Yesterday, we discussed the $40M NAR ad campaign, “It’s a great time to buy or sell a home!”

On the way home, I actually saw the full page ad in the Personal section of the WSJ; (Unfortunately for the NAR, the section’s front page article was “The New Word in Home Sales: ‘Canceled’)

I read the ad as a typical consumer would . . .  then I reread the ad critically.

When I was finished, it occured to me that EVERY SINGLE STATEMENT IN THE AD IS MATERIALLY FALSE OR MISLEADING. The nicest thing I can say about any of the points is that they are incomplete.

To wit:

NAR Advertising Claim Reality
Interest Rates Near Record Lows

Today’s interest rates are comparable to 40-year lows, offering homebuyers a once-in-a-lifetime opportunity.

Interest Rates WERE at record lows in 2003 when the Fed Funds Rate was 1%; Since then, rates have climbed 425 basis points (4.25%); Mortgages were as lows as 5.125%; They recently were over 7%.
Large Inventory Won’t Last

There are currently 3.75 million homes for sale. We have had a record inventory of homes on the market in recent months, offering consumers the greatest choice in decades.

Slowing Sales and Overbuilding are the reasons for the inventory buildup; Year-to-date sales are down 16.5%.

Economics 101 tells us that increased supply means decreased prices.

Large selection also means selling your current home has become more difficult;

Prices Overall Have Stabilized

Contracts for home sales in August are up 4.3 percent1 and the outlook is for home prices to increase next year.

Home prices have experienced their first price drop in a decade;

As unit sales continue to slump, the  Median Price Keeps Falling;

This is no basis for assuming any price stabilization has occured.

Positive Outlook

Former Federal Reserve Chair Alan Greenspan recently said that housing prospects are looking up. “Most of the negatives in housing are probably behind us. The fourth quarter should be reasonably good,  certainly better than the third quarter.” According to industry estimates, 2006 will be the third-best year on record for home sales.

Is this the same former Fed Chief  Greenspan who advised getting variable APRs at the precise low in interest rates?

As to the “record sales,” its more informative to look at the current trends, rather than the raw numbers (population growth will create meaningless “record numbers”).

Real Estate is a Great Investment

Homeownership is a safe, secure way to build long-term wealth. The national median price of homes bought ten years ago has increased 88 percent. The number of US households is expected to increase 15 percent during the next decade, creating a continued high demand for housing.

Actually, it performs about half as well as stocks do over the long run.

Up 88% over the past 10 years is far above the historical norm — mean reversion is very likely.

(But you gotta live somewhere, right?)

Don’t Delay

Now is a great time to buy or sell a home.

If you delay, you run the risk of paying less for a new home.

In all my experience trading, I cannot recall ever coming across any item that it was a great time to buy and sell something simulataneously.

Perhaps the NAR is a fully hedged Long/Short fund .  . .

>

Gee, no wonder so many real estate agents have a sketchy reputation; The bullshit is a professional hazard, from their Professional Association on down . . .

>

Sources:
The New Word in Home Sales: ‘Canceled’
Buyers Back Out of Deals In Record Numbers; A $30,000 Deposit, Lost
JUNE FLETCHER and RUTH SIMON
WSJ, November 3, 2006; Page W1

http://online.wsj.com/article/SB116252244421212232.html

Category: Data Analysis, Economy, Psychology, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

120 Responses to “Analyzing why “It’s a great time to buy or sell a home!””

  1. ~ Nona says:

    About a month ago I called a very smart, successful realtor to ask how the market was and whether prices were coming down. (I live in the northeast.)

    Her Queen-of-Spin answer was wonderful. “Prices aren’t coming down — but it’s a good time for buyers: they have many more houses to choose from.”

    I’ll bet they do. And counting!

  2. MTHood says:

    Stating the obvious, but try this:

    “It’s a great time to buy or sell 1000 shares of Dell.”

  3. Robert Cote says:

    Is this the same former Fed Chief Greenspan who advised getting variable APRs at the precise low in interest rates?

    This is one of those internet myths. The testimony makes it clear that Greenspan was talking about past outcomes where indeed variable rate mortgages allowed people to get into homes and saved billions. [OMG, I just disagreed with our brilliant and well spoken host. I shall now slink away and do pennance.]

  4. ken says:

    The thing about real estate is that it really is a sure bet. Buying a home, even at a short term top, will always be profitable for the average homeowner who needs a place to live and raise a family.

    Nobody needs stocks, but everyone needs a place to live.

    I think the first big mistake that Barry is making along with a lot of the commentators here is confusing the buying and selling of real estate with stock market investing. They are so different that you lose credibility when you talk as if they were the same.

    The second mistake is forgetting the impact of population growth. We’ve grown by 100 million new Americans just in the last 20 years. So comparisons to how the real estate market reacted even ten years ago is not entirely relevant to what this much larger population seeking home ownership will to today.

  5. edhopper says:

    Sorry Robert. He was suggesting that more borrowers should take loans other than 30 yr fixed.

    Greenspan;
    “American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage,” Greenspan said.

    This was correctly interpreted by all that he was advocating ARMs and IOs.

    Yes, he tried to put it in a historical context, but he was commenting about the present housing market, not idle conjecture about the past.

  6. Mr. Beach says:

    Ken: Trolling eh?

    “buying..event at a short term top…always profitable”.

    Do you mind explaining that to the class of 2005 buyers in South Florida, the Wash DC area, Arizona, San Diego, etc. etc.

    Let me give you a couple of anecdotal examples:

    1. DC Area: Friend. 26. Single. Bought in Sep-2005 in Loudoun County a townhome for $420K. At the time, very confident in his prudent investment decision.

    Now — townhomes on the same block are NOT selling at $350K. Add in a years worth of inflation, the 5% transaction costs and friend is looking at nearly negative $100K in equity.

    2. Marin County, CA: Friend. 35. Married. Bought in July-04 a home for $800K. Now needs to relocate for a job. Can’t sell home to cover his costs. Stuck.

    These are first hand stories. Many, many, many people are going to learn that leverage is a bitch when it goes against you.

  7. calmo says:

    Thanks for this service Barry. (And IMO correct service on AG and not soon-to-be-improved service by Robert’s no doubt well intended correction.)
    A public service.
    One that is intended not to shore up your positions whatever they may be, but to shore up the public’s positions against those of the RE interests. [You know we trust you.]
    Do we expect the NAR to do the same?
    Do we expect any professional association to put their interests behind, (ie, not in front,) [ie, at their expense] those of the public’s (ie, their clients) [ie, those from whom they extract fees…so they can continue breathing and drinking while the public continues their charity (their bleeding –all for this noble cause)?
    In times of genuine distress (ie not this time) [ie when we have a public that is bleeding profusely] do the professionals become less so?
    Given that the public’s burden (that bleeding) is articulated and communicated by the professional press/media now (to an unprecedented extent IMO) I don’t expect to see articles like this (Barry’s correction) outside the blogsphere where professionals have no such monopoly (so far) on this communication.
    Thank you. And Robert too.

