Real Estate Myth Debunking
I'm compiling two lists for future posts, and I'd like to enlist the help you, the intelligent readers, to help assure the lists are as complete as possible. The purpose of the posts will be to list common real estate myths and briefly debunk them one by one. Many common myths have had entire posts dedicated to them here in the past, which will of course also be linked to. Following are some examples of the kinds of things I'll be including on these lists.
The first list is "Seattle Housing Market Myths," which will contain items such as:
- Home prices in Seattle are supported by:
- Job growth
- Population growth
- Puget Sound's unique desirability
- Prices here did not go up as fast as other places, so therefore they won't fall.
- Prices can simply level off for a few years while "the fundamentals" catch back up.
- etc.
- If you don't buy now, you'll be priced out forever!
- Renting is "throwing away" your money. It's always (financially) better to buy, regardless of the circumstances.
- Buying a home is a great way to "build wealth."
- etc.
47 comments:
30-second debunking of "house prices keep going up because more people are moving to XXXXX:"
Demand for SHELTER will increase as population in an area increases. "Shelter" does not necessarily equal "house for sale." The demand for shelter can be satisfied by rental units, communal living arrangements (families and roommates), work-provided housing, live-aboards on boats, and all other kinds of shleter arrangements besides signing a mortgage on a property.
If the population in XXXX were increasing SO FAST that there was a true shortage in all forms of shelter, then it would show in areas other than the housing market. Rents would increase substantially. Household size would increase (aka more people living with roommates, family, etc). And the number of people living in "alternate" living arrangements such as the liveaboard boat would both increase and have to pay more for the privelige. Slip space costs money, too.
The only sector of the shelter market where large increases in price were observed was in the price of sale properties. Rent tracked inflation. I'll wager that the number of people choosing to have extra roommmates or live with their families didn't skyrocket, and last I was in Seattle I didn't see the marinas falling all over themselves to build new slips.
Just look at areas like Phoenix AZ. Massive immigration into the region making it the 5th largest city in the U.S. Builders have easily been able to keep up with the growth and then some. They overbuilt and prices are falling.
Kaleetan,
Check your facts buddy. It's more of a credit bubble than a housing bubble. You make credit so cheap and easy to get, you create a bunch of additional prospective buyers driving up prices. You cut that stream off, you lose those buyers - guess what happens to prices....
Kaleetan,
The answer is:
D. all of the above.
How about:
"they're not making any more land"
"growth management act is restricting the ability to build more housing"
"blame the Californians"
The US Census's figures for King County show that the county's population increased by only 5% between July 2000 and July 2006. That's 5% total, not 5% per year. Likewise, the Census also estimates that between July 2005 and July 2006 King County's population increased 1.5%. So population growth has not been a driver of increased home prices in King County at the rates that have been seen.
You can also take a look at my post Seattle Real Estate Market Conditions Jan 2007 where data from ZipRealty shows that the average sales price in Seattle declined 4.6% between Dec 2006 and Jan 2007.
My favorite myth came from the Lil' Blue Babe:
Single family homes have become a luxury for the gilded few. The rest of you heathens shall be packed into dumpy multi-family compounds.
The real irony is that the homeowners who are forced into dumps these days, whereas renters get better homes and neighborhood for 1/2 the money. I say this as I type from my rented SFH on Sunset Hill.
I don't know if it's a "myth" per-se, but I hear the logical falacy about how Seattle real-estate can remain bullish even if the rest of the nation goes in the toilet all the time.
It strains all logical thinking to believe that Seattle real-estate prices could somehow remain unaffected if prices crash everywhere else in the country. There go the equity locusts... There go all the businesses (and jobs) that were goosed by construction and financial jobs...
I can understand how someone could say there won't be a nation-wide real-estate bust, but to maintain that Seattle would remain immune if one did occur is just barmy.
I can understand how someone could say there won't be a nation-wide real-estate bust, but to maintain that Seattle would remain immune if one did occur is just barmy.
Right... just because one lives in Seattle doesn't mean one's 401(k), Roth or SEP-IRA, 529 plans, pension plans or taxable mutual funds and stocks aren't holding collateralized debt obligations (CDOs) or GNMAs or derivatives about to blow. You don't have to have bought a house in King County in the last two years, or even beyond the last ten to be affected somehow: you just have to be invested in the stock market somehow.
