Here's a few for starters. Many of these make the housing bubble even more dangerous (for the world and for more people) than the dot-com bubble
HB: Incredible leverage via no-down or low-down mortgages
DCB: Only 50% leverage allowed on stock trading accounts
HB: 4 to 6 month sale process after you make the decision to sell out
DCB: One little mouse click and you could've gotten out of that pets.com
HB: 70% of American households own a home (and are caught up now in the panic)
DCB: Significantly less people owned dot-com stocks
HB: When you run out of money, you get run out of your home
DCB: When you run out of money, you can't buy more pets.com
HB: Caused the financial ruin of America, the layoffs of hundreds of millions worldwide
DCB: It kinda sucked for about 24 months, then we found an even better way to get rich without working
At the airport gotta boogie that's my flight! Funniest response wins a prize.
May 20, 2006
Question of the day for HP'ers - How is the housing bubble different from the dot-com bubble?
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Well, it's all about getting rich without expending any effort, right? Warren Buffet is everyman's hero - a guy who's worth millions without ever getting a callus :)
Kieth if you buy a house in your 20s with a 15 year mortgage. You can't lose.
The name of the game is to force yourself to buy a reasnable house by shortening the loan period.
No matter how bad things gets. That young man will have his house paid for and be FREE in his thirties to save real money for retirement.
Sad how may people screw up their lives with a 30 year mortgage or an interet only mortgage.
Then you spend your entire life try to pay-off a debt and never have the time to save some real money.
There was no winning game plan in the DOT.com bubble.
dogcrap, i have to respectflly disagree. You can save money in your 20's too if you rent a reasonable apt, live with roommates or girlfriend/wife and invest wisely in say etf's or a target retirement fund.
Buying a housing in your 20's often means buying a condo or townhouse that you'll have to sell when you have kids in your 30's and need something bigger. Buying a "reasonable house" as you say is near impossible right now without an interest only or some other exotic mortgage. So while your advice is sound, it's impracticle given the current bubble. The wise man (me) will short stocks and buy a house on the cheap in 18 months :)
How is the housing bubble different from the dot-com bubble?
HB: Tens of thousands of illegal aliens will lose their jobs, but some people actually want them to stay.
DCB: Tens of thousands of geeky virgins lost their jobs, and everyone wants them to go to Mexico.
Dogcrap - that's a good idea in theory but in reality it's a lot harder. We're all caught up in this rat race and ALL of my friends have moved up from their first houses into bigger/more expensive McMansions. Even some friends of mine that have a nice, decent middle-class house and they are 5 years into a 15 year mortgage. Guess what, they are trying to sell and build a McMansion with a 30 year note even further away from their jobs.
Having a paid off house is a pipe dream for anyone younger than their 50s unless they own a trailer. No one owning condos will EVER pay them off, and even if they have the note paid off, it won't seem like it due to the contant HOA and assessments.
I've been wanting to buy a condo/townhouse but I don't know if I'll be moving in a couple of years. If I get married and have a family, then I will have to sell. I think I will just wait a few years until I have a family before I buy. That should be at the bottom of the bust and I will get the best price
Both bubbles were caused by Greenspan. The dotcom bubble happened when Greenspan dumped $2 trillion into the economy starting in '97 because he was afraid of a Y2K run on the banking system. That crisis never happened, and all of that liquidity found its way into the hands of bankers and VCs who gave money to anyone with a pulse.
The housing bubble is similar, with Greenspan dumping $3 trillion into the system after 9/11. No one in their right mind wanted to invest in stocks, so the liquidity flowed into real estate instead.
The question now is which asset class will host the next bubble? The smart money has already moved into commodities (Warren Buffett sold his silver holdings last month - LOL!), and we're seeing the suckers buying at the top. But the commodities markets are too tiny to absorb enough money to make a respectable asset bubble. Any ideas as to what might be next?
I keep seeing that interest rates will have to keep rising. With double diget interest rates what becomes the best investment? Bonds?
Dot-com bubble was full of pimply geeks
Real estate industry is full of young blond hotties
How about this!
I put a stop loss in on my .bomb stocks, I lost 10% of my profit and then watched idiots lose the next 60%.
There is no stop loss in housing, because when there are no buyers, there are no buyers! Just ask the people living in Phoenix, inventory has gone from 4500 a year ago to 45k today! When you cant sell your overpriced crap box you are stuck paying those payments and taxes.
By the end of the year I think there will be 100k homes for sale in Phoenix and 25% unemployment, the jobs remaining will be 7-10 dollars per hour, good luck with that mess!
