From a twenty-something..

[JES]

Isn’t that amazing that so many people left last year? I am considering waiting a few years to see what happens with prices, but I don’t want to wait forever. I’m thinking that if I give it a year or two I will be able to see if my predictions of a market crash come true. If prices are going to dive we should at least start to see the beginnings of it in the next year don’t you think? Problem is that they have to dive so far for me to consider them attractive and I don’t know if they will ever get that low. EG: It doesn’t do me much good if homes in Carlsbad go from 900k to 775k. Have you considered relocating, or are you going to wait it out?

[Lickitysplit]

JES, you and I are in the same boat. Well… you have a few more people on your bench! I’m sceptical as well that the market will have corrected enough in 2yrs to make buying a first house attractive. It is possible I suppose. The availiblity of information to us common folk continues to increase, and this may help speed the return to historical norms. Who wouldn’t be taken aback with the realization that the seller of the house you are considering bought it less than a year ago for a hundred thousand less? Wouldn’t that knowledge factor into most anyone’s bid? How about discoving that the city appraisal is 1/10th of the asking price? Or that the house sold 3 yrs ago for half the price? This is information is free now quickly availible. It is my hope that this buyer empowerment will speed what I consider market “recovery” 🙂

Where did you look in CO, what did you think, and where else are you looking?

[JES]

It is so nice to hear from other people like yourself who are in the same boat! I am often around family and friends who own and I sometimes even feel guilty that I am not willing to sacrifice my entire life savings, childrens education funds, retirement funds etc. just to buy a house out here. I was talking to a family member the other day and explaining how prices are so high, how we are considering moving etc. They simply could not understand why we would consider moving, and morover kept pointing to other people in the family who are sacrificing beyond their means as examples of ‘people who are making it work.’

I agree with you that information availability is making the game easier for buyers. Do you read this site?

http://bubbletracking.blogspot.com/2006/05/breathtaking-yes-quick-sale-not-chance.html

They have great data on inventory levels, and also funny examples of greedy sellers who keep repricing their homes, and others who are going into forclosure.

One other thing that gives me hope is that I simply cannot understand why homes are priced where they are, and no matter what analysis I do, I keep coming to the same conclusions: The only reason homes are priced so high is because 1)Rates have been low, and 2)The frenzy of speculation caused prices to rise. Both of these pillars are being removed right now and I am certain that the TRUE market prices of homes will begin to appear. Sellers are still pricing based on comps (now irrelevant as far as I’m concerned) and acting as if these two factors are still in high gear. Rates are still OK, but rising, and we haven’t seen enough time pass yet for sellers to really get freaked out. For example, with 1000+ homes appearing per month, what will happen in December to the 40% of the sellers that HAVE to sell?

I have yet to see any fundemental, economic reasons why, for example, a home in Bressi Ranch with no yard, poor construction, questionable choice of styles (Colonial style next to Spanish style next to midwestern ranch…WTF?) is priced at 800k. Is the market, which now has over 20,000 homes, dictating this price based on supply and demand? No way! The mad rush to ‘get in’ and make some equity is what caused these prices to rise. Builders raised each phase, and people kept buying even if they could not afford, and the cycle continued.

Throw in the few factors that do support higher prices like a good economy and still relatively low rates, and I believe that we should have prices that are higher than 1999/2000, but nowhere near where they are now. EG: Instead of 800k, that home which would have been 250k in 1999 should actually be around 350-400k.

So the only hope I have lies in my likely inexact and flawed analysis of prices! But what the heck, maybe I will be right:)

[anxvariety]

You guys!! You’re forgetting you can write off you interest!!! 😉

I hear that from so many people.. as if that’s going to put me into the market.

It’s sad to think that an interest only loan satisifes some people’s ‘pride of ownership’ when it seems they all they really have is an option to sell.. lots of risk and very little upside at this point..

Learning about stock options really helped me get over the pride of ownership aspect.. Example I used to hold about 70% of my savings in stocks(I know, I know risky).. but a few months ago I sold everything off except for my gold fund and bought options.. I love options, because I can set the max amount I’m willing to lose up front(maybe not a winners strategy, but I’m very skittish in todays markets)… The options are far more volatile and with the type of speculation I’m into the gains can be incredible.. I know everyones invesmtment objectives are different, and every scenario is different.. but the basic idea applied to housing I think can help people get over the illusion about desiring ‘pride of ownership’..

