June 14, 2006 at 8:32 PM #26929
Houses are a risky retirement bet for at least 20 years. Assuming home values drop by 35% over the next 6 years, and then rise with inflation for 10 years, you haven’t made anything. It may take 20 years to get back to today’s values.
For those prices to be reached again without having a housing bubble, wages would have to double or triple by then also. If prices come back to today’s values without higher wages, we have another asset bubble. The median priced home should be 3.5 times the median wage. At that ratio, you can put down 20% and get a 30 year fixed loan with a mortgage that takes less than 28% of your income.
If housing prices and wages double, everything will cost more. We are going back to the days when you 1) buy a house you can afford, pay off the principal, and live in a free and clear home, or 2) are in a house whose mortgage you cannot afford after retirement so you must sell and downsize.
Anyone counting on the equity in their homes in 10 years is taking a huge risk. At that time, home values are likely just picking up again, and at the historic rate of 3-4% annual appreciation, it will take many years to get back to today’s lofty prices.
As the UCLA Anderson Forecast explains (and this does hold up to scrutiny), the rate of return on a house is 0%, after factoring in inflation. It gives you a place to live. Historically, housing rises with inflation, and equity is earned by PAYING OFF THE PRINCIPAL. People have to STOP thinking of housing as a cash machine.
Let’s all get the idea of housing as a cash machine out of our heads. This was a one-in-a-lifetime event, unless the Fed creates another real estate bubble.June 14, 2006 at 9:24 PM #26937AnonymousGuest
I disagree. Housing has always followed a cycle…a few years up and then a few years down. Same with interest rates. Some times are better than others. And real estate is just as much of a cash machine as stocks & other investments. The key is timing…knowing when to buy, when to hold, and when to sell. I bet in 20 years three rental properties will produce more monthly income than your 401K. Things are not as bad as you make them out to be. The market has always had foreclosures and short sales and bankruptcies and people over extended on their credit. People should be cautious decision makers when it comes to housing. I think running the other way is a bit extreme. You are free to make your own choices, powayseller, and I sometimes learn something from your posts. However, your “sky is falling” attitude toward the state of the economy/housing market/stock market/people with debt/mothers that work and all other issues that you feel you must broadcast your opinion about doesn’t bring more to this forum. In my opinion it actually detracts from it. Isn’t it time to get back to what this forum is supposed to be…an online place to share facts, concerns, and ideas about the housing market. Save the alarms for a fire.June 14, 2006 at 9:43 PM #26945
But this time it’s different;)June 15, 2006 at 5:41 AM #26967
You are free to disagree. I value your ideas.
I am terrified of holding real estate. Sometimes I worry I will have a nightmare, where I am owner of a house in San Diego, and the prices keep falling and I can’t find a buyer. This scares the heck out of me.
Right now, I cannot picture when the tide will turn, and I will want to own real estate again. I think it will be a long long time, and when I finally do, it will be a time of regular rising appreciation, like we had in the past.
Houses will no longer be a cash machine. That was a once-in-a-lifetime opportunity, getting rich flipping homes. I doubt that kind of liquidity bubble will ever be allowed to happen again. We’re going to see much tigher lending standards and other government intervention to prevent another collapse of middle American dreams and fortunes.June 15, 2006 at 5:47 AM #26968
This time is different. The type of loans, the record debt, overbuilding, are going to make this real estate collapse the worst in our country’s history.
An excerpt from the Frontline story
The nightmare I have,” says pension expert Brooks Hamilton, “is the vision of people … outliving their retirement income and being down to Social Security.” And the shock waves may reverberate through the entire economy. “What holds up our economy,” says Hamilton, “is consumer spending. When retirees are 20 percent of the population and run out of money, then ‘poof,’ there goes the economy.”
The change is already happening, as retirees find they are having to go back to work to make ends meet. Pat O’Neill, a retired United Airlines mechanic, is now driving a truck after his pension and benefits were cut. Winson Crabb and Gil Thibeau, two National Semiconductor retirees with widely different financial results from their company’s 401(k) plan, are both still working in retirement.
“What is the meaning of retirement if the only way you can live is to work?” asks Notre Dame professor Teresa Ghilarducci “The answer is there is no meaning to retirement anymore. We are now shifting from lifetime pensions to lifetime work. It’s the end of retirement.”
I know some of you will appreciate my post, others say I’m extremist, doom and gloom and all that.
My point is to help people. Watch the video. Are you ready, or will you be like one of those little old ladies and men who can never afford to quit working and are worried abotu paying the rent? Is consumption today more important than that lifetime security?June 15, 2006 at 9:26 AM #26991lostkittyParticipant
“Thanks for sharing that and participating in this forum. I invite you to consider my point of view…”
So many people have written in (myself included) to say thanks for the site (Rich) and thanks for the threads (majority started by Powayseller). They mention that they have learned a lot. They’ve gained information they were not able to find elsewhere.
