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Saturday, December 19, 2009
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82 comments:
I read an article a couple days ago (wish I could find the paper - either WAPO or WSJ) that said 20% of loan originations in October were 15yr am's. This is good and bad in my mind.
It shows financial prudence, but also reduces disposable income; money that could be spent to stimulate the economy.
Va_Investor: "Witness the wealthier areas and the dearth of distress sales. Your belief that tons of people want to bail at the earliest opportunity is just not supportable."
Several of my neighbors in 22305 have paid off their houses. In two cases, they just did it.
Having bought more than 20 years ago, they owed little and just wanted to be done with it.
I agree with your statement on 15y v. 30y. Get a 30 and if you want to pay it off faster, just do it.
I know people who went with a 15y when things were great, had a set back (spouse loses job, illness, life happens) and found themselves in a bind.
My opinion is that it's better to put the differential between a 15y and a 30y in the bank.
Thirty grand in cash turns some life problems into minor irritants. It also opens the door to opportunities.
Three hundred grand does it even better.
Whatever the amount, ya gotta be responsible to yourself and the community.
This is a good time to write a check to a local food bank, homeless shelter, battered women's shelter.
Va_Investor said...
"I would guess that the vast majority have no plans on going anywhere and are merely disappointed by the "paper" loss."
I just think there are a lot of people in this area that are able to retire early (higher salaries mean more money in the 401k, plus all those people on the 'old' government pension plan) and many of them missed their chance to cash out during the bubble. They will jump on any type of rebound as a chance to get out and move on to that house on the golf course in Florida, or at the beach in NC, or farm in Arkansas like Arkey. Do you not agree that the baby boom retirees will hit this area sooner than the nation as a whole for those reasons?
I have no numbers to back that theory up, it's just anecdotal from my experience. My father-in-law worked for the Dept. of Commerce for 30 years under the old gov't pension plan and now gets his full salary for playing golf in NC. My mother-in-law started at Long & Foster back when it had under 10 employees. They are mid-late 50's. I have met many of their friends, all of whom are also retired or would have if not for the housing bust or maybe that one last kid finishing up college.
These people have the types of houses I want. They bought late 70's or so to have kids, back when homes had a good sized yard and some privacy.
Jeremy-
My parents a lot of their friends are in that position, but I don't think any of them plan on leaving the area. They all have lived their entire lives here and love it. All their friends are here and they would rather stay with there friends and family than move to a golf course in FL.
Sorry, posting it from the previous bit...
On the school topic -
I don't think it's something you can count on. But, how does the GT program work in FX county? Can anyone take test for any school as long as you live in FX county?
Did anyone remotely consider taking a chance on it - by deciding to opt for a less preferred school district?
How did Bernanke refinance his house?
he bought in the middle of a bubble shouldn't his house be underwater?
LOL pat....I am sure he is underwater and doing all he can to put a false bottom - so that he can sell out!!
From bubble meter
Predictions from Trulia CEO Pete Flint:
Next year "government interventions will start to disappear, shadow inventory will hit the market and mortgage rates will start to rise" to around 6 percent from under 5 percent, he said. "We're in a false state of stability."
Shadow inventory includes houses that banks now hold but have yet to put up for sale.
Double-digit unemployment will push more owners into foreclosure, further destabilizing the housing market and pressing prices down another 5 to 10 percent, said Flint.
Predictions from RealtyTrac:
Foreclosures could escalate to 4 million in 2010, RealtyTrac Senior Vice president Rick Sharga said.
"Unemployment, negative equity are driving factors, as is credit availability," he said. "We don't believe we will get back to normal levels of foreclosure activity on a month-to-month basis until probably the end of 2012, and we will still be going through the shadow inventory well into 2013."
Banks will place the unsold homes on the market at a measured pace to thwart prices on all homes from falling off a cliff anew, he said.
pat,
Bernanke sold his New Jersey home before he bought his DC area home. I wouldn't be surprised if he put 40-60% down when he bought the current home. So he's likely not underwater and thus could refinance.
It is troubling though that he has a 30 year term and got an adjustable rate.
Less than three years into the Fed job, Mr. Bernanke's name went to the top of the list of candidates for the chairmanship of the Council of Economic Advisers. By then he had sold his home for $630,000 in Montgomery Township, N.J., where he had served for a while as president of the board of education, and purchased a house in Washington, paying $839,000 for it.
http://www.nytimes.com/2005/10/25/business/25profile.html
So today I learned a couple more of the perks of apartment living:
1. It's fun to meet neighbors as you all get together and shovel out cars for elderly people and the ones in the handicapped spots.
2. It's really fun to watch the guy with the Porsche Carrera dig his car out and promptly get it stuck again 8 feet from his parking spot.
