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powayseller
ParticipantWhy do you think that fall will be a good time to buy?
powayseller
ParticipantI was broke the first 5 years out of college. Between catching up on dental work, paying student loans, getting a car that wouldn’t die on the side of the road, saving for a downpayment on a house, getting work clothes, some furniture (thrift shop and folding chairs), and then getting ready for babies and working part time for 3 months and then just quitting my job….we were so broke! Isn’t that how it’s always been for people starting out? As a frame of reference, I am 44 and graduated from college in my late 20’s in 1988.
My parents also started out poor. They slept on the floor and rented a studio apartment until my dad finished medical school in his early 30s. My husband’s grandparents were Iowa farmers who were so broke, they never went out to eat. They just couldn’t afford it, despite their large farm.
I’m wondering if the younger generation really is worse off than anyone starting out. It’s normal to struggle for many years, to live with several people or at home. That’s how it was for me also, 15 years ago.
The only thing different now is people’s expectations, and their sense of entitlement. I make my kids buy most things they want, because they really need to learn delayed gratification. This is very important. Learning to wait for things. Media has become too provocative, sexual, materialistic, and people want everything now and think they should have it. They take on more debt than they should, instead of saving and waiting for it.
Maybe a lot of these people shouldn’t live in an expensive city like SD, or they should be satisfied to live 5 to a house, or move back in with mom or dad until they can afford to be on their own. Living on your own in SD is a priviledge, not an entitlement or a right. And if mom and dad pay their kids’ bills, well, then the kids will stay kids forever.
powayseller
ParticipantWon’t a massive boomer sell-off as they cash in their retirement mutual funds over the next 30 years, result in a price drop in equities?
powayseller
ParticipantYou raise an interesting point – lowering short term rates will really raise long term rates. While homeowners can get short term loans, such as ARMs, the government will have to spend too much money paying interest on the federal debt.
powayseller
ParticipantWas it #3 in the early 90s? I checked johnelcos’ link and mortgage rates were pretty high during SD’s last housing runup in 88-90, running above 10% most of that time. Then during the housing bust, rates went down. They were between 8 and 9%, and varied a lot, but even went as low as 6.5% in 10/93. But housing in SD was not saved by this.
I think we need to look at the other factors in place at the time: debt levels, umemployment, wages.
Just looking at numbers from one period to the next, while ignoring the other factors, doesn’t help to predict the future.
What I learned from your research, Chris, is that one cannot just look at one or two factors on a chart to predict where we go from here.
powayseller
ParticipantI took a 5% hit on my home sale in December 05 (offer in mid-Dec), and this is based on the most recent comp of August 05. I still made money, but a similar hit would be painful for people who bought at the top.
powayseller
Participantjawbone and sduude, you guys are funny!
powayseller
ParticipantIsn’t the final decision up to Congress?
powayseller
ParticipantWhy do you think Miramar has a low chance of being used? Do you think it’s more likely to expand Lindbergh field? Will the voters ultimately decide?
If you are within several miles of the airport, you will certainly hear the airplanes overhead, if they come over your house, right? And they come in from the east. Airplanes take off and land toward the west, against the wind. So if Miramar is used, then the area east of Miramar would be in the direct flight path. It may be quieter than F-18s, but you can definitely hear it.
powayseller
ParticipantI assumed the Fed would keep rates high to keep the dollar strong. We should all do some reading on the possibility of this scenario, because it would change the outcome for housing, that’s for sure.
It also appears the gov’t may not care if the dollar weakens. Sure, it means our long term bond yields rise as foreigners dump them, and our interest payments on the long-term debt goes up. But at the same time, our exports will be cheaper. A weaker dollar is good for our exports.
The media writes that the Fed is raising interest rates to contain inflation. Is that the real reason? I don’t really know. Is it likely that the Fed is raising interest rates to entice foreign investors to buy our bonds?
Has anyone studies the Federal Reserve Flow of Funds report? In the Dollar Crisis, Richard Duncan publishes lots of the FF data. I was surprised that foreigners hold more of our stocks than our Tnotes and Fannie Mae bonds. Raising interest rates will lower stock prices, and foreigners may sell their stocks, but that doesn’t hurt the economy. The Fed needs to make sure someone keeps buying our government debt.
The whole liquidity problem, the source of the money coming out of our houses, is global investors, who are willing to take very low risk premiums to buy mortgage backed securities. This is the real cause of the housing bubble. Don’t blame realtors any more! I will start a thread on this soon.
powayseller
ParticipantI believe not too many people truly believe in a bubble. Most believe we’ll have a 5-10% drop, then flat prices.
The only reason sales are down is because people cannot sell their starter home, and starter buyers cannot qualify. It’s the damn high prices, and the high interest rates. People still want to buy!
Another big trend is people leaving. Last year, 44,000 San Diegans moved out of here. My realtor friend told me in his last 5 deals, every seller said they are leaving SD if they sell their house. This is one reason the inventory is so high. People are tired of the high payments and just want to get away from the debt. It’s not that they dislike the city, but their finances have gotten too stressed.
