March 12, 2007

HousingPANIC Stupid Question of the Day


Serious question for homedebtors:

Does it bother you that your home equity is rapidly declining, and that if you had sold last year (and rented) your net worth would be greater than it is today?


If not, why not?

45 comments:

Anonymous said...

If you own a house (no mortgage) and don't plan on moving. What does it matter?

Debt is stupid. Anyone remember the Great Depression?

Many of you renters are getting ready to be unemployed, indebted to credit cards, school loans, car loans and still without a house.

Anyone remember saying "that guy must be rich to drive THAT car"? That's because until the mid 1980's people didn't have easy access to credit. Now, we're going to find out why. Many people are careless with money and don't deserve credit. The 2nd Great Depression is coming. Can you survive without a job?

M said...

condo - not really cuz i there is no debt.

rental property - the land it's on has been in wife's family for decades. you could dump nuclear waste on it and she would not ever sell it - not for a billion dollars - ok maybe for a billion.

Anonymous said...

What bubble, Housing never goes down.

Anonymous said...

Yeah, can you survive in your fully paid off house when you're surrounded by angry homeless gangs who want to kill you, rape your wife and steal your shit? It doesn't matter if your "debt free" - you won't be able to sell to get out and save your smug little ass.

Anonymous said...

The new American mantra "I have everything, and own
nothing"

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

The consumer debt burden is big but the Fed's is bigger. If U.S. consumers quit buying the world will dump our debt and the dollar will crash. So, turn on Fox News & go out and buy that house, make that trip to the mall and defend the republic!!!!!!!!!!!!!!

Anonymous said...

Even though we own our home 100%, I still wish we hadn't bought it in June of 2006. We have decided to sell it now, my husband may be making a job transfer, and now we are afraid with the market being so slow, we may be stuck holding. Even if we stay here, I would rather have the money out of the house to invest in something else and just rent. I see housing as an investment. We are not going to make as much $ having the money in our house as we could in other investments. With the $800K invested it could more than cover our rental expenses. We are listing our house on the 23rd of this month. I'll let you know how it goes...

Small Hat

Anonymous said...

The new American mantra "I have everything, and own
nothing"

Anonymous said...

Sometimes I feel like I should have sold, but I think I did the right thing by staying.

I bought my house in 2001 when interest rates were still high. When rates plummeted, instead of buying more, I refinianced into a 4.75% 15 year fixed loan. I plan on owning my home outright within the 6-7 years.

Hopefully the depreciated value of my home in 6 years will be more than the amount I would have had, plus interest, if I had sold in 2005. I'll have a free place to live at least.

Anonymous said...

In my case, I am not a "flipper" and I call my house "my home". My net worth has remained pretty much the same and I am willing to ride it out BUT, I am well aware of the dire situation that the market will be in.
BTW, I have not taken out any home equity loans (HEL loans) and I am beating down revolving debt while not incurring additional debt.
Wife's business is completely based on cash flow and is completely debt-free as well.
As for the renters, your rates shall go up as more people lose their homes. And rents cannot be fixed...

Anonymous said...

``As for the renters, your rates shall go up as more people lose their homes. And rents cannot be fixed...''

Well, actually, that's not necessarily true. How this plays out is still up in the air. If there is a major credit crunch then rents will most likely go down as a contraction of credit is a deflationary event.

I've been living in Manhattan for about six years and rents here still haven't reached the level they were when I moved here. If we have a recession then Wall St. bonusses will be lower and that will put downward pressure on rents.

And you can't walk more than a couple of blocks without seeing a huge condo building being constructed. They're also popping up in Brooklyn, Queens and even the Jerz all over the place. If people can't afford to purchase these units then they'll end up on the rental market of course. And that'll put more downward pressure on both condo prices and rents.

Don't fall into the fallacy that the rental market and the housing market are completely disjoint. They offer the same thing (a roof over your head) in slightly different ways...

DM-1976 said...

No, it doesn't bother me that I didn't sell. I bought pre-boom so I didn't pay and arm and a leg. I also knew that the market was going to correct and didn't get all into my "paper" wealth.

