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justin 11-22-2006 08:03 AM

Psychology of the Housing Bubble (and its collapse)
 
Has anyone noticed the absence of new posters bragging about their huge equity in their houses. Six months or a year ago it seemed like every few days a new poster would start a "Hi, I'm new here" thread that went something like this:

"Hi, long time lurker. Age 41 with wife and 1 kid. $1.3 million in total net worth. House is worth $1.1 million (at least!!!!) with a $100,000 mortgage - we bought our principal residence in California 16 years ago as a real estate investment and it paid off! $150k in my 401k. $75k in my IRA, $75k in DW's IRA+401k. We plan to sell the house and move to rural Arkansas to retire. Expenses of $49,000.

Are we ready to retire??!!"

Where did all these folks go? Has the equity disappeared? Do they perceive a great threat to their equity, therefore they discount it from their net worth calculations? Maybe they all sold and moved to rural Arkansas... Just food for thought.

Also, where are all the conspiracy theorists who were challenging the validity of the CPI rate a year ago as house prices jumped by 20%/yr for 5 straight years? The complaint was "people buy houses, why aren't house prices included in the CPI instead of market rent?". Aren't these folks going to complain that CPI should be dropping quick due to housing price decreases?

brewer12345 11-22-2006 08:10 AM

Re: Psychology of the Housing Bubble (and its collapse)
 
The former are either crowding Az out (if they did move) or singing small (if they didn't). The latter are busy shining up their tinfoil hats for another go.

rs0460a 11-22-2006 08:27 AM

Re: Psychology of the Housing Bubble (and its collapse)
 
My (mortgage/note free) house value is part of my/DW's "terminal/estate" net worth - not our current net worth.

It was never considered as part of our "retirement income plan" (either by downsizing or reverse mortgage). Those are "retirement options" that are often planned, but rarely executed :P.

- Ron

Nords 11-22-2006 09:14 AM

Re: Psychology of the Housing Bubble (and its collapse)
 
Quote:

Originally Posted by justin
Where did all these folks go?

They're currently in the mandatory waiting period for these other classic quotes:
"It's really different this time!"
"Buy gold now!"
"Small-cap value is over!"
"The telcom sector is way overdue to come roaring back!"
"Do it before interest rates go zooming up!"
"I'm 75% cash and 25% beever cheeze futures!"

FinanceDude 11-22-2006 09:32 AM

Re: Psychology of the Housing Bubble (and its collapse)
 
Quote:

Originally Posted by Nords
They're currently in the mandatory waiting period for these other classic quotes:
"It's really different this time!"
"Buy gold now!"
"Small-cap value is over!"
"The telcom sector is way overdue to come roaring back!"
"Do it before interest rates go zooming up!"
"I'm 75% cash and 25% beever cheeze futures!"

I thought you were going to say that thy are ALL studying for their Series 7 licenses so they can "spread the message"!! :laugh: :laugh: :laugh:

Nords 11-22-2006 09:41 AM

Re: Psychology of the Housing Bubble (and its collapse)
 
Quote:

Originally Posted by FinanceDude
I thought you were going to say that thy are ALL studying for their Series 7 licenses so they can "spread the message"!! :laugh: :laugh: :laugh:

Well, some quotes have been in the Hall of Shame for decades!

FinanceDude 11-22-2006 10:37 AM

Re: Psychology of the Housing Bubble (and its collapse)
 
Quote:

Originally Posted by Nords
Well, some quotes have been in the Hall of Shame for decades!

Just doing my part........ :D

kcowan 11-22-2006 11:33 AM

Re: Psychology of the Housing Bubble (and its collapse)
 
Hi I'm old here and I already read the threads on housing bubbles and also the one about the way house equity should be treated for net worth assessments so if you don't mind I am skipping any mention of my house... ;D

Sam 11-22-2006 11:49 AM

Re: Psychology of the Housing Bubble (and its collapse)
 
Quote:

Originally Posted by justin
Has the equity disappeared?

So far the bust has been much less severe than I expected. I'm still amazed at how SanFran, SanDiego, OrangeCountyCA, PalmBeach, Boston have been able to hold the value (price) despite the double digit drop in sale (volume), and the triple digit increase in inventory. I expected the anomaly - constant price despite high inventory and low sale - to be short lived, but it has been at least 6 months without any significant change.

