January 02, 2008

HousingPANIC Stupid Question of the Day


For bubble sitters and bitter renters:

Why didn't you buy a home these past few years, when everyone around you called you a fool for renting?

What was your moment of enlightenment, when you knew we were experiencing a classic financial mania that was going to collapse?

76 comments:

devestment said...

Once burned, twice shy.

On the brighter side, during New Year’s festivities an in-law with a real estate brokerage announced he was cutting back personnel tomorrow.

PONCH said...

I've been renting near Santa Monica for 12 years. I had an epiphany 2 years ago, when I realized that it made no sense whatsoever to buy. I never had any desire to buy during the entire boom. It was as simple as this...I knew that buying would turn me from 100% free into a slave to a mortgage. I didn't know things were going to crash this badly, but I knew that the prices were insane, and that the downside risks were a hell of a lot bigger than the fantasy of continued appreciation. As a result of not buying, I have almost 300 grand saved up now, and someone I know that bought a house has nothing to their name, works far more than I do, and will lose the house eventually. I don't know if "bummer" is quite the right word to use.

I am happy as hell to see this suffering. I want the power back to the little people, and I love the idea of a horrific cleanse in this now rediculously corrupt and bloated U.S.

Anonymous said...

It was January or February 2000. The market activity and stupid business models proposed for the dot coms were a frequent discussion in my MBA classes at Stuart/IIT. We just couldn't see how all this euphoria was to be sustained in the absence of realistic future cash flows. After 9/11 and the subsequent interest rate drops it was a textbookk exercise. Anyone with rudimentary bond valuation knowledge could see that we were headed into a bubble.

What surprised me was the extend of the bubble;housing prices in Chicago skyrocketed

I expect housing prices to drop a minimum of 50%. When cash dries up who is left to pay the ridicoulous asking prices?

Folks, the drop will take us back to 1982 not to 2000. In 2000 prices had already doubled from 1994.

The ride down will be painful The question is how long will it take 3, 5, or 15 years. That is the question that I am struggling with.


Any opinions?

Anonymous said...

As a young single professional, there was no reason to tie myself down and pay all the extra in taxes, maintenance, and energy bills for the extra square footage that was not needed.

Anonymous said...

I've lived in two countries and six states in the last 3 and a bit years.

Buying would be crazy, even without a bubble...

Anonymous said...


I expect housing prices to drop a minimum of 50%. When cash dries up who is left to pay the ridicoulous asking prices?


You are correct. Prices will drop down to the point where investors can make money by renting out those homes. Anyone who knows anything about finance realizes that any investment must be cash flow positive at some point in its life. Anything else is pure speculation, and there should be a huge discount in asset prices when an investment is speculative. Both coasts and the college towns will be crushed accordingly.

grasp of obvious said...

Its easy. Rented a house in D.C. for 1800 per month. To buy the same place (ah ownership) would have been 4200 per month. Yeah it always is best to pay--year whatever.....Have to love (and mock) people who use the word "always" and think "owning" is such a god given joy.....Fridge went out last year and landlord sent a new one. No biggee but when the wiring was suffering and the bill for repair was 8k--glad I was renting. Leave next month for Spain. Yep am a loser renter that picked up an extra 60k by renting------no genius just follow the facts under my nose and not what century 21 and msnbc tell me......

Citizen Bagholder said...

As I live in Houston, I am accustomed to the cycle of boom and bust. Around 2005 I began to get the feeling that the country was reaching a cyclical "overbuilt" phase. But only in the last 18 months have I read outsider expert analysis to understand just how out of control the whole mortgage finance /credit bubble has become.

banshee said...

When did I decide not to buy a house? Not until 2005, when we moved to San Diego and thought to buy. Then I looked at prices, budgets, downpayments, and thought it was all just way out of whack.

We bought houses in 1992, 1997, and 2000. I don't expect prices to dip back to those levels but that's what I was comparing to prices in 2005 when we decided to rent.

And, it's not that I did any detailed analysis, or that I think I called the top of the market - I just looked at the math, decided housing was way less affordable than it had been in 1992, 1997, or 2000, and decided to rent this time around.

FWIW, I was wrong in 1992 when we bought our first house and I got a 30yr fixed, telling my wife that Clinton-the-Democrat was going to tank the economy ;^).

richardcpearson said...

About three months ago, Statistics Canada released a report showing that only 5% of Vancouverites make 86K a year or more. In an earlier report, Royal Bank of Canada said you needed an income of at least 120K to carry an average home in the city!

Anonymous said...

In small town New Mexico the price of a $70k house shot up to $200k.

I just couldn't see paying that much for what had been so much cheaper only a few years before. Literally, just a few years before.

christiangustafson said...

