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10 reasons debunked #9

By SFace following x   2014 Aug 4, 12:06pm 13,128 views   25 comments   watch   nsfw   quote     share    


"Because boomers are retiring. There are 70 million Americans born between 1945-1960. One-third have zero retirement savings. The oldest are 66. The only money they have is equity in a house, so they must sell. This will add yet another flood of houses to the market, driving prices down even more."

Social science at its best.

The fact of the matter is, boomers hold all the wealth and they are going to live it spectacuraly, not hibernate and rot away like Patrick thinks. It's laughable to think Boomers are forced to move when they hold all the cards and money. I know that becuase every one of my neighbors are going to live in their house til death and don't give a crap about Gen X, Y, Z, or A, B, C. My own mom will live in her SF house til the end.

Of course, there are surveys which are done extensively that tells us most boomers are not going anywhere and even if they move, they are not going to be renting.

http://www.forbes.com/sites/nextavenue/2014/03/25/the-homes-boomers-will-retire-in/

buying the boomers home may be impossible/expensive. Places like San Francisco and Palo Alto is a living proof of that (% of retiree is sky high yet prices are astronomical). If you are waiting for the boomer to retire and sell their home for cheap, that plan is going to fail spetacularly.

1   cloud15   ignore (0)   2014 Aug 4, 1:05pm   ↑ like (1)   ↓ dislike (1)   quote   flag        

People get so accustomed to living at a place , they hardly move. They only talk about moving but they never do may be only a small percentage . I have personally experienced this talking to 'any neighbors in 2011 to see if they would sell . Most if them say that only their corpse would leave this house.

2   marcus   ignore (10)   2014 Aug 4, 1:13pm   ↑ like (0)   ↓ dislike (1)   quote   flag        

I generally agree. Although I think that many boomers in expensive areas will sell to downsize and or to move to less expensive areas. The price impact would be on the "spreads."

For example maybe larger homes in urban areas become cheaper relative to small or starter homes. If you could trade the spread, maybe you would buy two small homes and sell (short - if there were such a thing in housing) one large home against it.

Similarly you might buy homes in rural or resort areas against large (4 bedroom or higher) urban homes.

3   bg1   ignore (0)   2014 Aug 4, 3:47pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I think Patricks article just needs a reference time period for which those things were true. It was solid for the 2007 bubble. I think many of us are trying to figure out what are the principles of the current market. It doesnt make him wrong. It just means some things have changed since he wrote it.

Interesting link about boomers.

4   anotheraccount   ignore (1)   2014 Aug 4, 9:50pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

the main reason why boomers will not sell now is that bond yields are too low. If you could make 6% in a bond fund, why would not you sell?

5   CDon   ignore (0)   2014 Aug 5, 8:57am   ↑ like (2)   ↓ dislike (0)   quote   flag        

bg1 says

It doesnt make him wrong. It just means some things have changed since he wrote it.

Yes and no. Thing is, Patrick has been warning about not buying because of the Boomers for a long time. In fact here is what he said exactly ELEVEN YEARS AGO

"There is going to be a huge glut of housing as the children of old baby-boomers sell their houses when their parents die, putting 20% of all houses on the market for that reason alone."

http://web.archive.org/web/20030804110639/http://patrick.net/housing/crash.html

Now im sorry, but anyone who in 2003 stumbled across this nugget of advice has long since garotted themselves with piano wire. The fact of the matter is the "boomer" phenomenon, while real, is not a particular "event" or anything tangible to point to. It started in earnest a few years ago, and it will not really abate until probably 2030 or so. Do you really want to wait around another 16 years to buy your house?

Thus, there is a certain point where you need to say to yourself "gee maybe this whole boomer thing isn't as big a deal as I think it is" - and after 11 years of continuously warning about the boomers, its now time for Patrick to come to Jesus about how wrong he was.

6   dublin hillz   ignore (0)   2014 Aug 5, 9:13am   ↑ like (2)   ↓ dislike (1)   quote   flag        

Some could be forced to sell if they have no liquid assets and require residing in assisted living communities. Otherwise, they will hire in home support services, reverse mortgage the property and some have enough liquid assets to get by assuming mortgage is paid off. Some may wish to pass the pad down to their millenial progeny and there's greater chance that they will get foreclosed on due to delinquent property tax payments than boomers being forced to give it up.

7   Heraclitusstudent   ignore (2)   2014 Aug 5, 9:22am   ↑ like (1)   ↓ dislike (1)   quote   flag        

SFace says

buying the boomers home may be impossible/expensive. Places like San Francisco and Palo Alto is a living proof of that (% of retiree is sky high yet prices are astronomical). If you are waiting for the boomer to retire and sell their home for cheap, that plan is going to fail spetacularly.

You guys are missing the point: It's not a question of waiting in line to buy from a boomer.
The point is whoever buys a house now for the next 15 years cannot ignore the boomers retirement.

