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Old 02-14-2008, 08:04 AM
 
523 posts, read 955,999 times
Reputation: 127
Quote:
Originally Posted by vanyali View Post
Do you have an idea where you think the bottom is? What do you think the intrinsic value of property is in the DC area?
You have to look at historical data before the bubble and look at price/rent ratios as well as price/income ratios. Also, by doing a google search you can find graphs showing annual appreciation rates, adjusted for inflation. When you see these charts you will most definitely see how this bubble literally jumps off the page at you starting around 2001/2002. And by looking at this kind of chart you will also see that there were a few other booms (none as big as this one) and they were all followed by price declines that brought them back down to the historical mean.

http://www.thedigeratilife.com/images/homepricesL.gif



Quote:
Originally Posted by vanyali View Post
Just a small point -- if inflation is going up/dollar is weakening, generally it's better to spend your dollars on hard assets, the value of which is more likely to stay stable (i.e.: rise in nominal terms) as the dollar falls. Otherwise, you're just holding on to a depreciating asset (dollars).
Your logic is true IF incomes are also rising at the inflation rate. This is NOT happening. Therefore, think about it like this... If the price of necessary goods (i.e. food, energy, household necessities) is rising at 10% per year but your wages are only rising 3% per year... what happens? What happens is that people now have to spend more of their take home pay on basic living needs and now have less to spend on big-ticket purchases such as homes, cars, etc. Combine this with the fact that housing is ALREADY unnafordable to most, and you have the foundation for a serious housing price decline.

In summary, what I'm saying, and what has been proven true in the past, is that you can have price inflation, WITHOUT income inflation... and you can also have inflation AT THE SAME time that a certain asset class is deflating.
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Old 02-14-2008, 12:44 PM
 
832 posts, read 2,278,620 times
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Wow. That's a heck of a chart.
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Old 02-14-2008, 05:23 PM
 
Location: Wilmington, NC
8,575 posts, read 2,186,250 times
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did somebody on this post say that prices in that area are falling at 20% per year. the guy who bought the house better watch out. with these numbers, his house is going to be worth $0 in five years! best bet when buying a house in that area is to research the tax records. find out the last time it was bought and sold. compare it to other houses in the neighborhood. add average inflation of around 4% per year. there was artificial inflation due to the low interest rates and easy credit. I think you did fine. I think that prince william county has seen the bulk of the drop off. good luck with your new house!
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Old 02-14-2008, 05:52 PM
 
62 posts, read 159,818 times
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Quote:
Originally Posted by mojo_1979 View Post
1. Current market trends and statistics confirm that we are having the most significant price correction (measured in rate of decline) since the Great Depression.
This is an important point to focus on... regardless of how much experience any of us have in the real estate world, or life in general... NONE of us have experienced a housing market like this (unless you're over 90 years old, or lived in Japan for the past 30 years). So I'm having trouble grasping where the optimists in this bunch are getting their information. If anyone can let me in on the secret, I'd appreciate it, because the data I'm seeing has me bearish on housing for the next few years.

As far as buying "now" being the right choice, let's be careful dishing out reassuring guidance. There are hundreds of people in Fairfax County that bought homes in 2005-2007 for all the "right" reasons... and now many of those folks are facing foreclosure or bankruptcy. Many of you speak as though buying a home is always the right choice... have you bothered asking the ~4,000 Fairfax County homeowners whose homes were foreclosed in 2007 how they feel about your advice?

And those who are still labeling renting as "throwing your money away"... do some research on the matter, please. Your ignorance is part of the reason we're in this mess - the illusion that home ownership is some sort of path to riches and savings has been debunked.
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Old 02-14-2008, 06:55 PM
 
Location: Home is where the heart is
15,400 posts, read 17,681,122 times
Reputation: 18798
Quote:
Originally Posted by claude henry smoot View Post
NONE of us have experienced a housing market like this (unless you're over 90 years old, or lived in Japan for the past 30 years).
Well, I'm not 90 and I've never lived in Japan, but I have been through a few recessions. I see a lot of similarities to the housing panic that hit the beach cities of southern California in the early 90's.

This was the scenario: Prices shot up unrealistically in the late '80s. Many houses more than doubled in price. Dubious lending ideas popped up overnight to so people could "take advantage of the market while they still had a chance." Back then it was ARMs that caused the problems, but it wasn't all that different from the subprime mess going on this time around.

Then the recession hit. It was much worse than what we are seeing now. Overnight bad times hit Southern California. Aerospace (a major industry) took a huge hit. Thousands of people were laid off, companies closed, it was extremely difficult to find a job. People took extreme measures.

At the same time, all the people who had taken out low-rate ARMs learned the hard way that those were dubious loans that were now readjusting with much higher rates.

There were foreclosures everywhere. Everywhere. People about to go through foreclosures were setting homes on fire, thinking they could collect insurance money. People you never would have thought to be the type of person to do so were filing for bankruptcy and abandoning their properties. I used to drive down Hawthorne Blvd. in Torrance and see condos with For Sale and Foreclosure signs hanging from almost every window. There started to be a problem with kids partying in abandoned houses--in fact there were a few movies made about this subject at the time.

Prices were plummetting but the media said it was going to really dive in the next few months. So I set my sights on buying a house in Palos Verdes (a local equivalent would be McLean or Great Falls)... just as soon as the bottom hit.

