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Monday, October 12, 1981

Thursday Open Thread

This is your open thread for today. Please post random links and off-topic discussions here.

15 comments:

Peter Taylor said...

Interesting article on Alternet about the fact that McMansions marketed as "green" are in fact huge energy sinks.

Despite the new trend toward building 'green' McMansions, most of these homes are like hybrid SUVs: efficient only in comparison to other energy-guzzling behemoths.

So, one more factor to consider that may aid in bursting the bubble - can you afford the 40% higher energy costs for your McMansion as well as your readjusting ARM?

redmondjp said...

peter taylor said: So, one more factor to consider that may aid in bursting the bubble - can you afford the 40% higher energy costs for your McMansion as well as your readjusting ARM?

It depends on what you are using for comparison. A good friend moved out of a 1500sf 1970s split-level with 2x4 exterior walls, aluminum windows, electric hot water heater and baseboard electric heat. They moved into a 2002-built 3500sf tri-level with forced-air natural gas heat, gas water heater and compact flourescent light bulbs. Utility was PSE for both houses.

Their monthly gas/electric bill for the newer, much larger house is significantly less than the one for their old house, due to the fact that the newer house is so much more airtight and energy efficient.

So I'm not sure that we can use energy costs as a reason why the bubble will pop.

Speaking of energy costs, I read two different articles (one in the PI, and one in the Times) yesterday regarding energy costs:

This one claims that natural gas heating costs will increase, while home heating oil costs will decrease. This article in the Times claims the exact opposite!

So you see, there is a very good reason for my confusion . . . if they can't even tell what is going to happen with energy prices, what hope do we have of predicting home prices?

biodieselchris said...

My Seattle story:

I bought a <500 SF condo in Capitol Hill in August 2000. Nice and cozy, great location, but no parking, no view really, no sleeping "nook" or whatever, a true studio: a tiny little kitchen, bathroom, and The Room you live/sleep in.

Price $108,000.

A few years later my girlfriend (now wife) and I decide to move in together and of course this place is too small so we rent a home up north a little and I try to sell. The condo sits on the market from August until Decemeber with no action whatsoever. I lower the price from $150's to $145k. Finally an offer comes in at $140, after 4 months, so I take it.

Now the condo is worth ~$210k. That's $70,000 in 22 months. Not on a mansion worth millions or some waterfront home -- a fricking $140k STUDIO. Zillow's got it up over $7k in ONE MONTH.

It was the worst financial decision made in my life. By far. Back in late 2004 when I contemplated taking it off the market and just leaving it empty or fighting my building manager (who was trying to enforce some unenforceable "renter policy"), I really thought the real estate market had "topped."

I could've left the condo empty and be up almost $2500 PER MONTH, after costs!

Being a lowly renter I read blogs like these in the hopes of reading about the beginning of some "big crash" but I don't really believe in it. I don't know anymore.

Make your decisions to buy/sell carefully. Don't do what I did.

Geon said...

Wouda, shouda, coulda,...if that's the worst financial decision you ever make, consider yourself lucky. I could name a couple dozen stocks I should've held much longer and 5x or 10x my money. Good luck in the future, I'm a lowly renter too, but piling up the money waiting to buy.

synthetik said...

>I really thought the real estate market had "topped."

Well, you actually did a few things right in my opinion.

1. You purchased well below the median price; typically those properties don't get hit nearly as hard as those above the median.

2. You sold during the run-up, and while you didn't get that extra $70,000, how could you possibly be sure you'd be able to sell now - especially if you weren't following the market closely.

During 2002-2005 most of the bubble evidence was much harder to see/predict than late 2005-present. Now, all indicators point to a severe drop in prices in all nationwide markets - and we're seeing that.

If you had waited and were not watching the market carefully, you'd have nary a chance of "timing" the market to get that extra $70K.

I think your decision was a wise one and also motivated by an actual need (more space). The idea of renting it out would have been great except for the problem with the condo association "no renters" issue.

Eleua said...

biodesielchris,

Not everyone is Warren Buffet. Heck, even Buffet isn't always Buffet.

You will get a lot of cheap advice on this forum. Most of it is good. If you want another free tidbit, consider this:

I have seen many people (myself included BIG TIME) that have lost their ass trying to squeeze the last dollar out of an investment. Anyone that tells you that they routinely sell at peaks and buy at bottoms is practicing prevarication. Nobody is that smart or lucky. Just be glad you didn't do the opposite - which is very easy to do.

Happiness and peace of mind are not always dividends that appears on quarterly reports to Wall Street. They are the most valuable dividends you can get. Best of all, they are tax free and can't be confiscated by the trial lawyers.

Sea Foam said...

biodieselchris

if i read your post correctly, your main lament seems to be you shouldn't have sold.

This obviously has been said over and over, but:

You cannot time the market (despite how obvious it always seems looking back)

I myself have "lost" thousands because I didn't buy GOOG at $100!

Warren Buffett does not time the market, he buys assets he determines are undervalued and holds them long-term

I have no doubt that many recent real estate investors do not understand the risks they are taking. Consider yourself lucky to learn about investing risk.

Doubt Mr. Buffett would be in the market for a sfh in seattle right now.

