patrick.net

pkowen says

My prediction on the BAY AREA market is continued downward sliding in most areas, especially the mid-market areas that remain out of line with incomes. Top end is a special case ($15 mil in Hillsborough or Atherton) and bottom end has already crashed 50% plus.

My own observations:
1) very bottom end = crashed 30%+ as pkowen said.
2) FHA/FNMA/FHLMC buoy range -- e.g. $417K to $900K or $950K has been stronger than it should be because of massive government subsidies. Ideally, we would go back to $417K (or lower) as a cap and stop subsidizing, but realistically we may go to $625K as a cap.
3) $1.5M+ in San Francisco has been doing okay, down at least 7-10%, although the crappy houses, of which there are many, are down over 10%, and the good houses are closer to flat.
4) $1.2M+ outside San Francisco and maybe Palo Alto is having strong moves downward from people's expectations (I've seen $1.7M to $1.1M, although $1.7M to $1.3M is more common and maybe $1.3M down to $1.0M), especially with financing being tighter.

I'm still thinking the overall market will be close to flat for a while in nominal prices for a few years, while real (i.e. inflation-adjusted) prices catch up with income a bit, but the high subsidies from the government are screwing up the natural process, and the stickiness and illiquidity of housing means this process takes time. I think we've already seen the big drops, but there may be a smaller noticeable drop if government support ever dries up (that includes subsidies, but also if government ends the policy of depressing interest rates).

Coogan99 says

Gimmicks I’ve seen supporting the “it’s cheaper now to buy than rent” argument.

You missed the biggest gimmick of all. The assumption that you are going to live in the same house for the entire 30 years of the mortgage. Good luck, In today's world that is a very shaky assumption. If you move in 15 years or less the front end loading of interest payments means that the closing costs (both from buying and selling) will more than eat any forced savings. Of course houses always go up in value much more than the inflation rate (ha ha) so you will have the appreciation to put in the bank.

I'm not against buying, but don't tell me it's a financial wonderland. There are times when buying makes more sense, there are times when renting makes more sense.

bob2356 says

I’m not against buying, but don’t tell me it’s a financial wonderland. There are times when buying makes more sense, there are times when renting makes more sense.

Right, homeownership often functions as forced savings, rather than a true investment. There are certainly good reasons to buy a house, and good reasons to rent. I mentioned several on another thread last week or the week before, e.g. you may need to move soon, you are new to an area, your job situation might change, your financial situation, whether your family could get bigger, etc.

Theoretically, buying a house should be cheaper than renting because the cost of renting should be a cost of buying + a reasonable profit for the landlord for taking on the risk and transaction costs. This makes sense -- when you rent, you would expect to pay a little more for the flexibility, the fact that you don't have to deal with maintenance, the fact that it's shorter term, the lack of financial commitments, etc.

What the recent housing bubble shows is that homeownership is not for everyone. Many people who were not good candidates for homeownership bought a house. We've put way too much virtue into Bush's "Ownership Society." Buying can certainly be a terrible financial decision, and it can prevent you from building wealth, just as it may be a valuable part of your portfolio in other cases.

SubOink says

So if I take 100 of my friends, according to Troy 16 people should be out of work. But like I said, none of my friends are out of a job. That’s my narrow minded reality that I go by not statistics online.

It depends on demographic too. People with more education have a lower unemployment rate. This should not be a surprise. I believe the rate for people with a college degree is considerably lower than the general California rate, and it might be more like 4-5%.

However, in an economy that is largely driven by consumption, as is ours, this could still be a huge problem. We need to spend more money on infrastructure, innovation, and educating our people, rather than stupid wars, bad foreign policy, bad subsidies (to banksters and agriculture), and several other things. But we don't.

Nobody says

On the note, the housing market in Silicon Valley
seems to show resilience. Then again, it is mostly
driven by foreigners capitalizing on the weak dollar.

You should be careful there, however. People spread all kinds of misinformation about the housing market that I have used raw data to refute:

http://patrick.net/?p=658578#comment-732486
http://patrick.net/?p=697896#comment-738454
http://patrick.net/?p=697896#comment-738458

Everyone says everything is going for all cash, with few DOM, and way above asking, but real statistics don't always agree with the claims.