The two biggest talking points of bubble theorists are
1) Historically Low interest rates
2) Loose lending practices
Since rates are now higher then 2005 (probably the hottest year on record) and loose lending has been severely curtailed in the last 6 months, then how do you explain the continued resilience of the Seattle market?
Seattle is different.
I think this article splains it best:
Velkomin to the United States of Foreclosure
Monday, 19 March 2007
by Mike Whitney
The stock market is about to crash. The only question is whether it will quickly fall down the elevator shaft or follow the jerky flight-path of a man pushed down a stairwell. Either way, the outcome will be the same; stocks will nose-dive, the dollar will plummet, and the bruised US economy will be splattered on the canvas like George Foreman in Rumble in the Jungle.
Troubles in the sub-prime market have just begun to materialize and already 38 main sub prime lenders have gone kaput. Foreclosures have reached a 37 year high, and an estimated 2 million homeowners will be put out on the street in the next few years.
And that’s just for starters.
The contagion has spread beyond the sub prime sector to other ARMs (Adjustable Rate Mortgages) where late payments and defaults are cropping up faster than their sub-prime counterparts. According to Goldman Sachs chief economist Jan Hatzius, “Prime ARM delinquencies are above their worst levels of the 2001 recession…. By contrast, sub-prime fixed-rate delinquencies are well below their recession levels.” (Barrons)
more:
http://www.atlanticfreepress.com/content/view/1201/81/
Shug,
Loose lending has only been tightened in the last couple of weeks. It will get tighter, and the effects will not be fully felt for another 6-7 months. Sit back and watch.
A new take on the old saying, "Loose lips sink ships":
Loose lending sinks economies
Loose lending has only been tightened in the last couple of weeks. It will get tighter, and the effects will not be fully felt for another 6-7 months. Sit back and watch.
But I thought you said after March, prices would go down. Are you now saying it won't happen till this fall?
The Seattle Times has a headline today that says "Census shows folks flocking to King County." When you read the actual numbers, King County grew 1.5%; which is actually less than the whole state's growth rate which was 1.7%. So the headline is misleading in a way which panders to the prejudices of the anti-growth crowd. In any case a 1.5% increase in population wouldn't justify high single digit or double digit rates of home price appreciation
"But I thought you said after March, prices would go down. Are you now saying it won't happen till this fall?"
Last I checked, "this fall" comes after March.
That said, I don't recall hearing any such thing from matthew. Perhaps you're making up facts again, Hammer?
That said, I don't recall hearing any such thing from matthew. Perhaps you're making up facts again, Hammer?
matthew said...I think my prediction of this market topping out in March 07 is going to be dead on.
Sorry...link got messed up:
matthew said...
Here's what matthew said:
I believe that next months [March 07] median house price will be the highest Seattle will see in the next 5 years.
His statement today:
Loose lending has only been tightened in the last couple of weeks. It will get tighter, and the effects will not be fully felt for another 6-7 months. Sit back and watch.
To paraphrase: We'll peak in March. The downside of the lending tightening will not truly be felt until November.
I can see how this doesn't make any sense to you 'shug, since matthew is relying on logic, and didn't post a link from the great depression and claim it was breaking news. Likewise, he didn't post sales numbers from New Century and try to claim that they represented the entire industry.
Matthew, you and your crazy logical, truthful analyis.
pwned!!!
Not everyone here agrees with the assessment, but I for one think the numbers will be significantly affected by standards tightening before this fall. I would actually be surprised if we didn't at least start to see some effect in March's numbers.
As for severe tightening in the last six months -- Shug, you spin more than a clothes drier. Try less than six weeks.
Try less than six weeks.
Right, our bet is still on? If we don't have double digit drops in June, then you have to be my pal!
Oh, I'll hold good to that bet. And I'm gonna win it too.
But I said nothing about being your "pal."
If there's such a housing shortage in Seattle, how is it that I was able to find a perfect house for a reasonable rent, exactly where I wanted to live? Craftsman. Check. Three bedrooms. Check. Walk to UW. Check. Walk to Ravenna park. Check. Access to three good elementary schools. Check. Walk to Zoka coffee. Check. I literally could not have imagined a better place for my family and me, AND it's not expensive. The only scenario in which this makes sense is where an equity bubble has hyper-inflated away housing prices. I look forward to purchasing this same house for 30% less three years from now.