I'm just glad that Houston is positively affected.


newguy88 11-22-2006 03:03 PM

Re: Psychology of the Housing Bubble (and its collapse)
 
From what I have seen in the NJ market the one where you have bedroom communites that people drive 30 40 or 50+ miles a day each way to work they have lost 20% in asking prices. The neighborhood we sold in last april for 513,000 the same homes yes toll brothers development are now listing at 449,000 and some are the same homes that were listed the same week I was listed in the 520's.

The realtors in that part of new jersey western warren county are well slow.

Cut-Throat 11-22-2006 03:47 PM

Re: Psychology of the Housing Bubble (and its collapse)
 
Yeah, you don't hear many folks talking about 'flipping' any more! - Nor many 'seminars' on how to 'flip' either!

I guess they all flipped out? :laugh:

cube_rat 11-22-2006 04:10 PM

Re: Psychology of the Housing Bubble (and its collapse)
 
Quote:

Originally Posted by justin




Where did all these folks go? Has the equity disappeared?

I got out of the California market last month. Now I'm studying for my Series 7 license :laugh: :laugh: :laugh:

The bust is not yet over in California. Real estate cycles tend to be very slow. The upside is that people like us with household incomes of $200k+ , who are currently renting with cash in the bank, are looking for bargains. >:D

mb 11-22-2006 07:53 PM

Re: Psychology of the Housing Bubble (and its collapse)
 
Quote:

Originally Posted by Sam
So far the bust has been much less severe than I expected. I'm still amazed at how SanFran, SanDiego, OrangeCountyCA, PalmBeach, Boston have been able to hold the value (price) despite the double digit drop in sale (volume), and the triple digit increase in inventory. I expected the anomaly - constant price despite high inventory and low sale - to be short lived, but it has been at least 6 months without any significant change.

Ditto.

I recently got one of those real estate flyers that IRRC showed that in my area of Santa Clara/Silicon Valley there were about 20 houses on the market and there had been only one sale but that five houses had been taken off the market during that same time. Apparently the owners were not able to get the price they wanted and didn't have to sell so they took them off the market.

Unemployment is very low in the valley and my personal gauge of the economic climate (the traffic on the local thru-way that I commute on) is back near where it was during the height of the dot com era. (I prefered the commute during the bust. Got home about 5 minutes faster.)

Despite all the talk of risky loans thus far I don't think that many people are being forced to sell.

MB

dmpi 11-22-2006 08:44 PM

Re: Psychology of the Housing Bubble (and its collapse)
 
I laugh when I hear people say that the worst is over. :laugh: Like the a 5 year housing bubble can be sold off in 6 months.
Anyway if you want to talk about arrogance, nothing can match the year 2000 dot com bubble. Every joe and his brother were getting richer off tech, and their ego grew with tech stock that they bought. Also every warm body was somehow involved in IT and switching jobs every six months and getting a 6 figure income to boot. You were considered a "dummy" and "old school" if you stayed in your current job, rather than jump off to some dot-com with it's stock options. Guess what... after the bust, my phone kept ringing from "friends" who got laid off and now need a job.



Caroline 11-22-2006 09:46 PM

Re: Psychology of the Housing Bubble (and its collapse)
 
This is an interesting question.

I bought my home 6 years ago with 20% down and a fixed mortgage. If I look at what it's theoretically worth relative to 13 or 14 months ago, I have "lost money." I know a lot of folks with 5+ year-old mortgages running around lamenting their drop in equity. If I think like this I feel bad and avoid bragging. :-[

If I look at what my house is worth relative to when I BOUGHT it, I've made out like a bandit. I feel good, and while I am not the bragging type (apart from that last statement), I can talk about my "good luck," etc. etc. :)

So for a lot of folks -- anyone with a fixed rate and a mortgage that is more than a few years old, its all about how they / we look at it. More people seem to look at the glass as half empty than as half full. :-\

Then there are those folks with weird mortgages who bought last year. They're not bragging because it's hard to talk under water. :dead:

newguy88 11-23-2006 07:04 AM

Re: Psychology of the Housing Bubble (and its collapse)
 
Quote:

Originally Posted by Caroline
This is an interesting question.

