WatchMany participants in here, myself included, are in the "wait for the free market to return" camp. The government subsidies for housing via GSE loans, the MID, prop 13, RE agent-favoring MLS system, shadow inventory, squatters and low interest rates are all items on a (probably incomplete) list of things that us would-be buyers wish to see go away in hopes of lowering house prices. When/If some of these items go away, lots of of us probably figure that it would be OK to buy, and many of us post about how adamant we are about not buying into our current rigged-system.
OK. Obviously, we all have a pretty strong interest in buying houses, or else we wouldn't be spending time in here worrying about it. Buying a house is, for strong personal reasons, a really big aspiration for most people.
So, what if none of the things in the list above change in the next 10+ years? It isn't totally out of the realm of possibility. As far as I can tell, the groups that want to keep the game rigged like it is are also the groups that have the ability to change the rules of the game. The rest of us that are chasing some version of the American Dream can all pine away and wish for a fair, rational system, but we really do lack the means to get those with vested interests in rigging the game to un-rig it. Don't get me wrong, I have a really hard time seeing the system as it operates now lasting. Despite this, short- to mid-term economic behavior seems to be perfectly capable of doing totally irrational things. As far as I am concerned, 10 years is at the start of a "mid-term" time span when planning economic moves. Long-term, in my mind, is 30+ years, or about enough time for one generation to produce the next.
So, say that 10 years from now the game is still rigged and we all know it and hate it. How many of you would have saved & over-paid somewhere in that span? We are all waiting around for a train that we think is coming, but we aren't really sure of when. What if it doesn't come for a REALLY long time? For all of the frustration we seem to have, how many of us are really going to let it stop us? Will you eventually give-in?
Chances are that I would end up over-paying after a few more years of saving (and put down 30-50%). Despite the fact that I despise all of the crookedness in the system and live below my means, I want some personal space to run a workshop that I can walk to in 5 seconds, and to have a yard with big trees to do stupid stuff in with my climbing gear. God help me when I decide to have kids, but it would be nice to have a yard for them to run around in and provide me with manual labor when they are old enough (I knew how to use a jackhammer by the time I was 12, and spent a lot of weekends digging sprinkler line trenches and putting up drywall...it builds character, or something). The main reason I want to avoid overpaying, aside from the obvious short/mid-term issues, is the long term issue of being stuck with high property tax bills. My fiancee and I are fine with buying a $500k SFH, and in a couple more years we can put 40-50% down. We could put 25% down now, but we are, "waiting for that train." Anything over $500k is too much of a financial liability as far as we are concerned.
So, despite all of my idealism about not participating in a rigged system, I am pretty sure I'd cave in and participate at some point. I bet lots of us will. I am fairly certain that those that run this rigged system know this, and that gives them even more incentive to keep it rigged. "Look at these stupid peons...they piss & moan now, but give them a few years and they let us shoot a load in their face anyway!"
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Lafayette, CA
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bubblesitter says
There are no natural laws of economics. Humans produce X and consume Y. The transfer from the producers to the consumers is what we call economics. There really are no rules. The economy would function just fine if total US debt continued to accelerate forever, as long as everyone agreed to play the game.
What's going to kill us is people hoarding the raw materials of production and shutting them down because they can't be operated profitably. That's why Reagan destroyed the country when he decided to let people get as rich as they wanted.
Imagine a mountain of coal covered by huge iron machines capable of digging it out, but everything shut down and rusting because no one has enough money to buy coal and the owner can't make any money running the operation.
That was the Great Depression simplified. That's Mexico in 2011. That's where we are headed if people don't wake the fuck up and stop voting for Republicans.
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Lafayette, CA
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bubblesitter says
Although you're calling these laws of economics, not one can be used to make a calculation with a determinate answer.
These are not laws of economics. These are loose predictions of economics. It's obvious when you actually read them. I'll type the fudge words in bold:
4. The law of one price. In an efficient market, a financial asset will tend to have one equilibrium price, because of arbitrage. (unless it doesn't)
6. The law of reflux. In competitive free-market banking, there cannot be a permanent over issue of banknotes, since any issued in excess of the quantity demanded will be redeemed. (HAHAHAHAHAHAHA.......right)
8. The law of diminishing marginal utility. As one obtains more and more of a particular good, eventually the marginal utility (value from one more unit) declines.
(translation: wait long enough and anything will happen)
13. Foldvary's law of inequality. Inequality equals the concentration of a distribution times the number of units (I=CN).
(nothing like subjective undefined terms in a pseudoscientific equation)
15. Law of time preference. People tend to prefer to obtain goods sooner rather than later, and will pay a premium (i.e. interest) to shift buying from the future to the present.