It's not even a question of real-estate. Boomers, as a group, have accumulated huge savings that they will spend as they retire. As these savings piled up they had to flow somewhere: in all assets categories including houses, including bonds, hence low rates. Now as they are spent all assets are liable to deflate, in a relative way, leading to lower real-estate and higher rates.

Whoever buys a house now for the next 15 years has better pay attention to this, or end-up financing the retirement of some lazy ass that did nothing to earn it.

8   jkaldi1   ignore (0)   2014 Aug 5, 9:54am   ↑ like (0)   ↓ dislike (0)   quote   flag        

The whole boomer thing is useless.
All the boomers will not meet at a location and decide to sell all their homes on a particular day. its going to be gradual. if the total supply from boomers is 20% . if you spread it over 10 years.. its just 2% of additional supply. no big deal !
even if we have a sudden supply, the new supply from home builders will decrease to accommodate this new supply. home builders only build homes which are profitable. when there is over supply for some reason , they have to cut down.simple and basic econ 101: demand and supply

9   Heraclitusstudent   ignore (2)   2014 Aug 5, 10:09am   ↑ like (1)   ↓ dislike (1)   quote   flag        

jkaldi1 says

if you spread it over 10 years.. its just 2% of additional supply. no big deal !

It's not just a question of extra supply.

The entire current situation is predicated on (boomer) assets being very expensive and (millennials) wages staying low. This will be reconciled to the detriment of both. The average millennial will *never* buy the "supply" at current prices.

10   jkaldi1   ignore (0)   2014 Aug 5, 10:13am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says

The entire current situation is predicated on (boomer) assets being very expensive and (millennials) wages staying low. This will be reconciled to the detriment of both. The average millennial will *never* buy the "supply" at current prices.

then who do you think is buying the "new homes" at the current prices?

even if these buyers are coming every year, they can easily absorb all the boomer homes in a span of a decade.

11   Heraclitusstudent   ignore (2)   2014 Aug 5, 10:29am   ↑ like (0)   ↓ dislike (1)   quote   flag        

jkaldi1 says

then who do you think is buying the "new homes" at the current prices?

Sure there is a % of people who can afford to buy and it's not great.
If you think all boomer's real-estate is going to be absorbed this way, in essence this is like saying: we will deliberately build less houses than needed and keep a lot of millennials homeless, so that rich millennials are forced to buy at inflated prices. This is indeed what we are seeing now.

If you think it's a good strategy, well... ok.

I think it will swing the other way over the next 15 yrs.

12   jkaldi1   ignore (0)   2014 Aug 5, 10:33am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says

Sure there is a % of people who can afford to buy and it's not great.

If you think all boomer's real-estate is going to be absorbed this way, in essence this is like saying: we will deliberately build less houses than needed and keep a lot of millennials homeless, so that rich millennials are forced to buy at inflated prices. This is indeed what we are seeing now.

If you think it's a good strategy, well... ok.

I think it will swing the other way over the next 15 yrs.

its not a one man strategy..this is how the market works. its called demand and supply. if you think somebody is deliberately selling a new home at a high price, you are mistaken. home builders are in the business of making profit and they also have competition from other builders. if a home builder can build and sell a new homes for less price profitably , he will do it in a heartbeat.

13   CDon   ignore (0)   2014 Aug 5, 10:34am   ↑ like (1)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says

You guys are missing the point: It's not a question of waiting in line to buy from a boomer.

Respectfully, I think it is you who is missing the point. In essence what you described is reason number XYZ why housing is not the best investment possible. I think there are a lot of people here who get that.

That said, when these "10 reasons it is a terrible time to buy a house" came about is there were a large number of people who simply wanted to own a home but were terrified that they would pay 500K only to watch it quickly evaporate down to 400K (or as Patrick put it, the 600K house would become 300K)

Because of this fear people kept coming here asking, is now a good time? And the answer from Patrick was always an emphatic NO, now is a terrible time to buy (see reasons 1-10) you need to be patient and wait - our time will come!!!

Well as I think even you have attested, nominal prices are very unlikely to come down such as to justify waiting. In real terms yes, but real prices does very little to help patient waiting renters.

Put another way, very very few people are happy passing on a 500K house, waiting 10 years (paying 250K or rent in the interim) only to buy it for a "steal" at 525K.

14   Heraclitusstudent   ignore (2)   2014 Aug 5, 10:49am   ↑ like (0)   ↓ dislike (1)   quote   flag        

CDon says

That said, when these "10 reasons it is a terrible time to buy a house" came about is there were a large number of people who simply wanted to own a home but were terrified that they would pay 500K only to watch it quickly evaporate down to 400K (or as Patrick put it, the 600K house would become 300K)

[shrug] I answered Patrick's point about boomer retirements which is valid.

Now, obviously, knowing that it is happening doesn't help to avoid the problem.

Either you buy and pay, or you rent and pay, or you move out to a cheap place which is not necessarily an attractive option either.

Your choice.

Just know what you're in for.

