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Thursday, July 20, 2006

Contrarions guilty of the FUD factor: fear, uncertainty, doubt

Craig King of Real Blogging, the official real estate industry blog, says it's a great time to be buying or selling real estate.

"No matter what you're selling, conventional wisdom is that the FUD Factor (fear, uncertainty and doubt) tends to freeze buyers in their tracks." He goes on to say that,"If we do a good job of telling our story, I think prospects will realize it's a time to buy, not a time to stall."
Certainly real estate will be purchased and sold in any market. Does he have a good point?
Please read the rules before posting a comment.

19 comments:

S-crow said...

I've been called a fear monger,moron, "...just hunker down mentality from someone who does little business" etc.

We'll you get the point. Fearful, no. Alarmed, no. Preparing, yes. If 75% of our revenue is generated from real estate sales and it falls off like it has in other markets, then at least I'm guilty of being "concerned." Like any smart business owner, you prepare for changing markets and difficult times, something I see lacking on a too frequent basis, particularly by my allied real estate professionals who have never experienced a market shift. You only have to have your ass kicked once for you to learn. At least I did.

Anonymous said...

Property that is priced fairly for its age, condition, market (e.g. NYC will always be valued higher than Muleshoe TX), neighborhood, and type (SFH, condo, retail, etc) WILL sell regardless of the strength of the market.

Houses that are not priced correctly just won't sell, period.

Anonymous said...

When all the news, all day, everyday, is screaming "housing crash dead ahead", I'd say it's a good time for buyers, the smart ones anyway, to be full of fear, uncertainty and doubt.

The Tim said...

anon@12:53,

The funny thing is that an argument you sometimes hear from the "there is no bubble" crowd goes something like this:

"If everyone is saying we're in a bubble, then that's a good indication that we're not."

I don't "get" the logic, but I just thought I'd throw that out there.

the pope said...

Houses that are not priced correctly just won't sell, period.

It also has a lot to do with how much money is available out there and how confident buyers are feeling..

A 'fair' price varies from market to market.

http://vancouvercondo.info

dash_point said...

(fear, uncertainty and doubt) tends to freeze buyers in their tracks.

That's an instinct called self-preservation.

seattle price drop said...

re: if everyone's talking bubble, it's not a bubble.

The reason all the news outlets are reporting on the coming crash is because it has already begun.

Next step, the NAR itself leads prices down. They began talking about how "unaffordable" housing has become a few weeks ago.

Now they've done a survey that shows, surprise surprise, many Americans are one pay check or one .25% interest rate hike away from losing their home.

see:

http://www.realtor.org/housopp.nsf/pages/pulsesurvey

Realtors have to eat too you know.

Anonymous said...

This link:
http://www.realtor.org/housopp.nsf/pages/pulsesurvey

is broken or the complete full link is not visible. Can you please put it in tinyurl format?

The Dave said...

Hey guys, the National Association of Realtors says everything is going to be OK. I don't know why you are all worried ;)

http://www.realtor.org/Research.nsf/
Pages/Anti-BubbleQ&A?OpenDocument

Is it at all funny that the URL for the local Market-by-Market Home Price Analysis Reports are filed under "/anti-bubblereports" and all have the same "convincing" propaganda at the end of the reports on why prices will never go down?

http://www.realtor.org/research.nsf/pages/anti-bubblereports

You all have probably seen this, but look at Cincinnati, OH compared to Seattle. Bull vs Bear Market. My mother is not rich even with two houses and two apartment buildings. On the other hand she is retired on them and they would all pay the mortgage with rent even if purchased at todays prices. And it is very unlikely she would lose her shirt on them.

I have "made" more on one view home and two rentals in Kitsap County in three years than the total value of all her rental properties. But hers cash flow, mine don't.

Ohio is not such a bad place to live...

seattle price drop said...

Yikes! Add "2006" to the end.

.........../pulsesurvey2006

Sorry!

easthawaii said...

Dave,
If you have some numbers, please explain how your mother's two apt bldgs would cash flow if she bought them today. Assume 20-25% down, fixed rate mortgage, balloon OK. I haven't been able to get a small apt bldg to pencil out in years, in Seattle, Houston, Atlanta, or Hawaii.

plymster said...

I've heard this more and more in recent years: "Only risktakers make money and end up being the big players." It's essentially the "What? Are you chicken?" argument, but it's been preached so much that it's become conventional wisdom.

