Talked to Thornberg

[cyphire]

My reason for buying a house was that I had the money… We originally lived in NYC where my rent was $10,000 / month. The landlord let us out of our lease because the new people were willing to pay 13,000 / month. Thats when I left NYC! (lol). Bought in Carmel Valley at 810K, sold at 1.4M after 5 years. (We did however put in a new kitchen).

Even at inflated prices here in SD with prices going up I had no problem with making the decision. But I tend to be pretty risk adverse. I didn’t really care about 50-100K up or down – but my reason for buying was I thought I wanted 2 acres, pool, etc. but found it was a little too isolated for me. Would still be there but my daughter started a private school and it was just too far to commute and I didn’t want her taking a bus which left at 6:30am. If I felt that there was stability in the market and the house would hold it’s value I might still be there – commute be damned… But the combination of my feeling that the market wasn’t just tipping, it started to come down big time made me put the house on the market. I think I just managed to get out under the wire….

The house we bought was 2M$ and 4800sqft. We bought in July 04 and set a new price per square foot record in the neighborhood. But of course each house sold for the next year (up to late 2005) kept going up in price. My neighbors had a house with a slightly better view and a sports court, they sold for 2.5M in late 2005.

My sale in Dec 06 brought 2,050,000 which was 50K more than I bought for – so I didnt lose money… If you count in the real estate commission, then yes I lost 30K – but I paid 3.5%, not 6 percent like some people. Two neighbors would not drop their prices and the houses just sat there. Finally one dropped their price to 2,100,000 – comp wise the house was at least 50K worth more than ours – the other is just sitting there and now has company. They are still listing at 2,195,000 – and they aren’t selling.

Everyone’s story is different. If I was spending a good chunk of my income to pay the mortgage – I would have been freaking out. But I could afford to win or lose with the house – it wouldn’t dramatically change my lifestyle. What really freaks me out is that people buy houses they can’t afford. They buy houses without researching the market and without the financial backup which I have. If their house drops in value, they lose their job, they get sick, they get divorced, they have just screwed up their financial present and future.

Anyway – I was able to easily afford the risk I took – which is not the norm in this market where the average house can only be afforded by 10% of the population.

[cyphire]

My reason for buying a house was that I had the money… We originally lived in NYC where my rent was $10,000 / month. The landlord let us out of our lease because the new people were willing to pay 13,000 / month. Thats when I left NYC! (lol). Bought in Carmel Valley at 810K, sold at 1.4M after 5 years. (We did however put in a new kitchen).

Even at inflated prices here in SD with prices going up I had no problem with making the decision. But I tend to be pretty risk adverse. I didn’t really care about 50-100K up or down – but my reason for buying was I thought I wanted 2 acres, pool, etc. but found it was a little too isolated for me. Would still be there but my daughter started a private school and it was just too far to commute and I didn’t want her taking a bus which left at 6:30am. If I felt that there was stability in the market and the house would hold it’s value I might still be there – commute be damned… But the combination of my feeling that the market wasn’t just tipping, it started to come down big time made me put the house on the market. I think I just managed to get out under the wire….

The house we bought was 2M$ and 4800sqft. We bought in July 04 and set a new price per square foot record in the neighborhood. But of course each house sold for the next year (up to late 2005) kept going up in price. My neighbors had a house with a slightly better view and a sports court, they sold for 2.5M in late 2005.

My sale in Dec 06 brought 2,050,000 which was 50K more than I bought for – so I didnt lose money… If you count in the real estate commission, then yes I lost 30K – but I paid 3.5%, not 6 percent like some people. Two neighbors would not drop their prices and the houses just sat there. Finally one dropped their price to 2,100,000 – comp wise the house was at least 50K worth more than ours – the other is just sitting there and now has company. They are still listing at 2,195,000 – and they aren’t selling.

Everyone’s story is different. If I was spending a good chunk of my income to pay the mortgage – I would have been freaking out. But I could afford to win or lose with the house – it wouldn’t dramatically change my lifestyle. What really freaks me out is that people buy houses they can’t afford. They buy houses without researching the market and without the financial backup which I have. If their house drops in value, they lose their job, they get sick, they get divorced, they have just screwed up their financial present and future.