All in all I'm 31 and have about a million dollar net worth. I own real estate, stocks, bonds, mutual funds, gold, CD's, foriegn stocks... etc.

Will I loose some "paper" wealth when this bubble unwinds? Probably. Do I care? Not really because in 10 - 15 years it'll all be back.

Am I still buying houses? Yup. I only buy at 70% or less of market value and I target sub 200k houses so I'm not worried. People will always need a place to live.

mcarleton said...

Not worried with Mortgage

I bought in 1992 at the bottom of
the Boston market after the last
20% drop. The local market has
gone down 20% from the peak but it
would need to lose another 40% before I would need to bring my checkbook to a closing.

My upgrades to the house
have been very basic so, if I had
to sell, I should be able to price
it with the lowest $/ft^2 in the
neighborhood. Recent sales here
have gone to empty nesters who also
have low LTV if any L at all.

I could not rent here for what my mortgage is. With my wife working
now, after 5 years at home, we have
enough to pay down debt while still
putting money in the 401Ks. Total
debt is only 1.5 * Gross income.

I'm sure there are scenarios where
we could get into a bind but I'm
betting we could hold on longer
than 70% of FB here.

I liken the attitude in HP like
someone with a fear of heights.
Just because it is a long way down
does not mean there is any real
risk of you actually falling.

Wine Country Dude said...

Because I like where I live; because I bought the place in early 01 with the expectation of staying a good long while; and because I still have lots of equity in it. Duh.

Keith's question is good and pointed, but it makes sense only at a particular point in time, i.e. when an overheated market cools down and there are a surfeit of bargain rentals.

If you believe in "the market", then you must also believe that as the supply of renters increases (dramatically), rent levels, too, will increase, and the comparative advantage of renting will diminish and then disappear.

I remember in the late 90s in our beloved Bay Area that rents (I was renting at the time) were going up enormously each year--20% or more. The complex (a very nice one in Marin County) was sold a couple times, and each time we had to worry about whether it was going condo. For the same money, people were being forced out into distinctly inferior apartments (e.g. much closer to the highway, less privacy, etc.)

I'll take the game I've got.

With all due respect,our blog host is extremely, inappropriately, personally invested in his subject matter, and particularly in demonstrating that people with other views and experiences are wrong. Not merely wrong, but stupid, contemptible and risible. The vindictiveness, gloating and bitterness he demonstrates are inappropriate.

If he believes he's made good choices, that's fine, and in many respects, he's right. But his continued derogation of homeowners and the self-congratulation inherent in the term "sheeple" is really off-putting.

shadowCat said...

My house is my home, a place to live - it's not an investment. I've rented for three years and hated it every spring - no way to garden, no large dogs allowed and no place for small dogs to play. Neighbours up, down, left and right. Can't let kid out to play without watching him (can now, with fenced of yard and scary looking dog). Strange people coming and going. Plain white walls and beige carpet that I can't change. Hauling laundry down and waiting in line. Hauling groceries up. I bought a very cheap house (starter home), put in a lot of sweat equity to clean it up. My payments are lower then what I paid in rent - and that includes taxes, insurance and monthly maintenance - for fixed 30 year morgage that I'll prepay 20 years earlier after which all I'll have is taxes, insurance and utilities. I have large yard with gardens and fresh veggies, park nearby and river. What does it matter if my equity raising or falling? How my life would be better renting?

Mark in San Diego said...

"Rents will go up as people lose their homes" - Anon

Well. . .my grandmother ran a boarding house during the depression, because she owned her home free and clear - many of the people she rented to had lost their homes - but, they rented a room from her. People will not necessarily rent a whole house - they will double up, move back in with mom and dad, grandmother, or "sofa surf" with friends. . .also those homes that were lost to foreclosure will be put on the rental or sale market.

C------- said...

One thing I dont see actually spelled out on these bubble blogs, but I believe is kind of intuitive if youre a bubble believer is this.

If youre renting instead of owning in what you believe is an inflated real estate market, you have to then pocket/invest the difference for it to make any sense.

It seems, to me at least, that people that get really angry at people advocating renting, dont realise that the people not buying really expensive housing are prob'ly socking away anywhere from a couple hundred to a couple thou a month. That really adds up!