But I said nothing about being your "pal."
But that's the wager!
I'd like to debunk the myth that KVI is a legitimate radio station.
It's more of an experiment involving mentally retarded people... on both ends of the microphone.
Homebuying myth:
"you can totally trust your loan officer"
Reality: your loan officer has absolutely no duty to put your interests above his or her own intere$t$. The relationship is strictly retail: I can take you for all I can get away with. If you can't understand what I'm saying and what you're signing, it's not my problem.
Obviously not all loan officers treat their clients this way. However, a consumer who puts total trust in his or her loan originator is an easy mark.
Jillayne said...
Homebuying myth:
"you can totally trust your loan officer"
Reality: your loan officer has absolutely no duty to put your interests above his or her own intere$t$. The relationship is strictly retail: I can take you for all I can get away with. If you can't understand what I'm saying and what you're signing, it's not my problem.
Obviously not all loan officers treat their clients this way. However, a consumer who puts total trust in his or her loan originator is an easy mark.
Is it possible that this is the same Jillayne that said...
Why would a consumer need a class before embarking on homeownership? Isn’t this what real estate agents and lenders are for: to help educate the consumer?
...over on the RCG blog Feb 12 2007?
Hi EconE
That absolutely was me. In context, I was referring to not using our tax dollars to teach children in junior high school how to amortize a loan, which is what the Nat'l Assoc of Mortgage Brokers is advocating. Instead, NAMB should focus on educating its loan originator and mortgage broker members before coming into the classroom and teaching 13 year old kids how to avoid predatory lenders and how to understand exotic mortgage loan products. The following link is dated Sept 06.
http://www.namb.org/namb/NewsBot.asp?MODE=VIEW&ID=148&SnID=1473830157
The National Association of Mortgage Brokers is the voice of the mortgage broker industry, representing the interests of mortgage brokers and homebuyers since 1973.
Please don't dig yourself into an even deeper hole Jillayne. Your statements in general are quite contradictory.
You didn't seem to be in favor of any education of the consumer outside of what the realtor and the lender would "teach" them.
The NAMB has had 34 years to get it right. They are now a day late and trillions of dollars short to even feel that they deserve to come to the table and plead for self regulation.
Fox guarding the hen house.
Plymster said,
I can see how this doesn't make any sense to you 'shug, since matthew is relying on logic, and didn't post a link from the great depression and claim it was breaking news.
I just woke up my 4yo after laughing at that statement. That statement has taken over the #1 slot for "slam/comment of the week," which was previously held by Mr. Bubble and his observation that 'Shug is no barometer because a barometer gives USEFUL predictions.
Too funny!
Shug,
No. I am still saying March will be the peak. But the additional lending tightening won't be felt until 6 months from now.
It is good to know that some of what I am saying is sinking in though!
No. I am still saying March will be the peak. But the additional lending tightening won't be felt until 6 months from now.
Peak what? Prices...are you predicitng prices in April will be lower the March?
"The only sector of the shelter market where large increases in price were observed was in the price of sale properties. Rent tracked inflation."
Bingo. Rent tracked income as well, because there is no voodoo financing to help pay your rent. But with home purchases, EVERYONE (from well qualified buyers to subprime) had access to mortgage loans that exceeded their ability to pay.
It can't happen here. What if Microsoft and Boeing experience a slow down at the same time? Like in the rapidly arriving recession/depression?
Houses cheaper than cars in Detroit
By Kevin Krolicki
Mon Mar 19, 11:48 AM ET
DETROIT (Reuters) - With bidding stalled on some of the least desirable residences in Detroit's collapsing housing market, even the fast-talking auctioneer was feeling the stress.
"Folks, the ground underneath the house goes with it. You do know that, right?" he offered.
After selling house after house in the Motor City for less than the $29,000 it costs to buy the average new car, the auctioneer tried a new line: "The lumber in the house is worth more than that!"
As Detroit reels from job losses in the U.S. auto industry, the depressed city has emerged as a boomtown in one area: foreclosed property.
