patrick.net

Don’t forsake what you did because you couldn’t see the future, and don’t give yourself deity-like abilities because you got lucky either.

Gee, Matt, I wonder who we could use as an example here... Hmmm, this is a tough one... :roll:

You have to embrace what you believe even if no one else does (e.g. P/E fundamentals), and yet be ready to re-evaluate your belief system (e.g. if Asian buyers throw the normal thing out of whack by wanting a home regardless of the price.). That’s a tough but essential balance.

Great point that ties in nicely with Veritas's "conundrum":

We are all “True Believers” in our positions, and have adopted them as a quasi-dogma, for which there can be little if any movement without direct impact that will shift our thoughts one way or the other.

It may be impossible to completely eliminate personal bias and the tendency to overweight evidence that seems to support our desired conclusions, and underweight evidence that conflicts with them. However, I believe you can do the next best thing, and focus instead on things that are NOT so easily distorted by emotion. Things like price-rent (PE) ratios, price-income ratios, mortgage lending standards, historical data on use of "exotic" mortgages, cash-out refis, etc. The fundamentals have always been good fundamental indicators of underlying asset values, and I believe they will continue to be in the future.

It's true that we all wear the emotion filter to some degree, but that doesn't necessarily mean we're enslaved to it. As Matt said, keeping an open mind and the ability to question or change our own assumptions if they prove wrong is the key to good decision making.

Was it Peter P or HARM who gave October as the date the market crashes? Reading yesterdays article links:
http://tinyurl.com/7ebgq

"The next U.S. recession will start in earnest on October 17. (If it hasn't already.)

That's the day the new bankruptcy law kicks-in, and credit card banks get hit by a double-whammy of their own creation."

I was speaking to a good friend yesterday who lives in London. He made a fortune (10 million pounds) from RE there - he got out before it started to level off and he was very much in agreement to steer clear of the US RE market at the moment. He was now doing a lot of trading and has also been very successful at it.

He was on the Chicago stock exchange floor a couple of weeks ago visiting with some very successful traders - these are the guys who make 3 mill a year (!). He said it's really interesting watching how they make decisions on trades. Everyone has their own systems but the best seem to not have majorly fancy tools but have a few tried and tested setups and it's really about psychology more than anything. The market is driven by fear and being in the 'Pit' - the trading floor is amazing as you can hear the change in emotions, people even pay for a pit noise feed to get commentary on what's going on and the ebb and flow in the market.

He got home from Chicago and immediately unsubscribed to every publication he belonged to. He said it influenced you to make decisions based on news that was really for entertainment value. I think fear can paralyse you a little too much when making investment decisions. A few years back I wanted to buy another house in LA but my husband, an avid reader of every publication out there was concerned by the predictions of the Economist etc and didn't think things would go up much more. I was far less read but my sense based on other markets I'd invested in overseas showing the same trend as LA (that it was going to rise) said it was a good time. Right now I don't think it's fear, it's now become logical not to invest when the market is so high. Even though we need a larger house we are going to hold off - there is no hurry as I don't think things will go up much more, if they do it won't be much, and if it did go up another 20% then I'd rather rent. I might see an expensive sweater that I really want and it's just that price but it's my decision to buy into that luxury item. Its all about affordability and not being stupid.

Are you saying that the reason you didint get involved in RE is because you knew it was over priced and you didnt want to get involved because you were/are afraid your participation would lead to other individuals getting hurt?

I don't know if this is addressed to me or not, but if it is I'll say this; my lack of participation in the market is because of a combination of factors, but other individuals never entered into the equation. Initially my husband and I were unable to get in because we went to one income when we had children. When his earnings had increased and we could start looking, asking prices had started going through the roof and we just didn't think the prices were justified by fundamentals. Now papers like USA today are saying that the Sacramento market is 54% overvalued and very likely to correct in the near future.
http://tinyurl.com/b8dgq
I have been one of the few to admit that yes, at times I wish we could have bought in about 5 years ago, but having said that, I am not sorry I didn't buy in last year or this year. I do think a change is coming. I also don't lie awake at night worrying about the bills because those are covered and we have a good amount saved toward retirement. I don't think I've been a whiner or complainer. We have left some chips on the table but not all and I think we'll be ok in the long run. Like I said before, the ones who are the most strident are the ones I think have the most fear.