Palo Alto is doing quite well, and anything in down payment + FHA/Fannie/Freddie range is doing better than expected due to government subsidies, but not everything is high flying.

"Foreigners will save us" doesn't usually work over the long-term, and isn't always true in the short-term.

corntrollio says

SubOink says

So if I take 100 of my friends, according to Troy 16 people should be out of work. But like I said, none of my friends are out of a job. That’s my narrow minded reality that I go by not statistics online.

It depends on demographic too. People with more education have a lower unemployment rate. This should not be a surprise. I believe the rate for people with a college degree is considerably lower than the general California rate, and it might be more like 4-5%.

Yes. That's why I think arguing with the unemployment rate as a reason for a house price crash is not a good point. A courtesy clerk at Vons that makes minimum wage is not in the market for a 500k home. He is a renter and will always be. So now he is unemployed. And that does not matter for house prices at all.

I think the unemployment rate must be along where you say in educated circles. 3,4, maybe 5 % ? People that make 100k all have their jobs and can buy a house if they decide to. Right now, there are decent places out for sale that one can afford. Finally. Only took 6 years...:

As a freelance person I have noticed that when I am personally doing bad, it feels like the wheels are coming of the economy...when I am doing great, everything seems to be picking up. I change my own view often depending on how well I am doing. I think a lot of people do that. Once you lost your job, you almost want others to lose theirs too so you feel like its not your fault. The economy is just bad. So you get into the negativ outlook. You stop eating out, doing things that cost money and you are stuck at home being completely miserable.

I think many posters here must be in that frame of mind. Klarek and co...sound a lot like that. But that does not mean they are right.

If things are so insanely terrible how come the expensive restaurants are all packed...during the week even? How come the Mall's are crowded? How come Apple beats their earnings expectations every Q around? Cisco is hiring like crazy. Tried to book a flight to a resort in Hawaii...all booked for June/July. Woot?

I am pretty confused by that. But it is what I see with my own eyes. Then I go to patrick.net and hear apocalypse predicting the world to end and others claiming a nightmare crash in house prices. There is a pretty big disconnect between what I am seeing in real life and what I read on the internet. I'll stick to real life for now.

SubOink says

So in 100 people 9 do not have a job, 91 DO have a job.
You sound like NOBODY has a job.

Behind The Money
By John Melloy, Executive Producer, Fast Money

Squeezed on both sides by stagnant wages and rising prices, consumers believe the chances of bringing home more money one year from now are at their lowest in 25 years, according to analysis of survey data by Goldman Sachs.

Goldman's economist Jan Hatzius looked at the University of Michigan and Thomson Reuters poll, which asks consumers whether they believe their family income will rise more than inflation in the next 12 months. Hatzius applied a six-month moving average to smooth out the data and found that wage pessimism is at its lowest in more than two decades.

"Households are already very pessimistic about future real income growth," wrote Goldman's economist to clients. "A slowdown in job growth would presumably translate into a further deterioration in (expected and actual) real income growth. This would heighten the downside risks to our current forecast that real consumer spending will grow 2.5 percent to 3 percent over the next year and might call for another downward revision to our forecast for US GDP growth in 2011 and 2012."

Real hourly wages have dropped 2.1 percent on an annualized basis over the past six months, a rate of decline not seen in 20 years, according to Goldman. This analysis is backed up by the other most-watched consumer survey from the Conference Board, which indicated earlier this week that the proportion of consumers expecting their incomes to increase was below 15 percent in May.

"I am much more concerned that the second half resurgence we all expect never arrives and by early 2012 we are in a recession," said Joe Terranova, chief market strategist for Virtus Investment Partners and a 'Fast Money' trader.

Stocks are sliding in June ahead of the monthly jobs report released on Friday. Economists have slashed the number of jobs they believe were added last month as a string of recent economic data have pointed to a slowdown. The 10-year Treasury yield broke below 3 percent Wednesday as investors bought bonds as a safehaven in case of the slowing economy.