3. You don't mind shoveling everyone else out because you don't have to shovel the sidewalks or your driveway. The maintenance people take care of that.
tbw,
Response to your post from previous bit:
I thought GT centers are only in some schools. (mostly the ones with high test scores) Also, isn't there some kind of a test a child will have to pass to qualify as gifted?
I wasn't sure if you can reach across any or with some zoning restrictions. For example, I do know Cunningham Park to Mosby Woods GT is an option. Don't know what the rules are in general.
Spider-
I posted on GT schools in the other bucket, but yes you need to take a test that is a lot like an IQ test. I put more details on the other page.
"HayfieldGrad said...
Nope, not a shock to me that the houses are the most expensive where the test scores are the highest. It's the continual insistence by a handful of people here that there should be sfhs available for under 450k in those areas that makes no sense to me."
Bingo! Exactly right. I was patient -- moved up via a housing ladder (first a condo; then a townhouse; then our SFH) in order to afford to buy in N. Arlington near Orange Line Metrorail. Just plain weird that some folks think they should be able to buy here right off the bat. Like asserting a condo owner in Queens has a right to afford a place in the upper East side of Manhattan.
Spider - Cunningham Park ES is considered the least desirable elementary school in the entire Vienna area, and parents in some other Vienna schools will keep their students in their base schools rather than to the send them to the GT program at Mosby Woods. That should tell you something.
Tom: "Just plain weird that some folks think they should be able to buy here right off the bat"
I don't understand it either. The rationales for weakening prices are convoluted.
"Salaries don't justify the prices" - In my area, long-time owners who are retired, have no intention of selling.
"The prices are too high." - One neighbor with an paid-for SFH has no interest in their assessment. They simply live there, mortgage free.
"Maintenance is such a burden" - They call a service company, write a check, handled.
Tom, I climbed that ladder too. It was rental apartment to TH to SFH. My initial stake was under $3K, I never paid more than rent for comparable accommodations.
TBW, I don't think we need to worry too much about Bernanke's finances. The last pgh. of the 2005 article you linked said this:
"Mr. Bernanke reported last year on a financial disclosure form that he had $1.1 million to $5.6 million in assets like retirement accounts, mutual funds and government bonds. By comparison, Mr. Greenspan, reported that his assets were $4.3 million to $9.4 million."
@J@-
I most peoples problem with the current price is that as you said you could buy for the same price as renting. That is no longer the case even with 5% mortgage rates.
Different people have different expectations of how things will turn out, but I think for inner areas all will agree buying is still far more expensive then renting.
Housebuyer: "current price is that as you said you could buy for the same price as renting."
I wasn't clear but I'll blame that on Tom.
Climbing the ladder, I had TH equity to roll into a SFH in the 1990's. Basically, I bought down my mortgage.
Climbing the ladder:
Started @ SAIC 1991
Lived in Mother's basement - 1 year!!
Married and lived in wife's TH - Hayfield/South County school district - 16ft wide/7.5ft ceilings/Ryan Homes.
Bought SFH 4BR/2.5BA in Centerville HS district with two-incomes/no savings.
Sold SFH and bought bigger SFH in Great Falls - Langley school district on 1.1 acres. ALSO LOOKED IN OAKTON.
Four steps.
@J@-
Gotcha that makes more sense. Although currently even condos and TH are not at rental parity of a lot of the inner areas
tbw,
You said the area around the Springfield Mall and Huntley Meadows Parks are not nice. I will agree there has been urban decay. But, just where do you think Hayfield is located? Some of Hayfield's neighborhoods lie less than 1 mile from the Springfield Mall and other neighborhoods are adjacent to Huntley Meadows. So if Lee and Mt Vernon are dealbreakers, how can Hayfield and Edison not also be dealbreakers in your mind. If that is so, maybe the people living in Oakton/Vienna are thinking along the same lines and believe that people will pay the prices they are asking.
housebuyer: "Although currently even condos and TH are not at rental parity of a lot of the inner areas"
Apartment condos seem overpriced to me at $200K but running the numbers, they're in range. 5%, 30 years, 200K = $1,073/month plus taxes and insurance.
At each rung of the ladder, buying down the mortgage, keeps the payments under control. Part of the game is pushing out the term back to 30Y at each step.
it should be cheaper to pay PITI then rent because Rent includes Maintenance and lost yield and profit.
however, rent should amortize against X-Action costs over 3-5 years.
pat & @J@-
Also for condos you can often have very large condo fees that need to be accounted for, because you don't pay them when you are renting.
Pat-
I don't really agree PITI should be cheaper then rent, becuase you gain tax benefits and some of it goes towards principal, which overtime does accumulate as significant wealth.
TBW:
"Bernanke sold his New Jersey home before he bought his DC area home. I wouldn't be surprised if he put 40-60% down when he bought the current home. So he's likely not underwater and thus could refinance."