Anyway – I was able to easily afford the risk I took – which is not the norm in this market where the average house can only be afforded by 10% of the population.

[cyphire]

I agree deadzone, I think that not only will prices go down to pre-2000 levels, I think they will go down to affordability. The baby boomers are selling, and there is too much pressure to the downside. The downward pressure (people that have to sell, retire, die) and the huge unfinished inventory will keep pushing down the resale market.

Buyers were only in the market because as sick as the prices are, they weren’t worried about price deflation. Realtors controlled all the data and the media. This is changing very rapidly. As prices keep slipping the Zillow’s, Trulia’s, and Redfin’s will keep adding tools and data. Folks are getting pissed that they can’t see actual selling data until way after the fact (months) if at all.

The buyers (like me) will sit on the sidelines as long as prices are even within 50% of where they are now as long as prices keep falling. Most people will not buy a generally overpriced asset if it doesn’t seem like it has an upside potential. Add to that the real estate commission and you have a poor deal unless the prices are going up. With falling prices comes loss of equity and inability to get out. Then the economy starts sucking wind like a pump without water.

This cycle will keep going down, there is no real stimulus which can prevent it.

[cyphire]

I agree deadzone, I think that not only will prices go down to pre-2000 levels, I think they will go down to affordability. The baby boomers are selling, and there is too much pressure to the downside. The downward pressure (people that have to sell, retire, die) and the huge unfinished inventory will keep pushing down the resale market.

Buyers were only in the market because as sick as the prices are, they weren’t worried about price deflation. Realtors controlled all the data and the media. This is changing very rapidly. As prices keep slipping the Zillow’s, Trulia’s, and Redfin’s will keep adding tools and data. Folks are getting pissed that they can’t see actual selling data until way after the fact (months) if at all.

The buyers (like me) will sit on the sidelines as long as prices are even within 50% of where they are now as long as prices keep falling. Most people will not buy a generally overpriced asset if it doesn’t seem like it has an upside potential. Add to that the real estate commission and you have a poor deal unless the prices are going up. With falling prices comes loss of equity and inability to get out. Then the economy starts sucking wind like a pump without water.

This cycle will keep going down, there is no real stimulus which can prevent it.

[sdrealtor]

cyphire
All in all a very good economic analysis. However, individuals buy and sell RE for many reasons not just economic ones. The data is all out there and has been for quite some time. I try my best to present it to clients. Most roll their eyes and make decisions based upon what they want and can afford without considering how much they will make on their home. They are more concerned with living the life they have earned and choose to live. While you are sitting on the sidelines, those that can afford it and want to buy a home will continue to do so. Nothing you can say or do will make it otherwise. the choices they make effect the market and the price you will ultimately have to pay or not pay for that matter.

I know there are plenty of dreamers out there living well beyond their means but I choose not to work with them. I counsel them to place their feet firmly on the ground and not make a decision which could ruin their life. Some listen…some dont and find someone else willing to do the dirty work. It’s just not my bag.

[sdrealtor]

cyphire
All in all a very good economic analysis. However, individuals buy and sell RE for many reasons not just economic ones. The data is all out there and has been for quite some time. I try my best to present it to clients. Most roll their eyes and make decisions based upon what they want and can afford without considering how much they will make on their home. They are more concerned with living the life they have earned and choose to live. While you are sitting on the sidelines, those that can afford it and want to buy a home will continue to do so. Nothing you can say or do will make it otherwise. the choices they make effect the market and the price you will ultimately have to pay or not pay for that matter.

I know there are plenty of dreamers out there living well beyond their means but I choose not to work with them. I counsel them to place their feet firmly on the ground and not make a decision which could ruin their life. Some listen…some dont and find someone else willing to do the dirty work. It’s just not my bag.

[cyphire]

I see your point, but it doesn’t seem real world to me. Realtors are always using the catch phrases you toss around like:

“They are more concerned with living the life they have earned and choose to live.”