Just because you decide to rent doesnt mean you cant own!

Conversely, just because you own doesnt make you an idiot either.

Man.....just be able to afford the S* you take loans out on!

Anonymous said...

Actually, 30% own their own homes. That's me. I also own the 2nd home, the car and the boat. The car is 6 years old, the boat 14. The 2nd home is 1889 vintage - and I worked my guts out restoring it from a wreck over 6 years. As in, I physically did the work - plumbing, wiring, landscaping & drywalling.

Until recently, I'd been really perplexed about the 'wealth' in our part of town. Me and the wife have professional jobs yet we were constantly amazed by the apparent wealth in our neighbourhood. We pinched our budget to pound down the mortgage and spent weekends fixing the second home.

Our money flowed to the hardware store at a rate of knots, and everyone around us seemed to be richer by the day.

So, we worked even harder thinking we were somehow falling behind.

I had no idea until recently that you could actually borrow 100% or more on a mortgage. And for a while, I felt like a muppet for us working our guts out to stay within budget and focus on paying off the debts.

I'm glad to say that now I don't feel like a muppet. We've worked our T&A's off to discharge our obligations - and we have!

And I'm sad to observe that a lot of people have lived beyond their means to such an extent that they'll take a financial beating that'll take decades to restore.

Yup, they may have walked into it - but, I think it'll be such a big problem that it'll be politically impossible to ignore.

brokersleaveyoubroke said...

Anon said
As for the renters, your rates shall go up as more people lose their homes. And rents cannot be fixed...

Actually I'm seeing rents drop as more empty houses become rentals because nobody wants to buy them. I don't see how a glut of empty homes can cause rents to go up.

Anonymous said...

In Houston... No worries: didn't go up much, solid economy (for now) = won't fall much

Anonymous said...

Why would rents go up "as more people lose their homes"? Who is going to live in those empty homes?

Oh yeah, renters.

The rental prices will come down as more and more people are forced to double up by living with roommates or back with mom and dad.

Anonymous said...

Yep but shallow home debtor remember most od us at HP are more inteligent than you. We sold you your house at the peak, bought oil and gold. And now we will have your wife minus her panties. See when you can't pay your mortgage she wants security. HAHAHAHAHAHAHAHAHHAHAHAHAHA

Anonymous said...

- home equity is rapidly declining?

I wish the assessed market value was rapidly declining.

There's nothing wrong with renting or _conventional_ home 'debting'.

Each have there advantages and disadvantages.

Agent #777 said...

interesting posts here...

"Many of you renters are getting ready to be unemployed, indebted to credit cards, school loans, car loans and still without a house."

I would venture that the former homedebtors on this site are debt-free, and many have plenty of cash.


"can you survive in your fully paid off house when you're surrounded by angry homeless gangs who want to kill you, rape your wife and steal your s***?"

Thats what bad dogs and big guns are for...


"Hopefully the depreciated value of my home in 6 years will be more than the amount I would have had, plus interest, if I had sold in 2005."

Highly unlikely. However, if you add on to the depreciated value the amount that you would have been paying to rent somewhere else, then you MAY come out even or ahead. It depends on your situation and location.

"I'll have a free place to live at least."

Free? The person buying my former 1500 SFT house will be paying close to $400/month for Taxes, Insurance, and HOAs fees. How is that free?

"As for the renters, your rates shall go up as more people lose their homes. And rents cannot be fixed..."

Haha - we'll see. While we have no debt and a cushion to survive for quite a while, we could easily pare expenses by moving into either of our parents 4 BDRM houses. It is laughable to think that all those foreclosed owners will move right into their own rentals. Plenty of them will be doing the same return to the nest, especially if there is upward pressure on rental rates.

Alpha_Bear said...

"As for the renters, your rates shall go up as more people lose their homes. And rents cannot be fixed..."

I suspect the opposite to be true. Once more houses come back on the market (at lower prices), I think that rents will probably fall.

Rents can be fixed, and have been many times, in many different locations, but don't need to be at this time. Renters will only accept rents increasing to the point that it becomes cheaper to buy. Also, since renters can't take out a loan to pay the rent, there is a limit on what renters can pay.

anon#1111 said...

