[patientrenter]

2-year leases are not common in So Cal.

What’s the total savings from signing the 2-year lease? X

What’s the penalty for bailing? Y

So you get X if house prices decline slowly over 2 years (and you don’t buy), and lose Y if they drop very quickly and then start rising (and you buy). Only you know X and Y.

I doubt that prices will plummet very quickly and then start rising, all within 2 years. It’s possible, but then the $100,000’s you’ve saved on the house should easily cover the lease bail-out penalty (assuming it’s a few $1000).

Patient renter in OC

[patientrenter]

SD Realtor, you are a very good contributor to this blog, and you gave specific helpful information to us all in this thread. I agree with you that you have a mild bias in favor of real estate agents that you don’t try to hide and isn’t hard for even the slow-witted to get past. Hell, half the time when I go to my doctor, I don’t take the prescriptions he gives me, because I draw my own conclusions about what’s good and bad for me. We’re all responsible for our own thinking, and I think your revealing your affiliation in your handle is the best way to take care of the bias issue. I hope you keep a positive personal attitude in the face of some hostility here to real estate agents in general.

Predicting long bond interest rates = tossing coins:
As you know, short-term rates (including those for ARMs) are practically set by the Fed, whilst long-term yields (and hence rates on fixed mortgages) are only influenced indirectly by the Fed. Although I make some of my living from timing purchases of long bonds, not even gurus like Bill Gross can predict much more than 50% of the time whether long rates will rise or fall in the near or far future. But it is true that an increase in daily interest rate volatility on long bonds at one time can portend bigger movements in either direction months ahead. Is that what you were getting at?

Patient renter in OC

[patientrenter]

SD Realtor, you are a very good contributor to this blog, and you gave specific helpful information to us all in this thread. I agree with you that you have a mild bias in favor of real estate agents that you don’t try to hide and isn’t hard for even the slow-witted to get past. Hell, half the time when I go to my doctor, I don’t take the prescriptions he gives me, because I draw my own conclusions about what’s good and bad for me. We’re all responsible for our own thinking, and I think your revealing your affiliation in your handle is the best way to take care of the bias issue. I hope you keep a positive personal attitude in the face of some hostility here to real estate agents in general.

Predicting long bond interest rates = tossing coins:
As you know, short-term rates (including those for ARMs) are practically set by the Fed, whilst long-term yields (and hence rates on fixed mortgages) are only influenced indirectly by the Fed. Although I make some of my living from timing purchases of long bonds, not even gurus like Bill Gross can predict much more than 50% of the time whether long rates will rise or fall in the near or far future. But it is true that an increase in daily interest rate volatility on long bonds at one time can portend bigger movements in either direction months ahead. Is that what you were getting at?

Patient renter in OC

[patientrenter]

I basically agree with contraman’s conclusions. Here are my reasons:

1. There are far more voters who own homes and want house prices to go up than there are voters who want prices to go down

2. There are more voters who want to buy a home but have too little savings and/or income than there are voters who don’t own a home but have the wherewithal to buy.

3. Most of the pain inflicted by losses on bad mortgages is filtered through intermediaries and loses its clear bite before it hits the ultimate investor. My 410k fixed account may return less in the 5 years because of mortgage losses incurred by whichever investment company provided the fixed account, but I won’t even see the cause.

Patient renter in OC

[patientrenter]

I basically agree with contraman’s conclusions. Here are my reasons:

1. There are far more voters who own homes and want house prices to go up than there are voters who want prices to go down

2. There are more voters who want to buy a home but have too little savings and/or income than there are voters who don’t own a home but have the wherewithal to buy.

3. Most of the pain inflicted by losses on bad mortgages is filtered through intermediaries and loses its clear bite before it hits the ultimate investor. My 410k fixed account may return less in the 5 years because of mortgage losses incurred by whichever investment company provided the fixed account, but I won’t even see the cause.

Patient renter in OC

[patientrenter]

uncomfortably numb,

I like your inflation and money supply explanations, but is what you’re saying equivalent to:

1. So Cal house prices (in dollars) went up because of easy money and will go down because there will be less easy money

2. When prices went up, sellers and the RE industry won immediate gains at the expense of buyers’ future spending power

3. One dollar will buy less foreign currency in the future

Or is there more?

Patient renter in OC

[patientrenter]

uncomfortably numb,

I like your inflation and money supply explanations, but is what you’re saying equivalent to:

1. So Cal house prices (in dollars) went up because of easy money and will go down because there will be less easy money

2. When prices went up, sellers and the RE industry won immediate gains at the expense of buyers’ future spending power

3. One dollar will buy less foreign currency in the future

Or is there more?

