patrick.net

I feel ya It seems the harder I tried the tougher my friends dug in. no one wants to be wrong. this is emotional not rational, facts don't matter and never will to these people. The house owner fariy tale is really the womens thing IMO the men just go along for the Va Jay Jay access. No house no Va jay jay. Ha ha.

actuallly it's not that funny very sad.

I think it's a big mistake to think that all home buying at present is a bad financial decision.

In most parts of the country, buying a house is a win now. There are still places that are bound to fall more, but I'll go ahead and say definitively that national house prices aren't going to go down substantially over the next 5 years.

As much as I want home prices to fall, I feel everyone saying buying a house now is a bad financial decision because they themselves are in a bit of denial that there are many people in better financial shape than they are. When reading about people justify their budget, I usually see an expensive car payment, credit card bills, student loans, and such. Everyone has different priorities in life. For some, it may be to buy a nice car, and buy stuff on credit cards to enjoy life now. For some, they can do without the luxuries, and focus on their future. Now may be the time their frugality will pay off. But there are the buzz-killers that already have lots of debt telling them why it's a bad financial decision. Did you listen to them (if they even said anything at all), that charging up your credit card was a bad financial decision? How about the lease/payment on that nice car? I see many places with a monthly payment slightly lower than renting already.

vain says

As much as I want home prices to fall, I feel everyone saying buying a house now is a bad financial decision because they themselves are in a bit of denial that there are many people in better financial shape than they are. When reading about people justify their budget, I usually see an expensive car payment, credit card bills, student loans, and such. Everyone has different priorities in life. For some, it may be to buy a nice car, and buy stuff on credit cards to enjoy life now. For some, they can do without the luxuries, and focus on their future. Now may be the time their frugality have paid off. But there are the buzz-killers that already have lots of debt telling them why it’s a bad financial decision. Did you listen to them (if they even said anything at all), that charging up your credit card was a bad financial decision? How about the lease/payment on that nice car?

What you write is probably true for some, but there are also a lot of wealthy people in the Bay Area, particularly the Fortress Areas.

I agree with Kevin, there are lots of great buys out there IF they can really afford to buy, ie; 20% down, 30 year fixed loan, and no other debt so that the purchase is a blessing and not a curse. But on the other hand, me and other landlords appreciate you talking your friends, relatives and colleagues out of buying homes because that just gives us a larger pool of tenants to chose from even though I really don't need any more. Personally, I would rather see them buying up great deals and building their own wealth and paying their own mortgage rather than paying mine.

rob918 says

Personally, I would rather see them buying up great deals and paying their own mortgages rather than paying mine.

Agreed. The house we're living in now was paid off by tenants in the in-law unit. Now that this home is paid off, they are paying the mortgage on a second property, and have funded a large down payment for my sister to buy during the real estate boom. She lost all her down payment; not under water. But who cares? The money belonged to the tenant downstairs. In fact, the down payment my family got for this house was from the in-law unit from their first home. They love tenants.

vain says

Agreed. The house we’re living in now was paid off by tenants in the in-law unit. Now that this home is paid off, they are paying the mortgage on a second property

I couldn't agree more........Tenants have paid off most of my rental properies. About two weeks ago I had the bank wire the pay off on another one. A family in one of my SFR told me when they first moved in that they only want to stay 2 years in order to save up enough for a down payment and buy their own place. I told them "Good for you". I like to see people succeed in life.

robertoaribas says

“I like to see people succeed in life.”- seriously, screw you. Buying doesn’t make someone a success and renting doesn’t make someone a loser.

You sure can misconstrue a sentence........That wasn't my intent at all. Why not be happy if a family is saving for a down payment for a home? Good for them, I'm happy for them. That's their dream and they want to succeed in their dreams and goals. Just because someone is a renter doesn't make them losers, for some that's what they choose. You sure are sour.

lol

Nomograph says

The proper response is to wish them health and happiness in their new home.

yeah being a Buttinski in this is about as appropriate as expressing your honest feelings about someone's choice of spouse. If they ASK for your advice, that's something else.

I think most people missed the "but when asked" portion of the sentence. LOL! Do you really think people go around saying "HEY YOU'RE STUPID AND OVERPAYING!"

