HousingPanic Stupid Question of the Day

July 10, 2006

HousingPanic Stupid Question of the Day

Why did Phoenicians believe that their houses were worth 55% more than the year before?

21 comments:

Osman said...: Let's say you've been living in Phoenix for the last few years. During the summer of 2005, you notice that lots of homes are selling for much more than they did a year ago. Sure enough, by the time the data's available, it looks like the houses were selling for 55% more than the previous year.

Do you really choose to believe that your house is WORTH 55% more?

I don't think so.

WORTH sounds alot to me like intrinsic value, and as we all know, market prices frequently become disconnected from intrinsic value.

So you're the average Joe, living in Phoenix and you see houses in your neighborhood selling for 55% more than they did last year. It might not be WORTH 55% more, but maybe you could cash out. What do you do?

Odds are you did nothing. You live there afterall and for most of us, perhaps even you Keith, a sharp rise in the value of your home alone isn't enough to cause you to sell out. Perhaps you'd think about it, but few actually take the step because they live in that asset. Selling it would necessitate buying another one in Phoenix or relocating.

Ok, here's my last point for the math challenged. Let's say your 250K 3BR home in Phoenix appreicated on paper according to the NAR by 55%. So you went ahead and slapped it on the market for 387,500 this spring, but because the bubble has passed (or paused), it sits there. Somebody offers you 30% off. That's still 271,000, 21K more than the previous year and 8% appreciation.; July 10, 2006 8:04 AM
Anonymous said...: Osman is right. Keith is just hyping it as usual.; July 10, 2006 11:42 AM
Anonymous said...: Osman is spot on in his remarks. Many visitors to this site brag about cashing out and moving to a non-bubble locale, but many other people are stuck in bubble territories for job or family reasons.

But there is more to the story: the builders, who obviously are not subject to these constraints, because they sell brand new empty houses. They put up bigger and bigger houses with more and more "luxury" features, because this is what sells, and this is what maximizes their profit margins. They have become experts at exploiting the availability of cheap money, completely emasculating RESPA in the process.

By the summer of 2005, even some builders had become concerned about the negative effect of speculative buying and were putting clauses into their contracts that attempted to discourage buying for immediate resale. Too little, too late.; July 10, 2006 2:19 PM
Anonymous said...: The better question is why did the buyers think the property was worth 55% more than the previous year.

Nobody forced buyers to buy at these prices.; July 10, 2006 2:46 PM
Anonymous said...: simple answer - housing is NOT worth 55% more. the statistic measures one point in time against another point in time. both in the past.

look at current data. number of listings, days on market, price reductions, and the simple fact that buyers are not buying at the "high" prices.

so, sellers have to lower their price to find a buyer, or wait for a bigger fool. those days are over, for now.; July 10, 2006 3:29 PM
Anonymous said...: yo bubbleshanker - calm down.

phoenix metro is home to almost 4 million people now. and still growing. there is something here that attracts people from other places. so you are simply wrong when you say that no one wants to live here.

housing is a mess, and there is carnage on the fringes. but no need to slam an entire metro area just because you don't want to live there.; July 10, 2006 3:57 PM
Anonymous said...: Because there is only so much land ;); July 10, 2006 3:59 PM
Anonymous said...: Phoenix, AZ. "There is no there, there". Overated, overpriced and overbuilt. Top pick for Witness Protection Program inductees, uninformed transient fortune seekers and stupid cheap midwesterners who think Scottsdale is La Jolla/Del Mar.
A souless mediocrity with todays temp at 112.; July 10, 2006 4:01 PM
Anonymous said...: hey, retard bush is appointing another corrupt lackey to the treasury; July 10, 2006 4:25 PM
Anonymous said...: It's mass hypnosis. We've been brainwashed into believing that consumption is one of our unalienable rights, and that gambling has the same outcome as investing.

We need to stop thinking of politicians in terms of liberal or conservative because 95% are now GLOBALISTS!; July 10, 2006 6:01 PM
Anonymous said...: Phoenicians?; July 10, 2006 6:49 PM
Anonymous said...: Wether you believe that your house is intrinsically "worth" more and then whether you sell or not is an interesting question. However, I think a more ominous question is not the people that try to cash out and sell or try to sell. For me its the people who bought the house from them believing it was worth that much (probably using an exotic loan) and would continue to appreciate. The other probably more insiduous effect are those poor workaday Jane and Joe Six-pack types who looked at the valuations, saw a temptation too hard to resist (whatever rational it may be.. Paying of Credit Cards, new car, refinishing the kitchen, etc.), rationalized themselves into taking out the HELOC on that "stored value" and are now in trouble.; July 10, 2006 7:09 PM
Anonymous said...: The Greater Fool Theory is still alive and well. It worked for dotcom shares in '00, and it's working just fine for RE prices in '06.