Bidding wars! Bidding wars and waiving inspections ... in Seattle. Imagine the problems you can have with water, roofs, foundations, and mold here, and these people were buying without an inspection. Once I understood the IO mortgage picture, there was no way in hell I wanted to take risks like this with my family and my future. I'm excited about the crash and serious payback.

RayNLA said...

Keith,

It's really simple... I did the math!

RayNLA

Anonymous said...

When mortgage brokers were offering to lend me 10x my income.

When the kid delivering pizza's got a 200k mortgage.

When I saw houses selling first day on the market for 40k over asking price. IN THE MIDWEST !

Frank@Scottsdale-Sucks.com said...

Main reason: It made no sense to "buy." It's been far cheaper to rent, and cash flow is king.

Secondary reasons:

- I chose to invest my savings not into a house but into my business, which has given me an ROI in the thousands of %. If I'd sunk the money into a down payment on a house instead, I'd still be stuck at a job instead of enjoying freedom.

- My current income disqualifies me from the mortgage interest deduction.

- Mobility. I came to hate living in Arizona (which used to be a nice place). If I'd bought there, I'd be stuck there now.

Peter T said...

After landing a permanent job in 2005, the question of buying a house came up naturally for our family. Before every major purchase I inform myself by looking on different sources, and patrick.net convinced me to dig deeper and decide against house buying for the next years.

farmboy said...

Also a young professional... Grew up in rural nebraska where 2000 sq ft houses go for 30-60 k. Still trying to grasp the need to pay 300k for a bunch of wood and steel on a tiny plot here in the big city.

Mark in San Diego said...

At the other end of life - retired in my 50's, it makes no sense to own anymore - I don't have to live anyplace. . .no job, no commute. . .people here in San Diego still want to know when I will buy. We love being free to move anyplace - if rents get high here, we move to someplace where they are lower, and have fun there for a few years - Las Vegas comes to mind. . .then maybe Hawaii, etc. Boomer friends have spent a life buying vacation homes, and McMansions, and now the kids are gone, and they don't need 5 bedrooms - they are stuck and I am free - what can I say. . .having the money from the sale of our house has given us a lot of income, and the landlord pays for and makes repairs, so I can take off on holiday whenever I want.

TM said...

Back in 2003, I was depressed that my savings rate for a down payment (remember those?) was being outstripped by the gains in housing prices (Orange County, Ca). I became a bitter renter.

By around early '05 house prices became so silly, that my bitterness actually went away and became something akin to awe. I was thinking "wow, where is everyone getting the money to do this?" and "even if they have the money, what is possessing them to agree to 600k for 1950s tract homes?" I became an avid spectator.

Here I am today, debt-free, sitting on some savings, with no immediate plans to buy. I'd like to own my own home, but I like ice cream too, yet wouldn't dream of paying $100 for a scoop.

Spectre said...

I might have bought in 2002 or early 2003 but I was in B-school. In 2004, I looked at the change in incomes vs. the change in home prices and saw the wide divergence between the two. People all round us were thinking they were rich, saying how we needed to get in before 2 bedroom condos went up to a million dollars, and how California home prices would never go down because everyone wanted to live in California. I realized a couple of things. If everyone wanted to live in California, why weren't prices higher before 2002? Also, how did the same level of income suddenly support home prices that doubled in a few years? In any case, the people that thought they were rich, no longer are thinking that. Others did actually gain equity in the bubble, but have promptly plowed that back into a new & larger home.

We'll see what happens, but what I see is that the demand curve has shifted downward given the lower availability of credit. So if the money is gone, how fast will home prices fall?

Andrew said...

i sold my house in vancouver to move to Ireland (home of an even bigger bubble than many parts of Canada and the US). everyone here told me to buy a place, even though i had only a 1 year renewable work permit. "don't worry, you'll make money if you have to sell it" they told me.

anyway, now no one talks about real estate.

keith, you think the MSM in the states are in the pocket of REIC? you should see it here!

Anonymous said...

When our house was listed, people asked us why we would want to move. To those people who couldn’t understand that prices were out of wack, we said that we wanted to downsize. After we moved to a rental house, the new neighbors said that we probably sold at a really good time right time.

Anonymous said...

I could never afford the time and money for the pool the apartment has.

Anonymous said...

We bought in Nova 2 weeks after 9/11. Market here froze for a Month or two as everyone was *stunned* to say the least.

Sold this house in Dec '06 as I knew things were going south & were crazy. We had done the RE crash in Texas in the 80's & KNEW the signs.

Yes, once bitten twice shy (except this time we made some money on the deal, instead of losing!)

sac'to watcher said...