  8. Peter Pavlog says:

    Barry said, “The bullshit is a professional hazard, from their Professional Association on down . . . ”

    Is there a profession or professional association or a leadership position in any organization within the USA that hasn’t been infected by grifters, con-artists, liars, cheats and thieves along with their inept and incompetent cronies?

  9. ken says:

    Mr. Beach, even in good times if you sell a house within a year or so of buying it chances are you will lose money. The average transaction costs with real estate are very large, around 10% or more round trip regardless of when you buy and sell.

    It is only the exceptional period when you can make money within a year of buying real estate. Every real estate investor knows this. (I am 55 years old and flipping real estate has only worked in a few of those years.) For somone buying for a place to live and raise a family it shouldn’t matter that prices fall a bit, they will always recover and go even higher. Always.

  10. MTHood says:

    “Buying a home, even at a short term top, will always be profitable for the average homeowner who needs a place to live and raise a family.”

    Always? OK. This is too easy, but how about:

    Case #1 — Job loss. Have to sell 1 year after purchase. Still profitable?
    Case #2 — Divorce. Have to sell. Always profitable?
    Case #3 – New and better job in another city. Have to sell. But the good news is, you always sell at a profit.

    Now if you had provided the caveat that the family must stay in the house for 20, 30, 40 years, OK, then history says it’s a good bet to be profitable.

    But what prompts a statement like this? “. . . will always be profitable . . .” When you wrote that, what were you thinking? Did you really believe that is true?

  11. edhopper says:

    Really Ken? Tell that to the people who bought in the Houston area in the early 80′s oil boom. Tell that to folks in Japan who bought in the late 80′s before the crash (still waiting for prices to recover after 20 years!)
    I know people here in the NYC area who have only recovered there late 80′s price because of this housing bubble. As the bubble collapses, they will be underwater again.
    How long a period do you consider for prices to recover, shouldn’t it be while your still alive?

  12. Mike_in_Fl says:

    regarding this comment:

    The thing about real estate is that it really is a sure bet. Buying a home, even at a short term top, will always be profitable for the average homeowner who needs a place to live and raise a family.

    Well, in the end, yes, if you buy a house, the value of that house will eventually be higher. But when? 2 years later? 5 years later? 10? Many people who bought at the peak in the California bust last time around (89-90-ish) didn’t get back to breakeven until the mid-to-late 1990s. Do you think the people who bought before the bust, then had to move due to job loss (the likelihood of which is rapidly increasing due to the fallout from the real estate bust), divorce, the birth of a new child, a sick relative who needs tending to, and so on and so forth, felt like they got a sure bet? I doubt it. And how many had their financial and/or personal lives ruined because they got in over their heads and couldn’t sell for enough to cover their loans?

    What you say is TECHNICALLY true. If you buy a house for $300,000 today, it’ll eventually cost more. But by that same token of logic, the Nasdaq will eventually make it back to 5,000 again. But I bet that doesn’t make investors who loaded up on tech stocks in early 2000 (because tech stocks really are a “sure thing”) feel much better.

    Lastly, as for whether it’s a good time to buy real estate right now, what’s the rush? There are more homes on the market, both new and existing, than at any time in recorded U.S. history (though yes, you could technically argue we’re down a few thousand units from the late summer peak). Interest rates aren’t really going anywhere. There are more and more motivated sellers hitting the market every day, with no sign of a let up. Prices are falling at the fastest YOY rates in almost four decades. I mean, am I the only one who sees no reason to hurry? I should also add that in vast swaths of the country, it is dramatically cheaper to rent than own, even after factoring in tax breaks and the slight drop in prices to date.

    The bottom line: EVERY single past real estate downturn, whether locally, regionally, or nationally (in an extreme case like Japan), took a long, long time to play out (years, not months). The real estate market only started peaking last June-August (depending on location). That puts us just over the one year mark. My best guess for a market trough is sometime in 2008, with further price declines from here ranging anywhere from 10% to 30% (depending on property type, location, stuch flipper percentage of overall market, etc.)

    Just my two cents on this fine weekend.
    http://interestrateroundup.blogspot.com/

  13. libertas says:

    Leaving aside short-term fluctuations, Shiller’s research indicates that real house prices have gained about 1% per year over the long term. Offsetting that is the cost of financing (whether or not the money is actually borrowed, because there is opportunity cost on equity funds). The long-term real return on long Treasuries is about 3%, so one can assume the real cost of mortgage financing is somewhere in the 5% range.

    So as a long-term proposition, a house loses about 4% per year in real terms (ignoring maintenance, taxes, insurance and so forth). That’s not profitable.

    Because of the Fed’s manipulations, the real cost of mortgage financing has been negative in recent years. Of course, it made sense to borrow to the hilt in those conditions. But now it is likely that the pendulum will swing back to favor the lenders rather than the borrowers.

  14. Tim says:

    From my perspective (escrow office co-owner with spouse) in closing refi and purchase deals is that many borrowers do treat real estate like the stock market. Unfortunately, for those who need to make a change and sell for whatever reason, they find their thesis of selling property super fast is super wrong.

    There are a few folks we work with on a semi-regular basis who are, for a lack of a better term, shell-shocked about how long their current residences have been on the market. Sadly, one is carrying $1.6 million in 100% financed loans between the residence they are selling and the one that they just closed on at month end in October. More sad, these folks should know better. But then again they havn’t worked in a declining market. Come to think about it, probably 50% of LO’s and agents working over the last three years or so, have never experienced a tough market. 2007 will be quite fascinating to see play out.

    There is no better view in real estate that being in escrow. We see it ALL.

  15. Paul Jones says:

    To Ken:

    The problem with your buy at any price and hold reasoning is that most people do not have the job security or stability to be assured of the income to make the storm-weathering payments. If you have to move to maintain your career or if you lose your job, you are pretty much bankrupt.

    In contrast renting can provide a cheap alternative; I’ve heard it seeral times that in this latest housing bubble that renting was actually much cheaper. If you can wait a while then you will find housing prices at their best in the heart of the next downturn.

  16. ken says:

    Ok, it is not my purpose to argue with you guys. The fact is that real estate is a limited resource and we have added 100 million new Americans just in the last 20 years. Talking about how far prices fell in the eighties or in Japan is completely irrelevant. Anyone who invests in real estate knows that. Real estate has made more people wealthy than any other asset class I have ever seen, and I have seen them all.

    I think too many people here use a stock trading mindset when it comes to evaluating real estate. It is almost you think of it like a momentum stock and wait for prices to rise to make new highs before you are willing to concede that real estate always makes money.

