HP'ers, please feel free to add your wisdom and advice to this letter to the world:
_______________
Dear World,
This letter is for anyone considering renting money from a bank in order to possess a home:
* If you buy a home today, there is an extremely strong chance that it will be worth less in the future, in some cases SIGNIFICANTLY less.
* Renting a home is significantly less expensive on a monthly basis than buying (financing) the same home. Just do the math.
* The late great worldwide housing ponzi scheme is over. Some countries are getting the memo a bit later than others, but the tide has turned, the days of wild speculation are over, and we will now revert back to the historical mean.
* It's never different this time. The fundamentals will always matter. And it will always be the P/E stupid.
* Home prices rising to the point where working people cannot afford a home is not a positive development for society.
* All financial manias feature loose credit. This current financial mania featured the loosest credit in the history of mankind. The resulting cleansing will be historic and horrific.
* Real estate clerks (i.e. REALTORS) and mortgage brokers are not your friends, they are not interested in your well being, and they will do anything to earn their commissions.
* Rent. Do not buy. After the collapse, there will be a time to buy again. Just look to the P/E and you'll know when.
38 comments:
how does a lay person with no economics background, college or otherwise, figure out P/E as the indicator for the right time to buy? Thanks for the (internet) lesson!
KEIF,
What is a "working" person. This is the favorite line of Democratz. I go to work every day, does that qualify me or do I need to make $9 an hour and less to qualify.
Is a CEO making $10 million a year a "working" person? He goes to to work too.
So please enlighten me if you would.
ditto anon, 4:44:43.
i consider myself relatively intelligent but i don't understand p/e ratios. can someone please enlighten?
JAFO
Anon 4:44:
When prices increase 20% year over year and Keith says we're in a housing crash, my best advice is to discard anything Keith has to say.
NEW YORK -- New York's most expensive building is the Time Warner Center in Columbus Circle, with an estimated market value of $1.1 billion.
That's up almost 10 percent from the previous year -- reflecting that the city's real estate market, while it might not be white hot, is still plenty warm.
New York property values rose 19 percent last year, doubling the gain recorded in 2005, according to the city's finance department. The value hikes defied a national housing slump.
The biggest increases were recorded in the Bronx and Brooklyn, where property values soared nearly 28 percent. Manhattan registered a 16.9 percent gain.
Homeowners in Staten Island and Queens saw property value increases of 18 percent and 12.1 percent.
Anonymous-
Try looking at rentals (good sites, Realtor.com, Apartments.com and if you do your research, Craiglist) Focus in on what kind of home you are interested in, and see what the prevalent rent is.
Then check a site like Zip Realty, Realtor.com, and again, with a grain of salt, Craiglist.
When renting is a much cheaper option than buying, now is not the time to buy, if you are buying purely on the economics of the thing.
If "pride of ownership," and the "opportunity to build personal wealth" through owning a depreciating asset are important to you, and you can afford it, then I suppose now is as good a time to buy as any.
P/E ratio on homes:
The price-to-earnings ratio or P/E ratio is the common metric used to assess the relative valuation of equities. To compute the P/E ratio for the case of a rented house, divide the price of the house by its potential earnings or net income, which is the market rent of the house minus expenses, which include maintenance and property taxes.
http://en.wikipedia.org/wiki/Housing_bubble
On P/E ratio:
Real estate investors look for positive cash flow on any investment. in today's environment where renting is so much less than owning, nobody would invest in real estate except for the promise of future price appreciation. Now that that future price appreciation is dubious at best, it goes back to the fundamentals which are essentially what positive income will I enjoy vs. my monthly ownership costs.
In other words, prices (ownership costs) have to come down significantly, or rents have to rise significantly.
Since rents are tied to average household income of a community generally, I don't see rents going up any time soon, especially with hundreds of thousands of vacant homes on the market.
Thus prices will come down to the point that ownership costs are LESS than rental income, so as to produce positive cash flow for any sane investor.
Most sane investors would expect earnings of at least what they could get on bonds or cd's, or around 6% today. So rental income would need to be 6% more than their total monthly expense. We're not even close today.