It would have to be when I saw house prices double in one year (2002). The developers actually had people go out and repaint the big billboard signs that had prices on them every two months.

So they went from "starting in the low $200,000" to "starting in the mid $300,000" - in less than eight months.

It was the same year I saw certificates from John Law's South Sea Company in a museum. I figured it was a sign. If you're not familiar with that one, check out the granddaddy of all mania, panic and bubble books: Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay.

Anonymous said...

I did buy a house in 2001 and 2 in 2002. When you fools were renting I was buying. I sold all 3 in 2006 and made enough money I don't have to worry about retirement anymore. Now I am renting with money in the bank waiting a few years (could be 1 could be 5 who knows) before I do it all over again.

Renting 2002-2006 was as stupid as owning 2007-2010.

So many of you feel all high and mighty for what is happening. I don't see why. You didn't buy a house in 2001 at say $250K. You watched that house go up to $500K by 2006. And you will watch it go back to $250K by 2010. Where is your gain in any of it? You will end up exactly where you started, only 10 years older. Sounds kind of depressing if you ask me.

buy a F@cking house please said...

I did buy a house in oct06.Worth close to what I payed for it.Keep renting and paying my bills.Get a job and crawl out of mom's basement for once.You might actually get laid.Put away the dungeons and dragons please.

Anonymous said...

So many alarm bells:

People have trouble saving more than a couple grand a year, yet were willing to take on huge mortgages. Even with no interest payment, when you have trouble saving a few grand, 100K is a huge amount to pay back. If they weren't thinking of paying it back, why would others? Sign of Ponzi scheme

Middle class friends bought a house for half a million. Started to build a shed for their pool pump, but then quickly started competing with the neighbors and ended up with a bathroom and a wet bar in the shed (we have summer 2 months a year). Ended up building a mezzanine in the garage in which they had tiled the floor and wall so they could wash their car in the winter. Insane because no one in his right mind would get their garage wet in the dead of winter when temperatures drop to -20 degrees celsius. Sign of excess and keeping up with the Joneses.

Friends bought a Cayenne, and freaked when they found out how much it cost to change the tires. Changed the car when it came time to change the tires. This is a sign of underestimating the maintenance costs.

Middle class friends built a skating rink in their McMansion so their boy can practice. Sign of excess.

When I asked friends if they weren't worried about carrying so much debt and they'd answer me that the central bankers can't raise rates or they'll create a recession, I couldn't help think that didn't stop them from going over 18% a couple of decades ago.

When I went to the Goldman Sachs Financials Services Conference in 2002, all bank CEOs stated that homeowners were a sure bet since they always paid back their loans for fear of losing their home. I knew the barn doors had just been opened, that they were now offering new products using past loss numbers.

My biggest clue: no fear whatsoever and a cult of waste.

Anonymous said...

You will end up exactly where you started, only 10 years older. Sounds kind of depressing if you ask me."

They've probably also learned in those 10 years that people who feel good about themselves don't feel an irresistible urge to rub their accomplishments in other people's faces.

Anonymous said...

For me, All credit goes to this website for keeping me from making the mistake of a lifetime.

Boom2Bust.com said...

Reverse indicators, who kept preaching to me as to why I should buy a home...

http://boom2bust.com/2007/06/23/weekend-edition-june-23-24-2007/

Anonymous said...

when my brother became a realtor...
when i found this site and boring ben's
when my coworker bought a condo (10/05, height) because his friend bought one and didnt tell him and 'surprised' him, so my coworker 'surprised' him back. last time i asked said coworker what kind of loan he had, he still wasnt sure, "might be an arm"

DobieGirl said...

We sold our beach house in Florida for $325K in Feb 2002. The new owner had it on the market for $925K within 1 year. We built the house for $120K in 1991. I just laughed at the thought of that cheap house being worth almost a mil. The new owner still has it for sale but now it is back down to $696K. I've enjoyed watching the ride back down. If she offered it back to me for $250K, I wouldn't take it! Been renting ever since we sold the house . . .with no regrets.

Anonymous said...

In 2004 I went to look for my first home in Riverside county near Sun City. The agent tried to convince us the area was a great deal, $320,000 for a house in a newer subdivision. I remember in 1989 that $320,000 would get you a small but nice Anaheim Hills house. Even adjusting for inflation this price was so out of whack for a what is essentially a lower class crappy area that I was shocked into seeing something was very wrong with housing prices. Nothing complicated to my enlightenment, $320,000 for the inland empire is clearly extreme and artificial. Then when I saw people who I knew that were scum bags buying 1-3 homes as investments when I felt wrong about buying my own home - I knew something sick was going on.

scott715 said...