    Some have commented that my analysis requires a long term outlook. Well, yeah. We are talking about real estate which has always required (with a few short years of exception to prove the rule) a longer term outlook. Anyone who buys real estate in order to flip it quickly has only ever had a few short years in the last fifty to do that safely. There is always the exception, that is what real estate so interesting.

  17. brion says:

    “I think the first big mistake that Barry is making along with a lot of the commentators here is confusing the buying and selling of real estate with stock market investing.”——
    “Anyone who invests in real estate knows that…. Real estate has made more people wealthy than any other asset class I have ever seen”

    You seem a bit contradictory there ken….

    THIS cycle has seen RE morph into a speculative commodity more than ever before. Does it really make any difference if it is gold or tulips or land in Florida or…? The rates went down/the RE ballgame moved into Barry’s court bigtime imo….

  18. Mark says:

    “I think the first big mistake that Barry is making along with a lot of the commentators here is confusing the buying and selling of real estate with stock market investing. They are so different that you lose credibility when you talk as if they were the same. ”

    RE and stocks are so different? Last time i checked, any asset should be and can be valued as the present value of its future expected cash flows. Let’s not forget the highly variable costs that come along with home ownership, maintenance, property taxes, 6% broker commissions, interst on a mortgage etc.

  19. wcw says:

    Yes, residential owener-occupied housing and stocks are very different, for two big, big reasons. One, the government heavily subsidizes owner-occupied real estate, while taxing your stock-market profits. Two, as has been noted, you can’t live in a stock certificate, but your home effectively throws off an untaxed monthly yield, just in housing rather than cash. If you tried to purchase a security in the market that threw off a yield, the government would tax it. Moreover, when you move, the government doesn’t tax your first half-million in capital gains; try that with your portfolio and see where you end up.

    These government subsidies are so ginormous that they utterly distort the rent-vs-own calculation. Last summer at the market peak I modelled it here in San Francisco. Purchasing an equivalent to my rent-controlled apartment would have cost me 3-4x the monthly payment on the mortgage alone, plus condo/TIC fees, plus maintenance, plus insurance. Yet, once I modelled all those tax breaks and ran some simulations, even at 1% real returns vs perhaps 4% real returns to my portfolio, owning wins out about 1/3rd of the time.

    So, on the one hand, Shiller is 100% right. The historical inflation-adjusted return to residential housing in the US is a low 1%. There is no strong argument that it will change; we can always build more housing stock, and indeed have done so. Just check out vacancy rates either for-sale-only (ken may not want to look at that one) or for-rent and total. Stock and even bond returns are likely to continue to be much higher, probably in the 2-4% real range over time.

    And yet despite being farcically misinformed, Ken is almost right. When the government subsidizes the hell out of owner-occupied housing, while taxing all other investment alternatives, it is difficult for anyone with any sort of income not to do as well or better owning, living with flat or even down residential markets, and raking in that government subsidy month after month after month.

    It sucks if you want to move, though. Anyone who is not settled for sure might be in trouble, as the anecdotes above indicate.

    Can you tell that I rent, and that despite having a great place and great landlord and very fair rent considering the location that I want my freaking subsidies, too?

    Ugh. It’s enough to make a fella vote Republican, if that party didn’t just talk a mean game while writing ever bigger checks to farmers and homeowners.

  20. DavidB says:

    The fact is that real estate is a limited resource and we have added 100 million new Americans just in the last 20 years.

    If you took every house, tore it down and put a five story building up where the house is, you could, in theory, increase the livable space by fivefold. I know that absurd example won’t happen but I like to use it when people drop the equally absurd myth that RE is limited. We can still build up(and down for that matter) and as long as bankers are printing money and loaning it out to us suckers, we still will.

  21. Mark says:

    “but your home effectively throws off an untaxed monthly yield, just in housing rather than cash. ”

    huh? please explain this

    cap gains on RE are tax free after 2 yrs in a primary residence, so flippers can forget this “benefit”. also, did you bother to adjust RE returns for leverage? can’t compare an unleveraged stock/bond portfolio to the returns on a leveraged RE investment-

  22. MTHood says:

    Ken,

    Just a quick question: Do you really want to stick with the term “always”?

    As in:

    - “real estate always makes money”

    - “Buying a home, even at a short term top, will always be profitable”

    I’m just curious about what’s going on in your mind.

    Do you generally see the world in absolutes – “always” and “never”? Or is it just real estate?

  23. DavidB says:

    These government subsidies are so ginormous that they utterly distort the rent-vs-own calculation.

    Somebody has to support the bankers

    Last summer at the market peak I modelled it here in San Francisco. Purchasing an equivalent to my rent-controlled apartment would have cost me 3-4x the monthly payment on the mortgage alone, plus condo/TIC fees, plus maintenance, plus insurance.

    Obviously your rent is too low then

  24. winjr says:

    “The fact is that real estate is a limited resource and we have added 100 million new Americans just in the last 20 years. Talking about how far prices fell in the eighties or in Japan is completely irrelevant. ”

    No it’s not. In fact, it’s completely relevant.

    It’s a supply/demand issue. Right now, and for the foreseeable future, supply far exceeds demand, which is no different than the early 90′s, or the early 80′s, or Japan. The *reason* for the excess supply may be different, but so what? The result is the same.

    Right now, people either don’t want, or can’t afford, to buy. Prices must fall.

    So, why should the decision to buy a house be any different, at this point in time, from the decision to buy a stock? If I can save a ton of money by renting, then the ONLY reason to buy a house is simply “because I’m willing to pay a premium for owning a home NOW”.

  25. wcw says:

    Mark:
    - homeownership rates are 69%. Taxes matter
    - if you sell your house, invest the proceeds, and pay rent out of your income, the government is still taking 35% of it. If you own, your equivalent rent is untaxed. That is a de-facto subsidy.
    - the real-return data I cited are unlevered.

    DavidB
    - CR has a nice Volcker quote on that subject, “Homeownership has become a vehicle for borrowing and leveraging as much as a source of financial security.”
    - vacancy decontrol and the fallout from the tech bubble tend to undercut your hypothesis. Real SF rents are down over five years for solid, Econ-101 reasons.

  26. ken says:

    The value of real estate is in the land, not the improvements. Location, location, location.

    And yes we can always build more housing stock, but it is always built at a higher and higher cost. The best places to live and the best property for development were developed a century ago. Today it takes enormous amounts of money to grade the hillsides of increasingly difficult slopes further removed from all amenities before a single slab is poured. And if you just rezone R1 into multi unit the cost of the land under those single family homes goes up expodentially.

  27. wcw says:

    Ken, which part of “farcically misinformed” didn’t get through to you?