The fact that income expectations are so low, makes the jobs outlook that much more important, argues Goldman and other investors. These same surveys show that consumers are not nearly as pessimistic about job growth. So once enthusiasm on the labor front is dented at all, then all aspects of consumer confidence are lost.

"The labor market is particularly important because household financies currently seem even more dependent on job growth than they are normally," said Hatzius.

A typical recovery pattern goes like this: stock market bottoms, economic growth bottoms and then hiring and wage increases return. What’s unique and scary about this recovery is that the last piece of the recovery is not there.

In the 2001 recession, the country lost 2 percent of jobs from peak employment and then made that back in a 48- month cycle, according to data from money management firm Trutina Financial. In 1990, the jobs lost during the recession were recovered in 30 months.

Right now, about 38 months from peak employment during the housing boom, there are still six percent fewer jobs out there. Making up that amount of jobs in 10 months or less would be unprecedented, if not impossible.

"The crawl out of this economic ditch is going to be long and slow," said Patty Edwards, chief investment officer at Trutina. "Even if they're employed, many consumers aren’t earnings what they were two years ago, either because they’re in lower-paying jobs or not getting as many hours."

SubOink says

I think the unemployment rate must be along where you say in educated circles. 3,4, maybe 5 % ? People that make 100k all have their jobs and can buy a house if they decide to. Right now, there are decent places out for sale that one can afford. Finally. Only took 6 years…:

There are plenty of executives, vp's, and staffers in Silicon Valley, very well educated and lots of experience, but few jobs.

http://www.siliconbeat.com/2010/02/17/vanishing-public-companies-lead-to-the-incredible-shrinking-silicon-valley/

Vanishing Public Companies Lead To The Incredible Shrinking Silicon Valley

One of the most significant trends I’ve been watching over the past decade is the dramatic drop in public companies in Silicon Valley. Naturally, that number was artificially inflated during the dot-com bubble when it reached 417 in 2000. For our purposes, Silicon Valley includes San Mateo and Santa Clara counties, and the southern half of Alameda County.

But the number of public companies has dropped for nine straight years now. Even when IPOs briefly reappeared in 2006 and 2007, they weren’t enough to overcome the net loss of public companies through acquisitions or bankruptcy.

In 2008, the number had fallen to 261. We just updated our records and the latest figure is 241.

SubOink says

People that make 100k all have their jobs and can buy a house if they decide to. Right now, there are decent places out for sale that one can afford.

We can quibble over that perhaps, since "afford", "decent", and "can" are all arguable.

SubOink says

I am pretty confused by that. But it is what I see with my own eyes. Then I go to patrick.net and hear apocalypse predicting the world to end and others claiming a nightmare crash in house prices.

We can quibble over this too. For one thing, there is massive government intervention going on to keep housing prices up, and prices still dropped a ton. The de-leveraging would continue if the powers that be allowed it. Apocalypse is a strong word, but there's nothing wrong with being at least a little cautious about this. Residential investment also hasn't come back, and that's a forward-looking indicator for the economy, typically.

My own personal opinion I've mentioned before, but I don't see this housing bubble/bust as that different from other ones, except for the level of government intervention. Usually in a housing bust, there is a quick/sudden drop and then a prolonged time where nominal prices are largely flat and real prices catch up a bit. The government intervention has altered the normal scenario, and it's unclear whether we'd face another drop if the government subsidies for both homeowners and banksters went away. For example, it's possible that higher interest rates, as we should have would cause prices to have another drop, which could happen at certain price points if FHA/Fannie/Freddie support goes away.

This process also takes a lot of time. In some markets, we are nearing 5 years of bust, whereas in others, like the City of San Francisco, it may be more like 3 years in the nicer areas. The 90s bust ran from around 1990-91 to about 1996 at least, maybe 1997, and the runup was much smaller. Someone on SocketSite describes this as watching paint dry on a painting of grass growing. I don't disagree, although I may have butchered the quote.

What's interesting to note is that certain indices are back to 2000 with respect to San Francisco/Bay Area when adjusting for inflation. A good example is the Prestige Index, which First Republic reports: http://www.firstrepublic.com/lend/residential/prestigeindex/sanfrancisco.html. This index monitors the upper end of the housing market in the most expensive Bay Area locales. Of course, the dotcom boom caused its own local real estate bubble for the top end, and whether the tech boom permanently adjusted fundamentals here is still an open question.