Back then, I was much more impressed by data and reports and statistics and all that sort of thing--I thought it had to be true when a few self proclaimed "experts" declared that Palos Verdes would hit a huge bottom. They said it had to, because prices had been driven unnaturally high. They had all sorts of charts and reports to prove their point. And they knew that the housing freefall would last for a few years--if not longer. California might never recover, they said.

The media seemed to agree--so I thought it had to be true.

So I waited for Palos Verdes to hit bottom. It dipped for about a year, but never hit the big bottom, even though there was a ton of data that made it seem inevitable. Within two years, Palos Verdes (and the rest of Southern California) rebounded. I missed my chance, because I was waiting for a "bottom" that never actually occurred. By the end of the decade S. Cal real estate was more expensive than ever.

Thus we learn. Like I said, I've been through a few recessions by now and learned from successful people how to deal with them. The real trick is developing a strong network. Develop a group of friends/advisors you can discuss things with (in person, not over the internet) and listen to what they have to say.

Data and reports are very interesting, and often helpful. But I don't rely on them that much any more after having been burned. Interpretations can vary widely, and data can be bent in all sorts of misleading directions. Something to ponder: If statistics were really all you need to know to make smart investments, then logically anyone with a degree in statistics would be destined to become one the wealthiest people in the world.

But hey--panic if you want. Everyone's entitled to an opinion. And everyone's entitled to their own investment plan. Different strategies work for different people. I don't know why you feel so threatened that I happen to have a different opinion than you do--but c'est la vie.

It's been pointed out that only time will tell--and I think there's a lot of truth in that. I plan to still be around this forum for the next few years. Let's compare notes this time next year and see how well we're doing.

Last edited by normie; 02-14-2008 at 07:26 PM..
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Old 02-14-2008, 08:06 PM
 
62 posts, read 159,818 times
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Quote:
Originally Posted by normie View Post
The media seemed to agree--so I thought it had to be true.
Please don't count me as a member of the "bandwagon"! I've been bearish on housing since 2005. If anything, I was probably labeled a member of the tin-foil hat club as I repeatedly questioned the rising prices in this area.

Quote:
Originally Posted by normie View Post
Data and reports are very interesting, and often helpful. But I don't rely on them that much any more after having been burned.
Agreed - and it was not charts and statistics that first led me to question home prices in this area, it was just common sense. Why had home prices jumped 160% in 6 years? Not many folks asked that question... they just rode with it and assumed it was the wave of the future. Data and statistics simply helped us to look back and see what exactly happened during the housing bubble.

Quote:
Originally Posted by normie View Post
But hey--panic if you want.
I wouldn't say I'm panicking, I'm just being realistic. I've got 4 friends who lost their jobs due to the housing market tanking in the past 2 months, and several other friends and family members who are really taking it on the chin because they're upside down in their mortgages and can't sell or refinance. And this crisis is in it's infancy - I'm not a huge fan of Secretary Paulson, but even he said - just days ago - that "the worst is just beginning".

Quote:
Originally Posted by normie View Post
It's been pointed out that only time will tell--and I think there's a lot of truth in that. I plan to still be around this forum for the next few years. Let's compare notes this time next year and see how well we're doing.
Completely agree with you there - time will tell!
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Old 02-14-2008, 08:23 PM
 
2,510 posts, read 4,780,026 times
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You are all looking at the practical side of it. Who wants to rent and never feel like you are really "at home"? - I like the fact that I can do ANYTHING I want with my home - a renter cant. Geez this poor guy wants to put his family in a home - not wait around for 5 years until he gets a good investment - remember a home is not just an investment - it is your life
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Old 02-15-2008, 06:16 AM
 
832 posts, read 2,278,620 times
Reputation: 209
So I guess the response to the OP's questions has two parts:

As a pure money-decision, maybe he should have waited.

However, as a life decision, it sounds like he's much better off, and assuming he can afford the mortgage he just took out (probably OK there with the today's tighter lending standards) and can stay put for a while, he'll be just fine in the long run.


Does that sound about right?
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Old 02-15-2008, 06:41 AM
 
Location: Home is where the heart is
15,400 posts, read 17,681,122 times
Reputation: 18798
Personally, I think he did ok financially, too. But hey--I'm delusional...

And remember, being "delusional" doesn't mean you won't be very successful! It just means you see things that other people don't see.
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Old 02-15-2008, 06:49 AM
 
62 posts, read 159,818 times
Reputation: 28
Quote:
Originally Posted by Fairfax Mom View Post
..remember a home is not just an investment - it is your life
With all due respect, this is exactly what I’m talking about – the perpetuation of a myth. A home is a horrible investment. The “profit” many people think they made living in their homes for the past 20-30 years has usually already been “thrown away” via mortgage interest, property tax, and maintenance. Factor in inflation, and you’ve essentially got yourself a “forced savings account”.

And I don’t consider a home “my life”. My home is a roof with 4 or more walls. It keeps rain off my head and prevents random strangers from walking into my living room. I don’t sit in the front yard in a chair and stare at it or keep pictures of it in my wallet.

A home is a great thing to buy if you buy it for sensible reasons. My main point is we should be careful patting folks on the back when all data points to continued falling prices.

Last edited by claude henry smoot; 02-15-2008 at 07:01 AM..
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