Re: Living in Tulips

On Jan 24, 3:00=A0am, "Society" <Soci...@xxxxxxxxxxxxxxxxxxx> wrote:
"PolishKnight" <mar...@xxxxxxx> wrote in message
news:marek1-7F007F.23283723012008@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Society wrote:

PolishKnight wrote...

Someone said something funny recently: Californians
are figuring out what Germans learned: never trust
an Austrian artist!

Ha ha. =A0Yeah I've heard something like that recently, too.

BTW, [...] "median" prices don't necessarily
reflect the increase of decrease of properties.

Huh? I had supposed that you meant to say " 'median'
prices don't necessarily reflect the increase _or_ decrease
of property prices.

That's what I meant. Thanks.

If some billionaire sells off a few acres of Malibu RE
at a loss to get out of the market, that makes the market
look like it's going up.

Uh, I disagree. Perhaps you're confusing "median" with
"mean", the arithmetic average.

No. I'm not.

The median of a sample
is the value at which half of the sample has a value above
the median and half has a value below.

Non-sequitur. An asking price (or even selling price)
isn't the same as actual value especially of all of a commodity.
Sheesh! Society, you ought to know that!

You reply "Non-sequitur" and then your next sentence _is_
one -- relative to your earlier mention of house prices.

I was making a point that "value" and "price" are not as strongly
related in real estate as in other commodities. Allow me to
elaborate:

All the product is mixed up together: High end houses with low end,
houses that are selling now with ones that won't be for sale (if
ever), and even seasonal factors that confuse "y to y" with monthly
sales statistics.

So saying: "Median house prices went up (or down) by 15% last month in
the LA area" doesn't mean diddly when trying to assess the collective
value of all Los Angeles real estate.

I'm not mentioning the "p to e" ratio which in real estate is best
summed up as rental income. That's a whole other kettle of fish.

FYI: Do you notice I've been researching this?

Perhaps I created a muddle when I used the word "value"
when describing the definition of "median". In that sentence,
perhaps I should have written "numerical value" to reduce
the chance of confusion. Now, steering away from math
lingo and lurching back into economics-speak, I'll agree
with you that the price of a commodity (whether the
asking price or the eventual sales price) is _not_ the
value of a commodity. Price is an objective quantity,
value is subjective.

That's another dangerous real estate expression: "You're not just
buying an investment, you're buying a HOME!" usually followed up by:
"But as an investment, Real Estate NEVER goes down!" :-)

Just because a group of career women think they are
worth a million because one got married to one
doesn't make it so you know. :-)

Or qualified to be a plumber because these women
are each married to one... or some other occupation
beginning with the letter P.;-)

Er, yeah but you get my point I hope. There's one-shot (or a few
shot) value where a few win the lottery versus what happens when _all_
the members of a group try to walk the same trail. It's the same
problem with a lot of hippies who hope that the (limited) success of
Sweden is reproducable in the states.

To accurately understand rises (and falls) in a commodity
it would make sense to first evaluate them individually
and then aggregate all those deltas but that's not how it works.
Sell some more higher priced properties while more lower
priced ones rot on the market and the "price" appears to go up!

Oh, now I think I see what you meant earlier.

Well, among economists "commodity" is defined as articles
offered for sale whose kind and quality are uniform among
all the sellers. Agricultural products such as bushels of wheat
are the paradigm examples of commodities. As you imply,
houses aren't so uniform.

You ain't just whistling dixie there. :-)

But that said, once these distinctions are clear it is possible to
understand what the market is doing. When it reaches the point where
even the mainstream print media (which receives mucho dollars in real
estate advertisements) can't deny a negative market trend anymore,
though, then you know we're in the middle of a correction that's not
going to bottom out soon (otherwise, they'd already be cheering about
the recovery.)

It's nothing but "talk" to everyone making their payments
and not planning to move anytime soon.

Once again Society, I'm amazed by you!

