Why do people struggle so mightily with the simple relationship between supply and demand (and thus price and quantity sold)?
Isn't that like struggling with the simple concepts of gravity, evolution and a round earth?
Has our educational system failed us so badly that even the most basic fundamental truths are beyond the grasp of the masses (and realtors)?
49 comments:
Keith,
I'll give you a clue.
It's a river in Egypt.
Because people are dumb
People are Sheeple
Because from the Realtors to the lenders, to the loan officers, to the appraisers, to the rating's agencies like Moody's and S&P to the Hedgies on Wall St, EVERYONE was getting paid, and no one wanted to call an end to that gravy train....
As has been said hundreds of times, the "chickens are coming home to roost" now--it was inevitable, and it will be shocking to see how many people get burned......
But its "different" in Seattle says all the realtors and newspapaers around here.
Hear what just happened in NoVa?
In April, the Virginia General Assembly gave the Virginia Transportation Authority the power to impose a 40¢ tax per every $100 of real estate sold in NoVa. This is in addition to the current 10¢ grantor's fee.
The breaking news is that the Transportation Authority has decided to exercise its power, and now will be collecting the tax. (It may be that the VTA levies the tax, but the individual counties collect it; I'm not sure about the mechanics of the operation.)
The upshot is, the tax on the sale of a $500,000 home (and what home in NoVa isn't at least half a mil.?) used to be $500; now it's going to be $2,500. Ouch.
The proceeds of the tax will be used to improve NoVa's abhorrable road system; it's called a "congestion fee" or something of that nature.
WELL, WELL, WELL....
HERE WE ARE, ANOTHER DAY AND STILL WORKING AND PRICES ARE STILL HIGH!
SOME CRASH!!!!!!
DOPES!
law of gravity.
law of supply and demand.
theory of evolution.
evolution has alot of validity but it is by no means a law and should not be represented as such.
I think the big selloff comes in the fall. All of the sudden the negative news will matter.
As a long time member of The Square Earth Society I resemble that remark!
Look guys, this is a time when a LOT of conventional wisdom is being challenged! And much of it is falling by the wayside.
Remember, they aren't making any more land!
DinOR
One of these things is not like the other. Gravity is a physical law. We can empirically see that the earth is round. The concept of supply and demand is a law that is self-evident. Now, evolution? That is a theory that has been disproven time and again by anyone intelligent and diligent enough to do the research and come to their own independent conclusion.
Keith: You probably lost the respect of a lot of readers here when you lumped in a laughable concept like evolution in with other ideas like gravity, the earth being round, and the laws of supply and demand. It shows that even though you have a contrarian and independent mind set when it comes to the housing situation, you have clearly been brainwashed by the mainstream media when it comes to evolution. How sad.
Its easy...People are indeed stupid and moreover they belive in fantasies. Americans as a people have always been unusually gullible when it comes to making easy money. Why do you think we invented the infomericial, the weekend how to be a millionaire seminars and so on? Americans are suckers for the easy break. Of course bad education and a cult of celebrity and bling worship make us easy marks....What let the facts get in my way of no money down teaser rate and leased BMW--what I have to pay it back? What I have to actually produce something of value to earn money? Work is for suckers? What I do not get rich by just reading the secret and trying to act rich? Oh no, Hillary bail me out!!!!!
Hey 30% of the public still belive that the President is doing a good job. School boards still doubt evolution and godless science, people buy lottery tickets, people watch Oprah and admire rappers. Typical American could not find Afghanistan on a map if his life depended on it. Hell, most people don;t have a passport and watch TV for 5 hours a day. Now what basis do you have for doubting that while the REIC is evil the biggest source of all of this was simple stupidity and greed--our fellow man (American) is a greedy and ignorant clod. We need this as a wake up slap in the face.
Their egos wont let them acknowlege they made a bad decision if things don't go their way in the real estate game. They will tell people that prices will always come back anyway.
But they don't understand what it means to have a bubble-like expansion of money - and how that increases the prices of houses, services and material goods.
People don't really know why the 1920's were called the "roaring twenties".
What will this historic bubble expansion be called?
When people (most of the folks in the RE business) are paid to not understand (be stupid), it is very hard for them to understand!