Hope that helps. also see
http://en.wikipedia.org/wiki/PE_ratio
Guidelines put mortgage lenders, brokers on notice guidelines
David Pierce
Pocono Record Writer
January 13, 2007
HARRISBURG — Pennsylvania's 3,000 mortgage lenders and brokers are being put on formal notice of new state Banking Department guidelines for "acceptable" conduct.
Acting Banking Secretary Victoria A. Reider outlined the new policy in a letter Friday to mortgage companies.
The guidelines — published Dec. 16 in the Pennsylvania Bulletin — offer examples and definitions of practices considered dishonest, fraudulent, illegal, unfair, unethical, negligent or incompetent.
The warning comes on the heels on a national study released last month on subprime mortgages that predicts 2.2 million households have or will lose their homes to foreclosure.
It also comes after word that Monroe County's foreclosure rate last year topped 800 filings for the first time since 2003, when the Banking Department commissioned a study on Monroe's record-high foreclosures.
"This policy will help ensure that homebuyers receive the highest level of service when they're making these important decisions that will impact their financial futures," Reider said.
Subprime loans carry higher interest rates and less favorable terms than traditional mortgages but are often used by borrowers who can't qualify for lower interest loans.
Many subprime loans, said to account for nearly a quarter of all home loans, have sudden large jumps in interest rates that take effect a couple years after the loan is issued.
Some also have pre-payment penalties that prevent borrowers from refinancing into a new loan without incurring costs that make it impossible to realize a savings.
Reider warns that companies that fail to conform to the new guidelines could face suspension, revocation or non-renewal of their licenses.
Several changes were recommended in a 2005 Banking Department report to the General Assembly on statewide mortgage foreclosures, conducted following release of its Monroe County study. The statewide report makes recommendations to curb abusive lending practices.
But the department and other state agencies aren't doing nearly enough to stop abusive home sale practices, says one local homeowner activist.
"Gov. Rendell's office should take immediate action to investigate and find remedies to protect homeowners who have continued to be victimized by the criminal element that consistently perpetrates fraudulent practices involving innocent homeowners throughout Monroe County and Pennsylvania," Pocono Homeowners Defense Association President Al Wilson said in a press release.
Wilson contends the home sale abuses will continue until county and state law enforcement officials prosecute the perpetrators and put them in jail.
Wilson also called on Rendell to meet the request of the Pennsylvania Homeowners Defense Association — a home buyer consumer counseling agency — for funding to continue its efforts.
Homeowners or potential buyers seeking consumer information can make an appointment with the group by calling 570 424-1088.
more: http://www.poconorecord.com/apps/pbcs.dll/article?AID=/20070113/NEWS/701130372
A working man is a person who can't afford to "quit one's day job" and survive off the passive income of one's investments in a middle class manner.
So even a run-of-the-mill daytrader counts as a working man unless his average trading lot size is in the 100s of thousands of shares a/o doesn't need to place 15+ trades per month to keep a roof over his head.
Please stop speaking in generalities and about bubble markets. What is reasonable rent to begin with? No one ever seems to get down and discuss the gritty fundamentals when asked. We are moving back to Phoenix because the law firm my wife worked for made her an offer she couldn't refuse. I've been looking for a place to there to rent. Sorry, no bargains in rent either.
We are looking in Central Phoenix. Yes, there are good bargains if I want to live out in the burbs and commute an hour each way...not. I found a one bedroom condo off Central downtown for $1200 a month and a small two/one tudor house for $1245. We can live with a one bedroom for a few months but anyone who has ever lived with another person in a one bedroom knows that isn't ideal. The two bedroom is good, small yard, no garage and we know how summer heat is in Phoenix but privacy and location is good. Now tell me even in Phoenix why renting is better? No equity buildup, no tax deduction (and in our income bracket we need someting) and $1245 for a house that isn't 1000 sq ft? I'm sure I can find something to buy with a payment in that range and be much larger.
Do you think most of us here care if some guy rents a house in Malibu for 1/2 the price of owning? I'm sure there are many examples like that and there are many examples where owning is equal or even less. You can definitely buy here in Austin for less than rent unless you get into the upper price ranges, and I think that is generally true everywhere.
Again, it all depends on each market and each submarket within those markets.
