Emotional Bubble
When discussing a real estate bubble with "non-believers," one subject that often comes up is emotions. Some real estate enthusiasts go so far as to claim that everyone who believes in a bubble is a bitter, scared, renter. On the other end of the spectrum, Marlow Harris of the P-I's Seattle Real Estate Professionals blog is a good example of a real estate enthusiast that is less condescending. Regarding the conversations on Seattle Bubble, she observed:
People are scared. Outraged. And angry. Upset that they can't buy a house or upset that they did.Certainly there is some truth in her observations, but I'm not sure that she has it entirely right. Are some of us outraged, angry, or upset? Sure. Although (thankfully) the back and forth here is nothing compared to the Craigslist housing forums, there's definitely a degree of anger at just how ridiculous the whole situation has gotten. But scared? Fear is something that I just don't see in the comments here. Most of you don't own a house, so what is there to be afraid of?
Although there are many emotions wrapped up in the bubble debate, I personally believe that most bubble believers base their conclusions on logic and a reasonable assessment of the situation. Of course, for people that are totally wrapped up in real estate, that's a difficult thing to comprehend. Difficult, but perhaps not totally impossible, as demonstrated by another comment from Ms. Harris:
Being the consummate real estate professional that I am (tee-hee!), my first reaction is to run to these folks and offer assistance to help them become proud homeowners. Imagine my surprise to find that many of the people who comment on Seattle Bubble do NOT want to own a home! Or, at least, they don't want to own a home if it means living in a crappy house with a huge mortgage.If you decide to comment on Marlow's post, please be nice. Unlike some of those in real estate, she is clearly willing do have an open dialog about the issue.
In our real estate office, it's constant rah-rah for real estate and we spend hours helping buyers figure out how to get the home of their dreams. So it's just interesting to read another opinion when it comes to owning a home.
So what's your bubble belief driven by? Are you angry and upset, and just looking for "facts" to fit your perception, or is it the facts that are making you angry? What other emotions do you feel about the bubble?
(Marlow Harris, Seattle Real Estate Professionals, 05.18.2006)
48 comments:
So many people are going to be wiped out by this. We all know people who are quietly leveraged to the hilt with mortgage and consumer debt. I've taken the position that I won't volunteer an opinion unless someone asks me for it. The train wreck that's coming can't be stopped, it's simply an objective economic fact. We can look out for ourselves and advise our friends if they're at risk of becoming FB's.
We must especially make the case to our elected representatives that the markets must clear, and there must be no bailouts. Caveat emptor, and Have a Nice Day.
OT -- On the walk in this morning, I was thinking about Seattle as a refuge for tech VC and California small business. The writing has been on the wall for business in CA for a long time. Look at Nissan. Ask Intel if they would ever build a plant there. Of course not.
So I wonder to what extent we become a comparable refuge of sanity for west coast capital now and in the coming years (when CA is gone).
Sure, there's a bubble. Yes, we bought last year. Yes, we plan to stay here forever. We bought 1/2 the house we were qualified for (being house poor is no way to live); got 5.5 fixed. We figure we'll be riding a couple (at least!) of cycles while we live here. I know our "gains" are all on paper now and they can disappear overnight (and they really don't mean anything since we don't plan to move for, say, 30 years), it is still fun to think about.
As another commenter said on an earlier thread: yes, I find all the discussion on this website amusing. Don't get me wrong...it is a fun read and some good info, but I don't stress about any of this.
I do think, however, that some of you guys come across as a bit mean to Meshugy. His comments seem to be polite, but the responses aren't always so.
All anyone can do is present accurate, factual information. Even then, the information can be interpreted different ways, as we all know. Whether or not people agree with you is their decision; I don't see how resorting to sarcastic namecalling is going to help anyone "see the light."
Again, a fun blog. Thanks!
-- Yet another Anon
First off, I'd take issue with the whole semantics of "belief". This isn't religion, it's economics.
People do get emotional about housing though.
I own a house. I'm worried because I'm not thrilled with the neighborhood so I'd like to sell once the place is fixed up a bit. I feel pressure to get this done sooner rather than later, because I'd like to get out before things get bad. And I'm quite sure they will.
This anxiety is tempered by the fact that I'm not in over my head, and the place I own is close to work for both me and my wife, so if I had to stay for longer, it'd be OK. Not optimal, but OK.
But I'd rather be renting and accumulating reserves right now.