I feel alot more comfortable holding options than I do the entire stock.. It sastifies my need to sort of sit on the sideline hiding and strike quick when I want to… it’s taught me alot about the drawbacks of and illusions of owning something.. well, that and my car.. that was another good lesson.. how have our cars seduced us into paying interest on them even though they are depreicating?? Isn’t that the antithesis to investing!! I have a feeling that alot of people are going to learn that lesson in the next few years….

If you’re interested in options.. you can read about them here..
http://biz.yahoo.com/opt/education.html

[Lickitysplit]

That’s a nice ROI – 100k equity turned to $1.1m minus costs… not a bad few years (non-)work. If a buyer can be found. Thanks for the link, I’ve bookmarked it.

I would argue that your two pillars have fatigued and would have given way earlier except that a new pillar was propped in – exotic mortgages.

Simplifying a bit, ultimately a sale is a transaction between one buyer and one seller, and as long as one willing buyer can be found the trend continues. One bit I often find myself overlooking is that each buyer’s situation is different. Someone with an existing SD home has the bubble benefit in his existing property and is somewhat insulated from the froth. A home-owning buyer relocating from a non-bubble area does not have that benefit, but they have whatever equity they built at their last location. It is worst for people like us, young professionals looking to buy for the first time without millions on paper from which to draw.

I recall talking to my neighbor across the street about my frustration with the housing market impeding my desire to buy. She told me that she was the same way when she was young. She wanted a house of her own, but her husband and she could not afford it. So, she started babysitting and saved up enough for a down payment. Yes, babysitting. I think I politely pointed out in this market a 20% down payment on the smallest house on the block would be ~$130k, and while I don’t know what babysitting pays these days, assuming $10/hr that’s around 13,000 hrs of babysitting. If babysitting 4 hrs a day, every day, it would take 10 yrs to get the down payment. I think maybe she started to realize just how far we are out of whack, but it did nothing to diminish her optimism… like you said, her attitude was you just have to “make it work.”

[anxvariety]

I think alot of this comes down to the dangers investing on margin.. People are buying houses investing on margin with the idea that it’s a no risk investment..

Most people understand that they should usually only invest with money they can afford to lose.. but when it comes to housing it seems like people think there are zero risks and that there’s no way they could lose in this investment… then it gets even worse since they’re investing on margin(borrowing money to invest with).. and I don’t think that’s money they can afford to lose.. since you know, they are borrowing it 🙂 and will have to pay it back no matter what.

I invest with money that I’ve earned through salary.. I feel it makes me more careful.. Most of the people that I know(people I know at work) that have taken home equity(funny money) and put it into the stock market lose that money.. because they aren’t careful with it and are under the illusion that since their home went up, they will win on any investment they make..

[JES]

So many great responses here! I am going to read the options link right now. I have been considering getting into options, but have hesitated because I do not understand them enough. I did buy a precious metal mutual fund in March and sold it for a 25%, $2,000 profit 3 weeks ago – just before gold started to go down. I also pay cash for all of my cars:) Buying on the margin is exactly what is going on in the housing market and that is some great insight. A shame that the risk is misunderstood by most people though.

[lostkitty]

I sent mine to him now too! Talk to you soon. : )

[lostkitty]

I’ve tried this three times and I keep getting my emails returned. Is there a reason for that? I’ve checked the spelling. I really dont want to post my address here. Can I use that [email protected] address?

[powayseller]

Try again. The server has been down, and I e-mailed Rich to tell him, and the e-mail kept coming back. I also got a Server Administrator screen whenever I went to the piggington site, and yesterday was the 2nd day this happened.

[lostkitty]

Will do. I got a security certificate notice when i tried to open the site last night… I havent had much chance to get on this site lately as all my flute students are preparing for the annual state evaluations by judges.

i’ll keep trying to send.

[carlislematthew]

Well, they’re not going to hit 65 and then sell it all in one day. They’ll be more likely to transfer their assets slowly into lower risk funds. That’s one theory at least… And besides, we can’t complain that boomers don’t have enough in retirement stocks AND refer to a “massive” selloff, both at the same time.

Also, you’re assuming that these people will even *think* about risk. Just take a look at what people of retirement age did during the .bomb Nasdaq crash. They were busy buying tech stocks because “prices can only go up”, just like housing can only go up! 😉

[carlislematthew]

“The young people of today think of nothing but themselves. They have no reverence for parents or old age. They are impatient of all restraint. They talk as if they alone knew everything and what passes for wisdom with us is foolishness with them. As for girls, they are forward, immodest and unwomanly in speech, behaviour and dress.”

I believe that Socrates or Plato said this. As you get older, and sometimes more responsible, the irresponsibility of your past seems to fade somewhat.

[Author]

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