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Tuesday, September 15, 2009
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68 comments:
Single Family Home.
I think this listing illustrates perfectly what most people (specifically Harriet) like about single family homes:
http://franklymls.com/FX7148421
$399k
1/3 acre,
1300 sq feet including the split level basement
+ 567 sq ft 1 car garage
But check out the vegetable garden.
This is to me, an ideal starter home if you want detached. I'd like a 1978 house to be less than $400k, but at least it's priced within spitting distance of the 09 tax assessment. It's no one's dream home, but I'd say it's a darn good house.
This is the product that I think tbw thinks should be easily within reach for the median household income even including all their debts and child-related expenses. Which if the median household income in Burke is $110k (I didn't look it back up again) means that at current interest rates, this is priced okay, but really needs to come down to $300k eventually.
E. Razzi's blog
The Post's Dina ElBoghdady has this to share from her reporter's notebook.:
Odds are improving that Congress will extend the first-time-home-buyer tax credit beyond the Nov. 30 deadline as it pushes to revive the housing market, said Jaret Seiberg, a policy analyst at Washington Research Group, a unit of Concept Capital. There’s a 60 percent chance that lawmakers will keep the tax credit intact, especially since policymakers from both parties have voiced their support, including Senate Majority Leader Harry M. Reid, who represents foreclosure-plagued Nevada, Seiberg said. But fiscally conservative lawmakers may rally against it in part because it could cost at least $10 billion to extend the tax credit through Sept. 30, 2010, Seiberg said.
60% odds. Time will tell.
God please let it DIE. Extending it is so stupid. It will just be paying people who were going to buy anyway.
A wise man once said, "60% of the time, it works every time" - Anchorman
or it's providing a bonus to sellers - they get a higher sales price than they would have gotten without the credit.
Cara,
An interesting house for discussion. I love the sound of trains, very soothing to me, but I don't think that even I would want to live -that- close to the train tracks.
The 1/3rd acre is nice, but the 1300 sqft is a tad tiny. If you're describing it as a starter, that's fine, but it's hardly something that 'median Burke' is going to be content with, I think.
Definitely not a dream home, but a very serviceable one with some obvious flaws. If they compensate for those flaws, it works. $250K in my book.
Xpovos,
The median house in Burke, is actually a TH. They built that many of them.
1300 is small, but it is manageable, and it was "normal" back in the good old days when "normal" folks could buy SFHs on one salary. So I think it's a good comparison point for tbw's argument about the income of folks who used to be able to afford this kind of housing.
The train tracks is a major problem, because that's the VRE, so while I don't think the line includes freight, it does start quite early in the morning.
I hadn't factored that in when I said $300k. But I think the oversized garage counts for quite a bit, as well as the decent sized lot (a ton of the lots in Burke are teeeny-tiny), so I'm sticking with my $300k price point for where this "should" be.
hmmm,
tax assements:
2009 $180,000 $203,540 $383,540 NO
2008 $200,000 $254,430 $454,430 NO
2007 $177,000 $322,600 $499,600 NO
2006 $177,000 $294,310 $471,310 NO
2005 $162,000 $217,590 $379,590 NO
2004 $120,000 $173,380 $293,380 NO
2003 $96,000 $173,380 $269,380 NO
2002 $72,000 $143,505 $215,505 NO
2001 $72,000 $114,520 $186,520 NO
2000 $56,000 $107,615 $163,615 NO
293k 2004 -> 2003 comps
269k 2003 -> 2002 comps
215k 2002 -> 2001 comps
using these as a proxy for sales in the neighborhood in the prior year, that would mean my $300k price would be a 2003 roll-back, your $250k, a deal in 2002. Both pretty reasonable guesses.
Xpovos-
The other comment is the median family does not buy the median house. Something like the 60-70% income buys the median house. I am making up numbers, but my guess is the bottom ~25% of people do not have enough money to buy so they are renting somewhere.
Ace,
doesn't that only work for inherited properties and future renters?
Half kidding, higher house prices, not having to provide seller subsidies, all allow another tranche of break-even sellers to get out of the housing market.
People who are trading down are going to run into even more price bubbliness on their new property because the $8k is a bigger incentive the less money you personally make.