Everyone has their own systems but the best seem to not have majorly fancy tools but have a few tried and tested setups and it’s really about psychology more than anything.

I can attest to this... fancy tools do nothing but to enrich snake-oil salesmen.

I have been one of the few to admit that yes, at times I wish we could have bought in about 5 years ago, but having said that, I am not sorry I didn’t buy in last year or this year.

Well said.

I wish I had done a lot of things... but I would not have done those things given the circumstances and information I had in the past. We can only act according to the present and a reasonable projection of the future, but not the past.

I like complaining that house prices are too high but I'm not complaining that others are making money. Good on them, they took the risk and they should get the reward. I've done ok on a couple of RE investments which were prudent buys and while I may not have made a ton of money I'm comfortable.

If the market goes south, I can only imagine what real whining and complaining sounds like. I've been on this blog for a while and at times I hear us kick ourselves that maybe we should have bought more years ago - that's normal but not a lot of real whining. I'm more amazed at the people entering into ridiculous mortgages that they can't afford that are really illogical and put them into a very leveraged scary position.

Good on them, they took the risk and they should get the reward.

I only complain about people who profit through illegal means. I have no problem with rule-benders but I would hate to compete with law-breakers!

Peter P - I completely agree. I was actually pretty shocked to read the comments about the predators using scams to get houses at Mish's blog:
http://tinyurl.com/dkbty

To quote some of it:

Foreclosure "rescue" scams fall into three main categories:

• Phantom help: The "rescuer" charges outrageous fees for light-duty phone calls or paperwork that the homeowner could easily do, none of which results in saving the home. This predatory scam gives homeowners a false sense of hope and prevents them from seeking qualified help.

• The bailout: In this scam the homeowner is deceived into signing over title with the belief that they will be able to remain in the house as a renter and eventually buy it back over time. The terms of these scams are so onerous that the buy-back becomes impossible, the homeowner loses possession and the "rescuer" walks off with most or all of the equity.

• The bait-and-switch: In this scam, the homeowners think they are signing documents to bring the mortgage current, but instead actually surrender their ownership. They usually don't even know they've been scammed until they're evicted.

I've seen those late night commercials about how to profit from foreclosures but if this is what people are doing then I'm horrified.

Gabby, I too don't wish ill on those who have recently sold their primary residence or even a long-term investment property and made money. On the other hand, I personally can't wait to see speculators crash and burn, and I don't think it's wrong for me to feel this way.

These are the people who helped to create/inflate this bubble to ridiculous heights, making many areas (including virtually ALL of California) unaffordable to working class families, who just want a place to live. IMO, they deserve to suffer harsh consequences for their selfishness and greed, and I hope the market obliges.

I guarantee that these same greedy, bragging arrogant jerks who are now flipping condos and insulting everyone else for being too "afraid" or "stupid" to buy now will be the first to DEMAND that the taxpayer bail them out for their reckless behavior.

They will also be first in line to file lawsuits against their Realtors, brokers and appraisers, because when they lose money, it's always "someone else's fault". When they're making money, of course, it's due to their sheer genius and raw courage.

Such is human nature, I guess....

Gabby, these people are bad and unethical. I surely hate them. However, apprasial fraud and mortgage fraud are arguably more harmful. At least the above scams are avoidable if one remains sharp and smart. Apprasial/mortgage fraud distorts the entire market.

I'm just glad that there are forums like this one that tell people about the scams Gabby mentioned. I'd assume if you are alert and read carefully before you sign anything you'd be ok, but some people are so slick you can't be too careful.

I hope those who are guilty of morgage/appraisal fraud get slapped down hard! That kind of greed hurts everyone.

I’d assume if you are alert and read carefully before you sign anything you’d be ok, but some people are so slick you can’t be too careful.

Very true. But generally, if something looks like cheese and smells like cheese, it is probably a mouse trap.

(BTW, they are opening a new mouse trap in Hong Kong, China this year.) :mrgreen:

BTW, they are opening a new mouse trap in Hong Kong, China this year.

To clarify, it is a people trap operated by mouse.

Peter, do you think that most appraisers (at the working stiff level anyway) really have much say in the process? Remember the definition of “Unemployed Real Estate Appraiser": A person who refuses to lie for a fee.

