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Friday, July 07, 2006

"Your Home Is Now Your Portfolio"

It's not often that I actually laugh out loud at a news headline, but congratulations to Elizabeth Rhodes, who actually achieved that with the gem "Local homes: Investments that just keep getting hotter."

Forget your home being your castle. Thanks to surging local home prices, your home is now your portfolio.

How so?

After giving thanks that you bit the bullet and bought, consider this:

The median prices of King County's detached homes and condominiums have climbed 16 percent since the first of this year — despite a growing number of homes listed for sale — leaving both the S&P 500 and the Nasdaq in the dust.
...
That puts Puget Sound-area sellers firmly in control — a situation that's increasingly more memory than reality for sellers in other parts of the country, where the housing market is cooling.

Because the Puget Sound area's economy is strong, we're adding buyers who can absorb higher interest rates, said O.B. Jacobi, owner and broker of Windermere Real Estate's Wedgwood office. Rates have climbed from an average 5.62 percent a year ago to 6.79 percent this week for 30-year fixed-rate loans, according to mortgage-money provider Freddie Mac.
It's not that I don't believe that home prices are going up—that's an obvious fact. I just find it quite amusing that Mrs. Rhodes' home cheerleading rhetoric seems to be getting more extreme every month. No mention of a (highly likely) stagnation or decline in housing's near future. No mention of the insane measures that must be taken to actually pay for these "portfolios." Barely a passing mention of the steadily increasing supply vs. decreasing demand, and only lip service to the ever-increasing difficulty that buyers are having getting into a home.
On the other side of the equation, home seekers like Natalie Paige feel increasingly squeezed and discouraged by the high prices.

"Literally two years ago in Ballard, I looked at a small, single-family house and remember thinking, 'Oh my God, it's $250,000,' " said Paige, a single mother and culinary administrator for the cruise-ship company Holland America Line. "What I wouldn't do for that house now."

House prices in the Ballard neighborhood where she rents and wants to stay have doubled in the past two years, Paige says, leaving almost nothing around the $265,000 she can spend. One house she did find was about 800 square feet and cinderblock construction.

"I'm not willing to pay a $1,700 mortgage for that," she said.
It would seem that Ballard is everybody's favorite neighborhood to pull hot housing anecdotes from.

(Elizabeth Rhodes, Seattle Times, 07.07.2006)

36 comments:

Anonymous said...

I agree with your comment about the cheerleading. In no way is your home a "portfolio", unless they mean "it replaces money you should be investing in a portfolio of stocks, bonds, etc. for retirement"

I bought my house back in 2002 (paid $40k under asking), and my PITI is within the ratio recommendations and I still don't think I'm saving enough for retirement. I can't imagine adding another 10 or 20% in housing costs and trying to save for retirement, or my kid's college, etc.

All that said, it really will be a bumpy ride waiting to see what happens to "housing prices". Many here (eula) think the entire last 4 years of gains will be erased over the next 5-10 years, across pretty much the entire Seattle market/nationwide - if not more of a crash (no more appreciation ever). Others (meshugy) think nothing will happen but the rate of increase will slow to 3%. Those both seem out of whack.

I personally think we'll see things be all over the map, depending on neighborhood, type of property, how much prices have risen for that block/house before, etc. I'd say it's gonna be a bumpy ride, much like the stock market lately, because of all the confusing info: productivity up, inflation up, wages stagnant, housing up, debt up, corporate profits up, consumer confidence up/down, gas prices up, war, tax cuts, etc.

None of this gives me a lot of faith my retirement (fund) investments will reliably do any better than housing in the next 5 years, but at least I won't have to pay a 6% commission and move when I sell my losers on the stock market.

Hold on to your hats.

Anonymous said...

I checked Zillow.com (I know, I know) and it shows a crazy ramp-up in my house's "value" starting in April. It's ridiculous. It's not a great house, but it's now really expensive.

meshugy said...