No expected increases huh? 19% appreciation in NYC is what, a decline? Raise your hand if you live in New York, are renting and wish you'd bought something in the past 5 years....
Bloggler that does not understand "working class" should look at Encyclopedia Britannica Online, it has been 230 years of Independence from Britain (Declaration of Independence on 4 July 1776), but still we need them for refernce words in English.
this is the other side of the news (Mr. Hyde), from The New York Times,
More on Housing Prices
By DAVID LEONHARDT
Published: December 5, 2006
The broadest government measure of house prices is calculated by the Office of Federal Housing Enterprise Oversight, the agency that oversees Fannie Mae and Freddie Mac. The idea at the heart of the index is a good one. It tries to do the same sort of apples-to-apples analysis I described in this week's column, tracking individual houses over time to see how much their price has changed.
But it has three big weaknesses that end up making it much less useful than it could be. First, it excludes any mortgage over $417,000, because Fannie Mae and Freddie Mac — the two big mortgage buyers — don't own loans so large. Obviously, many mortgages on the coasts are bigger than that.
Second, the data for individual metropolitan areas includes not just house sales but also appraisals done for a mortgage refinancing. Appraisal values, as many people know, tend to be inflated.
Finally — and by necessity — the index includes only houses that have actually sold lately. In a falling market, with an enormous number of properties for sale, the houses that are selling tend to be more appealing than the average house.
"We're dependent on houses that are actually transacting," said Patrick Lawler, the chief economist at the oversight agency, which is known as Ofheo. "It's true that may not evenly reflect the market."
Right now, all these flaws seem to be making house values look much stronger than they really are. According to the latest index, for example, the average house in Miami would have sold for 22 percent more this summer than a year earlier. You won't find many house sellers in Miami who would agree that's true.
As Thomas Lawler, a housing economist (and no relation to Patrick Lawler), recently wrote in a report to clients, "Well, there's a growing view that this index...doesn't reflect what's really going on with home prices."
Mr. Lawler of Ofheo disputes that. He acknowledges that the index has fewer high-priced houses than the market as a whole but says that it still picks up many expensive homes, because they often have mortgages worth much less than the house's value. He also pointed out that the Ofheo data covers only single-family homes, not condominiums (which in many markets are doing worse than houses).
More broadly, Mr. Lawler says that the Ofheo index is based on an enormous amount of data that is more accurate than any individual perceptions of a local real-estate market. "The indexes," he said, referring to Ofheo's measure and others, "all do a good job of measuring what they're designed for."
My sense, though, is that the blind spots in the Ofheo index are big enough to make a real difference. In fact, the index now appears to be less accurate than the numbers reported by the National Association of Realtors, which are actually calculated in a less sophisticated way.
The Realtors don't track individual houses over time. They simply look at the houses that happened to sell during a given quarter and calculate their median price. So these numbers are even more strongly influenced by the mix of homes being sold.
If a group of mansions is suddenly built in a city, they will artificially make all house prices there appear to be rising. Or if the houses that are sold one quarter have lost less of their value than the typical house, which seems to be happening now, the Realtors' data will make house prices look healthier than they truly are. Yet despite this bias, the price drop in some markets has become big enough that even the Realtors have been reporting small declines in south Florida, Boston, Washington and parts of California, among other places.
Unfortunately, there is no easy fix to some of these problems. Robert Shiller, a Yale economist who has been a pioneer in developing house-price indexes, agrees that the mix of houses being sold can affect the numbers. "When the market drops, people who bought near the peak are slower to sell than people who bought when prices were lower than they are today," Mr. Shiller wrote in an e-mail. "This means that some sales do not occur because people are holding out, and in this sense the indices are biased."
But it's not clear what economists can do about this bias. They can't measure sales that aren't happening. They can't, in other words, tell you what your house would sell for if you decided you had to sell it this month. In their own index — which are also offering a pretty rosy view — Mr. Shiller and his colleagues have opted not to adjust their numbers, since any corrections "would be ad-hoc corrections that would not be objective."