Prices are obviously coming down, and at some point will go back up again. BUT, if you only get paid to sell and close deals today, what are you going to do? Either leave the business for a few years if you have options, or be blind and tell everyone now is the time to buy/sell?
The really successful folks maybe the top 3-5% are still killing it, the next 10% are either managing or making good money somewhere else, and the rest will continue to be blind because they think they have no choice.
Serious answer- no math skills. . .I have "run the numbers" for a number of friends (one in the RE industry) on renting vs. owning, and you would have thought we were at a religious revival meeting - they "get religion". . .no one ever sat down and explained to the average American that if housing prices are not appreciating (forget about depreciating) faster than inflation (even using the government 3% figure) then buying is NOT an investment. If housing prices are even flat for 5 years, then you are down 15%. If you put out cash for a downpayment - say 100K (current CD is 5.25%) then you are out another 26.25% (not evenconsidering compounding). . .so boys and girls - keep your money in the bank and rent!
Rational economic theory has not been a part of the standard educational ciriculuum for decades. Coupled with the current state of American culture, people tend to view things not as they are, but as they should be.
http://mikeelliottsblog.wordpress.com
People aren't coldly rational. Reason usually trails emotions, instincts, and desires. For example, iphones.
It's Harry Potter's fault. He's convinced them that magic is real, and they think real estate is magic and magically only goes up irrespective of supply and demand.
Unfortunately I think our education system has failed us.
"laughable concept like evolution"
What's laughable is that in 2007, there are some who still fear basic science
But then again, in 2007, there are many who still are completely ignorant of basic economics
It all depends where you live.....
Studio apartments in New York's most expensive borough went for an average of $1,995 a month last year, according to an analysis released Friday by Citi Habitats, a Manhattan rental brokerage firm. That's up from $1,659 in 2002.
The average rent for a one-bedroom apartment shot up to $2,737, compared to $2,227 in 2002, and two-bedroom apartments climbed to $3,893, from $3,198 in 2002. Three-bedroom apartments saw the largest percentage increase: more than 36 percent, from $4,059 in 2002 to $5,534 last year.
The increase did nothing to decrease demand. The overall rental vacancy rate for Manhattan last year was less than 1 percent.
It's the basic mentality of the Boomer generation, and is a lot like the old L'Oreal commercials--I want it now for ME,ME,ME because I"M WORTH IT. Doesn't matter if they can't pay for it. A greedy spoiled brat "thought" pattern is prevalent in that age group from the top down; from our Corporate CEOs to the Joe 6 Packs.
Anonymous said...
WELL, WELL, WELL....
HERE WE ARE, ANOTHER DAY AND STILL WORKING AND PRICES ARE STILL HIGH!
SOME CRASH!!!!!!
DOPES!
July 13, 2007 1:17 PM
"So far so good", said the man who fell off a tall building as he passed the 20th floor.
Why are stock prices still up in the face of the current economic news about house prices, subprime mortgage implosion and the falling dollar?
sheeplett
Anonymous said...
WELL, WELL, WELL....
HERE WE ARE, ANOTHER DAY AND STILL WORKING AND PRICES ARE STILL HIGH!
SOME CRASH!!!!!!
DOPES! You hear about the man who jumped off the skyscraper?
as he passed each floor he said to himself, so far so good.
it's not how you fall that matters, but how you land.
But Kieth, it is not necessarily supply and demand- it is affordability.
human nature is that people buy what they wish they would have bought. this is what makes 99.999% of people poor investors.
A laughable concept like evolution?
Are you a douche?
Even if man was created by a higher power, do you really think that species don't evolve?
Speaking of supply and demand, M3 growth from march through may went from 11.5% to 13.1% (shadowstats.com, July 11 flash update). The dollar has dropped on the USDX (with a slight rally in June) from a March high of near 84 to 80.40 today. The dollar doesn't even buy half a British Pound. Any estimates as to how long the Treasury and the FED can garner enough foreign support to keep interest rates below 6%? Stock market rallies don't make for interst rate cuts. Even if they're fueled by short covering.
A greedy spoiled brat "thought" pattern is prevalent in that age group from the top down; from our Corporate CEOs to the Joe 6 Packs.
