[LA_Renter]

TheChaz,

The information you are seeking can be found in the Bubble Primer at the top of the front page of this blog. Read through those and that should answer most of your questions.

[LA_Renter]

Myito,

Here is an interesting read on that topic.

Home
The Housing Bubble and the Baby Boomers
United States

Housing
Posted by: Michael Dudley

12 June 2007 – 2:30pm
The troubling ratio of mortgage debt to housing value is going to pose a problem for millions of baby boomers, who are set to retire with almost no equity, according to Dean Baker of the Center for Economic and Policy Research in Washington, D.C.

“The quarterly Flow of Funds data from the Federal Reserve Board show that homeowners are still taking on mortgage debt at a healthy pace even as their homes have largely stopped appreciating in value. Homeowners increased their mortgage debt at a 5.4 percent annual rate in the first quarter, adding debt at an annual rate of $510 billion. This is rate of borrowing is down from the 9.3 percent growth rate in 2006, but it is considerably more rapid than the 2.0 percent rate of house appreciation reported for the first quarter.

As a result, the ratio of equity to home value continued to fall…This drop in the ratio of equity to value is especially disconcerting given the country’s demographics. With much of the baby boom cohort at the edge of retirement, it would be expected that the ratio of equity to value would be near record highs.

The long-term problem is that tens of millions of baby boomers are approaching retirement with relatively little equity in their homes and almost no assets outside of their homes. Their retirement income will be almost entirely dependent on Social Security.”

http://www.cepr.net/index.php?option=com_content&task=view&id=1207&Itemid=220

I think much of the the wealth that baby boomers like to show were the result of many HELOCS. Of course there will always be a segment of wealth and that wealth will be transferred to the children. I think you are over estimating the wealth of the baby boomers. But you have to hand it to them they did live in the moment and take take take. I’m personally right on the boundary of boomer Gen X technically speaking but I consider myself an X’er. If you saw Soundgarden at the Offramp (small club) in Seattle in the early 90’s you pretty much belong to Gen X.

[LA_Renter]

Myito,

Here is an interesting read on that topic.

Home
The Housing Bubble and the Baby Boomers
United States

Housing
Posted by: Michael Dudley

12 June 2007 – 2:30pm
The troubling ratio of mortgage debt to housing value is going to pose a problem for millions of baby boomers, who are set to retire with almost no equity, according to Dean Baker of the Center for Economic and Policy Research in Washington, D.C.

“The quarterly Flow of Funds data from the Federal Reserve Board show that homeowners are still taking on mortgage debt at a healthy pace even as their homes have largely stopped appreciating in value. Homeowners increased their mortgage debt at a 5.4 percent annual rate in the first quarter, adding debt at an annual rate of $510 billion. This is rate of borrowing is down from the 9.3 percent growth rate in 2006, but it is considerably more rapid than the 2.0 percent rate of house appreciation reported for the first quarter.

As a result, the ratio of equity to home value continued to fall…This drop in the ratio of equity to value is especially disconcerting given the country’s demographics. With much of the baby boom cohort at the edge of retirement, it would be expected that the ratio of equity to value would be near record highs.

The long-term problem is that tens of millions of baby boomers are approaching retirement with relatively little equity in their homes and almost no assets outside of their homes. Their retirement income will be almost entirely dependent on Social Security.”

http://www.cepr.net/index.php?option=com_content&task=view&id=1207&Itemid=220

I think much of the the wealth that baby boomers like to show were the result of many HELOCS. Of course there will always be a segment of wealth and that wealth will be transferred to the children. I think you are over estimating the wealth of the baby boomers. But you have to hand it to them they did live in the moment and take take take. I’m personally right on the boundary of boomer Gen X technically speaking but I consider myself an X’er. If you saw Soundgarden at the Offramp (small club) in Seattle in the early 90’s you pretty much belong to Gen X.

[LA_Renter]

It’s amazing what these guys will say isn’t it. OC Renter had a good post on Seattle last week

http://bubbletracking.blogspot.com/2007/06/seattle-surprise.html

Decreasing sales and rising inventories, sounds like a rebound to me. Why do they say these things when they are so easily debunked?? I have a feeling this Yun guy is just a transition guy until it really bottoms, then he’s gone. I almost feel sorry the NAR, I mean what can they say publicly, “Yep this thing is getting ready to tank, Duck!” It’s like they have no choice but to be “Bagdad Bob”.

[LA_Renter]

It’s amazing what these guys will say isn’t it. OC Renter had a good post on Seattle last week

http://bubbletracking.blogspot.com/2007/06/seattle-surprise.html

Decreasing sales and rising inventories, sounds like a rebound to me. Why do they say these things when they are so easily debunked?? I have a feeling this Yun guy is just a transition guy until it really bottoms, then he’s gone. I almost feel sorry the NAR, I mean what can they say publicly, “Yep this thing is getting ready to tank, Duck!” It’s like they have no choice but to be “Bagdad Bob”.