A fool and his money are soon parted. Congratulate them for being an enthusiastic participant in this natural phenomenon, and move on. You don't have to tell them why you are congratulating them, let them think it is because they are 'winners' and feel happy for a bit. They have a world of financial pain coming to them anyway, but you don't want to be the face they associate with that pain.

Do most of you just stay silent and smile, cheering on the home-buyer person when the topic comes up? The conversations came up a lot of this during the 8000 credit time, learned to quickly just be quiet and smile. Now people seem to be in the “buy mode” again cause mortgage rates are “at an all-time low.”

I would have told him to read up on Robert Shillers, Irrational Exhuberance, 2nd edition published in 2005.

Unfortunatly you cant afford to smile and thank them, price inflation on homes over the past 10 years have accelerated job migration out of the California.

I dont expect doctors to understand this... but that is the consequences of such action. Dont kid yourself prices are still in process of correction back to the
long term trend...

In the Bubble, it was never difficult to contain my disdain for Idiots making poor decisions, that any Jack ass could foresee was just going to burden the tax payer down the road.

Less so over the last three years. I would just warn the Saps that the prices were still falling, and to expect to still lose 50 to 70K over the next year or so.

Now prices are getting more in line, for people that want to find a house, that are in line with the rent they are paying. As long as they don't hit me with any notion that they plan on making money from the purchase.

"How do you respond to ecstatic soon-to-be homebuyers?"

It's a difficult question. Would it have helped if the message of an impending housing bubble had been more widely disseminated in 1997-2002-2007? Undoubtedly. Did it make a difference what a single person said to their friends and relatives? Not as often as one could wish for. Just look at the evidence.

Historically speaking the question is somewhat unpractical, because in 1997 or even 2002 there was not a critical mass of non-MSM news outlets to be able to make any real difference. Just talking to people one-on-one did not help. We were completely out-gunned by all the realtor propaganda in the mainstream media. And now the entire country, guilty or not, are suffering the consequences.

Today it ought to be different. It might help regularly to send links and articles to people have not bought but may be in the danger zone.

The way how I know about them buying a home and the attitude when they talk counts. When they're absolutely sure about what they're doing, or they're bragging about it, I don't have to give a damn about them for they are not listening. They only will get my opinion when they sincerely ask for it with open mind. Your advice worked because your friend were willing to listen w/ open mind toward you.

John Bailo says

I soon learned the value of holding my tongue when it involves personal taste.

That may be the unfortunate case, but it isn't always about personal taste.

NOT to John Bailo in particular, but what he said made me think:

The problem is that by not speaking up about bad choices that people are about to make, be it politically or financially, or BOTH, we will ALL suffer the consequences.

Cases in point: Voting for Bush II. Buying into the housing bubble.

Very bad things have happened in the human history because too many people were too polite or too afraid too speak up.

I say WOW how did you come up with the whole payment! They say no no we took out a morgage. I say,... oh!,... I thought you said you bought the house?

sometimes I ask who owns your house? the I get puzzeled looks. Then I just feel like an A-hole.

renting the money is still not the same as owning the house! (it's getting closer but not quite 0% yet)

Surprise, surprise. I agree with Nomo & Troy. Tell them that you wish them well and move along. If they ask specifically what you think, still tell them that you wish them well and move along. Unless you're a trusted friend or financial advisor, they don't really want your opinion. They want you to reinforce that they're doing the right thing. Why be a buzz kill?

Besides, they'll probably be pissed off that you said not to buy - and if you're found to be correct a couple of years down the line, they'll hate you.

elliemae says

Besides, they’ll probably be pissed off that you said not to buy - and if you’re found to be correct a couple of years down the line, they’ll hate you.

Absolutely. Of the people I warned a few years ago, a handful managed to avoid buying a house at the peak - now, they thankfully acknowledge the timeliness of my advice.

However, the larger number of people who ignored my advice and are now underwater homedebtors seem less inclined to acknowledge that I had given them sound advice. Some of them seem to subconsciously believe somehow that I am responsible for the market collapsing under them. Which is why I no longer bother to say anything to the fools who are tripping over themselves to 'take advantage of these low rates'...

Every market returns to trend, and we are far away from trend, and we may (normally do) overshoot to the trend just as we went over on the up side, (could you imagine a overshoot of that magnitude I can't but I can see another 30-50% from here (Nat Avg.)