Well...it seems that Ballard's street are paved with gold after all:


Ballard house turns into a pot of gold


Cynthia Creasey and Mack McCoy bought a four-bedroom house in Ballard in 1988 for $116,000. She loved its spaciousness, its lush garden and the suburban feel of their neighborhood.

But McCoy, who grew up in Manhattan, longed for the city life. So the couple recently decided on a lifestyle change -- and reaped a financial windfall in the process. They sold the house for $700,000, bought a two-bedroom condominium downtown for $450,000 and pocketed the difference.

Anonymous said...

anon@08:11:53AM

Zillow has really overestimated the market value of my home. I live in an area with tight inventory, and salesapoppin'. A house on my street sold 48 hours after it was on the market -- more bedrooms than mine, priced at $20K below what Zillow seems to think my property is worth.

Other properties previously took months to sell, but they were absurdly priced to begin with. My area is one of the slow-to-inflate neighborhoods.

I used to play with the Seattle Times home value calculator, but the data has not been refreshed since May 2005. Somewhere between the Seattle P-I number and what Zillow claims is what I could realistically sell the house for.

I agree with the first anon comment: "I personally think we'll see things be all over the map, depending on neighborhood, type of property, how much prices have risen for that block/house before, etc." If my friend's home in another zipcode appreciates by 137% over seven years, and my home appreciates by 87% over the same time period, why should we expect an equal percentage price drop in both areas? Maybe my friend's area has condominium development, and maybe my three-bedroom is easier to sell. One area could be currently undergoing a civic 'revitalization' project, and another could be either neglected or a bizarrely hot market.

matt said...

Hahaha! This is a howler of an article! Hmmm, a 'portfolio' where you're paying an interest rate of 6-7% to have you're name on said 'investment', you're paying yearly taxes on said 'investment', maintenance costs, huge transaction fees on the order of %6 for said investment, said investment is completely illiquid (you gotta live somewhere, right?)...

yeah, that's a friggin' great 'investment'! The only time the 'investment' pays a dividend is when you 2nd mortgage it, but are still having to pay back that money in the form of an equity line of credit?

Am I missing something here?

Anonymous said...

Well...it seems that Ballard's street are paved with gold after all:

Shut up Meshugy, you're an idiot. You're not 'smart', you're not even making any money of your Ballard $Hitbox, why are you so smug? If you were such a 'great' investor, you'd sell and go live somewhere more affordable...

synthetik said...

WORST Article ever.

This is the kind of article that gets posted on all the bulletin boards of realty offices.

She must be a paid shill for the RE industry. I googled all her articles and there seemed to be hundreds. I didn't go through them, but I couldn't find one with anything negative in it - even in her articles in 2001.

Due to her article, even MORE lemmings will scamper over the cliffs of insanity.

meshugy said...

I checked Zillow.com (I know, I know) and it shows a crazy ramp-up in my house's "value" starting in April. It's ridiculous. It's not a great house, but it's now really expensive.

The value for my house in Zillow jumped 15K this week. Not sure how often they upate the prices...but they're defintly showing big increases in the loyal heights area of Ballard.

meshugy said...

No mention of the insane measures that must be taken to actually pay for these "portfolios."

With the interest rates over a point higher then last year, and prices higher as well...people must be pushing the limits of exotic financing to pay for these houses. Or maybe they just have fat paying jobs. We're still a far cry from prices in CA, so people will probably keep stretching until we reach a CA style RE situation.

Here a recent article on the interest rate/price increase double whammy:

Higher prices, higher rates: The 1st-time homebuyer squeeze

Thanks to a combined jump in mortgage interest rates and home prices, a starter home in many areas of the country could cost you several hundred dollars more per month today than if you bought it last year.

Anonymous said...

Anon 8:03

I agree. There are a lot of inconsistencies in the economic data being reported. Sure, some of it is probably due to statistic manipulation (lies, damn lies, etc...), but I'd bet most of it due to drastic changes across the board. It seems that all the markets are incredibly skittish right now for this very reason (hence the recent flight to gold, though even that has been stymied lately).