What about all those L.A. liberals who divorce all the time?

Most people, even in L.A., aren't divorcing.

Granted, as you and I know the feminist/leftists have succeeded in
many people not getting married in the first place (except for gays
and lesbians, kind of funny, eh? :-) That said, though, it was my
understanding that the divorce rates were at least 50% or even higher
in some demographics.

Get new jobs in a different area due to the volatile job market?

The current job market isn't terribly volatile.

I haven't lived there for some time, granted, but even during the best
of times people tended to change jobs more often than in the rest of
the country. Contracting (for mucho dollars even) is common and
companies are constantly changing or merging around.

This is why, as a bachelor, I was able to do sometimes much better
than my married colleagues because I was flexible about moving to a
higher paying position or telling an employer to F*** off if he tried
to exploit me. As you know, a marriage certificate isn't something
employers pay a dividend on, it's something women grant to men who
already have good jobs.

Anyways, metro areas in particular have populations that tend to move
more often than in the rest of the nation. Fair enough?

Because price changes in a market are driven by what is
happening at the margin, what is happening at the margin
gets the attention of economists and market-makers.

Agreed.

Indeed, as I pointed out above it's the "margin" by definition that
the RE market sees since they are the ones actually selling (or
buying) in the first place. It's not like a normal commodity where
(nearly) every bushel of wheat is available for sale at the right
price.

Someone made an interesting observation that in order for RE prices to
have shot up during the bubble, there had to be a shortage of housing,
right? BUT... at the same time... sales were at an all time high
(nearly every third person in California were real estate agents.) So
think about it: How could there be a shortage if so many units were
being bought and sold?

However, what is even more important in politics is what
is happening to the large majority of people and those
people are well inside the margins.

Yeah, but a bit of a non-sequitur here. I was having fun chomping at
the bit with RE with you and I won't want to draw a falwed equivalency
between RE and politics.

That said though... yes, many f***ing smug (no, I'm not bitter :-)
homeowners bragged to me about how, doing nothing, they were geniuses
of the market because they lived in a house and saw it's value shoot
up 2 or 3 times. They mowed their lawn and that makes them smarter
than me! :-) You can imagine the fun I'm having asking them "So...
howz your housing value funded retirement coming along Mr. Trump?" :-)

The political implications of the falling housing market in the fall
will be intersting since so many of the losers are folks who live in
blue state metro areas and the rust belt.

When I look past
the media panic-mongering that is intended to draw
eyeballs so those eyeballs can be sold in bulk to
advertisers and look at the actual situation on the ground,
there is no huge crisis IMO.

I respectfully, but strongly, disagree, Society.

A 15% drop is chump change at this point. With P-E's and historical
fundamentals at 2 or 3 times above the norm, there's still a lot of
room to go down. Check out this website: http://overvalued.blogspot.com
It's hilarious how the market has become so bloated and unrealistic
(much like a Californian liberal driving an SUV and using lots of
electricty but supporting carbon taxes :-)

That said, you're right that many paper millionaires who were arrogant
jerks at parties will just have to shut up and go back to (gasp!)
having to work for a living like they were 10 years ago or that people
who were just living in their homes and didn't intend to sell will
just shrug their shoulders and go on. (Ok, I'm saying most of that
but I agree with your point that in the long run most people will just
go on with their lives.)

Sheesh! Don't you know that U-haul rates from
Mountain View to Dallas cost a fraction of driving back?
There's a REASON for that!

Uh huh, and as long as more people want to move to
Mountain View, California from Dallas, Texas than
vice-versa, most homeowners in Mountain View can
sit tight and wait out the hullaballoo over California
home prices.

Doh doh doh doh doh!

That's my sloppiness and I accept full responsibility. I meant it the
other way around: It costs more to move out of MV than to come back.

A significant percentage of people don't have more than
15% equity in their homes and many are upside down.
As some of them walk, for whatever reason, that creates
a cascade effect as that pushes down prices further.