    I live in San Francisco, the most densely settled large city in the US after Manhattan. Within one mile’s walk of my house, I can count at least three large apartment developments opening or building and a dozen one-to-four-unit renovation/expansion/teardowns, and I am probably missing some since these are just ones I have seen where I walk. All these make the city denser yet.

    Or by “best property for development” did you mean something other than one of the most expensive housing markets in the country?

    There is plenty of land in the US, even in areas developed a century or more ago.

    Let me strongly suggest you click through to my for-sale-only vacancy chart and give us your explanation. I need the laugh.

  28. ken says:

    wcw, I am not sure I understand your point.

    If you think that it is wise to wait till real estate prices hit new highs before you buy then by all means wait. If you think you are wise enough to call a market bottom on real estate prices and want to wait, then wait.

    What I am saying is that real estate buying and selling real estate is not at all like trading equities. Real estate really does require a long term outlook. So whether you wait for a new top or your bottom call you will still have to wait a couple of years to break even. It is very unlikely that we will see another period when you could just buy anything and flip it for a profit for at least another ten years. Periods like that don’t happen very often. And in the long term it doesn’t matter if you buy at a short term high or at a market dip – either way you are going to make a lot of money.

    Now my second point regarding the amount of desirable land for development – this rests on two observations:

    1) The best places to live have already been developed and have been occupied for over a century, at least. There is no more land available in San Fran today, for example, than there was a hundred years ago.

    Rezoning the land under a single family home in a place like SF to a R2 (duplex) doesn’t just double the value of the land, it triples it.. And turning it into R4 (fourplex) could drive the price up to six times or more. So yeah, the housing stock can be increased but at a ever higher price for the underlying land.

    2) The best property for development is flat land in desirable areas. But the best of that land has already been developed. America has been picked over for two hundred years by land speculators and land developers. The stuff that is left is leftover for a reason. It is perhaps on hillsides and difficult and very costly to develop Or it is perhaps in an area where no one really wants to live in the first place. It may be too hot, or too cold, or be without amenities like good schools or access to jobs.

  29. Phil says:

    Another Point:

    Prefered areas tend to change after a while. Remember Detroit, who wants to live there now? Louisiana, Kansas, Detroit, Houston, there were so many cities in the past.

    I think that Florida and Southern California are just getting too hot nowadays and in the case of Florida hit by ever stronger hurricanes… Who wants to live in an area which has to be evacuated once in a while?

    On the other hand, San Fran, Boston, Seattle, and especially the Midwest has still some potential (in the further future), but investors in San Diego, LA, Florida get certainly hit hard..(in 2012 not even by inflation adjusted prices)

  30. “wcw, I am not sure I understand your point.”
    Ken: I am not sure that he does either. But, I am not surprised to learn that he is a renter in my beloved San Francisco. No knock on him because I enjoy his blog.
    Btw, those stricktly aligned to the bubble camp (most are renters) like to throw out the word “real estate” as if it means housing. When in fact, it’s one sector. Hotels, strip centers, retail, NNN, office condos are doing just fine thank you.

    Posted by: MTHood | : “real estate always makes money” – Hood, maybe Ken should have said since 1930 to make you happy, since the median price of a home has never had a down year (nationally) since they kept records. But, I think you meant housing, no? Because, commercial real estate has had some terrible years.

    But, individual horror stories mean nothing in this discussion since people can always make bad purchases in good markets and get sucked into horrible loans.

    Since real estate mistakes usually are cured by time, the question is “How much time?” – at 4% growth per year on a tax advantaged investment, with 20% down, that’s a 20% annual return on your investment and much greater when compounded.

  31. toddZ says:

    *Technical alert!*
    http://finance.yahoo.com/q/bc?s=%5EHGX&t=6m&l=on&z=m&q=l&c=

    Huge technical break for the housing index on Friday, FYI

    Not a coincidence, the 10 year note hit a triple bottom on Friday as well.

  32. wcw says:

    Ken -

    In re “new highs”, shall we lay a public guess on the OFHEO repeat-sale housing-price index for Q3? It comes out Dec. 1. My guess: it’ll show both real and nominal declines, which should continue for between eighten and twenty-four quarters.

    We agree owner-occupied RE is not like equities. What you appear not to understand is that the differences are due entirely to the government subsidies, and have little or nothing to do with the economic verities of home ownership. If not for the government, RE would be much, much riskier.

    There is more land available in the best parts of the country. The best parts of the country are cities, like Manhattan, LA, Chicago and SF. Cities historically have had large industrial zones. Industry has moved away, since it is no longer necessary or practical to have it in close, desirable locations. Voila — lots of newly available, usually easily buildable and almost always flat land. That said, I argue that in most US cities with hills, they provide the more desirable locales — and hills as a rule provide lots of opportunity for infill housing.

    I note you didn’t explain the chart. I am honestly curious. I am open to the idea that something qualitative has changed over the last three quarters to rocket up for-sale-only vacancies, but the occam’s-razor explanation is that prices are not market-clearing and need to come down.

  33. “The fact is that real estate is a limited resource and we have added 100 million new Americans just in the last 20 years. Talking about how far prices fell in the eighties or in Japan is completely irrelevant. ”

    Posted by: winjr | Nov 4, 2006 4:06:05 PM – No it’s not. In fact, it’s completely relevant.

    It explains, in part, the huge demand to this point and with another 100 million by 2040, why demand may continue upward.

  34. DavidB says:

    I live in San Francisco, the most densely settled large city in the US after Manhattan. Within one mile’s walk of my house, I can count at least three large apartment developments opening or building and a dozen one-to-four-unit renovation/expansion/teardowns, and I am probably missing some since these are just ones I have seen where I walk. All these make the city denser yet.

    Never underestimate humanity’s ability to cram himself into a closet and call it a deal.

    If you want to know where most cities in America are headed in regards to real estate take a trip to Hong Kong. That is the future.

    If you think that it is wise to wait till real estate prices hit new highs before you buy then by all means wait. If you think you are wise enough to call a market bottom on real estate prices and want to wait, then wait.

    Ken,

    Do you trade stocks at all? You are talking to people who for the most part around here know how to read a chart. There is a difference between long term growth trends(which is what you are talking about) and standard deviation(which in this case has lead to a parabolic growth curve) which is what you are being debated back with. The bears on the board, myself included, believe the housing market has gone way beyond the standard deviation of the growth curve. Reverting to the mean like what we did in the nasdaq crash is what we are saying this is going to be like (though probably not as steep).

    Since housing is something everyone ‘must’ have this will probably be longer and more stretched out than what the Nasdaq suffered but because of the leverage involved it will be a lot more painful

  35. wcw says:

    Larry -

    Thanks for the kind words. I try.

    I think my essential point is that unless I am missing something big that changed recently, the market is telling you that residential prices are not market-clearing. That is a good time to go short companies that provide more inventory, which I am.