For homeowners, the lesson is not to take any of these statistics too personally. The long housing boom has caused a lot of Americans to think of housing much as they think of stocks — as an investment whose value can be tracked almost in real time. But there is no equivalent of the Standard & Poor 500 Index for real estate. Just because the government's measure shows a 10 percent increase in your area's home prices doesn't mean that your house is 10 percent more valuable than it was a year ago. It might, in truth, be less valuable than it was a year ago.
Economix
What Statistics on Home Sales Aren’t Saying
By DAVID LEONHARDT
Published: December 6, 2006
Down in Naples, Fla., a fast-growing city on the Gulf of Mexico, there was an auction of houses about a month ago.
Related
More on Housing Prices (December 5, 2006)
Reader Responses to the Column (December 6, 2006)
An auction isn’t the usual way to sell a home, but it can make sense for people who don’t want to leave their houses on the market for months at a time and also don’t want to take the first offer to come along. So on a Saturday morning inside the Naples Beach Hotel and Golf Club, a few dozen houses went on the block in front of about 500 audience members.
Based on the official housing statistics, you might have guessed that the sellers would have made out just fine, despite all the talk of a real estate slump. According to one widely followed real estate index — tabulated by the government agency that regulates Fannie Mae and Freddie Mac — the average house in Naples sold for 20 percent more this summer than it would have a year earlier.
But that wasn’t what happened at the auction. In fact, if you were at the beach club that Saturday, you could have been excused for thinking that the real estate market was crashing.
The highest bid on one three-bedroom ranch house with a pool was $671,000. In 2005, the same house sold for $809,000. Another house, just steps from Naples Bay, received a high bid of $880,000, compared with $1.35 million a year earlier. On average, the bids suggested that the houses at the auction had lost about 25 percent of their value since 2005, according to Thomas Lawler, a real estate consultant who analyzed the results.
Now, Naples is not a typical housing market. House prices nearly tripled in the first half of this decade, and speculators, who are more likely than residents to sell a house in a panic, flooded into the area in recent years. But with that said, Naples is not as unusual as you may think.
The truth is that the official numbers on house prices — the last refuge of soothing information about the real estate market on the coasts — are deeply misleading. Depending on which set you look at, you’ll see that prices have either continued to rise, albeit modestly, or have fallen slightly over the last year. But the statistics have a number of flaws, perhaps the biggest being that they are based only on homes that have actually sold. The numbers overlook all those homes that have been languishing on the market for months, getting only offers that their owners have not been willing to accept.
In reality, homes across much of Florida, California and the Northeast are worth a lot less than they were a year ago. The auction in Naples may have exaggerated the downturn in the market there, but not by much. Tom Doyle, a Naples real estate agent, estimated that a typical house there, sold in the normal way, would go for about 20 percent less than it did the previous fall.
In the Boston area, prices have fallen about 10 to 15 percent since the middle of 2005, estimated Chobee Hoy, who owns a real estate brokerage firm in Brookline. Jerome J. Manning, who runs the Massachusetts-based auction company that conducted the Naples sale, told me he thought that values had dropped about 20 percent around Boston. (The government, meanwhile, says the average price rose 1 percent from last summer to this summer. But here’s all you need to know about how well the government tracks the Boston market: the index excludes any mortgage larger than $417,000.)
In September of last year, Ms. Hoy sold a one-bedroom condominium in Brookline for $395,000. She recently sold another apartment of the same size in the same building for $300,000. Since March, her firm has been listing a house in the Fisher Hill neighborhood of Brookline that cost $995,000 when it last sold, in the summer of 2004. Ms. Hoy expects it to sell this time for less than $900,000.
The market in northern Virginia is similar: prices are down 10 to 15 percent, according to an analysis by Mr. Lawler, a former Fannie Mae executive who’s based there. In Portland, Me., the typical house has lost about 10 percent of its value in the last year and a half, said Bill Trask, the former head of the local Realtors’ board.
In New York City, where co-op boards generally bar the door to absentee speculators and creative mortgages, prices seem to have slid a bit in the last few months, but only to roughly their 2005 levels. In the New York suburbs, though, values have fallen perhaps 10 percent or more since last year. Prices also appear to be down in Sacramento and San Diego.
For many homeowners, of course, the decline doesn’t much matter. They didn’t really benefit from the run-up, and they won’t suffer from the decline. And for any renters hoping to buy a home, the fall in prices is downright good news.