I'd like to see the documentation.
Did Bernanke do the House ATM thing?
he's got kids he made okay coin and was a true believer in the finance economy.
perhaps he was also wildly underwater
Don't you "housing ladder" people realize that it only works best during a period of rapidly rising home prices? If home price appreciation doesn't beat what you can get in a high-yield CD or other safe investment - PLUS the 6% transaction cost with each move - then renting results in more equity saved at that final SFH purchase.
Many of us here on this blog renting have been doing so for many years now, the time that you would have been on the housing ladder. If we had tried that housing ladder in our early-mid 20's we'd all be underwater right now and not able to move up for years. By renting and saving we have 20% down payments for the SFH rung of the ladder. We have waited just as long as you and earned our entry at that higher rung.
I've never lived anywhere where PITI wasn't cheaper than rent. That's what told me there was a bubble happening around 2002-2003.
Pat-
During the bubble it was hard to get wildly underwater. Banks normally didn't let you go more then a LTV of 100% and housing was going up every month so unless he took a heloc out within a couple of months of moving he had equity. Also there is documentation that he had several million of assets when he joined the fed so I think TBW has a fair point.
Does any one know about Oakcrest Elementary School, Gunston Middle School and Wakefield High School in Arlington? These are the schools for the house we are buying.
"Jeremy said - Many of us here on this blog renting have been doing so for many years now, the time that you would have been on the housing ladder. If we had tried that housing ladder in our early-mid 20's we'd all be underwater right now and not able to move up for years. By renting and saving we have 20% down payments for the SFH rung of the ladder. We have waited just as long as you and earned our entry at that higher rung."
Well said....was just about to post something similar. It just seems that some people here still take the ridiculous appreciation in home prices for granted. Let's not forget that this only worked because of the failed policies of fed and Washington earlier this decade. Wake up, it is all over now.
Mandatory 20% down payment (which should have been the regulation to begin with) and realistic interest rates will bring this phony market to its knees - trust me on that.
Waiting too, you might get more info if you post that q at:
http://www.city-data.com/forum/northern-virginia/
Also, you might be interested in links here:
http://www.aurorahighlands.org/Restaurants_etc_960.html
and info here:
http://www.aurorahighlands.org/_Media/news2009_11.html
housebuyer,
I was not saying they just let anyone argue their way into a GT Center. Obviously no matter how much some parents push they will not let some students in. However, it's not all IQ tests. I think you are remembering the 2nd grade tests. But it goes beyond that:
First, group ability tests are administered to all second grade students and test scores are then used to select a second grade pool of candidates. Second, students in the second grade who do not meet the criteria of the group tests, and students in grades three through six, may be referred for the Gifted and Talented center program by parents, administrators, and teachers. Once a student is referred, the Gifted and Talented Resource Teacher assigned to the school compiles a screening file and meets with a local screening committee in order to complete the Gifted Behavior Rating Scale. The local screening committee consists of a school administrator, the Gifted and Talented Resource Teacher assigned to the school, other education specialists such as the reading teacher or guidance counselor, and classroom teachers who work with each child. Once it is complete, the file is forwarded to the Gifted and Talented Central Selection Committee. This committee consists of over 200 professionals to include GT center teachers, GT resource teachers, ESOL teachers, school psychologists, principals, and guidance counselors. The members review the screening files and make determinations on who qualifies for Gifted and Talented Center placement. The central selection committee members use a holistic case study approach and consider all data included in each student's screening file when making eligibility decisions. Eligible students are assigned to a Gifted and Talented Center that is in close proximity to their local school, and the school district provides transportation.
Holistic means they are not imposing a hard and fast 98th percentile cutoff. Also I think we can agree there is going to be socioeconomic biases in which parents are pushing their children to be re-considered.
Also, there has been a push to put GT Centers in some of the poor and very diverse schools because rich, white parents in those schools were using GT Centers to get out of those schools. It's pretty obvious I think if you look at what's going on that the school system was aware GT Centers were being abused by parents to avoid diversity.
Jeremy said...Don't you "housing ladder" people realize that it only works best during a period of rapidly rising home prices? If home price appreciation doesn't beat what you can get in a high-yield CD or other safe investment - PLUS the 6% transaction cost with each move - then renting results in more equity saved at that final SFH purchase.
Many of us here on this blog renting have been doing so for many years now, the time that you would have been on the housing ladder. If we had tried that housing ladder in our early-mid 20's we'd all be underwater right now and not able to move up for years. By renting and saving we have 20% down payments for the SFH rung of the ladder. We have waited just as long as you and earned our entry at that higher rung.