Lately everyone seems a little freaked out, like animals before a hurricane or earthquake. It's as though some massive economic catastrophe is about to lunge forward and wipeout worldwide wealth.

Or it could be all that coffee I drank.

Either way, housing, commodity, stock, and bond markets appear in for a big change soon. Hopefully something positive will come from it all.

Anonymous said...

15k, shugs!?! I was only up 9k this week. You're buying at the Tractor!

Anonymous said...

Lately everyone seems a little freaked out, like animals before a hurricane or earthquake. It's as though some massive economic catastrophe is about to lunge forward and wipeout worldwide wealth.

Yeah, count me in among the freaked out. It's not from reading this blog though, but from reading other blogs and articles from bearish economists and investment bankers who haven't swallowed megaliters of the "global financial-industrial-government domination is here to stay and we like it that way" Kool-Aid, and who don't believe that charts like these indicate a robust and thriving economic future.

My house equity was up only 6K from two weeks ago. Time to hit the food bank or sell items on Craigslist.

Anonymous said...

ah if only you lived in california where many have realized the dream of living in a million dollar home,without having to move...according to leslie appleton-young,spokesperon of the CAR.

Anonymous said...

My house equity was up only 6K from two weeks ago. Time to hit the food bank or sell items on Craigslist.

I know you were kidding, but despite all the fear it's probably best most people just go on with their lives. That's what I plan on doing. I've got a fixed-rate mortgage that I can afford in a house I like. I've got some money saved for emergencies and am saving money for retirement (which I keep trying to increase). I figure I'll end up all right in the long run.

I put lots of money into my 401k before the stock market collapsed in 2000. I certainly didn't enjoy seeing my investments cut in half (and they weren't in tech stocks). But if I hadn't invested that money I probably would have just blown it on something else. You have to take the risk of investing and look out in the long-term unless you're confident that every short-term move your making is the right one (rent now, then buy at the perfect time, then move your money out of cash and into stocks, then back to cash, then to gold). I doubt anyone who tells you that's what their doing is successful at it (cough, day traders, cough).

I don't want to see a recession, for both selfish (e.g. would like to have a job, don't want my 401k to tank) and non-selfish (e.g. would like my friends to have jobs) reasons. But I'm not gonna sell my house, which I love living in, and put all my money into cash or CDs, because of fear.

Nozferatu said...

Haha...$1700/month for a mortgage?? Try coming to LA where you'll pay $3.5-4K a month for a POS condo or townhome...

People are fking stupid...it's unfortunate some of us have to live amongst such idiots.

The problem is that articles like this highlight the fact that certain people got lucky...pure and simple. You can call it whatever you want...jealousy, envy, etc....it's none of those. I'm just pointing out a fact that alot of people got lucky. Not in their wildest dreams did they ever think they'd make so much money off of buying the piles of shit they did.

A side effect of that is people get arrogant and cocky...it's so easy in retrospect to ridicule others who've not made that money...just like it's so easy to write a book about how you made your millions after the fact.

marin_explorer said...

"you're paying yearly taxes on said 'investment', maintenance costs, huge transaction fees on the order of %6 for said investment, said investment is completely iliquid"

Matt-
Exactly, there's little resemblance to a traditional portfolio there. If all those costs somehow applied to stocks, Wall St. would be a ghost town.

Re Ms. Rhodes: it's one thing to say what people want to hear, but entirely another matter to prove your 'portfolio' case long-term. But keep on yammering, because you have no legal liability to your readers. "Dontcha know, your house is your bank/retirement? Buy up, renovate, and spend everything left, because your house will cover you." What a joke.

Then again, the joke's on anyone who buys into RE "investment" advice, without carefully comparing real estate to more traditional investments.

investing said...

matt said...
QUOTE
Hahaha! This is a howler of an article! Hmmm, a 'portfolio' where you're paying an interest rate of 6-7% to have you're name on said 'investment',
END QUOTE

It is a perfect strategy to borrow money to invest (even you have to pay interest or other cost associated with borrowing), commonly called leverage.