Yeah, and that makes homes more affordable for other
people.

Like ME! :-)

Absolutely, it's funny that people were celebrating a run-up in RE
prices even as they whined about paying 3 bucks a gallon for gas.
Everyone loves Donald Trump when they think they're a mini-
version. :-)

But the homes still aren't "affordable" by any means. Until it costs
me about the same to buy (on an IO mortgage) as rent, it doesn't make
any sense.

One housing-kool-aid drinker told me: "You're just throwing your money
away on rent! (tm!)" (I could almost see the (TM) beside his mouth)
or "You're paying your landlord's mortgage!"

As it turns out, we're not. We pay a fraction of what it would cost
to hold onto our condo even if we paid just the interest and
association fee. It ONLY made sense to buy beyond that if prices were
going up and making money was a sure thing. Oh, wait...

As for "it's only the beginning", if you can see that clearly
then please loan me your crystal ball. The stock market
is having a sale and I'd like to pick out a few bargain stocks
that will be going back up.;-)

I'm betting with our down payment. I saw this coming
2 years ago and see no reason to buy something on the way
down. And you're right: I should have short-sold builders
stocks. Oh, well.

You know the saying, bulls make money; bears make money;
and pigs get slaughtered. One can't play every market perfectly
and one is a fool to try.

Ah yes, that's another one I often hear: "You're treating this market
like the stock market. That's a fool's game for amateurs like you!
BTW, did I mention real estate ALWAYS goes up?"

AAAARGGG!

FYI: I've worked much of my life in financial markets and the saavy
people say: the best time to buy is just BEFORE the market bottoms out
OR just before the market TOPS out. At the very top of the market,
naturally, transactions started to peter out. Sales still happened,
but some sellers got trapped trying to chase the market down. (A few
places sold at 600K so they priced at 570. Then they saw a few people
sell at 540 so they priced there...) Yikes!

Hey, at least you didn't get caught up
in the bubble mania nor have you been suckered into a game of
Catch the Falling Knife with home prices.

We'll have to wait and see on the latter claim. :-)

I'm going to jump in just as all the cocktail crowd tells me that the
market is dead and I was right all along. Then they'll call me crazy
for a (second) time. :-)

Note: I don't mind getting into the market a little too soon (and
seeing prices go down slightly before coming back up) _OR_ winding up
buying a little after the recovery and paying a little bit too much
there either. I'm first, and foremost, looking at the actual value of
the property as well as what we want.

Those two choices
put you ahead of a lot of people who have been interested
in buying a home in the last couple of years.

I felt bad because I saw some other friends jump in about 3 years
ago.

Unfortunately, a lot of homeowners got home equity loans
and may wind up upside-down in their mortgages.[...]

I lived through that sort of situation back in the early 1980s
and again in the 1990s. As long as the homeowner can
service the debt, there's not much immediate pressure to
sell as the doom-sayers suppose. IME, too many of the
financial talking heads forget that people live in houses,
not in stocks.

(Er, you just compared the housing market to stocks above...)

Heh heh.

Pffft! :-)

Anyways: Oh yes, I heard this one too: "You can't live in tulips!"
True, but a lot of this market was driven up by speculators
who _didn't_ live in their homes. In many areas, as much [as]
40% of properties are owned by "flippers".

Somehow, I don't feel like sympathizing with the "flippers".
Nor do I consider their pain any kind of crisis that requires
the sort of rapid-response Federal bail out that hillary is
crying for.

Agreed. But I know a friend from Cuba that did get a double loan
including an IO because they wanted desperately to settle down and
start having kids. We haven't spoken to them for a while. I don't
think that giving them a break on the ARM resetting is going to ease
the pain of paying off a $300K paper-walled townhome a 1.5 hour drive
out of the city center.

And this is a whole different, er, bear compared to the 80's
and 90's. I've seen charts where fundamentals such as P-E's
are skewed more than 2 or even _3_ times more than where
they have been in the past.

