Patrick.net on Nightline

[patientlywaiting]

I’m posting was I watch the show.

Are you guys watching?

http://abcnews.go.com/Nightline/story?id=3731415&page=1

http://abcnews.go.com/Video/playerIndex?id=3732114&affil=kgtv

I hope someone puts it on youtube for better dissemination.

[bjensen]

I watched the piece and couldn’t help feeling like they were purposefully marginalizing him.

In any case, I think they picked a very intelligent person who wasn’t great at articulating the position of the housing bears.

They should have profiled Rich.

[patientlywaiting]

I agree that Nightline made light of the whole situation and did not acknowledge how grave it is. People in the Bay Area are only starting to lose on real estate so it hasn’t hit them like a ton of bricks yet.

Patrick appears nerdy and aloof so the average Joe may not totally identify with him.

Overall, I think it’s great that the networks are doing stories on housing.

[bjensen]

I agree that any housing coverage that isn’t perma-bull is worthwhile. I guess I am just getting frustrated with a system that props up experts from the NAR and discounts people like Patrick. While Patrick doesn’t sound too terribly eloquent, he hit it on the head when he said that most positive housing news is coming from people trying to sell you something.The rest comes from people who’s clients want to sell you something!

He also stood in stark contrast to the young couple that said something along the lines of, “We don’t think that you can judge the top of bottom of a market, but we think it’s a good time to buy.” That’s what I call doing your due diligence!

[bjensen]

I agree that any housing coverage that isn’t perma-bull is worthwhile. I guess I am just getting frustrated with a system that props up experts from the NAR and discounts people like Patrick. While Patrick doesn’t sound too terribly eloquent, he hit it on the head when he said that most positive housing news is coming from people trying to sell you something.The rest comes from people who’s clients want to sell you something!

He also stood in stark contrast to the young couple that said something along the lines of, “We don’t think that you can judge the top of bottom of a market, but we think it’s a good time to buy.” That’s what I call doing your due diligence!

[patientlywaiting]

I agree that Nightline made light of the whole situation and did not acknowledge how grave it is. People in the Bay Area are only starting to lose on real estate so it hasn’t hit them like a ton of bricks yet.

Patrick appears nerdy and aloof so the average Joe may not totally identify with him.

Overall, I think it’s great that the networks are doing stories on housing.

[bjensen]

I watched the piece and couldn’t help feeling like they were purposefully marginalizing him.

In any case, I think they picked a very intelligent person who wasn’t great at articulating the position of the housing bears.

They should have profiled Rich.

[davelj]

One thing that drives me a little bit nuts is when people like Patrick point out the 1.36% (or thereabouts) annual increase in real estate prices and come to the conclusion that, ergo, purchasing a house is a generally a bad investment (or, even worse, it’s corollary that it’s better to be in the stock market). This conclusion ignores two important facts: (1) You can borrow money to buy the house, therefore the return on real estate should reflect the ability to use leverage (that is, the return on your equity), and (2) if you get a fixed-rate loan, your “rent” will never increase and you hold an explicit option to put the mortgage back to the financial institution and re-finance at a lower rate if one should become available. Anyone who ignores these two issues simply cannot be taken seriously, in my opinion.

I would argue that at least 50% of the time (assuming normal swings in the real estate market) a person will be financially better off in the long term by purchasing as opposed to renting (assuming that they can comfortably afford the mortgage, of course). Although clearly we’re not in one of those 50% chunks of time right now in SD.

[bjensen]

Agreed. Borrowed money in housing changes the game entirely. I could get a lot more skin in the housing game than I do in the stock market if I wanted to. Good point.

[patientlywaiting]

But as we are seeing, you can lose it all also. But given that people can walk from upside down mortgages, the downside is limited.

[NotCranky]

I tried to post something along the lines of Davel’s contribution this morning but all these SoCal clouds were giving the satellite signal fits. I don’t think Patrick had much of an opportunity in the Video. Not a good format or interview for such a comlex topic.

I wish he had stuck to the housing bubble and not a theory that says RE is a poor asset class. He wants to buy at a certain point of time, namely after real prices drop 50%. He should leave out that the almost religious view that RE is a poor investment vehicle or that you want to buy it,one or the other. He is already saying he is not going to put his money where his mouth is.

On the other hand, I have never found anything here, by Rich,that systematically dogs RE ownership or even compares it down dramatically against other assets on a historical basis. Even if it didn’t measure up,long term,which I think is very difficult to surmise, it certainly has worked for many people and I am not talking about one bubble. Maybe I missed something in the primer or other posts?

[NotCranky]

I tried to post something along the lines of Davel’s contribution this morning but all these SoCal clouds were giving the satellite signal fits. I don’t think Patrick had much of an opportunity in the Video. Not a good format or interview for such a comlex topic.

I wish he had stuck to the housing bubble and not a theory that says RE is a poor asset class. He wants to buy at a certain point of time, namely after real prices drop 50%. He should leave out that the almost religious view that RE is a poor investment vehicle or that you want to buy it,one or the other. He is already saying he is not going to put his money where his mouth is.