The emotions I've seen from the bubble sites aren't fear. They're a mixture of the following:
Righteousness
People are using their debt irresponsibly, living it up instead of saving as they should, and one day soon they will PAY! Hallelujah!
Sure, people are doing dumb things and it's not bad to remind everyone that a 100% interest only ARM is a bad deal, but there's a little too much glee in the idea of people whose only sin was being bad at math losing their homes.
Desire for excitement
Our economy has been kind of boring lately. It's kind of churning along but there hasn't been any sort of crisis. I want a crisis! This isn't just going to be a housing bubble that might lead to a bad year or two, this is the precursor to a downturn that will make the Great Depression look rosy!
You can tie this in with the preachers to have people get excited over everyone learning the lessons of the 30s again.
Superiority
Look at those sheeple[1]. They keep buying houses and buying houses when all of us know that the market is going to collapse any second now. At least we're in the know!
Ingrained pessimism
I'm not talking normal worries that not everything will be perfect and making contingency plans. Pessimism can quite often be rational and important. Sometimes though, a line can be crossed and the worst possible outcome for any scenario becomes the default. There can become a contest to see who can come up with the bleakest scenario about the future.
None of this is to say that there isn't a problem with housing prices in Seattle or the country in general. There just seems to be a lot of overreaction here; rather than refuting the arguments of the blind real estate pushers, commenters can be a mirror image of them.
[1] Whenever I see someone refer to "sheeple," I take their argument a little less seriously. The implication with that word is that anyone who disagrees with the poster is an easily led idiot. If you have that attitude, you've stopped challenging your own attitudes.
Housing is one of the basic necessities of life...I think it's plainly obvious why people get emotional about it. Everyone is watching the market, trying to make the best decision for their future. Everyone is on edge, wondering how this unprecedented run up in housing prices will all turn out.
Owners, of course, fear a steep drop in value. Especially those who bought recently at high prices leveraged with exotic loans.
But renters are also fearful. Most want to buy eventually, but feel prices will come down. But what if they don't? Then they may have lost their opportunity to buy at a lower price. Additionally, interest rates are climbing and probably will never be this low again. So it's a double whammy to wait...unless of course prices do comes down.
The bottom line is, that it's incredibly difficult to "play" the housing market. People were saying the "top" was 2 years ago....and look what happened! You could have bought 2 years ago for 100K less....
And prices may come down more relative to incomes, but it could take 20 years. Who wants to wait that long?
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My reason for looking at this as a bubble decends from a factual look at the situation. With an historic runup, absolutely no lending standards whatsoever, the breathtaking growth of the Real Estate Industrial Complex (loan brokers, RE agents, builders, etc), and that rents are declining at a time that prices are climbing, it is obvious we are in a bubble. I look back at the equity bubble of the late '90s and see the same things.
As for emotions...
I am really pissed off. Really PISSED! Why? Is it because I rent? Is it because I'm some sort of troglodyte? No, and mabye.
The reason I am so fuming mad is that our economy is totally dependent on the housing bubble, financial services, financial planning, and financial fraud. Most of the financial services surround the housing bubble. When it blows, it will overcorrect and absolutely destroy what is left of the US economy.
The irresponsibility of the Boomer Generation, the FED, and the Congress have made this possible. It is the next generation or two that will have to pay for it, through crushing debt, lack of industry, crappy jobs, higher taxes, and being servants to the rest of the world.
So, when I hear my neighbors bloviating on what financial wizzards they are, I cringe and wonder what they will be doing when this all blows.
Because I rent, and because I am short just about everything in the market, I AM GOING TO BE THE BAD GUY when this craters. I WILL BE BAILING OUT MY ARROGANT NEIGHBORS FOR THEIR STUPIDITY. I WILL TAKE ANOTHER PAYCUT OR GET LAID OFF. I will be paying double for living expenses, while my neighbor gets debt relief for his stupidity.
Yeah, I'm emotional about this.
My experience on this board is that many of the hardest-core bubble "believers" are Chicken Little types that are more interested demanding their regurgitated disparate facts be taken as gospel than engaging in a meaningful dialog about how housing prices are affecting people in the region.
I am in the same boat as anonymous (from the 2nd post). We left California to return to Seattle last year, and decided to buy a house we could live in forever. We bought significantly below what we qualified for at 5.5 fixed.
For me, the bubble isn't so scary personally - we'll be riding this out for a long time. It's more an issue of what kind of place this becomes - I fear it will become even more like California, with a huge gulf between the haves and have-nots (in the bay area, at least, these generally wind up being property owners vs non-owners).