No one wants to overpay for this right, but thats where prices are right now (and declining). No one earns the right to buy a depreciating asset. 98% of your clients are paying a price which is economically a bad deal for them, although a great deal for the people pocketing the 6%.

Example:

An exec buys a house in Carmel Valley. Pays 1.5M for a 5,000 square foot lot with a 4,000 foot home. Pays approx $6,000.00 mortgage on each 1M so pays $9,000.00 interest only plus taxes which makes it $10,500.00 / month. You say that is 100% mortgage, but i’m just doing it for illustration because the exec is losing the interest on any down payment (it’s buried in the house) so the cost of money is the same. After tax benefits it is roughly $8,000.00/month.

Lets say the house goes down in price to $1M… I don’t know anyone that would be happy in this scenario.

The house should sell for $600,000. At this price it is justified economically.

Using Carmel Valley as an example, everyone I know there works like a dog to afford this “Lifestyle they have earned”. They do have a quality of life but it’s not all good quality!!!

I hate the ‘dream’ that realtors sell. Even the home descriptions on the MLS make you want to vomit. I’m gonna write one right now:

A slice of heaven awaits you in this Tuscan manor. Four bedroom, 3 bath at the end of a cul-de-sac. Kitchen a professional chef would die for. Your dog at your side while the fireplace beckons. Enjoy your gorgeous home in villa like surroundings. Gentle waterfall sounds and jasmine perfume the air and you sleep on a cloud of dream dust while your mortgage rate gently upwardly adjusts!

“The data is all out there and has been for quite some time.”

What the heck does this mean? My house which sold for $2,050,000 in December 2006 still shows as $2,300,000 on the realtors web site, but listed as SOLD. This is the quality data that you refer to. No wonder realtors hate zillow… It actually shows the $2,050,000 price I sold for 6 months ago (Can’t have too much ‘quality’ data out there can we sdrealtor?)

“While you are sitting on the sidelines, those that can afford it and want to buy a home will continue to do so. Nothing you can say or do will make it otherwise.”

Thats true… nothing i say or do will change what most people will do… they will follow the herd and then cry when they realize they are in trouble.

Are they really making informed decisions? or are realtors convincing them that prices will go up, and mortgage brokers that they can afford it? The one consistent fact is that realtors make money selling houses whether or not it is a good deal for their clients. Like many kinds of sales, after the house is sold you walk away and the owner has to deal with the aftermath. This is fine. This is business. But it’s not exactly ethical to sell a product at this magnitude and comment on the economic feasibility of it. Your job is to show houses, not proclaim a rosy future.. This is why Real Estate is such a dirty word to most people. They know that realtors will say anything to sell a house.. Even statements which they are unqualified to utter.

Realtors should open doors and show off features. They are ethically responsible for the statements they say. So in today’s market they should just stay quiet and not say the following:

“and the price you will ultimately have to pay or not pay for that matter.”

This is the ultimate salesperson’s tool – putting the buyer (or potential buyer) in fear. This is a somewhat sly reference to the fact that you feel that I am on the sidelines while prices go up. And I will ultimately pay for it (if I choose to).

If you said this in 2000 I would agree… In today’s market it seems somewhat irresponsible.

[cyphire]

I see your point, but it doesn’t seem real world to me. Realtors are always using the catch phrases you toss around like:

“They are more concerned with living the life they have earned and choose to live.”

No one wants to overpay for this right, but thats where prices are right now (and declining). No one earns the right to buy a depreciating asset. 98% of your clients are paying a price which is economically a bad deal for them, although a great deal for the people pocketing the 6%.

Example:

An exec buys a house in Carmel Valley. Pays 1.5M for a 5,000 square foot lot with a 4,000 foot home. Pays approx $6,000.00 mortgage on each 1M so pays $9,000.00 interest only plus taxes which makes it $10,500.00 / month. You say that is 100% mortgage, but i’m just doing it for illustration because the exec is losing the interest on any down payment (it’s buried in the house) so the cost of money is the same. After tax benefits it is roughly $8,000.00/month.

Lets say the house goes down in price to $1M… I don’t know anyone that would be happy in this scenario.