No problem with that. Obviously if you can time the housing market you will get further faster. I can't do that. I tried.
houserbuyer, tbw,
Appreciate your responses on GT centers. It gives me a pretty good idea.
tbw, you are right on with new GT centers at schools with diversity - I think they recently started one at McNair. Folks I knew bought there assuming they will avoid McNair, which they can't anymore.
Also, there has been a push to put GT Centers in some of the poor and very diverse schools because rich, white parents in those schools were using GT Centers to get out of those schools. It's pretty obvious I think if you look at what's going on that the school system was aware GT Centers were being abused by parents to avoid diversity.
The majority of FCPS teachers hate the concept of GT Centers. I assume that must be the prevailing attitude in the union. But, the parents love the GT program. Anything thing the teachers union can to do piss off the parents of GT kids they will do.
Jeremy, good point.
BB (before bubbles), for example, in typical midwestern markets, where renting was more expensive than buying the same property for reasons others have already pointed out, where housing cost well under 25% of income, and where it went up at about the same pace as inflation, and where people tended to stay in the same job and community for a long time, the housing ladder concept made a lot of sense. I think a lot of people who have been adults 20+ years have not thought through how the housing ladder mantra depends on certain conditions, because for those conditions were so common that you didn't think about them.
In many parts of the country, this may still be reasonably descriptive of current conditions. But it definitely has not been descriptive of this area for some time.
@J@/Tom/Robert,
I think you are missing the point.
Can we agree that 9 times out of 10 the home that costs more is better?
I haven't really sat down and figured out an upper limit for me (one factor is I've had a few interviews at gov't agencies and will hopefully join one soon and have a lower salary but better working conditions and job stability). But let's say my upper limit was $600k.
I can go out and buy a nice home in Vienna or Oakton for $600k. But if prices drop by 25% then a home currently listing for $800k will be $600k. And so I can now buy a nicer home. If prices only drop another 10% the home that is now $667k will be $600k.
It makes absolutely no sense not to wait for that. And if I decide to stick with the home I could've gotten today for $600k I'll be spending $540k if prices drop 10% and $450k if prices drop 25%.
We are in a situation where at best prices are up 3% over the next three years and at worst prices are down another 30% in these neighborhoods. I would also add that the odds are probably 97% that they go down. So it's just idiotic to not wait and see what happens.
I have no idea how much more prices will drop. But I'm pretty confident they will drop and at least another 10%. Since we are dealing with huge numbers (since as we all agree these are nice neighborhoods) 10% is a lot of money.
Robert said
No problem with that. Obviously if you can time the housing market you will get further faster. I can't do that. I tried.
We don't have to time this perfectly. I know you think once we recover it's up 10% each year or something crazy. But almost every expert agrees once we hit bottom it's probably flatsville or extremely modest growth (1-2%) for a while.
So even if Jeremy, spider, myself, etc all miss the bottom by a year we are not worse off. If we buy a year ahead of the bottom, however, we might miss 10-25% in cost savings.
TBW said..I have no idea how much more prices will drop. But I'm pretty confident they will drop and at least another 10%. Since we are dealing with huge numbers (since as we all agree these are nice neighborhoods) 10% is a lot of money.
There's really no arguing the fact that if prices drop 10% it is better to wait.
I hope you are right. Seriously. I don't care if prices drop another 10% in Vienna. I'm not even thinking of selling until 2015. All I need is a big fat federal government and lots of private industry that feeds off of it to bring up job and income fundmentals.
Like you said...I'm pretty confident we'll get that.
Robert,
I'm buying before 2015 so hey if prices are back to 2005-06 levels by then that's good news for me. I doubt it but I'm sure I'll start sounding like Va_Investor and you once I'm a few years into homeownership.
"A 20% increase over the past two years? Makes sense. This area is nice. Everyone wants to move here and no one wants to leave."
;)
"I'm buying before 2015 so hey if prices are back to 2005-06 levels by then that's good news for me. I doubt it but I'm sure I'll start sounding like Va_Investor and you once I'm a few years into homeownership."
It is interesting how people tend to predict that what they want to happen will happen isn't it?
There is of course a certain amount of selection bias, people who think it is a good time to buy will naturally tend to buy... and people who don't think it is a good time to buy will tend to avoid buying.
Still, a couple posters here seem to be trying especially hard to defend their decisions.
tbw,
I can't speak for Robert and I really don't know what you mean by "speaking like", but I don't recall 1984 (a few yrs in for me) being a particularly good time...now 1987 and 1988 were an entirely different matter. Then again, 1990-1997 were pretty dismal.
You are probably too young to know of the cycles of the past 30yrs and even of the dot-com devastation to peoples stock portfolio's and net worth.
After the stock market debacle, I was flying to Florida and sitting next to someone about ten years older than me. She was going to see her parents whose portfolio had gone from 7mil to less than 2mil. Very bad situation at their age. When will we see nasdaq 5K again?