I think this is going to end in a pretty ugly way, but probably not as ugly as the chicken-little crowd.
I am in the same boat as anonymous (from the 2nd post). We left California to return to Seattle last year, and decided to buy a house we could live in forever. We bought significantly below what we qualified for at 5.5 fixed.
For me, the bubble isn't so scary personally - we'll be riding this out for a long time. It's more an issue of what kind of place this becomes - I fear it will become even more like California, with a huge gulf between the haves and have-nots (in the bay area, at least, these generally wind up being property owners vs non-owners).
I think this is going to end in a pretty ugly way, but probably not as ugly as the chicken-little crowd.
Well, after a short pull back 10 days ago Seattle in-city inventory is at the highest level in 4 months. As of this morning there were 2056 units available.
Just 2 months ago, daily average was around 1700.
Emotional or fact driven--How about both.
Speaking for myself, it took a royal "a##-kicking" in the teeth financially to "get it," as in realizing, "golly,this is what happens when we are in a bubble." (Circa 1990 R.E.) I was a year out of college, cocky, 'I knew it all mentality'...you know the type, me.
It really really sucked. I had no clue about the market--only that friends were making major bank. TODAY many consumers HAVE NO IDEA about the market. It takes a long time to recover. So yes, it's emotional. Blogging is shedding light on the bubble like U-2's Bono shining the stage light on the audience. I will never forget Spring of 1990, in Seattle.
And, unfortunately, many in America will never forget what current loose lending standards did to our economy. This run -up is going to hurt a lot of people, and there is no glory in that.
To steal a line from Matt Damon--"how you like these apples."
They say in San Diego, they're about to break the all-time record for inventory, that's right, even more than the CA defense crackup of
the late 80s early 90s. I see a lot of Shoreline houses coming on the
market, but still priced over 300k, a market that was closer to 200k only
five years ago. I'm one of those frustrated people, because i started looking when things were cheaper and then got the money for a down just two years ago when things were skyrocketing and just couldnt make sense of any of it. I've covered much if not most of north and south seattle, and come to the conclusion that these areas will stink it up again pretty bad if there is a general economic downturn. The problem is that this area has a
lot of growth potential. Then again, we cant fight the economic trend of the whole nation ultimately, its not realistic. That trend isnt yet clear as day, just implied.
Now I've had a chance to think over whether being an owner is such a great thing, especially if I ever want to be able to travel much, like I still do. It sucks to dump rent into oblivion, but it is so much cheaper than
all that goes into ownership, unless you have a sublet, of course.
Anyway, the stock market has been going down, commodities are finally getting socked, and the uncomfortable chatter is slowly building to screams in the night....
I think this is an interesting topic. I've been reading this blog since Tim started it. As someone observed somewhere in the last few posts, I've also noticed a gradual shift in the tone and frequency of the comments.
It does seem like people are getting more emotional, though I think it's understndable. People are trying to analyze the bubble from what they consider a "logical" stance based on their own observations, but they are influenced to a degree by an emotional involvement resulting from their market position.
Though I've commented here and there (usually anonomously) I guess I would call myself a "lurker" because I don't like getting involved in what can easily become emotionally-charged debates online. In person, I like a little heated discussion, because you can see who you're talking to and hear their tone of voice. But online it can get ugly, fast, and I get ridiculously worked up over little things that people say in response if they disagree with me.
Personally, I don't think I'm very emotional about the bubble itself. It's more of an economic interest than an emotional one for me.
No fear or outrage here: I bought seven years ago, and I'm not a RE investor (yet). Until the government does something uncomprehendingly stupid, I don't see any need to vacate the country, and this is a nice part of the country to live in, so I'm parking my otherwise-debt-free butt here for awhile.
I don't expect to see my house value depreciated to a point below what I paid, because until last year the appreciation in my affordable Seattle neighborhood has been moderate (4-6% annual). There'll be an implosion, maybe a 20-30% drop in house prices, and people can start buying again.
I believe that the "sustainability quotient" of Seattle will keep the house prices from being severely slashed.
Probably smugness and superiority are what I feel, although I don't earn enough to buy a house in King County nowadays.
One can't legislate against stupidity. If people who've lived all their lives in a capitalist nation want to buy a house that's overpriced, let them.
This is the point of the cycle where it heads toward a bust. People have survived before, people will survive this. They might not like the ways they have to adapt, but they'll survive.