SubOink says

Cisco is hiring like crazy.

Cisco is going through a restructuring these days.
Just like HP, Intel and many others more recently. The first to go is middle managers who are making 100K and over. And we saw this happen before. Mean and lean with flat reporting structures. But where do they go now ?

SubOink says

Cisco is hiring like crazy.

This can't be quibbled with by the way -- it's wrong. Or at least, Cisco's NET hiring is not looking good (headline: "Cisco braces for biggest layoffs in its history"):

http://www.reuters.com/article/2011/05/13/us-cisco-idUSTRE74A78K20110513

HP too ("The memo indicates that the company continues to come under pressure and suggests job cuts are in the offing."):

http://www.bloomberg.com/news/2011-05-16/hewlett-packard-girds-for-another-tough-quarter-memo-says-shares-fall.html

Many tech companies raised profits in recent years by cutting costs significantly, but they still need to raise revenues to continue the trend, or more cuts may be necessary.

corntrollio says

SubOink says

Cisco is hiring like crazy.

This can’t be quibbled with by the way — it’s wrong. Or at least, Cisco’s NET hiring is not looking good (headline: “Cisco braces for biggest layoffs in its history”):

http://www.reuters.com/article/2011/05/13/us-cisco-idUSTRE74A78K20110513

I care less about some article but the fact that one of my buddy's is one if the big wigs over at Cisco who is telling me "We need more people, we are hiring like crazy but are having a hard time finding qualified personnel." - I like to take it from the Lion's mouth rather than a journalist.

thomas.wong1986 says

There are plenty of executives, vp’s, and staffers in Silicon Valley, very well educated and lots of experience, but few jobs.

Maybe that's how it is in Silicon Valley. I don't know anything about SF as I live in LA. I don't know if SF represents anything, just like what I wrote about means nothing about the country as a whole.

My approach as I said is...that I do not "see" the apocalypse. My friends are all going on vacations, driving new cars...buying houses. I do not see that things are doom and gloom as much as the media likes to pretend. I think bad news are just more powerful than good news. Drama makes for a better headline than good news.

That's just my view. You can analyze it and send me articles and internet posts but in the end its what I experience in MY life and in MY surroundings that will convince me.

If 10 of my friends lose their job next month, I may come around and start believing the doom and gloom hype. If not, I will continue to believe that things are just not as bad as we are told by the media/internet blogs.

Opportunities are out there and always will be. Just a matter if you want to grab them or not.

My official prediction for 2011 - the world won't end. No Apocalypse. No drastic crash in housing, maybe down a little further but probably flat. The chinese won't show up on our doorsteps and take us hostage. Not even in 2012. I say it with full confidence :)

SubOink says

I care less about some article but the fact that one of my buddy’s is one if the big wigs over at Cisco who is telling me “We need more people, we are hiring like crazy but are having a hard time finding qualified personnel.” - I like to take it from the Lion’s mouth rather than a journalist.

But you have to consider what that actually means. Most of my friends who work at tech companies always tell me that they are having trouble hiring people, but that doesn't mean the net trajectory is upward. As I said above, we don't educate enough people here to take these jobs, and any tech manager will tell you that it's difficult to fill openings. Tech companies also tend to be very siloed, so what one manager tells you isn't necessarily consistent across the board.

SubOink says

My friends are all going on vacations, driving new cars…buying houses.

Consider this is self-selective. Presumably you don't rub that many elbows with working class folks, for example. Again, you're comparing "apocalypse" to reality, which isn't necessarily a valid comparison.

corntrollio says

SubOink says

My friends are all going on vacations, driving new cars…buying houses.

Consider this is self-selective. Presumably you don’t rub that many elbows with working class folks, for example. Again, you’re comparing “apocalypse” to reality, which isn’t necessarily a valid comparison.

That's the thing. My friends are from all sorts of jobs. Income range 60-125k.