I bought my home 6 years ago with 20% down and a fixed mortgage. If I look at what it's theoretically worth relative to 13 or 14 months ago, I have "lost money." I know a lot of folks with 5+ year-old mortgages running around lamenting their drop in equity. If I think like this I feel bad and avoid bragging. :-[

If I look at what my house is worth relative to when I BOUGHT it, I've made out like a bandit. I feel good, and while I am not the bragging type (apart from that last statement), I can talk about my "good luck," etc. etc. :)

So for a lot of folks -- anyone with a fixed rate and a mortgage that is more than a few years old, its all about how they / we look at it. More people seem to look at the glass as half empty than as half full. :-\

Then there are those folks with weird mortgages who bought last year. They're not bragging because it's hard to talk under water. :dead:

Kinda like the people who bought my place in NJ last spring for 513,000 and have a 375,000 mortgage and a heloc of something like another 90,000..

I sure do not know how you could sleep with that kind of debt. They the buyers were not making big money although the husband and wife both worked full time jobs.

The house just down the street that was on the market the same time is now listed at 449,000 same model in the development. I hope they are planning to stay a while and don't lose their jobs.

Nords 11-23-2006 11:50 AM

Re: Psychology of the Housing Bubble (and its collapse)
 
Quote:

Originally Posted by cube_rat
The upside is that people like us with household incomes of $200k+ , who are currently renting with cash in the bank, are looking for bargains. >:D

Apparently that's gonna take heroic patience, although if nothing bad happens next year then you risk sitting on the sidelines cursing your timing. It's probably bad form to pray for an earthquake.

We spoke with a neighbor (a couple blocks away) who's lived here since the development was built in 1988. They chose their vacant lot and signed a "contract" for $200K, only to have Castle & Cooke come back six times over the next two years with letters stating "We regret to inform you that due to rising construction costs..." The market was so hot back then that they felt lucky to move in six months behind schedule for "only" $269K instead of the original price. (Then they could start landscaping their lot, which wasn't included in the purchase price.) 18 years later their 4BR place would probably sell for $675K, slightly above last month's median, an appreciation of about 5% APY. The Oahu market has many more homes taking a lot longer to sell, but the median sales price hasn't really declined. Yet.

In contrast we lowballed our shabby neglected home out of a teenager's trust fund during the end of 2000's RE bear market for $405K, a deal that we'll probably never repeat in our lifetimes. It's more than doubled in sweat equity value since then, at least 12% APY.

We're also perched like vultures looking for a cheap investment condo. But unless there's a serious natural disaster, stock-market meltdown, or some other unforeseen calamity then we may be waiting for a long time. I just hope we can recognize when the sideways market decides to go up again, or at least stumble across a nice REO diamond in the rough.

macdaddy 12-06-2006 11:52 PM

Re: Psychology of the Housing Bubble (and its collapse)
 
Around Boston where I follow the market, prices are down 15-20% from the very top. The peak was about 12 months ago. I don't think they will fall much further. Inventory is pretty low. There are *so many* people waiting in the wings with bags of cash, looking for REOs and cheap properties, that it's hard to know whether real estate will really become an undervalued market in the next several years. It's frustrating because I love real estate, but if the returns aren't there, I have to move on and look for something else. Greater than 5% cap rates still do not exist here.

newguy88 12-07-2006 08:41 AM

Re: Psychology of the Housing Bubble (and its collapse)
 
Quote:

Originally Posted by macdaddy
Around Boston where I follow the market, prices are down 15-20% from the very top. The peak was about 12 months ago. I don't think they will fall much further. Inventory is pretty low. There are *so many* people waiting in the wings with bags of cash, looking for REOs and cheap properties, that it's hard to know whether real estate will really become an undervalued market in the next several years. It's frustrating because I love real estate, but if the returns aren't there, I have to move on and look for something else. Greater than 5% cap rates still do not exist here.

It seems as though inventory is low because people have taken homes off the market instead of reducing prices.

Many do not have to move, however it is beginning to look as though the run up in equity is now gone poof, many are not going to be hurt by this unless they took out home equity lines of credit. OOps 70 % in some markets have done just that.

I believe we really are in the beginnings of a real bear in the housing market, in markets where there is land like the carolinas and vegas houston etc home prices will stay lower, areas that saw the big run up are dead in the water. The NYC NJ market is very slow, and prices listing prices are close to 25% down in many counties. Those 600,000 dollar homes are now listing in the 490 range the 500,000 homes are listing close to 400.

Interesting.

Brat 12-07-2006 08:45 AM

Re: Psychology of the Housing Bubble (and its collapse)
 
I think this is really location specific. To the consternation of many the markets in the Seattle and Portland metro areas are flat.


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