Friday Open Thread
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11 comments:
Happy Buy Nothing Day, everyone!
(Wait until tomorrow to buy that overpriced craftsman.)
(Wait until tomorrow to buy that overpriced craftsman.)
But if you wait, you'll be priced out forever!!!! :-)
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...
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.
"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.
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
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."
"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.
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.
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.
"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.
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