FYI I am in Ca. I know some areas of the country are not in as bad of shape as we are in Ca. I think 2011-2014 are going to feel like recession if we don't double dip, it is going to feel like it. I mean 1.5 GDP is what they say it takes to stay even, and we are likely going to be running at .5 to 2 GDP for the next 4-12+ quarters if all goes GREAT and if not, and or any more surprises we will double dip.

I am not seeing what is going to break the back of the Structural issue (Demographics' are stacked in a bad way, it seems to me) Now granted we thrust in to this recession with a balance sheet issues, that has morphed in to what would have been coming in without the banking crisis. as I see it.

I try to warn them. When they say "but my realtor said now's a good time to buy, and she works in the industry so she'd know", I'll make a real smartass remark congratulating them for their stupidity, or ask if they know what the term "knife-catcher" means.

klarek says

I try to warn them. When they say “but my realtor said now’s a good time to buy, and she works in the industry so she’d know”, I’ll make a real smartass remark congratulating them for their stupidity, or ask if they know what the term “knife-catcher” means.

Wow. Smug and a smart ass. Sounds like a great friend.

Did they already put a contract on a home? If yes, then wish them well.

If not, are they seeking, or receptive to your advice?. If not, then wish them well.

Just wish them well and move on.

I don't know a single person in the position to buy anything right now. I do know a couple who bought this Spring. They bought a 4 bedroom Eichler in San Rafael for $709K with 3.5% down....now their roof is leaking.

PasadenaNative says

I don’t know a single person in the position to buy anything right now. I do know a couple who bought this Spring. They bought a 4 bedroom Eichler in San Rafael for $709K with 3.5% down….now their roof is leaking.

Obama will repair the roof with a proof of unemployment. :)

tatupu70 says

Wow. Smug and a smart ass. Sounds like a great friend.

I was being a good friend, the best they could ask for. If they listened to me, they wouldn't have been severely fucked by the most obvious bubble in the world.

I tried to keep people sane and away from really stupid financial choices. If they thought that their agent knew best and was being honest, my ridicule wasn't just warranted, but the least of their problems to come.

This is more along the time frame of 2004-2008. Now I just wish them luck.

I think Paralithodes has it right.

Paralithodes says

Did they already put a contract on a home? If yes, then wish them well.
If not, are they seeking, or receptive to your advice?. If not, then wish them well.

It seems to me to be similar to when my wife asks if she looks fat in the outfit she chose for the evening...

I made the mistake of giving advice once. They just got indignant and mad.
Now I just smile and wish people well. If they want to make poor decisions that's there problem. When there house is underwater they'll have no one to blame but themselves.

cearka says

I made the mistake of giving advice once. They just got indignant and mad.

Now I just smile and wish people well. If they want to make poor decisions that’s there problem. When there house is underwater they’ll have no one to blame but themselves.

I have gotten some bitter flack for my dire warnings as well. Part of what I learned in RE agent school (this was not in the text) was that from beginning to end, you have to keep buyers in "emotion" mode. Turn off their brain and appeal to them with fuzzy warm feelings of family, security, and PROFIT. Any information that runs contrary to this is met with the same level of disdain one feels when awaking from a really "pleasant" dream. Of course, it's not reality's fault that it was all a dream anyway. But the difference is that some realtor will keep that dream going long enough to collect their commission, the dream ends, and your efforts have been wasted.

shrekgrinch says

Yeah, that too. I know because I myself am in that boat with some people.

Same here. It's not like I'm going to rub it in, they know I won't. But it makes all discussions about housing kind of awkward. Some people I've tried to help and angrily dismissed me.... they have drifted into different social circles.

shrekgrinch says

I’ve had similar problems with discussing other things when I find fallacies people have that can easily be shot down with basic economics, history and civics. They don’t like hearing that, either.

Like this one?shrekgrinch says

From the side that can say, “See how the house prices collapsed even more because interest rates went up?”*

Please show me the time in history when this occurred.

tatupu70 says

Here’s a free lesson for you. When interest rates rise, incomes also rise. When incomes rise, home prices rise. Home prices depend much more on incomes than they do on interest rates.

Got it?