"As for the renters, your rates shall go up as more people lose their homes. And rents cannot be fixed..."

Not true. There is currently about a 2 million house inventory overhang surplus and the real number is closer to 3 million (or more if the builders finish all of these stupid projects.) Many of these are vacant. In my market (Sacto) vacancies are over 30% of available listings. Do you have any idea what this amount of vacant houses does to rents? It acts to put a lid on rents and greatly supresses them. In fact, most houses for rent in my neighborhood stay vacant for a long time and several of the landlords have had to reduce asking rents already. The only landlords that will survive this bust will be those that have owned for a very long time. I made sure to rent from someone like this that owns their house free and clear, because I didn't want the stress of watching a flipper implode while I rented out his (soon to be foreclosed) house for pennies on the dollar.

Anonymous said...

Stupid question of the day: Do maxed out homedebtors know they're the poorest people on the planet?

olives said...

The more the interest rates go up, the further the prices will drop so that houses will be affordable.

As for rents, they dropped during the depression, maybe due to the fact that people moved in with family members, there was an oversupply of housing available, but mainly due to the simply fact that wages decreased and so landlords simply had to drop the rents to keep the tenants.

Anonymous said...

Rents will be going down, look to Texas in the late 80's as an example, tons of RE on the market, depressed job market, retarded flippers renting out their places for pennies on the dollar, I like to look to Texas and Japan as examples going forward.

Anonymous said...

Rents won't go up for those of us renting from in-debt condo owners :). We have room to negoiate and stash our hard earned dollars saved away.

Anonymous said...

It 'sort' of bothers me because I have been accused of being a money hording, greedy Jew in the past. But my wife has taught me that a home with a beautiful wife and happy small children close to work and our families is what's important. Not cashing out equity before it evaporates. Back to the old' my home is a home and not an investment. She's right but damn I just 'zillowed' myself and it hurts a tinsy winsy bit.
Now if I was single, I would have sold this MOFO and casehd out in a heartbeat.

Anonymous said...

I bought a new construction condo in mid-2003 but didn't close until December 2004 due to construction delays. We thought about selling right away but didn't -- between transaction costs and taxes (less than two years in the place), we would not have gotten much of the appreciation as of 12/2004 and so decided to wait.

At the absolute peak in late '05, however, we probably could have cleared $50-$60k even after taxes, etc.

Oh well, hindsight is 20/20.

Luckily, we were conservative in deciding what to buy. The total mortgage is about the same as our gross annual household income and the total monthly costs (mortgage, taxes, condo fee, etc.) are only about 12% of our take home pay.

Anyone who says they're glad they didn't sell at the peak is just getting through the day with a juicy rationalization, as Jeff Goldblum might say.

d said...

Well, I just about had a heart attack yesterday. My good friend informed me that he is buying an almost $900K track home in Oceanside, CA. Mind you that he is moving into little 9 home subdivision that is surrounded by 30-40 year old homes. 7 of the 9 homes have been for sale for a very long time!!! I asked him if he got a good deal and worked them on the price....he said NO!!! He told me he has looked into the realestate here in San Diego and there is NO WAY it will go down.
He said that he didnt want to work them on the price, because they might say no!! I almost had a freaking heart attack!! He is commiting financial suicide and cant even see it coming. Oh yea, his payment will be just under $6k a month!!!! OUCH!!!!!!

Matthew said...

As for the renters, your rates shall go up as more people lose their homes. And rents cannot be fixed...

up to a point, but the banks will want to start disposing of their owned real estate very quick, and some slumlords or people will start buying up the used houses and renting them out. Vacancy rates will hold down rents.

In the end what matters is total supply available versus population demand. Homebuilders have been going like crazy. Remodelers have added extra rooms.

And when people are poorer, they live more to a place; take on housemates they didn't have before. Move back in with mom&dad. Grandma moves back in too. Go back to Mexico.

d said...