So I guess the other people it helps are people who are trading up into a price bracket that exceeds the means of the income limit. Of course, if there are enough of those people that it "helps" it will raise prices there too.
Ace "it's providing a bonus to sellers - they get a higher sales price than they would have gotten without the credit."
Truer words have never been spoken. What idiot thinks $8000 is worth paying an extra 20 grand?
housebuyer,
That's not what the ACS or Census numbers say around here anyway. At least during the bubble. The median first-time buyer made the median income. A lot of those with below median incomes also bought a long time ago and have low housing costs for that reason.
Whether this will be true post-bubble is another question. Its easy to see how during a bubble, as members of a neighborhood get priced out of their own homes (if they had to buy them again), the median income of new buyers would actually be much higher than the median income in the neighborhood (at least until fancy mortgage products took hold).
What happens on the way down?
WaPo Live Q&A @ 12 noon today
Mortgage Meltdown
Michael Calhoun, President of The Center for Responsible Lending, discusses the effect the financial crisis has had on the housing market, the government's foreclosure prevention efforts and where troubled borrowers stand now.
housebuyer,
Totally agreed. That just makes the NoVA area in general hard to pin down, particularly since we're talking so much about medians rather than mean averages, which can be significantly different depending on mixes.
For Burke, the mix may not be that big of a deal with so much similarity in housing and probably income, but in Woodbridge, where I am, it's a huge deal.
xpovos,
Indeed the mix, both in housing stock and in incomes makes things difficult. One would like quintiles listed in both or something.
I do think it's important to keep in mind that not all poor people rent, and not all rich people own.
MM, good find.
Cara-
If the median first time buyer has the median income then I think my statement would be true. I can almost promise that the income of move up buyers are higher than first time buyers. So if move up buyers are on average richer than median and first time buyers are at the median it would imply that on average house buyers make more than renters.
housebuyer,
I'd have to look back at the report to verify on that level of detail. I've lived with my memory for long enough to have learned that details tend to shift with time...
Keep in mind, this was a starter home I was profiling. I don't think this is anyone's idea of a move-up purchase.
Cara-
Good point its unlikely a move up house unless someone moved from a TH. I would say it is nicer than most starter houses though. It is a little small, but nice on the inside and it has a great sized yard and deck.
PDF file:
2007 American Housing Survey
okay, so I haven't found what I was looking for, but I did refind table 2-16 on mortgages. Definitely very interesting if I could figure out how to interpret it...
page 95 and on table 3.15 Mortgages
focusing on the final column which is FFX Cty.
You see that there's 227.6k mortgages, but only 46.8k free and clear. The lines of credit are only 22k, so the fact that the "numbers of mortgages" breaks down with 103k (1 mtg) 103k (2 mtgs) 4.3k (3 or more) 23.7k (not reporting) means that 81k of the second mortgages are either purchase-related in stead of a downpayment or are more substantial than just a line of credit.
That's what I think we should be worried about. Even for those who don't default and lose their homes, a serious number of people will have curtailed spending due to tightening of credit requirements.
Median years remaining on the mortgage 24, median outstanding principle 223k, but look at how huge that bracket of $300k or more outstanding principle is: 71k! This tells me, that most of those move-up buyers took on new larger loans when they moved up.
OTOH, at 2007 prices, the median LTV was 38.7% and only 47.6k homes had LTV's over 60%. (30k of those in the 60-79% bracket). (compared to 171.5k with lower LTVs). 20% price declines is the tip of the iceberg in terms of whom it might endanger, more than that could prove disasterous... This I think is what the government is trying to avoid as much as possible. Keep the price declines small enough to not endanger the 20% down, 30-year fixed folks.
So many numbers, so little ability to quantify any possible effects...
housebuyer,
My apologies for quibbling, because this really really is quibbling, but I don't think anyone is going to "move-up" from a $300k TH to a $399k SFH. (current prices). What's the point? It's smaller than a lot of the TH's. That's just incurring a huge transaction cost to get a yard. I could see people moving up from a metro-accessible 1 bdrm condo into this though.
Other similar SFH's without the yard and general livable-ness have been going for 300-315k, so I put this in the category of starter homes that one can live in your whole life, rather than ones where the plan is obviously to move up later.
