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Housing Bubble Smack-down
Click Name for Bio of Mike Whitney
Monday, 20 November 2006
by Mike Whitney
Give me 5 minutes and I?ll convince you that you should sell your house immediately and invest yourlife-savings in gold or a Swiss bank-account. Moderator cut: copyright
I don't see it in the NYC metro region especially in places like Queens & Hudson County NJ (let alone Nassau). Supposed, alledged average salaries are around $50,000 but you can't touch a starter condo (let alone house) for less than $400,000 in both counties and even if you somehow are able to qualify for a mortgage, you still must put down at least 20% and get condo or co-op board approval.
Seems like everyone outside of Manhattan is earning $200,000 or more and free spending at Roosevelt Field, the Americana Shopping center and must have a BMW, Lexus or both (since you are judged by what you wear & what you drive in this part of the country).
But it can't all because of 'easy credit' since qualification standards by the banks & boards are high & you must put down at least 20%. Foreclosures are also the lowest in the nation.
It took a bit longer than the 5 minutes promised, because of the odd formatting...
Then I read it again.
While the writer makes lots of interesting observations, many of which made me nod vigorously in agreement, not one of them made me not want to own my own home. Not one of them made me grab the local paper to find an apartment to rent. And not one of them made me want to own more gold than I do. And I believe the only gold I own is in my eyeglasses frames.
I certainly hope the writer will let us all know how he's done in a few years after he's become a renter and waited to buy our houses at the bottom of his "Armageddon" market.
The writer seems to make several simple errors in logic, just for starters.
And in the interest of full disclosure - I'm a Realtor. I'd be very busy indeed if a tenth of my clients decided to sell thier homes asap. But I'd no sooner try to use this argument and try to panic people into selling than I'd suggest Russian roulette for entertainment.
house - hunter: please let me know what I'm missing here. Thanks for posting this even though I think the guy's full of what makes the grass green. This sort of discussion is very helpful.
I agree with Chaz Longue. Interesting reading, way hyped and exaggerated, but there is a problem and that's clear.
I thought about buying gold when it was $320/ounce in June of 05, but then thought better of it. If I own gold, which is recorded and reported, if the dire circumstances outlined above were to come true, what would stop the government from pulling a repeat of the FDR gold confiscation in the early 1930's? I'd be left in a pickle.
I prefer to own my own home...and I do, free and clear. If people extended themselves too far to buy homes they really couldn't afford by taking out ARMs which had teaser rates they could afford until they reset...well, I don't blame them. The housing market went up up up and logic would say...hmmm, if I get into the market, the appreciation will cover my exposure and I'll be able to eventually cash out and have money to put on a home I didn't have before I started.
Well, the market is tanking and a lot of those poor folks are caught in a bad situation and many are foreclosing, but it wasn't stupidity on their part for the most part in my view.
This article also has the tone of the radical rightwingers who suspect that all of this is planned and arranged by the Fed. reserve and government working together to enslave the American population in debt. I think that's bullsh*t.
I think this is the result of political machination to avoid having to deal with economic reality during elections that resulted in cheap credit going out of control, but not just in America, but all over the world.
And even if this were a deliberate attempt to bankrupt and financially enslave Americans, they can walk away from their houses they can't afford to pay for and...get enough people pissed off and suffering and you'll have the Feds and other people high up having to figure out how to pacify millions of angry people.
Coming after an unpopular war that most Americans now see as politically manipulated and extraordinarily wasteful and costly, I don't think the enslavement mentality stands a chance versus reality.
And most importantly....selling your home if you don't have to is idiotic. You still have to live day to day and no one knows the future. Why would I want to put all my cash in gold and Swiss accounts when I need to live now. And if this downturn dark nightmare lasts for 12 years, why would I want to postpone life for that period of time? It doesn't make sense.
It wont stop me from buying a house, I have to live somewhere and its dumb for me to rent because it costs more to rent than buy where I will be relocating to. $50k houses rent for $500 a month making it an obvious bad deal to rent with a 1:100 ratio. In CA where the ratio can be 1:300, its definately a good idea to rent.
Secondly, I read that an equibrium is going to be achieved. Cheap markets are going to countinue to appreciate at around 5% a year, moderately priced markets are staying flat and expensive markets are depreciating at around 5% a year. I am not saying CA will become as cheap as Ohio but yes the gap will shrink.