I think zzyzx is right in seeing a certain amount of self-rightuousness on the part of 'bubble' bloggers. I'm not immune to it myself, especially as I see a lot of herd investing in the RE market, and I think such investors deserve to lose their unearned gains. And I'll feel little sympathy and some pleasure when they do. I'm not a saint.
However, my decision to postpone buying is not based on emotion; it's based entirely on numbers. My wife and I have a good combined income and can afford current prices but don't want to pay what we consider to be peak prices just before a market correction. She originally wanted to buy sooner, but she's a math wiz and, once she crunched the numbers, she changed her mind. Why would we want to lose money?
Yes, some 'bubble watchers' may be angry because they're currently priced out of the market and they perceive that market as unjustifiably over-inflated; however, the anger comes after an analysis of fundamentals and a conclusion of unjust prices.
On the other hand, current buyers are the ones who, in general, are engaging in purely emotional behavior - greed or fear - rather than running the numbers.
When did you find such an apetite for crow Dukes?
From one perspective, I have no dog in this fight: I rent, I don't plan on living in Seattle for much longer (because I hate it here), and I could care less what other people do with their money. My intention is to save, to move somewhere I love, and to buy somewhere near the bottom.
From another perspective, however, I do care what happens: invariably, when speculative bubbles burst, a lot of normal people get hurt. We need only look back to the late 90s to see what happens to everyone when the fun of economic gambling ends, and the pain of reckoning begins.
If things go really bad in this country, we're going to be thrust into a nasty depression. Jobs will vanish, local economies will stagnate, and it will become nearly impossible for mortals to get home loans. That irrational speculation can do this kind of damage makes me mad. But mainly, I only find myself getting emotional when someone starts evangelizing to me (especially if they're 25-year-old "investors" with fewer capital assets than my own....)
http://bubbletracking.blogspot.com/2006/05/tracking-seattleking-snohomish.html
Something to fuel emotions some more...
Inventory is up 2000 homes vs January... and it's rising every month...
Alan Greenspan has declared that the housing boom is over.
Read his comments at:
http://news.yahoo.com/s/ap/20060519/ap_on_bi_ge/greenspan_speech
Inventory is definitely up...it'll be interesting to see if sales keep up. We'll know more when the May MLS #s come out next month.
For historical comparison (all res/condo)
Today:
King County: 7,438
Seattle: 2,158
May 2005
King County: 6,782
Seattle: 1,827
May 2004
King County: 9,792
Seattle: 2,454
May 2003
King County: 12,422
Seattle: 3,169
You can see that compared to other years (except 2005) we still have low inventory. I think that we need at least 30% more inventory to have a real buyers market with price reductions. From what I've seen here in Ballard, open houses have throngs of people. Everything is sold in 1-2 weeks with multiple bids.
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If I have any emotion about these issues, it is anger that those resposnsible for this predicament are going to cause much hardship for so many innocnets.
Whose responsible?
1) Our own govenment (specifically the Fed) for creating a bail out mentaility that fostered a speculative frenzy (they bailed out the stock market bubble by dropping interest rates to historic lows and that massive liquidity infustion is what created the real estate bubble).
2) Our real estate complex, for pushing suicidal financing and real estate as a safe investment on the mases, regardless of price appreciation (just like the "PE doesn't matter" crowd)
3) Our own neighbors for allowing themselves to succomb to greed (as speculators) or to suspend rationality (when buying a personal residence).
When things do go south, a lot of people who did nothing to contribute to this mess will be hurt since the economy will suffer. Why should these innocent bystanders subsidize other peoples speculation, greed, and stupidity?
Hey, Tim Dunn -- did you miss the memo?
QUIT SPAMMING US.
Amen.
No, I'm not building up the mythical "equity" but at the same time my rent is low enough that I can sock away savings. How many homeowners in the Greater Seattle area have any savings at all? Very few, I'd wager. How many rationalize their lack of savings by claiming the equity in their home is a form of capital? Every single one.
For the record, I have 6 months spending in the bank and put some (admittedly not HUGE amounts) in my 401k every paycheck.
While I wouldn't suggest buying right now because prices and rents are out of whack, there are definite advantages I've received through owning a home.
When I rented, the rent would go up hundreds of dollars a month at times; owning has largely locked in price certainty. As long as I don't take money out of the house, I know that when it's time for me to retire, my housing payments will plumment drastically. While I hope never to have to do this, in an emergency I could get some cash. What makes all of this work so well is that I'm gaining all of this while paying the exact same amount to live in my house as I would be to rent something similar. I'm getting the savings for free.