On the other hand, I have never found anything here, by Rich,that systematically dogs RE ownership or even compares it down dramatically against other assets on a historical basis. Even if it didn’t measure up,long term,which I think is very difficult to surmise, it certainly has worked for many people and I am not talking about one bubble. Maybe I missed something in the primer or other posts?

[patientlywaiting]

But as we are seeing, you can lose it all also. But given that people can walk from upside down mortgages, the downside is limited.

[bjensen]

Agreed. Borrowed money in housing changes the game entirely. I could get a lot more skin in the housing game than I do in the stock market if I wanted to. Good point.

[patientrenter]

davelj, I agree that returns on money invested in housing must be higher after adjusting for access to, and use of, leverage; tax deductibility of the interest and property taxes; re-fi options; the mail-back-the-key put option on the house itself; and low taxes on the gains.

Have you, or anyone else, seen studies of returns with all these factors brought into play? How about studies with all of them maximized?

Patient renter in OC

[davelj]

pr, I haven’t seen studies with all of these factors included. I’m sure Jeremy Grantham has a bunch of them stored away in some folder on one of his servers at GMO that we’ll never see.

To get back to this 1.36% number for a second, the other issue is that this is a REAL annualized increase in property prices. If you add in inflation, that number becomes more like 4% (or more). So, if you lever 5 to 1, borrow at 7%, come anywhere close to breaking even on a cash flow basis, and your asset value increases at 4%/year, that’s a 20% return on equity. Assume some friction and you’re down to 15%. That doesn’t seem too bad to me. Now, you gotta buy the property right, of course, which you haven’t been able to do here in SD for five years or so. But I think you see my point. In a “normal” market, real estate can be a reasonably high return, moderate risk investment. It just hasn’t been that way in SoCal for several years now. But I suspect those days will return within a few years.

[davelj]

pr, I haven’t seen studies with all of these factors included. I’m sure Jeremy Grantham has a bunch of them stored away in some folder on one of his servers at GMO that we’ll never see.

To get back to this 1.36% number for a second, the other issue is that this is a REAL annualized increase in property prices. If you add in inflation, that number becomes more like 4% (or more). So, if you lever 5 to 1, borrow at 7%, come anywhere close to breaking even on a cash flow basis, and your asset value increases at 4%/year, that’s a 20% return on equity. Assume some friction and you’re down to 15%. That doesn’t seem too bad to me. Now, you gotta buy the property right, of course, which you haven’t been able to do here in SD for five years or so. But I think you see my point. In a “normal” market, real estate can be a reasonably high return, moderate risk investment. It just hasn’t been that way in SoCal for several years now. But I suspect those days will return within a few years.

[NotCranky]

It gets difficult, Patient, because entry point both specific to the house value and and other economic factors/trends of the ownership period. You have to weight the investors aptitude. What of rents in perpetuity once the house is paid for. Passing properties on to your kids if you have them.

“How about studies with all of them maximized?”

I think there are some people on this blog whose history provides case studies for having all of them maximized. I have elderly friends who never invested in anything but RE, never were tremendous income earners and they are doing pretty well. Good study there. They didn’t get there with one or two percent ROI.

I am not going to say there are no definitive studies. I guess I will shut up.

[NotCranky]

It gets difficult, Patient, because entry point both specific to the house value and and other economic factors/trends of the ownership period. You have to weight the investors aptitude. What of rents in perpetuity once the house is paid for. Passing properties on to your kids if you have them.

“How about studies with all of them maximized?”

I think there are some people on this blog whose history provides case studies for having all of them maximized. I have elderly friends who never invested in anything but RE, never were tremendous income earners and they are doing pretty well. Good study there. They didn’t get there with one or two percent ROI.

I am not going to say there are no definitive studies. I guess I will shut up.

[patientrenter]

davelj, I agree that returns on money invested in housing must be higher after adjusting for access to, and use of, leverage; tax deductibility of the interest and property taxes; re-fi options; the mail-back-the-key put option on the house itself; and low taxes on the gains.

Have you, or anyone else, seen studies of returns with all these factors brought into play? How about studies with all of them maximized?

Patient renter in OC

[davelj]

One thing that drives me a little bit nuts is when people like Patrick point out the 1.36% (or thereabouts) annual increase in real estate prices and come to the conclusion that, ergo, purchasing a house is a generally a bad investment (or, even worse, it’s corollary that it’s better to be in the stock market). This conclusion ignores two important facts: (1) You can borrow money to buy the house, therefore the return on real estate should reflect the ability to use leverage (that is, the return on your equity), and (2) if you get a fixed-rate loan, your “rent” will never increase and you hold an explicit option to put the mortgage back to the financial institution and re-finance at a lower rate if one should become available. Anyone who ignores these two issues simply cannot be taken seriously, in my opinion.

I would argue that at least 50% of the time (assuming normal swings in the real estate market) a person will be financially better off in the long term by purchasing as opposed to renting (assuming that they can comfortably afford the mortgage, of course). Although clearly we’re not in one of those 50% chunks of time right now in SD.

[Author]

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