But you are totally right, it is still selective. Sometimes I drive thru the 1mill+ houses area out here and its just miles and miles of amazing 5000sqft homes, kept up, just stunning and I ask myself...who are all these people and what do they do for a living. And my conclusion is...there is just too much money around. How many people are lucky and inherit a house or two...so they get a massive headstart in life. 2 homes free and clear that you can rent...if you have a job for health insurance + 40k/year , you are doing great. I think there are a lot more people in that position than you think. All this money that gets passed on, from gen to gen. Most boomers own their houses. Those houses were $50k when they bought them and now they are 800k. That gets passed on....there is so much money out there. That's how I explain that prices are holding in all these neighborhoods. Those people are NOT hurting at all. But they do complain. Complains like "Ah, things are terrible...we had to get rid of the Ferrari and one of the 5 nannies...I am telling you, this economy sucks, we even sold the house in france. Had to throw in the yacht to sell it - RIDICULOUS!! Things are bad"

So we spoiled bunches love to cry the blues because the greed that we're used is not being stimulated as much as in the great years. I have no sympathy for that as I am not one of those lucky bastards that inherited a shit load of money.

Big Business all complains to justify laying people off or reducing salary. But that does not mean they are doing it because the economy is about to collapse. They are doing it to get lean and mean and make even more profit...and when things are officially bad, they can do it. In some ways, I think the media is very manipulated in that way and far from reality.

E-man says

Inventory of SFH in Santa Clara has been running about 2 months for a while now.

Average DOM for single-family homes in the City of Santa Clara is 115 days during the month of May and 159 days for condos:

http://www.julianalee.com/reinfo/sold-SC.htm

E-man says

Most want to buy and live in Palo Alto, but want to pay Concord prices.

That sums up the frustration of $250K middle class families in SV perfectly. They consider themselves middle upper thinking that they are *entitled to* a nice neighborhood, only to realize that there's just too much money around.

robertoaribas says

He first claimed that his wife was a lawyer, then suddenly, he owned the entire law firm…

He claimed to have financed all of his purchased rental properties as “owner occupied” to save interest rate, when if true, far from being clever he was merely committing loan fraud.

Roberto,
I thought the real display of character on that one, was not the little white lie to get that mortgage, even though a mortgage is a contract.
Not even, the little white lie of contract fraud he attributed to be co-commited by the lawyer of the California State Bar link on his webpage, even that, I'd give him a pass.
But it was his spouse! I would not disclose such stuff about my spouse (or partner), in such a public way like that, on a forum like this.
That was the real display of character on that matter.

Lawyers are human and probably tell lies and commit contract fraud as much as the rest of us do.

Maybe more.

But partners and spouses don't out them in public about it. (Talk about the "lowest of the lows".)

It's just not right.

Goodness. This thread is full of win, isn't it?

I believe one definition of insanity is doing the same thing over and over again, expecting a different result. Well, I think we have certainly achieved that here.

And the gas price is 3 times of ours...

Reading some of these comments one gets the idea that the problem must be lack of understanding of average person who does not have enough IQ to do the sums right. That's why he is susceptible to anxiety attack and screams unnecessarily for a mere thousand bucks or so reduction in his house price!

Thankfully it seems there are quite a number of "ordinary concerned citizens" trying to calm and help these few high strung people with low threshold for anxiety.

I guess as unemployment gets nearer to 25%, the established practice of spontaneous replies from Patriotic Citizens which originated in Mass Media will soar even in more sane sites like this.... What a PITY

SubOink says

As a freelance person I have noticed that when I am personally doing bad, it feels like the wheels are coming of the economy…when I am doing great, everything seems to be picking up. I change my own view often depending on how well I am doing. I think a lot of people do that. Once you lost your job, you almost want others to lose theirs too so you feel like its not your fault. The economy is just bad. So you get into the negativ outlook. You stop eating out, doing things that cost money and you are stuck at home being completely miserable.

I think many posters here must be in that frame of mind. Klarek and co…sound a lot like that. But that does not mean they are right.

You couldn't be more wrong. I don't think I'm very negative, I just don't accept an "everything is on the up-and-up" kind of baseless, unsophisticated analysis.