We now live in a world where everyone is either a new-money superstar businessman(Bill Gates, Michael Dell, Jeff Bezos, Mark Cuban, etc.), a lotto winner, an athlete, or a pop star. You don't make "real" money these days unless you do it overnight by gambling on a million-to-one shot.

I watched my parents get caught up in the go-go lifestyle of the 80's, and watched them overexpand (and soon after, destroy) their business right after the 1987 stock crash. I watched friends forced to either kill themselves at work, or get canned (usually both) in the dot-com bust, usually after overspending and overcommitting. These are the fearless buyers whose finances get decimated by "unexpected" downturns. These are the poor saps who get taken for a ride by some fear-mongering, "buy-before-you're-priced-out" RE sales pirate.

I'm only 35, but I still remember when caution and patience were positive characteristics. Maybe after 2 massive bubbles pop in less than a decade they will become revered values again.

Balanced said...

I don't know if this was already posted, but I found this article on the NAR site:


The Federal Reserve Board estimates that homeowners have a net worth nearly 36 times more than that of renters. Over the past 10 years, the cost of rental housing in the United States has increased an average of 3 percent per year; average rents are projected to rise 4.1 percent this year alone. With a 3 percent annual increase, a current rental payment of $1,000 per month would increase every year and amount to $137,567 after 10 years, with no wealth accumulation.

In contrast, a $210,000 home purchased today with a downpayment of $10,000 and a 30-year fixed rate mortgage at 6.5 percent would cost a steady $1,100 per month and yield a net worth of $138,521 after 10 years, assuming an historic 4.5 percent annual appreciation rate.


Hmmmmm..... Where can you find a place for $210,000?????
This is one of their top arguments for buying right now....

jcricket said...

We now live in a world where everyone is either a new-money superstar businessman(Bill Gates, Michael Dell, Jeff Bezos, Mark Cuban, etc.), a lotto winner, an athlete, or a pop star. You don't make "real" money these days unless you do it overnight by gambling on a million-to-one shot.

I do think there's an overemphasis on the superstars in our society (especially athletes and celebrities). Several of the examples you list though were far from overnight successes. Bill Gates started Microsoft in 1975 and it was 12 years before they IPOd. He's been there almost 26 years. Michael Dell is similar - starting his business while in college and toiling away for years before achieving success. Mark Cuban, eh... a little different :-)

I do agree with the central point that too many people try to emulate the lucky few that where in the right place at the right time, or had a combination of natural talent and luck that propelled them to the echelons of their trade; Rather than the far more likely route to success of living under your means, saving for tomorrow, etc. - i.e. "Millioniare Next Door" behavior.

That said, I do think being willing to take risks is an important element in success. I took a huge risk when I moved out of my stable IT job and to Seattle for a dot-com job back in 1996. It turned out great for me in a number of ways. I'm not retired, but I was able to get a huge "start" in life through my stock options. I also gained valuable experience I gained has propelled my career quite a bit.

Even with those "wins", I still got hit (laid off) by the downturn, but I survived because I had lots of savings at that point (thank you stock options). I could have done a lot better if I timed the market perfectly, but I still ended up far ahead of many of my similarly out-of-work friends in IT that never left their stable jobs.

I guess all I'm saying is that there is some element of luck in life. You could take a huge risk and have it blow up in your face. You could choose to stay where you are and miss a huge opportunity (and not just money). I don't buy the idea that people who take risks are all gonna be decimated or come out worse. Plenty of people who have diversified investments (across the market) have seen their investments tank along with the "risk taking dot commers" in the last 5-10 years. The only amount of caution that can avoid that is taking all your money out of stocks and putting it in a CD, which doesn't usually work in your favor.

As an example, my parents took a huge risk almost 30 years ago stretching themselves to buy into a neighborhood they saw was rapidly appreciating. They were living in a small townhome and had a growing family. They borrowed some money from family and got a VA loan for their current house, because they were afraid of being priced out of the market. I'm sure it may not feel like it, but that sounds like today's market. Otherwise, they've lived conservative lives (lots of retirement savings, buying used cars, no fancy clothes, etc.). And 30 years later, they have plenty of equity in their house and prices have indeed risen dramatically - plus they got to live in a great neighborhood (as did I and my siblings).

I suspect, to the chagrin of RE bears, many people buying homes now will be in the same position 30 years from now. People buying homes because they fit their family's needs and planning to stay for a long time will end up fine.

The Dave said...

