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Tuesday, November 24, 1981

Friday Open Thread

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

24 comments:

MisterBubble said...

Happy Buy Nothing Day, everyone!

(Wait until tomorrow to buy that overpriced craftsman.)

octopuswithafez said...

(Wait until tomorrow to buy that overpriced craftsman.)

But if you wait, you'll be priced out forever!!!! :-)

synthetik said...

I just love not buying stuff.

Anonymous said...

The Tim- I've been following your blog for about a month now and find it very interesting . As a local realtor who's taught homebuyer education classes for several years, I've seen first hand the challenges that buyers face in this market.
A correction in the market would have a positive affect on our community as a whole. Unfortunately, homeownership may be going the way of higher education, with pricing continuing to widen the gap between the haves and the have nots. I see some trends developing in the market that I would like to throw out to the readers of this blog and would welcome any feedback.

I see between 50 to 75 people a month in our classes. More and more of these students are walking into the transaction with "gift funds" from a relative. These funds often meet or exceed a 20% down payment. The baby boomer generation is the wealthiest group of folks in our history and a lot of that wealth (for better or worse) has come from real estate appreciation. This knowledge is not lost on the "echo boomers", the children of baby boomers, who are being pushed into homeownship at an earlier age at the urging of their parents. BTW, these "gift funds" are also coming from grandparents, since their kids are already financially secure. This may be helping to make up the difference between median sale price and income. Does anyone out there know how one could research this?

Classic "first time buyer" homes are harder to find as more of these properties are being remodeled. Today a buyer might pay 300K and sell it 2 years later for 475K. That is not just pure appreiciation due to market conditions creating that gap. They often have invested considerable sums into the property. It has become their entertainment, their labor of love. When they sell they have bumped the property up to a less affordable price point with their upgrades. My parents purchased our family home in N. Seattle in 1972 for 19K. In the 25+ years they owned it nothing but the systems were updated. It was a place to raise a family and they were lucky just to make the mortgage payment every month. Home Depot was not part of my childhood experience.

Another shift in the market is just now starting to happen, one that very well may dictate the health of the real estate for years to come. July 1st 2005 was an important date in our country's history. That was the date that the baby boomer first became eligible for retirement. Now we haven't seen the big migration yet but it is coming. What I see begining to happen in the NW is a downsizing to smaller properties. We may see another group of people entering the "first time home buyer" market, the parents of first time buyers. It is predicted that unlike other parts of the country, retirees in the NW will not completely pull up the tent stakes and move to Florida to die. They will keep a connection to the area. They will buy ramblers. One level homes on quiet lots near the city. They will then live off the proceeds of their sale, maybe buy a timeshare in Cabo to escape November. If the entry level market is stabilized by this downsizing, it may continue to prop up the market as a whole and allow everyone else to "move on up to the Eastside." And the rich get richer....

As for ARMS, yes they have been contributing to this frothy market. But for every irresponsible ARM buyer I see in this market, there are others who understand the dangers of them, use a 30 year fixed number to calulate affordability, and save the difference every month in anticipation for the inevitable rate change. We see very savvy consumers in our classes and ARM users do not always = stupid/naive home buyers.

Just some thoughts on the market...

WaitinginMarysville said...

"We may see another group of people entering the "first time home buyer" market, the parents of first time buyers."

Kurosan,

Are you saying that the parents of first time buyers are people who have never bought a house? Or that they do not have a house to sell? Or are you saying, as I imagine you are, that you believe that retirees are going to stay in the area, but downsize to the same size house as the first time buyers? If they all keep their larger homes when they buy the smaller ones, this might be true, but I think it is more likely that they will sell the older home first. When all the larger homes come on the market that will put pressure on the price. And if the price of larger homes drops, that will put pressure on the price of smaller homes. But I believe that many people will choose to stay in their homes, and not sell at all. This is what my mom and her husband decided to do. When they looked at what they could get if they sold their house and bought a smaller one, they decided it wasn't worth changing. Their house is about 2000 sq feet, and they live in Redmond and don't want to move any closer to the city. Someone living in a larger house would have more reason to change. Are your parents selling their house to downsize? If people sell houses to downsize then why would that keep housing prices up? Isn't it new people coming into the market, or people buying extra homes, that pushes the prices up? (besides increasing government fees for housing developement)

The best way to evaluate the effect of these gifts is to take a look at average down payment over the years on a chart. If down payments haven't been going up lately, then I doubt that these gifts make up a significant portion of the market. If they have been goin up, then maybe they have.

WaitinginMarysville said...

I have been checking, and the median down payment for first time buyers in 2003 was 6%, in 2004 it was 3%, in 2005 it was 2%. I can't find any data on the percentage for this year so far. Do you have access to that information? Is it now higher than 2%? If it isn't, then I don't think that the gift funds you are talking about are significant to the market.

Peckhammer said...