Unfortunately, there are also a lot of families that took on huge mortgage debts based on the ephemeral peak values of their properties. In effect, they cashed in on the housing boom without cashing out. As Ed Smith Jr., the chief executive of Plaza Financial Group, a mortgage brokerage firm near San Diego, said, “So many people picked up their homes, turned them upside down and shook them like a piggy bank.”
The withdrawals have been so big that the average household in Boston now has slightly less equity in its home than it did in 2000, according to an analysis by Moody’s Economy.com that took inflation into account. And that analysis used the house prices reported by the National Association of Realtors, which appear to be more accurate than the government’s data right now but are still too rosy.
Then there are the people who bought their homes in the last couple of years and made almost no down payment. Many of them may now be underwater, owing more on their mortgages than their houses are worth.
Most worrisome, growing numbers of these families are falling behind on their mortgage payments, and they won’t be able to bail themselves out by refinancing or selling their homes. “We’re now going to combine a high amount of debt with falling home values,” said Mark Zandi, chief economist of Economy.com.
For the broader economy, this may turn out to be just a hiccup. Big piles of debt can often look scarier than they really are. Then again, the housing slump of 2006 may also be the start of something larger. Mr. Zandi considers it to be “the most significant threat to the global expansion.”
Over the last few decades, the world’s financial system has endured a crisis roughly once every three or four years. There was the stock market crash of 1987, the Asian and Mexican meltdowns in the 1990s, the dot-com implosion of 2000 and, most recently, the aftermath of Sept. 11, 2001. We may now be living on both borrowed money and borrowed time.
E-mail: leonhardt@nytimes.com
Thanks for the info and tips. Further question to calculate P/E:
Price of the house/potential earnings or net income; is this calculated on a year to year bases, on the size of the mortgage, on the years to pay? Furthemore, are equity and inflation taken into consideration?
For the original question, I visit for
1)the shadenfreude
2)for my daily dose of groupthink on the housing crash and
3)I love the in-the-face attitude of this blog toward the FB's and the REIC....hence the "bubble blog with attitude" keeps me comin'!
Anyone knows how to find FREE info on foreclosures on the internet? I mean withouth "so-called" free tryal and/or "give us all your info" sites, as Property Shark, or Realty Track. Thanks¡
The right time to buy is when you can afford to home with a traditional fixed-rate 30 year loan with 10-20% down.
Next question?
Sage advice Keith. I'm not the most savvy on the housing P/E but just run the numbers and if the monthy carrying costs w/ tax breaks and maintanance make it cost efficient to own over rent the own, if its the converse then just rent and let the owner deal with the monthly losses, then when the P/E flips offer to buy it of the poor devil. He'll be happy as hell to dump it. The irony is that when the P/E scales tip is when you should hold onto the property because that will mean the next up-swing in values is in the offing (but that could still take years and we all do need to more forward with our lives personally and financially).
Isn't the "P/E" called "the gross multiple" that real estate investors use to price units "7 times gross" which means the price is 7 times gross annual income?
Nothing about buying gold and oil?
No mortgage payments for 12 months!
And someone wants a patent for that idea. Did the guy who gave out free pizzas as a deal closer get a patent too?
http://www.rismedia.com/wp/2007-01-07/california-company-announces-no-mortgage-payment-for-12-months/
RISMEDIA, Jan. 8, 2007-How does "No Mortgage Payment for One Year" sound? Mortgage Payment Deferral, Inc., in Roseville, California has just released a patent pending mortgage program that allows homeowners to defer anywhere from 3 to 36 months of their mortgage payments. The new program is called 12 Month Deferral or 12MoDef. What's more, this new product can be applied to ANY type of refinancing loan.
I think you brought too much dignity to the lending process by assuming people borrow only from banks...
What about the array of sub-prime lenders, which are currently shutting down now so they don't have to buy back some of the loans they made?
A Tale of Two Cities and one Bubble
Extra12/27/2006 6:00 PM ET
Many New Yorkers' choice: Food or rent?
Wall Street's multimillion-dollar year-end bonuses shine an unflattering light on the city's wealth gap.