So, you can lose your a@@ in many retirement vehicles. I just happen to believe in RE investing because I only need to keep up with inflation and get the tenants to retire the debt.
If you or others believe that it should be more expensive to rent than own, I'm all for it! In fact, it's true right now in many local areas. An anonalmy in my mind, but I've only watched local markets for 27 or 28 yrs.
TBW,
You're smart but don't you see the problem.
I've bolded the one fact and italicized the several hypotheticals.
"I can go out and buy a nice home in Vienna or Oakton for $600k. But if prices drop by 25% then a home currently listing for $800k will be $600k. And so I can now buy a nicer home. If prices only drop another 10% the home that is now $667k will be $600k.
It makes absolutely no sense not to wait for that. And if I decide to stick with the home I could've gotten today for $600k I'll be spending $540k if prices drop 10% and $450k if prices drop 25%.
We are in a situation where at best prices are up 3% over the next three years and at worst prices are down another 30% in these neighborhoods. I would also add that the odds are probably 97% that they go down. So it's just idiotic to not wait and see what happens."
"the odds are probably 97% that they go down."
Come on... 97%, you channeling Spock-Prime?
Here's some strange reality. When I laddered up from a TH to SFH, if I had HELOC'ed out enough to purchase a second TH, I'd have less debt and more equity today.
Basically, I'd own two $400K TH = $800K, and owe less on both than I owe on my SFH. My home assesses for less than $800K.
The trade off, I'd still be living in a TH and I'd have had years of dealing with tenants. I've done that in the past and it's OK. It's a path that I did not choose to take this time.
The dynamics are this. THs and condo apartments have appreciated more than SFH over the last decade or so. A tenant'd be contributing to the mortgage on the rental.
If I had done nothing, my TH would be paid off and I'd be slamming the money into savings.
Not you, Robert, Contrarian, moi, nor anyone else has a crystal ball. We can only make our guesses, put our money down, and play the hand that life deals us.
For me, the trade off worked. I made less on equity but I have my own garage, my neighbors don't play salsa at 1:00 AM, I've got fruit trees, and I have a covered deck off the kitchen.
Yes, I have to mow my little yard, that takes 20 minutes.
I don't think the big RE crash will hit 22305. I doubt it will hit Arlington either.
Va_Investor,
I roll my eyes at people who went overboard with stock investment during the dot com bubble just as much as I roll my eyes at people who started buying up investment properties during the housing bubble.
I believe that everyone can build wealth through working in a job their adult life, living modestly, and investing conservatively. I've never promoted investing in individual stocks, house flipping, or other risky ventures.
People nearing retirement should not have the same 401k portfolio distribution as people in their 20s. But many did. That's why they are in the mess they are in.
The problem with America is most people are financially illiterate. They don't understand that for 95% of the population your salary and amount you save from your paycheck each month determines your lot in life.
People should focus on career advancement, education, and saving money if they want to be wealthy. They also should not buy a house during bubbles.
carjackings stir hill
http://www.washingtonpost.com/wp-dyn/content/article/2009/12/19/AR2009121902034.html
yes that's in the area I'm looking at.
HB
The arguments for tax advantages and Principal accumulation are the same for a landlord vs a homeowner.
My Landlord gets the tax deduction and the Principal buildup, as a market he will pass that on
or risk losing customers over time.
@J@,
With all due respect, your comment is incomprehensible. I'm not sure what it had to do with what I wrote.
pat,
Oh you beat me I was about to post that one.
Side note
Victoria Gentry, a stay-at-home mother of a 10-month-old son, was the target of an attempted carjacking a week before Jacobs's sport-utility vehicle was taken. Gentry, who was alone at the time, said that she got out of her car and noticed someone walking up the middle of E Street, near Seventh Street, but that she wasn't worried.
As she approached her front gate, she said she was jumped by several people and punched in the face. She handed over her keys, but the thieves could not figure out how to start the push-button ignition of the BMW and eventually fled.
SAHM driving a BMW and probably in a $600k+ home. Wonder what the husband does for a living.
Also, wonder what they will do when the 10 month old is school aged. Maybe if they have BMW money they have private school money as well.
pat,
All my comments about crime and bad schools in DC aside, I am happy there are people like you in this world who are idealistic and believe the future is going to change in these areas.
But for you guys willing to try these neighborhoods I'd have more people bidding against me in suburbia. So thanks. :)
Same with HayfieldGrad. I'm glad that some middle class and upper class people like her are still not abandoning Lee HS and environs. Fewer people for me to bid against.
"With all due respect, your comment is incomprehensible. I'm not sure what it had to do with what I wrote."
You mean you didn't ask anything about whether she liked her house or whether she thought her zipcode would go down?
"I roll my eyes at people who went overboard with stock investment during the dot com bubble just as much as I roll my eyes at people who started buying up investment properties during the housing bubble."
