Posted: 31 Aug 2010 03:30 AM PDT
Assaulted by bad news, a home debtor has launched a public relations campaign to keep the kool aid flowing.
Irvine Home Address ... 13 WINDJAMMER 2 Irvine, CA 92614
By Barry Ritholtz - August 28th, 2010, 10:42AM
I'll answer that one for you Barry: it is a sign that people are clinging to the hope of a real estate recovery. We are not yet at the bottom.
Why is sentiment so important?
Why are market collapses signified by changes in consumer sentiment? First, we need to distinguish between deflating market bubbles and market swings causing temporarily low prices. The housing bubble was a bubble; prices became elevated from fundamental values, and they are in the process of correcting back to true value. Prices were not temporarily depressed, they were temporarily elevated. In a bubble scenario, prices do not recover.
When market sentiment is still in denial -- like most of California's coastal markets are -- people cling to the hope of a recovery that is not going to happen. Stories about the double dip may push the market into fear, but it is nowhere near capitulation and despair like the subprime markets are today. As long as there is the delusion that prime markets are somehow doing to avoid the deflation of the bubble, there will be an overhanging supply of sellers waiting for a slight improvement to sell their properties, and the distressed debt in the market remains. As long as there is overhead supply and people holding distressed debt, the market will not recover because each attempt simply brings out more sellers and prices get pushed downward.
An understanding of this market dynamic is the primary concept separating traders from academics. Traders understand this. Academics don't. Since the banks get most of their advice from academics, they will consistently make the wrong decisions, the market will not clear, and prices will grind lower until they capitulate and the inventory is finally gone. As we are witnessing today in Las Vegas, everyone must sell, abandon hope, and feel widespread despair before the market bottoms.
By RON LIEBER
The truth is that home prices cannot rise faster than inflation unless we are inflating a bubble. The only thing surprising is that reasonable people who understand this are being heard right now. Usually, the bullshit from the NAr and the general level of kool aid intoxication in the media makes more noise.
The problem is that people don't know where prices could fall further. The markets commonly labeled as safe havens are the most at risk whereas the markets labeled as hopeless are at or near the bottom.
LOL! No HELOC abuse? The problem with the whole forced-savings argument is that it is not forced anymore. Unless you live in Texas where they restrict HELOC use -- which is why Texas avoided the bubble -- then forced savings requires self discipline. In our Ponzi culture here in Southern California, self-discipline is in short supply.
This is another specious argument. Landlords rarely if ever throw out a good tenant. In fact, landlords often won't raise rents for fear of losing a good tenant. This article makes it sound like landlords are a capricious lot that likes to exercise their power to make people move. That idea is rather silly.
Look at it another way: how many people have been evicted by their lendinglords over the last 3 years as compared to the number of capricious landlord evictions? Avoiding a landlord is a great idea, but substituting a landlord for a lendinglord isn't much of an improvement. What people should strive for is to pay off a mortgage so they don't need to worry about a landlord or a lendinglord. Of course, that requires sacrifice, so most people opt to service debt, abuse their HELOCs, and take their chances.
This writer is a safe-haven fool. Detroit and Cleveland won't come back because their economies are a shambles. However, Las Vegas, Phoenix, Riverside County, most of Florida, and the San Francisco suburbs are going to recover, and the low prices there represent buying opportunities. The "nice part of town" hasn't endured its price correction yet, so those markets are in danger.
Their rent-versus-buy calculator is crap compared to the IHB calculator. Theirs was likely produced by the NAr.
This is nonsense and scare tactics. You can rent beautiful properties in the best neighborhoods in Irvine, and right now, those rents are below the cost of ownership. (High-end rental deal of the day: 31 Plumeria)
That is the worst reason to buy.
I question whether or not this family was getting a house equivilent to a rental if prices had not corrected yet. Perhaps their new mortgage payment is lower than rent, but they are moving into an inferior property.
I am bullish on ownership under certain conditions, and first among those is acquiring the property for a price below rental parity. In fact, I can flip from bearish to bullish quickly if prices fall below rental parity. We should start seeing more properties like that soon. I would prefer to purchase at the top of the interest rate cycle and refi on the way down, but that may be years from now, and if prices are below rental parity, I probably will not wait until 2015 for interest rates to hit 7%.
The bottom line is this: absent appreciation in excess of inflation, home ownership is a financial burden. There are emotional benefits to owning, but obtaining these benefits comes at a price. If the price is right, home ownership is wonderful, and if the price is wrong, home ownership can be a crushing weight or ball and chain.
It's worth noting that not everyone thinks our obsession with home ownership is a good thing:
Posted on 08/29/10 at 2:53pm by Professor Mark J. Perry
Another hard-working condo
Day after day when I look at how much money people took out of their properties, I am astounded. I get the sense these houses worked harder than the people did. It certainly provided many with a substantial side income.
Interesting fact: The resale price of this house may end up being less than the previous owner's mortgage equity withdrawal.
Irvine Home Address ... 13 WINDJAMMER 2 Irvine, CA 92614
Resale Home Price ... $299,000
APPROVED SHORT SALE! Charming 2 bed, 1.5 bathroom home in Irvine Somerset tract. Ideal quiet location adjacent to greenbelt and amenities. Tremendous value!
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