Re: Meg Munn chunters on...

In article <pipZe.547259$5V4.521691@pd7tw3no>,
"Heidi Graw" <heidigraw@xxxxxxx> wrote:

> >"Mark Sobolewski" <mark_sobolewski@xxxxxxxxx> wrote in message
> >news:mark_sobolewski-8BFAAF.19121124092005@xxxxxxxxxxxxxxxxxxxxxxx
> (snip)
>
> >> >Mark wrote:
> >> > Indeed! And home _building_ is growing as well. So even though
> >> > there are many new homes being built in record number in my area,
> >> > why are the prices still skyrocketing?
>
> >> Heidi wrote:
> >> Because there are city *limits*...boundaries. There is only so much
> >> *land*
> >> available for development within each city, town, district, etc. The
> >> more
> >> people move in, the more land is needed. The scarcer land becomes, the
> >> more
> >> valuable it becomes. Real estate prices rise as the demand grows.
>
> > Mark wrote:
> > Yet, new homes are being built even there are city *limits*.
>
> Yes. In some cases, old houses are torn down and new ones built. In other
> cases the city's or town's reserved vacant lands are released at market
> value as building lots so they can be built upon. Existing land within a
> city and town can also be redesignated from parkland to residential. In
> other cases the city can negotiate expansion, making more land available to
> be built upon. And again, pricing the land at market value.

Yep. This shows that new homes are being built and that the
real estate supply isn't static.

> > See, just because you put *limits* in astericks doesn't mean new
> > homes aren't built. Strange.
>
> I use astericks for emphasis. There tend to be boundaries for towns and
> cities. The Crown, or State, can at times make more land available for
> development. But even this land is not usually given to people for free!
> Those days are long gone.

Absolutely.

> Nowadays, more often than not, you'll find big developers negotiating for
> the release of land held in reserve. The developer then sells lots with the
> houses on it. None of these new developments are cheap...unless they are
> for social and subsidized housing at general tax-payer's expense.

Indeed. The product is cheap until supply outstrips demand.
This is economics 101. I'm following so far.

> >>Heidi wrote:
> >> Or let's take the number of high-rise condos. Only so many buildings
> >> exist.
>
> > Mark wrote:
> > Did you ever hear of something known as construction?
> > They that this substance known as cement. Check it out!
>
> Yes... see below:
>
> >> As more and more people demand condos, being available only in limited
> >> amounts, those condo prices rise. Sometimes the rate of building new
> >> condos
> >> is slower than can meet the demand of an influx of people. Sometimes
> >> availability is calculated specisely in such a way that the prices remain
> >> high on purpose, especially where demand is steady, ongoing and regular.
>
> Did you even read the above paragraph?

Yes. It contradicts the above one where you imply that real estate
is a static commodity. You just contradicted yourself by
arguing that construction does create new units and
then argued that developers will deliberately build
slowly so as to maintain a high profit margin.

But... wait... didn't you argue that only so much product
exists and real estate almost always grows in value hence making
such conspiracies totally unnecessary? Which is it?
Are real estate prices built on rock or do they require
secret shenanigans? :-)

> >> >Mark wrote:
> >> > A few things: Many home investors are buying interest only
> >> > loans in the hopes of turning around the property later
> >> > at a profit. This has given Greenspan some concern because
> >> > all of those are coming due, SOON and they'll have to dump
> >> > those homes ASAP or take a hit.
>
> >> Heidi wrote:
> >> And you're counting on massive numbers dumping their homes, rather than
> >> take
> >> that hit and carry on?
>
> > Mark wrote:
> > People get interest-only mortgages usually because they
> > cannot afford to pay down the principle from the start.
>
> Yes...so?

So apparently, all the benefits you listed to get into real
estate mania don't necessarily apply to many potential buyers.
Let's recap:

BUY BUY BUY! Because...

Myth #1) Stop paying your landlord's mortgage.
Reality) The mortgage cost for my unit is much higher than either
I or probably my landlord could make with my monthly rental payment.

Myth #2) Get that tax break!
Reality) Even if I could deduct all my monthly rent payments
(translated to interest), it would not equal the standard
deductable for a married couple (although it might work
for a single person.)

Myth #3) Buy now when you can barely afford it because later,
NOBODY will be able to including you!
Reality) Basic logic 101 dictates that if the price on any
commodity rises to the point of inaffordability, then
sellers will be required to lower prices (translation for
those who drank the homebuyer's cool aid: This means
prices go down EVEN IN REAL ESTATE and EVEN IN A HEALTHY
CITY) This happened in O.C. California during the 90's.

Myth #4) You made money on R.E. in the past, so that will
always be true FOREVER!
Reality) Past performance does not guarantee future results.
Look at the fine print on those real estate and stock
market programs.

Myth #5) Economists on TV made predictions that real estate
would rise. If it was on TV, it must be true!
Reality) TV economists are often wrong just like the weatherman.

Myth #6) Lots of people are buying out of fear that they won't
get in! Buy now! Some other sucker, er, buyer will get you out!
You'll be at the middle of the pyramid!
Reality) All people who buy into a pyramid and wind up at
the bottom do so when they think they're buying in the middle.

> >>Heidi wrote:
> >> What if that doesn't happen? Or, what if the
> >> dumping happens, but the prices remain high anyways because enough other
> >> people are still buying that will allow those prices to remain high?
>
> > Mark wrote:
> > THEN, by definition, there is no dumping since those people
> > with the interest only mortgages would replaced by others
> > doing the same thing: buying a property only to turn it around
> > later.
>
> I see. By dumping you mean abandoning...leaving behind the house? Not
> bothering to sell it....just walk away from it? Is that right?