Indeed, I don't think anyone here is arguing that people should put all of their retirement into stocks. It is always good to diversify.
I also agree that far too many Americans are illiterate when it comes to investing. Far too few understand that stocks are some of the highest risk investments out there and are not a sure thing. I have spoken with far too many people who's investing strategy boiled down to : "I will just keep dumping my money into stocks year after year." We have had two major stock market corrections in the last decade and people still don't seem to understand that you can lose big in stocks.
Robert,
In today's "Worst Ideas of the Decade" they noted this (one of the worst ideas was that housing prices always went up):
Yet at the start of this decade, this belief became the lynchpin of an entire investment philosophy, as survivors of the dot-com bubble sought a refuge for their money. When Robert Shiller, a Yale economist, surveyed homebuyers in 2003, he found that 10 times as many said the stock market collapse had encouraged them to buy a home as said it had discouraged them.
Do you see now why the stock market and housing market are not always running in parallel?
Article
TBW said,
"People nearing retirement should not have the same 401k portfolio distribution as people in their 20s. But many did. That's why they are in the mess they are in.
The problem with America is most people are financially illiterate. They don't understand that for 95% of the population your salary and amount you save from your paycheck each month determines your lot in life."
While I don't disagree, I don't think this is the only problem. A major problem is the unprecedented financial wrongdoing, inadequate regulation, and "too big to fail" megainstitutions, etc. Another is that the decade beginning in 2000 was horrible for stocks--well below historical averages, for a long period of time. Even conservative investors (e.g., people in balanced funds, index funds) have gotten screwed out of returns during this time.
Another is that financial advisers urged investors to do things that might have been wise in other times but had disastrous consequences recently. I still have my T. Rowe Price newsletter from 2007 telling us that it was going to be an excellent year for stocks, though they would recommend that we diversify into global stocks since there might be some "turbulence" in the US market. I followed this advice (at the worst possible time - mid summer) and was stung. Since I was and am small potatoes I didn't lose as much as some people but when you are not gambling to get great returns, it's really annoying to lose a big percentage.
Meanwhile, state pension funds are cutting back benefits people have already earned (they wouldn't be allowed to do this if in the private sector), because of the poor returns over the decade and the poor state of economic health of most states these days. Hard to fault the little guy for this one.
My point is that even those investors who did what "experts" recommended - e.g., buy and hold, balance your portfolio between stocks and bonds, change the mix as you age, save a lot - got badly screwed, and even this year's movement upward has not restored a lot of the money lost. Practically all the mutual funds were down badly in 2008, which wouldn't have been so bad if the prior 7 years hadn't been so bad on average (vs. 8% historical returns).
So a lot of the pain we've been seeing lately is not due primarily to financial illiteracy but to a combination of huge macro problems. Since I get annoyed when politics are dragged into the discussion needlessly, I won't say anything about that here, but I do have strong opinions about the role of certain politicians in these outcomes.
The "bright" side to this is that you younguns who rightfully are dismayed at how difficult it is to afford a nice house and may feel some resentment toward people who were able to buy earlier can take some solace in the fact that you may not have lost as much in other investments as the people who lucked out in real estate simply by being older than you.
I meant also to say that I agree with the "mix" comment but would note that most financial experts do not recommend that people who are 10+ years from retirement avoid the stock market. In fact, they urge people to stay in because little guys can't earn enough on bonds and CDs to keep pace with inflation, so they tell you you have to gamble with a good chunk of your portfolio. Take a look at the distribution of assets in targeted retirement funds and you'll see what I mean.
There just have been no good places to hide over the last decade. In retrospect, obviously, we can see some investments that did well. But the vast majority did not.
I don't mean to sound as though I think I am outside the category of financially unsophisticated.
TBW
I know the area i am looking has warts. But every area in DC that is wart free is insane in price and any place with utterly cheap housing is really unpleasant.
we like arlington too but it's price is still too high and until rationality returns, we would rather rent.
DC on the Northeast or petworh seems better priced, but, i'm looking for the inventory to get released
WaPo:
Foreclosures already pocked Chicago's poorer neighborhoods but the downtown still was booming as the Federal Reserve Bank of Chicago convened its annual conference in May 2007.
The keynote speaker, Federal Reserve Chairman Ben S. Bernanke, assured the bankers and businessmen gathered at the Westin Hotel on Michigan Avenue that their prosperity was not threatened by the plight of borrowers struggling to repay high-cost subprime loans.
Bernanke, who was in charge of regulating the nation's largest banks, told the audience that these firms were not at risk. He said most were not even involved in subprime lending. And the broader economy, he concluded, would be fine.
"Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market," Bernanke said. "The troubled lenders, for the most part, have not been institutions with federally insured deposits."
