Posted on 08/25/2006 8:57:15 AM PDT by Hydroshock
NEW YORK (Fortune) -- For the past five years, the housing bulls have been trotting out one rational-sounding argument after another to explain why the boom made perfect economic sense.
Forget about a crash, they assured homeowners. Expect a "soft landing" where your three-bedroom colonial in Larchmont or Larkspur not only holds onto its huge price gains, but keeps appreciating at a "normal," "sustainable" rate of 6 percent or so into the sunset.
Real estate slowdown New homes slump worsens
Pace of new home sales falls more than forecast as inventory builds, prices decline. (more) Freebies for home buyers Home sellers are trying to find creative ways to get buyers to sign on the dotted line. (more)
Americans wanted to believe, and they did. Now, the giant popping noise you're hearing is the sound of yesterday's myths exploding like balloons pumped up with too much hot air.
The newest sign that the myth-makers were spectacularly wrong is the data on existing home sales for July. Nationwide, median prices rose .9 percent.
But even that meager number masks the real story. Prices actually fell where housing is most vulnerable, in the bubble markets in the West and Northeast. In the Northeast, they dropped 2.1 percent from July of 2005, at the same time prices nationwide rose around 3 percent, meaning that houses lost over 5 percent of their value adjusted for inflation.
Homeowners just saw their wealth shrink, by a lot. The numbers will only get worse. It's time to examine the clichés that the "experts" - chiefly analysts and economists from realtors and mortgage associations - used to convince Americans that what they're seeing now could never happen. Here are the four great housing myths - and why they never made much sense in the first place.
(Excerpt) Read more at money.cnn.com ...
You hear infomercials with guys making a killing on real estate deals, but several guys I know who have tried it say it would have been easier to get a second job.
Where are these places? Got a link?
The last I remember seeing was Chicago and Highpoint, NC.
"I can see prices in CA dropping as every business owner leaves the state causing supply to outstrip demand."
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How great is the exodus of people? I certainly agree that population is a driving force in value.
Yeah, but this time it's different because you wrote that.
Our homes in my neighborhood have gone up 150000 dollars since last year, there maybe a bubble but not here
No, but you can have negative equity. In past busts, people have just walked away because they owed more than the house was worth. Certain refi's now allow the bank to go after all your assets, not just the house.
and have been right now if you were a flipper well you been flipped but us homeowners are doing pretty good, preety good
Home sales here are flat as a pancake. Yet, the median price of homes last month rose by 4%. Go figure.
The guy blasts people, the market, whomever, for following the conventional wisdom that he says led to a real estate bubble. Now however, we have this ding dong, along with every other psydo-prognosticator, positively telling the herd that there is a real estate bust and that it's going to get worse. So on one hand he blasts those who proclaimed good times for real estate, and yet himself, proclaims a real estate apocalypse. Is is me, or does every third media story generated have to do with "The Coming Real Estate Bust"?
Cannot imagine such giddy delight in making such proclamations during the Clinton years.
That's right - decade after decade for hundreds of years housing markets have gone through fluctations. And any market has buyers & sellers, hypesters and short sellers, fools & idiots.
Except for those accustomed to financing their lifestyles by taking out home equity loans from the increasing value of their homes.
"I have always looked at my house as an important, valuable family asset. I have to pay to live somewhere."
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Exactly my point. You buy a home because that's where you want to live and the property has features you like. If your realistic you hope it appreciates in value, but recognize it's not guaranteed.
We lived in California for twelve years, during which time the market went up and went down several times. One year we saw a 30% increase in the value of our home, the next year it had lost almost all of the gain. The market goes up and the market goes down, the problem is that the rest of the country is not used to the volatility of the active real estate market in a fast paced market. People are much more mobile, changing jobs and moving there families where ever the jobs lead them. People better just get used to it.
"How great is the exodus of people? I certainly agree that population is a driving force in value."
The population being the driving force was my real point. I was just using CA for fun. They pass so many crazy laws out there I can't imagine trying to do business there.
If you bought a house at a realistic price that you can afford with conventional financing, you will never go wrong as, at worse, you will have the house to live in.
If you bought a house at a price inflated by the fact that you could afford the monthly payments only by choosing an interest-only adjustable rate mortgage, once the interest-only grace period expires and there is no "greater fool" to take the huge financial debt that you can no longer carry off your shoulders, you will lose your house, you will lose your down payment and you will tarnish your credit rating and be in much worse shape than the guy that merely lost the cost basis of his Enron shares.
In real estate, as in stocks, fundamentals are everything.
Today's real estate prices are being artificially inflated by the fact that lenders are irresponsibly lending out huge sums of cash under irresponsible terms to borrowers who will never be able to repay such huge sums money.
Such a state of affairs occurred during the Japanese Real Estate Bubble of the 1980's.
When the Japanese woke up one morning and realized that average Japanese worker could never hope to repay a $3 million loan for a 950 square foot apartment, the borrowers defaulted on their loans and the Japanese banks were left with hundreds of thousands of $3 million apartments on their hands that they now owned in exchange for billions of dollars of real money that they had foolishly handed out to anybody with a pulse and a job at the Toyota assembly line.
The Japanese banking industry has yet to fully recover from that fiasco.
In the U.S., however, expect the irresponsible bankers to demand a bailout from you and me, the U.S. taxpayers.
"Come on, don't you realize the sky is falling?/sarcasm off"
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In someways I wish it were, not because of the hardship it would cause people but because it would create tremendous opportunities.
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