Housing might not be a good deal at this moment due to inflated prices, but owning is better than renting.
dukes:
How can you say "owning is better than renting" in the same sentence tht you say "housing might not be a good deal at this moment?"
Because, to zzyzx, owning does not equate to "buying now at this very second." I know several homeowners who can't afford to buy within their neighborhoods based on income alone, but they're not screwed. They've allocated their assets to minimize risk and they have significant savings. I don't however, know anyone who's bought here within the past five years, only those who've bought in the last century/millennium.
Maybe you're limiting your definition of "homeowners" to a population of those who've bought after 2003, and not telling us?
My rent hasn't increased one dime in years, not one dime. Renting is BY FAR a MUCH better deal right now, it is not even a close comparison.
What pushed me to buy was when our rent, flat for four years, went up in one year by 25%. We calculated: 600 sq ft -- $670/month. 8500 sq ft -- $1165/month. At the time we bought, owning was BY FAR a MUCH better deal. And it is. It's nice to have a place where the landlord can't reject you because you have pets and/or a child.
I bought in 2003. I wish I could have taken the plunge earlier, but it still wasn't that bad. The house I bought wanted too much and was on the market too long so they reduced it 15k and I was the first one in.
And no, I'm not in it as a game. My plan is to never move again if at all possible. Sure this place is allegedly worth another 150k on paper right now, but I don't take that too seriously. The magic equity in the house is for absolute emergencies only, not for buying a new car.
I kind of relate more to the people on this blog more than the equity raiders. I'm terrified over the concept of debt and had to run the numbers 8,000,000 times before I committed. I refinaced exactly once and that was because the fake equity let me lock into a 5.5% fixed loan which knocked off $350/month from my payments.
Most of my friends bought a year later and it sure did seem like they were all spending $100k more. Still though, I think some of the bubble is largely press coverage. I go for walks around my neighborhood and the prices are only 25-35% higher than what I paid. Maybe all of the houses are dives, but it's still not that hard to find Seattle houses in the low 3's. A $30-40k reduction to get them back in the high 2's would find a lot of buyers but that wouldn't destroy the economy either.
The so called "entry level" houses might not be as cheap as they were 10 years ago, but it's not quite as bad of a situation as the scare articles make it appear.
but it's still not that hard to find Seattle houses in the low 3's.
What area are you talking about? In N.Seattle (Fremont, Ballard, Queen Anne, Greenlake, etc) you can't find anything decent under 400K. The real nice areas are all over 500K for a 3 bedroom.
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how is this for emotional bubble… I will cash in on the collapsing housing prices by shorting the new housing futures contracts, that will make me feel very good about my rental choice. I hope my fellow renters find it useful
http://cbs2chicago.com/busines
s/local_story_139104419.html
The bubble is a source of bitterness for me. I bought a modest condo in LA back in '01, but sold less than two years later because I was afraid the market was overvalued and wanted to cash in to pay off all my debts. I made a modest profit, but would have made a life-changing amount of money had I held on.
I can't stop thinking about this stupid decision. But now would be a bad time to buy. Clearly many real estate markets do not have any connection to fundamental values. Many people forget that real estate in places such as LA was down for many years. At the time I bought, property was still depressed and for many, below the prices they paid in the late 80's/early '90's. I missed the last part of this cycle but at least I won't be stuck with an underwater mortgage.
The logic of nature and markets is that cycles repeat. Prices will come back down, probably to a higher level than the trough in the early '90's, but there will be significant declines. Until then, I enjoy the advantages of being a renter.
I don't worry one bit about the predictions for Washington. Last year at this same time the same predictions were made for San Diego, Phoenix, Miami, etc. All those cities predicted never ending double digit appreciation...essentially a "real-estate never goes down" philosophy. We're now seeing that in Seattle.
Bottom line is that this is a domino effect. If you sold in a market and lost money or saw your price decline, you'll be much less likely to drop big bucks in a new bubble market knowing what lurks around the corner. People will come with a renewed sense of caution from other communities where the bubble is popping loudly. This will make the whole idea that Seattle will buck the trend a laughing farce. It can't sustain double digit growth while the rest of the country is tanking.
It was the same on the way up. With prices rising everywhere everyone thought it was due to rising wages, increased population growth, etc. Now with increasing interest rates and foreclosures, the popping will clearly hit here. I hate to sound pessimistic, but I'd rather be a realist and play it safe than the foolish optimist who thought $500,000 on a rat-hole was worth it.