For example: If you know something will getting you 10% returns, but you only have $1000, if you invest that $1000, you only get $1100, i.e. 10% returns on your initial assets.

But, if you can borrow $9,000 at 5% interest, with $1000 down, and you put all the $10,000 into the thing that gets you 10% returns, you'll get back $11,000, and suppose interest cost $450, 1000 - $450 = $550, that is more than 55% returns on your original asset vs. 10%.

Rich people do it all the time, and allows them keep getting richer. They do investment in a lot of different vehicles, such as M&A.

Unfortunately, real estate is only available way for common people to do leveraged investment like that.

Anonymous said...

Several places have seen astronomic appreciation in RE this year, not just Seattle.

Here's just a few: Phoenix, Las Vegas, FLA.

Any guesses what's going to happen in these markets in the future?

Anonymous said...

Love the 2003 inventory #'s being used as a valid comparison.

That's the year inventory was higher in just about every area of the US.

Anonymous said...

From the article: "That puts Puget Sound sellers in control...."

Wow. this reporter is really asleep at the wheel.

What were the price reduction numbers reported by Dukes yesterday, something like 45% of the market here price reduced?

Now that is a new definition of "sellers market" if I've ever seen one!

meshugy said...


What were the price reduction numbers reported by Dukes yesterday, something like 45% of the market here price reduced?


He's been posting those spurious #s since Jan....and prices have gone up 50K since then. They don't mean much...even he admits he doesn't know how to analyze them.

Anonymous said...

NWMLS #'s are "spurious" ?!!

Well that's a new one- especially coming from you M.

Anonymous said...

Yeah, Seattle equity up 50K in the past year, Phoenix up 100K.

Nothing like some paper profits to help you sleep soundly at night.

dash_point said...

It is a perfect strategy to borrow money to invest (even you have to pay interest or other cost associated with borrowing), commonly called leverage.

And I thought we were discussing the notion of homes as a "portfolio"; are you now suggesting they should be a source of leverage? Borrow on the home to finance a stock spree...that sort of thing?

Anonymous said...

They don't mean much...even he admits he doesn't know how to analyze them.

Here's my thinking on why this happens.

Seller buys home for $100k 10 years ago. Sellers see all the home price appreciation in the past 3 years and say "I'm gonna take advantage of that, and the market's only going up." They get an agent, get some optimistic comps + a zillow estimate, and price their home at the high end of that range, say $500k, 30% above last year's price.

Reality sets in - The market is not as much of a seller's market as the media makes it out to be. So the prices get reduced (say 10-20% from asking), down to $450k.

The home sells. However, it's still 10% more than similar homes sold for last year ($430k). Or, even if it's 5% more, it's 50% more than they bought it for 5-10 years ago.

"A price increase greater than median home appreciation rates" - "smaller price reduction" = Home appreciation + price reductions.

Bears, of course, interpret this as the first sign that prices will come down.

Bulls ignore the price reductions as "outliers" (even at 45%).

Those of us in the middle realize no one statistic should be relied on so heavily.

meshugy said...

The home sells. However, it's still 10% more than similar homes sold for last year ($430k). Or, even if it's 5% more, it's 50% more than they bought it for 5-10 years ago.

Exactly...thanks!

'm

TG said...

Wow my house went up 15k in a week. Big deal bro.

Can you take your house down the grocery store and buy groceries?

Nope, you ain't liquid pal. It costs you money to get that money.

DO you really think that housing prices will keep going up that nobody but millonaires will be able to afford them?

Learn some fundamentals.

meshugy said...

DO you really think that housing prices will keep going up that nobody but millonaires will be able to afford them?

No...I think they will flatten out in the coming years.

seattle price drop said...

Exactly!

Bears interpret the pull back in price as a sign that a top has been reached.

That is, sellers tested the market and found it could not go as high as they thought.

Even though, in years past, it always went as high as they dreamt.

This was the first time in years that sellers reached the limit on how high they could go.

The limit is higher than last year.

But we've finally found the limit.