15   jkaldi1   ignore (0)   2014 Aug 5, 10:52am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says

I answered Patrick's point about boomer retirements which is valid.

i don't think its a valid point. Boomers retiring only adds to the new supply. There is always been new supply of homes every year. If the contribution to the new supply increases due to boomers retiring, the contribution from home builders will decrease due to supply and demand...period.

16   CDon   ignore (0)   2014 Aug 5, 11:23am   ↑ like (1)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says

[shrug] I answered Patrick's point about boomer retirements which is valid.

You did in so far as real prices are concerned.

Now, in the context it was originally presented - 1 of patrick's 10 reasons why its a terrible time to buy an expensive home... and why (his words) "The higher-end housing market is now set up for a huge crash in prices" even you wont defend that as being valid - even you know that is wrong.

17   CDon   ignore (0)   2014 Aug 5, 11:36am   ↑ like (1)   ↓ dislike (0)   quote   flag        

Call it Crazy says

Heraclitusstudent says

Just know what you're in for.

And DON'T blame an Internet forum if you make the wrong decision!

Out of curiosity, a few years back when you penned this response:

Call it Crazy says

I'm going to partially agree with this I'm just not sure of the timing of the "flood". I took a ride around this weekend to scope out some real estate. I was amazed at the sheer amount of "shadow" houses that are just sitting, without any "For Sale" sign on them.

Every little subdivision and little neighborhood had vacant houses, some on EVERY street. Many had township stickers on the doors noting them as "empty". The total amount of empty houses I saw is absolutely staggering, and I've been around these areas for a long time.

Now the question I don't know is how long the banks are going to continue to "hold" them or start to "release" them. Since the moratorium was recently lifted, if all these houses hit the market, the housing market here will be TOAST and prices will drop back to the early 1990's at best!!!

/?p=1213319&page=2#comments

Do find it unreasonable to believe that person listen to what you said? I mean, you made a thoughtful comment, fairly reasoned, etc. - Seems to me you were offering a bit of helpful advice which you hoped would help this person make a decision one way or another.

Is that not how you saw it?

18   Quigley   ignore (0)   2014 Aug 5, 12:01pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Obv the buyers now are gay Chindians from outer space! Who else could afford them?
Seriously though, foreign buyers are putting a floor under prices. Thanks US gub'mint by, for, and of the wealthy elite!

19   CDon   ignore (0)   2014 Aug 5, 12:25pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Call it Crazy says

On the flip side, do you think it's reasonable (and logical) for anyone reading an ANONYMOUS Internet forum and reading a post by a fictitious poster with the screen name Call it Crazy should run right out and buy a $500K house based on that post?

Is that what responsible, reasonable and people with critical thinking skills do? Go out and make the largest financial decision of their life based on what they read on an ANONYMOUS forum, no matter how "reasonable" the post sounds or "helpful" it sounds?

To "run right out" and make that largest decision of their life? No - of course not.

Now, to move the decision needle - ever so slightly - one way or the other? Absolutely and emphatically - yes.

Call it Crazy says

I can possibly see someone using information posted by a nationally known financial advisor who has been writing articles for many years and has a proven track record. There, you might have a leg to stand on if you made a bad decision.

But really, coming back here week after week and blaming posts by ANONYMOUS authors.... Really???

I very much try and heap the degree of scorn (or praise) on a number of factors. Point being, one random guy who says one wrong thing and is never heard from again - minimal to no accountability necessary.

On the other end of the spectrum - a guy who puts his name out there, hosts a website, writes a book, and spends the better part of 10 years passionately and emphatically telling people what to do or not to do? Well If they are right, they get the highest praise possible - if they are wrong, they are subject to merciless and endless criticism.

Now since you (or in this case your persona) is much more toward the former, versus the latter - I largely give you a pass. Plus, while all of us troll to some degree - that is a major major part of who you are and what you do here. Thus, it is obvious you are only halfway serious so I only very very infrequently point out the wrong things you said over the years.

20   BlueSardine   ignore (2)   2014 Aug 5, 2:16pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

what if the readout is digital?

CDon says

Now, to move the decision needle - ever so slightly - one way or the other? Absolutely and emphatically - yes.

21   Heraclitusstudent   ignore (2)   2014 Aug 5, 3:38pm   ↑ like (0)   ↓ dislike (1)   quote   flag        

CDon says

Look, you want to have your cake, but you want to eat it too - as do we all, but it doesn't work that way. Either you believe that nominal prices will be obliterated, or you don't - and as far as I can tell, you don't.

I don't think there will be a depression but my expectation is for putrid returns on real-estate on a 15yrs horizon.

Prices may fall a bit at some point but mostly real prices will fall and will be lower in 15yrs.

22   hanera   ignore (0)   2014 Aug 5, 6:42pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Past performance is not indicator of future performance.
Just because you are correct in predicting what happen in the past five years, doesn't mean you would be correct in the next five years.
Just because you are wrong in predicting what happen in the past 15 years, doesn't mean you would be wrong in the next five years.

Monitor and adapt.


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