Uh, what's the E of a house one is living in?(Answer: the
imputed cost of renting the equivalent house.)

I know.

Oh, did you mean to refer to stocks instead of homes (or tulips)
there?;-)

I was using it more as a generic financial term and also to emphasize
that the rules of finance do apply to housing.

"It's not just a stock. It's a home!"

I actually know some homebuyers who refer to us condo renters as kind
of homeless. Yes, it's a nice feeling to be able to tear out a wall
to put in a jacuzzi, but how much is that feeling WORTH. It ain't
worth a 40 year loan...

Yeah, as far as the US stock market goes, P/E ratios have
been rising to historically high levels. I'm reminded of the
behavior of the Japanese stock market as it climbed toward
40,000 on the Nikkei index -- before what the Japanese
call the bubble economy ended in the late 1980s.

The problem is SOX. It has hampered the ability for new companies to
enter the exchange because of all the silly regulations and the ones
already in the clubhouse LIKING the BS because it means that there's
less competition. (But enough about the AMA! :-)

It's getting so bad that it may cause the notion of an exchange to
collapse and for many investors to go through private, non public
purchases.

Want to have some fun? Ride the Real Estate roller coaster!
http://www.bloggingstocks.com/2007/04/05/ride-the-housing-roller-coas...

I was amused by the comments from Bert and Steve. Bert
seems like someone tempted to time the market -- some
people like him have been waiting since the 1970s for
house prices to come back down. Steve's comment
suggests that prudent people like himself who didn't pay
or borrow beyond their means to get into a home are
the ones who are being played for chumps by the politicians
(Steve specifically named hillary) who are pandering
to the panicky by offering bail outs.

Btw, I don't usually follow links to videos because bandwidth-
wise I'm still living in the last century; my service is dial-up.
However, that link you provided there, PolishKnight, looks
interesting enough to be worth an overnight download.

Don't puke! Keep your hands in the car at all times!

Speaking of trusting "talking heads": nothing is more trustworthy
than a herd of sheeple especially in California who believe
"it's always a good time to buy!" or "real estate never
goes down!" or "it's SPECIAL here!" or "based upon past
performance, it's impossible to lose money especially
when everyone else is doing it!"

Ha ha. Yup, I've heard real estate saleswomen say 'em all.

I wish I could find the page, but there was a San Diego condo sales
party where they tried to stage hot men and women living in condos
without much furniture pretending to read books while walking around
in skimpy outfits and lots of booze and hot salegirls chasing after
them.

It's amazing that this was just 2 years ago. When we went out to
SeaWorld, I took a few pictures of one of the developments in an area
where we made sure our car alarm was activated (I missed Big
Lots!) :-)

Ironically, with the weak dollar many foreign investors
are buying up those housing derivatives like candy. Tee, hee,
it's Japan buying up overpriced RE like in the 80's all over
again! :-) Yeah guys, spend all that paper you got from us
by shipping us big screen TV's on overpriced real estate.
It's kind of like us selling them tickets to Space Mountain
but the ride down is going to be a little more nauseating...

I hear a lot of gloating chatter like that from TV, and talk radio
talking heads. I'm contrarian enough to wonder if what is
really happening is that this paper is passing from weak hands
to strong hands. Remember the Long Term Capital Management
bust? Those derivative positions that LTCM's eggheads had to
liquidate for pennies on the dollar because they couldn't make
their margin calls eventually did pay off at a profit
just as LTCM's computer trading programs had predicted.

I know the fundamentals and they're catching the knife and not in a
good way. Rich people can be stupid too, you know. Anyways, if this
is a way to balance the trade deficit, even if they just break even,
good for them.

--
Bulls or bears, everybody is right eventually.

Wall Street saying

But on Wall Street, someone whose "right" at the wrong times is still
going to lose their shirt.

regards,
PolishKnight
.

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