I don't think first time buyers, as a whole, should be able to buy the median priced house. Median income implies a certain number of years in the work force and equity or savings for a decent down payment. First time buyers should expect to buy "starter" homes. That concept has all but disapeared; perhaps due to the fact that today's generation is waiting so long to get married and buy a house.
I never expected to have "my parent's house" right out of the gate. I can remember driving down 123 to the grocery store in Vienna and wondering if we would ever be able to afford one of those homes by the Golf Course.
I never recall thinking anything other than DC is very expensive. Well, I did think that it was "unfair" that my parents only had to pay 6% interest as rates were 14-18%.
I am not saying that prices didn't get out of hand, but I do believe that starter homes are now affordable. It seems many here want to "start" on the second or third rung.
Now that I am done buying (sorry, but I didn't want more competition), I'll tell you some of the "starter" neighborhoods in which I have purchased recently.
What I believe is a perfect starter neighborhood is Parc Reston. These are condo's directly across the street from Reston Town Center.
At the peak they were selling for 378K for the largest units. I have bought two for the very low 200's. They were totally redone 3 yrs ago - granite, stainless, etc. and in move-in condition. The pool and gym are terrific. They rent immediately (in my anecdotal experience) for about $1,550.
Comps in the area support much higher prices.
Another location is Rolling Ridge in Sterling. It is right on the FX County line. It is a nice, well kept community of TH-condo's. Peak prices were 250K and the reo's/shorts were selling for about 100K. Rents are $1,200+.
I have also bought at Northgate Condominium in Reston for half or less than peak. While not as nice as Parc Reston, the prices were alot lower and and it is a straight shot to the coming Silver Line.
I am still waiting on two shorts in these neighborhoods.
I did buy one place in a lesser neighborhood, but the cash-flow (and condition) was hard to resist.
I had less than one month "down-time" on any of them.
As I have all the rentals I feel like dealing with, I will now set my sights on doing a few flips this year.
With the exception of the one "lesser area" place, I would be quite happy living in any of them.
"It seems many here want to "start" on the second or third rung."
If you're 35 when you're buying your first house though, is that so unreasonable?
And I agree with Cara about that small SFH that while it's not the lowest rung on the totem pole, I'd imagine that the majority of potential buyers would be first-time home buyers or else moving in from another area.
Cara,
I think 1300 sq feet is a nice size for a couple or 1 child family.
Our rental is just a little smaller and we are totally out of space (and the baby is still in our bedroom). And, we want one more child. I think 1800-2000 sq ft + unfinished storage would be perfect.
Does the concept of a starter home really make sense any more now that buyers have to save up a large down payment (allegedly), are buying their first homes after 30, and with transaction costs, etc?
The starter home idea made more sense when people were married and buying homes in their early 20s. Or if you live somewhere real estate is very cheap.
PS- Va_Investor, thanks for the neighborhood tips. We are way past the condo stage over here, though. I can't imagine trying to keep my guys quiet at 6 am so the neighbors can sleep, or bringing groceries up in an elevator.
What do you think are the best-priced close in "real house" neighborhoods? Just curious--maybe there is somewhere excellent we don't know about.
Cara, no, I think it applies to all sellers, at least in the lower ranges. They are likely getting a higher sales price thanks to the credit than they would have gotten in the absence of the credit, all other factors being equal, because more buyers are able to afford their homes than they could have in the absence of the credit. There likely would not have been as many buyers out shopping and bidding against each other without this credit. Some of you have indicated agreement with this previously when you have argued that sales prices in general may be puffed up a bit because of the credit and that the median price may drop (at least in the lower categories) if the credit is not continued.
My point is that it isn't necessarily the buyer who is getting the full value of the $8K credit.
@ Ace (and others), I wonder if indirectly the credit is helping to prop up prices in the higher-end move-up range as well.
My thinking is that if buyers of $700,000 homes are also selling $400,000 homes, and they are getting higher prices for them because of the credit, then they are able to bid higher as well. Plausible?
"If you're 35 when you're buying your first house though, is that so unreasonable? "
No.
Especially if you are 37 and are a PhD Engineer.