Anyway, this concept's been described over and over on this blog but a lot of people still don't get it.

thanks for describing once again.

seattle price drop said...

above post in response to anon 2:50

Anonymous said...

"I'm not willing to pay 1,700/mo. to live in that". quote by Ballard home-buying passer-upper.

The NAR came out with an interesting article today that ,for the first time, says that home buyers can no longer afford these homes.

When the NAR starts saying that, watch out.

A lot of people have noted that, when homes start sitting, it will be realtors who lead the prices down. A sale is better than no sale at all.

Dukes said...

I see that I have to check this blog to respond to Meshugy. I don't know what is spurious about the NWMLS #'s, maybe you can explain it to me.

Also, I don't know if you remember back awhile ago, but the #'s used to compile a much larger area. This time I set the areas to cover all of King County. So, what is the problem with that troll?

Why do they mean nothing? They show that you are a schlep who reads and believes a fool like Elizabeth Rhodes when actual #'s from an actual realty site tell a story of a high percentage of reductions per new listings. I don't make this shit up troll boy. These are the #'s plain and simple.

Anonymous said...

I don't make this shit up troll boy.

Now that's a well-reasoned argument. I'm glad to see that blogs have finally caught up with Usenet circa 1991. Every "thread" ends with someone calling the other "side" a troll (or a Nazi), thus ending the discussion on a high note.

In response to seattle_price_drop: I agree, if sellers have to reduce prices from asking, it's no longer apt to describe Seattle as purely a "seller's market". It certainly points to cooling down in RE. However, adding in that YOY there are still price increases of 11-16%, you cannot argue the market has (at least yet) flipped to a buyer's market. A buyer's market is when you see YOY price decreases, especially across the board along with high inventory.

You may be right that the price reductions are the "canary in the coal mine" that presage a major crash or even just a buyer's market. Or, it might be a couple more years of small price increases followed by years of stagnation. Or (my bet) we see tons of "micro-markets" pop-up - every zip code has a different RE market to where no one can guarantee any one theory applies across the board to buying/selling.

I've seen a couple of weird things recently that certainly confuse me. Houses that needs tons of work selling quickly for $600-700k (in a neighborhood of $1 - 1.5m homes). Houses that are large, well-maintained and in a good neighborhood, sitting for $1.5 million for months (in a neighborhood of $2-4m homes). Houses that look like spec-built tract homes, selling for $4 million (this is on the water on the Eastside). Houses prices at $700k sitting for months, but selling for asking (near $500k homes).

I have basically decided I'm not capable of drawing a firm other than RE is more risky than ever and have cautioned some other friends not to buy houses unless they know they don't have to move for at least 5 years (preferably 10).

That said, I'm not moving out of my house and renting one of the magical houses people always mention here that would equate to everything I've got and be cheaper and never get sold :-)

Anonymous said...

If it makes you feel better Dukes, M's arguing with an actual bonafide REALTORS numbers on the next thread up.

Out. Of. Control.

matt said...

t is a perfect strategy to borrow money to invest (even you have to pay interest or other cost associated with borrowing), commonly called leverage.

Perfect stragegy?... that IS a howler. Investment strategies should not incur servicing fees. 'Renting' investments is allowing some one else to take a cut of your idea... in a perfect strategy you would have no servcing fees...

Most investments, aren't going to give you more than the S&P appreciation rate of 8% a year or so, statistically. Therefore, allow a 6-7% interest rate gives you a very small cut of the pie. The issue is that people have no more cash to invest with so they're leveraged investors now. Why? because we're in a negative savings rate. So I guess that's probably why RE is the 'investmetn' du-jour. Everybody's broke, with nothing but their FICO scores to charge too.

Comrade Chairman Greenspan said...

"Due to her article, even MORE lemmings will scamper over the cliffs of insanity."

Yep. A stereo screech from the two RE mouthpieces for all remaining bagholders and greater fools to hop on board, not that many can be left at this point. Sounds like someone was disappointed with the "spring miracle".