    Second, that if not for tax breaks, housing prices would have to come down a lot, and that owning an asset the value of which is dependent on government is not my cup of tea.

    I have no idea why you’re fixating on nominal, median prices. Check out inflation adjusted repeat-sales indexes like the HPI deflated by CPI ex-shelter. Year-over-year that one drops all the time, or used to, until the last 36 (count ‘em) quarters. Things have been a little strange lately.

    If you and Ken were up-front about the primacy of the government subsidy, and the small but real risk of its ending or being capped, we wouldn’t even disagree all that much. It just that you and especially Ken come off as arguing that it is characteristic of the asset itself, which it indubitably is not.

    A house is just a house. A government subsidy is a sinecure.

  36. MTHood says:

    Nusbaum.

    You make my heart sing.

    You make everything.

    Groovy.

    Nusbaum.

  37. David: You trade stocks, fine. When markets decline how do you profit from such a decline?
    And, since you are so sure about housing (or real estate), how does one profit from such a decline?

  38. wcw says:

    Oops, missed your second post. You really should try to cram the ideas into one. Note my focus on inflation-adjusted repeat-sales indexes. Wanna bet the real HPI does not look like your medians?

  39. Wcw: I am not fixated on anything except real life experiences of average (but informed) long term real estate investors. Those that I know, in San Francisco & Phoenix are wealthy.
    I don’t know people who created wealth from “trading stocks” over the past 10 years.
    Real returns from charts don’t tell me anything since net returns from real estate compunding far exceed that of other asset classes, imho.
    (very good blog you have)

  40. you are right about “median”. Just for Ken’s sake. All markets run in their own cycles making them truly local….

  41. ken says:

    wcw, good point about cities having industial land to develop. But that doesn’t invalidate my point on how the value of the land underlying the plants or warehouses increases when a zoning change occurs. And this is a huge element in what drives the cost of the new housing up.

    I entirely understand you point about real estate recieveing a huge government subsidies. That is just the way it is.

    I looked at your chart but it does not come with an explanation. I wouldn’t want to venture an interpretation of it without understanding what it is you are charting.

    And DavidB,

    I traded bonds professionally before I started managing an equity portfolio.

  42. Woody Allen: “I managed other people’s money until they didn’t have anymore.”

  43. Bob A says:

    With real estate, as with stocks, it all depends what you buy. Buy real estate in a stagnant market and it’ll can easily go nowhere from now until you die. Buy real estate in the right area where there’s job and population growth and you can do better than any other investment because of the leverage you get. Avoid buying during speculative bubbles in either. Speculative bubbles do not apply to all stocks or all real estate at any given time. There were stocks that were a great buy in 2001 and there is real estate that is a great buy in 2006… and vice versa.

  44. “I entirely understand you point about real estate recieveing a huge government subsidies. That is just the way it is. ”

    It’s there for a reason: real estate has fueled much of the growth of this country over the past 100 years. (and, certainly since the end of WW2)

  45. “There were stocks that were a great buy in 2001 and there is real estate that is a great buy in 2006…”

    2001 stocks: Precious metals, REITs, Energy, commodity stocks, international, and almost all small caps.

    2006 RE : Apartments (multi-family) & select retail

  46. DavidB says:

    David: You trade stocks, fine. When markets decline how do you profit from such a decline?

    You profit from declines by taking profits on the way up as assets become too expensive. It is a lot easier to profit from securities than it is in housing I will agree but than is because multiples are usually different. You can also sell short securities or buy put options. With houses your choice is limited.

    What we are discussing is what the buyer would do right now in housing and whether or not he would make a profit over the short to medium term. Also on the table is whether or not buyers, if they purchased now would either a) be able to sit on negative equity for quite some time or B) put up enough of a down payment to cover the potential negative equity and be prepared to see that down payment reduced to zero for the short to medium term

    If I were a buyer right now I would take the risk of waiting. The risk you face is if the housing market gets away from you. The question you then have to ask yourself is if the potential gains that can come in the housing market are greater than the potential gains you could get outside of the housing market.

    So is the risk of loss greater than the reward of housing market gains right now? Can you put a risk/reward ratio on that Larry?


    And, since you are so sure about housing (or real estate), how does one profit from such a decline?

    That is an interesting question. Not everything in investing is about profit. Sometimes it is about capital preservation especially relative to the economy. Teams don’t win just by scoring points. Some of the time they are playing defense. If the housing market price is dropping by 5% a year and you have sold out at the top and are collecting even 1% after paying your rent you are ahead of the market by 6%. If it is dropping by 20% and you get nothing in return on your investments on a relative basis you are ahead by 20%. If you have held your house for 10 years and 3/4s of the mortgage is paid off while at the same time the house has tripled in value you may not want to or need to sell your home as long as you understand that a percentage of that home’s value could go away.

    I assume most of those people don’t make the marginal price of the market though. The marginal price is made by those who are just getting in to the markets or are moving up or over because of job or family requirements.

    Those marginal buyers who ‘must’ live somewhere are the ones who are going to drive the market and when enough of them decide it is most cost effective to put one half their money into the bank and give the other half to a landlord instead of putting it all on a mortgage then that is when the market will again revert to, and most likely below, the mean

  47. Robert Cote says:

    “real estate has fueled much of the growth of this country over the past 100 years. (and, certainly since the end of WW2)”

    Snigger. And you posted this how? With rocks spelled out on your lot waiting for a passing biplane to relay the message to the telegraph office?

  48. “So is the risk of loss greater than the reward of housing market gains right now? Can you put a risk/reward ratio on that Larry?”

    No. No one can. It’s way too personal. But, under no circumstances would I suggest that people buy a home in San Diego or a condo in Miami at this time.

    “If it is dropping by 20% and you get nothing in return on your investments on a relative basis you are ahead by 20%.”

    If you were collecting $2000 per month in rent and your expenses were $1000, then you are still getting something. And, when rents are rising, as we see now, you have more security as an investor because your tenant will want to stay. And, if they leave you will draw froma bigger and better pool of renters.

  49. “With rocks spelled out on your lot waiting for a passing biplane to relay the message to the telegraph office?

    Posted by: Robert Cote | Nov 4, 2006 6:20:36 PM”

    Yes, Robert. Now, go get a cookie.

  50. ken says:

    ‘Woody Allen: “I managed other people’s money until they didn’t have anymore.”‘

    yeah, that is what scares me and one of the reasons I like to visit this site to see what the bears are saying.

    So I diversify, employ risk management techniques and pick only stocks that go up. My riskiest position is a very small position in MLS. It could end up that I lose about $5 a share or I could make $50, soon.

    I wonder, Larry, if you have any opinion on Mills?

  51. “So is the risk of loss greater than the reward of housing market gains right now? Can you put a risk/reward ratio on that Larry?”