It also stands as a case study in the economic pain from a housing bust as analysts consider whether a developing crisis in mortgages to high-risk borrowers will trigger a slowdown in the broader U.S. economy.
Realtor Ron Walraven had a three-bedroom house in the suburb of Bloomfield Hills that had listed for $525,000 sell for just $130,000 at the auction.
"Once we've seen the last person leave Michigan, then I think we'll be able to say we've seen the bottom," he said.
more: http://tinyurl.com/2tv4q8
Remember that old billboard ad in Seattle saying for the last person to turn out the lights?
The lender tightening is being felt today. I feel it too.
econe
Once again, you're quoting out of context, and missed several comments from me supporting your viewpoint.
Non-profit agencies do a good job of educating uninformed consumers about the home buying process. Some lenders and some realtors also do a good job of helping a first-time homebuyer learn about the home-buying process.
Right now, I'm the only one, besides non-profit government-sanctioned agencies, offering classes to homebuyers or refinancing home owners about how to avoid predatory lenders.
NAMB does not want to self-regulate. They have a code of ethics with no teeth, and no enforcement mechanism to handle consumer complaints. On their website, if a consumer has a problem with one of their members, NAMB directs the consumer back to the state regulator.
NAMB is a political trade organization with lobbyists working for the intere$t$ of its members. In the latest press release, you'll see that right now they are working to lower the barrier to make it easier for mortgage brokers to originate FHA loans. Am I in favor of this? No.
http://www.namb.org/namb/NewsBot.asp?MODE=VIEW&ID=166&SnID=1342881967
You and I agree that NAMB does not want to self-regulate its membership. Punch in the name of a known predatory lender and you may find that they are a member of NAMB. An easy example is Ameriquest. Still an NAMB member after that massive predatory lending settlement.
Uncheck "deals, tax liens, fsbos and bankruptcies" and you get 1098 foreclosures for King County.
http://www.foreclosure.com/search/wa_033.html
514 Snohomish County
928 Pierce County
When you leave those boxes checked, the numbers skyrocket.
To quote Schiller: Mortgage rates have been falling for 25 years and when I look at the whole history of mortgages and home prices, I don't see a strong relationship. The psychology is more important. In the late '70s, interest rates rose to double-digit levels, and there was still a housing boom.
The Bubble Guru's Take On Housing
So Shiller, the God of economic predictions, doesn't think rates matter.
So how would he explain this?
When It Comes to House Prices, the Bloom Is Off the Cactus
Some areas continue to do well. Prices in Seattle rose 12.1 percent last year, the only double-digit rise, although Portland, Ore., came close with a 9.9 percent gain.
Seattle was the only city in the US with double digit gains! I think the verdict is out...we are indeed special. But for how long? According to Shiller, this can only be attributed to a unique market psychology in Seattle. Not surprising, we are America's smartest city!
But will it change?
Shug/Hammer,
Yes I am predicting that prices in April will be lower than March. That is what peak means right???
You are a quick one!
Yes I am predicting that prices in April will be lower than March. That is what peak means right???
Are you talking about SFH, Condos, or both?
That's a pretty brave prediction to make smack in the middle of Spring selling Season.
I am talking SFH + Condos
Yes it is brave prediction, I am a brave man.
And the biggest myth of all:
The housing bubble is going to burst and I'll finally be able to afford the house of my dreams.
Move along troll.
Myth: Seattle is a desirable area to live in.
I know that this may be hard for most of you to accept, as I have noticed that Seattlites are even more stuck-up than people living in San Francisco (I'm from that area), but consider it for a moment. Everybody thinks, or wants to believe, that the area they live in is more desirable than most so just because you think this area is more desirable doesn't mean most people think the same way. The fact is Seattle is no more desirable than any other large, metropolitan, costal city. So I'd imagine we'll experience the same housing bubble problems as those other coastal cities.
Matthew, just because I'm not a member of this blog's flock doesn't make me a troll.
As a Seattle homeowner, it's surreal to read these comments when most of these "myths" have been proven true for me.
My house has in fact been the most profitable investment I've made.
Had I not purchased when I did, I would certainly be priced out of this market.
I've put off buying a new house in anticipation of lower prices, only to find out a year later that the houses I passed on are now too expensive for me.
Apparently, I live in a mythical version of Seattle.
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