When I almost got swept up into the mania and bought a place I knew I couldn't afford. Then I started doing the research and investigating what was really going on.

Veronica Lodge said...

RE: What was your moment of enlightenment, when you knew we were experiencing a classic financial mania that was going to collapse?

Three years ago, an immigrant man I know showed me his World Savings monthly mortgage payment coupon. Ricardo had several payment options, which included making a minimum payment. The minimum payment option left around $500 unpaid on the interest payment alone, not to mention a fully amortized payment.

He was unaware that the unpaid interest was being added to the principle of the loan. He was unaware that his minimum payment option was for a limited time only and that the loan payments would adjust in two years.

This was when I first started to become suspicious of Realtwhores, brokers and lenders.

Two years ago, the same man told me that he and his wife had added a sixth house to their real estate portfolio. I asked if he knew the interest rate on the loan and he told me it was 1%, but he was unclear on the exact terms of the loan because his wife handled all of the family's financial dealings.

He also showed me his brand new $45,000 Ford Expedition that his wife gave him for Christmas. This vehicle was not financed at 0% down and 0% for 72 months -- she paid cash. Ricardo told me how grateful he was to be living the American dream of creating wealth out of thin air.

Obviously, the money for the Expedition came from a refinanced house and their whole real estate investment scheme was a house of cards. Greedy Realtwhores, brokers and lenders had exploited their greed and left them holding the bag. Life was good for a few years, but if it hasn't turned sour by now, is soon will.

I haven't seen Ricardo for a year now, but I'm sure that he hasn't been smiling much lately.

V.L.

smokester said...

when I added up all the costs, it would have cost me six times, at least, what I was paying in rent. that's when I shifted my thoughts about what "quality of life" is. I'm within walking distance to two lakes, a 25 mile bike trail, rose gardens, etc... so I didn't need to replicate those amenities.

Anonymous said...

LOL buy a f@ing hous please

The dungeons and dragons is very approproiate I think. Although these tools play with a tinfoil hat on as well.

Anonymous said...

Moved to Miami in January 2006 after owning in upstate NY. Everyone here was still excited about RE, but it was a joke. 40 year old, 2000 sqft, ranch houses totally run down for 600k. Rented a better house for half the monthly carry. Been very gratifying to see just how right a decision that was.

Keyser Soze said...

It was May of 2005, when a used-house salesman spent an entire morning showing me the selection of houses in the $500,000 range in Sedona. They were f*cking hellholes. I never looked again....and never will, until sanity one day returns.

In 2006, an immigration officer(a young woman) interviewed the wife and I...and asked why I rented and did not own a house. As this interview was being taped, I politely said the funding of my business was more important to me. The funniest part of all.....the interview was held in Phoenix.

Anonymous said...

Because RENTING the townhouse we are in in Northern VA is HALF the price of what it would cost to BUY, and that dosen't include the ludicrous taxes and insurance!! Who wants the expense and hassle?

There have been so many great articles focusing on the fundamentals of WHY this was coming over the last 3 years, that you would have to be living under a rock not to notice that the pieces really added up. It was a giant ponzi scheme about to come down.

So, instead of buying, we waited, we watched, and in about a year, townhouses next to the one we lease, went from selling at $658,000 to being listed at $429,000 with NO BUYERS.....

Most people just don't get how much trouble our financial and lending system in currently in--it is all going to end so badly, but our hope is, there will be so few qualified buyers, that the ones that do have great credit and money will get whatever they want for pennies on the dollar.

It's probably too late to get your financial house in order if you haven't yet, but best of luck to everyone--and fasten those seatbelts.

Mid Hudson Valley NY said...

Mid Hudson Valley NY

2002, I looked at just about every multi family property for sale in the area,
and could not find a single property that had more money coming in, then the would be monthly expenses.

It’s the P/E stupid!

They all sold to folks who did not do the math.
I remember asking someone else, who was looking into multi family properties,
I asked - ‘who is buying them?’
and he said to me; the exact following words. “who cares about rent roles”.. the prices are going up like crazy.

Most of those properties I looked at back then, are back up for sale, but the new owners are stuck with high mortgages, and it still does make economical sense to buy them.

I wonder how long they can go on with monthly negative cash flow.

Asking prices would need to come down 50% to have a positive cash flow at the end of the month.

Anonymous said...

all bank CEOs stated that homeowners were a sure bet since they always paid back their loans for fear of losing their home.

They didn't fear losing their homes or bad credit. They feared losing their 20% down payment. When the 20% down payment went out the window, so did the fear of losing the home. Most people are not as stupid as the bankers think. They will make the right choice and walk away when it becomes obvious that it is the smart choice. They will not work two or three jobs except for the dumbest of the dumb. Doesn't the Bible say something about the sheeple inheriting the Earth?