Well, I just about had a heart attack yesterday. My good friend informed me that he is buying an almost $900K track home in Oceanside, CA. Mind you that he is moving into little 9 home subdivision that is surrounded by 30-40 year old homes. 7 of the 9 homes have been for sale for a very long time!!! I asked him if he got a good deal and worked them on the price....he said NO!!! He told me he has looked into the realestate here in San Diego and there is NO WAY it will go down.
He said that he didnt want to work them on the price, because they might say no!! I almost had a freaking heart attack!! He is commiting financial suicide and cant even see it coming. Oh yea, his payment will be just under $6k a month!!!! OUCH!!!!!!

rent4life said...

HUD will buy all those empty homes for Section 8 tenants on welfare while hard working Americans end up priced out and living in apartments.

Those tracts of McMansions will be filled with FB's and their new welfare/gangsta neighbors from Compton and SouthCentral. Apartments will be occupied by the shrinking middle class. Who were trying to wait out the bubble or lost their homes to exploding ARMs.

As for me, I plan to rent for life. I won't be getting tied down with a wife and mortgage and kids. When I finish my grad degree, I will be looking to work all around the world. Speaking five languages comes in handy sometimes. Someone else can be stuck in that bland McMansion development in the middle of surburbia which is in the middle of nowhere with a demanding wife and a couple of brats. I'm happy being an uncle who drops by to visit on the holidays

borkafatty said...

Ehh! No hard feelings about any of it...I live very cheap..value goes up ..great...value goes down ..whatever..listin folks we could all die tomorrow ..fuck it!..If you are Debt free..such as myself,,other than my 6 year mortgage..you will survive.

May I suggest if you see your local town goverment Hiring get that app in now!!..and dont give me non of that.." oh that job aint safe neither" bullshit..I have made it through an 80's slowdown, as well as the 90's...nothing new here folks...it just has gotten way out of hand...credit wise..and yes we will suffer for it...some worse than others unfourtunatly..the world will not come to an end ..christ I am going to smoke a big fat green one...peace!

Anonymous said...

Annon 1:11

Why would I need to sell to get out? I'm already out! It's a farm!

Roving gangs might be a worry to some, but I'm a combat veteran. How 'bout you? Do you know the "spirit of the bayonet"?

Anonymous said...

"I'm happy being an uncle who drops by to visit on the holidays"

I hear ya bro. My little ones love my brother, AKA Crazy Uncle Pepe. You know, every family has a crazy uncle or cat loving Aunt. Keep up the good work!

Signed..smug suburban dwelling homeowner with a beautiful HAPPY hot wife and 2 good kids. Life is good.

Anonymous said...

What a dumb question.

Anonymous said...

I've been watching the Housing market for probably 8 years, the last 4 closely. I wanted to buy a house after getting divorced in '03 but I smelled a rat. Now that the market is a foregone conclusion and Ive got my "I told you so's" out of my system, I fear the ramifications of a collapsing economy, ie crime rates through the roof, violent crimes. Some of us may have been prudent in staying out of the last few years runup, but this collapse will effect us all in some shape or form. This entitlement society will not go quietly, and they will not easily get off the credit crackpipe.

mcarleton said...

For those looking for rents to fall,
keep in mind the three most important
things in real-estate -

Location,Location,Location.

Rents close to work and public transport
will be high forever. Out in the
exurbs houses will sit empty no
matter how low the asking rent is.

Anonymous said...

As for the renters, your rates shall go up as more people lose their homes. And rents cannot be fixed...
I wrote that, and on second blush...and reading other posters' replies I might take it back.
Yes, there will be a glut of homes looking for tenants but that does not mean that they will be rented out. People are going to want to live where the JOBS are located. Most of these home "communities" are located dozens of miles away from JOBS. If the great crash happens, these communities will become ghost towns. I would like to see how those houses get rented out.
Fact of the matter is, we have no idea how this is going to unravel. We are comparing history books to the present day. Many things have changed in 80 years...
But, I will concede to my fellow posters that rents might not necessarily rise...across the board. ;-)

Anonymous said...

Hey Fool Keith,

I just bought last year and my property is up 20 - 30%. Not that I care because my internal rate of return in 7-8 years on the place.

Yes, it's outside the US.

The point is that you can't assume one shoe fits all. However I think you are correct for the US Coastal market.

There are other markets than the US coasts... and there is nothing sacred about the US dollar.