Bottom line is, if you don't appraise the house for the number the buyer/seller/realtors/brokers want, you may not get any more work. The same thing seems to work for lenders --don't qualify people for loans they have no way of repaying, then they go elsewhere.

IMHO, the best way to prevent this type of fraud is to force lenders to hold a large chunk of the NAAVLPs they originate on their books. Then you'll start seeing those "quaint" lending standards reappear REAL fast.

Peter, do you think that most appraisers (at the working stiff level anyway) really have much say in the process? Remember the definition of “Unemployed Real Estate Appraiser”: A person who refuses to lie for a fee.

Well I did not say that it is necessarily their fraud. ;)

I think the mortgage industry will be slapped very hard.

People who are buying today are rational. So many of you believe that buyers today cannot afford what they are buying. So, please explain to me if they cannot afford to buy, how and why are they buying? What governing body dictates an affordable home to one individual or another?

It’s so obvious to me that anybody buying in this market, so long as they didn’t get in a bidding war, are going to be in the money next year and the following.

(throwing up hands) Have you been under a rock??? I can't believe that you have NOT been reading the same stuff we are reading! Sheesh!! UN-fr*&(n - believable. :|

People who are buying today are rational.

MP, why do you have so much faith in the market? I refuse to believe that the market is always efficient. That would be that I cannot win speculating in the market. I refuse to believe in that.

So many of you believe that buyers today cannot afford what they are buying. So, please explain to me if they cannot afford to buy, how and why are they buying? What governing body dictates an affordable home to one individual or another?

We have discussed that already and I am bored talking about it. I do not really care anymore. I just want to focus on profiting from market actions.

I’m sure everybody will start attacking me and calling me a fool etc. But, that’s exactly the way i like it.

Then you must hate me because I have counted you as my buddy.

MP,

I own out-of-state (purchased 6 years ago...1999) and rent locally. I started buying in the late 70's. At last count, I've owned 4 pieces of property and I look forward to purchasing at least 1 or 2 more before I retire...hopefully in the next 2 or 3 years. My main objective is to retire comfortably with the proceeds of my property, 401(K), IRA, whatever Uncle Sam gives me from SS, and (as a divorce settlement after 23 years of marriage) the agree upon portion of my ex-husband's pension. As a single woman (children are 27 and 21) I don't think I am doing poorly at all. I do my homework and study all angles before I jump into anything.

The property I own in VA is in the black...over the years of regular rent increases and 1 refinance, I realize $300/month profit, so it pays for itself. If I wanted to, I could take an equity loan to buy an additional piece and still not go in my pocket. But I don't care to do that until the Jaws music stops playing.

I'm doing fine, thanks. 8-)

BayQT~

It’s my opinion that if one could make $65-75K/month in the Bay Area, that’s enough for a great lifestyle.

Of course... that would be over 1M per year pre-tax though.

Oops, not $65-75k/month.. but a year! Or, roughly $1,500/month is spending money after savings sounds like a good amount of money to me.

Well, depending on what you like to eat though...

Work to live, live to eat!

I want to clear something up...that I am not retiring in 2-3 years, but would like to buy in 2-3 years. I've already begun paying extra towards my principal which will shorten the life of the loan, as well as saves me money by paying less interest on the balance owed.

BayQT~

50% of people’s income isn’t that big of a deal. I do believe i can live on literally 1/3rd the remaining half of my income and be very happy.

But 50% of pre-tax income for a family making less than 100K a year can be a problem...

According to some agents that I talked to, this is not uncommon in the silly valley...

Well MarinaPrime, forgot to thank you for the Avocado bacon pasta recipe. I will surely try it out.

MP,

A multi-unit building would be a wise purchase...but not now! Do it in a few years. (I've thought of that, as well.)

And thank you for the kudos...it was not overlooked. But it would be a good idea to not underestimate the situations of the individuals on this blog. Because many are bears does not mean that they are not happy with what they are doing now. I think SactoQT said something to this affect, too. I am by no means an expert in RE, stocks, etc. I just make very, very careful moves....because I want to enjoy my life and remain as stress-free as possible.

And yes, I am under a rock… as i focus on my career, my friends, and living life to the fullest, not worry about a notion of a RE bubble.

