Falling home prices

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Do you want me to post a graph of wage inflation vs house prices? Please tell me you don't.

The reasons for the bubble are well publicized. The subsequent rise in inventory and drop in sales is well publicized. And you know better than most what happens when supply goes up and demand goes down. We are nowhere near the clearing prices for this market. And we won't be until the low-end of the market is affordable to entry-level buyers who can then move up in a few years.

In the meantime, the whales will die of starvation waiting for those move-up plankton.

PIMCO Bonds - Global Central Bank Focus- March 2007 "The Plankton Theory Meets Minsky"
 
Well then I'm confused. According to a bunch of folks, there are homes in their neighborhood selling for six dollars, and hundreds of them sitting vacant and foreclosed for four dollars.

What are the entry level buyers waiting for?
 
I would like all of you for trying to make this board a better place for ill-humored men who don't enjoy feel-good threads.

If this hadn't come along I might have had to pay good money to go see a boxing match. :)

Ha
 
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honobob said:
TBPu
I was only using Cho Oyu figures that he was complaining about. Using his figures for appreciation you're still almost $300,000 to the good but he again was using "average returns". And that would be tax free profit!

And it would only be 13 years left of mortgage, but for the real answer to that see post 78 and get back to me.
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Assuming 5% inflation, a $200k house in 1980 would certainly be worth $458k now. However, the rest of your math is shaky at best, and intended to mislead at worst.

If there are still 13 years left on the mortgage, that money must be removed from the $458k selling price (at least $100k based on low 5% interest rates and $40k down). In addition, you also need to remove realtors fees (@5%, this is around $20k). So now we are down to $338k. With approximately a $250k gain ($458k-$200k), there will be minimal taxes if the house was owner-occupied.

In comparison, $40k invested in the stock market (and not even on margin) would return $220k or so.

But this still isn't the complete math. We would also need to take into account taxes (property), tax-writeoffs (based on salary, other deductions), maintenance, and equivalent rents (and rent inflation) to get a better idea whether this purchase makes financial sense. (This neglects intangibles.) In other words, the $338k vs. $220k is a best case scenario given equity vs. housing appreciation.

Purchasing a house can often make sense financially - but often is not always. And as the plots Twaddle has posted indicate, now is a very precarious time to be purchasing property in the US.


So feel free to keep on posting about your investing genius - but I (and I am sure others) would appreciate a bit more care on your part when posting numbers. Because if these "errors" of yours continue, I'll start to question whether you've slid past enthusiasm and into the realm of dishonesty.

Cheers.
 
Prof Shiller speaks: Biggest increase means biggest decline. Mentions CA.
Paper Economy - A Real Estate Bubble Blog
Calls home investors non-professional compared to Wall Street.

Example:
An immigrant (legal), Mr. Imnothingspecial, arrives in the US in 1978 and has the cash to either buy a home or invest.

Roman Polanski's home is unexpectedly available for $100,000.
A Vanguard fund tracking the S&P 500 is available for $100,000.

Basic high school math assuming both are purchased outright.
1. Whichever one appreciates at a higher rate will "seem" to be worth more.
2. Each investment will incurr certain amounts of fees. Fund incurrs mgmt fee. House incurs property tax, repairs, maintenance.
3. Fund owner can't live at Vanguard so has rental costs.

So it appears that an assumption that rent is equal to (ptax+rep+main) makes both investments equal. Winners all around. Unless a housing crash happens. Timber.

And so Mr. Fuzzy Bob is only in need of Mr. Blind Fool in order to reap his home investment rewards. BUT, according to Prof Shiller, there won't be any blind fools buying until this thing is done in 5 years, yes 5.
 
I always enjoy how these real estate threads devolve into a couple of people talking about how you can make money if you invest in quality real estate in a desirable area and another group who swears you'll lose money by buying pieces of crap in a bad area not known for any long term appreciation.

I made a lot of money buying real estate in improving areas at what I felt were below fair market value and selling when they'd appreciated.