Anonymous said...

Worth close to what I payed for it.

First of all, you didn't buy a house, you FB idiot.

Secondly, a house is always worth exactly what someone pays for it. When will you morons realize that sticker price and comps mean nothing?

across the pond said...

I went for vacation to Ireland in Sept. 2005 and could not believe what I saw.
The disconnect between housing prices and peoples incomes was so wide..I knew immediately that a serious trip back to earth had to occur.

I stayed in areas where the local population was struggling with everyday expenses,
Yet house prices were as expensive as in Manhattan.

I truly believe Europeans are way more leveraged then Americans and the crash over there will be more severe.

Anonymous said...

The simple fact was that besides grossing 150K in DC Metro, now 200K, we simply could not reasonably afford to buy anything decent using a 30-year fixed. Well, there was that, the fact that home values simply do not appreciate 200-300% in the span of 5 years, and that I am not in the business of providing a windfall profit for a property holder and/or ensuring that their retirement is well feathered.

Anonymous said...

At a Christmas party in Dec '05, I was publicly teased for selling my condo in July '04. You see, I sold shortly after the interest rate changed direction...

I played it cool and expressed shock that prices had gone up another 30%. And I've kept mum around them since... best not to muddy those waters nowadays!

Shabba said...

I think somewhere along the way I started to think about what people were making in relation to what they were spending on housing.

What I thought that was that I was paid significantly more than the average person and I couldn't afford the average house with reasonable payments. And then the situation got even worse and I knew then that it was way out of control.

I think a lot of people make this thing out to be much more complicated than what it really is. It all boils down to what does the average person make, and what does the average house cost? If that gets out of line you will have problems. Here in CA it is waaaaaay out of lijne and the state is already in recession.

Anonymous said...

I am a true Owner, well as true and one can get given the rules of the game. The light bulb went on for me when I kept hearing "my house has appreciated so much that I couldn't afford if I was to buy it today".

Cal Ray Is Right said...

I purchased a home in Oceanside, CA in October 1998 for 189k. By July 2005 it was worth 600k. I did the math and figured that if I kept this 1800 sqft piece of crap, no one would be able to afford it. It was a "no brainer" to sell the house. Although I made a lot of money, I don't know where to invest it. I have four CD's right now hoping that banks in the U. S. don't crash. If they do, at some point, I hope I'll get most of my money back for FDIC.

LauraVella said...

Ponch said:"Folks, the drop will take us back to 1982 not to 2000. In 2000 prices had already doubled from 1994.

The ride down will be painful The question is how long will it take 3, 5, or 15 years. That is the question that I am struggling with. Any opinions?"


Ponch, many probably strongly disagree this your prediction - but I, on the otherhand do agree, that house prices will drop to the 1980's levels.

This will shock absolutely everyone, however, I believe house prices need to drop this much in order to return to the 1960's Proper Lending Standards for "One head of household wage earner". This is the only way for Americans to build up their savings, which will increase the value of our currency.

I read somewhere a bust deflates the same amount of years it took to inflate...in the bay area, prices started to rise in 1997...bottom of trough should be 2017.

{venting} said...

I did buy a house in 2001 and 2 in 2002. When you fools were renting I was buying. I sold all 3 in 2006 and made enough money I don't have to worry about retirement anymore. Now I am renting with money in the bank waiting a few years (could be 1 could be 5 who knows) before I do it all over again.

Renting 2002-2006 was as stupid as owning 2007-2010.


And it's because of idiots like you that the country is going to hell. You're just to myopic to see it.

Do you realize that the US dollar has lost more than half it's value since 2001? Back then, oil was selling at 10 bucks a barrel - now it's heading towrds 200. Where do you think the dollar is going to be 7 years from now?

If a wooden house has one termite... no problem. A thousand? You're going to have to do some repair work. A million? You'll wake up with the house turned to dust around you... including your bed.

The fact is, the country could have probably withstood a single idiot such as yourself. But 10 million of your fellow idiots are going to cause the biggest financial disaster this planet has ever seen.

So far, the ARM resets have been at $5 billion a month on average - and it has caused the banks to scream for mercy. What do you think is going to happen in March when $300 Billion in ARMs reset?

Have fun with that couple of million when a loaf of bread will cost you a thousand bucks. That is - IF you can withdraw that money before the banks fail. During the last great depression, over 10,000 banks closed - people who were millionaires ended up with NOTHING.

In the future, just remember one thing and keep repeating it to yourself quietly when your stuffing those bills of yours down your throat in order to stave off hunger... "YOU DESERVE THIS!"