Cara-
Sure I don't think they would move from a 300K TH. I was thinking more about really small ones or condos. I could see people having two bedroom places with no yard and moving to a 3 bedroom with a yard. Particularly if they have a kid and want a place to play with him
Va_investor,
Did you look at the house? Do you really think 35 year olds should be buying anything less than this?
Why, why would you bother to buy a condo? Oh wait, because everywhere you mentioned was cheaper than renting, such that you could keep saving like a bandit. Nevermind.
Meshell,
To each his own. It's a three bedroom, there's no reason you can't have more than one kid there. Sure one might like more space, but if financial constraints keep you from moving up, there's no reason this would be inadequate. I agree totally on the ideally one would want 1800-2000 for a long-term home, but I doubt many would have agreed with calling that the starter rung.
housebuyer,
Agreed. This would be a good move up from a 2 bdrm 1000 sq ft no yard place.
Real-estate industrial complex.... man the transaction costs they're reaping with all those rungs on the ladder...
Meshell,
Are you thinking TH or detached? What is your price range? What area?
Cara,
I never said 35yr olds, but if your income only supports a certain price age doesn't matter does it?
I have some tenants that age who would love one of my "starter" homes.
va_investor,
I do think that the areas you've pointed out if they can be found for those prices are cheap enough, that the savings versus renting could cover the transaction costs incurred when moving up, such that they make sense for a lot of people starting out, in addition to a lot of people with lower incomes in general.
However, the 35 year old case in point was a reaction to this statement:
"It seems many here want to "start" on the second or third rung."
Well those of us in this category are for the most part approaching or well over 30, and make either the median or more. So this house seemed like a pretty good metric for a semi-ideal first-time buyers home.
Risk of deflationary collapse greater now than in 2007
We are at greater risk of a total meltdown due to a deflationary collapse than we were in 2007.
Cara,
"if they can be found"
Check solds/UC on Frankly. I don't make stuff up. Also check Providence Village and the large, garage TH's adjacent to Rolling Ridge (on Rabbit Run, etc). The best buys have come and gone, but prices are still quite reasonable.
There is a large 3 bedroom end-unit that went UC at Providence Village. It was gorgeous and 115K.
I know this area (although across from the elementary school) is not everyone's cup of tea, but, my gosh, just about anyone could afford it.
This forum seems to have alot of older folks who don't make enough to live where they believe they should live. Well...I don't know what to say to that.
Va_investor
"if they can be found" -me
"The best buys have come and gone" - you
not a lot of difference between those two statements that I can see.
I think those are all places to watch avidly this winter for any deals as the REO's continue to trickle out. (if living up there is convenient for one's commute).
(friends of our used to rent in the garage townhomes of Sterling, wonder if their landlord ever sold... kicked them out when she wanted to put it on the market, and then it sat for a year last I heard).
Gte---
Yesterday you said:
If you have taken 18k you could have probably bought 3-4 futures contracts of gold @250/oz.
Yes you could do that and add TWO MORE risks to your investment that houses don't have.
1) Volatility risk. Futures build in a premium for volatility, and if volatility drops, your futures values BREATHTAKINGLY drop.
2) Time risk. Futures/options are wasting assets--they lose value every day as the expiration gets closer. Someone once said "90% of options expire worthless." That's a bit misleading, because of course they do unless they get exercised. But you get my point. As a final comment, I've had as much as 140 oz. of gold as an investment, primarily while I own no real estate and worry about the dollar, but I would NEVER buy 140 oz worth of gold futures. (Unless gold dropped back to $150 or something, which will never happen and in which case I'd probably be able to buy a super-cheap house for cash.) There's no comparison to real estate in terms of risk/volatility profile.
Doubled your net worth in 5 years? I'm slightly confused, you bought @ 360 and sold @ >700? If that's the case than you more than doubled your net starting from ~60. Congrats, I'd say you did very well.
You math is flawed, partly due to the fact that I didn't give you enough numbers to be able to do it.
For one thing I said only my available down payment funds were 60K, not my whole net worth. Secondly, why would my house price have to double to double my networth? All I needed is for the GAIN on my house to equal my prior NW.
If I told you the percentage of price gain on my house, you could figure out the rest of the numbers, but you'd probably get pretty close just by using typical DC area numbers for that period.