I made a lot of money in equities that were value priced with good prospects for improvement, and selling when they'd appreciated.

Stupidity in one area of investing is no different from stupidity in some other area of investing. Pointing out the stupid decisions some people have made does not invalidate the entire class of investments.

As far as the economy falling down around our ears, all thats happened is that over the last 4 years a lot of smart people built and sold or resold homes at a fat profit which was paid for by some people who werent as smart.

Some other idiots took out HELOCs and blew the money. Their houses will be bought up at bargain prices by smart people who didnt do that.

Hmmm, taking money from idiots and giving it to smart business people. That oughta really ruin the economy. ::)
 
cute fuzzy bunny said:
I always enjoy how these real estate threads devolve into a couple of people talking about how you can make money if you invest in quality real estate in a desirable area and another group who swears you'll lose money by buying pieces of crap in a bad area not known for any long term appreciation.

I made a lot of money buying real estate in improving areas at what I felt were below fair market value and selling when they'd appreciated.

I made a lot of money in equities that were value priced with good prospects for improvement, and selling when they'd appreciated.

Stupidity in one area of investing is no different from stupidity in some other area of investing. Pointing out the stupid decisions some people have made does not invalidate the entire class of investments.

As far as the economy falling down around our ears, all thats happened is that over the last 4 years a lot of smart people built and sold or resold homes at a fat profit which was paid for by some people who werent as smart.

Some other idiots took out HELOCs and blew the money. Their houses will be bought up at bargain prices by smart people who didnt do that.

Hmmm, taking money from idiots and giving it to smart business people. That oughta really ruin the economy. ::)
Click to expand...

Great post CFB!!! :) Not everyone fails at real estate all at the same time. Like all other things in a free market, there are winners and loosers, and smarter investors tend to prevail, and less savy investors tend to fail. The world is not safe, there are no guarantees, and no there is not a Santa Claus either (sorry to the kiddies that may be reading :)). You either accept the mistakes you have made in life, or you can wallow about in self pity.
I am now paying a personal price for other peoples stupidity (as are lots of us here). My home price has gone down, and my stock portfolio WAY down because of it. All of these folks that were lured by the seductive promise of "something for nothing". Should I have the right to sue the govt, or the banks, or a class action lawsuit collectively against some hundred thousand bankers and individules that were morons? I would love to... but the reality is when I bought my house, and made my investments, I understood that there was risk involved, and there is still. Ok... rant is over... :)
 
cute fuzzy bunny said:
Well then I'm confused. According to a bunch of folks, there are homes in their neighborhood selling for six dollars, and hundreds of them sitting vacant and foreclosed for four dollars.

What are the entry level buyers waiting for?
Click to expand...


Are these in Detroit?
 
cho oyu said:
Assuming 5% inflation, a $200k house in 1980 would certainly be worth $458k now. However, the rest of your math is shaky at best, and intended to mislead at worst.

If there are still 13 years left on the mortgage, that money must be removed from the $458k selling price (at least $100k based on low 5% interest rates and $40k down). In addition, you also need to remove realtors fees (@5%, this is around $20k). So now we are down to $338k. With approximately a $250k gain ($458k-$200k), there will be minimal taxes if the house was owner-occupied.

In comparison, $40k invested in the stock market (and not even on margin) would return $220k or so.

But this still isn't the complete math. We would also need to take into account taxes (property), tax-writeoffs (based on salary, other deductions), maintenance, and equivalent rents (and rent inflation) to get a better idea whether this purchase makes financial sense. (This neglects intangibles.) In other words, the $338k vs. $220k is a best case scenario given equity vs. housing appreciation.

Purchasing a house can often make sense financially - but often is not always. And as the plots Twaddle has posted indicate, now is a very precarious time to be purchasing property in the US.