I am rather unhappy with the situation - all this easy money has made it difficult for young people to even enter the market. My wife and I would like to own a place to start a family - but on our combined income we can barely afford a house significantly below the median for the area. If we add kids to the equation and allow the possibility of a single income - FORGET ABOUT IT!
Therefore I can't say I have any love for the people/organizations responsible for the current situation - the Fed, lenders, real estate pimps, equity locusts, people willing to "creatively finance" themselves to no end, etc. If these people had their way, I'd be priced out of their dreamy spiralling market for a very long time, if not forever.
For someone like myself, owning a house will almost require the current market to implode and for sanity to return. Do I wish for it - yes and no. I figure when it does, the party is over for the national economy..
Don't worry Zed. Your situation multiplied by millions of people is why this market must implode.
There is just no way that this country can price out future generations from home ownership.
That would be enough to cause a revolution.
And it is very true what the above Anon said. Less than a year ago San Diego, Phoenix and Miami were all in "rah rah" mode. Look at where they are now.
Then ask yourself: What if the Seattle market, alone in the US, DID remain healthy? Why would anyone want to buy a house here if they could go ANYWHERE in the US and get a better deal?
Going back on topic, when I read Marlow's blog I didn't realize that there's a lot of people actually monitoring this site...
Probably why the trolls come around regularly...
I must admit I am emotional about the bubble...
It used to be you went to school, toiled for years, got good grades, graduated near the top of your class, then you get a 6 figure salary and you buy a McMansion...
What I hate the most is that the average Joe who never went to college is trying to sell me his McMansion like he belongs in it (and can actually afford to live there long term)...
I respect the person who got where he is (regardless of education) through hard work, but expecting a nice profit of 100K a year x 3 years for sitting on a house makes me emotional...
I want this bubble to pop... and pop soon... so I can move into my dream house... (and I will live there with paid off equity without caring less about appreciation)
So to anybody else reading this blog anonymously, let's get emotional... and let's start with fear.. (not from the bloggers, but from the speculators)...
The word is out... and that's all it takes to change the tide...
I must say ziprealty's price change monitoring feature makes me more excited every week as my target houses start coming down within my target price... and I'm not making these price drops up... so far 650K homes are now dropping under 600K (50K change on average)
Fact is if you even bother reading these blogs... that means you already know the truth... you just want to talk yourself out of believing...
I am emotional, and I am proud of it...
Bad lending practice?
Look up Golden West Financial, which owns World Savings, which does strictly Option ARM. Read up the WSJ article few weeks back regarding how well World Savings have been doing and how little default they had for the past SEVEN years. Wachovia just acquired Golden West!
Look at WAMU, look up their track record and the type of conservative lender they were. They've just recently introduce Alt-A loans on their prime side in 2006!
Defaults don't make lenders money! Looking for massive defaults in the near future? Good luck. Got something else to say? Provide some real evidences.
as long as there is appreciation and the interest rates stay low... default loans are unlikely... there's always the equity to refi and cover the deficit...
change the scenario: stagnant prices or appreciation of 5%, add to that a rising interest rate...
fast forward to 2007... 5/1 option arms reset... owner has 150K in equity... no default... but he knows he can't afford to stay in the same house... no way he can pay the full 30yr fixed at the current levels...
so he cashes out and moves or downgrades to a home he can afford... or maybe he rents...
multiply that scenario by just a third of the people with ARMS about to reset...
The market will be flooded with inventory from people living in homes they could never afford...
This scenario assumes that he never cashed out in the interim... but wait, easy money is easily spent, and more likely he already spent some of that equity with a HELOC...
Foreclosures just hasten the crash, by no means is the crash dependent on foreclosures alone... it will be the excess inventory that's going to change things...
What's different this time around? Ben B is holding the purse, and he doesn't seem to agree that money should be cheap...
anon,
you obviously don't know loans, and 5/1 arm is different than option arm, which varies monthly.
5/1 means fixed for 5 years, and most people in 2002-2003 took 30 year fixed at sub 5.5%. 2003-2005 is when more people are starting to do these so-called "creative" loans. Add 5 years, most of them has till 2008 or 2010 before they have to worry.
Sorry, wrong again.
Again, banks don't profit from defaults or foreclosures! If your common logic applies here, lenders went bankrupt long ago.