Kurosan said:

"BTW, these "gift funds" are also coming from grandparents, since their kids are already financially secure."

This implication, that boomer's are financially secure, is the biggest crock of sh@# I've heard in a long time.

"It is predicted that unlike other parts of the country, retirees in the NW will not completely pull up the tent stakes and move to Florida to die. They will keep a connection to the area. They will buy ramblers. One level homes on quiet lots near the city. They will then live off the proceeds of their sale, maybe buy a timeshare in Cabo to escape November."

Do you actually believe this???

There are only 250 families in the state of Washington with a net worth over $2M. It is my belief, being about 2/3 of the way to number "251," that there will be a lot of boomers eating government cheese and cat food. the last thing they will be buying are ramblers.

Please do some research into boomer net worth and see if it jives with the real estate fantasy you are living.

mydquin said...

Their house is about 2000 sq feet, and they live in Redmond and don't want to move any closer to the city.

I don't think this is the situation that kurosan is discussing. More likely, kurosan is talking about 65 year olds moving from 3000+ sqft 2 or 3-level homes in 2000 sqft 1-level homes.

This will keep demand for entry level homes up while the McMansion market gets shakey.

Peckhammer said...

"More likely, kurosan is talking about 65 year olds moving from 3000+ sqft 2 or 3-level homes in 2000 sqft 1-level homes."

72% of pension-fund actuaries polled predict that half the baby boomer won't have the wherewithal to retire at age 65. I predict that government assisted living, located close to Walmart stores, will be all the rage.

Anonymous said...

kurosan,
I would love to talk more and brainstorm. I have been a loan officer for 8 years and a real estate broker for the last two. I am in the Kenosha, WI area and think the exchange of ideas could benefit both of our clients.

Ralph D. Nudi
Executive Vice President
Commercial Real Estate Sales
Weichert, Realtors - Unum Properties
Kenosha, WI
http://ralphnudi.com
ralph.nudi@gmail.com

PepeDaniels said...

Peckhammer saidThere are only 250 families in the state of Washington with a net worth over $2M. It is my belief, being about 2/3 of the way to number "251," that there will be a lot of boomers eating government cheese and cat food. the last thing they will be buying are ramblers.

I suspect you are right Peckhammer. Certianly, some of my points of view are anecdotal but what I see and hear coming out of people's mouths is unreal at times.

I split a place in the city of Seattle with a person who's been out in and out of work for the last couple of years. They were delivering pizzas about 4 months ago, lost another job and only went through bankruptcy proceedings 8 months ago or so. Additionally, they've got two kids in another part of the country which in theory they are supporting.

Two months after starting the latest job, magazine subscriptions start pouring in, wine consumption doubles and last week the perfectly functional big screen tv had to be replaced with yet another one....

It's hard to reconcile in the little calculator in my head how people are doing it. It's pretty common for my co-workers to start their day with $4 latte's, hit PCC during the day for an $8 sandwhich and polish the day off with $15 bucks worth of brew. Drive home in the midlevel car which they seem way too young to be able to afford. Again, it's just hard to see where people are getting their bling or that it's based on prudent use of money.....the level of consumption pretty wild

Joe Consumer said...

Only 250 families with a net worth of over $2mm? Can this be true? That seems like an extremely low number. Where did this data come from?

betamax said...

kurosan: Unfortunately, homeownership may be going the way of higher education, with pricing continuing to widen the gap between the haves and the have nots.

Bob Toll suggested something similar a year ago but is singing a very different tune now. Of all the bull arguments, it's one of the more ridiculous ones.

If average people are priced out, then prices must eventually correct. The fantasy of rich landlords renting to the masses doesn't account for why those rich investors will be happy being perpetually cash-flow negative while renting to tenants who supposedly can't afford to pay enough to cover a monthly mortgage. It doesn't work.

Peckhammer said...

Joe Consumer asked:

"Only 250 families with a net worth of over $2mm? Can this be true?"

Initiative 920: Estate-Tax Repeal, as seen in The Stranger, Oct 5, 2006

"I-920 repeals the tax on inherited wealth that burdens the 250 richest families in Washington. The estate tax (or death tax, if you talk like a Republican) falls on estates worth over $2 million, exempting farms and timberland if they make up at least half of the estate."

mydquin said...

If you are citing averages about the financial standing of baby boomers, you might be missing the point. There is a professional class out there making $150K-250K. They are in the minority, but they are theoretically driving prices.

Also, while boomers with McMansions might not have enough retirement savings. This would just support the argument that they will downsize their homes at retirement to draw out equity. This points to a weakening in the McMansion market and a strengthening of the entry-level home market.

Theoretically, the net socioeconomic effect would be twofold. The babyboom echo might get priced out of the real estate market altogether while Gen Xers might find the transition from the entry level to the McMansion level easier.

biliruben said...