{/venting}

LauraVella said...

Anon said:"last time i asked said coworker what kind of loan he had, he still wasnt sure, "might be an arm".


The loan terms are disclosed in black and white on the first page of the closing docs.

That co-worker of yours must have turned his head and closed his eyes when he picked up the pen.

LauraVella said...

in 2001, I knew something wasnt right When I heard people were buying homes using a piggyback loan(suggestion from the realtor)instead of paying PMI.

The standards of 20% now shrunk to 0% down using a second loan.

We sold our home in fall of 2004 with multiple offers... we are now happy renters saving about 50k a year by not buying into the mania.

Anonymous said...

venting:

a. get back on the meds asap

b. yeah like it is MY fault you sat out this boom while I got rich. I hate people like you who complain all day long. You sit there and whine about this and that. Bush did this to you. The media did that to you. Bernake did this to you. And now I see by making money in real estate and getting out at the right time I am to blame for your pathetic existence too. Well fuck you. I'm not going to apologize to you or anyone else. I took a chance and made the right investment. What did you do? Nothing. Well except for complaining that is.

As for bread being $1000 yeah OK fine then gold will be $100,000 an ounce and I have plenty of that as well. Or maybe gold drops to $100, fine again as that means my cash will buy that much more. I am diversified enough that inflation, deflation I'm good to go.

Again, fuck you.

Anonymous said...

>> The market activity and stupid business models proposed for the dot coms were a frequent discussion in my MBA classes at Stuart/IIT.

Never heard of Stuart. Resume straight to the garbage...

Anonymous said...

I'm in the same boat with you CalRay-

CD's in the Bank with my 2006 House sale proceeds pryn' the FDIC doesn't go down the toliet as well.

Does anyone know how you can check on the status of your Bank???

HELP PLEASE!

Anonymous said...

(venting) -- The Fed does not create money. If they did, the cost to service the national debt would increase by exactly the amount they just printed.. taking away any theories of printing money to inflate the debt away.

All the Fed can do is jawbone the market and get banks to lend to each other. They fundamentally have no power today - because they have never had any power ever. Kevin has been wrong about this point all along because he does not understand how money works.

The US Fed and the ECB have not increased the monetary supply since last March.

The 700B done by the ECB last month? TOMO rollovers. The auction facility? Matched by the Fed not rolling over a TOMO before starting it. Look at the slosh - it's all there.

Bernanke knows this, and that is why he's scared when Ron Paul grills him during testimony in Congress.

The Fed won't save us.. because they can't save us. They never could.

Frank@Scottsdale-Sucks.com said...

I'd like to own my own home, but I like ice cream too, yet wouldn't dream of paying $100 for a scoop.

That is a GREAT analogy for people who've been brainwashed that "buying is better than renting" regardless of the numbers.

Anonymous said...

I really wanted to buy a house from 2001-2004. It seemed everyone I knew was buying a house and I was reaching the age where...people do things like buy houses.

But, my husband and I are academics living in a very high-cost area, and it just wasn't even thinkable. NOW I'm thinking that someone probably would have given us a loan, for 8-10x our salaries, to get into an "entry level" house in L.A....but I wasn't aware of all the kre8iv loan stuff going on and figured that without a sizable down payment and higher salaries, we were not going to be able to get a loan. So we didn't even try.

And now I'm so glad that we didn't try to make it happen. It makes me break out in a cold sweat to think of being saddled with a house right now in Southern California, that we would have purchased with some really crazy loan and which would probably have negative equity by now!

I started reading about the housing bubble a couple of years ago, at least I started reading about the dangers of ARMs and the need to return to sanity-based lending practices, and became very glad I was a renter.

And now that I have a child, and life is so hectic, I'm also really glad that my landlord takes care of the yard, the repairs, etc., and that I don't have to pay HOA fees or property taxes. I don't know if I'll ever want to own a home, actually.

veritas-faust said...

In May 2003 my wife and I had just moved to Miami and started home shopping. I had been in Florida once before in January of 2000 and remembered prices were literally 1/2 of what I was seeing advertised.

I started doing some research on property taxes and carrying costs and it seemed way out of whack to salaries. Then I got a google hit for Housing Bubble and Patrick's site came up. I read his position and it struck home.

Veritas_Faust

Adman said...

I got lucky - sold the house last year so I could try a rehab but couldn't find any good deals (tear downs in Dallas were still 300K!), so had to rent instead. Yes, I wish I had more room instead of this apt, but when I think about all of the expenses that came with the house, i'm glad.

{venting} said...

The Fed won't save us.. because they can't save us. They never could.

What you're seeing is alot of CYA from the FED these days. A simple question... If they are incapable of doing anything - then why are they still here?