Tell that lady realtor that 44000 people left San Diego last year, long before any bubble articles appeared in the paper! Tell her that people are still dying to buy a home, but are not doing so because the sellers price their homes too high or they cannot qualify. Demand is alive and well!
If every seller lowered their price by 5-10% today, we would double our sales this month, I am sure of that.
powayseller
ParticipantJohn, I was hoping for more feedback for you, and for me too, because I would like to learn from others.
I’d like to add what I know about bond funds: Their payout is the current rate, but the value fluctuates. If you sell before maturity, as I think the bonds are sold, you can lose money. In any case, the bond value goes down in a period of rising interest rates. For this reason, bond funds are not as favorable now.
I am a big believer in index funds. I’ve rarely been fortunate to outdo the index. Certainly not in my own stock picks. When I first started investing, about 18 years ago, I read everything I could get my hands on. After a few years of picking the best recent fund, and losing money in the following years, I realized that you cannot pick a mutual fund based on last year’s returns.
Then I converted from picking mutual funds to index funds and picking stocks. Now I realize that stock picking is just for fun. For every Fannie Mae and Caterpillar that did well, along comes one Delphi that goes bankrupt… From what I know today, index funds give the highest returns in the market. Some years that can mean a -5% return, so a loss. But that is a smaller loss than I would have in a mutual fund.
Go to the finance.yahoo site, and you can put in the ticker symbol for your fund or stock, and then they let you compare it to the S&P, Nasdaq, and Dow. Unfortunately they don’t have a Russell2000 comparison.
One stock-picking suggestion is Warren Buffet’s Berkshire Hathaway. His diversified holdings are akin to owning a mutual fund led by the world’s richest man, and one of its most astute investors. He believes the dollar will lose value, and invests accordingly. He just made a $4bil purchase of an Israeli tool company to hedge against the falling dollar. Last week he bought a $376 mil stake in Britain’s top retailer, and invested $1.13 bil in Conoco Philips, and $330 mil in GE and UPS. His goals now is reducing his $43bil cash holdings to $10 bil by making non-US acquisitions.
Buffett does not want to own dollars anymore. He prefers to invest in foreign companies over playing the currency market, bec. he lost $955 mil in 2005 betting against the dollar, a year in which the dollar index rose 13%.
BRK-B, $3059/share.
The A shares are $91,500.His holding company has done better than the S&P500. In the last 10 years, BRK.B is up 150%, while the S&P, Nasdaq, and Dow are up only 100%. If you look at the last 2 years, he underperformed the S&P500.
However, his main business is insurance, and if there are any catastrophic losses, such as another big hurricane, his fund can have a bad year. You’d have to be prepared for that, and not pull out just at the low. He’s prepared to lose $6 bil in a year.
I bought one B share in early 2000, and it was around $2000. I’m considering getting more. What would be a reason not to?
One interesting thing about Buffett is his intense honesty at his shareholder meetings, and that despite his net worth of $43billion which is all tied up in his shares at Berkshire, his salary is only $100K/year. He lives in Omaha, NE.
powayseller
ParticipantTo verify the FDIC status, you can of course check with your bank, but also look at the fdic website. They list all banks they insure. Credit unions have a similar insurance called NCUA or something like that. This is safe like FDIC.
powayseller
ParticipantYup, that’s it. To job losses, add restaurant, retail, and anything else that has benefited from mortgage equity withdrawal. Cruises, travel, furniture (retail again)….
We haven’t even considered the personal dispair. Everytime someone is upside down at closing (I heard of someone yesterday in this position – they will owe money at closing), or gets a NOD, there is more human suffering. People owe taxes on the unpaid debt. They’ll need moving and downpayment money for the rental. At the same time, many will have lost jobs, and have no savings left. How will they manage this? I think we need to expect serious despair among our fellow Americans. I never wanted to write this before, because it’s too sad, but I think divorce, drinking, drug use (prescription?), and suicide will go up.
BTW, if interest rates rise to 10% as johnelco wrote on another thread, I wonder if house prices have to drop even more. With median household income of $65K, the median housepayment at 35% DTI (which is the ratio the banks will come back to soon enough), can only buy you a $250K house max. This would be the new median house price.
House prices are completely dependent on lender rules. Completely. It was only the loose lending that allowed stratospheric prices. Tight lending forces them down. This is a gradual process, which hasn’t started yet. My friend is selling a house to a couple with a low FICO, getting an 80/20 loan. The 20% portion is 10.5%. No money down, stated income. This disaster loan is still being made.
Now imagine these loans are no longer made. People need even 5% down, documented income. We go from 50% DTI to 30% DTI. This will force prices down, putting even more downward pressure.
All these things won’t happen in a big way until 2007 and 2008. This year is just the turning point. Housing is a slow moving ship. Do you think by 2007 and 2008 we will really pick up steam?
Next on the agenda: with the scenario you outlined, hipmatt, where do we go from here?
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