(unless they don't as the internet is demonstrating)
20. The law of wages. The wage level of an economy, where labor is mobile and competitive, is determined by the marginal productivity of labor at the margin of production, i.e. the least productive land in use.
(this must have been put on the list as a joke)
I could go on but why bother?
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Murrieta, CA
Rent for life!
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Los Angeles, CA
I would keep renting if that were the case...provided renting remains cheaper than buying. Obv if rent pushes past the cost of buying it sort of forces one's hand.
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At some point we will need more space. There is only so much stuff you can cram into 1000 ft2 (with no basement and no garage).
In my area renting a larger place would mean moving out of a manged apartment complex and into a house (bet it a whole house or half of a large duplex). Given that most of the homes for rent are listed by reluctant landlords trying to cover their cost, the additional cost of a larger space pushes me to the buy side of the rent vs. buy dynamic. But I am trying to forestall that day as long as I can given that 1) prices are still disconnected from wages in this area and 2) the longer I wait the better positioned I will be to buy, from a savings perspective.
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We currently own a condo, so perhaps our situation isn't quite relevant. However, I'd rather have a house, for many of the usual reasons. But if "things stay the same" - I think you put it well, putting it that way - we'll stay in our condo (which we bought at the very bottom of the last cycle).
Actually, the longer this goes on, the *less* inclined I am to give in and buy a house - the advantages of not dealing with roofs and plumbing become that much clearer. And I find more and more ways to get what I want out of a house, by using the large amounts we save by not having one (e.g. renting a *big* community garden plot and donating to the place to help keep it going, or helping in a friend's yard and bringing along plants that are a little costly).
The way things are going, I think a number of people will just be tired of the whole thing, by the time it is possible to buy for a reasonable price. And that they will find themselves wondering just why they wanted to own something so labor intensive. I'm 48, and I watch my neighbors who are in their late 60s and early 70s, deal with house junk, and I realize that yikes! I won't want to have to do that in 20 years!
This bodes well for people in their 20s who want to buy in the future, if they can avoid debt.
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Boca Raton, FL
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Travis Bickle says
Ditto. If we are priced out forever, then we'll go to another market. Our savings would go far in other countries.
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Miami, FL
BMWMan, you bring up a very good question. I myself would continue to rent and invest in other countries. I would divest in anything that is dollar based and continue to invest in commodities. At some point, the dollar would absolutely implode.
The housing boom and bust occurred with super-low interest rates, FHA, etc., so there would continue to be severe booms and busts in a future rigged system. There would be an opportunity for lucky people to make a lot of money, but it would be not so good for many.
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ArtimusMaxtor says
Are you kidding me?????? Have you ever driven through the midwest?
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Oakland, CA
I would hedge my bets. Dont put all your eggs into hoping for things that are out of your control. At least you have an advantage in that you know the rules so now you just figure out a way to play the game.
at risk of sounding like a broken record. There are areas which have clearly bottomed. You can always buy something and go live there and it's probably cheaper than where your currently renting.
More people are cluing in on this because it's getting more competitive but certainly not too late.
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The Tyranny of the Legal Tender Law
http://politics.gather.com/viewArticle.action?articleId=281474977245005
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Egg Harbor City, NJ
ArtimusMaxtor says
You obviously have no idea where your supermarket food comes from, let alone how to grow it. America is often called the Bread Basket of the world, America exports 20% of it food a year. The United States grows 100 billion dollars worth of Crops and 100 billion dollars in livestock. That's 20 billion dollars in crops exported a year. While New Zealand is considered to be the worlds top food exported by GNP (7.5%), there GNP is only 51 billion dollars, making the crops exported worth 3.8 billion dollars, small fries compared to Americas Crop output.
If you wanted to grow your own food you would need a garden about 5,000 sq ft to feed a family of 4 year round on a vegetarian diet. (roughly 71x71 plot). Don't have a yard that big? Build a greenhouse, you can grow enough food in a 110 sq. ft. green house space to feed a person for a year, multiply that by 4, that gives you 440 sq ft, or 21x21. A hydroponic solar heated green house could product 5 times as much food! Barren my ass.
Green houses are really inexpensive to build, they are basically just metal frames with plastic covering them. A hydroponic solar heated green house can get a little more pricey, they are generally made of glass.
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Things will change. It can't go on forever, this country is out of money.
And once the banks are healthy enough, all these gimmicks will go away.
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Spokane, WA
If you have $Quartermil saved, consider moving. Lots of places in the country that $250K will cashout a very nice house with some schekles left over. Just reserve your Uhaul early, the demand for one-way rentals out of CA is huge.