So feel free to keep on posting about your investing genius - but I (and I am sure others) would appreciate a bit more care on your part when posting numbers. Because if these "errors" of yours continue, I'll start to question whether you've slid past enthusiasm and into the realm of dishonesty.

Cheers.
Click to expand...
Cho uyo

This is an intermediate real estate thread. I did not intend to mislead anyone as you can see by my post 98, where I referred to the almost $300,000 gain, that I subtracted the mortgage payoff. Investors at the intermediate level and higher generally do not pay full Realtor fees if any so I did not subtract them. I also assumed a positive cash flow (or costs below renting for owner occupied) well before year 17 even for an average buyer using YOUR average appreciation rate. When you go to the beginner real estate thread I believe there is the definition of average so you will realize that intermediate (above average) investors have higher rates. The graphs are way more colorful there also. Pretty graphs. . I thought I was also being generous to you by assuming 17 years of 10% returns in the market. I’m all ears if you can guarantee that. I encourage you to read up on the taxation of capital gains so you won’t make erroneous comments concerning tax liabilities. I won’t even chide you about not mentioning a Starker delayed exchange as that is best discussed in the advanced real estate investor thread.

Please don’t take this harshly. I don’t blame you for assuming you were on a beginner thread with all the beginner level whining. But before you go talking all potty mouth, I suggest you go to the beginner threads to get up to speed. We’ll wait, we ain’t going no where.
 
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Here is a good read.

Housing Crash Continues, Bubble Pops

Sort of runs contrary to the claims of our "advanced" real estate investors.

When I closed I paid no fees so I may be beyond "advanced" but in reality I was bonking the real estate agent (female, at least I think). I got a great education during the purchase process.

EDIT:
Holy crap I just saw that someone thinks this is an intermediate level thread. Uhhhh, just sayin, a little more study and time in grade and this may not seem so daunting to you. I consider this thread to be a psychology thread about people who get very defensive and respond smugly.

Don't anyone assume I'm talking about you in particular. That's called being paranoid. No one is out to get you. It's a great world except for this housing debacle.
 
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Honobob and CFB present themselves as savvy investors. They acknowledge that it's possible to lose money in real estate, but not if you're smart like they are.

We are lucky to be in the presence of not one, but two Sam Zell-like experts. I suggest we listen to them.

I believe they made their money in places like Sacramento and Las Vegas. I, for one, would love to get some insight into their investment analyses. Was it based on cash flow? Demographics? Zoning restrictions?

Let's all be quiet now and listen....
 
TBPu said:
Here is a good read.

Housing Crash Continues, Bubble Pops

Sort of runs contrary to the claims of our "advanced" real estate investors.

When I closed I paid no fees so I may be beyond "advanced" but in reality I was bonking the real estate agent (female, at least I think). I got a great education during the purchase process.

EDIT:
Holy crap I just saw that someone thinks this is an intermediate level thread. Uhhhh, just sayin, a little more study and time in grade and this may not seem so daunting to you. I consider this thread to be a psychology thread about people who get very defensive and respond smugly.

Don't anyone assume I'm talking about you in particular. That's called being paranoid. No one is out to get you. It's a great world except for this housing debacle.
Click to expand...

Well I don't have 50 minutes for you but here's a start. Better yet, why don't you start another thread to discuss your issues. Let's keep this one about real estate.

In psychology, psychological projection (or projection bias) is a defense mechanism in which one attributes to others one’s own unacceptable or unwanted thoughts or/and emotions. Projection reduces anxiety by allowing the expression of the unwanted subconscious impulses/desires without letting the ego recognize them. The theory was developed by Sigmund Freud and further refined by his daughter Anna Freud, and for this reason, it is sometimes referred to as "Freudian Projection"
 
twaddle said:
Let's all be quiet now and listen....
Click to expand...



Like that’s gonna happen………

But just incase you can hear in between snorts. Honobob never claimed to be a savvy investor, just a successful one which is why I am totally baffled by people (intelligent ones) who try and fail or are afraid to even try! Honobob has always bought at market! Honobob has always bought through a Realtor. Honobob even admitted that his seemingly gift from above ability to select good tenants could be a fluke.

