as high as 10-11%, but 16%? Hard to imagine for those of us who grew up around low interest rates & low inflation.
housebuyer: most affordable they have ever seen
The huge caveat being the area you are looking at. If it's Manassas or Loudoun, or a low-end townhouse in Fairfax, then yes, it might be really affordable.
But when I see houses that sold for $400k in 2002 ($800k at peak) now selling for $700k. Well...interest rates were a little over 6% then, and a little under 6% now.
Heck, for fun, let's say that interest rates are 4.5% today (no one is getting that, especially for conforming jumbo). That means that your loan payment today would be for $2800 (assumes 20% down), and in 2002 it was $1920. So, the loan payment is 60% 46% higher today, and let's face it folks incomes did not increase by 45% during that time period. Also, keep in mind that is with the fantasy 4.5% mortgage rate. With something closer to 5.5-6%, the payment today would be 75% higher.
Median family income 2002: $95,600
Median family income 2007: $122,600
Incomes increased 28% from 2002 to 2007 (no data for 2009 yet). Pulling a number out of my rear, if average incomes in 2009 increased to $136k (unlikely), that would mean that family incomes increased 42%.
CRT,
When I was really young I had a "young savers account" which never had much in it. I mean a really small amount of money. I think it had something like 6% interest. Hilarious in retrospect.
He must've consolidated his federal student loans the one year that was possible (was that ever possible?)
yep, my wife did that a few years ago, right before we got married. I originally was going to have us pay of her student loans as fast as possible, but at the 2% rate, it made sense to drag them out as long as possible.
tbw,
You should check your facts about Wilson High. According to the school profile on Wilson's website, over 30% of students live outside its attendance district. That implies to me that most of the students actually reside within the school's district. According to the DCPS website, several high schools allow out of district students for the special programs and academies they offer(Wilson is one of these). Also, just under 40% of Wilson students qualify for free and reduced lunch which has to be below the DCPS average. The school is also 50% African American, 25% European American, 16% Latin American,9% Asian American. The website says that this makes them the most diverse school in the city.
By the way, FCPS has 5 regular high schools and 2 alternative high schools with a free and reduced lunch population over 35%. They are Lee (37%), Mount Vernon (38%),
Falls Church (39.5%), Annandale (41%),
Stuart (50%), Mountain View Alternative (40%), and
Bryant Alternative (38%).
"A friend of mine works as an environmental consultant - there is a name for this practice - people are being "greenwashed".
I dont know about the examples you cite in general, but its true there are many things that go into the total count of carbon emissions that simply dont get counted.
His favorite example is a old-time push mower. On its face it uses zero carbon emissions. However, it does burn excess calories of the operator, who then buys marginally more food to replace those lost calories, meaning more food has to be shipped (via trucks and other carbon emitters) to the local markets."
I am sorry CRT, but if your friend really uses a push-lawnmower as an example like that then he is utterly clueless.
The human body is astoundingly efficient compared to either an electric or gasoline powered mower.
There is no such thing as a free lunch of course, if you are going to get useful work done you need to consume some energy, but the amount required to operate a push power is simply tiny.
Considering it takes ~100-150 calories for an adult male to run a mile, it is going to take no more than 300 to 450 calories to mow a lawn unless you are talking about a serious lawn.
That is to say less calories than are in a king sized Snickers bar.
http://preview.tinyurl.com/lfysw5
Now of course that Snickers bar needs to be produced, transported, etc...
but so does gasoline, and coal, and everything else. As I said before there is no such thing as a free lunch, but there is no way you can massage the numbers that will yield a push-mower coming close to an electric or especially a gasoline mower.
While I am on the subject, global warming and "green" are not the same thing. With all the publicity global warming has gotten people seem to be confusing the two more and more frequently. There are many things that are bad for the environment that are not major "carbon" emitters.
Hayfield Grad: As TBW's job wanes and by his own admission he has more time to add to this blog (question: did his previous additions to the blog throughout the workday have anything to do with his job waning?), he is making more unsubstantiated pronouncements and "guesses" about what is going to happen with everything from Metro funding to "everything is selling below 2008 prices," to his uninformed discussion of schools based only on published stats. One plug for FCPS Edison High School in Franconia which has a large vocational tech training program. It is producing most of the electricians in Northern Virginia who continue to become master electricians. Not everyone wants to, should or could become a "professional."
We're also in the process of working through my wife's student loans and her biggest loan (depressingly big) has only a 1.625% rate. I believe it dropped 1% last year from 2.625 because she hadn't had a late payment in a certain time period (a year or two). I'm astounded at how good that rate is. It's Sallie Mae and I'm sure was heavily subsidized by either the government or her school.
Her other two loans are around 5%. We paid off one and should have the other paid off soon. There's no way I'm paying more than I have to on that 1.625% one though. If only we had that loan in cash instead of in a law degree that's not being used in a particularly lucrative way :)
Jeff-
Sorry to hear the degree isn't being used, but congrats on working through the high interest ones pretty quickly.
Leroy - you will note I said the Gasmower/plugin/pushmower are not equivalents. His point was there are very few things that are truly emission free.
Perhaps the truer "green" option is to not have a yard at all.
Well she's using the degree, just not in a way that would justify the loans (in a purely financial sense at least).
CRT,
The problem for me is that I don't see anyone arguing that an unpowered mower is emissions-free. In addition to any energy consumed by the human powering the mower there's a decent amount of energy usage in creating and transporting the manual mower. An argument like that, however valid, obscures the important part of the whole situation. Which is that a manual mower uses considerably less energy than a gas-powered one.
I'm all for measured analysis of any decision based on environmental impact. Once you start going down that path though it's very easy to end up doing nothing.
"I'm all for measured analysis of any decision based on environmental impact. Once you start going down that path though it's very easy to end up doing nothing."
Exactly, as I said in my post there is no such thing as a free lunch.
Every moment of every day we are consuming energy just by being alive, but outside of perhaps simply not having any grass in the first place, a push mower is about as energy efficient a solution as you will ever find.
It is mechanically simple and easy to produce. Nothing about its production need be unusually environmentally harmful or energy intensive, and the energy consumed during its operation is tiny compared to any other alternative.
(I guess a few sheep or goats might actually beat a push-mower for keeping grass short, but try getting those past the Reston Association.)
I am pretty sure that farm animals are one of the largest producers of methane(bad green house gasses)
"I am pretty sure that farm animals are one of the largest producers of methane(bad green house gasses)"
Yeah, but some more than others. (Cows in particular)
I don't know if a couple goats or sheep would be that bad.
Either way I think we are pounding this one into the ground...
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