The 250 with more than 2 million isn't correct. That's just the number that would annually be effected by an estate tax. Not the total number that exists in the state.

I would guess about 5000-10,000 families would have more than that, but you can actually figure this out from the census I think.

MisterBubble said...

"There is a professional class out there making $150K-250K. They are in the minority, but they are theoretically driving prices."

I think you meant to say "anecdotally", not "theoretically."

There is no credible support for the notion that a "professional class" is driving price increases here. It's just another story that fits well into realtor-speak...just like the mythical downtown empty nesters, and the microsoft millionaires who are buying craftsmen in Ballard.

MisterBubble said...

Also, this made me laugh:

"This would just support the argument that they will downsize their homes at retirement to draw out equity. This points to a weakening in the McMansion market and a strengthening of the entry-level home market."

Small "theoretical" problem: if everyone is moving out of the McMansions (the "weakening market"), who is going to give the boomers their magical equity? Where will they get the money to make inflated bids on overpriced ramblers?

Get this straight, folks: there is no law separating "low-end" markets from "high-end" markets. What happens to the one, affects the other.

To be sure, one segment of the market may tank earlier than another, but if your personal Theory of Perpetual Home Price Increases (tm) involves the creation of a housing proletariat, while simultaneously assuming that mansion keys will be disributed in cereal boxes...well, you're probably full of crap.

Eleua said...

Peckhammer,

I like your stat, but it seems a bit low. It does bring to mind a stat I heard from someone pimping his book on talk radio over the last summer.

According to the author (I don't know the book title or the author's name), the average savings of a 'Boomer' is $17,500. That is not counting any equity or debt from real estate, and I assume is also figured in after their liabilities.

Said another way, average non-real estate net worth of a 'Boomer' is $17,500, or $35K per couple. My guess is the vast majority are in debt, and have a negative net worth (sans real estate), and a few have quite a few bucks.

Either way, I don't see how the 'Boomers' retire. They will be wards of the state, and a reliable socialist voting bloc.

I'm not sure I believe the stat at face value, but I think the non-real estate savings of the 'Boomers' is quite low. After all, their entire life experience has taught them to put all their eggs in the real estate basket.

When the housing market crashes, it is going to be much, much uglier than anyone anticipates.

AnotherMIGuy said...

That 250 families over $2 million is clearly incorrect.

The estate tax is for estate over $4 million for married couples, and there are many, many ways around it that most wealthy people use anyway.

The No on I-920 say the estate tax hits only 0.5% of all estates in Washington, and other people say it hits 250/year.

So it's probably fair to assume that 0.5% of the WA population is in a household with that kind of wealth.

That would put us more along the lines of 15000 families with taxable estate values of > $ 4 million. That's a long way from "250 families with estates over $2 million".

MisterBubble said...

"The estate tax is for estate over $4 million for married couples"

AKA...estates over $2 million.

"...it's probably fair to assume that 0.5% of the WA population is in a household with that kind of wealth."

Nice try, but no. The number of estates is entirely different than the size of the population.

There were only approximately 50,000 estates in Washington in 2006, versus a population of over 5 million.

Hence, 0.5% of 50,000 is 250, not 15,000.

AnotherMIGuy said...

Nice try. For married families, the estate tax applies to $4 million estates.

There were 50000 estates last year, so 50000 people died and passed them on.

Do you really think that only 250 families are worth $2 million? In my town, MI, I am certain there are more than 10x that number of families that worth over $2 million.

As I said, a reasonable estimate is about .5% of the population.

Why do you presume that the tax is for estates over $2m for married couples? the first $2m from the first to die passes through the estate tax-free (my family's lawyers just had to look at this, so Im very familiar with it).

AnotherMIGuy said...

Just following up my own post - the reason there are about 50K estates in 2005 is that there were about 50K deaths (see http://www.ofm.wa.gov/databook/population/pt02.asp )
So I'll stand by the estimate that 0.5% of households, and we have 2.4M households (average household size = 2.51 [ http://www.statemaster.com/graph/lif_ave_hou_siz-lifestyle-average-household-size ], and we have population of 6.2M).

So, 0.5% of 2.4M households is 12K subject to the estate tax.

biliruben said...

This points to a weakening in the McMansion market and a strengthening of the entry-level home market.

I kinda agree with this. I've stated before that my prediction is that by 2010 we will see a 30% haircut for the top end, a 20% cut for the middle, and a 10% cut for the bottom.

Since I'm sitting at the bottom and hoping to move to the middle in 2010, this may be wishful thinking. ;)

In any case, 30% across the board still works, as 30% of a shack, is much less dollar-wise than 30% of a nice, roomy home in a good neighborhood.

Proximity to the city also must be factored into the equation however.

I know for a fact that the new town-holes featured on the front of the real estate ad section in today's PI, "starting at 300K", will be worth less than 200K adjusting for inflation in 4 years. I will be happy to take any bets to the contrary.