Cara did indeed find what I think is a starter home for the area. Some starter homes run a little bigger but this is not too small to be a starter home.
I disagree that first time homebuyers are older now than they were in the past. I think it's the opposite. It's exactly the fact that my parents (and neighbors) were having kids in their late 20s that delayed when they had the funds to buy a home.
Cara -- I'm confused as to why the median first time homebuyer would have a median income. If the median first time homebuyer is 25-34 or so and they have the median income and presumably most of the 35+ year olds are the higher than median income, then who the heck are the 50% below median income? I would have gone with housebuyer's guess that the median first time homebuyer has about 70-80% of the median income.
Also -- I'm still a little hesitant about relying on median income to determine what's a fair house price. As this article in the NYT notes -- you need to consider mortgages with multiple earnings futures. I don't think the median household income for family oriented suburban neighborhood is two high earner couples. I think you'll find many couples where one spouse took off a couple years or went to a part-time job. With the "mancession" perhaps there are more instances where the woman is the full time worker and the man is stay at home or part-time.
Cara,
Just because I believe that the best deals have come and gone doesn't mean that the prices I mentioned are not still available.
Last week a 2 bedroom Parc Reston unit went on for 190K. There were also a couple of new listings at Providence Village. I've seen prices rise at Rolling Ridge - both TH/condo's and the larger garageTH's. But they are stll very affordable and well located. The early bird gets the worm.
In hindsight, Oct thru Feb was a great time to buy. But there are still plenty of great buys. Obviously, anyone that thinks prices will go lower does not agree. They are low enough for me.
Cara,
If you agree with me that FX148421 is a median starter home for families in Fairfax and might come down to $300k (or maybe even $250k) as interest rates go back up, why are you buying the condo-TH?
Sounds like you are perhaps open to my argument that these starter homes will once again be the first rung of the housing ladder for white collar couples and not TH and condos.
tbw
It is counter intuitive but take a look at Table 3-19.
median income of owners with a mortgage: 104k
median income of owners with no mortgage: 62k
A lot of the below median income folks are retired, is my take on that.
I can't find the data on first timers within that pdf, but I know that's where I found it before. So, if you don't believe me, feel free to look for it yourself.
Va_Investor,
Here is the fatal flaw in your argument (and the other housing bulls argument). If white collar couples making $100k are living in some crappy condo, then where are the immigrant families living? West Virginia?
Don't you understand that most of these highly dense neighborhoods were designed to provide affordable housing, not median housing? Remember this home I found? http://franklymls.com/FX7154937
No one at the county planner office is under the delusion that it would house someone who would drive down Maple Avenue to an office job in Tysons Corner. It's for those who have blue collar service jobs. You can't expect people to commute from Spotsylvania County to be a $10/hr janitor at some company in Fairfax County. After gas costs it's barely worth it.
TBW-
A lot of poorer minority families live in multifamily units. Although many make 30-40K when you put several families in a house it becomes feasible to like in a 400K house.
Tbw,
Because it's cheaper than renting and fulfills all of our needs. Amongst which yard-work is not a need.
From that same article it says buy best or buy cheapest. We're doing the buy cheapest.
The condo we'd be buying is in better condition, the same size but entirely above ground, such that the bedrooms and all the other rooms are larger (since there's one less room).
I just don't have that SFH gene. Just missing it I guess. Besides, we can buy ours now, for $215k if the bank accepts our offer. Whereas we'd have to wait an unknown amount of time for an equivalent of this house to come down to our cheapness threshold.
Now, if I knew for certain that 1800 sq ft. SFH's with cool 60's architecture were going to come down to $325k within the next two years, that'd be a different story.
Besides, the starter rung is wide, and basically encompasses anything that's better than renting.
http://franklymls.com/FX7110585
$399k is the new black!
It's a SS, so the price may be a cruel joke, but this guys 1700 sq feet above ground, baby.
tbw,
Yes, I am open to that possibility, which is part of why I brought this house up. Mostly it was the vegetable garden though.
This type of house needs it's own name. First and last home? It's the right "starter home" for people who aren't in renumerative careers and can't afford the transaction costs of participating in the ladder.
But yes, that would be blue-collar kind of workers.
tbw,
using the most conservative front-end ratio of 28%, 100K can afford a 400K mortgage at 5%.