Yeah, and they're taking their ball, too.
Fu*king boomers
Has our educational system failed us so badly that even the most basic fundamental truths are beyond the grasp of the masses (and realtors)?
economics is not taught in school. Sheeple are better consumers that way.
"...it is not necessarily supply and demand- it is affordability."
Excellent point. I was talking to a mortgage broker last night who told me he's writing tons of 40-year amortization notes (with a balloon after 30 years). If you can reduce the monthly payments, the prices will not move purely on supply and demand.
--Chet
BS - you did not make 100-200% short the homebuilders. You could not have - I've been tracking your purchases. To prove it, post your statement from your brokerage. Your puts got clobbered!!
WELL, WELL, WELL....
HERE WE ARE, ANOTHER DAY AND STILL WORKING AND PRICES ARE STILL HIGH!
SOME CRASH!!!!!!
I don't know where you live but in my neighborhood in Newport Beach CA, sale prices are down nearly 40% from the peak.
I think you're looking at asking prices instead of actual sale prices. Plenty of people around here are still asking the same price as the peak but, surprise, they're not selling and many have been on the market for 6+ months.
Sale prices are what counts. Asking prices are absolutely meaningless. I could put my car up for sale for a million dollars and no one would ever buy it. The million dollar asking price doesn't change the value of the car. Same is true for real estate.
The overall rental vacancy rate for Manhattan last year was less than 1 percent.
Always has been, always will be. It's always been extremely difficult to find available rentals in NYC. Not a good example. Go to Phoenix or Vegas or just about anywhere else and you'll find "for rent" signs by the hundreds.
WELL, WELL, WELL....
HERE WE ARE, ANOTHER DAY AND STILL WORKING AND PRICES ARE STILL HIGH!
SOME CRASH!!!!!!
DOPES!
Dude - read the topic's question one time and then think about how incredibly stupid this statement makes you look. You fall squarely into the category of person that this thread is about.
Here's another thing to think about (and you know the answer to it already): if the worst happens, and the shit completely hits the fan - will you have the integrity to jump back in here and admit that you posted this (and probably other similar) statement(s)?
You see, that's a major fundamental difference between people like you and people like me - I base my life and views on reality and truth. I will readily admit when I make a mistake in judgement. People like you will not (which is why you always choose to remain anonymous, as well).
Grow a spine, and then come play with the big boys.
We're run by the town idiot who doesn't believe in evolution either
'Nuff said
The worst part about all this inventory - is that what we're told is available is only what shows up on the MLS - all those FSBO aren't in the numbers. I still see quite a few signs in town that are FSBO. A family friend (older woman) sold her home this year for very close to what she was asking (near the water) and insisted on buying right away (yes I tried hard to get her to rent for a bit) - there were about 10 2bdrm condos avx where she was looking - all asking $459-489 - many needed serious updating in the $30-50K range. She made a couple of bids - got told they were too low - A week later an FSBO in the same complex came on at $439 - mint condition. She bid $429, got the place. Within a week, the 2 owners of the other places she bid on started calling her letting her know that they would reconsider her offer. They are both still sitting because frankly there are not many people willing to live in a tiny 2bdrm condo in a town with sucky schools that can afford $459K plus $650/month cc and $6K taxes.
"Never underestimate the stupidity of the average" said:
Hey 30% of the public still belive that the President is doing a good job.
And to make your point even stronger, you could say that 70% of the public thinks they know what really goes on at the highest levels of government, and how to accurately and objectively judge a president's core effectiveness without having all the relevant information needed to do so and based solely upon what they see on TV.
And also, you could mention that these same people really believe that the "president" is what drives the economy.
Anon Said: A laughable concept like evolution?
Are you a douche?
Even if man was created by a higher power, do you really think that species don't evolve?
Sure, let's talk science:
An error correcting digital code, like DNA for example, does not "evolve."
Species certainly "adapt" to new surroundings, but they do not evolve.
They are created by God.
As for this post:
Greed blinds people. That is what happened over the last few years in RE. Greedy, blind people with access to a LOT of credit, and people getting paid to create, package, market, re-package and sell debt as a "product."
This is going to hurt. A lot!
The law of supply and demand seems to be working great in New York City.