He was wrong. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed. Even as Bernanke spoke, the spillover from subprime lending was driving the banking industry into a historic crisis that some firms would not survive. And the upheaval would shove the economy into recession.
Just as the Fed had failed to protect borrowers from the consequences of subprime lending, so too had it failed to protect banks.
TBW: "I'm not sure what it had to do with what I wrote."
The recap of past simply points out that events may not necessarily match what anyone expects.
It's a gently cautionary message to those who hope to optimize their financial return and offers that there are multiple paths with trade-offs.
You're taking a posture of hard numbers and percentages going forward.
I'm suggesting that by reviewing the quirks and twists of the past, you might notice a few surprises.
NVHBF had the firm belief that there was a housing bubble moving in from the Exurbs to the immune zone.
The fundamental mechanics of that belief were flawed. There was no housing bubble in large parts of this area.
We are left with those on the want-to-buy side who have not yet pulled the trigger and those on the no-bubble side who seem interested in acquiring additional RE.
Contrarian's holistic approach is a good one but I believe his basic grounding is too pessimistic.
I'm guessing that in life, you are a "quant", a "digital" and struggle with or avoid the messy analog world.
GLTY
TBW said...Do you see now why the stock market and housing market are not always running in parallel?
Can't remember when I said the stock market and the real estate market always run in parallel. Can you go back and find that quote for me?
Real estate always goes up? My wife bought her TH in 1989 for $125k. When we got married in 1992 similar units were selling for $100k.
Sure, it makes for a nice article that EVERYONE believes home prices always goes up, but it wasn't true for me or ANYONE I knew in Northern Virginia that went through the late '80's/early '90's.
I'll ask you: In 2005 did you believe home prices never go down? And you weren't even in the market in 1989. So, basically, anyone that did ANY reading knew prices go down occasionally.
Again, you don't get a front page story unless you write something sensational.
I suppose that I am the "no-bubble" person referred to? You (intentionally?) disregard everything I have said for several years. I am a RE always goes up person? I, too, bought in the late 80's.
Yes, I have been buying rentals in former "bubble" areas. These are places that doubled or tripled in a five yr period and are now (or, were) at mid '90's pricing (overcorrection).
Not everything bubbled. The problem with viewing RE in 5 or 8yr time frames is that it leads to a very distorted picture. Why not look at the stock market over the past couple or 5yrs? That, too, would give you the type of picture you seem to rely on.
My response was directed at the article TBW posted.
Pat, since you are seem to be an urban pioneering type, and you like Arlington, why are you not interested in some of the very reasonably priced areas of South Arlington?
I know the houses do not have the beauty or potential of many in the DC areas in which you've been looking, but it seems to me that S. Arlington is really ripe for the picking for those willing and able to take careful risks, unless you need metro. I am too conservative myself, but I am genuinely curious about why one area seems to make sense but not another? When gorgeous new houses are going for $500K less than they would in a good part of N. Arlington, I suspect there are deals to be made on older homes there.
spider,
How do you know that your (as yet unborn?) kids will be gifted and talented?
Where is this Lake Wobegon? All the women are strong all the men are beautiful and all the children are above average...
Personally, I'm just not that worried about elementary school. I mean seriously have you looked at the kindergarten curriculum these days in FFX county?? Yikes, it looks like my first or second grade! And I took Calculus sophomore year in High School. I'd be more worried about thinking about red-shirting my kids such that their brains are developed enough that they don't get frustrated with school and wrongly think that they're "dumb" when they're just too young for the work being thrown at them than I would be about getting into the best elementary school...
(best friend's oldest daughter is now repeating kindergarten in Reston, she's much happier the second time through now that she has the eye hand coordination to make legible letters and isn't just randomly guessing letters out of frustration)
Ace said:
"unless you need metro."
right now we are renting a 2BR in
Penrose, for $1K/month.
trust me, i'm looking hard at
http://franklymls.com/AR7184903
or
http://franklymls.com/AR7010489
we like the eastern end of the pike
and with the trolley coming it will improve,
we'd love to buy the place we have from the landlord. Triplex, lots of neat little improvements you could make. Add a deck and a porch.
problem is the landlord doesn't want to sell, but he's pretty crusty. He may want to stop dealing with this and focus on his big properties.
Another example of how the national housing data doesn't translate 1:1 to our region.
Metro areas continued to register highly disparate economic performance even as the nation showed early signs of recovery.
The weakest performers shifted even more strongly toward California, in part because of large recent increases in unemployment. Florida still is home to several of the lowest-ranking metropolitan performers nationwide.
Six metro areas—Albuquerque, Austin, McAllen, San Antonio, Virginia Beach, and Washington, DC—had regained their pre-recession peak level of output by the third quarter.
HIGHLY DISPARATE
One other quote...