The tax credit is a testament to how people who think they are smart can ignore the recent lessons of the housing bubble and believe the same kinds of bullshit that the bubble-buying idiots believed. It was obvious from its inception that the housing market was getting a temporary boost from the credit. For purely economic reasons, it was obvious that this boost couldn't "kick-start" the market, but delay the inevitable. I didn't think prices necessarily had that much further to drop, but at that point, the real recovery was delayed. It didn't take long for me to develop a morose attitude towards the folks (idiots) who took the market turnaround at face value, and were clamoring on about how the market bottomed, or that we were in a recover mode. How could they be and remain completely and inexcusably incapable of drawing a correlation between a temporary incentive which could (and did) create buyers out of (previously) ineligible renters? How did they see this as a coincidence, or sustainable?

I don't think the sky is falling or that the market is going to crash 50% over the next year. But I do think that typical buyers and owners today are every bit as naive and stupid as were those who bought during the bubble. The financial justification in what they're doing today is offset by the benefit of having hindsight and a financial milestone in our very recent history.

klarek says

I don’t think the sky is falling or that the market is going to crash 50% over the next year. But I do think that typical buyers and owners today are every bit as naive and stupid as were those who bought during the bubble. The financial justification in what they’re doing today is offset by the benefit of having hindsight and a financial milestone in our very recent history.

Most people, including many current buyers, simply do not put forth any effort into understanding what they are doing. What they understand is very simplistic stuff...."oh, this house sold for $650K in 2006 and now its listed at $400K...monthly payment is now $1600....we can afford that...THATS A GOOD DEAL!!!!!" with zero regard for outside influences and conditions that may color that decision.

Look, theres a reason that any time you walk on a car lot, the first two questions out of the salesmans mouth are "how much payment can you afford" and "are you looking to trade in your car". People SHOULD buy a car based on total purchase price(same as a house), NOT based on what monthly payment they can afford. Its a scam, albeit a legal and probably ethical(though I doubt moral) one. All designed to loosen money from fools.

What boggle my mind, even moreso than the notion that there are actually boobs who engage in this mindset, is that there are people who are despicable enough that not only will they use such "scam", but they will actively argue and assert that one can only buy what they can afford and other such nonsense.

dodgerfanjohn says

Most people, including many current buyers, simply do not put forth any effort into understanding what they are doing. What they understand is very simplistic stuff….”oh, this house sold for $650K in 2006 and now its listed at $400K…monthly payment is now $1600….we can afford that…THATS A GOOD DEAL!!!!!” with zero regard for outside influences and conditions that may color that decision.

So how do YOU evaluate if a house is worth its money or not? If not using a monthly payment as a reference. Any given house, is it worth 500k or 515k? or 495k? or 350k?

Using the monthly payment IS the way to determine what you can afford as its directly linked to the purchase price.

The thought process is in essence very basic. Here is what I make every month. 25% of that I am using to pay the rent. Rent is a monthly payment, except with no equity ever being built. It's a 0% down, life-time loan, don't get it twisted. If you don't own a condo or house, you have to rent for ever. And rents go up over time, so in essence you have a balloon loan that only gets more expensive as time goes by. There is no "freedom" as you have to live somewhere.

So the thought process continues...if instead of paying rent, I buy something where my payment is the same every month, then nothing really changes financially for me except in 10,15,30 (depending on loan) I own the house. If I want to sell before, I can...if I want to rent it out, I can.

That is the only thought process that matters, not what the house sold for in 2006 or yesterday or 20 years ago.

E-man says

My sources tell me the average DOM is 58 in April for SFH.
http://scc.rereport.com/market_reports

Yeah, I've seen rereport report less than half of what Juliana reports. The reason is that Juliana goes back to the original listing date, whereas rereport only puts the most recent listing that closed, ignoring when people pull a house off MLS and then put it back on. Repeport's stats are juked.

SFH’s in the market I’m looking at go pending in a week if priced accordingly.

Yeah, everyone always says stuff like that, but it's rarely true. I pointed out in another thread that someone else's "houses in Cupertino go 10% over listing all cash, off market in less than a week" was bogus, and that there were only 5 houses out of 41 that could have even possibly done either of those things, and the 5 that were 10% over were not the same 5 that could have been all cash and off market within a week.