By Reuters
Food or rent? That is the daily choice faced by about 1.2 million of New York's 8.2 million people.
Someone above asked, "how does a lay person with no economics background, college or otherwise, figure P/E ..."
I'm an educated person but have paid little attention to economics in general, and the market, whatever market.
It's become very interesting in the last year or so. I remember the dot-comm crash and it seems we're heading into something even more "interesting" now.
Where does one start learning the basics of economics? There's a lot on the 'net but it's pretty scattered and pretty ideological. The Austrian School?! Any suggestions, books or sites, cites?
Thanks.
Oh, and the "head and shoulders" pattern? Where does that come from?
I also see graphs of some price or currency and someone goes and draws these converging and diverging lines, showing, I think, some trend, I think, and they draw out a set of conclusions.
Do they just pull that stuff out of the air or is there something more quantitative I'm missing.
I would truly like to understand this more. It helps to know the assumptions and tools that are commonly used, but on the surface I'm rather skeptical of some of what I see.
Sir -
Agree housing is overvalued.
Agree Real Estate agents are overpaid monkeys and will be killed by internet listing services and the Justice department lawsuit.
Your reversion to the mean argument is a little loose though. What reversion are you talking about ?
annual appreciation will revert to the mean ?
prices will revert to historical trendline via price falls ?
and P/E is better expressed as rent vs. buy calculations, incorporating all costs and benefits. owning, even while renting money from the bank, does provide more control than renting and thus will never be equivalent, but things are so out of whack right now that house prices will plumment further.....
The right price is 28-35% of your monthly net income goes to PITI after a 20% down payment.
To foxwoodlief "Do you think most of us here care if some guy rents a house in Malibu for 1/2 the price of owning? "
Dear foxwoodlief, if you do not care about what happens in Malibu, what makes you think that anyone should care about what happens in Phoenix.. unles our investment income came from there? Maybe that is where the whole problem started, when we do not care but about our belly button, be it in Malibu or in Phoenix.
re: anon 11:09
For the austrian theory, the place is: www.mises.org . A good starter book, IMO, is Gene Callaghan's
www.mises.org/books/econforrealpeople.pdf
Lots of other books there - in true academic style, they are downloadable "for free". Murray Rothbard's books on the
Depression and also his invective laden scholary researched and extensively footnoted book on the establishment of the Federal Reserve is also a must.
For monetarism/ Chicago school of Economics its so ingrained in standard business newspapers that its all around you.. I'd go to the Federal Reserve's website - education section. The New York fed had a good one on how they create
money.
All of these sites are ideological. You can't separate ideology from economics. Marx didn't call it polical economy for nothing - and talking of Marx - Theories of Surplus Value Vols 1 2 or 2 is a turgid but complete account of 18th
and 19th century theories of (economic) "value". Try www.marxists.org/archive/marx/works/download/pdf.htm
-K
Oddly ... back when interest rates were 8+ my landlady in northern CA had a 300K loan balance (recent refi I think cos she'd been there since it was new in 1967) on her house that was costing her atleast 4K a month and I rented it for $1700. That was the highest I paid for rent ever, and the very next house I rented was 400 sqft bigger and $50 less and his purchase price was 380K - it was in a slightly worse neighborhood than the previous one. Not bad really, just 1 step down from the first one.
Somehow that seems to be a theme in northern Californa. Of course the first house evidently is worth 600K+ as per zillow, and the second was sold last year for 580+.
I dunno how a damn place at the peak of the tech boom (99-2000) in the Silicon valley area can still have negative cash flow.
IMHO ... 99 already was a bubble year though. Wonder what 97 was like around there ... bubble still ???
Cool.
Cow_tipping.
PE ratio for houses is price to "rental yield".
It's a little rough b/c interest is tax deductible, but you also pay taxes, maintenance, etc.
Where I live PEs on houses are about 10. IE a house costing 200K costs about 20K per year to rent.
In CA the same rental house costing 1500 per month might cost 600-700K. 3x as much. So you're paying 3x as much for the same "rental value". Why? Becuase people expect prices to go up. Which is why they went up in the first place. But it doesn't mean they'll continue to go up.
