bostonbubble.com

[john p]

Hi Barry: thanks for the nice words...

As far as the "skin in the game"; I'm wondering myself why I'm so active lately. I think it is that we are in the peak of the Spring selling season and that a lot of young new buyers are making a pretty big decision.

I got married in 2005 and everyone was telling me the b.s. like prices were going to continue going through the roof. I felt like I was completely alone at the time when my crude fundamental analysis was not aligning with what everyone was telling me. I found this website and dialed into a few economists and reporters that were a bit more rational and I stuck by my value structure to not get caught up in the hype. I remember the pressure even family members gave me because they thought I was making a mistake. It was a tough time. It pisses me off when all these politicians posture like they actually gave a shait back then. They didn't, they didn't say a God dam thing. I remember having an agent helping me that said they didn't want me to waste their time by making offers less than 6% off of asking. I told my father that I thought I didn't have the right dog in the fight. He said to me "You are the right dog in the fight." I ended up tapping a dear friend in the industry who was an absoulte rock star for me, and I dialed up my research and traded on a bit of my own thinking. I have less faith in Harvard elites and politicians because none of the research I found was helpful at the time. All the Harvard reports were like historical snapshots based on prior outdated surveys. No current thinking that was sophisticated trickled down to me (Joe-Six Pack). Now, I trust myself beyond what "experts" say. I think Shiller has good knowledge, but I think his index is not going to prove out to be accurate. I think we need to kick the tires with his Index. I guess my "skin in the game" is the fact that someone tried to mess with me and the future of my family and if anyone does that, I will hunt them down and make them profoundly sorry for doing it. If I can be a sparring partner for a handful of new buyers to help them elevate their skills they will less likely be taking a line of b.s. from a sleazy realtor or mortgage broker, and will at least give them an ability to recognize and respect an honorable realtor and mortgage broker.

As a minimum, I want new buyers to be aware when: people interchange national statistics with local statistics, year over year versus same month to same month deltas, when people say things will drop another 20% that they might be including inflation so it might just be a 5% drop added to a 15% inflation head wind, in which case your mortgage rate will have an inflation premium embedded and your mortgage payment could likely be in the double digits. I want people to understand the economic context surrounding rules of thumb i.e. what was the historical percentage of household income used to service the mortgage, and has that remained steady while other statistics like house price to household income ratios may have gone up, but the mortgage rates have affected them. Agree or disagree, I want to elevate people's thinking to a sophisticated level. I am not sure myself, but I stood against the grain in 2005, and this is how I feel today. I did buy in 2006, got a really good deal and don't regret my decision in any way. It was 3 times our household income, within the 28% of monthly gross to service the complete mortgage, taxes, home insurance, and was in an emerging town near the coast that had a new commuter rail stop recently put in. We decided that we didn't want to buy a condo and then trade to a house because the transaction costs, moving costs would cost more than what it would be to pay for the long term house now. When you think about it, people who buy a condo and live there for 5 years most likely have a 30 year note (which is mostly interest and a tiny bit principal), then they buy a house and get into another 30 year note. They might think they're smart and refinance 5 years later with another 30 year note, and in the end they have paid a mortgage for 40 years (the weight heavier on the front end where most is interest). I saw the bottom a couple years away and a flat period after that with a sizeable risk in a premium in inflation and a higher mortgage rate associated with the lower prices. I'd rather be 5 years into my mortgage than to be effectively in the same buying power position 5 years down the line. I got tired of having my house search as my second job, so I lowballed to what I projected was what I thought to be the "bottom" and since, have plowed my surplus efforts and focus into work. I've made some strides at work and now am in a better position to service my mortgage. I think other people's strategy to focus on investing and growing a down payment is very smart if they have the right skill set and access to information to execute that plan. Each person has to pick the strategy that suits them. We're in this house for a long time; I'm an appointed member of our Town's government and I really happy with our decision. I am such a knucklehead and have never really been in a position of empowerment to help anyone, so when I get to the gates of heaven and I'm trying to lobby to get in and someone rolls the film of me when I was younger telling a hot girl that I got my necklace in Egypt for vaccinating a camel, or some of the pranks I don't dare to mention on the Internet, I will have some hand to play. Meatheads get a limited amount of things to offer people so we've got to take advantage of the things we can offer. Again, each person's strategy can work if they play their hand correctly, and listening to those that agree and disagree with you only helps you elevate your game.