You would have to give us specific examples to really show this. From what I see on Juliana's list 31 SFRs went pending in May and only 19 closed. At some point, these numbers should be evening out if houses aren't falling out of escrow. That's why I disagree that going pending is "off the market" -- in the current environment, a decent number of houses fall out.

SubOink says

So the thought process continues…if instead of paying rent, I buy something where my payment is the same every month, then nothing really changes financially for me except in 10,15,30 (depending on loan) I own the house. If I want to sell before, I can…if I want to rent it out, I can.
That is the only thought process that matters, not what the house sold for in 2006 or yesterday or 20 years ago.

This sounds verbatim like what a shithead realtor would tell their clients during the housing bubble.

"If you want to stay, great, nothing changes. If you have to move, sell it or rent it out and make money!! Win win! Nothing else should ever be considered in your decision to buy."

It's all predicated on false assumtions like, "Nothing else changes for me." or "If I want to sell before, I can."

And it's pure horseshit

bob2356 says

Oh bullshit. For every million plus dollar apartment in the most expensive cities in Germany I can easily show dozens of nice houses in rural France or Spain for under 100k even at 1.45 exchange rate.

Duh!
Of course there is cheap housing when you go to some place way out in the country in poor romania. What argument is that?
I can also find you 3000 sqft homes for $100k in the US. Just look in Palm Desert. Or go to Utah or Oregon, you can get acres of land for 50k.

But when I compare Los Angeles to Munich then its a fair comparison and prices are WAY higher in europe than over here in the US. And that is without even figuring in the euro exchange rate.

Schizlor says

This sounds verbatim like what a shithead realtor would tell their clients during the housing bubble.

“If you want to stay, great, nothing changes. If you have to move, sell it or rent it out and make money!! Win win! Nothing else should ever be considered in your decision to buy.”

And it’s pure horseshit

No, its not horseshit. It's just common sense!

Btw, nobody said..make money. Is it not true that you can sell a house if you like? Is it not true that you can rent out your house if you like?

Just because you say its horseshit doesn't make it horseshit. Please explain why exactly its horseshit.

SubOink says

Is it not true that you can sell a house if you like?

Are you kidding me? You're not serious, are you?

I think the past 5 years have more than adequately proven this point (and why this site exists in the first place) but since you need it spoon fed to you, here it is.

Scenario:

Home bought in 2005 for $285,000
People want to move 2009
Home in 2009 is valued at $225,000
People only have $12,000 in savings
People are short $48,000
People cannot sell the home

Now, if by "sell" you mean the option to squat for 2.5 years and save their mortgage payments until the bank forcibly takes the home back, they trash their credit, and then leave the home in shambles after they ripped out all the copper and bathroom hardware, then yes......I guess they ALWAYS have the option to sell.

But if by "sell" you mean a valid financial transaction whereby they get money from a buyer in exchange for the property, and then they vacate it good faith, then no, they absolutely do not always have the ability to sell.

Schizlor says

SubOink says

Is it not true that you can sell a house if you like?

Are you kidding me? You’re not serious, are you?

But its not 2006 anymore. Wake up? We are not talking about what happened in 2006 to now. We are talking about 2011.

Schizlor says

I think the past 5 years have more than adequately proven this point (and why this site exists in the first place) but since you need it spoon fed to you, here it is.

To clarify my point...look back in real estate. How is everybody doing that bought a house from 1950-2000?

Schizlor, all those people that bought in 2006, that you use as an example to prove me wrong did NOT actually do the common sense approach. They did NOT buy houses that they could afford. They did NOT take out fixed loans. And they bought houses that could be rented for half or a third less...

Go back to my original post and read. If those buyers had done simple math rather than hype.

But my common sense approach comparing rent vs mortgage every month still goes. But nobody did it in the bubble years.

And what I am talking about, is the fact that no matter if it is 1610, 2011, or 3048, telling someone that the ONLY logic they need concern themselves with when thinking of buying a house is:

"Pick a payment affordable right now (and pretend NOTHING could ever change that, like getting laid-off, hurt, divorced, cancer, etc) and then buy the home feeling safe knowing that if any of the aforementioned undesirables happens to you, you can ALWAYS sell the home or rent it out to someone else if you like."