The house should sell for $600,000. At this price it is justified economically.

Using Carmel Valley as an example, everyone I know there works like a dog to afford this “Lifestyle they have earned”. They do have a quality of life but it’s not all good quality!!!

I hate the ‘dream’ that realtors sell. Even the home descriptions on the MLS make you want to vomit. I’m gonna write one right now:

A slice of heaven awaits you in this Tuscan manor. Four bedroom, 3 bath at the end of a cul-de-sac. Kitchen a professional chef would die for. Your dog at your side while the fireplace beckons. Enjoy your gorgeous home in villa like surroundings. Gentle waterfall sounds and jasmine perfume the air and you sleep on a cloud of dream dust while your mortgage rate gently upwardly adjusts!

“The data is all out there and has been for quite some time.”

What the heck does this mean? My house which sold for $2,050,000 in December 2006 still shows as $2,300,000 on the realtors web site, but listed as SOLD. This is the quality data that you refer to. No wonder realtors hate zillow… It actually shows the $2,050,000 price I sold for 6 months ago (Can’t have too much ‘quality’ data out there can we sdrealtor?)

“While you are sitting on the sidelines, those that can afford it and want to buy a home will continue to do so. Nothing you can say or do will make it otherwise.”

Thats true… nothing i say or do will change what most people will do… they will follow the herd and then cry when they realize they are in trouble.

Are they really making informed decisions? or are realtors convincing them that prices will go up, and mortgage brokers that they can afford it? The one consistent fact is that realtors make money selling houses whether or not it is a good deal for their clients. Like many kinds of sales, after the house is sold you walk away and the owner has to deal with the aftermath. This is fine. This is business. But it’s not exactly ethical to sell a product at this magnitude and comment on the economic feasibility of it. Your job is to show houses, not proclaim a rosy future.. This is why Real Estate is such a dirty word to most people. They know that realtors will say anything to sell a house.. Even statements which they are unqualified to utter.

Realtors should open doors and show off features. They are ethically responsible for the statements they say. So in today’s market they should just stay quiet and not say the following:

“and the price you will ultimately have to pay or not pay for that matter.”

This is the ultimate salesperson’s tool – putting the buyer (or potential buyer) in fear. This is a somewhat sly reference to the fact that you feel that I am on the sidelines while prices go up. And I will ultimately pay for it (if I choose to).

If you said this in 2000 I would agree… In today’s market it seems somewhat irresponsible.

[cyphire]

Hey sdrealtor… a couple of things. First i didn’t realize that there is a sdrealtor and an SD Realtor so excuse me if I am confused who is who.

Second, I think I might have been a little harsh in my last post. I don’t think that you are a brutal salesperson taking advantage of the little people, but I have been buying and selling homes for 16 years and the quality of the realtors has come down…. way down…. So in general most realtors I have come across, not all but most, embarass me because I am a good salesperson… and they suck.

I have been looking for a home in La Jolla, and have come across some quality realtors but mostly exhousewives, exteachers, exarchitects, exeverything and each one is less competent and less knowledgeable than the one before. They will say anything (and have) about buying a house here in LJ. The problem is that for years prices have been going up, and now when they say the same tired lines it is a somewhat criminal act… that is if I actually belived them. I almost fell for it and would have been screwed… But logic prevailed and prices are still retreating. So I am a little skittish… That isn’t to say that all realtors stink, but as a profession a large amount of housecleaning is in order.

Anyway – excuse my current and past venting (also on the Orange County Wacked post)… and will try to find out who is who.

p.s. If I ever treated any of my customers like most realtors do business – I wouldnt be in business… This business has to change

[cyphire]

Hey sdrealtor… a couple of things. First i didn’t realize that there is a sdrealtor and an SD Realtor so excuse me if I am confused who is who.

Second, I think I might have been a little harsh in my last post. I don’t think that you are a brutal salesperson taking advantage of the little people, but I have been buying and selling homes for 16 years and the quality of the realtors has come down…. way down…. So in general most realtors I have come across, not all but most, embarass me because I am a good salesperson… and they suck.