"Vegas is a market unto its own," says Steve Cesinger, chief financial officer at Dewberry Capital, an Atlanta-based real-estate investment firm. "I don't know what those guys were drinking when they thought all this building made sense. If it does work out soon, then there's some force out there in the universe that I'm not aware of."
Ace: Thank you for those links. We had gotten them from the neighborhood listserve and found them helpful. Beyond the official Arlington sources, most of our school info came from our friends in Arlington and the DC Urban Moms and Mothers of North Arlington listserves. They have all been helpful but it is always good to get info from people with a perspective on schools like Cara. From what I have seen Arlington does not have gifted and talented centers but maybe their schools with science, math and Spanish language focus are like the GT schools in Fairfax. At any rate we are 3 years away from kindergarten so we have a little more time to look at the school.
The treasury market appears to be continuing its upward trend for yields. It rose another 0.14% to 3.68%. This is now 0.5% above the 1 month low. It looks like rates my finally start moving up. The real question is assuming rates increase is our hypothesis correct that housing prices will fall to offset this or are we shooting ourselves in the foot and we will be paying just as much for the house and paying more in interest
Happy day in the bond market for housing bears.
More evidence that household income figures from the Census Bureau are bogus:
Year 2008
Average Wages Fed: $79,197
Average Wages&Benes: $119.982
Average Worker: $50,028
Average Worker+Bene: $59.909
More benefits of working for the Feds:
Perhaps the most important benefit of federal work ithe extreme job security. The rate of “involuntary separations” (layoffs and firings) in the federal workforce just one-quarter the rate in the private sector.4 Just 1 in 5,000 federal nondefense workers is fired for poor performance each year.
Oooooh, look what's in the health care bill:
A $100 million item for construction of a university hospital was inserted in the Senate health care bill at the request of Sen. Christopher Dodd, D-Conn
Among other things...
What's the point? Old argument with TBW about the fiscal restraint of the Democrats.
FDR or no FDR:
And, of course, the size of the federal government is exploding under President Barack Obama. According to the Partnership for Public Service, the federal workforce, currently at 1.9 million, is expected to grow to about 2.1 million during the Obama administration. That is comparable to the staffing level during the Johnson administration’s Great Society programs of the 1960s.
Yikes! How would you like to have this job?:
Jeffrey Neal, the personnel chief for the Department of Homeland Security, has a major challenge on his desk: helping DHS hire 65,700 employees by the end of 2012.
Oh, Robert, only you could make us laugh by posting a link to a hand-wringing right wing website that views a federal staffing level that is approximately equal to what it was when our population was fewer than 200 million people--it's grown more than 50% since then, per http://en.wikipedia.org/wiki/Us_population.
I'll leave it to TBW to comment on whether a 10% increase relative to the Bush years constitutes "exploding", or on how many of those hires replace an overpaid non-employee contractor.
Honestly, don't these people understand how they undermine their credibility when they engage in histrionics instead of simply posting the facts and offering a reasonable comment about it?
sorry -- should have written "that views as problematic"
"In 1970, for example, the number of civilians on the federal payroll numbered 2,095,100, a figure that represented a little more than 1 percent of the U.S. population. In 2008, the comparable figure was 2,020,200, or 0.66 percent.
However, the figures do not reflect the enormous growth of the government contractor force as the result of privatization efforts pursued by previous administrations."
http://www.washingtonpost.com/wp-dyn/content/article/2009/09/02/AR2009090203571_2.html?sid=ST2009090204073
Housing Crash Continues
It's Still A Terrible Time To Buy
Why?
Because house prices will keep falling in most places.
Lereah, spewing more propaganda:
Nevertheless, the housing sector is expected to be fragile next year, vulnerable to a pull back in government subsidy programs and/or an onslaught of foreclosures. After a year of unprecedented government intervention, the current housing recovery is largely due to the positive influence of the homebuyer tax credit on home sales and the Federal Reserve’s mortgage-backed security purchase program which has brought mortgage rates down a full percentage point by most estimates. If the government decides to end the homebuyer tax credit and the Federal Reserve security purchase programs sometime next year, it is likely that the housing recovery will face serious challenges.
The homebuyer tax credit which is due to expire in April 2010 has been enormously successful in enticing households to purchase homes, and its elimination is likely to reduce the number of home sales next year. Similarly, if the Federal Reserve phases out its mortgage security purchase program, mortgage rates may eventually rise a full percentage point, raising the costs of purchasing a home. Eliminating government subsidies combined with an uncertain foreclosure situation poses the greatest risks to the 2010 housing outlook.
While I agree with Lereah here, he ruined his reputation to the point he has ZERO credibility.
"While I agree with Lereah here, he ruined his reputation to the point he has ZERO credibility."
Not like Hal Turner...
:p
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