20% down puts you at 500K.
If this is what you consider a crappy pos condo...I don't know what to tell you.
Va_investor,
DTI includes payment of taxes and insurance. But no lender is actually holding people to 28% DTI either.
Still, $450k is not a crappy condo in Reston, at the height of the bubble it bought you a nice big TH in Northgate.
Cara,
My mother sold an absolutely beautiful TH (not condo or piggy back) about 2 yrs ago AT RTC for about 440K. It was on Edgemere Circle - hardly a crappy pos condo! 3 level, 3 bd/2.5 bath with a rough-in and finished lower (walkout) level with garage. New hardwoods and granite, gas FP, big deck backing to woods.
I doubt they have gone up since then.
Va_investor,
I think you missed a "not" in that sentence, I was agreeing with you.
Your example is more concrete and timely, than my one and only data point from my best friend who lives in Reston (and bought in 2006).
Cara,
No, I was agreeing with you. If tbw thinks a Parc Reston condo is crappy, I clearly don't agree and I don't think any of the residents there would.
As far as the immigrants that tbw thinks can only afford West Virginia due to their 40K income, I again point to some of the communities where I have bought.
I thought they were building these things for the government.
Instead it looks like private capital is driving expansion.
Well, not only does it look like the recession is over locally, but we have achieved a separate milestone:
“In addition to having one of the best performing economies, D.C. stood out in another way last quarter. It achieved a new high gross metropolitan product,” said Alan Berube, research director of the metropolitan policy program at D.C.-based Brookings and co-author of the report. “It surpassed what its own [gross domestic product] was before the recession.”
For the record, I do not think house prices are going to return to bubble levels just because the economic output matches, actually excceds, what existed at the peak of the housing bubble.
Cara/Va_Investor,
If this scenario Va_Investor put forward
using the most conservative front-end ratio of 28%, 100K can afford a 400K mortgage at 5%.
20% down puts you at 500K.
was going to be the scenario for the next 5-10 years then sure the gov't would have artificially put a floor on housing prices by permanently putting interest rates at ridiculously low rates. Because 5% interest rates throws out old adages like 3x income.
HOWEVER, does anyone really think 5% is here to stay? [And it's not even here -- many mortgage companies are asking more than 5%]
Does anyone here other than Robert really think 30 year fixed mortgage rates will be 5% in 2012? I'm guessing somewhere between 7-9%. Those couple of percentage points would put the $100k family in the $300-325k range; not the $500k range.
But this was helpful. Now I understand some of the confusion between Va_Investor and I -- I think we are mostly in agreement about who lives where. Just disagree about how rising interest rates will affect home prices.
Robert,
When ACS data comes out later this month how do you think Fairfax County will fare? Will there be a higher median household income? The Census has stated median household income nationally has gone down. Did we buck the trend in 2008?
I'm on the fence. I'm confident median household income will be down in 2009 (we will not know that until fall 2010), not sure if it hit hard enough here in 2008 for it.
Va_Investor,
If you are noting a $100k family could afford a $400k place, then why did you disagree with Cara that the home she found in Burke would be a good starter home. It sounds like you agree with us that it's a good starter home.
You started listing a bunch of condos so I thought you were saying that starter home in Burke should be $600k and the Parc Reston condo should be $400k. That's why I was like where do you expect blue collar people to live.
tbw,
i think the gov't will try to keep it as low as possible until housing truly recover, which could mean not before 2012. whether it will succeed is another story. at this point, i think it will, and that's where i agree with Robert (on principal). but i guess you think otherwise. i'm not knowledgeable enough to argue either way though.
RE: Household income for Fairfax County 2008: flat, but no confidence in that prediction.
HOWEVER, does anyone really think 5% is here to stay? [And it's not even here -- many mortgage companies are asking more than 5%]I'm guessing somewhere between 7-9%.
TBW, at what point do you give up trying to predict interest rates? Nothing you've said about rates for the last six months has been right. I have not and will not forecast interest rates.
Oh boy . . . the insanity continues. I think I'm done commenting for a little while ( . . .it just takes up too much of my time to respond and with a fam. + trying to make the right financial decisions (read possibly buy a house) + work + studying for PhD exam . . .eh hopefully you get the picture).