As a homeowner who bought when prices were very low, I'm only afraid that the government is going to bail out the millions who are about to lose their houses into the upcoming crash, either by direct relief efforts or by simply printing up more cash and taxing us quietly by lowering the value of the dollar.
I work with two people who are foolishly buying houses even now in Southern California. I really don't want to pay for this utter irresponsibility.
Well, the tide has clearly turned. When I first started participating in housing bubble blogs the arguments were purely about the existence of bubbles in certain "hot" markets. Lately, following confirmation from large scale investors, the fed, the WSJ and other heavy weights, the arguments have changed to who is going to be most sorry.
I've got some news. If the doomsayers are right about the housing bubble, it is worldwide and disasterous in nature. We will all be sorry.
One dire prediction I had seen made repeatedly in investment circles was a short term run-up in the DOW in the event of heavy weight investor pull out of the real estate market. That appears to be exactly what is happening.
I can only speak for one family, but I am significant in that I have plenty of cash for a large down payment, excellent credit, and absolutely no intention of buying a house anytime soon. I am one of those you must convince into becoming a greater fool in order for your home to appreciate -- and there is zero chance of that.
Wedgewood is in the low 3's. I do daily walks up here and see the houses for sale signs.
No you can't buy houses in Green Lake or Queen Anne for that price. However, Wedgewood and Maple Leaf are quiet neighborhoods 6 miles from downtown.
There is a difference between the bubble here and the bubble in the Bay Area or San Diego. It's not that people are priced out of any houses here; it's that they can't buy the best houses in the trendiest neighborhoods. There are decent houses for sale, but people want something better than that. People are moving far out into the suburbs not because there's nothing affordable closer in - do a search on Windermere for houses in North Seattle and Shoreline with a max price of $350k and you get plenty of results - but because there's nothing AMAZING that's in their price range. If these 320-330K houses readjust to 280-290, I don't see what the problem is.
The problem is that ten years ago, Seattle housing was severely underpriced. Houses here were going for well under 200k in a major city that was having a booming economy. That set unrealistic expectations for what was affordable. It's not so much that housing went from normal to a huge bubble as it went from a low point to a medium bubble. It looks the same from the perspective of housing prices, but expecting to see $140k for Beacon Hill or $190k for a Shoreline house with 3/4 acre of land seems as unrealistic IMO as the worst of the bubblers.
And yes, the economy is booming right now. I judge that not based on the fact that I - a decent programmer - can get a job, but rather on the ease that my gf got a service job. In the last 5 years, she's lived in Virginia Beach, Las Vegas, and now here. She was stunned at how easily she was able to get a delivery job and how well it paid. Sure it won't last forever, but that is going to be a factor for housing prices.
I'm a former home owner who made a great return in my other home and moved to Seattle recently for work. I started reading the housing market info, and somehow came across the bubble blogs. The blogs, with their continual stream of national and international news and data, with key topics ranging from economics to inventory and price levels, really hit home for me.
I decided to rent and wait out the bubble. I'm not emotional about the bubble, but I do think that if I bought a house recently I would be freaking out. I would worry (as I'm sure Meshuguy does) that a looming drop is waiting just a few months out. That I would potential be upside down in no time. That the market cycles could make that persist for the next decade or longer depending on the circumstances. That you couldn't get out of your house without a huge loss in equity, perhaps bankruptcy, and that you're entire life's financial situation would change for the worse.
I could see this being much more difficult and emotional for owners. Renters only have to worry about perhaps no loss of value or a modest increase with an increase in mortgage payment, owners have to worry about taxes, insurance, PMI (for most), mortgage, readjustments (if their one of the 51% of Seattle owners who bought with an ARM in the last 2 yrs), and most importantly, the bubble bursting.
The emotions of fear are even greater as one reads the news to the south i.e. California, which we're apparently a Northern suburb from all I hear. If we're so closely linked to California real-estate, then I would definitely be freaking out now, because their doomed...it's only a matter of time till they have massive double digit price declines as their markets cave-in due to this cycle.
People have to be honest and logical and realize that houses (actually nothing) appreciates at double digit rates forever. The anomoly of the last few years was a historical blip which will be written about for generations to come and may even have the same impact as the great depression when it's all said and done.
Yes, this is very emotional, but as a renter, I feel a strange sense of calm before the storm because my options allow me to jump in for the dream house I want with a water view and close to everything.
NY and SF have been "unaffordable" for years. Who's to say Seattle won't become the same thing? It is just the progression of the difference between the "haves" and "have nots." I'm not saying this is a good thing, just the direction we seem to be headed. Is it fair? Of course not, but maybe it is just the new reality...