People are buying parking spaces as "investments" to flip.
Yup, for $225,000 you too can get a parking space in NY
http://inventorspot.com/articles/have_money_burn_pay_225000_parking_spot_5679
I just discover another idiot.
Anonymous said...
WELL, WELL, WELL....
HERE WE ARE, ANOTHER DAY AND STILL WORKING AND PRICES ARE STILL HIGH!
SOME CRASH!!!!!!
DOPES!
July 13, 2007 1:17 PM
It has been said that every time there is a foreclosure in a particular neighborhood, the values for the rest of the properties within that neighborhood go down 1%. I do not know how they came up with that figure, but one thing that I know is that values comes down when a foreclosure pops up in a particular neighborhood. That being said it was estimated that $80 billion in ARM loans adjusted for the whole year of 2005. The day before yesturday the CNN Money website published an article that claims that for the coming month of October $50 billion in ARM loans will adjust. Keep in mind, we are talking about $50 billion in just one month. Where would this event put the people who purchased their homes within the last two years when they have not seen any appreciation and the mortgage payment based on introductory rate was already well beyond their means ?
Can they sell and at least break even? Lets see, I have a neighbor who purchased in house two years ago for $520,000, 100% financing, 2 years intro rate on the first loan of $416,000 for 6.125% which equals a monthly payment of $2,123. But guess what? His two years was up in June. He just got the notice that his new rate would be 9.125% and since the balance of the loan is the same because it was an interest only loan, he is now having to deal with a new monthly payment of $3,163. But wait a minute, we are forgetting that he is got a second mortgage payment of $990.42 for a loan for $104,000 amortized at 11%. We now need to add property taxes to the equation. At 1.22% for his local city he is looking at a tax bill of $528.00 per month. A hazard insurance payment of $50 per month and we have a total of $4731.42 per month. In order for this homeowner to be able to afford his new payment he should at least be earning an income of $9000 per month, that would mean that 52% of said income is being allocated to cover the cost on a monthly bases to own that property. But guess what? He does not earn said income and he wants to refinance or sell. Not a chance in hell when a similar house across his has been for sale at AN ASKING PRICE of $539,000. He does not have many options, does he? I guess he can let it go via a foreclosure thus adding another house the already oversupplied inventory.
Are you starting to see the picture Anonymous? Oh, but wait, did I tell you that his story is multiplied by 1000 homeowners all over the OC?
Still working and the prices are high? What prices are you talking about, the asking prices are high? I concur with that statement, that is why the properties are just sitting there. But what counts is the prices for which the houses are actually selling for not the unrealistic expectation of sellers who are willing to ignore the writing on the wall.
The numbers do not lie, but is idiotic people like you who created this debacle by ignoring those numbers. I admire you reasoning, when I grow up I want to be like you.
Evolution Occurs in the Blink of an Eye
A population of butterflies has evolved in a flash on a South Pacific island to fend off a deadly parasite.
The proportion of male Blue Moon butterflies dropped to a precarious 1 percent as the parasite targeted males. Then, within the span of a mere 10 generations, the males evolved an immunity that allowed their population share to soar to nearly 40 percent—all in less than a year.
http://tinyurl.com/23pkfp
stardust quoted: the males evolved an immunity
I would argue that they were the same species afterward that they were before, therefore they did not evolve. They adapted.
If they were butterflies before and horses afterward, that would be "evolve."
FULL REVERSE!
I believe most people have a good
idea of basic supply-and-demand concepts, it's just that so many people (both on the buying and selling end) during the housing panacia were greedy.
As such, they became reckless by relaxing lending standards, as well as many borrowers doing what they could to move into a house they couldn't even afford.
Now, the marketing has taken control, and everything is being "equalized".
Unfortunately, it will be very painfull for many people, which will only prolong the housing crisis.
Too much of our economic wealth (speculative wealth) was based on
the housing market.
As the housing market crumbles further and further, so too will everything else tied to the housing supply chain.
It's just common sense, and a willingness to see things for what they really are.
Not to keep quoting Kiyosaki, but I think he explained a big part of why people ignore the P/E when he said that a home is an emotional purchase, and as emotion goes up, IQ goes down.
Title of picture,
Looking for an updraft!
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