I don’t understand why people buy properties if they believe the value only appreciates at the rate of inflation and ownership is much greater than renting. I don’t understand why people get all wet about a property they think they can buy at 50% off when that was the price they sniffed at three years ago and pronounced it to be ridiculous. Why would you buy anything that drops in value so drastically? I don’t understand why you would buy a property and complain about the type of tenants it attracts.

So no. Honobob makes no claim to being savvy. Honobob is no idiot though and as he explains in chapter 3 of his book,” Honobobs Best Buys for Believers and Bozos” …oh wait I’ve said too much. Honobob has learned much here so I’m not gonna give away the farm (real estate phrase. See appendix III) Everything Honobob knows can make you a successful investor and is included in my 500 page book. It’s only 499 words total but I learned here you won’t feel like you’re getting a deal unless it seems way more complicated than it is and Today just for you Honobob is slashing his normal price of $59.99 to just three easy small payments of just $20.00. You’d pay more for a haircut! Operators are standing by.


 
twaddle, I rarely disagree with you because you are extremely sharp witted and better yet, rely on fact. You bad man you. In the future please use smugness, arrogance and grandiose performance claims. You will fit in well at that point.

But no let's not listen to shills for real estate. There is an obvious agenda and the willingness to tailor stories to support the denial.

And honobob, I've been really just ribbing you a bit. It's really not personal at all. Sorry for causing you anxiety and stress. And in the psychology field, invoking Freud is very, well let us just say, old school.

And my problem is that as a newly retired university employee and professional genealogist, I lacked sufficient "superiority" in real estate knowledge and bought what everyone in Frankfort thought was a great buy. That included a BIL in the tax office in Traverse City.

So, uhh, I'm on this thread as a voice of normallcy.

I wonder really if falling house prices are considered a myth by you, why are YOU here. You've posted nothing of value other than you claims of superior knowledge.

Twaddle please don't allow the false reporting to go unchallenged.

I've tired of the attacks.
 
TBPu said:
I lacked sufficient "superiority" in real estate knowledge and bought what everyone in Frankfort thought was a great buy. That included a BIL in the tax office in Traverse City.
Click to expand...

Transference is a phenomenon in psychology characterized by unconscious redirection of feelings for one person to another. One definition of transference is "the inappropriate repetition in the present of a relationship that was important in a person's childhood."[1] Another definition is "the redirection of feelings and desires and especially of those unconsciously retained from childhood toward a new object."[2] Still another definition is "a reproduction of emotions relating to repressed experiences, esp. of childhood, and the substitution of another person . . . for the original object of the repressed impulses."[3] Transference was first described by Sigmund Freud, who acknowledged its importance for psychoanalysis for better understanding of the patient's feelings.

Yeah, much harder to flail your frustrations at a family member even if the relationship is just through marriage.

TBPu, you're new to this maddness but I assure you it's all in good fun. Even the Twad and I only had our one little spat. He did change his name shortly thereafter. But I am serious about making money but if not keeping an open mind to experiences of others and being open to the dark side puts money in your pocket more power to you.:angel:

Today is a good day to buy real estate.
 
Hey, I enjoy listening to shills for real estate. There are so few left these days.

Honobob is a successful real estate investor. CFB too. As for me, I made a lot of money in real estate, but I consider myself lucky rather than successful. My returns far exceeded anything I could imagine based on fundamentals. I owe it all to the bubble. Thank you, bubble!

Now the bubble is deflating. I still own one last house, but I don't consider it an investment. It keeps the rain on the outside, and that's all I ask of it.

I do think there are savvy real estate investors out there. I.e., those whose success is a product of factors other than luck and bubbles. But speculating based on past growth or hoping that your neighborhood becomes gentrified or popular doesn't strike me as "advanced" real estate investing.
 
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