BTW, despite what Mark Furhman and half the retired LAPD and LAFD would tell you, E. Washington and N. Idaho are not good places for relocation.
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Los Angeles, CA
Dan8267 says
Well, that is the final contingency. I would move to Las Vegas if it made sense as a retirement option. I love that city already, and if cost is the deciding factor, thats a desireable option(for me).
EastCoastBubbleBoy says
This is a much easier decision that you think. The obvious is to sell off excess stuff. I'm a collector and have boxes stacked in an area of my loft that has become my defacto storage area. If I knew that I'd always be living like this...or even for some non short term amount of time....I'd sell off my stuff, keeping what I need to live rather than decorative, luxury, and other items I don't ever actually have use for.
I do find that most people are super emotionally resistant to doing this though....hence the proliferation of storage lockers at ridiculous monthly rates.
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Oakland, CA
Spokaneman says
if prices can't be supported by local economy it's a bubble. The only was those prices are sustainable is to recruit more greater fools from California.
We had the same thing happen here. People in silicon valley confused cheap with good value and bought a bunch of houses in the desert. Now it's ground zero of the housing crash.
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Moraga, CA
Of course things will change, that's the only constant in life. Like everyone else, you just have to play the cards you've been dealt and hope for the best. I am at the tail end of the baby boom generation and as a young person it seemed like things were out of my reach too. While it's good and necessary to look at the big picture it's also important not to lose sight of the small one - our daily individual lives where we all live. I bought my first house at the height of a bubble over 20 yrs ago but I was busy and preoccupied and frankly didn't pay any attention to whether my house value had gone down or not. When I did decide to move a few years later I sold for a small profit and have invested and reinvested the money ever since. I probably saved myself a lot of stress b/c I paid no attention to the larger picture. You can do the same. If you want a house and need more room, go for it - as long as you can comfortably afford the payments you'll be fine. Once you buy, tune out all the negative info about the economy. Instead of seeing home buyers as 'loan-owners' consider the fact that they are actually 'asset-creaters'; Nobody ever created an asset paying rent. In reality, despite all the negative news about the housing market, most people who've purchased houses have created assets for themselves. Anyway - good luck - and no I'm not in anyway involved in the RE industry - I'm an engineer and small business owner and this is my opinion.
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Irvine, CA
There are reasons to believe we will not return to the model you are all idolizing. The cheap housing, simple mortgage model was created out of the depression and flourished during the Baby Boomer years. That was reliant on cheap oil, good jobs and a constantly growing economy. Those days are gone.
The good news: Housing will get cheaper. Unfortunately, not on our schedule. And the pricing slide is likely to be bumpy with false bottoms along the way.
Fundamentally, our way of life is likely to change which will impact housing dramatically. No one has mentioned Oil in this thread... and the price of oil directly and dramatically impacts our entire economy (including housing).
Try this on: How much is a house in Las Vegas worth if you Oil becomes extremely expensive? That house is worthless at $200/barrel oil because you can't afford to drive a car to it... can you air condition that house? Hoover does NOT supply all the electricity... petroleum still rules.
Food is reliant on Oil as well... it is transported relatively long distances... and fertilizer is petroleum based.
Whether you believe in "peak oil" or not, energy is going to be more expensive. More than 2 Billion people (in China and India) are starting to buy cars. Do you really think we can pump fast enough? And what if "Peak Oil" is true? We are all F'ed then!
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TechGromit says
Well tech food does not grow in the United States as such.. IF you read this is a barren land then you will understand YOU have to plant. If you do not plant it will not grow. As far as it being the largest supplier I do not buy that. There are other countries that far outdo the United States. New Zealand is a poor example. Unless your talking about sheep. So read if you do not plant here it will not grow. In many countries food just grows and all you have to do is go out and get it. Without planting. It costs nothing. No one has a green house here in America. Ask yourself why. Answer: The people they owe and work for may not or would not like that at all. People here give away a LOT of labor for food. Even if they didn't it is still very difficult to grow here compared to other places.
One other thing I would like to note this WE stuff. America is the bread basket of the world. So proud of that. Deal is you don't get anything from it you have to labor for the food. Everything is considered we like held in common. Like malls proud of that. Like theatres, grocery stores. I guess among people in debt its a source of identification and pride. I dunno. People of this country act like they own all this stuff they don't. The debt merchants do. Most of this country just got in debt to them and helped them build it all. Try going to see them if you lose your jobbie. That may mean you screwed up. Didn't say or think the right things by them possibly. Then take a look around. Things may not look so pretty and proud.
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dodgerfanjohn says
Yeah, but then you'd have to live in Nevada man, Nevada. Patrolling the Mojave almost makes you wish for a nuclear winter.