[john p]

Oh, CJ:

My point about the price to rent versus the price to buy is this:

You have to look beyond the economics of the new buyer segment. To younger, new buyers, times are tougher. To sellers who bought a long time ago, they carry a short morgage payment so many aren't struggling as much as new buyers.

The disconnect between the "Me" generation and young buyers economically is why we had such low activity in sales. The reason why I think it makes sense to lowball and buy now is that of the current sellers today, a larger percentage are "motivated" sellers and when you have a price structure held together by motivated sellers, it becomes fragile and predisposed to serious deals.

Think of it this way: A nervous nellie motivated seller wants to sell out of fear. Their realtor is talking them into holding their price and to wait for the right buyer. If the realtor has a handful of current comperable sales, the nervous nellie seller becomes less nervous. If the realtor can not find a comperable recent sales to benchmark, the seller ignores the realtors advice and accepts the lowball.

Guys, house prices won't drop unless some buyers are aggressive and go for the neck. We need this correction, and either we get some aggressive capitalists who make it happen, or we get passive socialism which would be like layering concrete over our current crop. I want to score goals in my life and move the line of scrimmage forward and we can't do that with socialism or with a younger generation that is hog-tied in debt. We have to be aggressive to be competitive.

[Paperboy]

Going against the advice of family members can be a difficult thing. My mother and brother both told me I was a fool for renting last spring instead of buying. I did the research and felt confident it was the right move. I convinced my wife with the assistance of websites like bostonbubble that buying in the spring of 2007 was not the right move. Sure I wanted to be in a house and I did not want to move around anymore, but moving is cheaper than getting caught in a bad financial situation. I had many realtors last spring tell me that it was a good time to buy, but what did I expect them to say? Their paycheck in contingent on selling houses.

The key is keeping an open mind. If we never listen to ideas we disagree with we are destined to remain ignorant to all the the facts.

I plan on buying sometime next spring and I will be playing the lowball game.

Hopefully I can find a nice elderly couple that owes next to nothing on the place so they have more flexibility to negotiate. I wont be going after anything sold within the past 3 or 4 years.

[john p]

That is a very sensible, rational and responsible plan; which is why it might be risky.

When the rest of the buyers like you say "Game On", the ratio of buyers to sellers might not be in your favor as it is today.

When you get steady buying/selling activity you get a "Norm". When you get a "norm" like prices are going at 97% of asking or something, it is harder to bargain with people. If you look at the sales last year and see how it went down, but the range was all over the place, this is when prices aren't rooted and it might be a good time to bargain.

It is hard to advise someone against something sensible, rational and responsible, but just be aware of what I'm saying.

If your family starts to bug you, try this one: ask them to forward any articles or statistics that they come across online or in the news. When they dial into it, they often find that they were wrong and you can have the conversation without having it...

[barryshaft]

John P:

I wish you the best of luck and if the deal you made was good, you can afford it, and you like the property, that is all that really matters. If i were you I would not obsess about the prices, as it does not really matter to you even if the market goes where i think it will. (might be why you are so active lately....)

I was in a similar boat as you, married in 2005 and have had to argue with my wife why not to buy. I owned a condo with a friend that we sold in 2003 for a modest gain (but needed to get liquid). Luckily she is thanking me for it now and I am glad we waited... and continue to wait until at least 2009

as for interest rates and % of income... we are at 25-28%... where historically we have been closer to 18-22 in the boston metro even with much higher interest rates.

People across this country and locally are living on a knifes edge of debt and there are many things that can make this house of cards fall... I can not see in the future but as you stated-- we are all our own best advocates and to buy without doing the proper research and due dilligence is reckless.

