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It would be foolish for you or anyone else to take emotion completely out of the decision of where you plan to live with your family. But that's a sidebar.
This graph is different from your previous one, because it uses 1987 as it's baseline value. The other one used 1890. And it says right on the graph that the peak was at 171 on the index.
when base is 1890 correction is 45%
when base is 1988 correction is 42%
But look at the first graph I posted. The housing bubble was unprecedented since 1890 according to the index. It is irresponsible to advice buying with current prices even if you "like" the house. Given the weakness of the NYC economy anyone who bids less than half off peak runs a high risk of losing his her money both in short or long term.
Last edited by halfoffpeak; 02-04-2009 at 12:59 PM..
Ahh, but it's not impossible to short housing! Housing futures are traded on the Merc. And, at least for now, there are still plenty of publicly-traded stocks (homebuilders, for example) that are tied to the housing industry.
To be sure, certain people can profit from home prices plummeting just as easily as others can from prices escalating.
This is not quite true. Stock prices are "forward looking". That is, if the market expects a down turn, this information is already incorporated into the stock price. So it only makes sense to short if you are more pessimistic than the market.
As for futures markets, if the future cannot be hedged by the underlying, then they may not track spot prices closely. This is a common issue in markets where you can't short the underlying. There are also some markets where it's either difficult (natural gas) or impossible (corn) to hold the underlying.
The problem with housing futures in particular is this -- there's nothing to force the house price to come in line with the index. If you could short houses, then you could arbitrage the discrepancy by shorting houses and buying the index. This would force housing prices to match the expectations of the market.
But in this case, it only works in the other direction -- that is, if the index is too high, you can buy a house, and short the index. You do of course need to take into account possible cost associated with "holding" the house.
But in this case, it only works in the other direction -- that is, if the index is too high, you can buy a house, and short the index. You do of course need to take into account possible cost associated with "holding" the house.
It would be great if there was a way to buy/short the index in a local market. This is not possible though. Or is it? Let us know. Then we would not have to bid half off market
It would be great if there was a way to buy/short the index in a local market. This is not possible though. Or is it? Let us know. Then we would not have to bid half off market
The problem is that (per my previous point) the indexes like stocks are also going to be "forward looking" -- so they already might be half off the spot market.
It would be interesting to see how the futures are trading relative to the index. I would be very surprised if the futures values are higher than the current index.
It would be foolish for you or anyone else to take emotion completely out of the decision of where you plan to live with your family. But that's a sidebar.
Why would it be foolish to take emotion completely? I believe exactly the opposite. If there is something you require at a house then this can be quantified or described in the definition of a comparable. That is, what is more than location, number and size of bedrooms, lot size, condition, architecture, etc. For the little things adjustments can be made. Emotion is what creates and feeds bubbles.
Nothing is worse to your family than risking their financial welfare.
I am not saying that I expected to get double for my house, although the realtor adds tell you that homes double every ten years. I never expected that when I bought. I didn't expect to lose either.
My point is that if we all go with Bid Half Off Peak's recommendation, then those of us that bought 11 years ago would lose on that. Is that fair? No it's not. I'm also not saying that we have a right to appreciation. But how about breaking even? I think that's more than fair. If anyone bid half off peak of 2006 prices, that would be about $30K less than what we originally paid.
I'm just saying that half off peak is laughable to even suggest in a lot of communities.
Yes, I worded the post incorrectly - it was ambiguous at best. I do not feel I should LOSE money on my home. If that's the case than a home is a pretty bad investment of time, energy, and money.
I am not saying that I expected to get double for my house, although the realtor adds tell you that homes double every ten years. I never expected that when I bought. I didn't expect to lose either.
My point is that if we all go with Bid Half Off Peak's recommendation, then those of us that bought 11 years ago would lose on that. Is that fair? No it's not. I'm also not saying that we have a right to appreciation. But how about breaking even? I think that's more than fair. If anyone bid half off peak of 2006 prices, that would be about $30K less than what we originally paid.
I'm just saying that half off peak is laughable to even suggest in a lot of communities.
Yes, I worded the post incorrectly - it was ambiguous at best. I do not feel I should LOSE money on my home. If that's the case than a home is a pretty bad investment of time, energy, and money.
unfortunately there's no such thing as fair in the housing market. when we sold my mom's house 9 years after she purchased it, we didn't make money, we didn't break even, we LOST - $30K (before realtor fees). such is life. when all is said and done, breaking even may be the best one can hope for.
unfortunately there's no such thing as fair in the housing market. when we sold my mom's house 9 years after she purchased it, we didn't make money, we didn't break even, we LOST - $30K (before realtor fees). such is life. when all is said and done, breaking even may be the best one can hope for.
This is all we want.....
I'm so sorry we didn't sell about 5 years into the house. We just weren't in a position to afford more house at the time.
I am not saying that I expected to get double for my house, although the realtor adds tell you that homes double every ten years. I never expected that when I bought. I didn't expect to lose either.
My point is that if we all go with Bid Half Off Peak's recommendation, then those of us that bought 11 years ago would lose on that. Is that fair? No it's not.
No investment that doubles on average (about a 7% return) every 10 years is risk free. You're *unlucky* if you take on a risk and it doesn't work out, but no-one was "unfair" to you. Almost anyone with a 401k has lost money in the downturn, but no-one is complaining that this is "unfair".
The reason you get compensated for taking on risk (via a premium in long run returns) is that you accept responsibility for the risk.
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I'm also not saying that we have a right to appreciation. But how about breaking even? I think that's more than fair.
Many people don't break even in the markets. Someone who bought the S&P 10 years ago is also down. If you're not willing to accept responsibility for a risks, you shouldn't take on that risk.
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I'm just saying that half off peak is laughable to even suggest in a lot of communities.
It's laughable because it's well below prevailing market bid prices.
Your belief that you are entitled to a floor at the price at which you bought the asset is a fallacy, it is not a basis for determining market prices.
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If that's the case than a home is a pretty bad investment of time, energy, and money.
If you treat it like a stock purchase, where you're buying just for capital gains or dividends, it is a terrible investment. But you don't get to live in your stock purchases.
Now I don't know the specifics of your situation, but suppose a hypothetical buyer bought 10 years ago, and sold today at about the same price. Then they have a slight loss after costs, but they also have 10 years of accumulated equity, which they wouldn't have if they'd rented (unless they rented for a lower price and stashed the money away).
Also, there's the subjective value of having lived in the house for 10 years. So this hypothetical buyer essentially got 10 years of free board (plus property tax) without the restrictions imposed on a renter (how much are they worth ? this is up to the market to decide). The equity on their home (minus 30k in your case) isn't analogous to rent because that still belongs to them, whereas the renter can't take their rent back after 10 years.
If it's an "investment property", the owner (not the tenants) still get to keep any rent from the property. If they weren't getting enough rent from such a property for the price paid, they were probably counting on capital gains, a more risky strategy than a value investment (e.g. one with lower price/earnings)
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