@Cara . . . no worries on the 10%
@Scott . . . I'm not sure you know how futures work, but futures and options are not the same thing. Options have a time decay on them, futures do not-they have a end date, and if you want to continue to hold you roll over the contract. The price of gold that you can buy off the street is determined by spot price which is determined by the front month on the futures market. Futures don't have a price volatility baked in (options prices do). The percent required to carry the contract (leverage) will reflect the volatility, but the price does not have volatility baked in.
I find it interesting, you are skittish of buying a gold futures contract with an underlying value of 100 oz, yet you are willing to hold 160 oz. and you are willing to leverage up 90% or better on a house and seemingly trade it like stocks? You stand more to lose from holding 160 oz of gold vs. buying 1 futures contract.
The big disadvantage (or advantage) to the futures market is that accounts are settled at the end of every day. If you bought 1 FC of gold and it went up $1 . . congratulations your account at the end of the day has an extra 100. if it dropped $1 your account now has -100 in it.
If you have 140 oz of gold if it drops $1, you lose $140, you just don't realize the loss until you sell.
This concept is generally why smart futures investors/traders will never deploy 90% . . .suicide. In fact the same should be said about the stock market about being 100% fully invested in the market with the funds you have set aside for the market is just insanity and a good way to lose money.
I know, I know a radically different concept, and I'm sure most here will ridicule this and say it's stupid . . . well, I really don't care, I've studied markets, futures, stocks, well enough to be dangerous. I also know that if you don't have at least 20-30k to start that you are willing to lose you're asking someone to take money from you.
And I also know that to really make money in the markets requires a lot of time, skill, and nerve.
Scott, again (no snark in the least) you appear to have done very well. I only question the belief that it was less risky than buying gold, stock market, etc.
Don't get me wrong, I like to own physical . . . b/c its one of the few things you can actually buy in this world that requires little skin, no leverage, quick convertibility, and a very liquid market.
There is no free lunch, the greater the possibility of reward, the greater the risk. You were either lucky or extremely wise to get out, not lose your job, etc. If what you did is the way to wealth and riches . . . then please tell that to the millions of homeowners who are getting foreclosed. People started believing housing was like stocks vs. a place to live. They leveraged up, thinking housing could only go up, great inflation hedge, buy as much as I qualify for, etc. And then reality came crashing down.
@VA,
No I don't believe stocks are going to go up, up and away. for most of the 70s the dow was <1000, during high inflation. I don't have the exact dates or numbers (and if you really want, I can look it up), but Barron's (I believe) proclaimed stocks were dead in the early 80s.
The belief that stocks didn't rise for a long period of time is utter disbelief to people today. I don't know what stocks will do, but in order for them to match the run they have had since 1984ish it would mean that in 25 years the dow will be 100,000. Now maybe it will be 100k, but I've got a feeling if it is a loaf of bread will be at least $50.
My point is that to me there is no value in stocks @9500 . . . sure it could go to 14k . . . but are you going to be able to time it just right?
I need to move out of this area . . . until people get out of this monthly payment mindset. . . gosh it is sickening.
500k on 100k . . . I hope you don't mean a 400k mortgage on 100k . . . .are you guys insane?? What's next 60 year loans so we can buy 800k today on 100k. . . I mean interest rates are low, low, low!!!! Oh what the hell you know why not go w/ 0% for 100 years! I mean, we all know that no-one really plans on paying it back. Inflation will eat it away and in 60/100 years, you'll be good. Oh just don't mind the fact that you might lose your job and by that timeframe you'll be dead!
Low interest rates prob. actually hurt more than they help. The lower the rates, the less incentive to pay it off and consequently more people are in debt longer and never gain wealth!
VA, let's also clear something else up. The gov. doesn't give you an incentive to own. . . they TAX you to own. They provide an incentive to have debt, not to own . . . there is a world of difference.
Hey anyone who makes 100k and wants to buy a 500k place, be my guest. I'll buy your place for 2/3-1/2 when you go into foreclosure b/c you were stupid . . . you lose your job, you need xyz, etc. and what's more, I'll have enough that I could pay cash. Insanity continues.