It's kind of like in teh stock market. Some stocks trade for richer PEs b/c they expect the earnings to go up. In houses people assume it will appreciate no matter how high the PE is to begin with.
As for the AZ renter, if you can find a home for a mortgage of 1500 per month or 20K per year, then maybe buy instead of rent. 1500 sounds expensive for rentals in phx. You are paying for the "equity buildup" though. It's your money that's paying down the loan.
I love how David Liar tells us EVERY MONTH that the real estate market is heating up! After 6 months, it is time he admits - the gravy train is gone!
When I buy to live somewhere, I don't compute "future earnings" of the property.
I compute yearly 1) mortgage payment + 2) property taxes + 3) property insurance + 4) maintenance (a few thousand bucks per year -goes into savings if not spent because you KNOW at some point it will need to be spent).
Add all the above up and divide by 12.
If the figure is much higher (ie. more than a couple hundred bucks) than what it costs to rent a comparable property, then just keep renting.
If there's space for renters and you don't mind or WANT to do that, then you can figure that in and it may make buying more attractive. But I wouldn't figure in renting rooms out just to make the place financially feasible to myself. What a headache.
Silicon Valley was probably like Seattle. Our bubble started in 96 or 97 with the dotcom wealth, which pretty much doubled prices overnight. So it's been going pretty strong for 10 years now.
The initial push in late 90's was with real money but by 2000 it all came down to funny money/lax lending .
In the past few months, some economists have said they expect prices to eventually go back to late 90's level, which makes sense to me. That was about when people could still buy without a freaked out loan that's bound to fail.
The next few years should be mighty interesting.
While I agree 110% on your letter, I think we all should keep this our little secret. More houses to pick up when the bottom hits, then sell when things ramp up again.
Don't overpay for any assets. It's just a house. There are millions of them on the market right now.
NJ ASBURY PARK PRESS: Real Estate article *FALLOUT*
=====================
Fallout
With home sales down about 20 percent in Monmouth and Ocean counties, real estate agencies are cutting expenses and diversifying their businesses. And as the business gets more competitive, some agents are deciding not to renew their licenses.
Posted by the Asbury Park Press on 01/14/07
BY DAVID P. WILLIS
BUSINESS WRITER
Post Comment
It's not easy being a real estate agent anymore.
In the heady days of the market in 2004 and 2005, houses were selling like hot cakes as prices rocketed up.
That's no longer the case. As home prices showed signs of peaking last year, buyers sensed a change in the market and no longer were willing to pay the asking prices on many properties. At first, homeowners were reluctant to drop their prices. The result? Real estate sales stalled in 2006.
And just as sellers and buyers have been struggling to adjust to changing market conditions, so has the real estate industry.
Since the industry's revenue comes from commissions, when sales slow down, so does its revenue. To cope, agencies are employing a number of strategies. Some are cutting expenses, while others are actually increasing their marketing and spending more on training. Some agencies are diversifying into other areas of business such as insurance. Individually, some agents have decided to take some time off and are putting their real estate licenses on hold.
"The agents that are buckling down and are really going to focus on getting listings priced well and working with motivated buyers . . . are still doing well," said Ric Martel, general sales manager at Prudential Zack Shore Properties.
"(But) people who were in the business for the easy sale or the quick sale, or they were going to try out the real estate business because they felt it was a great market, they have not done well at all."
How big of a hit has the market taken?
Homes sales in Monmouth County through the end of November dropped by 18 percent to 7,406 compared with the same period a year earlier, according to Jeffrey G. Otteau, president of the Otteau Valuation Group in East Brunswick. Sales in Ocean County during the same period fell by 20 percent to 7,352 during the same period.
READ SOME MORE-> http://www.app.com/apps/pbcs.dll/article?AID=/20070114/BUSINESS/701140331/1003
Has anyone here ever heard of a "Bear Market"? What a bunch of clowns! Sure the market is in the tank and will certainly go lower, but it's basic macro-economics. All we have on this blog is belly aching novices bitching about how they got worked over because they they thought they were going to hit it big in real estate and didn't. The same people that most likely lost their "proverbial asses" in tech bubble and probably bought Lucent Tech stock at $75 a share. You got in at the top and took a beating, live and learn, don't gamble with money you can't afford to lose.
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