This is a DANGEROUS proposition. What you're basically saying now is, "Well, the madness is behind us so we can get back to irrational exuberance." when you say "It's not 2006 anymore."

I agree, it's not 2006. And nobody should be that fucking stupid anymore.

Seriously, I cannot believe anyone besides a realtor would actually suggest in 2011 that, "Just tell me what you can afford and let's lock it down, the downside is practically nil" is a rational way to go about homebuying. Unbelievable.

SubOink says

Schizlor says

I think the past 5 years have more than adequately proven this point (and why this site exists in the first place) but since you need it spoon fed to you, here it is.

To clarify my point…look back in real estate. How is everybody doing that bought a house from 1950-2000?

So I guess in essence you are framing your argument in the context of "The housing bubble and it's effects are well behind us at this point."

I know things were rational and between 1950-2000 you definitely could reasonably expect your scenario to play out. I was in that camp too. Where we differ is, I still think we are deeply entrenched in this mess and are NOWHERE NEAR a point where we can confidently say, "Ahhh...well...that was 5 years ago, we've moved on" and pretend were back to normal. THAT is the part that I say is nonsense (actually I used a more colorful term)

I'm not debating that was sound logic for half a century up until the year 2000. I'm saying, to claim that's still sound logic is ridiculous.

If everyone had looked at what they can afford, we would never have had a bubble like this in the first place.

If you don't want to buy a house because you think you can get laid off, then fine. Don't buy a house. I am not saying its for everyone. But I am saying that if you get laid off, get sick etc...you still have to live somewhere, eat somewhere. So you are not getting around having to spend money every month for a place to live. If you choose a payment that is comfortable then part of the common sense is also that you should have a years worth of reserve saved (or more) in case you don't have a job.

I don't know why you are fighting me on this, with the horseshit, you are a realtor speech.

SubOink says

Using the monthly payment IS the way to determine what you can afford as its directly linked to the purchase price.

I suggest you read up on the recent housing bubble in the United States. The fact that you could read dodgerfanjohn's point, miss it by a mile, and argue against it is mind-boggling.

Everybody that bought into it used your rationale. At least they had the excuse of not living through a precedent.

klarek says

Everybody that bought into it used your rationale. At least they had the excuse of not living through a precedent.

The point is really, that they did NOT use my rationale. They went to the bank, said...I need a million bucks and the bank said...how much you make?...and they said...uh?..hm...well...300k/year...and the bank said...DEAL! No Doc, required...lets roll.

Far from my rationale...

SubOink says

klarek says

Everybody that bought into it used your rationale. At least they had the excuse of not living through a precedent.

The point is really, that they did NOT use my rationale. They went to the bank, said…I need a million bucks and the bank said…how much you make?…and they said…uh?..hm…well…300k/year…and the bank said…DEAL! No Doc, required…lets roll.
So far from my rationale.

What they did is what you are shamelessly advocating: buy based on what you can pay per month. Read what dodgerfan said. Making a 6-figure purchase with no more thoughtfulness than the monthy payment is beyond idiotic. Why any of this needs to be said in 2011 is beyond anyone's comprehension. It's embarrassing. This is exactly the type of bullshit that realtors want people to be dumb enough to believe.

klarek says

What they did is what you are shamelessly advocating: buy based on what you can pay per month.

No, what I am advocating is buying what you can pay per month and locking it in. NOBODY did that.

People lied left and right about how much many they make, without making it. Jee, do I really have to go over this???
They barely bought what they could REALLY afford. If at all, they bought what they could afford that year and took out a teaser rate loan...then 3 years later the rate changed and they could NOT afford it anymore. The theme was not...be reasonable but get as big of a house you can possibly swindle yourself into. How is that what I am advocating????

You clearly are the master of misinterpretation.

Let's put it this way Klarek...

What's your rationale? Fill us in.

I want to buy a house...so smart Klarek, advise me...what's the rationale?

You just constantly throw out useless and wrong criticism, let's actually hear your solutions. It's easy to say...that's crap, that's what realtors say..

Let's hear it...