    There are and have been periods, in certain markets, mor favorable for buying and for not buying. Agreed.
    But, do you want to be selling when everyone is selling and buying when everyone is buying?

  52. Charlie Stromeyer says:

    To see a high correlation between builders’ sentiment and the stock market I highly recommend that you all read this bearish article:

    http://biz.yahoo.com/weekend/ecslump_1.html

    The latest issue of BusinessWeek has a more bullish tone in its Business Outlook section.

  53. My opinion on Mills is: I don’t have a clue as to their management abilities to manage a portfolio in several sectors, spread out over many states in two countries.

  54. DavidB says:

    “So is the risk of loss greater than the reward of housing market gains right now? Can you put a risk/reward ratio on that Larry?”

    No. No one can. It’s way too personal. But, under no circumstances would I suggest that people buy a home in San Diego or a condo in Miami at this time.

    First of all, I believe everything is quantifiable. I just believe we or even our greatest supercomputers don’t have the capacity to be able to quantify everything that is out there.

    You did just quantify the risk reward but you didn’t put a number on it. You believe San Diego and Miami are too much risk for the potential reward.

    So if I put a 50K Down payment on a house in San Fran right now what percentage chance would you expect for that money to

    a)double?

    b) go away?

    “If it is dropping by 20% and you get nothing in return on your investments on a relative basis you are ahead by 20%.”

    If you were collecting $2000 per month in rent and your expenses were $1000, then you are still getting something. And, when rents are rising, as we see now, you have more security as an investor because your tenant will want to stay. And, if they leave you will draw froma bigger and better pool of renters.

    You’re being myopic Larry. You are still getting something but the question you have to ask yourself is that $1000 net generated as much as I could generate with my capital if I put it all in, say, T-Bills, dividend stocks, gold bullion or even turning those dollars into euros. These are the questions that are being asked every day by people who have a hot dollar in their hands and are looking for something (hopefully productive) to do with it.

    It isn’t just about housing. Remember that before the housing boom a lot of those dollars were in the Nasdaq

  55. ken says:

    Larry, yeah that is the reason the stock has declined so much: lack of confidence in the management after some questionable accounting was revealed. I am betting that the new management can build back shareholder value on the premier asset base already in place.

  56. No, David, the housing “boom” in this cycle started in early 1997.

    No doubt that if someone bought a house and it dropped $20,000 and they had to sell earlier than planned then they will have a problem.

    But, since the bubble warnings started in 2000 (WSJ March, 2000) anyone who sold would have missed a great opportunity for wealth creation by being a renter and posting from their bunker.

  57. donna says:

    I think Ken ought to buy everyone’s house right now, since they are all such great deals!

    Really, most of us do buy a home to live in, not as an investment, which I think is Ken’s point. But, now isn’t the time, Ken. People are far better off renting for a bit longer than buying right now.

    Really.

  58. DavidB says:

    But, do you want to be selling when everyone is selling and buying when everyone is buying?

    No, I am a contrarian by nature. I want to be buying when the crowd is screaming at it and selling when the crowd is screaming for it.

    Right now the crowd is just beginning to fall out of love with the asset but because it is such a big slow moving beast there is still time for people to get out at what I believe is the top(it’s close enough if you ask me). It would have been much wiser to do it six months to a year ago though. Now there is more risk.

    When it comes to trends, the crowd is usually right….except in the extremes. That’s when you don’t want to be hanging with them. You want to be figuring out where they are headed next

  59. “Right now the crowd is just beginning to fall out of love with the asset but because it is such a big slow moving beast there is still time for people to get out at what I believe is the top (it’s close enough if you ask me).”

    Not according to WSJ polls.

  60. Listening to Allman Brothers “Live at the Fillmore” (1971) and not worrying about a housing bubble….

  61. DavidB says:

    The housing boom may have started in 1997 but a lot of the fuel that fed it were profits from sales in tech and other stocks. The second leg of the boom definitely didn’t kick into overdrive until people were utterly fed up and disillusioned with the tech bust and were looking for places to invest their ‘savings’

  62. wcw says:

    Ken, questionable accounting, you say. Not having a 10K or Q for a year kinda irks me. You may be right on your blue-sky upside, but I wouldn’t bet on your black-monday downside being a five-dollar loss. If absolutely everything goes wrong, your downside is always $0. More power to you for taking the risk; now that the dividend has been cut, the market price may be a fair risk-return bet. I don’t know well enough to say, and the absence of filings makes it impossible for me to find out.

    Larry, prices started rising in 97Q2 and have risen steadily and hard since. However, for-sale-only vacancies did not budge from their ~1.5% level for years, and did not crack 2% until 2005. Those of us who believe in listening to what the market is telling us started getting bearish on property markets when the markets started telling us that prices were no longer clearing inventories — last fall.

    If you’d shorted homebuilders last fall, despite their rally off this summer’s low’s, you’d still be up ~35% in less than a year.

    Please to note, I rented my delightful SF apartment in April, 2005. Call me lucky, but don’t tell me what I was posting from what bunker in 2000. In 2000, housing inventories were normal and I was busy buying tech-stock puts.

  63. “The housing boom may have started in 1997 but a lot of the fuel that fed it were profits from sales in tech and other stocks. ”

    Not in my opinion. (no disrespect). It was tax legislation. Once passed and retoractive (a few months) we were on our way. It has been posted here on this site last month when I first brought it to Barry’s attention.

  64. http://photos1.blogger.com/blogger/7601/3275/1600/house_his.0.gif

    Look at the incredible rise in Housing values since about 1997. Of course, it was back in May of that year when Clinton’s tax law changes favoring the treatment of capital gains on one’s primary residence took hold.

  65. DavidB says:

    where did all the cash from those stock sales go to then when the nasdaq was plus 4000? It didn’t go into people’s savings. There was billions of volume in the market back then, much of it came out of the market and not all of it was bought on margin. It had to have gone somewhere. It didn’t all go to China. Also contributing was low interest rates

  66. wcw says:

    Correlation is not causation, especially looking at the wrong data.

    I have heard the argument before, and understand its appeal. It does not, however, congrue with the facts. Despite the price rise starting in ’97, housing affordability by traditional measures did not change. Incomes were going up and rates down, so as a result, house payments were pretty flat compared to families abilities to pay.

    The real acceleration versus incomes and rates has all taken place since 2003. Worth noting is the result: homeowner financial obligation ratios have taken off. The Fed doesn’t just make those numbers up. Something changed, and it wasn’t in ’97. It was in ’03.

  67. wcw: good point on your part…(I tend too simplify things, which is me)

    “where did all the cash from those stock sales go to then when the nasdaq was plus 4000?”

    1999/2000: too much stayed in as the market lost 7 trillion in value 2 years later. And, most didn’t take money out in 1997-1999.