I have been looking for a home in La Jolla, and have come across some quality realtors but mostly exhousewives, exteachers, exarchitects, exeverything and each one is less competent and less knowledgeable than the one before. They will say anything (and have) about buying a house here in LJ. The problem is that for years prices have been going up, and now when they say the same tired lines it is a somewhat criminal act… that is if I actually belived them. I almost fell for it and would have been screwed… But logic prevailed and prices are still retreating. So I am a little skittish… That isn’t to say that all realtors stink, but as a profession a large amount of housecleaning is in order.

Anyway – excuse my current and past venting (also on the Orange County Wacked post)… and will try to find out who is who.

p.s. If I ever treated any of my customers like most realtors do business – I wouldnt be in business… This business has to change

[PerryChase]

cyphire, you sound like a smart guy.

I love your parody of the Realtor talk. I had a good laugh.

Whatever you do, don’t ever buy back in Carmel Valley. As a liberal you don’t want to be around the cookie cutter mentality.

Hunker down in your rental and and wait for the absolute trough in the market. At that time you can buy a house in a good location in areas such PB, Bay Park, Point Loma, Bankers Hill and La Jolla, and build / renovate your own house. For $2 million would can get an architecturally satisfying house that you built yourself. Hell, if you can afford $2 million now; with the money you’re saving by renting, you’ll be able to afford $3 million in 5 years.

Don’t settle for cookie cutter when you can have custom. Since you’re from NYC, think about the more interesting modern houses in Long Island, or Connecticut.

At the market low, contractors and architects will be happy to get your business. I was around during the 1990s low and I remember well.

[PerryChase]

cyphire, you sound like a smart guy.

I love your parody of the Realtor talk. I had a good laugh.

Whatever you do, don’t ever buy back in Carmel Valley. As a liberal you don’t want to be around the cookie cutter mentality.

Hunker down in your rental and and wait for the absolute trough in the market. At that time you can buy a house in a good location in areas such PB, Bay Park, Point Loma, Bankers Hill and La Jolla, and build / renovate your own house. For $2 million would can get an architecturally satisfying house that you built yourself. Hell, if you can afford $2 million now; with the money you’re saving by renting, you’ll be able to afford $3 million in 5 years.

Don’t settle for cookie cutter when you can have custom. Since you’re from NYC, think about the more interesting modern houses in Long Island, or Connecticut.

At the market low, contractors and architects will be happy to get your business. I was around during the 1990s low and I remember well.

[sdrealtor]

cyphire,
No apology necessary. The words I used were not things I say to my clients but my interpretation of what they say to me. For the most part they are buying based upon assets not income. Income doesnt earn you the right to live a lifestyle as jobs can vanish. Significant liquid assets conservatively invested earn you that right IMHO.

Many realtors are just plain incompetent but I could probably say that for most fields. I have talked more people out of buying than I can count. The good Realtors tend to have been in the business for more than a couple years and are lving in homes they have owned for a decade or more. They understand RE cycles and didnt get caught up chasing Bigger and Better homes like the newbies that are now getting slaughtered.

BTW, sorry for the confusion re: sdr and SD R. I was first!

[sdrealtor]

cyphire,
No apology necessary. The words I used were not things I say to my clients but my interpretation of what they say to me. For the most part they are buying based upon assets not income. Income doesnt earn you the right to live a lifestyle as jobs can vanish. Significant liquid assets conservatively invested earn you that right IMHO.

Many realtors are just plain incompetent but I could probably say that for most fields. I have talked more people out of buying than I can count. The good Realtors tend to have been in the business for more than a couple years and are lving in homes they have owned for a decade or more. They understand RE cycles and didnt get caught up chasing Bigger and Better homes like the newbies that are now getting slaughtered.

BTW, sorry for the confusion re: sdr and SD R. I was first!

[DaCounselor]

Thanks FSD – I thought I had point in there somewhere. My current primary residence would likely have sold for about $400K in early ’04 and closer to $460K in late ’04. Quite a difference.

Oh, and thanks for the personal attack, Rustico. That was really nice.

[Author]

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