I have been a bubble-believer since 2000 – living in Coronado for the umpteeth time since childhood and seeing the prices having skyrocketed beyond affordability even for highly trained, highly educated families. A lot of people made a whole lot of money since then – so I felt foolish as I kept repeating my claims that real estate really can and eventually will fall – even in San Diego.
Recently my husband and i have been the only people we know saying the same about pensions… but here they go – disappearing even though so many people told us, “that’s ridiculous – they cant take away a person’s PENSION!”
Keep up the posts powayseller… You are accomplishing your goal of helping people. It is a noble goal – we all know you arent making any money doing this! I truly do not understand the persistent need to tell you that they “just dont like the way you say things” “extreme” “lunatic” etc. Blah blah blah. Keep up your posts.June 15, 2006 at 9:39 AM #26993
Thank you. I find it interesting that I am such a focus for people. Even the hijack thing. PD and docteur went off on some reincarnation thing, and nobody thought that was a hijacked thread?
One thing I learned from watching Schwarzenegger back down is that he really lost my respect. Now he is kissing up to the Teachers Union instead of keeping in his vision to reform them. I will not be as weak as Arnold, and silenced by criticism. Clinton was so insecure, he constantly used polls to revise his agenda. I am learning from their mistakes. I am proud to bring on controversy.
The only thing I do not want, is to offend people. If anybody ever catches me offending another person, please call me on that right away. It’s important that I treat everyone with respect and dignity.
Last weekend, I went to a showing, introduced myself to the realtor and her clients, and when the realtor was out of earshot, gave the client this website advising her to NOT buy now. The client was from the Midwest and had no idea about the housing bubble. The realtor had NOT told her. I prevented another financial crisis. Not to worry about the seller – he’s dead and the worst that will happen is that his heirs will get a little less money when they have to lower the price. So I continue with my mission: saving Americans from financial crisis one blog, one family at a time. “Can you hear me now”……June 15, 2006 at 10:07 AM #26998
One question PS? If you succeed in your mission and the market crashes as you wish by 50%, how do you reconcile the far greater damage that would be done to those that already own homes with the benefit to those that wont buy?
Just curious…..June 15, 2006 at 10:48 AM #27009
It is not my mission or in my ability to cause a crash. My goal is to inform.
Damage only comes to those who do not act. Some choices have consequences that cannot be minimized; they must be endured.June 15, 2006 at 10:54 AM #27011
I guess you choose not to consider there are 2 sides to the coin. Certainly your perogative.June 15, 2006 at 11:57 AM #27023lostkittyParticipant
“how do you reconcile the far greater damage that would be done to those that already own homes with the benefit to those that wont buy?”
Could you elaborate? I may not be understanding your meaning, but I dont understand how powayseller’s attempts to inform people about a bubble will affect those that already own homes?
Do you mean that the few she saves from buying now, will be hurting someone who is trying to sell now?
Do you think her sharing of information is going to cause the market to crash more severely than it would otherwise?
If so, then you would also be culpable since you are a bubble believer too. Furthermore, you are posting your opinions about it here, on a public blog, with your profession right there in your screen name. I think that alone would dissuade a person from buying more than the housewife in poway. Right?
“Thanks for sharing that and participating in this forum. I invite you to consider my point of view…”June 15, 2006 at 12:36 PM #27031
While I beleive prices are heading down, I dont beleive he are heading for a 50% crash. The mild correction I believe in would not cripple the economy. The 50% crash she believes in and tells people is coming with conviction would damage far more than a few potential home buyers overpaying would. I was just wondering how she reconciled that in her mind.June 15, 2006 at 10:03 PM #27055ybcParticipant
I want to follow up on the retirement thread. I think that the social safety net (social security, company pension, healthcare) is gradually being withdrawn, and a majority of people don’t realize it. Current retirees still enjoy good pension if they’ve worked for a large employer, social security complements that. Many of them enjoy their employer’s retiree healthcare benefit before medicare kicks in. Their housing is worth a lot. Inflation (other than healthcare) is mostly low. Their adult kids probably extrapolate that peaceful retirement into their own old age.
Fast forward 10 to 20 years. Future retirees will rarely have company sponsored healthcare. I see a lot of discussion on pension, but healthcare is even worse a problem. Only a minority of retirees will have employer sponsored pension (defined benefit kind). Medicare by then will very likely run into serious solvency problem. Social Security probably will still be OK. So to have a good retirement, one has to have a house that’s paid for (forget about how much it’s worth), healthcare from somewhere, and enough savings to cover all other expenses. No, a lot of people won’t be able to aford to retire, at least not living the same standard of living.
I have a friend who jokes that since all their money is spent on their kids, their house is their retirement. I guess reverse mortage will be a very popular financial product 10 to 20 years down the road.
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