    NASDAQ didn’t explode until 2000

  68. until last quarter of 1999. Sorry

  69. ECONOMISTA NON GRATA says:

    I’m confused… Is this kinda like the old Alka-Seltzer ad…. “New York… BUY!… Chicago…. SELL! oh Boy I need an Alka-Seltzer.”

    “That’s one ah-spicee ah-meataball….”

  70. DavidB says:

    I was there, I have the t-shirt Larry so I won’t belabor the point. We’ll just have to disagree

  71. Michael C. says:

    >>>For somone buying for a place to live and raise a family it shouldn’t matter that prices fall a bit, they will always recover and go even higher. Always. <<<

    Ken, it’s called inflation. That’s all. After accounting for depreciation and transaction costs and inflation, few homes show any significant profits long term.

    So yes, nominal prices may always recover. But at the same time while you are being pragmatic and realistic, you also have to admit that 30% of people taking short term loans in 2005 while real estate was at a parabolic top may not recover for quite some time. If they recover in 10-15 years, you may eventually be right. But that’s 10-15 years which people don’t recognize and most likely aren’t being told by realtors.

  72. Posted by: Michael C. | Nov 4, 2006 7:43:19 PM “few homes show any significant profits long term.”

    Yikes, the war is over son, come home….
    *he won’t come out of there, captain*

  73. muckdog says:

    Boy, nothing gets a comment thread going like politics or real estate!

    Interest rates are still low for locking in a long-term rate. I realize that the folks who can least afford a home were getting in on adjustable teaser rates that were really low, but who do we blame for that?

    Also, you forgot to mention another reason to buy real estate: They’re not making any more land!

  74. Si says:

    Money management 101- The higher your returns, the more risk you are taking on.

    Home prices have been on such of a tear in the last decade that a cycle down for a while is completely natural. I find it amazing that people have been buying the things as investments and to ‘make money’ and those same people are now complaining that they are, heaven forbid, going down in price. I foresee more of this, ‘its a home it should not go down in price’ kind of talk. Were they saying this when they were buying a 2nd, 3rd home they didn’t need because it was a great investment. I feel for young families etc at the moment, who just want a home as they are being unfairly effected.
    Crazy low interest rates from the fed have created the problem. Who knows what those guys are on. Yeah, yeah they were trying to prevent a recession, another completely natural part of free markets.

  75. Mark says:

    “Hood, maybe Ken should have said since 1930 to make you happy, since the median price of a home has never had a down year (nationally) since they kept records.”

    “All markets run in their own cycles making them truly local….”

    contradict yourself much Larry?

  76. No Mark. I invest in two markets, only: Phoenix and Bay Area. Everything I post is from my own experience or from people I know first hand in these two markets. As such, I could care less what the condo market in Miami is doing. It makes no difference to me in Phoenix.

  77. MTHood says:

    Mark and others,

    It’s not worth it. We’ve been Nusbaumed (with aid from Ken the Boy Wonder).

    This post began with Barry observing that the NAR statement is absurd on its face: it is a great time to both buy and sell.

    Ken corrected Barry with “The thing about real estate is that it really is a sure bet. Buying a home, even at a short term top, will always be profitable . . .”

    The resulting madness attracted Nusbaum to the flame and it’s been 60 down hill posts from there.

    Nusbaumed.

  78. Mark & MTHood, posting from their bunkers, that they pay very high rent for, hating to hear the views of anyone who doesn’t share their awful view of everything. Good luck. You’ll be up for fresh supplies in 2-3 years….

  79. Mark says:

    “I invest in two markets, only: Phoenix and Bay Area.”

    right, so you invest in 2 markets on the basis that “the median price of a home has never had a down year (nationally) since they kept records.”

    makes sense-

  80. right, so you invest in 2 markets on the basis that “the median price of a home has never had a down year (nationally) since they kept records.”

    Not on the basis of my two markets, dopey, but on the basis of fact. Maybe this year you will get your wish and it will go down….

  81. wcw says:

    Never confuse brains for a bull market (both PNG).

    Good for you for making bank, Larry. Now look at the charts and thank your lucky stars for your timing.

  82. Jim Bergsten says:

    Those investing in the Bay Area might want to consult this:

    http://www.viewfromsiliconvalley.com/id276.html

    p.s. My favorite phrase in the ad is: “interest rates are comparable to.” Isn’t this just wonderful? Anything is “comparable” to anything else. When did “comparable” morph into “equal or better than”?

    p.p.s.s. My runner up is: “Now is a great time to buy or sell a home.” The same one? Maybe this isn’t a pitch to homeowners, it’s a pitch to prospective realtors, umm, real estate agents (realtor is a registered trademark of blah blah blah).

  83. whipsaw says:

    Wow, I count 24 posts by Larry in four hours (out of 72 total in the thread). That’s one every ten minutes for half of a workday- impressive! All the more impressive in that I don’t think that any of them pertained to BR’s original point that NAR had launched an ad campaign around a set of falsehoods to support the absurd notion that it is a perfect time to either buy or sell the same asset- it can’t be both, now can it?

  84. brion says:

    with apologies to Larry but, “Best post in thread” award goes to……MtHood for
    the Nusbaum/Wild Thing homage….

  85. my1ambition says:

    In regard to all those trying to figure out if they should sell, Warren Buffett would say that if you have to consider whether or not to sell, it probably wasn’t a good purchase. Basically, you were late to this ball game.

    For all those buyers/contrarians who are trying to figure out whether we’ve hit rock bottom, I think we can agree that its definitely not time to buy. Remember, it’s when all hope is lost, that’s when we buy.

    Now that Real Estate won’t be “bouncing” back anytime soon, any suggestions for the address of the next party?

  86. Eclectic says:

    Group of vultures:

    Vulture #1: “You ass-HOLE!”
    Vul2: “Whaaya mean, ME!”

    (chorus of other vuls): “Yeah, you stupid peckerwood!… you tell him, Vul1!…. Jerk!”

    Vul1: “Cause we listened to you… yeah, ‘there’ll be FAT pickins’ ‘ he said. ‘Just wait!’ he tells us.
    Vul2: “But it looked like… but… bu….”
    Vul1: “Shaddup you stupid-assed buzzard! We can’t eat roofin’ shingles, now can we?”

    (chorus): “That’s right… we’re HUNGRY… you screwed us number 2! Now, we ain’t got chickenshit to eat!”

    Vul1 (mocking to Vul2): “Good time to buy!… good time to sell!… ninny-ninny-ni!, ninny-ninny-ni!”

    [Vul2 flaps and then flys for his life, all the while his fellow vuls are on his ass like a duck on a junebug, or like crows on a hawk.]