SDtoSEA said...

If that's the worst financial decision you ever make, you'll die a lucky man.

Just wait until this things starts unwinding. Your "bad" financial decision will pale in comparision to the rest of the herd.

Nolaguy said...

From one of my favorite economic blogs:

I think people are going to eventually lament that they hadn’t considered the illiquidity of real estate. Generally if your positions are small the investor/trader can move in and out of the market (stock, bonds, commodities) without disturbing it enough to affect his price.

Normally real estate is illiquid. Normally most unsophisticated investors don’t borrow against unrealized gains in their stock portfolios. Even if bond prices go back up to all time highs, can the general public afford home prices today without an unconventional, risk laden mortgage? A return to “normalcy" in housing markets will doom consumer spending. Why would corporations expand when demand for their products is contracting? What’s left to inflate or re-inflate? Those that speculated and those who bought who couldn’t afford to will find themselves caught in the illiquidity trap. Unrealized gains will turn into real losses magnified by leverage.

The dot-com bust wiped out the public. Few got wealthy. The rush to real estate was based on the sure thing concept mixed with desperation. People with no historical context began to repeat mantras (It always goes up) as if hypnotized. Perhaps it is the fear of having to join the 66% of Americans who retired into poverty mixed with the greed to live beyond one’s income that drives people to such irrational behavior.

The implications of what is happening in the housing market should be making people nervous. It is not. Even bears are starting to get edgy about missing something and jumping in (irrational bulls). The early bears positioned short and are getting squeezed and have to buy to cover short positions. And those stops sitting just above the all time highs provide plenty of liquidity for professional traders to liquidate into. The public thinks, “Hooray the stock market will save us from the housing debacle.” The trap is set ready to be sprung.

Greed is not confined to hedge funds, their clients and corporations. It is in everyone who wants something for nothing. Money is made at the U.S. Mint; the individual must earn money. The individual that gets conned does so primarily because he believes there is an easy path to riches. This mentality drives people to live off credit cards and to buy more house than their balance sheet indicates they can afford. This mentality encourages and allows populist politicians to manipulate the markets to strive for economies without recessions. Greed stimulates people to believe they can borrow their way (consumptive debt) to wealth. How else could any rational being believe that the price of anything always goes up? Let the irrational rally continue, we’ve slain secular bear markets!!! I will rush out right now and buy that 600 sq. ft. condo for three quarters of million dollars. Yeah, right.

As always, the public will stay too long and when the inevitable happens they will be worse off than when this all started. The manipulators can play the game as long as they can. The longer they do the more terrible the consequences.


http://www.oftwominds.com/blog.html

wreckingbull said...

Amen brothers and sisters...

This is not a contest to see who can time the market perfectly, although dalas would want you to believe that. Personally, I sold a year too soon.

This is about living your life with a little sanity and responsibility. To me that means not taking out a 500K ARM on a 2-bedroom shack in North Ballard.

The lunacy will eventually end and we can all make our own decisions as to whether or not OK-to-buy light is illuminated.

Reason trumps timing any day of the week.

Speaking of lunacy, I think tonight is the 'grand opening' of Hjarta. I stopped in last week and learned that you can pay 1.3 million to live in a Penthouse above the Denny's and Seven-Eleven on Market and 15th.

cosmos said...

biodieselchris --- As others have noted, NO ONE can time the markets. I have a pal who lost virtually all his money (millions) in the tech burst. Eternal optimism, like eternal pessimism, can be a curse. Yes, there is a happy medium - you seem to have struck it.

MisterBubble said...

The "grand opening" of Hjarta??

That'll be something to see, considering that it's still just a pile of construction rubble.

(There's a nice little unbrella and chair on the top right now -- perhaps that's the penthouse suite!)

Watch said...

On Air America radio (AM 1090) they've been running an ad for a group of investment reasearchers/advisors in Bellevue that will help 'investors' avoid or reduce their capital gains taxes if they sell their 'investment' properties before holding them for two years. They ad talks about people being uncertain of the bubble bursting and wanting to protect their investments. Interesting ad since the local newspapers say that there aren't too many flippers in the Seattle area since the flippers are all in CA and FL.

SeattleMoose said...

Lifecylce of a POS....

2000 - 150K POS in da hood
2001 - 175K "with potential"
2002 - 200K "in up and coming neighborhood"
2003 - 225K "cute"
2004 - 250K "hot investment"
2005 - 275K "wow...won't last"
2006 - 300K sold to clueless flipper
2007 - 250K "seller motivated"
2008 - 200K "bank repo...make offer"
2009 - 150K POS in da hood

Crashcadia said...

It will be interesting to see how the banks survive a downturn in the economy.

Not only are they exposed to residential real estate, they also appear to be overly exposed to commercial real estate.

Once the home ATM is shut down when homes no longer have rampant appreciation, then the consumer driven economy will stagnate and the GDP will dive. All these huge warehouses being built to accommodate distribution of goods will suddenly be sitting empty.

Here is a link to how a proposed federal guidance concerning commercial real estate loans is causing a stir.

http://www.businessreport.com/newsDetail.cfm?aid=9818&cid=1

I wonder how exposed the banks are?

They could be in for a double whammy.