[LA_Renter]

I have posted this chart many times before, its the credit suisse Arm Reset schedule. It supports what much of Kewp is saying regarding ARM resets. Also it shows how the Bear Sterns story could be the beginning of a much bigger story in regards to the subprime debacle. I don’t see this thing rebounding after a trough in 2008. I think you will see rebound articles throughout this entire downturn until there is actually a rebound. IMO we won’t see a possibility of that until 2011.

http://www.bubbleinfo.com/statistics-2007/2007/3/15/arm-reset-schedule.html

[LA_Renter]

I have posted this chart many times before, its the credit suisse Arm Reset schedule. It supports what much of Kewp is saying regarding ARM resets. Also it shows how the Bear Sterns story could be the beginning of a much bigger story in regards to the subprime debacle. I don’t see this thing rebounding after a trough in 2008. I think you will see rebound articles throughout this entire downturn until there is actually a rebound. IMO we won’t see a possibility of that until 2011.

http://www.bubbleinfo.com/statistics-2007/2007/3/15/arm-reset-schedule.html

[LA_Renter]

sdr,

You will appreciate this.

http://www.museumofhoaxes.com/photos/microsoft.html

[LA_Renter]

sdr,

You will appreciate this.

http://www.museumofhoaxes.com/photos/microsoft.html

[LA_Renter]

“LA Renter,
How about the people that bought MSFT in 1986 and never sold any?

sdr
(MSFT stockholder since 1986)”

I moved down here from Seattle, many of those people are my friends. The people that bought MSFT in 1986 and didn’t sell have a boat load of money. By the way congratulations on that investment, I bought ARBA in 2000 (sarc).

Here is what I said

“I mean we could also discuss that buying Microsoft stock in 1989 was a fantastic move. Then there are the people who bought MSFT in early 2001 and sold at a loss in 2003 because they had to liquidate their investments.”

Here is the point I was trying to make

“Here is the way I see it, if you buy right now you are facing significant risk within the next 6 years. Life happens, loss of job, divorce, sickness, etc. If you are forced to liquidate that RE purchase made now within that time frame you could be facing significant financial losses which will be difficult to recoup.”

Let me qualify this by saying that homes and stocks are two very different animals as most on this board agree. This is only an analogy. I am equating the person who is buying a home today with the person buying MSFT in early 2001. The risk you have buying at the top of any market is having to liquidate that investment in near term for any unforeseen reasons. Personally I am a relatively conservative investor (probably as a result of the ARBA 2000 lesson), I always look at the worst case scenario and ask myself can I take that hit. In the case of the current state of California RE, the answer is NO and I live in a two 6 figure+ household with nice chuck of capital gains from a previous RE investment.

Myito

I agree with Sdceller

“You’re not sticking to your guns. You keep changing them. I’m starting to see a repeating pattern of people specifically addressing your points and you coming back with something else.”

[LA_Renter]

“LA Renter,
How about the people that bought MSFT in 1986 and never sold any?

sdr
(MSFT stockholder since 1986)”

I moved down here from Seattle, many of those people are my friends. The people that bought MSFT in 1986 and didn’t sell have a boat load of money. By the way congratulations on that investment, I bought ARBA in 2000 (sarc).

Here is what I said

“I mean we could also discuss that buying Microsoft stock in 1989 was a fantastic move. Then there are the people who bought MSFT in early 2001 and sold at a loss in 2003 because they had to liquidate their investments.”

Here is the point I was trying to make

“Here is the way I see it, if you buy right now you are facing significant risk within the next 6 years. Life happens, loss of job, divorce, sickness, etc. If you are forced to liquidate that RE purchase made now within that time frame you could be facing significant financial losses which will be difficult to recoup.”

Let me qualify this by saying that homes and stocks are two very different animals as most on this board agree. This is only an analogy. I am equating the person who is buying a home today with the person buying MSFT in early 2001. The risk you have buying at the top of any market is having to liquidate that investment in near term for any unforeseen reasons. Personally I am a relatively conservative investor (probably as a result of the ARBA 2000 lesson), I always look at the worst case scenario and ask myself can I take that hit. In the case of the current state of California RE, the answer is NO and I live in a two 6 figure+ household with nice chuck of capital gains from a previous RE investment.

Myito

I agree with Sdceller

“You’re not sticking to your guns. You keep changing them. I’m starting to see a repeating pattern of people specifically addressing your points and you coming back with something else.”