  87. Eclectic says:

    Eclectic says:

    …Until you can demonstrate to me real tangible macroeconomic dislocation from a supposed housing and/or real estate bust,

    ……all your talk is just vulture flapping.

    I’ve never seen such confusion about the comparison of two asset classes (stock equity and real estate) that have but little relationship to each other over time. To hear some of you, it would make one think you are camped out under a tree in a rainstorm, laying there soaking wet and cold and scolding the fools who are inside, warm and cozy… but simply underwater on their real estate equity.

    Yes, real estate always goes up…. always. But, equally true: there are always fools who lose money making the very assumption that it always goes up.

    Now, I happen to think that there will be a macro dislocation from a slow-down in housing (that probably will come through employment effects and durable goods, etc.), but until I see it, I’m going to sit quietly sose nobody will recognize me as a stealth buzzard.

  88. my1ambition says:

    and in the meantime?

  89. Eclectic says:

    My1,

    The economy right now is much like the purring engine, transmission and tire sounds of an automobile laboring in hill country… We are all much like a blindfolded man in that car who would hear the straining engine and interpret where we are in relationship to the topping of a hill.

    However, being blindfolded, we can not know if a long valley is ahead or a higher hill is yet to come.

    Housing is one of those sounds… employment is another… market P/E expression is probably the loudest.

    I don’t want to be a blindfolded buzzard.

  90. my1ambition says:

    now would you agree that gold (or any justified commodity for that matter) just may be a “safe-haven” for ‘investors’ (not speculating “blindfolded-buzzards”) who are just looking for some shade until the storm heads out?

  91. And I would be a buyer of the right house, int he right town, at a reasonable price.

    See Don’t Buy Housing Bubble Propaganda

  92. Eclectic says:

    My1,

    I can’t offer you any suggestions as to the merits of any particular investment as being a safe haven.

    I’ve never claimed that gold is or is not a good investment… only that it does not serve as a good ‘instrument of money’ for a modern economy.

    For something to be a true safe haven, it would also have to have all the other best attributes of philosophical money, and none of the bad.

    The two most important are: being easily divisible, and being readily acceptable or negotiable (remember, handing a gas station attendant, in Atlanta on Sunday afternoon, a gold coin or tad of bullion is likely to cause more confusion than the gas you’ll buy is worth, if you get any gas). I mean, any even slight delay in acceptance, divisibility or negotiability would violate your requirements for a perfect safe haven hedge, right?

    The two worst attributes are: fiat risk over time, and exchange rate risk vrs. other commodities in real time (thus a core risk to its most desired safe haven attribute). Gold solves the fiat risk component, but not the exchange rate risk.

    The most superior storehouses of wealth are the only two permanent ones in which abstracted wealth is stored; inherent commodities and pure intellect.

    And, this brings us to a partial understanding of the very subtle similarity that an individual’s own house shares with inherent commodities (inherent commodities are products of attained infinite productivity in terms of human perception). A house lived in (whether fully paid-for or not) provides a degree of attained infinite productivity to its owner, in terms of human perception… and the value of that attained infinite productivity does not fluctuate to any degree of concern for its owner, no differently than he might worry about the value of his skin.

    He continuously both produces value from the house and consumes it… all with the passing values having no means of monetary expression.

    A contented owner does not sweat the possibility that 100 bidders may assemble in his doorway and bid down his equity. In a sense, that equity has attained infinite productivity and its value is impervious to being marked-to-market.

    This occurs philosophically in the same sense that one experiences true inherent commodities… like gravity, sunlight, air and other priceless but un-priceable commodities.

    I’ve just described to you philosophically (if you’ll accept it and recognize it) why everone’s expectations for a housing bust may not play out quite like they perceive it will.

  93. fred hooper says:

    “philosophical money”
    Huh?

    “A contented owner does not sweat the possibility that 100 bidders may assemble in his doorway and bid down his equity. In a sense, that equity has attained infinite productivity and its value is impervious to being marked-to-market.”
    Unless, of course, the perceived value is thought of as a future retirement account.

    “exchange rate risk vrs. other commodities in real time”
    Let’s review this in 2 or 3 years when gold is over $1,000/oz. and real estate is down 50%.

    “expectations for a housing bust”
    Affordability is not a factor? The housing ponzi scheme can continue forever? Whoopee.

    Sorry Eclectic, but philosophically, I’m going back to bed now.

  94. Eclectic says:

    Don’t worry, BR, I’m not claiming you’re a housing buzzard.

    No, you’re probably a bower bird if your writing reflects your personality:

    http://en.wikipedia.org/wiki/Bowerbird

    Jiss fer fun… go ask Mrs. Big Pic.

    Bet I’m right.

  95. DavidB says:

    A contented owner does not sweat the possibility that 100 bidders may assemble in his doorway and bid down his equity. In a sense, that equity has attained infinite productivity and its value is impervious to being marked-to-market.

    You are leaving out the admittedly remote threat that government poses to that impervious value via their unlimited ability to charge and raise rent….I mean property tax

  96. Eclectic says:

    DavidB,

    I’m sticking to my concept of the attained infinite productivity of one’s own house, and that such productivity imparts an un-priceable value to that house… that is impervious to marking-to-market.

    And, so will you when you take the time to ponder it philosophically.

    I mean by “attained infinite productivity” that once the commodity has attained this status, its value can not be improved, nor can its utility be exceeded. And, no to you wiseacres… I don’t mean the house that can’t be added onto with a new bedroom or family room.

    Who enjoyed and c-o-n-s-u-m-e-d more value from their own house last night?… me from mine or Bill Gates from his?… you or Bill Gates? BR or you?… or Rip Van Fred, our somnambulating, house-401k-ing friend of yester-post?

    It’s a question of the perception of value, a very often intangible thing in terms of monetary expression.

    Warren Buffett has sung this song in almost every interview he’s given recently, and so has the most recent co-winner of the latest Nobel Price in Economics:

    http://nobelprize.org/nobel_prizes/economics/laureates/2000/mcfadden-autobio.html

    http://nobelprize.org/nobel_prizes/economics/laureates/2000/mcfadden-lecture.pdf

    I don’t know McFadden (not that I would have a reason to know him) and haven’t studied his work, but I’ve experienced his philosophy of value when they interviewed him about his prize.

    He has an incredibly refined philosophical concept of wealth.

  97. Jay R says:

    LOW RATES. COMPETITIVE PRICES. GREAT OPPORTUNITY.

    It’s the National Association of Home Builders new marketing campaign:

    http://www.nbnnews.com/NBN/issues/2006-10-30/Front+Page/index.html

    …from the new home builders and every bit as good as the REALTORS campaign!

  98. Eclectic says:

    In an earlier post I correctly identified a co-winner of the Nobel Prize in Economics in 2000, Mr. McFadden.

    However, I erroneously credited his win to “the most recent” year prize.

    I regret the error.