It's true that Buffett sold his silver position, but keep in mind that he also said that he 'sold too early' and that he did not make a profit from the sale. If he believes that he sold too early, it obviously means he believes that silver will be going up.
G33ks are teh hot.
From the ground, the Phoenix RE situation is really not that bad. Sure there are For Sale signs but it is no worse than 2002 IMO.
You'd probably have to see 100K homes on the market before things get ugly.
Warren Buffet once said "the reason I am so rich is that I sold too early"
Maybe he knows something about the commodity market, Stephen Roach at Morgan Stanley felt the commodity market had peaked. . .if housing tanks, and unemployment goes up (beause so many jobs are in real estate industry/construction/title, etc.) then we will be in a recession, and interest rates will fall. . .BTW, the 10 year yield is barely above 5% again. . .so commodities will NOT be hot. . .
The new and improved real estate Pet.Com sockpuppets have new lipstick, more cleavage between the plastic and they all drive the same leased luxury cars ?????
Stop IT...I'm trying to be Helpful HERE !
Moman - you nailed it!!
"Having a paid off house is a pipe dream for anyone younger than their 50s unless they own a trailer"
So why even care if one gets foreclosed on - take out an ELC - then foreclose - buy silver- grab a beer and watch the world implode.
In the dot com bubble, you actually had to be somewhat clever to get rich, and nerds finally got laid, for 18 months at least.
In the housing bubble, bitchy prom queens and stupid jocks got rich and the nerds just can't freaking wait to see them get the shaft.
More seriously:
The dot com bubble ruined the Fantasy Island economy. Innocent bystanders were mostly spared.
The housing bubble will ruin the real economy, and the entire world will ensure everyone's ruin.
Buffett sold his silver back in 2002, not last month. As long as the dollar continues to fall, gold and silver will rise.
You don't have to pay a big mortgage, taxes and upkeep on your stocks.
Dogcrap green: time = money. The money you "invested" in your house during your twenties just ate up a decade of compounding interest that you can never get back. Isn't it commonly understood that investing early results in more money than "catching-up" later, (after the mortgage is gone)?
The truth is, your home is a barely appreciating asset that you should avoid throwing money into. Money spent on your home should always be for your own enjoyment and almost never for "return-on-investment" purposes. The historical return on housing is 3.4% - barely above inflation or a basic savings account. (See The Truth About Money and the Millionaire Next Door for more on this.)
Furthermore, how many people buy a house in their 20s, pay off the mortage and are content to live in that same house forever, mortage free? Eventually wouldn't someone's needs change and they would upgrade - so, now they still have a mortgage but also did not start saving for retirement until their 30's - oh wait, their 40s when the next mortagage is paid off.
You actually owned the stocks,(unless they were bought on margin), whereas the houses that many people now "own" are actually owned by the bank. And worse, the people are actually owned by the debt. I really can't wait until all those slick realtors fail. They are setting so many people up in bad deals, and I know the people are stupid for going along with it, but they believe the BS that to be a successful american, you must own your own home.
The truth is, your home is a barely appreciating asset that you should avoid throwing money into. Money spent on your home should always be for your own enjoyment and almost never for "return-on-investment" purposes. The historical return on housing is 3.4% - barely above inflation or a basic savings account.
Generally I agree with the points that you have made, but remember that the return on your house should be based on the down payment plus renovations/repairs, not the total purchase price.
If I buy a $500,000 house and put $50,000 down, I'm going to base my return when I sell off of the $50,000, not the $500,000. In addition to the $50,000, I would add in renovations. If I didn't live in the house, I would also throw in all other expenses (debt repayment, utilities, etc.) to determine the ROI.
One of the biggest reasons why people invest in real estate is because of the leverage factor, the fact that you can borrow 90%, 95%, or even 100% or more of the property's value when you buy. Donald Trump and any other big-time real estate developer got rich not from 3.4% returns, but from big returns with the use of OPM (other people's money).
What's wrong with you people?
ARE YOU ALL ON DOPE?
"in theory"
"time value of money"
ROFLMAO
Talk about theories.
A 20 something year old kid is suppose to sock cash away in the stock market. Look at the cash and not give in to keeping up with the jones when he sees he has a whole $10K saved up????!!!! You freaking morons.
You can be offensive all you want with your "theory" slames.
Facts are the facts.
A 20 something year old kid can pay off a $100,000 debt in 15 years yet never be able to save the $200,000 that house will be worth in 15 years because paying off a debt takes less dicipline than saving money.