Why the heck is anyone even listening to them if they are incapable?

You are correct though - the FED doesn't create money - it DEBASES it which leads to an endless cycle of forcing people to work more in order to pay for increasing costs in goods, services and taxes.

Slavery by any other name... is still slavery.

{/venting}

Stuck in So Pa said...

Anonymous said...
For me, All credit goes to this website for keeping me from making the mistake of a lifetime.

January 02, 2008 2:00 PM
---------------------------
Same here. The vindication came in Jan 06, when I sold an inherited, virtually worthless POS in bubble Baltimore for a gazillion more than anyone in their right mind should ever even consider. Glad I held on to it! I knew things had gotten crazy, but that really slammed it home!

Norwegian Bloke said...

I graduated in 2001 after the dot.com bubble. Hated my job. Couldn't afford anything decent without assitance.

The increase just didn't make sense. I expected home prices to drop as the economy slowed, but no...

So I started reading articles written by Kurt Richebacher, who passed away last year. What he wrote justed made sense. I felt dumb as prizes rose, but I couldn't defend the increase anyhow.

I do live in an oil economy (Norway), but our resources are running out and the bubble is global, so looking at the US made sense, though some people think we'll coast through.

Anonymous said...

I graduated in 2001 after the dot.com bubble. Hated my job. Couldn't afford anything decent without assitance.

The increase just didn't make sense. I expected home prices to drop as the economy slowed, but no...

So I started reading articles written by Kurt Richebacher, who passed away last year. What he wrote justed made sense. I felt dumb as prizes rose, but I couldn't defend the increase anyhow.

I do live in an oil economy (Norway), but our resources are running out and the bubble is global, so looking at the US made sense, though some people think we'll coast through.

Anonymous said...

I moved to Los Angeles from Seattle in 2003, and in 2005 had it together to buy.

I spoke with a Realtor then and mentioned that prices made no sense. He agreed that incomes didn't make sense with Valley prices.

A girl in my office bought a condo for $175k, and saw it go up to $375k by October of 2004. Her payment was $815/month and likely a neg am minimum payment nightmare from IMB or DSL when she purchased in October of 2003.

She made $10/hour, 35 hours a week.

Homes in the SFV were $575k, when everyone earned $50k.

It just didn't make sense.

I heard about 600sqft Craftsman's in Tacoma going for $175k, up from $69k in 1999.

Ever smelled Tacoma?

It didn't make sense.

So I sat it out.

Now I have a hefty investment account and the neighbors houses are dropping in price $3,000 per week.

The Inland Empire is imploding as auctions continue to increase WOW, MOM and YOY. Price leaders are dropping 45% there. In the better neighborhoods of L.A. the prices are going up, but volume is dropping to 20% of last Nov or Dec.

Eventually one house a month will sell for $1,000,000 and Yun will be trumpeting the national home price median is over $1MN for the first time ever.

It didn't make any sense.

keith talent said...

I knew things were out of whack: 1. When we sold our 1-bed in Manhattan in 2004 for 2.5 times what we paid 5 years before.
2. When we went to the bank to consider buying something (now we had twins) and the loan officer wasn't the sort of guy we encountered the last time. He was all smiley ... said, "Why borrow only 600? Why not 800, a million??"

And there were all these wonderful loans that let you pay about whatever you felt like paying any particular month!

Umm, but when we considered what it would take to actually PAY BACK a million, or even 600K, with a 30-yr. fixed, compared with renting, well ... that didn't add up so great.

So we paid off our cabin upstate (was only 85K, on 17 acres) stashed the rest, and became Brooklyn renters, bitterly ever after!

Nevada Mojo Rising said...

Well, first I need to explain that when we moved from Elko, Nevada to Reno, Nevada (a mere 4 hr drive away), it was like being Rip Van Winkle and walking up from a dream .
Elko was and still is in a gold boom in the middle of nowhere so we sold our little 85-year old bungalow 18 months ago during a housing shortage in a gold boom town and made about $85,000. that we were expecting.

We loaded up our truck and got to Reno and immediately choked when we saw homes that wouldn't have sold in Elko in a shortage for $125,000. selling for $350,000. I was immediately outraged and started doing research and started frequenting blogs like this one. We decided to rent until we could see what was going to happen and we are more than happy we did!

These home values are total bullsh*t now and back then!

ApproachingReset said...