Nervous,

I believe that MP is in the 20-30's age bracket, and admits he is "under a rock". I'm coming to the conclusion that perhaps he can't help himself.

BayQT~

@MP: What can we say? You're just plain dead wrong about the demographics of the Bay Area, and of mortgagees.

I believe you are exactly what you say you are. You remind me of several people I have worked with in the last five years. You're a smart kid, and you know a lot of things, but you have a very very false understanding of the population outside of your condo complex, or your walk to work.

Live the dream while you can, dream the life while you can. But don't pretend that your reality can be extrapolated out into real life.

a favorite quote from the days of USENET...

"I've found it pays to be very, very, sure I'm correct before getting condescending."

Apply to affected areas.

Nervous in Oakland:

You nailed it with your post! I've added a few observations of my own

if they cannot afford to buy, how and why are they buying

1) Fear "buy now--before it's too late" Peer pressure from their circle too.
2) Weak lending standards. Let's see--IO/ARM/Neg-am. And this isn't a small fraction of today's mortgages either!
3) Low interest rates--Interest rates designed for flippers, plus the above. Think people will get stung? I do.
4) Stupidity --they do little or no research, and ignore obvious warning signs. What they consider a "great investment" could become a huge liability? Impossible, you say!
5) etc, etc, etc. Their little social club looks down on renting, so they miss out on a great savings opportunity during a rental glut.

...or, if you prefer, from Bend it Like Beckham (I only saw the previews, I swear!):

Shtop Embarasshin' yo'shelf!

MP, about the time you develop a larger awareness of your surroundings, you might pick up on exactly how banal your self-impressedness is to other (putative) adults.

@Jack: sorry, that was not directed at you at all. It was he-who-shall-not-be-named.

"...I still have a lot of work to do before i can balance some of your doomsday thoughts out, but i think over time, I will be able to make a difference.

Well, MP--thanks for the offer; we wouldn't know what to do without you. ;)
Next time I need to gloat publicly over my Primeâ„¢ location, I'll choose you as my spokesman.

It will be interesting to see if MP will ever show his face again here when prices do correct.

If things do drop, even in Primeâ„¢ locations, I doubt the cheerleaders will ever own up. If they survive the carnage, they'll downplay their losses, just like the dot-bomb. I think it's what keeps the bubble cycle going: cheerleading->denial, repeat. That is, until they're all bankrupt.

MP is most certainly a housing bull (horns ‘n all).

I don't think MP is a housing bull. I think he thinks he is. After all he is not looking to buy more houses right now is he? How do you think he will react IF (and I am not saying they will) Marina prices fall.

If , when, housing falls, then we will see who the real bulls are because they will buy buy buy!

(Not investment or reality advice)

quesera,

putative Great word. I had to look that one up to see what kind of adult I was. :-)

Whew! MP *does* make one tired with all the nonsensical talk. I feel like we can relax now. And no (to Nervous), I do not advocate that we pity him. *He* had become very obvious and wasn't worth any more energy. But very hard to ignore when you know you can prove your point to/with him. He's enjoying his "tapas" now with his gf.

Is it time for another topic yet? (picture a Garfield smiley face)

BayQT~

MP,
Tell them you want to raise rents to $3000 / month.

They will obviously complain, but in the process they will try to negotiate and will probably tell you their price point.......

How much increase do you think is enough so that they won’t want to move? I like them as tenants, but i want to maximize my assets.

What do you guys think?

Well, MP, as I have said earlier, it is very important to have good tenants even if it means slightly lower rent.

I would keep the rent, but negotiate to have them chip in for certain value-adding home improvement (perhaps some new kitchen parts, new bath fixtures, etc.). They may have something in mind anyway and it can be a win-win. When they become more attached to the place, they will likely to be good long-term tenants.

To us renters,
When your landlord tries to raise the rents, tell them you have been looking and have found cheaper rents and have been offered free rental periods as a teaser.

They may call your bluff, but hey, doesn't hurt trying because they might even drop the rent.

MP,

Antitroll.. i’d call my tenant’s bluff.. or perhaps instead of raising it by $100.. just by $50 to make them feel that got something.. and then have them sign a one year contract.

MarinaPrime

Problem is , what if they aren't bluffing. You know, petrol is going up, costs more to ... (insert winge here).

Maybe they don't want to live prime anymore.