You guys want to know the way to wealth and riches . . . be able to pay off your house as quickly as possible.
Depending on rates you can use interest rate arbitrage, deductions, etc so you may not want to pay it off. The point is that it is in effect paid off, b/c you could at a moments notice pay it off.
But what the heck . .. what do I know. I just know my dad didn't have a mortgage from 35-55 (he only took out one to start a business). And even though he only made 30-40k for much of the 90s we lived well, and he never had to worry what would happen to the place if he lost his job.
The biggest travesty in our whole mess of an economy right now is the massive misallocation of resources. No one ever thinks about paying off their debts, saving for a rainy day, holy crap here's a concept actually have money so when your car breaks down you can fix it vs. buying a new one w/ debt.
The whole use mortgage for saving BS . . . come on people saved 10% in the 70s during high inflation! People had way more sense back then than they do now.
Instead of people trying to be better at their job, start their own company, be more productive, etc, the way to wealth and riches and retirement is to "leverage up", buy as much as you can, stocks can only go up. It is a great way to provide wealth and riches . . . only to bankers, stockbrokers, etc.
I tell you I know what it's like for a sane person in a world for of insane people.
@xpovos,
Yeap my gut reaction was ~250k for that house.
I think this article is helpful for understand interest rates.
Money Mag. article
I think this article is helpful for understand interest rates.
Money Mag. article
understandING, that is.
On a final note, everything goes in cycles, stocks, bonds, RE, commodities, etc. I believe stocks (value-wise) have peaked, RE (value-wise) has peaked, that only leaves bonds and commodities, and PM (break them out b/c they are more currency vs. commodities) . . . .maybe not commodities b/c of the runup. . . People are buying RE and stocks b/c they see the recent gains and think if they only got part of it . . . just like buying gold 1980 after it's 850 peak down to 300 up to 500 and then to ~250 for 25 years.
Again what has value or is significantly undervalued by the majority of people? That is the quandary I'm left in. '05 was easy . . .it's a lot harder now.
Robert,
Look at the calendar. How could anything I have predicted about interest rates be wrong when it's not even 2010 yet? I've made no interest rate predictions that could be proven wrong yet. You are delusional.
I predicted that (as the futures traders have predicted) that the Fed will raise the Fed Funds rate in early 2010. Why don't you wait until early 2010 before you declare me wrong.
And I'm making predictions about how interest rates will be in 2010-12.
Yeesh. Learn how to read.
gte,
Don't let the comments of a few people on here discourage you. I used to wonder about a few people but now I've learned some of their back stories. For example, Robert sold a starter home in Clifton in the mid-2000s and used the equity from that to buy a huge home in Great Falls. If our predictions come true he'll have wasted hundreds of thousands of dollars. Hence he needs to blow off some steam rambling on here about the fed gov't employing everyone at $300k+ and other delusions.
Most of the other housing bulls on here bought this decade (some appear to have bought multiple investment properties). So they also are seeing potential five digit or six digit wealth losses if what we are saying comes true.
I agree it can feel like crazy land on here some times. But once you realize the biases it's easier to understand what's going on here.
Let's back up the truck. Here's what you posted 9/3/2009:
Robert,
Not sure I follow the point of your analogy. Are you denying that you were wrong about 2009? Look at this quote in today's article about Loudoun's budget problems:
The area is expected to experience a net loss of 21,000 jobs this year, said John McClain, senior fellow at the Center for Regional Analysis at George Mason University. But in the next few years, McClain added, the region will see net gains in jobs.
Article
Face it -- you were wrong, wrong, wrong about the federal gov't offsetting job losses this year. :)
You are accusing me of being wrong, wrong, wrong about something in the future. Does that mean you are delusional?
Please delete your post @ 11:35pm.
tbw,
I suspect some of your comments were about me. Until November 2008 I had put no "new" money into the RE Market since (probably) early 2002. I was doing 1031's (4 or 5?). I sold a residence at FMV and moved to a foreclosure in 2002.
Perhaps my recent purchases will, in hindsight, be a terrible mistake. Perhaps they will reward me. We won't know for a few (or more) years.
gte,
In case you get email notifications from one's you comment in, but might otherwise miss comments, I posted a link just for you in Harriet's "red meat" post today. Take a look.
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