The trend I'm seeing locally is RE agents literally doubling the asking price for older, crap houses. They are counting on the psychology that keeps bidders from offering less than 20%-30% off the asking price in this "hot" market.; July 10, 2006 8:25 PM
Anonymous said...: to make matters worse, we got ourselves a serial killer / sniper in Phoenix now too...

http://tinyurl.com/gapkz; July 10, 2006 9:00 PM
john_law_the_II said...: (So were beads and trinkets. Neither is considered to be money now.

Why do you insist on mentioning metals in the same breath as HOUSES (there, I just did it myself)?

Because some people who can easily recognize speculative forces creating unsustainable "froth" in real estate are somehow blinded to the very same thing when it comes to gold and other precious metals.)

and why is gold and silver still around as money and beads and trinkets aren't? most likely, like paper money, they can be mass produced and make them worthless as a currency. the same cannot be said for gold and silver, which is why they've been around for thousands of years.

at least cite some reasons for the supposed "froth" in gold and PMs.; July 10, 2006 10:28 PM
AnonyRuss said...: >>>Osman said... Selling it would necessitate buying another one in Phoenix or relocating.

Or renting one of many houses here in the Phoenix area after you cashed out. It's not that complicated.; July 10, 2006 11:08 PM
Anonymous said...: Most people certainly did not cash-out. Here are two examples of friends in Phx:

1. bought in 2003, sold in 2004 for $50k profit. pissed that he sold too early he bought another in Aug '05. But since he was caught up in emotion from being outbid on other properties, he realized later it wasn't the neighborhood he wanted. So last month it went on the market for $5k < purchase price. Right now he is worried he'll be "priced out" of the "good" neighborhood. It's not looking good.

2. bought in 2003 in a perfect location. price doubled. lived most of 2005 on cash-out refis including a trip to Europe. He still feels rich.

Both of them have IQs > 120 but both have been swept up in the powerful wave of emotion that sent prices up 50+%.

I know of at least 6-8 other examples of FB's or soon to be FB's, but I only know 1 who cashed out and kept it.; July 11, 2006 4:13 AM
Anonymous said...: "Without citing speculative demand, why don't you explain why you think gold is worth twice today what it was worth last year."

Here are a few factors:

1) Money supply growth world-wide is around 8% annually

2) The perceived risk in economic imbalances has increased

3) Supply uncertainty - many important gold mines are located in countries with politics shifting to the left

4) No major discoveries of new ore deposits in the past five years

5) The end of leasing and arbitrage programs by the major suppliers like ABX

The cumulative effect of these partly explains the recent run up, and the rest is due to speculation. Those who think gold will somehow visit $375 again are not paying attention.; July 11, 2006 5:17 AM
AnonyRuss said...: >>>Both of them have IQs > 120 but both have been swept up in the powerful wave of emotion that sent prices up 50+%.

Yeah, when I said "cash out," I meant not to buy again until it made economic sense, nor spend the money on vacations. But you know that, you are giving examples of these other paths. Both folks sound like they face serious troubles.

While my quotient is over 150, I really do not think that was essential to my understanding that after about 90% gains in 2 years, it was time to walk away.

My original point was that the poster ignored renting as an option. I had several relatives make the same mistake...won't you be buying at the top too? No, I will wait.

My proudest accomplishment regarding the Phoenix bubble was not engineering my own windfall. It was convincing someone else not to buy in March '06 (at essentially peak prices) using this blog and others. Based on the house that she was considering, I believe that the purchase would have led to a $125,000 or greater loss for a family whose finances were shaky to begin with.; July 11, 2006 6:35 AM
Anonymous said...: Gold bullion never was never an "investment" and people who belive it is are on a fool's errand. It is a hedge against troubled times. Several thousand years of history will back that up.; July 11, 2006 10:48 PM
Anonymous said...: Check out this house you Phoenix puppies.

17319 W Caribbean Ln | 0 mi 12/05/2005 | $350,000 | N/A N/A | N/A N/A | N/A | 5,50

Listed for $253,000 on Zip Realty.

Real Estate ABC lists the last sale
on 12/2005 for $350,000. Must have been at the very top of the bubble.

WOW!!! How's that for a drop in value!!!; July 12, 2006 2:27 AM

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July 10, 2006

HousingPanic Stupid Question of the Day

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