Patient renter in OC

[patientrenter]

ocrenter,

I like the numerical splits he gives between attached and detached sales, but the gist of it seems to be what everyone’s been saying about average prices: there’s been a bigger drop in the volume of low-end sales than high-end, and that skews the average up.

Patient renter in OC

[patientrenter]

ocrenter,

I like the numerical splits he gives between attached and detached sales, but the gist of it seems to be what everyone’s been saying about average prices: there’s been a bigger drop in the volume of low-end sales than high-end, and that skews the average up.

Patient renter in OC

[patientrenter]

jg,

I really don’t think it’s inevitable that London will go down dramatically within 10 years. It could happen, but it’s not exactly a foregone conclusion.

Patient renter in OC

[patientrenter]

jg,

I really don’t think it’s inevitable that London will go down dramatically within 10 years. It could happen, but it’s not exactly a foregone conclusion.

Patient renter in OC

[patientrenter]

buyorhold, as you can see you’ve entered a blog with a prevailing point of view. I share that view – that home prices are more likely to go down than up in the next few years – but I and many others here recognize we could be wrong.

I have a sister who is a teacher earning maybe 10-20% of what I earn. She has no financial education. I make a living designing complicated new financial products and negotiating with investment banks. She (like my other 4 siblings) bought properties years ago (and many thousands of miles away) that I thought were way too expensive. From her initial investment of a few $100K total, she now has no debt and several million dollars worth of property, just like my other siblings. I, the financial expert, always thought property I wanted to live in was overpriced, and now I can’t afford a small condo (using my own conservative affordability rationale). So don’t be intimidated by the geniuses here.

Having said all that, I wouldn’t buy right now. There are definite early signs of a classic cyclical downturn. Could be a false alarm, but I think you should be especially cautious and reflect on your capacity for patience.

Good luck either way!

Patient renter in OC

[patientrenter]

buyorhold, as you can see you’ve entered a blog with a prevailing point of view. I share that view – that home prices are more likely to go down than up in the next few years – but I and many others here recognize we could be wrong.

I have a sister who is a teacher earning maybe 10-20% of what I earn. She has no financial education. I make a living designing complicated new financial products and negotiating with investment banks. She (like my other 4 siblings) bought properties years ago (and many thousands of miles away) that I thought were way too expensive. From her initial investment of a few $100K total, she now has no debt and several million dollars worth of property, just like my other siblings. I, the financial expert, always thought property I wanted to live in was overpriced, and now I can’t afford a small condo (using my own conservative affordability rationale). So don’t be intimidated by the geniuses here.

Having said all that, I wouldn’t buy right now. There are definite early signs of a classic cyclical downturn. Could be a false alarm, but I think you should be especially cautious and reflect on your capacity for patience.

Good luck either way!

Patient renter in OC

[patientrenter]

Well said, cyphire. I tend to agree with just about all of your points – predictable cyclicality driven by a herd mentality, underlying unaffordability, sensitivity to interest rate increases… Even your analogy with professional money managers investing regardless of fundamentals and thereby concentrating a lot of future market risk into a few very broad and bad events that they will say no one could plan for.

I hope we’re right. I want to buy a home some day without forfeiting an arm and a leg! I do think that prices in coastal California may well have gone up pretty permanently because of its high worldwide ranking as a place to live and an explosion of the mobile wealthy across the globe, and because loans with government guarantees and/or low early payments have arrived and will never disappear. But that hasn’t killed the up and down cycle altogether, and I think we’re heading down now.

Good luck hunting in La Jolla!

Patient renter in OC

[patientrenter]

Well said, cyphire. I tend to agree with just about all of your points – predictable cyclicality driven by a herd mentality, underlying unaffordability, sensitivity to interest rate increases… Even your analogy with professional money managers investing regardless of fundamentals and thereby concentrating a lot of future market risk into a few very broad and bad events that they will say no one could plan for.

I hope we’re right. I want to buy a home some day without forfeiting an arm and a leg! I do think that prices in coastal California may well have gone up pretty permanently because of its high worldwide ranking as a place to live and an explosion of the mobile wealthy across the globe, and because loans with government guarantees and/or low early payments have arrived and will never disappear. But that hasn’t killed the up and down cycle altogether, and I think we’re heading down now.

Good luck hunting in La Jolla!

Patient renter in OC

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