I dont need a mortgage, I can save for a downpayment, maybe get owner financing if I come a few thousand short or maybe ill just buy a cheaper house and save up. House prices dropping isnt gonna affect me since ill own it free and clear and I wont be selling it anytime soon, if ever. I would not buy a house anywhere but a cheap location where prices are holding steady.
I warned my parents to sell their house in late 2005, they coulda gotten $750k or so, now Zillow says its worth just $584k, they will probably not get over $600k for it. Not that it matters since they never had interest in selling it and its way too late to sell now. Lack of buyers and mortgage companies are cracking down too. The guy who bought my neighboors house for $525k is in deep trouble, its worth $368k now, was worth $435k when he bought it for $525k. Probably will drop down to $250k once the market bottoms out.
The crack down on subprime mortgages will exclude alot of buyers who will either rent instead or buy in cheap locations where they can put a big downpayment and get owner financing.
I doubt USA will experience the real estate crash of Japan, for one USA was never as inflated/overpriced and for two, theres enough foreign investors that the bottom of the market is probably gonna occur in 2009 and prices will stay flat a few more years then go up at the rate of inflation and worker's salaries.
house-hunter is an entertaining poster with interesting observations (knows a lot about the markets and investing) beyond the scope of most other posters on city-data, and I think of his spiel here as akin to a rant by Kunstler over at kunstler.com (although his focus is not centered around peak oil). Myself, I wouldn't attempt to guess how history will judge Alan Greenspan, but I do appreciate the fact that he loves Jazz music as much as I do. By the way house-hunter, what percentage of a mid-fifty year olds' retirement investments (his sole savings for retirement) would you have allocated into international funds today? At this age I would expect more than half of his investments to be held in high-rated fixed instruments to cut risk from the equity holdings - no? Would you be looking at international developing and/or emerging market (managed) funds, or at a single total international index fund for exposure (low costs) - or have any international or global funds at all? Some say there is a confluence and synergy between international companies and US companies that negates the value and purpose of seperate international investing. Just curious.
I agree about taking more than 5 minutes to get through the "housing bubble smack down"...geeze. I needed to process for a few minutes and then read the refreshing responses and felt better. I can't imagine how anyone can have such predictions based on pure theory, unless of course he or she spent quality time with Greenspan and the gang - and he or she of course is not alone in this kind of analysis, I understand that. What worries me I think, is how many people read this gloom and doom stuff and actually follow through with the recommendations!! Personally, I adhere to the practice that do what you want and how you want, but don't try to influence others on your trek to devastation. One of our countries primary problems with the housing market right now is the media, hype and articles similiar to the one I just read -
Yes, we have had a few historical and unprecedented influences on housing - a. interest rates,aka cheap money, b. rapid appreciation, c. baby boomers buying second family homes, d. more than creative financing opportunities... But - our population of home buyers will always be there, because our population continues to grow and "yes" need housing. My opinion is a major part of the problem came with the real estate speculators - aka flippers. A lot of those guys are going back to their day jobs now, some a little richer and some in the hole trying to rent their "flipping" houses... and there they sit adding to the surplus of homes on the market. This part of the equation needs to go away and then I believe we shall have what is commonly called "a stable market". But reality is ...who really knows for sure...
It took a bit longer than the 5 minutes promised, because of the odd formatting...
Then I read it again.
While the writer makes lots of interesting observations, many of which made me nod vigorously in agreement, not one of them made me not want to own my own home. Not one of them made me grab the local paper to find an apartment to rent. And not one of them made me want to own more gold than I do. And I believe the only gold I own is in my eyeglasses frames.
I certainly hope the writer will let us all know how he's done in a few years after he's become a renter and waited to buy our houses at the bottom of his "Armageddon" market.
The writer seems to make several simple errors in logic, just for starters.
And in the interest of full disclosure - I'm a Realtor. I'd be very busy indeed if a tenth of my clients decided to sell thier homes asap. But I'd no sooner try to use this argument and try to panic people into selling than I'd suggest Russian roulette for entertainment.
house - hunter: please let me know what I'm missing here. Thanks for posting this even though I think the guy's full of what makes the grass green. This sort of discussion is very helpful.
David Beckett
Oh david thats typical of what a realtor would say...
every realtor I talk to says its a sellers market and this will go on forever. sorry to bust your bubble but its all over and the prices ave already started to drop and the forclosures are already stating to rear thier ugly heads. can't you admit the truth... afterall, if you are a realtor than you surly have better tools than us lay people to check on this. it just the start, lets talk in 08
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Not Convinced
