patrick.net

Hoss,

Despite your rather suspicious sounding email (hoss@cartwright.com), and the fact your IP doesn't appear to match any previosuly known trolls, I am prepared to give you the benefit of a doubt --for now.

If you are new to this blog and genuinely interested in more information, I would recommend skimming at least some of the previous threads. You will quickly see that we are not all doomsdayers/extremists, and that housing bubbles have indeed happened in the past and prices have indeed fallen for protracted periods --yes, even in the mighty Golden State.

You might also learn why so many believe that we are now at (or just past) the peak of a massive cheap credit fueled liquidity bubble, which is rapidly drawing to a close as we speak. You would see that our conclusions are based on solid data and economic fundamentalals, and that predicting a 30-50% drop is no more unreasonable than --say-- predicting in 2000 that prices would rise more than 100% in five years.

If you're so inclined....

I have to believe that most of the doomsayers do not have wives or children. If you have a family, you will understand that losing your house is the last thing you would ever allow to happen. So absent tremendous economic trouble, house prices simply will not collapse.

I will be serious with you for the moment...... I have a wife and child...and yes, the last thing I would want to happen is to lose my house.......so I am doing something right now to protect myself from losing my house.... I'm not buying! As far as economic trouble.....the storm clouds are starting to creep in.

Most people simply gut it out if they still have a job. People need a place to live, after all. What do you people think happens, that homeowners say “well, my house fell in value, time to turn the keys over to the lender and move to an apartment”?

Yes......this has happened before and will happen again.

If you really believe that we are all crazy for what we believe in, then why would you waste your time tring to convince us we are wrong. I don't get it.....it's like going to a blog about ghosts and making posts that they are wrong and crazy.....It is just a silly waste of time. We believe in what we believe not because we want it to happen, but because there is so much data supporting our belief....and for you to come here and deny it leads me to believe that you too believe in it.

true, people will try to hold on to their homes with everything theyve got.

.......but when everything they got isn't enough, they will lose their house.

true, people will try to hold on to their homes with everything theyve got.

Yes, they will hold the door knob with both hands as the "foreclosure marshals" drag them away. They may even tie themselves down with ropes too.

...and judging by our savings rate, they probably don't have much!

Yes, they will hold the door knob with both hands as the “foreclosure marshals” drag them away. They may even tie themselves down with ropes too.

It will probably be useful if the realtor installed those "double-weight" doors Jack mentioned a while back...

but if you still can’t make the payment when the IO loan adjusts and your mortgage is now double, then you’re basically SOL.

It is very easy for a mortgage payment to be doubled if an IO loan at 3% initial ARM rate was used. ARM is now around 5.5%.

I heard in Houston in the 80’s when the market collapsed, people left the keys on the counter and walked away.

This time, people will leave key on the granite counter, empty contents from the stainless steel fridge, walk on the pergo floor and leave.

when the IO loan adjusts and your mortgage is now double, then you’re basically SOL.

.....and that is only part of it. Even if you have a FRM, if you are upside down and your job relocates, you're screwed! People depend on the ability to sell their house when their lives require it......losing that mobility is a very big gamble...it's easy to think the future is bright because you have a great job and you have lots of stuff. Problem is you never know when you're going to walk in to work and get handed a pink slip....all of a sudden reality sets in and it gets much scarier when you start to find out just how bad the job market really is. Always prepare for the worse and you will be safe....If you have money you can afford to lose, invest with it, but when it comes to the families nest egg, use your head....it's just not worth gambling with!

I ment 870K in the last post, sorry.

I sure hope so...that would be one huge increase from only $870

Holy crap! Just did a search for Jackson Heights, NY for 2 br condos and got 186 matches on realtor.com. Just a couple of months ago I only got about a dozen! Prices seem slightly down too. Wow! Aren''t offerings supposed to decrease in the Fall? Yikes, what a shocker!