[LA_Renter]

“Rental from 11 years ago used as an illustrative purpose to let you know that the suckers that pay my mortgage are paying much more than I do — which is likely the case with your $1 million condo as well. Do you really think they paid that much for it? Don’t kid yourself, you are covering their mortgage and likely more.”

I’m the guy with the $1 Million condo. Again what you just said is irrelevant. And to your point yes my landlord basically owns this place outright, so its all gravy to him. Good for him, I really like the guy. I mean we could also discuss that buying Microsoft stock in 1989 was a fantastic move. Then there are the people who bough MSFT in early 2001 and sold at a loss in 2003 because they had to liquidate their investments. Both myself and Cyphire have illustrated that you are literally throwing away money buying right now. That is just fact supported by hard data. Here is the way I see it, if you buy right now you are facing significant risk within the next 6 years. Life happens, loss of job, divorce, sickness, etc. If you are forced to liquidate that RE purchase made now within that time frame you could be facing significant financial losses which will be difficult to recoup. Personally I am not willing to take that risk. What we witnessed in the RE Boom was the evaporation of risk for this asset class, that’s what propelled the excesses we see unwinding right now. Right now we are at a stage where the concept of risk is coming back into this asset class. It will be ugly. This is nothing new, it has happened many times before.

[LA_Renter]

“Rental from 11 years ago used as an illustrative purpose to let you know that the suckers that pay my mortgage are paying much more than I do — which is likely the case with your $1 million condo as well. Do you really think they paid that much for it? Don’t kid yourself, you are covering their mortgage and likely more.”

I’m the guy with the $1 Million condo. Again what you just said is irrelevant. And to your point yes my landlord basically owns this place outright, so its all gravy to him. Good for him, I really like the guy. I mean we could also discuss that buying Microsoft stock in 1989 was a fantastic move. Then there are the people who bough MSFT in early 2001 and sold at a loss in 2003 because they had to liquidate their investments. Both myself and Cyphire have illustrated that you are literally throwing away money buying right now. That is just fact supported by hard data. Here is the way I see it, if you buy right now you are facing significant risk within the next 6 years. Life happens, loss of job, divorce, sickness, etc. If you are forced to liquidate that RE purchase made now within that time frame you could be facing significant financial losses which will be difficult to recoup. Personally I am not willing to take that risk. What we witnessed in the RE Boom was the evaporation of risk for this asset class, that’s what propelled the excesses we see unwinding right now. Right now we are at a stage where the concept of risk is coming back into this asset class. It will be ugly. This is nothing new, it has happened many times before.

[LA_Renter]

“I own a condo in LA that I bought in 1996 and I have tenants in it and they are paying 3-4x my mortgage and they rented when homes were selling much lower. Had they bought the same condo their payment would have been less than their rent”

That’s irrelevant now. If you bought that same condo today using a 20% down payment you would probably have a delta of at least 1K. Let me give you example why it is better to rent from a strict financial point of view. I live in a condo unit that could probably sell for 1 million but lets be conservative and say 850K, I pay 2k a month in rent (all of it going down a drain). if I were to buy this unit for 850K with a 20% down payment, here is how the cost break out AFTER tax benefit;

Property Tax: $566 (885 per month at 1.25%, 566 after deduction)
Interest: $2097 (3277 per mth at 5.9%, 2097 loss after deduction)
other cost $ 350 (insurance, maint, etc)

Total $3013 (down the drain) verses 2k down drain renting

The price of that condo will more than likely fall. You are literally throwing money out of the window owning right now. This is called a home price to rent ratio. When you have ratios have like this it signifies that home values are too high and due for correction.

[LA_Renter]

“I own a condo in LA that I bought in 1996 and I have tenants in it and they are paying 3-4x my mortgage and they rented when homes were selling much lower. Had they bought the same condo their payment would have been less than their rent”

That’s irrelevant now. If you bought that same condo today using a 20% down payment you would probably have a delta of at least 1K. Let me give you example why it is better to rent from a strict financial point of view. I live in a condo unit that could probably sell for 1 million but lets be conservative and say 850K, I pay 2k a month in rent (all of it going down a drain). if I were to buy this unit for 850K with a 20% down payment, here is how the cost break out AFTER tax benefit;

Property Tax: $566 (885 per month at 1.25%, 566 after deduction)
Interest: $2097 (3277 per mth at 5.9%, 2097 loss after deduction)
other cost $ 350 (insurance, maint, etc)

Total $3013 (down the drain) verses 2k down drain renting

The price of that condo will more than likely fall. You are literally throwing money out of the window owning right now. This is called a home price to rent ratio. When you have ratios have like this it signifies that home values are too high and due for correction.

[Author]

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