<a href="http://www.huffingtonpost.com/hale-stewart/the-housing-market-is-now_b_98687.html/">No where near the bottom a>

good luck but don't drive yourself crazy

[Guest]

Now, after reading his posts, I can bet John P is a realtor, one of those that told us in 2005-2006 "this is a great time to buy!" He still tells us the same!
The reference to a Boston Globe article is rediculous: the GLobe is a no more than a lapdog of realtors . It was cheering the bubble and encouraged people to buy overpriced property.
Now the Globe is trying to tell us that it's not that bad, and that we all need to rush to buy something just becuase prices fell by tiny 5% after jumping by 120% in the last 7 years!
John P is trying to tell us the same.

[JCK]

Ha. I think the last thing you can accuse john p of being is a realtor.

I think john's point is that the conventional wisdom can be wrong. In 2005, it was "Prices will never go down." Now people are quoting the same (or similar) experts who are saying that we're nowhere near the bottom.

The point is this: You need to step back, consider your own personal situation in the context of where you think the market is going to go.

The fact that the market, as a whole, may drop another, say, 30% doesn't mean the house you'd actually buy will drop that much. And you need to consider the effects of time: Buying five years later simply means putting of your 30 years of payment. So there is a price to be paid by waiting.

And by the time the conventional wisdom changes again, you will have missed the bottom for sure, just like the conventional wisdom missed the peak.

[Paperboy]

Too many factors point to a long term down turn for me to think about buying right now.
Prices dropped 10% since last year but they went up like crazy for 8 years. The last downturn lasted 7 years, we are in the 3rd year of the down turn. Even if their is an uptick in prices it will be very small and localized for a long time.

Timing the market is tough but jumping the gun could be even more costly.

Investors will be steering clear of real estate for quite some time. This will limit the number of potential buyers. Banks will be getting tougher on the investors than they ever were in the past.

I do not think John is a realtor, but you never know.

[john p]

I kind of think it is funny that people think I'm a realtor. I am not, I swear it. I'm not asking people to do what I say, I'm asking people to think about what I'm saying. Agree or disagree, I think if you think about what I'm saying it will help elevate your level of play no matter what your strategy is.

The gravity of buying a house is a big deal to young people and having a great website like this is great to help elevate your thinking on the subject.

With this whole bailout, responsible people are suffering for fools. Isn't it in everyone's interest to elevate the skill set of people in the market? I believe in capitalism and democracy and without a good capitalistic skill set we drift into socialism. I have grand plans with my career and I want to build and design awesome stuff for my own region and I will never be able to do that if we do not in strong financial health. I think we can have moral values and a capitalistic skill set. I think when predators are eating others it is because we lack a protective herd mentality, a tribal mentality and people don't know how to defend themselves. My "skin in the game" is that I have invested in Massachusetts with my wife and I want to make sure that the people who stand beside me in their investment. Without capitalism many can not reach their full potential and because of that others can't enjoy the fruits of their labors. Capitalistic skills in the age of the Internet should be blossoming, which I think are in this website. If you think I'm a realtor you haven't dug deep enough into this website and picked up the free fruits of many's research. I'd suggest digging and digging to help guide the financial future for yourself and your family as it pertains to buying a property.

It's times like now that remind me that I am a bit different. I belive I'm right. I promise that I would never want to hurt anyone. If there is anything now that I am wondering that I may have understimated it is the downward force of conventional wisdom that could crash through the floor of what affordability fundamentals suggest. This is where Shiller is right and myself wrong.

[krishnarama]

I don't think John is a realtor either. I think everyone should pay attention to his posts. I also bought my first house in Feb 08 in South Shore. BuI got married in 2001,but had to convince my wife since 2003 that we were in bubble. I was early in bubble theory ofcourse. But I was able to save for next give years for downpayment and some cushion. Based on the price I paid and the orginal price(House was built in 2000) ,the property went up less than 3% per year since 2000. So it is obvious, it is no where near the bubble zone. Check your town is also in the same position. It if it is ,I don't think you should worry much even if you buy now. Prices haven't gone up ,so they won't come down much either. All these statisitcs about 30% down or 50% down will happen,but not in MA. They will happen in LA,Las Vegas,Miami etc.. It is already happening. It feels like we are in free fall now. Pyschology is so negative now. All the agents,brokers,builders(KB Home..) banks(FNM,C.) are negative and predict 5 year down turn. They were exactly opposite in summer of 05. It is in times like these you might want to consider to buy. It is possble that market will continue to go down until next spring. But not necessarily in your town. Think of interest rates two years from now. You have to factor the current psychology,severity of current downturn(3 years and some rapid declines..), and potential interest rates in future,material costs, money printing press at FED etc.. before you delay the purchase. By the way, I am not a realtor.