FACT
not theory
One more fact - I won on the Kentucky Derby. I won on the Preakness. Check out my horse racing blog if you want to make some real money.
Chris G - good point about the effects of leverage. Of course leverage can be a killer if the market heads south...
DCG - Just so I understand your position:
Use a mortgage as a defacto savings plan because people in their 20 s are required to "keep up with the Jones's" and will become easily discouraged with how little they are able to produce - you indicated a total of $10K over the course of 15 years, if invested in stocks (annual average return: 10-11% btw). If so, okay, but yours is a pretty cynical position based, not on financial formulas, but on your perception of (young) human behavior that does not allow for self-discipline or real financial knowledge.
I am assuming the stuff about horse racing was a joke. Becuase you don't really expect any to take you seriously about financial matters if you consider betting on horses as a financial strategy. Then again, this may explain the $10K/inability to save thing...
The little people argue, how amusing.
Housing in Phoenix is still a bargain. Dot com stocks were always crappy paper investments.
If you live in Phoenix - more specifically Mesa - drive past the intersection of Broadway and Gilbert from time to time - illegals use this corner to post for work - over the passt 2 - 4 months the numbers have increase significantly - and these hoards are hanging on these corners and back street ALL DAY - wonder why - oh wait NO NEW HOMES ARE GOING UP IN PHOENIX = NO NEW WORK FOR ILLEGALS - god am I smart or what!!!
oh wait - one more revelation (for all u bible thumpers)
The number of YARD SALE signs in thses neighborhoods is also signficantly increasing -
WHY you ask -
HMMMMMM...no work in new houses - no money - bills
What a concept - SELL YOUR TV for money to pay rent !!!!!
Dang I amaze myself!!!
Last one - for you futurist - no money - you already sold the TV - no what??
Hmmmmmmm---steal something to sell!!!
I am on a roll here folks!!!!
Richard, ya foo, yard sale signs are going up because it's spring! Spring is the opening of yard sale season. Now, if you have YOY statistics for yard sales, we'll listen.
And then point and laugh.
oh- you gotta read this whole thing:
http://www.palmbeachpost.com/localnews/content/local_news/epaper/2006/05/21/c1a_INVESTORS__0521.html
a sample:
With no luck selling his Martin's Crossing townhouse, Passarelli asked Lennar to release him from the other two houses on which he has contracts — in Newport Isles and Baywinds, near Okeechobee Boulevard in West Palm Beach — but the builder has repeatedly denied his request, he said.
Fearing they'll lose more if they hang on to homes in the community, some investors are walking away from deposits of $30,000 to $50,000, said Stuart-based real estate broker Mike Morgan, who sold several homes in Martin's Crossing.
Hi, folks
This is an end of AZ denial:
"Housing decline triggers layoffs"
by
Glen Creno and Catherine Reagor
The Arizona Republic
May. 19, 2006
http://tinyurl.com/p7ptg
I keep seeing that interest rates will have to keep rising. With double diget interest rates what becomes the best investment? Bonds?
Buying bonds during volatile interest rate periods can be rewarding. The general rates must be pretty good and well above the background inflation rate. Then buy your bonds on the interest rate spikes.
You can sell them at their new higher price when rates retreat. Or put them in the IRA and have a nice yield. We had some nice 10% long treasuries in our IRA that just expired.
oh yeah - spring time and 100 plus in the shade - pull out them lawn chairs and watch the yard sales pop up everywhere - it's spring time - yippie!!
Freag'n morons!
Richard said...
oh yeah - spring time and 100 plus in the shade - pull out them lawn chairs and watch the yard sales pop up everywhere - it's spring time - yippie!!
C in ABQ is OWNED!!!!!!
LMAO.
Dogcrap, I still disagree with you, and I don't think I would take any advice from someone who cannot spell a simple word like "racist", not "raceist".
Do not forget the time value of money. Money tied up in a slowly appreciate asset (houses) cannot be invested in high growth vehicles. Just because everyone "has to have a place to live" doesn't mean they can't rent it, invest wisely, lower their costs, and pretty much live free off the interest. That's my goal.
Richard and Anon,
You guys are funny. Richard do you honestly believe no one is building houses in Phoenix? Really? Completions may be slowing down, 45k-60k homes is not zero. Secondly, Anonymous, 25% unemployment? Really? Have you ever been to Phoenix? Check the BLS (97,800 jobs created in the last 12 months), and then take Econ 101. But thanks for the laughs in the meantime.
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