ScottC,

Caveat emptor, indeed --thanks for the real world example.
Do you have any tips for those of us who (at some point) will be be negotiating a buyer's contract with a (hopefully) reputable agent? As in, my guess is that EBAs (exclusive buyers agents) would provide generally better representation than "mixed-mode" (representing sellers & buyers) Realtors. Does experience bear this out for you? Will most EBAs will accept a flat fee vs. sales commission% (to minimize conflict with buyer's interest of getting the best price)?

I’d say they are about equally difficult, otherwise you’d be rich by now. Prediction is hard, esp. when it’s about the future.

They are controlled by different emotion though.

otherwise you’d be rich by now

One can predict prices 5 days into the future with 100% accuracy and still get wiped out. On the other hand, many have made excellent return being only 30% correct.

How could that be? Actually you only need to predict accurately 1 day or even 1 hour ahead, and you can be king!

Leverage still needs to be optimized. Otherwise, one can still get wiped out by the intraday market swings.

One only needs $500 to control more than $50K of stocks during the day. However, a 1% swing will complete wipe out the margin if one gets too greedy. :)

Can't recall the author is, but this is apt:

Anyone who bought right at the bottom and sold right at the top is a liar.

Or,

I'd rather sell a year too early than a month too late.

Too greedy indeed! However it does contradict the premise that he could see into the future.

It depends on whether you can see the future history. :)

There is a 99.99% probability that society will degenerate into a Mad Max post-apocalyptic future, where housing have-nots roam the endless wasteland and struggle for survival against a horde of deranged, cannibalistic REavers.

The margin of error is +/- 99.98%

I would readily concede that those who can predict 99% accurately would be more likely to be wiped out than those who can only predict 30%.

Only if they invested everything than owned each time.

There is a 99.99% probability that society will degenerate into a Mad Max post-apocalyptic future, where housing have-nots roam the endless wasteland and struggle for survival against a horde of deranged, cannibalistic REavers.

:lol: When they come across a house they want......two men will enter, but one will leave.

I would readily concede that those who can predict 99% accurately would be more likely to be wiped out than those who can only predict 30%.

Very true... assuming that they know their accuracy numbers...

Those who know they can predict with 30% accuracy will spend more effort in controlling risks and sizing bets.

all the members of Threadville
will offer
a plate of sushi,
3 lobsters,
and a cold frosty mug ‘o beer
for the $hitbox.

I will offer the rice in the sushi, 3 lobster shells and a cold frosty mug ‘o beer for the shitbox. :)

It depends on whether you can see the future history.

And in this case of RE, studing very recent history could have provided some clues.
The Bay Area has about a 5-year memory.

buyer beware!
Reduce that offer!

A plate,
3 lobster shells,
and a cold frosty mug.

One grain of rice
Three lobster legs
One spoon of beer froth

One grain of rice
Three lobster legs
One spoon of beer froth

I really dislike these bidding wars:

My bid: the stray molecules rising from that finished plate of lobster/sushi.

Market efficiency theory does not assume that people are unpredictable. It just says people who are smarter than you, or more experienced than you, or with more inside information than you already acted to take advantage of things that can be taken advantage of, therefore what is left in the price action is just noise.

Trading has very little to do with information. It is mostly about psychology.

I think the market efficiency theory would be valid on Vulcan.

Success breeds over-confidence. 99% is so close to 100% that one might just confuse the two. It is a lot easier for a lousy 30% to see his limits.

Excellent insight!

Beware of strategies that boast 80%+ accuracy... (e.g. selling naked, front-month, far OTM options). They usually surprise you with large losses once in a while.

Psychology is also information.

Psychology is disinformation. So long as it is powerful enough to impede rational decisions, it will erase market efficiency.

Christmas present for Hoss:

http://tinyurl.com/crrh6

He can wear this like Hester Prynne had to wear the Scarlet Letter. :-))

BayQT~

All bears are not equal. Some (Teddy) are more reasonable than others (Polar). I like Teddy bears better.

I heard that bear paws is a delicacy.

Food is probably the best investment you can make. Once you eat it, it becomes a part of you.