[krishnarama]

One more reason not to get scared so much(if you want to buy but afraid the prices will go down further) in this housing downturn is to look at the stock prices of Home builders. They made lows early this year. Some of them like Pulte,KB Homes etc have declined over 80% from top in 2005 summer. Boston prices also topped out around this time. They haven't broken those lows yet. There is no assurance that they won't,but I am looking at those charts carefully. None of those builders operate in MA except pulte and toll brothers.They operate in LA,Miami,Las Vegas ,Phoenix big time. Those are really bubble towns,but yet these comapnies are holding up really well. I mean how many more months you would see Miami or Las Vegas going down over 20% per year . I think atleast few more months.After that, percentage declines will slow down. I am thinking these stock prices will form the base here for next few years. They won't go up,but probably they won't go down either. It is interesting to see how it plays out.

[Booba]

Those who bought recently or during the boom have been trying to persuade us they actually not loosers (nothing personal this is only about $$$ decision!).
It sounds to me that they try to persuade themselves first.
Prices WILL fall for two reasons.
1) They are still too high incomparison to income.
2) We are not even in recession yet, but prices already started falling. Last real estate burst started becuase recession started and peopkle started loosing jobs and income.
When it happened, the latter will be added to soaring foreclosure, already staganting incomes and tight credit standards.
And the recession is inevitable! If you doubt it, then you are very naive person!
3) We saw only first wave of resetting rates. The next wave, even bigger, is coming, and it's called "Alt-A mortgages.

[CJ]

[BK]

krishnarama and others,

Your assumption seem to imply that there are areas that are Not in the Real Estate Bubble Zone you will be safer.

Are you aware of the run up in Real Estate Values in Spain, England, Ireland, and everywhere.

This Real Estate Bubble is a result of a Credit Bubble - perhaps this Site should be re-labeled BostonCreditBubble.

The Credit Bubble contraction collapse began in August of 2007 with bad news from CountryWide Financial. The Crisis is only 8 months old and CountryWide and Bear Stearns almost went bankrupt. The last Real Estate and Credit crisis lastest several years - THE CURRENT CRISIS IS STILL BRAND NEW! You need to see some Bank failures like when Bank o f New England failed in the early 1990's before we are even close to being out of the woods. That is what happens in a Credit Crisis and its part of the life cycle of Banking.

Credit is now being pulled out of all kinds of markets including the Education market - look up the news stories on Sallie Mae, MEFA (stops making loans), BOA (stops making students loans). This reduction in credit will cause higher unemployment and slower economy.

Credit is Money - when credit contracts the value of Assets purchased with Credit Fall in value. As the World wide availability of credit contracts you will see the value of Real Estate continue to fall. The falling value of Real Estate forces banks to further limit credit as the Real Estate collateral that backs exisiting loans falls in value - it has a Negative Impact on the Balance sheet of all banks.

You need to get passed your feeling and examine how the Banking system works and how that will impact your plans to buy Real Estate.

Regards.

[john p]

http://www.investors.com/images/editimg/issues01050707.gif

http://www.financialsense.com/fsu/editorials/mchugh/2007/0114.html

http://finance.yahoo.com/tech-ticker/article/11304/Revealed!-The-Govt.'s-Secret-Plan-to-Cure-the-Debt-Crisis?tickers=

http://jang.com.pk/thenews/apr2008-weekly/busrev-21-04-2008/p3.htm

I will represent your interest despite your inclinations and incur every addition to your resentment so that I may save you from the vassalage of your own delusion.