By "dump", I mean accept a loss in leau of
either staying with the unit and wait for the market to return
or to sell it for what they bought for it.

> >>Heidi wrote:
> >> Even
> >> if bankruptsies occur and the banks repossess the houses, the bank will
> >> still want to see a return on *their* investments.
>
> >Mark wrote:
> > Absolutely. HOWEVER, banks are not going to be patient such
> > as homeowners who are willing to eat a 50 grand loss because
> > they're going to live in the home anyway and wait for
> > the price to come back up.
>
> Banks actually don't want to repossess houses. They'll avoid it as much as
> possible. They'd rather try working with the person who's caught short.
> This may mean consolidating the debts so that the mortgage holder can
> continue to own and live in that house.

It pays to read your paragraphs. You had said:

> >> Even
> >> if bankruptsies occur and the banks repossess the houses, the bank will
> >> still want to see a return on *their* investments.

And I'm addressing that scenario. We can discuss the scenario
where a bank tries to help a person save their home out
of self-interest, but I'm talking about a case where a bank
is dealing with a bankruptcy and a home dump.

Don't try to change the subject on me, Missy, and think
you'll make it look like I'm not paying attention! :-)

> > Mark wrote:
> > I'll address this below when I discuss my situation as a renter.
>
> >>Heidi wrote:
> >> If the bank handed out
> >> interest only mortgages then they're *not* going sell those homes for 30%
> >> less! They'll hang onto the real estate until they get back what they
> >> invested.
>
> > Mark wrote:
> > Yes, investment banks and institutions are well known to
> > hold onto capital and ride losses to the bottom rather
> > than liquidate and buy into a different market where they
> > can make money IMMEDIATELY! :-)
>
> Banks aren't too keen on having loads of houses to get rid of either.
> They'll do anything to avoid such a situation to occur in the first place.
> And to avoid that, they'll either consolidate the client's debts, offer a
> reduced interest rate...anything...anything at all that would allow that
> mortgage holder to hang onto that house. Only as an absolute last resort
> will the bank take that house.

Yeah, all those foreclosures that happen are in my imagination.
Banks just LOVE losing money! Whereever did I get the idea
that banks want to make money?

If banks are spending their time and money held up in unprofitable
homes, how are they to make money lending to other people who
can make their payments, hmmm? Banks especially love to foreclose
when the market is rising because, hey, no skin off of their
nose, right?

> How many houses to you foresee the banks wanting to take back? Hundreds?
> Thousands? Tens of thousands? How many? Whole suburbs? Is that what
> you're waiting for? A great big rush for banks to seize houses and whole
> neighbourhoods? Banks will never allow such a "dumping" to happen. It's
> not profitable for them to do such things!

Didja ever hear of bankruptcy?

If someone, especially an investor or desperate homeowner who
bought a property as a speculation (hoping it would rise in
value) to be turned over later, they won't want to work with
the bank to keep a falling property. Doncha get it?
Sure, even if the bank WANTS to keep the payments coming,
the homeowner may still balk.

The question then becomes whether the bank keeps the
property that's going down in value, FAST!, OR dump
it themselves to another speculator (maybe one of your
buddies :-) and then directs that money to a neighborhood
where real estate values are still rising.

> (snip)
>
> >> >> Heidi wrote:
> >> >> ...as opposed to what? Paying down your landlord's mortgage? Why
> >> >> increase
> >> >> his equity, when you can be building your own? Nothing irked me more
> >> >> than
> >> >> to be paying rent! I begrudged my landlord every penny! ;-)
> >>
> >> > Mark wrote:
> >> > Actually, I'm not paying her mortgage.
>
> >> Heidi wrote:
> >> That doesn't matter. Any money you pay a landlord is *not* money you're
> >> using to building something of value for yourself.
>
> > Mark wrote:
> > So you emphasized I was paying her mortgage and now it doesn't
> > matter that I'm not.
>
> It really doesn't matter what the landlord spends your money on. She could
> be paying down her mortgage, she could be buying new furniture, she could be
> burning it. The point being: The rent money is not money you're using to
> invest into something for yourself.

This doesn't make sense: If the landlord is burning money, are you
saying I'm an idiot for not "investing" and burning this money
myself? :-)

I _am_ getting something back for my investment: Temporary
inexpensive housing.

> >Mark wrote:
> > And you're mistaken: I AM building something of value: I sock
> > away about 300 bucks a month.
>
> ....while spending $1,000 per month on rent. You're wasting $1,000 to keep
> $300. That makes absolutely no sense at all..none!

You do realize that most of a starter mortgage's cost is "wasted"
on interest, don't you? If it's an interest only mortgage,
it's ALL waste!

The only way it's not a waste is if the property is assumed
to rise at a MUCH greater rate than basic bond investments
FOREVER. Yeah, ok. I'll risk it.

> Hey, but suit yourself, Mark. It's *your* money! *You* get to decide how
> you want to spend it. ;-)

Indeed! As compared to buying a home at the top of a very
high market and having it be the bank's money.

There's no rule that says I need let the money rot. I'm putting
it into a Janus account and getting a very similar return
but divested over a wide range of financial products.

> Good luck to you! ;-)
>
> Heidi

You too! Then again, the worst you would have to worry
about would be a "paper loss" which is why the market
is especially prone to a bubble burst: Folks such as you
who wake up and decide to dump before the market hits
bottom will still be ahead of where you were 30 years ago.

I just feel sorry for the poor people who buy into the
market mania recently. They're the ones who will take
the biggest hit.

regards,
Mark Sobolewski
.