I do hope that much of it comes out though... or I will be 300 pound in no time...

And you are not already 300 pounds?

Very funny.

Glad you saw it that way. My weak attempt at being humorous.

You are quite humorous. :)

Then I wished I had a finance, or even better, math double major, since then I could create my own market models.

See http://tinyurl.com/bclev

Hubris begets nemesis. Always.

Pip pip,
prat

Jason Says:
Our actions are generally driven by fear and the desire to survive, then greed and the desire to be better off then our peers. Put simply, the desire to live long and prosper drives much of our actions. Knowing our motivations, how is it that we are not able to predict the future?

I think it's because as soon you have figured out how other people are going to behave, you can bet against the whole thing and make money. Plus, there will be folks who will now bet against you.

So, what is my advice, Harm? Well, my advice is to get a real estate license. Hey, I’ve read several people on this very website make fun of how easy and cheap it is. C’mon, it’s home-study and open-book tests! Well, if it’s so easy, why don’t you do it?

There is no longer a market for RE agents....there are NO buyers and too many agents.

Buy a house to live in it. I keep saying that, and I wonder if anyone hears me. Buy a house to live in it. Think of your house as a capital savings account. Build equity, minimize expenses. As you live in your house, invest in real estate, not to live in but to convert from a liability (an expense) into an asset (income). If you start at age 40 and buy 1 rent house a year (20% down, 15-year note), then stop at age 50, when you’re 65 you will have free and clear title to ownership of 10 rent properties, and enjoy a passive revenue stream of over $60,000 a year. And you still have your house which you live in that has long since been paid for. You’re sitting on total equity + appreciation, in addition to enjoying a passive revenue stream.

That’s real estate, sports fans.

Thanks for the pep talk....will come in handy after the market corrects.

ScottC says:
If you start at age 40 and buy 1 rent house a year (20% down, 15-year note), then stop at age 50, when you’re 65 you will have free and clear title to ownership of 10 rent properties, and enjoy a passive revenue stream of over $60,000 a year.

Ok, let's see.
A modest rental house in a ok neighbourhood = $700,000.
20% down payment = $140,000 cash (+ closing costs, but screw that)
Mortgage payment = 15yr fixed @ 5.9% for $540,000 = $55,776 p.a.
Property Tax @ 1.25% = $8,750 p.a.
Lost Interest Income on $140,000 @ 4.6% = $6,440 p.a.
Maintenance = $0 because we buy only well built houses
Total Outlay per year = $70,966

That sounds great, dude.
Now if I only knew how to come up with the $140,000 per year to be able to play that game, and how to find a tenant who's going to pay me $6,000 rent per month so I can break even. :-)

I'm sure the math works better in Texas, though.

Katie Says:
I believe prices are at a top and had the nerve to put my house on the market.
If they are higher next year I will be bummed.

Yeah.
Either your buyer pays big bucks for the mortgage for the next 30 years and will not be able to spend money that would have created jobs for your kids.
Or, the guy defaults and someone's gotta foot the bill for that. My guess: your children, this way or another.
Or, inflation will eat your gains (which would have been your children's only way out of that rathole).

I'd be bummed too if I'd be stealing from my own children.

But congratulations on your decision, and good luck with the sale.

Girgl,

you shouldn't include the forgone interest because that is only needed for justifying your purchase, not a post-purchase cashflow-sensitive item (what is spent is already spent). Your other calculations are valid. it comes down to $64,526 per year, $5,377 a month. Wait, you need to pay tax on rental income!

OK, the cumulative interest for the first year at 5.9% for 540K is 25,308, and only that amount can be deduced against your income, any rental income above that needs to be taxed. (That only applies to your second home, not your 3rd, 4th, nth home).

So, now, in order to achieve an after-tax cashflow of $64,526, after deducting interest of 25,308, assuming 30% marginal tax rate, you will need $81,333.

Anyone out there who wants to pay me $6,777 monthly rent for a $700K home? Anyone? Hello?