There is no argument about playing safe. Putting your money in CD accounts rather than investing in stock market is a sound argument as well.
When I sold my business in 1999 I made a bunch of money. Since I worked very hard for 15 years building that with sweat equity I wanted to be sure not to do something stupid with it regarding investments. Eveyone around me was bragging how rich they were for investing in high flying stocks and how stupid I was for not putting all my newly cashed out money into the stock market. I did my homework and started reading about market hitory. There were just a handful of people at that time who were very bearish (Schiller, Fleckenstein, Prudent Bear, etc) - and in fact at times they were even emotional about their negativity on the stock market and the reasons for it relating to the Fed etc. They were ridiculed for being so negative by virtually everyone around them. People said their negative predictions could never possibley come to pass. Based on their helping to educate me on the risks of entrusting my life saving to the market and the need to control my greed I managed the money very conservatively entirely outside of stocks. In the ensuing years while the market tanked I earned a healthy return. I had a friend who also sold his business at the time. I tried desperately to warn him of the risks and to convince to pull out of the sotck market. His broker had him in high flying tech stocks like Cisco and I told him stocks like that could easily lose 90% of their value - it's happend before with the nifty 50. After spending hours with me listening to the logic and rationale for my concerns, he was at first very scared and told me he was really going to consider getting out. But then he talked with his broker and financial consultant and they told him - "who is this guy, some friend of yours, what does he know?" They said that they were professional and that he should listen to them, that's all they did and they had a great track record. Well, ultimately he wrote me off and went with thier logic. And in the end he lost about 65% of his assets (and that's not counting the potential growth he gave up on the total assests). So if I'm emotional about sounding the alarm about real estate risks at this point in time, it's really because I'm so terribly grateful that others have done that for me before and that they have saved me financially. I hope to help do the same for others. If even one person benefits I'd be satisfied.
Above Anon-
I feel the same way about "warning" people.
If even one person bypasses financial disaster- that's a good thing.
And there is so much RE rah rah from the RE industry to counteract.
I feel like that may be one of my strongest emotions around this- absolute disgust with the RE industry for encouraging people to march towards financial destruction.
As far as fear goes, my only fear is having to bail out FB's who listened to the RE industry and did not do their due diligence as far as what they could reasonably afford.
Any hint of responsible people having to bail out fools, innocent or not, and my disgust will turn to deep anger.
We need to make sure that those who made bad decisions pay for them themselves.
God knows that by the time this irrational exhuberance is over, everyone in this society will be "paying" for it on some level or another.
I just don't want it to be with my hard-saved money.
I would have to agree...
I'll admit, I'm not a homeowner by choice at the present and I feel extremely lucky about that fact.
I'm 36 and have purchased 4 homes during my life, the first at 21. I owned a business early on and was financially able to continue upgrading to a larger home/better neighborhood.
In April 2000 the stock market sh&* itself and a year later I was out of business. I was forced to sell my home, but luckily profited $150,000 from the sale.
I moved to San Diego from Florida in Mid 2003. I recognized it was a buyers market, but only had 100K left and knew we needed it to live on until we found jobs.
We moved to Seattle in February for a variety of reasons, one of them being a lower cost of living.
Luckily I started a business and am sitting on $350,000 in cash/liquid investments right now. At one point we were down to $18,000. Thank god we didn't buy a condo! By this time next year that should be over $570,000.
So, sure this is emotional for me. I HOPE things come down so we can purchase one of those super nice homes in Queen Anne, Madrona, etc... and if interest rates are at 9%, it won't matter because I can put most or all of it toward the down pmt.
I feel like I have to be patient... I don't know how anyone could feel urgency to buy right now. Home ownership is an amazing feeling, but not when you can barely make your mortage payment.
Buyers remourse really blows.
I'm with you Anon- huge downpayment and REFUSE to buy.
These prices will drop and I'd feel like a major lug throwing 100-200K down the drain this year.
I expect that by holding out 6 mos., I'll save at least that much on a comparable house.
I'm not too emotional about this, just patient.
It's actually pretty interesting to view the whole phenomena from the side.
I've watched the frenzy on the way up. And now the "stuck" point and am really looking forward to watching the trip down.
I am really pissed off. Really PISSED! Why? Is it because I rent? Is it because I'm some sort of troglodyte? No, and mabye.
:::
Affirmative. You really are, sailor.
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