East Hawaii:

These are rough numbes but you can buy an OK 4 unit building in Ohio for around $100 to $150K. Figure 20% down and $100K on a 30 year fixed at 6.75. Payment would be around $650. 4 units at $450 each with an 85% occupancy brings in $1530. Assume an average of $250 for utilities and $500 for maintenance. So $1530 in and $1400 out. You are basically flat for a few years. So look ahead 10 years. Assume the building and rents appreciated 3%. Now rent brings in $2056 so you are up $500 a month and the building went up $30K. Now you are making 24% on your $25K down payment and you made maybe $20-$30K on the building. By the time you retire in 20 years it is still better.

You are not going to live like a rockstar and it is a lot of work and hassle, but you can make an OK middle class living and/or retire off of a block of building worth around $1M. Which is a realistic goal if you are in it full time.

Ohio is a very differnet scene than the get rich superstar citys. Appreciation in Cincinnati hs been around 3%, not much more than inflation. The real estate scene there looks like it was 10 or 20 years ago. Old school bullish.

My brother has a really nice house in a great neighborhood worth around $180K. He does not spend his time reading housing bubble blogs. It just did not happen there. Your old metrics generally still apply.

It is Ohio and the other midwest states that make the national housing numbers seem reasonable. Massachussets and California are likely screwed, Seattle maybe screwed, but there are plenty of sleeper states in the middle that nobody on the coasts think about. These will keep the contry from going completey in the toilet.

When they talk about historical averages on the NATIONAL Association of Realtors they are factoring in all of these sleeper states. Fortunately/unfortunately the superstar cities have seen gains greatly outside of historical averages. In these cases history may not save our 50yr mortgages $500K wallingford bungalow asses.

When my empire here collapses I will just go home to live with my mother. She misses me ;)

Anonymous said...

"Bill Gates started Microsoft in 1975 and it was 12 years before they IPOd"

That was funny you were talking about Microsoft and then mentioned IPOD (apple).....I know it was in reference to issuing there IPO (IPO'd) but was still funny to me!! :)

seattle price drop said...

jrcricket-

Your example of your parents buying into a neighborhood that was rapidly appreciating years ago is not an apt comparison to 2006 Seattle IMO.

The reason being that we are seeing a mix of appreciation and downgrading (price reductions, long DOM's, softening economy, etc.)

It would have been an EXCELLENT comparison to the late 90's market in Seattle. Those days are gone. And obviously, anyone who was smart enough and had the money to buy in from 96-99 is sitting pretty and will do fine no matter WHAT happens to the market.

betamax said...

Your example of your parents buying into a neighborhood that was rapidly appreciating years ago is not an apt comparison to 2006 Seattle IMO.

Exactly. My father has a great retirement, all thanks to long ago investments in RE. But he wouldn't buy in today's market. There are degrees of risk in any market, and the current risk in RE is extremely high. It's that simple.

The statistical fact is that most people who take big risks lose. How do you think the casinos got so big in Vegas? The success stories stand out because they're rare, not common. People watch too many movies where everything is saved by one 'hail mary pass' at the end...but reality rarely works that way.

"We like risk" - Jeff Skilling of Enron.

jcricket said...

C'mon, buying a house is not like a "hail mary pass at the end" or gambling.

Gambling is set up the house always wins in the end. The longer you play, the more likely you are to lose. A Hail Mary pass only works if you're within a certain number of points.

But everything in life involves risk, so to claim that people who take less risk are always better off than those that take more is to ignore the history of the stock market, housing market, employment, etc. I'm not talking about playing the lottery, or chasing after every new-fangled business idea of the week - but taking the risk that your $100k in college tuition will give you a better job, that your choice of a job will work out more than sitting where you are, etc.

The odds in many of those things are, ultimately, in your favor. Unlike gambling and hail-mary passes.

Housing is not "set up" so that the banks are the ones who "win" in the long-run. In most cases, historically, both the banks and consumers have "won".

Prices, like the stock market, are ultimately determined by "what the market will bear", even though there are lots of economic elements that factor into pricing decisions.

Historically, the longer you "play" at RE, the better off you are. Most people have come out ahead by purchasing their primary residence and maintining it over a 20-30 year period.

I will concede there is risk in real estate, and substantially more risk in recent years. But I simply don't believe you have demonstrated some sort of "sure to be correct" argument that makes all current decisions to buy a home bone-headed in the long-run.

As others have pointed out elsewhere, your ability to take advantage of any price declines will depend on how much you gamble and "time the market" correctly. What if you buy before it's bottomed out? What if you wait and it rebounds? What if the house you want doesn't go down at all?