While there is some truth in that, it's not quite so simple. First off, rising interest rates in themselves do not create real wage growth. The devaluing of the dollar in fact decreases those real wages. The longer-term impact will be real wage growth, but it is very long term and will not be able to stop housing prices from tanking in the mean time. Also, interest rates for mortgages could significantly increase without an equally corresponding fed funds or discount rate change. Rates go from 4 to 8 percent in a purely leveraged system, nothing from nominal wage growth will offset the downward impact that has on housing prices.

klarek says

While there is some truth in that, it’s not quite so simple. First off, rising interest rates in themselves do not create real wage growth

No, definitely not. Interest rates follow inflation, they don't cause it.

klarek says

The devaluing of the dollar in fact decreases those real wages.

Sure, but house prices are quoted in nominal dollars, not real dollars. That's why they are often considered an inflation hedge.

klarek says

Also, interest rates for mortgages could significantly increase without an equally corresponding fed funds or discount rate change. Rates go from 4 to 8 percent in a purely leveraged system, nothing from nominal wage growth will offset the downward impact that has on housing prices

A lot of things could happen. I just don't find it very likely that interest rates will rise significantly without corresponding inflation.

tatupu70 says

No, definitely not. Interest rates follow inflation, they don’t cause it.

I never said they did.

tatupu70 says

A lot of things could happen. I just don’t find it very likely that interest rates will rise significantly without corresponding inflation.

They generally go hand in hand, but the effects are spread out over time. I don't think rates will rise either, but it won't be a zero-sum game if they do. Housing market will suffer more than wage growth will gain.

On the flip side, one of my friends started buying rental property back in 2000 and asked me if I wanted to join in. I didn't really have the capital too, and not sure if I would have even if I did.

He ended up borrowing a starter "loan" from his parents. Now he owns 5 apartment buildings, pays his mortgages on time, and is making tons of net positive revenue each month. So I guess caution can work both ways.

CaffeineAddict says

He ended up borrowing a starter “loan” from his parents. Now he owns 5 apartment buildings, pays his mortgages on time, and is making tons of net positive revenue each month. So I guess caution can work both ways.

On the flip side of that plenty of people went bankrupt buying real estate 4-5 years ago. The risk/reward has to be weighed. Right now the reward and risk are pretty vague... There's no clear safe haven... End of 2000 the NASDAQ started plummeting... Real estate was the logical safe haven. Currently the stock market is on a huge rally from 6000 bottom... If the market crashes again maybe some money will go back into inflate real estate... But if the market crashes again.. We'll have bigger economic issues to deal with also. Right now the only thing keeping people from rioting is steady unemployment checks and the fact that everyone's 401Ks look a hell of a lot better than a few years ago.

CaffeineAddict says

On the flip side, one of my friends started buying rental property back in 2000 and asked me if I wanted to join in. I didn’t really have the capital too, and not sure if I would have even if I did.
He ended up borrowing a starter “loan” from his parents. Now he owns 5 apartment buildings, pays his mortgages on time, and is making tons of net positive revenue each month. So I guess caution can work both ways.

He got right timing, and the support called "his parents", not "the bank". It looks like he was savvy too. What he bought was business not home. Him being able to use his resources for business is perfectly fine and good for him. You didn't have the luxury he had back then. Of course, you could be his partner, and get some profits out of the business though, it won't be you who made it happen. All things hindsight, such as would've, could've something something, are sort of pointless. Opportunity lost is a goner. Thinking about it won't make a difference. It can make you better prepared only when you actually look into it, find yourself about what is the lession you can learn out of the event.

"How do you guys respond to your family/friends/colleagues who are all excited about buying their first home?"

Twelve year ago, when I was in business school, I would probably crunch the numbers, list all the econcomic factor and argue the points to death.

But business school is not close to big time real world. You don't manage relationship by being confrontational, there is no benefit, you manage relationship by listening to what other has to say and respond positively but legitimently informed. So now after real business school, which is really training on how to deal with people, if someone ask me something like this, I would listen to their reasoning and congratulate them and offer some opinions and talking points if appropriate that are positive.

In the end, no matter your conviction, they may be right anyway.

Los Angeles Renter says

What do you believe will happen in the next say 5 years.. that would allow interest rates to rise to say.. 8%?

Any thing is possible in the magical fantasy world if you are willing to confuse Cause and Effect. It also helps if you mix up Correlation for good measure.

All you gotta do is Believe In Yourself and not try to deflate the housing market and hurt America.

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