A couple of years ago, while I was pouring my salary onto nasty students loans, I lived in the Uptown neighborhood of Chicago. At 8:30 one morning I returned to my $650 one-bedroom rental (which included a private garage) and noticed a grown woman relieving herself in the center of the neighboring building's (uncovered) parking lot, not against the fence, or between the parked cars even -dead center- all the while her friend held her bags and continued chatting with her without bothering to acknowledge-let alone apologize to-yours truly. The price of a two bedroom condo for sale in that building next door: $410K. I figured I could rent a 2nd apartment in my building and pay prosititues to pee in my garage and still come out way ahead. That's when I knew something was seriously wrong here.

Bubblicious D.C.'er said...

In the D.C. area in 2005 just beginning to learn the home buying process. Townhouses and condos under 1000 square feet for half a million dollars that still needed upgrades and repairs. Me, an attorney, and my husband, also a professional, seeing what humble conditions our combined salaries would buy. It was the old, "If this is all WE can afford, something's gotta give." I got so tired of realtors trying to convince me that the market wasn't going to deteriorate. If I'd heard "soft landing" or been treated to the spectacle of a stainless steel refrigerator in another dump, I think I would have lost it.

i've had it said...

I knew something was out of whack in the 2003/2004 timeframe when I saw ads of tiny, run-down houses, in the less desirable neighborhoods of very nice suburbs in the boston area selling for
$400k to $500K. i mean, these were little itty bitty houses...old ranch houses, tiny capes, bungalos and such. i just kept thinking, "who would pay so much money for such small, lousy houses?"...well, my question was answered this past year....speculators, investors, upperclass wannabes, and a huge boatload of American idiot buyers who tried to play the housing market....that is, the regular folks who jumped into this stupid game to make a quick buck and buy lots of toys.

Anonymous said...

Well I live in Chicago, IL. I got out of school in 2004 and got married. I looked at the prices of houses and newly built condos and all of the sensational optimism and prices going up really crazy and for myself we crunched the numbers. It was a no brainer. When we compared what it would cost us to "own" versus rent, we decided to rent. Now, I didn't anticipate the real estate market to go down. We wanted to rent for several years while my wife finished up her graduate degree and then we will move to houston. BTW, we were able to save money and this is a good feeling.

Anonymous said...

I knew the real estate market was into a bubble territory when I did the number crunching and found out that there was no way we could afford to buy a house in the city. We calculated the costs (and we are educated professionals making good money) and thought this is just plain insane. I am so glad that we didn't buy a house back in 2003. We were on the verge and afraid of being priced out of the market. Finally, when we told our realtor that we were no longer in the market, he went into a sales pitch how real estate values on the long term never goes down, prices always appreciate and if we didn't act, then we would be priced out of the market forever. We did get scared but we are not financial experts (I am a federal employee and my wife is a nurse) but it all didn't make sense. I did some research on the web and all of the usual news sources (the main stream media) touted how it was a great time to buy. I hit www.patrick.net and that linked to other great websites (like yours and Mish's website) and then we knew we made the right decision. Thank you Keith and other folks like Mish, etc... for providing us non financial experts with information that the main stream media outlets don't cover. You saved us from making a very poor financial mistake.

Anonymous said...

Hearing more about what a fool I am for still not buying in this "buyer's market". 'House prices are down!' So I have to give a long explanation about the enormous disparity between the run-up and the correction thus far.

As per the realization? Not sure, but all that talk about fast money flipping houses made me suspicious. Dad grew up in the Great Depression - many people these days don't know what "Ponzi Scheme" means. But I did not "time" anything. Just got out because of divorce, so it was "luck". Ex-wife at least agreed the housing mania was just that.

Gavin said...

" You are correct though - the FED doesn't create money - it DEBASES it "

How?

Instead of making claims, show me the mechanism by which the Fed can debase money. You believe they can - that's great - precisely how does it happen? Show me the links, show me the dollars, show me something. Or, if you're going to claim they don't debase money, show me proof of some task they do perform.

First you said they create money. Now you say they don't create but they debase money. Guess what: You're still wrong. They don't debase money either. They can't.

The Fed doesn't control anything. The Treasury doesn't control anything. They do nothing - it's all private money purchasing the debt of the US government, not the maniacal elf who passes himself off as our President these days.

Also, it might interest people still reading this thread to know that the Fed is actually owned by a coalition of worldwide banks -- not the US government. Funny how that works, isn't it?

What's the purpose of the Fed? That's a good point - I'm not a fan of the Fed. They accomplish nothing. Go read Ron Paul's platform one of these days.. he is pushing for a removal of the Fed for these and several other reasons.

What are other reasons? They are simply incompetent.. when this credit crunch started they actually estimated the losses at under $100B, and now we'd be happy to stop with losses at $1 trillion. They're supposed to be the brainiacs who can see everything, and yet they're surprised. Like kids opening presents on Christmas morning.

The only person I know who is buying a house is a doctor.